As filed with the Securities and Exchange Commission on June 10, 1999
Registration No. 333
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CAVION TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
Colorado 514191 84-1472763
(State or other (Primary North American (I.R.S. Employer
jurisdiction Industry Classification Identification No.)
of incorporation) System Number)
7475 Dakin Street, Suite 607
Denver, Colorado 80221
(303) 657-8212
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
DAVID J. SELINA
President and Chief Executive Officer
Cavion Technologies, Inc.
7475 Dakin Street, Suite 607
Denver, Colorado 80221
(303) 657-8212
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
----------------
Copies to:
S. LEE TERRY, JR., ESQ. JOHN G. HERBERT, ESQ.
CYNTHIA R. CAIN, ESQ. John G. Herbert P.C.
Gorsuch Kirgis LLP 1675 Larimer Street, Suite 310
Tower I, Suite 1000 Denver, Colorado 80202
1515 Arapahoe Street (303) 534-0522
Denver, Colorado 80202
(303)376-5000
----------------
Approximate date of commencement of proposed sale to the public: as
soon as practicable after this Registration Statement becomes effective.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount
Title of Each Class Amount to Offering Aggregate of
of Securities to be be Price Per Offering Registration
Registered Registered Share(1) Price(1) Fee
1,380,000 $0.0008 $10,497,254 $2,918.26
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Class A common stock,
$.0001 par value
per share ("common
stock")(2) 1,380,000 $6.75 $9,315,000 $2,589.57
Representative's
Warrants(3) 120,000 $0.0008 $100 $0.03
Common stock issuable
upon exercise of
Representative's
Warrant(4) 120,000 $8.10 $972,000 $270.22
Convertible preferred
stock, Series A,
convertible into
one share of common
stock ("preferred
stock")(5) 700,000 $0.0001 $70 $0.02
Common stock issuable
upon conversion of
the preferred
stock(6) 700,000 $0.0001 $70 $0.02
Agent's Warrant(7) 70,000 $0.0001 $7 $0.01
Preferred stock issuable
upon exercise of
the Agent's Warrant(8) 70,000 $3.00 $210,000 $58.38
Common stock issuable
upon conversion of
preferred stock issued
upon exercise of
Agent's Warrants(9) 70,000 $0.0001 $7 $0.01
Total -- -- $10,497,254 $2,918.26
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Includes 180,000 shares of common stock which the underwriters have
the option to purchase to cover over- allotments, if any.
(3) Representative's warrants to be sold to the representative.
(4) Underlying shares of common stock issuable upon exercise of
representative's warrants. This Registration Statement also covers
such additional number of warrants as may become issuable upon
exercise of the representative's option by reason of anti-dilution
provisions pursuant to Rule 416.
(5) Each share of preferred stock is convertible into one share of common
stock.
(6) Underlying shares of common stock issuable upon exercise of preferred
stock.
(7) Agent's warrant issued to the agent for the Company's February 8,
1999 private placement of preferred stock convertible into common
stock.
(8) Underlying shares of preferred stock issuable upon exercise of
agent's warrant.
(9) Underlying shares of common stock issuable upon exercise of preferred
stock underlying agent's warrant.
Subject to completion, dated June 10, 1999
PROSPECTUS
1,200,000 Shares
cavion.com
Common Stock, $.0001 Par Value
- -------------------------------------------------------------------------
This is our initial public offering of shares of common stock. Of the
shares of common stock being offered, 1,200,000 are being offered by us
and 700,000 shares will be offered no earlier than nine months after the
date of this prospectus by those shareholders named under "Selling
Shareholders" after conversion of their shares of preferred stock. We
will not receive any of the proceeds from the sale of shares by the
Selling Shareholders.
No public market currently exists for our common stock.
We will list the shares on the Nasdaq SmallCap Market under the symbol
"CAVN."
Anticipated Price Range is $6.00 to $7.50 per share.
Investing in shares of our stock involves risks.
Risk Factors begin on page 5.
<TABLE>
<CAPTION>
Per Share Total
----------- --------
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to cavion.com $ $
Proceeds to Selling Shareholders $ $
</TABLE>
We have granted the underwriters a 45-day option to purchase up to 180,000
additional shares of common stock on the same terms and conditions to
cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Neidiger, Tucker, Bruner, Inc., as representative of the underwriters,
expects to deliver the shares against payment on or about ,
1999.
- -------------------------------------------------------------------------
NEIDIGER/TUCKER/BRUNER
Incorporated
, 1999
The information in this prospectus is not complete and may change. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
[INSIDE COVER OF PROSPECTUS]
Picture of Public Service Credit Union Website page
Welcome to your Credit Union
Options to select:
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o Home Banking (with picture)
o Golden Flame Club (with picture)
Providing Directions for your Financial Future
[Logo] Public Service Credit Union
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
RISK FACTORS 5
USE OF PROCEEDS 17
DIVIDENDS 17
CAPITALIZATION 18
DILUTION 21
SELECTED FINANCIAL INFORMATION 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 26
OUR BUSINESS 34
MANAGEMENT 44
EXECUTIVE COMPENSATION 48
EQUITY INCENTIVE PLAN 50
PRINCIPAL SHAREHOLDERS 53
DESCRIPTION OF CAPITAL STOCK 55
SHARES ELIGIBLE FOR FUTURE SALE 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 60
THE SELLING SHAREHOLDERS 66
PLAN OF DISTRIBUTION 70
UNDERWRITING 71
ADDITIONAL INFORMATION 75
REPORTS TO SECURITY HOLDERS 76
EXPERTS 76
LEGAL MATTERS 76
INDEX TO FINANCIAL STATEMENTS 77
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different
from that contained in this prospectus. We are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this
offering. Among other things, this preliminary prospectus describes our
company as we currently expect it to exist at the time of this offering
and changes may occur that we don't presently expect.
See the section of this prospectus entitled "Risk Factors" for a
discussion of certain factors that you should consider before investing in
the common stock offered in this prospectus.
Until , 1999, all dealers selling shares of the
common stock, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the obligation
of dealers to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
PROSPECTUS SUMMARY
This summary highlights information that we present more fully in the
rest of this prospectus. The summary does not contain all the information
you should consider before buying shares in this offering. You should
read the entire prospectus carefully.
Our Company
-----------
cavion.com is the trade name for our company, Cavion Technologies,
Inc. We are an Internet service provider specializing in Internet-related
products and services for the credit union industry. Our products and
services, which utilize our proprietary software, include a secure credit
union network, secure Internet financial products and secure Internet
access. As of the date of the prospectus, 35 entities in the credit union
industry have subscribed to our network. Through our affinity program, we
plan to offer additional goods and services to credit union members via
our credit union customers' websites, including long distance telephone
services, new vehicle transactions, retail internet service provider
services, consumer products and insurance products, among others. We
market our products and services to credit unions located in key
geographic areas across the United States that we have selected due to
their high concentration of credit unions. On February 1, 1999, we
purchased the business of a company called LanXtra, Inc., a Colorado
corporation ("LanXtra"), which began this business on January 1, 1998. In
this prospectus, when we refer to our company or our business, we are
referring to it as it has been conducted by us and, before us, by LanXtra.
(See "Our Business - Company History.")
Our principal executive offices are located at 7475 Dakin Street,
Suite 607, Denver, Colorado 80221. Our telephone number is 303-657-8212.
We were incorporated in Colorado in 1998.
The Offering
------------
Common stock offered by cavion.com 1,200,000 shares
Common stock to be outstanding after
this offering 4,606,326 shares
Use of proceeds We estimate that we will receive
proceeds from this offering of
approximately $6.8 million or $7.9
million if the underwriter
exercises its over-allotment
option in full. We expect to use
the proceeds to purchase equipment
and infrastructure, to establish
new points of presence, for sales
and marketing activities, to pay
certain debts and accounts
payable, for working capital and
possibly to pay for the put or
call of shares of our Class B
common stock. (See "Use of
Proceeds.")
Proposed Nasdaq Small Cap Market Symbol CAVN
The calculation of common stock to be outstanding after this offering
is based on shares outstanding on June 9, 1999 and includes the automatic
conversion of 700,000 shares of our Series A preferred stock upon
consummation of this offering. It excludes:
o 403,500 shares of common stock issuable upon exercise of options
outstanding under our Equity Incentive Plan, none of which are
exercisable today. (See "Equity Incentive Plan").
o An additional 346,500 shares available for issuance under our
Equity Incentive Plan. (See "Equity Incentive Plan").
o 28,648 shares of Class B common stock which will be converted
into Class A common stock 30 days after we have 100 credit union
industry customers on our network if neither the put or the call
have been exercised prior to that date. (See "Description of
Capital Stock").
o 70,000 shares of Series A preferred stock issuable upon exercise
of the placement agent's warrant issued in our 1999 private
placement, which preferred shares are convertible into common
stock. (See "Description of Capital Stock").
o 180,000 shares of Class A common stock issuable upon exercise of
the underwriter's over-allotment option. (See "Underwriting").
o 120,000 shares of Class A common stock issuable upon exercise of
the representative's warrant. (See "Underwriting").
Summary Financial Information
-----------------------------
The following tables contain our summary financial data. These
tables do not present all of our financial information. You should read
this information together with our financial statements and the financial
statements of LanXtra and the notes to those statements beginning on page
F-1 of this prospectus and the information under "Selected Financial
Data," "Pro Forma Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
cavion.com
Period from Pro Forma
August 18, Combined
LanXtra 1998 Year Ended
Year Ended (Inception) to Pro Forma December 31,
December 31, December 31, Adjustments 1998
1998 1998 (Unaudited) (Unaudited)
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Statement of
- ------------
Operations
- ----------
Data:
- -----
Revenue $ 215,022 $ -- $ -- $ 215,022
Cost of Revenue 222,419 -- -- 222,419
Operating Expenses 1,117,892 6,877 914,146 2,038,915
Operating Loss (1,125,289) (6,877) (914,146) (2,046,312)
Interest expense,
and other 845,213 29,067 (584,480) 289,800
----------- ---------- --------- -----------
Loss from
continuing
operations $(1,970,502) $(35,944) $(329,666) $(2,336,112)
=========== ========== ========= ===========
Basic and diluted
net from
continuing
operations per
share $(7.66) $(.02) $(.77)
===== ==== ====
Weighted average
common shares
outstanding -
basic and
diluted 257,319 2,078,170 3,029,218
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Combined
cavion.com Three
LanXtra Three Months
One Month Months Ended
Ended Ended Pro Forma March 31,
January 31, March 31, Adjustments 1999
1999 1999 (Unaudited) (Unaudited)
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Statement of
- ------------
Operations
- ----------
Data:
- -----
Revenue $ 37,850 $ 66,539 $ -- $ 104,389
Cost of Revenue 31,898 41,443 $ -- 73,341
Operating Expenses 213,311 609,609 79,388 902,308
Operating Loss (207,359) (584,513) (79,388) (871,260)
Interest expense,
and other 64,069 73,656 (52,932) 84,793
--------- ---------- -------- ----------
Net Loss $(271,428) $ (658,169) $(26,456) $ (956,053)
========= ========== ======== ==========
Basic and diluted
net per share $(1.06) $(.23) $(.32)
Weighted average
common shares
outstanding -
basic and
diluted 256,464 2,875,879 3,032,978
========= ========== ==========
</TABLE>
The following table is a summary of our balance sheet data. The pro forma
as adjusted column reflects our receipt of the estimated net proceeds of
the shares of common stock we are selling in this offering at an assumed
initial public offering price of $6.75 per share, after deducting
estimated underwriting discounts and expenses.
<TABLE>
<CAPTION>
Pro Forma
Pro Forma As Adjusted
cavion.com Adjustments March 31, 1999
March 31, 1999 (Unaudited) (Unaudited)
-------------- ----------- --------------
<S> <C> <C> <C>
Balance Sheet Data:
- -------------------
Current Assets $1,241,069 $6,825,000 $8,066,069
Total Assets $6,353,661 $6,825,000 $13,178,661
========== ========== ===========
Current Liabilities $1,788,418 $ -- $1,788,418
Long-term Borrowings 400,593 -- 400,593
Putable Stock 172,816 -- 172,816
Stockholders' Equity 3,991,834 6,825,000 10,816,834
---------- ---------- -----------
Total Liabilities and
Stockholders' Equity $6,353,661 $6,825,000 $13,178,661
========== ========== ===========
</TABLE>
RISK FACTORS
You should carefully consider the following factors and other
information in this prospectus before deciding to invest in shares of our
common stock. An investment in this offering involves a high degree of
risk. The risks identified below are not the only risks we face.
We have a short operating history
- ---------------------------------
Our business plan was developed in January 1998 and we began
acquiring credit union customers, other than our original pilot customers,
in April 1998. Accordingly, we have a limited operating history upon
which you may evaluate us. We face the risks and uncertainties faced by
early-stage companies. Our short operating history makes it difficult to
predict our future financial results. Today, we receive our revenue from
the license and sale of products and services to our credit union
customers. We may not be able to continue to generate revenue at the
current level, or increase that level. If we don't, our business,
financial condition and operating results will be materially and adversely
affected.
We have incurred losses
- -----------------------
To date, we have not been a profitable business. We may never
achieve profitable operations. Even if we do become profitable, we may
not be able to continue to be profitable. Combined with LanXtra, we
reported a total loss of $2,006,446 for the year ended December 31, 1998,
comprised of a $35,944 net loss for Cavion and a net loss of $1,970,502
for LanXtra. We reported additional combined losses of $956,053 for the
three months ended March 31, 1999. We expect to continue to report losses
for the foreseeable future. Our short operating history makes it
difficult to predict our future operating results, including our operating
expenses. Our revenues have grown since the start of our business but it
may not continue to grow or even continue at their current level. Because
some of our expenses are fixed, including equipment leases and real estate
leases, if our revenues do not increase, we may not be able to compensate
by reducing our expenses as much or as quickly as we need to do. In
addition, we plan to significantly increase our spending by:
o purchasing infrastructure and equipment
o expanding our sales and marketing operations
o broadening the geographic scope of our operations
It is possible that our operating losses will continue at present
levels or even increase in the future. Our business, our financial
condition and the results of our operations will be materially and
adversely affected if we can't quickly adjust our operating expense levels
to match our revenue levels, which we might not be able to do. (See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Our Business").
Our quarterly and annual results may vary
- -----------------------------------------
Our quarterly and annual operating results may vary over time due to
many factors including:
o our plan to increase operating expenses to expand our product
development, our sales and marketing activities and the
geographic scope of our operations
o the timing and extent of market acceptance of our products and
services
o general market conditions
o competition
o system downtime or technical difficulties that affect our
operations or the Internet in general
You should not rely on quarter-to-quarter comparisons of our operating
results as an indication of future performance. It is possible that, in
some future periods, our actual results may be lower than the expectations
of public market investors and analysts. If this did occur, the price of
our common stock would probably go down.
We are counting on continued market acceptance of our products and
services
- ------------------------------------------------------------------
The market for Internet-based network financial services is new and
uncertain. To date, our products and services have been sold to credit
unions located in Colorado and nine other states. While we are now
marketing our products and services across the country, no one can be
certain that they will sell as well in the new markets as they have in
Colorado. The market for Internet-based financial services has only
recently begun to develop, so market demand for our products and services
is uncertain. Important questions remain about the use of the Internet
for financial services, such as security, reliability, ease of access,
cost of access, quality of service and costs of service. The answers to
those questions may affect the growth of Internet use in ways we can't
predict today. As a result, we also can't accurately predict the size of
the market for Internet-based financial services or the rate at which that
market will grow. If it fails to grow or grows more slowly than we
expected, or if it becomes saturated with competitors, our business,
financial condition and operating results will be materially and adversely
affected. Our future success depends on our ability to design, develop,
test, sell and support improved versions of our current products and new
software products in time to respond to changing customer needs. We will
also need to respond to actions taken by our competitors, to technological
developments and to emerging industry standards. (See "Our Business -
Products and Services").
We face risks associated with Internet communications and system security
- -------------------------------------------------------------------------
Our business requires us to transmit confidential information over
public networks in a secure manner. People may attempt to breach our
security to steal confidential information or to damage our operations.
Security breaches could damage our reputation and expose us to liability.
Like all networked computers, our servers may be vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions. These
problems could lead to interruptions, delays or loss of data. We believe
that our network security measures provide a level of protection which is
reasonable and appropriate for the risks of our business, but the risk of
security breaches can never be totally eliminated. We expend significant
capital and other resources to protect against security breaches. If such
a breach occurs, significant additional resources may be required to
respond to it. A failure to prevent security breaches may have a material
adverse effect on our business, our operating results, and our financial
condition.
Our market is highly competitive
- --------------------------------
The market for Internet-based financial services is very competitive
and can be affected by rapid technological changes. New competitors can
be expected to enter our market, the credit union network and Internet
service market, and increase competition. We already face competition
from a number of companies which offer software and networking products
and services to the credit union market. We think that, as the Internet
transaction and network services we sell are purchased by more of our
targeted customers, other competitors will enter the market to compete
aggressively with us, including some larger, established companies.
Competition may also increase if there is consolidation in the software
and networking industries, particularly if one or more of our competitors
is acquired by a larger provider of products and services to the banking
industry as a means for the larger company to penetrate the credit union
market. We expect the credit union software and network services market
to continue to attract new technologies and new competitors. It is
possible that some of these new competitors will be able to respond more
quickly to new technologies or changes in customer demands than we can.
They might also be able to put more money, time or effort into the
development, promotion and sale of their products and services than we
can. You cannot be sure that we will be able to compete successfully
against present or future competitors. If we don't, it will materially
and adversely affect our business, our financial condition and our results
of operations. (See "Our Business - Competition").
We are counting on expanding our business
- -----------------------------------------
To date, substantially all our revenues have been derived from
network access and connectivity fees and installation service fees from
our credit union customers. We expect that reliance to continue for at
least the next 18 months, after which we expect to receive revenues from
our affinity program. Our revenue depends on information-technology
spending by credit unions and we can't be sure that this type of spending
will increase as we expect or even continue at today's levels. We do
expect the credit union industry to grow over the next several years,
partially because credit unions have recently been allowed to expand their
membership beyond a single employee group. We think that, as the credit
union industry grows, its demand for information technology products will
also grow. Still, the demand for our products and services is
unpredictable. Our network currently hosts 32 credit unions, two credit
union leagues (one of which provides check clearing services to credit
unions) and one corporate credit union (which provides liquidity services
to credit unions). Our future growth depends on our ability to provide
more services and different kinds of services to our existing and to new
customers. We cannot be certain that we will be able to do that. There
are approximately 12,600 credit unions in the United States with combined
assets of more than $375 billion and approximately 73 million members.
Our success in the near term will depend on our ability to capture a
significant percentage of the credit union services market and to expand
the services we provide to our existing credit union customers. We cannot
assure you we will be able to do so. If we don't broaden our services to
existing customers or if we fail to expand our customer base, or if it
takes too long to do so, it will have a materially adverse effect on our
business, our financial condition and our results of operations.
A small number of customers have accounted for our revenues
- -----------------------------------------------------------
Because of our short operating history, a small number of credit
unions accounted for all of our early revenues. Although we expect that
we will not be reliant on a few customers as our customer base expands, if
we fail to attract a significant number of new customers, it will have a
materially adverse effect on our business, our financial condition and our
results of operations.
Managing our growth may be difficult
- ------------------------------------
We have grown quickly in the past and we expect to continue to grow
rapidly by attracting new customers, adding new products and hiring new
employees. This growth will probably put a significant strain on our
business. To manage our growth, we will have to put new financial and
operating systems in place, and attract, hire and train new employees. We
cannot assure you that our management will be able to effectively or
successfully manage our growth.
We are dependent on telecommunications service providers
- --------------------------------------------------------
In order to provide our Internet-based network products and services
to our customers, we must purchase a large quantity of telecommunications
services from providers of those services. Our financial results
therefore depend greatly on the amount we pay for those services and our
efficiency in using them. In order to obtain the volume we need at a good
price, we may enter into exclusive or semi-exclusive contracts with one or
more telecommunications providers, which would then make us even more
dependent on that provider. Although the amounts we pay for
telecommunications services are passed through to our customers, if one or
more of our telecommunications providers are unable to provide the volume
or level of service required, our ability to carry out our business plan
will be impaired and our business, our financial condition and our results
of operations will be materially and adversely affected. In addition, we
get most of our revenues from recurring sales of our products and
services. These revenues cannot be earned until the telecommunications
provider installs a dedicated telecommunications circuit for our new
credit union customer. This installation can take from one to three
months, or longer in some cases, after we sign up a new customer.
As we grow, the risk of failure of our system increases until we put a
backup system in place
- -----------------------------------------------------------------------
Our business depends on the efficient and uninterrupted operation of
our computer and communications hardware systems. Any system
interruptions that cause our services to be unavailable to our credit
union customers would greatly reduce the attractiveness of our services
and would materially damage our business, financial condition, and
operating results. Substantially all of our computer and communications
hardware is located at a single leased facility in Denver, Colorado, which
has finite backup protection. Our systems and operations are vulnerable
to damage or interruption from fire, flood, power loss, telecommunications
failure, break-ins, earthquake and similar events. We presently do not
have redundant, or backup, systems in separate geographic locations for
our network, nor do we have a formal disaster recovery plan. We do store
copies of critical data from our internal systems and customers' systems,
including the source code of our proprietary software, at a second
location. We carry business interruption insurance which will compensate
us for up to twelve months of actual losses of business income due to
physical loss of or damage to property at our principal facility. This
insurance is limited and may not compensate us for all of our losses. The
design of our network architecture includes some redundancy and disaster
recovery capabilities, but these capabilities will not be available until
we have installed and connected at least one other network server farm
with capacity similar to our Denver facility. We can't predict today when
that second installation will be completed. Despite our implementation of
network security measures, our computer servers may be vulnerable to
computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, or loss of stored
information. The occurrence of any of the foregoing risks could have a
materially adverse effect on our business, prospects, financial condition
and results of operations.
The capacity limits of our network are difficult to predict
- -----------------------------------------------------------
As user traffic on our network increases, we will have to expand and
upgrade our technology, our systems and our network infrastructure. We
may not always accurately predict the rate or the timing of the traffic
increases or the customer demands. If we don't upgrade our network
hardware and software when it is necessary to do so, our business, our
financial condition and our operating results will be materially and
adversely affected.
Our success is dependent on our key people
- ------------------------------------------
We believe that our success will depend on continued employment of
our senior management team, our sales force and our software
professionals, especially our project managers, software engineers and
other senior technical personnel. If one or more members of our senior
management team did not continue in their present positions, our business,
financial condition and operating results could be materially adversely
affected. While we recently lost the services of our former Chief
Executive Officer, Craig Lassen, who resigned in March of 1999 to pursue
other interests, we believe that the current management team is highly
qualified to carry out our business expansion plans. We recently entered
into an agreement with Mr. Lassen under which he will provide consulting
services to cavion.com. We have employment contracts with three key
executive officers, David Selina, Jeff Marshall and Marshall Aster.
Pursuant to the Underwriting Agreement, we have agreed to purchase
$1,000,000 of key man insurance on certain key employees. To date, we
have relied on our direct sales force for sales of our products and
services. We will need to hire more people in sales, customer service and
other areas in 1999 and beyond if we grow as we expect to do. Competition
for qualified people in the Internet services and software industry,
particularly in the network services field, is intense. We compete with
bigger and better financed software and Internet services companies for
these employees. Our future success may depend on whether we can
attract, retain and motivate highly qualified personnel. We can't assure
you that we will be able to do so. Any difficulty or delay in hiring the
people we need will have a material adverse effect on our business, our
financial condition and our results of operations.
We may not be able to protect our intellectual property rights and we may
infringe the intellectual property rights of others
- -------------------------------------------------------------------------
We believe that our proprietary secure communications network, which
we have brought to market before most of our competitors, gives us a
significant competitive advantage in providing Internet-based network
products and services to the credit union market. We rely on copyrights,
trademarks, service marks, non-disclosure agreements, confidentiality
provisions, trade secret laws, and general technical and practical
security measures to protect our rights in our intellectual property. We
can't assure you that these protections will prevent other persons from
using, copying, damaging, or reverse-engineering our products without our
authorization. It is also possible that our competitors will
independently develop their own technologies that are similar to or even
better than ours. We don't have any patents or any patent applications
pending. We expect that trade secret laws will provide some protection
to our intellectual property, but these laws are much less effective in
preventing our competitors from developing their own "copy-cat" versions
of our products. Despite our efforts, there is no guarantee that our
intellectual property rights will be fully shielded against unauthorized
use, copying, or destruction. We have not been involved in a material
intellectual property dispute. Still, we may not be able to prevent or
disprove all claims which might be made in the future to the effect that
our technology infringes or violates someone else's intellectual property
rights. If these kinds of claims are made, even if they are false, they
can be time-consuming and expensive to defend. Also, there is some risk
that future events may cause our intellectual property or that which we
license from others to infringe on the intellectual property rights of
others. Besides the cost of litigation resulting from these kinds of
claims, because we only have a few key employees, it could materially
disrupt our ongoing efforts to grow our business and improve our
technology.
We could be liable for defects in our products or failures in our services
- -----------------------------------------------------------------
We represent to our credit union customers that our Internet-based
network and transactional banking software are secured and protected by
multiple network "firewalls", seven days a week, 24 hours a day, with
electronic monitoring and activity tracking, and industry-standard
software encryption. We believe that these features are an important
factor in convincing credit unions to buy our products and services, and
encouraging their members to use our Internet network systems for their
personal and sometimes sensitive financial transactions.
Although we believe our systems will prevent unauthorized access to
credit union and personal information, it is impossible to eliminate all
risk of unauthorized access. Despite all the measures we have taken, our
products may be vulnerable to physical or electronic break-ins, viruses,
unknown software defects and similar problems. If someone does circumvent
our security measures, that person could copy or review our trade secrets
and/or the private information of our credit union customers and their
members. Such an intruder, or "hacker", could also disrupt our systems
and cause interruptions to our operations. Any such breaches of our
network could cause us to lose customers, and could make us liable for
substantial damages to our credit union customers or their members.
We may face increased government regulation and legal uncertainties
- -------------------------------------------------------------------
Any regulation of the Internet (under new legislation or under new
interpretations of existing laws), could materially and adversely affect
our business, our operating results and our financial condition. There
are an increasing number of laws and regulations pertaining to the
Internet. Legislation in these areas could impair the growth of the
Internet and decrease the acceptance of the Internet as a communications
and commercial medium. This could decrease the demand for our services or
increase our cost of doing business.
We face risks from potential telecommunications regulations. Several
telecommunications carriers are advocating that the Federal Communications
Commission regulate the Internet in the same manner as other
telecommunications services by imposing access fees on Internet service
providers. Any such regulations could substantially increase the costs of
communicating on the Internet. This, in turn, could slow the growth of
Internet use and thereby decrease the demand for our products and
services. Further, changes in government regulation of credit unions
could adversely affect our business.
We bear many of the business risks common to new companies
- ----------------------------------------------------------
Historically, we have not used bilateral service contracts with our credit
union customers, but have relied on our customers' written acceptance of
our written proposal. As a result, many of the terms of our agreements
with early customers are implied from generally accepted business
practices and customs rather than being spelled out in a formal document.
We are currently using a standard service contract with our customers,
including provisions limiting our liability to our customers and their
members. However, we can't be sure that these contractual limitations of
liability would actually protect us from liability for damages. We carry
general liability insurance. We have applied for errors and omissions
insurance and Internet security insurance policies. Even if we do obtain
this insurance at reasonable cost, it may not cover all future claims. If
a large claim is successfully asserted against us, we might not be covered
by insurance, or it might be covered but cause us to pay much higher
insurance premiums or a large deductible or co-payment. Furthermore,
regardless of the outcome, litigation involving customers, credit union
members, or even insurance companies disputing coverage could divert
management's attention and energies away from operations. Any such
litigation could have a materially adverse effect on our business, our
financial condition and our results of operations.
Our business depends on the growth of the Internet
- --------------------------------------------------
The market for our products and services is new and rapidly evolving.
Our business would be adversely affected if Internet usage does not
continue to grow. Internet usage may be inhibited for a number of
reasons, such as:
o infrastructure
o security concerns
o inconsistent quality of service
o lack of availability of cost-effective, high-speed service
If Internet usage grows, the Internet infrastructure may not be able
to support the demands placed on it by this growth, or its performance or
reliability may decline. In addition, websites may from time to time
experience interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, Internet usage, as well
as usage of our services, could be adversely affected. Also, cavion.com
must obtain Internet Protocol addresses from our Internet service
providers. The availability of these numbers may be limited.
Certain existing shareholders own a large percentage of our voting stock
- ------------------------------------------------------------------------
Upon completion of the offering, on a fully-diluted basis, our
directors, executive officers and certain principal shareholders will
beneficially own approximately 53.2% of our outstanding Class A common
stock. If some or all of these various shareholders act together, they
might be able to elect our directors or even determine the outcome of
corporate actions requiring shareholder approval, no matter how other
shareholders vote. This concentration of ownership may have the effect of
delaying or preventing a change in control of our company. (See
"Principal Shareholders").
Year 2000 issues could adversely affect us
- ------------------------------------------
Many uncertainties exist within the computer hardware and software
and electronic networking industries about the changeover from the 1999 to
2000 calendar years. While we believe that our products and services will
comply with Year 2000 ("Y2K") requirements on or before July 1, 1999,
there is still some risk that credit unions will encounter difficulties
with one or more of our products or services because of Y2K issues. The
National Credit Union Administration ("NCUA"), the national regulatory
body for credit unions, has required member credit unions to put a plan in
place to ensure their compliance with Y2K requirements on or before July
1, 1999. There is still risk, however, that Y2K issues will adversely
affect third-party network or application software that is integrated with
our products or even the functioning of the Internet itself. There are
also similar risks of failure from the telecommunications networks, the
electric power grid, and the other systems on which the operation of our
products and the delivery of our services depend. The disruption of these
broader services would have an adverse effect on our ability to provide
our products and services to our credit union customers, and could then
have a material adverse effect on our business, our financial condition
and our results of operations. (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations").
You will bear immediate and substantial dilution
- ------------------------------------------------
Purchasers of shares in the offering will suffer an immediate and
substantial dilution in the net tangible book value of the shares from the
offering price. As a result, our current shareholders will gain an
immediate increase in the net tangible book value of their shares of
common stock in the amount of $6,825,000 or $1.50 per share. Conversely,
as a purchaser in this offering, you will suffer an immediate dilution of
the net tangible value of your shares in the amount of $5.33 per share as
soon as you make your purchase, depending on whether the over allotment
option is exercised. (See "Dilution").
We do not intend to pay dividends
- ---------------------------------
We do not intend to pay dividends on our common stock in the
foreseeable future. Dividends are payable quarterly on the preferred
stock at a rate of 5% per annum payable in cash or in Class A common stock
at the discretion of our board of directors. Dividends for the first
quarter ended March 31, 1999, (totaling $3,858), were paid in cash. All
preferred stock will be converted into Class A common stock upon the
consummation of this offering. Holders of the preferred stock will be
entitled to receive their dividends until the date of conversion. Should
our board of directors decide to pay dividends on the preferred stock in
shares of Class A common stock, the number of shares of our common stock
to be issued upon consummation of the offering will increase accordingly.
(See "Description of Capital Stock").
Shares that can be sold in the future by our current shareholders could
lower our stock price
- ------------------------------------------------------------------------
If our shareholders sell large amounts of our common stock in the
public market following the offering, then the market price of our common
stock could fall. Restrictions under the securities laws and certain lock-
up agreements limit the number of shares of common stock which can be sold
in the public market. Affiliates of cavion.com have agreed not to sell
their shares for a period of twelve months after this offering without the
prior written consent of Neidiger, Tucker, Bruner, Inc. ("NTB"). In
addition, all of the other shareholders who own shares (including the
holders of the 700,000 shares of Series A preferred stock that will
automatically convert into the same number of shares of common stock when
this offering closes) have agreed not to sell their shares for nine months
after the effective date of this offering. NTB may, in its sole
discretion, release some or all of the shares subject to the lock-up
agreements before their scheduled expiration. Such an early release could
adversely affect the market price of our common stock. We also plan to
file a registration statement to register all shares of common stock under
our Equity Incentive Plan. After that registration statement is
effective, shares issued upon exercise of stock options will be eligible
for resale in the public market without restriction.
We may be liable to a dissenting shareholder of LanXtra
- -------------------------------------------------------
At LanXtra's shareholders meeting on January 15, 1999, to consider
the sale of LanXtra's assets to us, Kirk W. Dennis, a LanXtra shareholder
holding 50,000 shares, or 17.45% of its outstanding shares at the time,
voted against the transaction. Under Colorado law, a shareholder voting
against a sale-of-assets transaction has the right to dissent from the
sale and obtain payment of the fair value of the shareholder's shares.
Fair value, in general, means the value of the shares immediately before
the effective date of the corporate action to which the dissenter objects.
We have assumed the liability, if any, of LanXtra to the dissenting
shareholder. On or about March 12, 1999, Mr. Dennis demanded payment for
the value of his 50,000 shares immediately before the effective date of
the asset sale which he asserted to be $250,000. Because we could not
reach an agreement with Mr. Dennis as to the fair value of his shares, we
filed a lawsuit against him on June 1, 1999 titled LANXTRA, INC. V. KIRK
W. DENNIS, Case No. 99 CV 3583 in the District Court, City and County of
Denver, Colorado to resolve the matter. While we could be required to
purchase his shares from him at the fair value determined in the
proceeding, we believe that the value paid on account of these shares
under the asset purchase agreement is greater than the amount which he
could recover under Colorado law and substantially less than the value of
the shares upon consummation of this offering. Therefore, we have not
reserved any funds to cover payment of the liability. If Mr. Dennis
nevertheless obtains an award of a substantial amount as fair value, it
could have a materially adverse effect on our financial condition.
Further, a payment to this dissenting shareholder could result in the
transaction in which we purchased the business of LanXtra becoming a
taxable transaction, which could expose us to significant tax liability.
(See "Risk Factors - Dissenting LanXtra Shareholder").
We might have to pay some of the liabilities of LanXtra that we didn't
assume
- ------------------------------------------------------------------------
According to our agreement with LanXtra we acquired substantially all
of LanXtra's assets (including all of its contracts with credit unions and
its business goodwill) and assumed the known liabilities of that company.
We recognize, however, that we might still become legally obligated to
satisfy some unknown liabilities we didn't assume. We also don't really
know what types of liabilities they are or their amount. To date, no
liabilities other than those identified in the Asset Purchase Agreement
have arisen. However, other liabilities could arise in the future. If we
become obligated to satisfy material LanXtra liabilities beyond those we
know of today, our business and financial condition be materially and
adversely affected.
Our common stock has never been publicly traded
- -----------------------------------------------
There has not been a public market for our common stock. We cannot
predict the extent to which a trading market will develop or how liquid
that market might become. The initial public offering price will be
determined by negotiations between the representative of the underwriters
and us and may not be indicative of prices that will prevail in the
trading market.
Our common stock price is likely to be highly volatile
- ------------------------------------------------------
The market price of our common stock is likely to be highly volatile
since the stock market in general, and the market for Internet-related and
technology companies in particular, has been highly volatile. Investors
may not be able to resell their shares of our common stock following
periods of volatility because of the market's adverse reaction to such
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the last 52 weeks
and have reflected relative valuations substantially above historical
levels. During the same period, such companies' stocks have also been
highly volatile and have recorded lows well below their historical highs.
We cannot assure you that our stock will trade at the same levels as other
Internet stocks or that Internet stocks in general will sustain their
current market prices.
Factors that could cause volatility in our stock price may include,
among other things:
o actual or anticipated variations in quarterly operating results
o announcements of technological innovations
o new sales formats or new products or services
o changes in financial estimates by securities analysts
o conditions or trends in the Internet industry
o changes in the market valuations of other Internet companies
o announcements by us or our competitors of significant
acquisitions, strategic partnerships or joint ventures
o capital commitments
o additions or departures of key personnel
o sales of common stock
You should not unduly rely on forward looking statements
- --------------------------------------------------------
This prospectus contains forward looking statements that involve
risks and uncertainties. We use words such as "anticipate", "believe",
"expect", "future" and "intend", and similar expressions to identify
forward looking statements. You should not place undue reliance on these
forward looking statements, which apply only as of the date of this
prospectus. Our actual results could differ materially from those
anticipated in these forward looking statements for many reasons,
including the risks described above and elsewhere in this prospectus.
Many of these factors are beyond our control. These factors may
materially adversely affect the market price of our common stock,
regardless of our operating performance.
USE OF PROCEEDS
We estimate the net proceeds from the offering to be approximately
$6.8 million, or $7.9 million if the underwriters exercise their over-
allotment option in full, assuming an initial public offering price of
$6.75 per share and after deducting estimated underwriting discounts and
commissions and expenses of the offering.
We expect to use the net proceeds from the offering
o to purchase the equipment required for expansion of our
telecommunications and secure network infrastructure
o to establish new points of presence (physical locations housing
a switch that permits access by local credit unions to our
national network)
o for sales and marketing
o to satisfy certain liabilities assumed in connection with the
purchase of LanXtra's assets. (See "Certain Relationships and
Related Transactions")
o possibly to pay for the put or call of shares of our Class B
common stock. (See "Description of Capital Stock")
o for working capital
In addition to our need for funds to finance our operations, payment
of approximately $1.4 million of existing obligations will become due upon
completion of this offering. (See "Our Business - Company History" and
"Certain Relationships and Related Transactions").
While we currently expect that the proceeds of the offering will be
sufficient to satisfy our cash needs for the foreseeable future, we may
decide to seek or obtain additional debt or equity financing in the
future.
As of the date of this prospectus, we cannot state with certainty all
of the particular uses for the remaining net proceeds we will have upon
completion of the offering. Accordingly, our management will have broad
discretion in the application of the net proceeds.
Net proceeds not immediately required for the purposes described
above will be principally invested in United States government securities,
A-1 rated commercial paper with maturities of 30 days or less, short-term
certificates of deposit, money market funds or other short-term interest-
bearing investments with qualifying banks or institutions.
DIVIDENDS
We have never declared or paid any dividends on our common stock. We
do not intend to pay cash dividends on our common stock in the foreseeable
future. Holders of shares of Series A preferred stock are entitled to
receive 5% per annum cumulative preferred dividends payable quarterly in
cash or in shares of Class A common stock at the discretion of our board
of directors. Dividends for the first quarter ended March 31, 1999 of
$3,858 were paid in cash. All preferred stock will be converted into
common stock upon the consummation of this offering. Holders of the
preferred stock will be entitled to receive their dividends until the date
of conversion. Should our board of directors decide to pay dividends on
the preferred stock in shares of common stock, the number of shares of our
common stock to be issued upon consummation of the offering will increase
accordingly. We plan to retain our future earnings, if any, to finance
our operations and the expansion of our business. The decision whether to
pay cash dividends on our common stock will be made by our board of
directors, in their discretion, and will depend on our financial
condition, operating results, capital requirements and other factors that
the board of directors considers significant.
CAPITALIZATION
The following table sets forth our capitalization as of March 31,
1999. You should also read our Financial Statements and the notes to
those Financial Statements, beginning on page F-1 of this prospectus. Our
capitalization is presented:
o on an actual basis
o on an unaudited pro forma basis to give effect to:
o the re-purchase of 299,884 shares of Class A common stock
held by our founders in April, 1999 for $.0001 per share
o the proceeds of Series A preferred stock offering received
in April, 1999
o on an unaudited pro forma basis as adjusted to reflect:
o our receipt of the estimated net proceeds from the sale of
1,200,000 shares of common stock offered in the offering at
an assumed initial public offering price of $6.75 per
share, after deducting underwriting discounts and
commissions and estimated offering expenses, and
o the automatic conversion of all outstanding shares of
preferred stock into common stock upon the consummation of
the offering
As of March 31, 1999
---------------------
<TABLE>
<CAPTION>
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Notes and capital leases payable $1,317,950 $1,317,950 $ 1,317,950
Putable Class B common stock,
$.0001 par value; 30,000
shares authorized; 28,648,
28,648 and 28,648 shares
issued and outstanding actual,
pro forma and pro forma as
adjusted, respectively 172,816 172,816 172,816
Stockholders' equity
Series A Convertible preferred
stock, $.0001 par value;
10,000,000 shares authorized;
567,000, 700,000 and 0 shares
issued and outstanding actual,
pro forma and pro forma, as
adjusted, respectively 1,496,880 1,848,000 --
Class A common stock, $.0001
par value; 19,970,000 shares
authorized; 3,006,210,
2,706,326 and 4,606,326
shares issued and outstanding
actual pro forma and pro forma
as adjusted respectively 302 272 462
Additional paid-in capital 3,188,765 3,188,765 11,861,575
Accumulated (deficit) (694,113) (694,113) (694,113)
---------- ---------- -----------
Total stockholders' equity $3,991,834 $4,342,924 $11,167,924
========== ========== ===========
Total capitalization $5,482,600 $5,833,690 $12,658,690
========== ========== ===========
</TABLE>
We expect there to be 4,606,326 shares of common stock outstanding
after the offering which includes shares issuable upon the conversion of
all outstanding shares of preferred stock. In addition to the shares of
common stock to be outstanding after the offering, we may issue additional
shares of common stock under the following:
o 403,500 shares of common stock issuable upon exercise of options
outstanding under our Equity Incentive Plan, none of which are
exercisable today. (See "Equity Incentive Plan")
o An additional 346,500 shares available for issuance under our
Equity Incentive Plan. (See "Equity Incentive Plan")
o 28,648 shares of Class B common stock which are convertible into
Class A common stock 30 days after the date when we have 100
credit union industry customers on our network if neither the
put or the call have been exercised prior to that date. (See
"Description of Capital Stock")
o 70,000 shares of Series A preferred stock issuable upon exercise
of the placement agent's warrant issued in our 1999 private
placement offering, which preferred shares are convertible into
common stock. (See "Description of Capital Stock")
o 180,000 shares of Class A common stock issuable upon exercise of
the underwriter's over-allotment option. (See "Underwriting")
o 120,000 shares of Class A common stock issuable upon exercise of
the representative's warrant. (See "Underwriting")
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements included in this prospectus.
DILUTION
As of March 31, 1999, our net tangible book value (deficit) on a pro
forma basis based upon an assumed public offering price of $6.75 per share
and giving effect to the re-purchase of 299,884 of Class A common stock by
the Company in April, 1999 and the April, 1999 issuance and assumed
conversion of all of the outstanding shares of preferred stock into shares
of common stock upon the consummation of this offering was approximately
($261,568) or ($.08) per share of common stock. "Net tangible book value"
(deficit) per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities, divided by pro forma the
number of shares of common stock outstanding. As of March 31, 1999, our
net tangible book value, on a pro forma basis adjusted for the sale of
1,200,000 shares offered in the offering and the application of the net
proceeds from such sale of approximately $6.8 million (based on an assumed
initial public offering price of $6.75 per share and after deducting the
underwriting discounts and commissions and other estimated offering
expenses), would have been approximately $1.42 per share. This represents
an immediate increase of $1.50 per share to existing shareholders and an
immediate dilution of $5.33 per share to you. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C>
Assumed initial public offering price per share $6.75
Pro forma net tangible book value per share
as of March 31, 1999 $0.08
Increase per share attributable to you $1.50
Net tangible book value per share after the offering $1.42
Dilution per share to you $5.33
</TABLE>
The following table summarizes on a pro forma basis as of June 9,
1999 by the differences between the total consideration paid and the
average price per share paid to the existing shareholders, including the
shares of preferred stock convertible into common stock upon the
consummation of the offering, and the new investors with respect to the
number of shares of common stock purchased from us on an assumed initial
offering price of $6.75 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
Average
Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 3,406,326 74.0% $ 5,289,037 39.5% $ 1.55
New Investors 1,200,000 26.0% 8,100,000 60.5% $ 6.75
TOTAL 4,606,326 100.0% $13,389,037 100.0%
</TABLE>
We expect there to be 4,606,326 shares of common stock outstanding
after the offering. In addition to the shares outstanding after the
offering, we may issue additional shares of common stock under the
following:
o 403,500 shares of common stock issuable upon exercise of options
outstanding under our Equity Incentive Plan, none of which are
exercisable today. (See "Equity Incentive Plan")
o An additional 346,500 shares available for issuance under our
Equity Incentive Plan. (See "Equity Incentive Plan")
o 28,648 shares of Class B common stock which are convertible into
Class A common stock 30 days after the date when we have 100
credit union industry customers on our network if neither the
put or the call have been exercised prior to that date. (See
"Description of Capital Stock")
o 70,000 shares of Series A preferred stock issuable upon exercise
of the placement agent's warrant issued in our 1999 private
placement offering, which preferred shares are convertible into
common stock. (See "Description of Capital Stock")
o 180,000 shares of Class A common stock issuable upon exercise of
the underwriter's over-allotment option. (See "Underwriting")
o 120,000 shares of Class A common stock issuable upon exercise of
the representative's warrant. (See "Underwriting")
Options available for issuance under the 1999 Equity Incentive Plan
may be granted with exercise prices as low as 50% of market value of the
common stock on the grant date. If we grant options below fair market
value it would be dilutive to investors who purchase shares at the initial
public offering price.
SELECTED FINANCIAL INFORMATION
We derived the selected historical and pro forma financial data
represented below from our historical and pro forma financial statements
and related notes included in other parts of this prospectus. The
statement of operations adjustments reflect:
o our actual expenses for 1998 and the three months ended March
31, 1999
o the pro forma amortization expense for goodwill in connection
with the acquisition
o adjustments to interest expense based on our new capital
structure
You should read the selected financial data along with our historical and
pro forma financial statements and the section of the prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results
of Operations".
Following are the historical balance sheet at March 31, 1999, and the pro
forma statement of operations for the year ended December 31, 1998 and the
three months ended March 31, 1999 for LanXtra and cavion.com. For
purposes of the statement of operations, the transaction was assumed to be
consummated on January 1, 1998. Pro forma earnings per share are
calculated as if the Purchase Agreement was completed on January 1, 1998.
<TABLE>
<CAPTION>
Balance Sheet
=============
cavion.com
----------
<S> <C>
Assets:
- -------
Current assets $1,241,069
Property & equipment, net 413,103
Goodwill and other assets 4,699,489
----------
Total Assets $6,353,661
Liabilities:
- ------------
Current liabilities $1,788,418
Long-term borrowings 400,593
Putable stock 172,816
Stockholders' equity
Preferred Stock 1,496,880
Common stock 302
Additional paid-in capital 3,188,765
Accumulated deficit (694,113)
----------
Total liabilities and Stockholders' equity $6,353,661
==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations for Year Ended December 31, 1998
========================================================
Pro Forma Pro Forma
Adjustments Company
LanXtra cavion.com (unaudited) (unaudited)
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 215,022 $ - $ - $ 215,022
Cost of revenue 222,419 - - 222,419
----------- ---------- --------- -----------
Gross loss (7,397) - - (7,397)
----------- ---------- --------- -----------
Total operating
expenses 1,117,892 6,877 914,146 2,038,915
----------- ---------- --------- -----------
Loss from
operations (1,125,289) (6,877) (914,146) (2,046,312)
Interest expense and
other, net 845,213 29,067 (612,200) 289,800
27,720
Loss from continuing
operations $(1,970,502) $ (35,944) $(329,666) $(2,336,112)
=========== ========== ========= ===========
Net loss per share $ (7.66) $ (.02) $ (.77)
=========== ========== ===========
Weighted average
common shares
outstanding 257,319 2,078,170 3,029,218
=========== ========== ===========
</TABLE>
Notes to Unaudited Combined Condensed Pro Forma Financial Statements
--------------------------------------------------------------------
Pro Forma adjustments to the unaudited condensed pro forma statement of
operations for the year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Income Statement Item Amount Explanation
- --------------------- ------ -----------
<S> <C> <C>
Amortization of goodwill $(914,146) To record amortization expense for
and other intangible the developed technologies, goodwill
assets and other intangible assets.
Accretion of putable $(612,200) To eliminate the accretion expense
common stock for the terminated putable common
stock.
Accretion of putable $27,720 To record accretion of Cavion's
common stock Class B common stock put options.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations for Three Months Ended March 31, 1999
=============================================================
Pro Forma
LanXtra cavion.com Combined
One Three Three
Month Months Months
Ended Ended Pro Forma Ended
January 31, March 31, Adjustments March 31,
1999 1999 (Unaudited) (Unaudited)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 7,850 $ 66,539 $ -- $ 104,389
Cost of revenue 31,898 41,443 -- 73,341
--------- --------- -------- ---------
Gross profit 5,952 25,096 -- 31,048
--------- --------- -------- ---------
Total operating
expenses 213,311 609,609 79,388 902,308
--------- --------- -------- ---------
Loss from operations (207,359) (584,513) (79,388) (871,260)
--------- --------- -------- ---------
Interest expense and
other, net 64,069 73,656 (52,932) 84,793
--------- --------- -------- ---------
Net Loss $(271,428) $(658,169) $(26,456) $(956,053)
Net loss per share $(1.06) $(.23) ($.32)
========= ========= =========
Weighted average
common shares
outstanding 256,464 2,875,879 3,032,978
========= ========= =========
</TABLE>
Pro forma adjustments to the unaudited condensed pro forma statement of
operations for the three months ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Income Statement Item Amount Explanation
- --------------------- ------ -----------
<S> <C> <C>
Amortization of goodwill $79,388 To record amortization for
goodwill for January, 1999
Interest expense: $(52,932) To eliminate the accretion
expense for the terminated putable
stock
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and
related notes included in another part of this prospectus. Those
financial statements and notes should be considered to be incorporated
into this section. This discussion contains forward looking statements
that involve risk and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including but not limited to the risk factors
listed elsewhere in this prospectus.
We completed our acquisition of the assets of LanXtra on February 1,
1999 pursuant to the Asset Purchase Agreement. (See "Certain
Relationships and Related Transactions"). Prior to the acquisition, we
did not conduct any operations except financing activities and other
preparations for the acquisition. The following discussion relates to
LanXtra's historical results of operations since January 1, 1998 (the date
on which LanXtra commenced the business we acquired), and to our plan of
operation following the offering.
Since January 1, 1998, we have been engaged in building a suite of
network products and services for the credit union industry that includes:
(1) a secure network that enables access to our credit union customers'
products and services via the Internet or an intranet; (2) secure Internet
financial products, including Internet banking software; and (3) secure
Internet access services for credit unions. These products and services
utilize our proprietary software. We are in the start-up phase of our
operations and generated a net loss of $2,006,446 for the year ended
December 31, 1998, comprised of a $35,944 net loss for Cavion and a net
loss of $1,970,502 for LanXtra. We expect to incur substantial monthly
operating losses for the foreseeable future.
Since January 1, 1998, our revenue has been derived from recurring
monthly connectivity fees, installation services and monthly recurring
revenues associated with our secure Internet access services and secure
Internet financial products. To date, 32 credit unions, two credit union
leagues (one of which provides check clearing services to credit unions)
and one corporate credit union (which provides liquidity services to
credit unions) have subscribed to our products and services. The majority
of these entities are located in Colorado, except nine which are located
in nine different states.
We have financed the development of our products and services with
capital provided by the sale of LanXtra's unrelated business, a bank loan,
loans from certain shareholders and employees of LanXtra, a private
placement of promissory notes and related warrants and a private placement
of preferred stock.
Results of Operations for the Year Ended December 31, 1998
- ----------------------------------------------------------
The following discussion relates to LanXtra's operations for the
fiscal year ended December 31, 1998. While LanXtra generated nominal
revenues and incurred general and administrative and research and
development costs prior to commencement of the 1998 fiscal year,
management believes that a comparison of the 1998 operations to those
operations conducted in fiscal year 1997 would provide little benefit
since our current business was launched in January 1998 (with 1997
activity limited to general and corporate activities and research and
development activities) and LanXtra's prior business was sold.
During the fiscal year ending December 31, 1998, we generated
$215,022 in revenue. This revenue was derived from a variety of
Internet/intranet activities, including secure Internet access for credit
unions utilizing dedicated lines, secure credit union network services,
secure Internet financial products such as Internet banking software,
sales of related equipment, and installation fees charged for these
services. Cost of sales during this period were $222,419 (103%). These
costs include Internet access fees, telephone company charges for frame
relay lines, equipment purchased for resale, service personnel and
occupancy costs, hardware repair and maintenance expenses. Our margins
will significantly improve in the future as sales discounts for
installations diminish for our customers.
General and administrative expenses for the period were $869,293 or
404% of revenue. Of these expenses, $566,380 was attributable to salaries
and wages (263% of gross revenues). Additionally, we incurred $248,599 in
research and development costs during this period, which represented a
percentage of programmers' and engineers' salaries applicable to the
amount of time they devoted to development activities. We anticipate that
our general and administrative expenses will increase as we hire
additional employees to handle the expected growth of our business.
In May 1998, LanXtra issued common stock which the holders can
require LanXtra to repurchase on certain terms. For financial accounting
purposes, the cost of this "putable" common stock from its issuance price
to its redemption value is treated as interest expense. During 1998, such
interest expense totaled $612,200.
Results of Operations for the Three Months Ended March 31, 1999
- ---------------------------------------------------------------
The following discussion relates to our operations for the three
months ended March 31, 1999. LanXtra had no significant revenues during
the three months ended March 31, 1998. It used the capital on hand to
develop its clients and continue research and development. Management
therefore believes that a comparison of operations for the three months
ended March 31, 1998 of Lanxtra and our three months ended March 31, 1999
would provide little benefit. Our current business was not launched until
January 1998 and LanXtra had no revenues during the same period for
comparison.
During the period ended March 31, 1999, we recognized $66,539 in
revenue. This revenue was derived from a variety of Internet/intranet
activities, including secure Internet access for credit unions utilizing
dedicated lines, secure credit union network services, secure Internet
financial products such as Internet banking software, sales of related
equipment, and installation fees charged for these services. Cost of
sales during this period were $41,443 (62%). These costs include Internet
access fees, telephone company charges for frame relay lines, equipment
purchased for resale, service personnel and occupancy costs, hardware
repair and maintenance expenses.
General and administrative expenses for the period were $404,249 or
608% of revenue. Of these expenses, $166,219 was attributable to salaries
and wages (250% of gross revenues). Additionally, we incurred $46,584 in
research and development costs during this period, which represented a
percentage of programmers' and engineers' salaries applicable to the
amount of time they devoted to development activities. We anticipate that
our general and administrative expenses will continue to increase as we
hire additional employees to handle the expected growth of our business.
As we expand our operations nationwide our depreciation expense will
increase because we will be purchasing additional equipment and
infrastructure. After this offering is funded certain of our debts will
be paid off and therefore interest expense will be reduced.
We expect to invest at least an additional $200,000 in research and
development during 1999. We are currently developing software for an
Internet-enabled automated loan application and approval system, and we
are in the early stages of designing stored value or "smart card"
capabilities for our network. We expect in the near future to begin
development of two or more additional interfaces for credit union host
data processing systems not yet supported by our network as well as an
additional Internet bill pay vendor interface. We are continuously
evaluating possible enhancements to the security and functionality of our
existing products and services. In addition, we expect to incur
development costs in launching our affinity program, through which we plan
to offer products and services to credit union members via our credit
unions' websites. We expect our product development focus to evolve
continuously in the future based on guidance from our customers.
The transaction with LanXtra resulted in approximately $4,760,000 of
intangible assets (primarily technology, customer lists and goodwill.)
These intangible assets will be amortized over five years. The purchase
price allocation is subject to adjustment based on the final determination
of the fair value of the assets and liabilities assumed, which could take
as long as one year from February 1, 1999. Because the business now
operated by cavion.com has never been profitable, and due to the other
risks and uncertainties discussed herein, it is reasonably possible that
an analysis of these long-lived assets in future periods could result in a
conclusion that they are impaired, and the amount of the impairment could
be substantial.
Liquidity and Capital Resources
- -------------------------------
To date, we have funded our cash requirements primarily through the
sale of equity, debt, cash flow from operations and the proceeds from the
sale of LanXtra's prior business. On March 31, 1999, cavion.com had
$1,055,230 in cash, current assets of $1,241,069, and current liabilities
of $1,788,418.
We expect to incur substantial costs in connection with expanding our
telecommunications infrastructure, establishing a sales presence in key
strategic markets, and developing new products. We also expect to incur
increased marketing, costs and general and administrative expenses in
connection with the growth of our secure network for the credit union
industry. We anticipate that the proceeds of the offering will be
sufficient to satisfy our cash requirements for the foreseeable future.
Our March 31, 1999 balance sheet shows approximately $2.2 million in
liabilities and approximately $4.0 million of stockholders equity.
Approximately $1.2 million of our liabilities represent obligations to
shareholders, as described in the following section.
SHAREHOLDER OBLIGATIONS. Prior to our acquisition of LanXtra's
assets, we agreed to provide bridge funding to LanXtra for its business
operations pending the raising of equity financing. In order to provide
the bridge funding, we raised $370,000 in 1998 through the issuance of 15%
secured notes due on October 19, 2000, along with warrants to purchase
2,400 shares of our Class A common stock for every $20,000 in
subscriptions at an exercise price of $.01 per share. The notes are
secured by substantially all of our assets, now owned or hereafter
acquired, including, cash, equipment, fixtures, general intangibles, and
all products and proceeds of the foregoing collateral, accounts
receivable, inventory, work in process and service contracts receivables.
The October 20, 1998 security agreement contains a covenant which prevents
us from incurring any other liens on our assets. We raised an additional
$100,000 through this offering in 1999. The warrants were originally
exercisable only after payment of the notes. However, we subsequently
agreed to permit early exercise, and all of the warrants have been
exercised for 56,400 shares, as of February 1999.
In connection with our acquisition of LanXtra's assets, we assumed
approximately $1.6 million in existing liabilities of LanXtra (not
including the bridge funding described in the preceding paragraph).
Approximately $1.4 million of these amounts will become payable upon
completion of this offering. These obligations are described below. We
expect to use a portion of the proceeds of this offering to pay these
obligations.
In August 1996, LanXtra had obtained a $600,000 line of credit from
US Bank, Denver, Colorado in connection with its previous business.
Certain LanXtra shareholders provided cash collateral for the loan. In
May 1998, this line of credit was extended to January 31, 1999. At the
February 1, 1999 closing of the Asset Purchase Agreement between us and
LanXtra, we effectively assumed the loan by entering into a loan agreement
with US Bank on the same terms as the loan from US Bank to LanXtra, with a
maturity date of December 31, 1999, using the proceeds of our loan to pay
off the US Bank loan to LanXtra. The LanXtra shareholders who provided
cash collateral for the US Bank loan agreed, however, to keep their
collateral in place until the completion of this offering. All amounts
available under this line of credit have been utilized. Interest accrues
on all outstanding balances at the rate of 1.5% over the reference rate,
as established by US Bank, from time to time. The reference rate closely
tracks the prevailing prime rate.
On May 28, 1998, LanXtra entered into a Bridge Loan Agreement with
three of LanXtra's shareholders to borrow an aggregate of $150,000 for
working capital purposes. Under the terms of the Bridge Loan Agreement,
LanXtra issued to each shareholder (i) a promissory note bearing interest
at the rate of 42% per annum, the principal and interest of which was
payable in three equal monthly installments beginning on November 1, 1998;
(ii) shares of LanXtra's non-voting common stock; and (iii) put agreements
to sell the shares of non-voting common stock back to LanXtra at $7.00 per
share beginning on January 1, 1999. On that same date, LanXtra also
entered into an Additional Bridge Loan Agreement with three of our
employees - David J. Selina, Jeff Marshall and Randal Burtis-to borrow an
additional $110,000 ($30,000 from Mr. Selina, $50,000 from Mr. Marshall
and $30,000 from Mr. Burtis), also for working capital purposes. The
terms of the Additional Bridge Loan Agreement are identical to the terms
of the Bridge Loan Agreement with the shareholders. In the aggregate, we
owe these shareholders, directors and managers $260,000 in principal and
$59,480 in interest; however, an agreement has been reached to defer
payment of these amounts, without the accrual of further interest, until
the completion of this offering. We agreed to assume LanXtra's
obligations with respect to the put agreements by issuing to LanXtra at
the closing under the Asset Purchase Agreement 28,648 shares of our Class
B common stock, which are subject to economically equivalent put
provisions. By its terms, the put feature of our Class B common stock
becomes exercisable 30 days after the date when we have 100 credit union
industry customers on our network (the "100 Credit Union Date"). We have
agreed with the LanXtra shareholders who have rights to the Class B stock
that their put rights will mature upon completion of this offering. To
implement this agreement, after completion of this offering we expect to
offer these shareholders the option to redeem their Class B shares at
$7.00 per share, or to convert each Class B share into one share of our
Class A common stock.
Between September 8 and October 15, 1997, Herman Axelrod, a former
president and director of LanXtra, and Mr. Lassen, also a former president
and director of LanXtra, made various factoring loans to LanXtra in the
amounts of $50,190 and $25,000, respectively. Such loans were secured by
an account receivable for computer network integration work LanXtra
performed for Questar Infocomm ("Questar") and bear interest at the rate
of 3% of the factoring loan amount for the first 30 days and 1% for each
additional 10 days until the factoring loan is paid in full. Questar
disputed LanXtra's invoice and the dispute was settled in September of
1998 for a payment of $61,780. This amount was paid against the factoring
loans on September 21, 1998 as follows: $41,238 to Mr. Axelrod and $20,542
to Mr. Lassen. Accordingly, as of February 1, 1999, LanXtra owed Mr.
Axelrod $28,331 and Mr. Lassen $13,441, and we assumed such obligations.
Mr. Axelrod and Mr. Lassen have agreed that the remaining balance of these
loans will be deferred until the completion of this offering and will not
accrue additional interest.
On July 1 and August 1, 1992, LanXtra executed promissory notes for
$25,000 in favor of Mr. Axelrod and Mr. Lassen, respectively, each bearing
interest at the rate of 2% over prime. The principal amounts of these
notes reflect $20,000 in cash loaned by each and $5,000 each of co-signer
liability on a $10,000 credit line at the Bank of Boulder that LanXtra
took out at its inception. The credit line was paid off in August 1996,
leaving an aggregate principal balance of $40,000 on the notes. We
assumed the obligation to pay Mr. Axelrod and Mr. Lassen the principal
balance of the notes together with interest as stated above. Mr. Axelrod
and Mr. Lassen have agreed that the remaining balance of these loans will
be deferred until the completion of this offering. Interest will continue
to be paid on a quarterly basis until the notes are paid in full.
We owe Convergent Communications $78,673 for equipment purchased in
connection with a customer network upgrade performed by LanXtra in
December 1997, while Convergent was completing the purchase of LanXtra's
network integration business. Convergent has agreed that payment of this
amount will be deferred until the completion of this offering.
As to all of the obligations described above that will be deferred
until the completion of this offering, there is no current understanding
between the parties as to any repayment obligations in the event we do not
complete the offering.
In addition to the obligations described above, upon the closing of
the Asset Purchase Agreement, we assumed any potential liability under a
lawsuit threatened against LanXtra by a dissenting shareholder. Although
we believe the claim in this lawsuit does not have a substantial basis in
fact, we cannot assure you that we will not be required to make a payment
to the dissenter. We have not reserved any funds to cover payment of this
liability or of the potential tax liability if such a payment is
necessary. (See "Our Business - Litigation").
Inflation. Although our operations are influenced by general
economic conditions, we do not believe that inflation had a material
effect on the results of our operations during the fiscal year ended
December 31, 1998, nor do we expect that inflation will have a material
effect on the results of our operations in the foreseeable future.
In April 1999 we completed a private placement of our Series A
preferred stock in which we raised net proceeds of approximately $1.8
million. These funds are being used primarily to fund expansion of our
credit union industry network to key markets across the United States. We
estimate the net proceeds from this offering to be approximately $6.8
million, or $7.9 million if the underwriters exercise their over allotment
option in full, and we expect to use these proceeds primarily for the same
purpose. We expect the proceeds of this offering to satisfy our cash
needs for more than 12 months.
Trends
- ------
Management expects that we will continue to operate at a loss as
additional credit unions are solicited and enter into contracts with us.
We are optimistic about our ability to add to the number of credit unions
under contract in the foreseeable future. We cannot give you any
assurance, however, that actual operating results will be as we predict
today.
We plan to continue to expand our network of credit union clients.
These expansion efforts are likely to cause us to incur significant
increases in expenses, both in absolute terms and as a percentage of
revenue, as we prepare for the future growth in our credit union customer
base we anticipate today. Expenses will increase because of the need to
increase staffing in all categories, acquire additional equipment, and
provide for additional telephone connections. We believe our operating
results may fluctuate significantly in the foreseeable future as a result
of a variety of factors, some of which are outside our control.
Therefore, we cannot assure you that we will achieve profitable operations
even with a significant increase in our credit union customer base.
Year 2000 Disclosure
- --------------------
Many uncertainties exist within the computer hardware and software
and electronic networking industries about the changeover from the 1999 to
2000 calendar years. In 1998, we initiated a comprehensive program to
assess, plan and manage our Y2K compliance effort.
The risks posed to us by possible Y2K related problems could be
significant. Our operations rely on continuous Internet connectivity,
availability of power and communications systems, computer systems in use
by our credit union customers and their members and, in some cases,
computer systems in use by vendors to credit unions, as well as on our own
internal computer systems. Any extended damage to any of the foregoing
could have a material adverse effect on our business and operations. We
are confident in the operability of our products, services, and our own
internal systems after the year 2000 date change. However, we cannot
accurately predict the effect of the Y2K problem on our business due to
our interdependence with numerous other systems.
In assessing the Y2K compliance of our products, services and
systems, we have identified the following seven distinct areas of focus:
o Products and Services: We completed testing of all products and
services by May 1, 1999 and to our knowledge, these systems are
Y2K compliant.
o Business Computer Systems: This category includes computer
systems and applications relating to operations such as
financial reporting, human resources, marketing and sales,
product engineering and design, phone systems, and purchasing.
We have completed testing of these systems and believe them to
be Y2K compliant with the exception of and the network server
that we use for sales demonstrations of our Internet banking and
bill payment products. We expect to have completed the
remediation process for these systems by the end of June 1999.
o Suppliers: We rely on approximately 12 critical suppliers,
including computer hardware and software vendors and
telecommunications providers. We have contacted our critical
suppliers to determine whether plans are in place to achieve
timely Y2K compliance. To date, none of our suppliers have
informed us of any Y2K related problems which are expected to
have an adverse effect on our operations.
o Business Affiliates: M&I Data Services (formerly Travelers
Express) provides our customers' members with bill payment data.
We have received documentation from M&I stating that they are
Y2K compliant.
o Product Development Test Equipment: This category includes
equipment and systems for testing software and hardware. All of
our product development equipment has been tested and, to our
knowledge, is Y2K compliant.
o End-User Computing: We use desktop and laptop computers
throughout our operations. Our plans to make these computers
Y2K compliant include the replacement or repair of all non-
compliant computers and related software. As of June 1, 1999,
96% of mission critical end-user programs were Y2K compliant. We
expect to complete this remediation process by the end of June
1999.
o Physical Properties and Infrastructure: We are assessing the
impact of Y2K on all building systems. Included in our
assessment are fire and security systems in our facilities. To
our knowledge, these systems are Y2K compliant.
We estimate future expenditures to complete our compliance efforts at
less than $50,000, and we expect this process to be complete by the end of
June 1999 for existing systems. Newly acquired facilities and equipment
will require evaluation and possibly remediation through the end of the
year, and we anticipate a need to support credit union testing and
remediation efforts through the first quarter of 2000 or beyond.
Our most likely worst case scenario with respect to the Y2K problem
is the failure of a supplier, including an energy supplier, to be Y2K
compliant so that its supply of needed products or services to one of our
facilities is interrupted. As a result, we could be unable to service our
customers for a period of time, which could then cause us to lose
customers, revenues and profits. While we are monitoring the preparedness
plans of our utility suppliers and other critical vendors, in many cases
we have little leverage or bargaining power to ensure their Y2K readiness.
We are establishing a Y2K contingency plan to evaluate business
disruption scenarios, coordinate responses to such scenarios, and identify
and implement preemptive strategies. We have established detailed
contingency plans for critical business processes.
The National Credit Union Administration ("NCUA"), which insures the
deposits of most credit unions in the United States, has established
detailed requirements with regard to the Y2K compliance of member credit
unions. Under the NCUA requirements, credit unions must roll forward the
clocks on their critical systems past the year 2000 and apply real-time
dynamic testing. We are prepared to participate in our clients' Y2K
testing upon request.
OUR BUSINESS
cavion.com is an Internet service provider specializing in Internet-
related products and services for the credit union industry. Our products
and services utilize our proprietary software. Among the numerous
products and services we offer are a secure, private network, that
facilitates business-to-business communication, secure Internet financial
products such as on-line banking and bill paying services, and secure
Internet access. To date, 32 credit unions, two credit union leagues (one
of which provides check clearing services to credit unions) and one
corporate credit union (which provides liquidity services to credit
unions) have subscribed to our products and services. Through our
affinity program, we plan to offer additional services to credit union
members via our credit unions' websites, including long distance telephone
services, new vehicle transactions, retail ISP services, consumer products
and insurance products, among others. We market our products and services
to credit unions and related entities, such as credit union leagues, that
are located in key geographic areas across the United States which have
been selected due to their high concentration of credit unions. We intend
to focus our marketing efforts on credit unions with $5 million or more in
assets, and geographic markets with an average concentration of more than
300 credit unions.
Products and Services
---------------------
We provide numerous products and services to the credit union
industry, such as:
o A secure private network that enables individual credit unions
to offer their services to their members via the Internet or an
intranet. This network also facilitates business to business
communication.
o Secure Internet financial products, such as transactional
banking services, that enable credit union members to view their
account and loan balances and to make transfers between
accounts, as well as bill paying services which allow credit
union members to pay their bills on line.
o Secure Internet access for credit unions, with multiple layers
of security features and dedicated connections designed to
satisfy credit unions' need for confidential communications and
secure transactional processing with one connection.
Our products are priced in a way that permits our credit union
customers to offer Internet banking services to their members at a flat
monthly rate.
Overview
--------
THE CREDIT UNION INDUSTRY. A credit union is a non-profit,
cooperative financial institution, owned and controlled by the members who
use its services. Credit unions are either state or federally chartered.
The Credit Union Membership Access Act of 1998 allows credit unions to
solicit new members outside the once restricted field of membership, and
allows credit unions to offer generally the same products and services as
other financial institutions such as banks and savings and loan
institutions.
In the United States:
o there are approximately 12,600 credit unions with combined
assets of over $375 billion
o these 12,600 credit unions service approximately 73 million
members
o approximately 6,100 of these credit unions have assets of over
$5 million
o these larger credit unions service approximately 70 million
members and have combined assets of approximately $366 billion
THE INTERNET PHENOMENON. The widespread adoption in recent years of
public and private electronic communications networks, including the
Internet, intranets and extranets, has impacted the manner in which
organizations communicate and conduct business. These advanced networks
provide an attractive medium for communications and commerce because of
their widespread reach, accessibility, use of open standards and ability
to permit interactions on a real-time basis. At the same time, they offer
businesses a user-friendly, low-cost way to conduct a wide variety of
commercial functions electronically. Nielsen/NetRatings estimates the
number of online computer users in the United States by the end of March
1999 to have exceeded 95 million; nearly 40% of the U.S. population.
(Internet Usage Statistics for the Month of March 1999, http://www.
netratings.co, Nielsen Media, August 25, 1998.)
In recent years, the development of the Internet, intranets and
extranets has enabled users of personal computers to access and interact
with a broad range of information sources. According to a report by
International Data Corporation, 77% of U.S. companies already have an
intranet. ("133 Million Intranet Users by 2001," International Data
Corporation, October 22, 1997.) Financial institutions rapidly are
adopting network communications to conduct electronic banking and provide
customers with access to their account information. A report released by
Ernst & Young predicts that by the year 2000, banks will be spending the
same amount of money on Internet applications to develop their online
presence as they currently do on branch networks. ("Banks are in the
Dark," News.com, September 9, 1998.) It has been estimated that banks
will spend $326 million on Internet banking technology in 1999 alone, more
than double the amount spent in 1998, to accommodate the expected sharp
increases in online banking. ("Online Banking Application Market to
Boom," IDC Research, February 4, 1997.)
THE INTERNET AND CREDIT UNIONS. We believe financial institution
customers increasingly will demand more convenient and more interactive
access to financial information and services. Competitive pressures are
driving banks and credit unions to increase the quality and cost-
effectiveness of such services. New opportunities exist to employ
available and emerging technologies to automate and enhance a credit
union's interactions with its members.
Traditionally, credit unions have used trained service
representatives to serve as the link between their customers and the
information systems that stored and processed the customers' account
information. Reliance on people alone to perform service functions is
expensive and limits growth. Labor costs tend to grow proportionately
with increased demands for service. In addition, the time required to
hire and train service personnel limits the speed with which credit unions
can respond to customer demand or new competitive service offerings. Our
solution is to provide credit unions with network-based technologies that
enable their members to serve themselves through automated, interactive
access to financial information and services.
As technologies continue to advance for network-based solutions,
financial institutions will be able to deploy increasingly sophisticated
network applications. Given its relatively late arrival, online banking
is just now beginning to build momentum. It took nearly a decade and a
half for online banking to achieve a 1% penetration rate of U.S.
households in early 1996. By 1997, it is estimated that approximately
4.5% of U.S. households have at least tried on-line banking. ("Banking by
PC Jumps," American Banker, December 29, 1997.) As of the first quarter
of 1999, nearly 40% of the top 100 banks in the United States are offering
online services. ("Increase in US Banks Offering Online Services," PC
World, 3/24/99.) Online Banking Report estimates that by the end of 2000,
17.5 million households will be using online banking and/or a bill payment
application. ("Strategic Online Banking Momentum Builds," Online Banking
Report, January 1999.)
Our Strategy
------------
Our goal is to become the largest Internet/intranet provider to
credit unions. We plan to achieve that goal by implementing the following
strategies:
FOCUS ON PROVIDING A SECURE INDUSTRY NETWORK. As the use of the
Internet grows for the delivery of timely and confidential financial
information, security issues become critical. With technological
advances, there is an increased opportunity for electronic intruders, or
"hackers", to conduct successful attacks. The increased interconnectivity
of information networks has given hackers more opportunities to invade
many companies' information systems. We believe the trend of breaches in
security will continue.
Credit unions require a secure network environment for systems that
handle their members' financial data. We believe credit unions prefer the
reliability and security a private network can offer. Our network uses
dedicated phone lines to our credit union customers, limiting access to
the network and maintaining constant control of the information being
transmitted.
When the credit union provides its members with Internet access to
account information and financial services, the concern with security
becomes more acute. The Internet side of our network uses multiple
security safeguards - firewalls, data encryption, digital certificates and
the JAVA(R) programming language.
Firewalls act as the gate keeper between the Internet and the private
network. They are designed to allow external access to networks only from
authorized sources, and can also block data packets from certain addresses
from entering or exiting the network. Our network uses industry standard
firewall products.
Our network also uses public key encryption whenever data is
exchanged with the Internet for Internet banking and bill pay services or
for our share draft repository system. In public key encryption,
cryptographic software is used to generate an electronic "private key" and
a mathematically related "public key". The software encrypts the data
using the public key, in a way that allows the data to be recovered only
by someone with the proper private key. This technique provides a "session
key" for each user session, assuring that the information came from a
specific source and was not altered in transit. In this way, personal
information can be sent across public networks without compromising its
confidentiality.
We use digital certificates provided by an independent certificate
authority on all of our secured web servers (internet banking, secure
forms server, and share draft repository server). Digital certificates
verify the identity of the web server being used and that the owner of
that server is authorized to allow encryption. Digital certificates are
also used to create a unique session key for each connection.
As an added layer of security for the user, we use the JAVA (R)
programming language to control Internet banking and bill pay sessions.
The JAVA(R) programs (called "applets") used in these sessions run within
the user's Internet browser, and are not allowed to access the user's hard
drive without specific authorization. Because the programmer of the applet
can't read or write to memory locations in the user's computer, this
technology minimizes the opportunity to introduce destructive coding (such
as a virus) to the user's computer.
CONTINUED DEVELOPMENT OF FEATURE-RICH APPLICATIONS. Our products
have been designed using "thin client architecture" which includes
complete Internet capability as well as our proprietary messaging features
and industry standard security features. With thin client architecture,
the applications being run are not permanently stored on the user's
computer. Instead, the applications reside on our server. The user logs
on to our server, and can then access and run the applications remotely to
process data. After the on-line connection is terminated, the
applications are erased from the user's computer memory. This enables us
to maintain control over our proprietary software since we do not provide
permanent copies to our users, and enables us to make upgrades of our
software immediately and efficiently available without having to
physically distribute individual copies. Thin client architecture also
minimizes our credit union customers' need to constantly upgrade their
hardware in order to keep up with the technology required to store and
maintain our application software. This results in cost savings to our
credit unions and minimizes the burdens associated with administering
hardware and software upgrades. Our network uses the JAVA(R) programming
language, which is platform independent and allows many kinds of systems
to talk to each other and share applications. Our transactional banking
products also provide scalability, distributive and centralized
implementation, and access using Web-enabled cellular devices.
DEVELOPMENT OF NEW PRODUCTS AND SERVICES. Concurrently with
expanding our Internet/intranet network, we plan to expand our product
offerings for credit unions. We are currently testing our bill paying and
automated virtual loan applications services.
We believe credit unions connected to the Internet will want to
provide their membership access to a variety of products and services to
increase membership retention and build customer loyalty. To meet this
need, we are establishing an affinity program through which we will be a
reseller of various products and services provided by third party vendors.
Our network model allows the addition of these products as they become
available. The products and services we plan to offer through our
affinity program include, for example, the following:
o long-distance telephone service
o new vehicle transactions
o retail ISP
o consumer products
o insurance products
o real estate transactions
o travel/rent-a-car services
o local services, such as concert and movie tickets
Each of our credit union customers will decide which products and
services to make available to their respective members. We can customize
a menu for each credit union and post that menu on the credit union's
website.
Plan of Operations
------------------
We target expansion of our network to over 2,400 credit unions across
the United States. Through this expansion our goal is to:
o provide access to Internet/intranet services to credit unions
serving 28 million members, with combined assets of over $146
billion
o offer affinity products to our credit union customers to
generate increased revenues
o develop new products based on proprietary intellectual property
To manage new customers connected to our credit union network, we
plan to establish a number of points of presence ("POPs") in key strategic
locations in the United States. A POP is a physical location housing a
switch that permits access by local credit unions to the industry network.
We expect to establish both manned and unmanned POPs. Each manned POP
will be located in a key strategic market with an average concentration of
more than 300 credit unions. Manned POPs will be opened upon the hiring
of sales agents to service the territory.
When our network of POPs is completed, we expect to have excess
server capacity available at multiple POPs so that network traffic can be
rerouted between POPs when circumstances require. We plan for all POPs to
be connected with all other POPs, either by point-to-point connection, by
private frame relay circuit, or by "virtual private network" technology
now available from third party vendors. This architecture is designed for
redundancy and disaster recovery, allowing us, with the cooperation of our
telecommunications provider, to pick up traffic temporarily from a
nonfunctional POP.
Our manned POP in Denver and our unmanned POP in Colorado Springs,
Colorado are completed and fully operational. We have hired sales
personnel for some sales territories. Recruiting efforts are underway to
staff a number of additional sales territories.
Market
------
We believe that the increased usage of the Internet and the
increasing demand for networking products and services will provide an
excellent opportunity for us to grow our business. Credit unions that
move rapidly to implement a full-featured, well-conceived network have an
opportunity to enhance the value of their individual client relationships.
Nationally, approximately 12,600 credit unions serve approximately 73
million customers. We have targeted the approximately 6,100 credit unions
with more than $5 million in assets each for our marketing efforts.
Marketing Strategy
------------------
Our sales team uses a face-to-face sales strategy that emphasizes:
o the features and functions of the network (such as online bill
paying, connectivity to credit union vendors, Internet access
and transactional banking)
o the fact that the network is host independent
o a bandwidth pricing model not directly driven by transaction
volume
We charge the credit unions connected to our network a fixed monthly
rate based on the amount of bandwidth they anticipate using. As
transactions over the network increase and as the number of members
accessing a credit union's website increases, the credit union will need
to increase the amount of bandwidth it uses. Each incremental increase in
bandwidth involves a price increase. To date, only one of our credit
union customers has increased its bandwidth requirement, but we anticipate
other customers will do so in the future.
We intend to place a direct sales force in each of our 19 planned
sales territories and to hire individuals who are familiar with the credit
union industry, are known by the credit unions in the sales territory and
have established relationships within the industry. Sales agents will
initially contact the primary decision makers (usually the president) at
the credit unions in their territories. The sales agent's job will be to
sell the idea of a secure, private network with Internet access,
emphasizing the features offered by our network, including the security
features as well as, the ability of the credit union to reduce personnel
and administrative costs even while providing 24 hour service to its
membership.
We have implemented an automated system to measure each credit
union's usage of the network. By monitoring each credit union's connect
usage, sales agents can advise existing customers of their need to
increase bandwidth. We also have established an informal
marketing/endorsement arrangement with a credit union league in Colorado
which has provided significant marketing advantages. We plan to target
credit union associations and leagues in other markets, such as North
Carolina, where serving a league is likely to enhance our profile with
credit unions in the region. The North Carolina Credit Union League
signed with us in March 1999 to provide secure ISP services to their
management and employees.
Competition
-----------
We operate in a highly competitive environment against a number of
network application developers and providers of online banking services.
Additionally, there is continuous market pressure among market
participants to offer new and innovative products and services. Moreover,
in this field, technological and new product development proceeds rapidly
and market share can be gained and lost in very short time periods.
A number of public and private companies compete with one or more of
the individual products and services offered by cavion.com. These
competitors include Digital Insight, Symitar Systems, Inc., Database
Management Services, Virtual Financial Services, Inc., CFI and Fiserv,
Inc. Any of these companies, as well as other potential competitors,
could in the future offer a combination of products and services to credit
unions similar to the combination offered by us. Presently, we believe
all these companies have greater financial, personnel and operational
resources than we have.
Customers/Rate of Growth
------------------------
We launched our credit union strategy in January 1998. In our first
three months of operations, we connected seven credit unions to the
network. We believe that we were the first Internet service provider in
the country to provide credit unions with secure transactional banking and
Internet service. By the end of August 1998, we were delivering secure
Internet access to 13 credit unions (including our first credit union
outside of Colorado) and one credit union league. To date, our network
includes 32 credit unions, two credit union leagues and one corporate
credit union. Nine of these customers are located out of state.
Intellectual Property and Proprietary Rights
--------------------------------------------
We have applied for federal registration of the trademark and service
mark "Cavion" and have registered the service mark "CUiNET". We also
claim a service mark in the name "cavion.com," although we have not yet
applied for a federal registration of that name.
We hold no United States or foreign patents covering our technology
and we have no pending patent applications. We have copyrights in
software and marketing materials used or related to our business, although
we have not registered any of our copyrights. While we expect to evaluate
the feasibility of making patent filings, registering our copyrights and
registering additional trademarks and service marks in the future, no
assurance can be given that any of our intellectual property will be
entitled to patent, copyright or trademark protection. We treat much of
our technology as trade secrets and take what we consider to be
appropriate measures to maintain the secrecy of our technology. Our
strategy in protecting our trade secrets includes limiting access only to
key employees who have a need to know our trade secrets in order to
perform their services, and who have signed confidentiality and
nondisclosure agreements. We further prevent unauthorized access to or
disclosure of our trade secrets by way of technical blocks built into our
technology. Despite our efforts to protect our proprietary software, in
which we claim both copyrights and trade secret protection, third parties
may still attempt to copy or use it, and others may attempt to develop
similar technology independently. There can be no assurance that the
measures we take to protect our intellectual property rights, or the
formal applications and registrations we may undertake in the future, will
completely deter unauthorized use, copying, or destruction of our
proprietary technology, or that we will have adequate legal redress in
such cases.
We currently use security technology under license from third
parties. We believe that our products and services, including our
trademarks and other intellectual property rights, do not infringe on the
proprietary rights of third parties. It is possible, however, that third
parties will assert infringement claims against us in the future with
respect to products or services we currently offer or may offer in the
future, or with respect to technology we utilize under license from
others. Any litigation resulting from assertions of infringement could be
costly to us, and given the limited number of our key employees, may
disrupt our on-going efforts to develop and expand our business and
technology.
Property
--------
Our corporate headquarters are located at 7475 Dakin Street, Suite
607, Denver, Colorado 80221 in an office facility where we lease
approximately 4,600 square feet under a lease that expires on December 31,
1999. We maintain a sales and engineering office and point of presence
("POP") for the network in an office facility in Colorado Springs,
Colorado which we lease on a month-to-month basis. We plan to establish
sales and engineering offices, manned POPs and unmanned POPs in leased
facilities across the United States. To date, we have leased four such
facilities. We have entered into a lease for office space in Raleigh,
North Carolina consisting of 879 square feet expiring February 28, 2002; a
lease in Bloomington, Minnesota for office space consisting of 1,098
square feet expiring March 14, 2002; a lease in San Diego, California for
1,162 square feet of office space expiring February 28, 2002; and a lease
in Newark, Delaware for 1,047 square feet, expiring May 1, 2004. We are
currently negotiating leases for facilities in Portland, Oregon and
Livonia, Michigan.
We maintain our computer system in our Denver, Colorado
facility. We currently maintain an insurance policy covering this
equipment for full replacement value.
Employees
---------
We currently employ 26 full-time employees. None of our employees
are represented by a labor union, and we have never experienced a work
stoppage. We consider our relationships with our employees to be good.
Government Regulations
----------------------
We are not required to obtain a Federal Communications Commission
license as a telecommunications carrier, but may be required to comply
with FCC regulations applicable to non-dominant telecommunications
carriers, including payment of "universal service" fees on end user
revenues not derived from Internet access services.
While we are not subject to the Glass-Steagall Act of 1933, the Bank
Holding Company Act of 1956, the Competitive Equality Banking Act of 1987,
the Federal Credit Union Act of 1934, nor are we regulated by the National
Credit Union Administration ("NCUA") or the Federal Reserve Board, we are
concerned with regulations governing financial institutions (especially
credit unions) and how those regulations will affect the market and our
ability to provide services as presently planned.
A credit union is a cooperative financial institution, owned and
controlled by the members who use its services. Credit unions are non-
profit organizations that are state or federally chartered. Credit unions
are regulated closely by the NCUA.
On August 7, 1998, the Credit Union Membership Access Act of 1998
(the "Act") was signed into law. Title I of the Act permits federally
chartered credit unions to solicit credit union members from more than one
occupational group so long as each group has fewer than 3,000 members.
The Act also allows credit unions to make business loans to its members as
long as the total amount of such loans does not exceed 1.75 times the
credit union's actual net worth. This limitation does not apply to credit
unions chartered primarily to make business loans, to serve low-income
members, or as community development financial institutions. Full
implementation of the Act requires issuance of implementing regulations by
the NCUA. The Act will potentially increase the activity of federal
credit unions in the financial marketplace as it presents new
opportunities for the federal credit unions to expand their customer base.
Legal Proceedings
-----------------
At LanXtra's shareholders meeting on January 15, 1999, to consider
the sale of LanXtra's assets to us, Kirk W. Dennis, a LanXtra shareholder
holding 50,000 shares, or 17.45% of its outstanding shares at the time,
voted against the transaction. Under Colorado law, a shareholder voting
against a sale-of-assets transaction has the right to dissent from the
sale and obtain payment of the fair value of the shareholder's shares.
Fair value, in general, means the value of the shares immediately before
the effective date of the corporate action to which the dissenter objects.
We have assumed the liability, if any, of LanXtra to the dissenting
shareholder. On or about March 12, 1999, Mr. Dennis demanded payment for
the value of his 50,000 shares immediately before the effective date of
the asset sale which he asserted to be $250,000. Because we could not
reach an agreement with Mr. Dennis as to the fair value of his shares, we
filed a lawsuit against him on June 1, 1999 titled LanXtra, Inc. v. Kirk
W. Dennis, Case No. 99 CV 3583 in the District Court, City and County of
Denver, Colorado to resolve the matter. While we could be required to
purchase his shares from him at the fair value determined in the
proceeding, we believe that the value paid on account of these shares
under the asset purchase agreement is greater than the amount which he
could recover under Colorado law and substantially less than the value of
the shares upon consummation of this offering. Therefore, we have not
reserved any funds to cover payment of the liability. If Mr. Dennis
nevertheless obtains an award of a substantial amount as fair value, it
could have a materially adverse effect on our financial condition.
Further, a payment to this dissenting shareholder could result in the
transaction in which we purchased the business of LanXtra becoming a
taxable transaction, which could expose us to significant tax liability.
(See "Risk Factors - Dissenting LanXtra Shareholder").
Company History
---------------
We were originally incorporated under the name Network Acquisitions,
Inc. ("NAI") in August 1998 for the purpose of acquiring the assets and
business operations of LanXtra, Inc. ("LanXtra"). LanXtra was
incorporated in June 1992 under the name Sigmacom Corporation and was
originally engaged in the business of integrating computer networks and
communications technologies for large business and government clients. In
1997, LanXtra created a software development division to develop network-
based financial services software for credit unions. In December 1997,
LanXtra sold its network integration business. Using funds received in
the sale, the software development group continued as a start-up, and
began building the business we eventually acquired in 1999. On January
27, 1998, LanXtra changed its name from Sigmacom Corporation to Cavion
Technologies, Inc., and, on February 1, 1999, to LanXtra, Inc.
Prior to our acquisition of substantially all of the assets and
business operations of LanXtra (including the assumption of LanXtra's
liabilities) we did not conduct any business operations except preparation
for the acquisition, including providing bridge funding to LanXtra with
funds raised through a private placement of promissory notes and related
warrants. (See "Capitalization" and "Certain Relationships and Related
Transactions"). The definitive purchase agreement between us and LanXtra
was signed on December 31, 1998, and closed on February 1, 1999. On
February 1, 1999, we changed our name to Cavion Technologies, Inc. and
began to conduct some of our business under the trade name cavion.com.
MANAGEMENT
<TABLE>
<CAPTION>
Executive Officers and Directors
- --------------------------------
<S> <C> <C>
Name Age Position
---- --- --------
David J. Selina 49 President,
Chief Operating Officer, Chief
Executive Officer and Director
Marshall E. Aster 45 Chief Financial Officer
Jeffrey W. Marshall 33 Vice
President of Software Development
and Director
Andrew I. Telsey 46 Director
Stephen B. Friedman 57 Director
Key Employees
- -------------
Name Age Position
---- --- --------
Daniel W. Dudley 39 Vice
President of Affinity Products
William Ed Davis 49 Vice
President of Network Services
</TABLE>
DAVID J. SELINA. Mr. Selina has served as our President, Chief
Operating Officer and a director since February 1, 1999. He was also
appointed as our Chief Executive Officer and Chairman of the Board on
March 19, 1999. Mr. Selina has been the President and Chief Operating
Officer of LanXtra, Inc. since December 1997 and a director since January
1998. LanXtra has no current operations. From June 1995 to June 1997,
Mr. Selina was the President and CEO of Lasertec, Inc., a mailing and
fulfillment operation in Auburn Hills, Michigan. He was the Regional
Manager of the Credit Union Services Division for Electronic Data Systems
("EDS") from November 1993 to June 1995. At EDS, Mr. Selina was
responsible for five separate data processing products serving credit
unions. In 1993, Mr. Selina participated in the sale of World Computer
Corporation, a $23 million company, to Electronic Data Systems. World
Computer was a leading provider of data processing systems and services to
credit unions throughout the U.S. and Canada. Mr. Selina held various
management positions, including President and Chief Executive Officer, at
World Computer, from March 1986 to November 1993. Mr. Selina received his
education at Henry Ford Community College and Oakland University, both
located in southeastern Michigan, between 1970 and 1976.
MARSHALL E. ASTER. Mr. Aster became our Chief Financial Officer on
March 8, 1999 and our Secretary on March 22, 1999. Mr. Aster was the
Chief Financial Officer at Intertech Plastics, Inc., a plastics
manufacturer in Denver, Colorado from May 1997 to July 1998. Prior to
that time, he served in the positions of Vice President of Finance and
Administration and Senior Vice President of Finance and Administration at
EDI, Inc., a technology based information service located in Los Angeles,
California, from October 1989 until May 1997. Mr. Aster also served in
the positions of Director Corporate Financial Planning, Vice President
Corporate Financial Planning and Senior Vice President of Corporate
Financial Planning at Lorimar-Telepictures Corporation, an entertainment
company, from March 1984 to October 1989. He is a member of AICPA and
Colorado Society of CPAs. He is also a director for the Financial
Executive Institute's Rocky Mountain Chapter. He received a Bachelor of
Science in Accounting in 1975 from the State University of New York in
Binghamton, New York.
JEFFREY W. MARSHALL. Mr. Marshall has served as our Vice President
of Software Development since February 1, 1999. He became one of our
directors on May 27, 1999. He was the Vice President of Software
Development at LanXtra, Inc. from December 1997 until he joined us. Prior
to his promotion to Vice President at LanXtra, he was a software engineer
since July 1996. At LanXtra, Mr. Marshall was responsible for the design
and development of the company's Internet software interfaces including,
transactional banking, bill paying, smart cards and multimedia kiosks.
Mr. Marshall was a programmer for Chemical Waste Management, a waste
treatment concern in Denver, Colorado from September 1994 to July 1996.
At Chemical Waste Management, he developed lab database software and
technical services billing software. From August 1993 to September 1994,
Mr. Marshall developed relational database software for Williams Thatcher
Rand/Milliman & Robertson, actuarial consultants in Denver, Colorado. He
received a degree in Mathematics from Colorado State University in 1991.
ANDREW I. TELSEY. Mr. Telsey has served as one of our directors
since January 1, 1999. He also served as our President, Secretary and
Treasurer from January 1, 1999 to February 1, 1999. Since 1984, Mr.
Telsey has been employed by Andrew I. Telsey, P.C., a private legal
practice founded by Mr. Telsey that same year. Mr. Telsey's firm
emphasizes business law, including transactions, securities compliance
matters, and mergers and acquisitions. From January 1997 to the present,
Mr. Telsey has been the President, a director and the sole shareholder of
Venture Funding, Ltd., a privately held investment banking firm, whose
primary activities include identifying companies exiting their development
stage, providing funding for such companies and taking companies into the
public market. Venture Funding, Ltd. is our company's largest
shareholder. Mr. Telsey is an officer and director of one reporting
company under the 1934 Act, Mully Corp., a Nevada company which has not
commenced operations. Between 1986 and 1988, Mr. Telsey served as
President and Director of International Financial Consultants, Ltd., a
privately held corporation which prepared feasibility studies along
international standards and performed due diligence efforts on behalf of
international entities interested in financing commercial and residential
real estate projects and acquiring businesses in North America. Mr.
Telsey received a Bachelor of Arts degree in Politics and a New York
teaching certificate from Ithaca College in 1975 and a Juris Doctorate
degree from Syracuse University in 1979.
STEPHEN B. FRIEDMAN. Mr. Friedman became one of our directors on
April 1, 1999. He has been a business consultant to various companies
from January 1997 to the present. Mr. Friedman was the President of the
Asia/Pacific division of American Express Company, a travel related
service company located in Tokyo and Hong Kong from July 1993 to December
1996. Prior to that time he served in various executive positions at
American Express from October 1978 to June 1993. Mr. Friedman was the
Vice President and General Counsel at Carte Blanche Corporation, a credit
card company located in Los Angeles, California, from 1969 to 1978 and
Corporate Counsel for the Securities Division of the California Department
of Corporations from 1967 to 1969. He received A.B. in Political Science
from the University of California at Los Angeles in 1963 and L.L.B. degree
from the same University in 1966.
DANIEL W. DUDLEY. Mr. Dudley became our Vice President of Affinity
Products on June 1, 1999. From April 1997 to May, 1999, Mr. Dudley was
the Senior Vice President and General Manager at SkyTeller, L.L.C. in
Denver, Colorado, where he was responsible for the development and
implementation of the company's Global Distribution System and Internet
foreign currency businesses. From December 1991, he was Director -
Performance Consulting at The Polk Company in Denver, providing advanced
technologies consulting to direct marketing companies. In January 1995,
The Polk Company promoted him to Vice President - List and Data Products,
with strategic responsibility for the company's leading database products,
and he served in that capacity until April 1997. Mr. Dudley received his
B.B.A. in Finance in 1982 and his M.S. in Operations Research in 1990,
both from The George Washington University in Washington, D.C.
WILLIAM ED DAVIS. Mr. Davis became our Vice President of Network
Services on June 1, 1999. As National Director of IP Operations (Acting)
at Qwest Communications in Denver, Colorado from April 1999 until he
joined us, Mr. Davis was responsible for staffing the company's west and
east coast hosting centers. Prior to that, Mr. Davis was Director of IP
Operations Engineering at Qwest from January 1999 to April 1999, with
responsibility for team leadership in the design of Qwest IP Data Centers
and other aspects of the company's national network, and was Senior
Manager of Internet Collocation Services at Qwest from June 1998 to
January 1999, with team leader responsibility in the operations of the
Denver Data Center. He served as Manager of Network Systems from January
1993 to June 1998, and as Supervisor of Telecommunications/PC Support from
November 1991 to January 1993 at Western Gas Resources Inc. in Denver.
His responsibilities included strategic and management responsibility for
telecommunications and supervision of support for desktop and network
systems. Mr. Davis received his education from the State Technical
Institute in Memphis, Tennessee.
Committees Of Board Of Directors
- --------------------------------
The board of directors is currently acting as our compensation
committee. The members of the compensation committee, when appointed by
the board, will be persons who qualify to serve on the committee under the
provisions of Rule 16b-3 of the Securities Exchange Act of 1934 and
Treasury Regulation Section 1.162-27(e)(3). The compensation committee
evaluates our compensation policies and administers our Equity Incentive
Plan. The audit committee will review the scope of our audit, the
engagement of our independent auditors and their audit reports. The audit
committee will also meet with the financial staff to review accounting
procedures and reports. The audit committee currently consists of Messrs.
Telsey and Friedman. We intend to appoint another board member to the
audit committee.
Director Compensation
- ---------------------
While we do not pay directors cash compensation, they are reimbursed
for the expenses they incur in attending meetings of the board or board
committees. Directors may receive options to purchase common stock
awarded under our Equity Incentive Plan at the discretion of the
compensation committee. (See "Equity Incentive Plan"). Mr. Telsey was
granted a ten year option to purchase 27,500 shares on March 19, 1999,
subject to vesting of 6,875 shares at the end of each calendar quarter
beginning June 30, 1999. Mr. Friedman was granted a ten year option to
purchase 27,500 shares on April 1, 1999 subject to the same vesting
schedule as Mr. Telsey. All of the director options were granted at the
private placement price of $3.00 per share.
EXECUTIVE COMPENSATION
The following table sets forth information for the last three fiscal
years ended December 31, concerning compensation we paid to the chief
executive officer and the other two most highly compensated executive
officers we employed during such fiscal years.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------
Fiscal Other Annual
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ------ -------- ----- ------------
<S> <C> <C> <C> <C>
David J. Selina(1) 1998 $105,402 -0- -0-
President, Chief Executive 1997 $ 8,333 -0- -0-
Officer and Chief 1996 $ 0 -0- -0-
Operating Officer
Jeffrey W. Marshall(2) 1998 $ 76,333 -0- -0-
Vice President of 1997 $ 56,426 -0- -0-
Software Development 1996 $ 20,484 -0- -0-
Craig E. Lassen(3) 1998 $ 75,481 -0- -0-
Former Chairman of the Board 1997 $ 68,747 -0- -0-
and Chief Executive Officer 1996 $ 48,000 -0- -0-
</TABLE>
(1) The compensation paid to Mr. Selina in 1997 and 1998 was paid by
LanXtra, Inc. He became employed by LanXtra in December 1997 and payment
of the amount reported for 1997 was deferred until January 1998. Mr.
Selina did not become an officer of our company until February 1, 1999.
(2) The compensation paid to Mr. Marshall in 1996, 1997 and 1998 was paid
by LanXtra, Inc. Mr. Marshall did not become an officer of our company
until February 1, 1999.
(3) The compensation paid to Mr. Lassen in 1996, 1997 and 1998 was paid
by LanXtra, Inc. Mr. Lassen did not become an officer of our company
until February 1, 1999. His resignation as an officer and as a director
of our company was effective March 18, 1999.
The named executive officers did not receive perquisites or other
personal benefits the aggregate annual amount of which was the lesser of
either $50,000 or 10% of the total of annual salary and bonus reported for
such executive officer.
None of our executive officers received options to purchase our
common stock in 1998. After we adopted the Equity Incentive Plan, in
March of 1999 Mr. Selina was granted 150,000 options, Mr. Aster was
granted 40,000 options, and Mr. Marshall was granted 50,000 options, all
of which they may exercise for a period of ten years at $3.00 per share.
Mr. Aster's options vest over a fifteen month period from his start date
of March 8, 1999, one quarter after 6 months, and another quarter every
three months thereafter. Mr. Selina's and Mr. Marshall's options vest
over an eighteen month period, with one third vesting every six months.
(See "Equity Incentive Plan").
In August 1998, Mr. Selina was granted a five-year option to purchase
42,970 shares of LanXtra common stock at $2.75 per share, and a five year
option to purchase 74,761 shares of LanXtra common stock at $7.50 per
share. At the same time, Mr. Marshall was granted a five-year option to
purchase 28,646 shares of LanXtra common stock at $2.75 per share, and a
five year option to purchase 49,840 shares of LanXtra common stock at
$7.50 per share. In November 1997, Mr. Lassen was granted a five-year
option to purchase 270,000 shares of LanXtra common stock at $7.50 per
share. All of the LanXtra options were cancelled as of December 31, 1998
pursuant to an agreement between LanXtra and each of the optionees.
Employment Agreements
- ---------------------
Under an employment agreement dated February 1, 1999, David J. Selina
agreed to serve as our President and a director. Under the agreement, Mr.
Selina receives a base salary of $125,000 per year, participation in a
cash bonus pool based upon our business goals and profitability as
determined by our board of directors, as well as other employee benefits.
On March 19, 1999, our board named Mr. Selina as our Chief Executive
Officer and Chairman of the Board.
Marshall E. Aster agreed to serve as our Chief Financial Officer
under an employment agreement effective March 8, 1999. Under the
agreement, Mr. Aster receives a base salary of $105,000, participation in
the bonus pool described above, and other employee benefits.
Under an employment agreement dated February 1, 1999, Jeffrey W.
Marshall agreed to be our Vice President of Software Development at a base
salary of $100,000 per year. Mr. Marshall is entitled to participate in
the bonus pool described above, as well as other employee benefits.
Effective May 1, 1999, our board increased Mr. Marshall's salary to
$125,000 per year.
Craig E. Lassen agreed to serve as our Chairman of the Board and
Chief Executive Officer under an employment agreement dated February 1,
1999. Under the agreement, Mr. Lassen was to receive a base salary of
$125,000, participation in the bonus pool described above, and other
employee benefits. Mr. Lassen's resignation as Chairman of the Board,
Chief Executive Officer and a director was effective March 18, 1999. His
resignation as an employee was effective April 16, 1999. We recently
entered into an agreement with Mr. Lassen under which he will provide
consulting services to cavion.com until April 15, 2000 and will receive a
total of $75,000 as payment for his services.
Under all of the employment contracts, if any executive is terminated
other than for dissolution of the company, death, disability or cause, or
the executive is terminated or resigns for good reason within three months
after a change of control of our company, the executive will be entitled
to severance compensation. Severance pay is equal to twelve months of
base salary as in effect at the time of termination, except for Mr. Aster,
whose severance pay is equal to six months of base salary, increasing to
twelve months on the first anniversary of employment if the Company is
profitable on an after-tax basis at that time or, if it is not, on the
second anniversary of employment.
In addition, each of Mr. Selina, Mr. Aster, Mr. Marshall and Mr.
Lassen agreed under the employment contracts to protect our confidential
information, to refrain from soliciting our customers or employees for a
competing business, and to assign to us all rights in intellectual
property developed during the term of employment that relates to our
business. These obligations survive termination of employment for periods
of one to three years, and in some cases longer.
EQUITY INCENTIVE PLAN
Our board of directors adopted the Equity Incentive Plan (the "Plan")
as of March 19, 1999. The Plan provides for grants of incentive stock
options, nonqualified stock options, restricted stock and stock
appreciation rights to our designated employees, officers, directors,
advisors and independent contractors. By encouraging stock ownership, we
seek to motivate such individuals to participate in the increased value of
our company which their effort, initiative, and skill have helped produce.
GENERAL. The Plan authorizes up to 750,000 shares of common stock
for issuance under the terms of the Plan. No more than 250,000 shares in
the aggregate may be granted to any individual in any three year period.
If options granted under the Plan expire or are terminated for any reason
without being exercised, or shares of restricted stock are forfeited, the
shares of common stock underlying such grant will again be available for
purposes of the Plan.
ADMINISTRATION OF THE PLAN. After we become a public company, the
compensation committee of the board of directors will administer and
interpret the Plan. Currently, the board of directors is acting as our
compensation committee. The compensation committee, when appointed by the
board, will consist of two or more directors, each of whom must be a "non-
employee director" as defined by Rule 16b-3 under the Securities Exchange
Act of 1934, and an "outside director" as defined by Section 162(m) of the
Internal Revenue Code of 1986 and related Treasury regulations. The
compensation committee has the sole authority to:
o determine the individuals to whom grants shall be made under the
Plan
o determine the type, size and terms of the grants to be made to
each such individual
o determine the time when the grants will be made and the duration
of any applicable exercise or restriction period, including the
criteria for vesting and the acceleration of vesting
o determine the total number of shares of common stock available
for grants
o deal with any other matters arising under the Plan
The board of directors (with members of the compensation committee
abstaining) has the authority to make grants under the Plan to members of
the committee and may also establish a formula by which grants will
automatically be made to members of the compensation committee. The
compensation committee has the authority to make grants to members of the
board of directors other than committee members and may also establish a
formula by which grants will automatically be made to board members.
GRANTS. Grants under the Plan may consist of:
o options intended to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code
o nonqualified stock options that are not intended to so qualify
o restricted stock
o stock appreciation rights
ELIGIBILITY FOR PARTICIPATION. Grants may be made to employees,
officers, directors, advisors and independent contractors of our company
and its subsidiaries, including any non-employee member of the board of
directors. As of June 1, 1999, 403,500 options were outstanding under the
Plan.
OPTIONS. Incentive stock options may be granted only to officers and
directors who are employees. Nonqualified stock options may be granted to
employees, officers, directors, advisors and independent contractors. The
exercise price of common stock underlying an option will be determined by
the compensation committee and may be equal to, greater than, or less than
the fair market value but in no event less than 50% of fair market value;
provided that:
o the exercise price of an incentive stock option shall be equal
to or greater than the fair market value of a share of common
stock on the date such incentive stock option is granted
o the exercise price of an incentive stock option granted to an
employee who owns more than 10% of the common stock must not be
less than 110% of the fair market value of the underlying shares
of common stock on the date of grant
The participant may pay the exercise price:
o in cash
o by delivering shares of common stock owned by the participant
and having a fair market value on the date of exercise equal to
the exercise price of the grant
o by such other method as the compensation committee shall
approve, including payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve
Board
Options vest according to the terms and conditions determined by the
compensation committee.
The compensation committee will determine the term of each option up
to a maximum of ten years from the date of grant except that the term of
an incentive stock option granted to an employee who owns more than 10% of
the common stock may not exceed five years from the date of grant. The
compensation committee may accelerate the exercisability of any or all
outstanding options at any time for any reason.
RESTRICTED STOCK. The compensation committee will determine the
number of shares of restricted stock granted to a participant, but may not
exceed the maximum plan limit described above. Grants of restricted stock
will be conditioned on such performance requirements, vesting provisions,
transfer restrictions or other restrictions and conditions as the
compensation committee may determine in its sole discretion. The
restrictions shall remain in force during a restricted period set by the
compensation committee.
STOCK APPRECIATION RIGHTS. The compensation committee may grant a
participant the right to receive, in cash, the amount of any appreciation
in the value of our stock over the exercise price of the stock
appreciation right, which is set by the committee at the time of grant.
The compensation committee has the same discretion to determine the terms
of stock appreciation rights (including exercise price and vesting
schedule) that it has in the case of nonqualified stock options.
TERMINATION OF EMPLOYMENT. If a participant leaves our employment
(other than because of retirement, death or disability), the participant
will forfeit any stock options or stock appreciation rights that are not
yet vested, and any restricted stock for which the restrictions are still
applicable, unless the participant remains as a non-employee director,
advisor or independent contractor.
AMENDMENT AND TERMINATION OF THE PLAN. The compensation committee
may amend or terminate the plan at any time, except that it may not make
any amendment that requires shareholder approval pursuant to Rule 16b-3 of
the Securities Exchange Act of 1934 or Section 162(m) of the Internal
Revenue Code without shareholder approval. The Plan will terminate on the
day immediately preceding the tenth anniversary of its effective date,
unless terminated earlier by the compensation committee.
ACCELERATION OF RIGHTS AND OPTIONS. If our board of directors or
shareholders agree to dispose of all or substantially all of our assets or
stock, any right or option granted will become immediately and fully
exercisable during the period from the date of the agreement to the date
the agreement is consummated (or, if earlier, the date the right or option
is terminated in accordance with the Plan). No option or right will be
accelerated if the shareholders immediately before the contemplated
transaction will own 50% or more of the total combined voting power of all
classes of voting stock of the surviving entity (whether it is us or some
other entity) immediately after the transaction.
SECTION 162(M). Under Section 162(m) of the Internal Revenue Code,
we may be precluded from claiming a federal income tax deduction for total
remuneration in excess of $1.0 million paid to the chief executive officer
or to any of the other four most highly compensated officers in any one
year. Total remuneration would include the value of stock options,
restricted stock and stock appreciation rights granted under the Plan. An
exception does exist, however, for "performance-based compensation,"
including amounts received upon the exercise of stock options pursuant to
a plan approved by shareholders that meets certain requirements. We will
ask the shareholders to approve the Plan at the next annual or special
meeting of shareholders so that grants of options under the Plan meet the
requirements of "performance-based compensation." Awards of restricted
stock generally will not qualify as "performance-based compensation."
PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of shares of
our stock owned as of June 9, 1999 by any person we know to be the owner
of 5% or more. In addition, we have included what is owned by each
director of our company, by the officers we consider as executive officers
under federal securities laws, and by all of our directors and executive
officers as a group. The information we have provided as to beneficial
ownership is based upon statements furnished to us by such persons. For
purposes of this chart, the amount of our common stock beneficially owned
is the aggregate number of shares of the common stock outstanding on June
9, 1999, plus an amount equal to the aggregate amount of common stock
which could be issued upon the exercise of stock options within 60 days of
June 9, 1999.
<TABLE>
<CAPTION>
Number of
Shares of Percent of Ownership
Common Stock ---------------------
Name of Beneficially Before After
Beneficial Owner Owned Offering(1) Offering
- ---------------- ------------ ----------- --------
<S> <C> <C> <C>
Venture Funding, Ltd.(2) 902,452 33.3% 19.6%
2581 S. Parker Road #720
Aurora, CO 80014
Boutine, LLC(3) 738,370 27.3% 16.0%
5460 S. Quebec St. #220
Englewood, CO 80111
David J. Selina 209,055 7.7% 4.5%
7475 Dakin Street #607
Denver, CO 80221
Marshall E. Aster 0 * *
7475 Dakin Street #607
Denver, CO 80221
Jeff Marshall 209,055 7.7% 4.5%
7475 Dakin Street #607
Denver, CO 80221
Andrew I. Telsey(4) 917,727 33.8% 19.9%
2851 S. Parker Road, #720
Aurora, CO 80014
Stephen B. Friedman(5) 6,875 * *
P.O. Box 8279
Beaver Creek, CO 81620
LanXtra, Inc.(6) 376,299 13.9% 8.2%
7475 Dakin Street #607
Denver, Colorado 80221
Craig E. Lassen(7) 209,055 7.7% 4.5%
245 Poplar Street
Denver, CO 80220
All directors and
executive officers as
a group (4 persons)(8) 1,342,712 49.4% 29.1%
</TABLE>
*Less than one percent
(1) Does not include the 1,200,000 shares of common stock to be issued in
this offering, the 180,000 over-allotment shares, or the 700,000 shares of
common stock into which the preferred stock will be converted upon
consummation of the offering.
(2) The sole shareholder of Venture Funding, Ltd. is Andrew I. Telsey,
one of our directors.
(3) The sole member of Boutine, LLC is Julie Graham who is the spouse of
Gary Graham, the President of First Capital Investments, Inc., the agent
for our private placement of promissory notes and warrants in October
1998. (See "Certain Relationships and Related Transactions").
(4) Includes 902,452 shares owned by Venture Funding. Ltd. of which Mr.
Telsey is the sole shareholder. Includes 8,400 shares owned by certain
trusts for which Mr. Telsey is the trustee, but for which he disclaims any
beneficial ownership to the shares owned by each of them. Also includes
options to purchase 6,875 shares.
(5) Consists of options to purchase 6,875 shares.
(6) Consists of shares of common stock distributed to LanXtra, Inc. for
the assets of that company. These shares will continue to be voted by the
management of LanXtra, Inc. (or its successor company) until they are
distributed to LanXtra shareholders after the completion of this offering.
(See "Certain Relationships and Related Transactions").
(7) Does not include 98,520 shares of common stock that Mr. Lassen will
receive when a distribution is made by LanXtra, Inc. (or its successor
company) of the shares of common stock it received for the sale of its
assets to cavion.com. (See "Certain Relationships and Related
Transactions"
(8) Includes options to purchase 13,750 shares.
Unless otherwise noted, we believe all persons named in the table
have sole voting and investment power with respect to all shares
beneficially owned by them.
Change in Control
- -----------------
As far as is known to our board of directors or management, there are
no arrangements, including any pledge by any person of securities of
cavion.com, the operation of which might, at a subsequent date, result in
a change in control of the company.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 19,970,000 shares of Class A
common stock, $.0001 par value per share; 30,000 shares of Class B common
stock, $.0001 par value per share; and 10,000,000 shares of preferred
stock, par value $.0001 per share.
COMMON STOCK
The Class A and Class B common stock are identical in all respects
except that the Class B common stock is subject to an option (put) for the
holder to sell the shares to us at $7.00 per share, and a parallel option
(call) for us to buy the shares from the holder at $7.00 per share. The
put is exercisable only during a 60-day exercise period beginning on the
date that is 30 days after the 100 Credit Union Date. The call is
exercisable at any time after issuance of the Class B common stock and
prior to the end of the exercise period. If at the end of the exercise
period neither the put or the call has been exercised for any shares of
Class B common stock, then each share of Class B common stock will
automatically convert into one share of Class A common stock, effective on
the day after the last day of the exercise period. The authorization for
issuance of the Class B common stock will automatically terminate on the
earlier of the date on which the exercise notices for either the put or
call have been issued for the Class B common stock, or the date of
automatic conversion of all outstanding shares of Class B common stock
described above. Holders of the common stock are entitled to receive, as,
when and if declared by the board of directors from time to time, such
dividends and other distributions in cash, stock or property from our
assets or funds legally available for such purposes, subject to any
dividend preferences that may be attributable to preferred stock that is
outstanding. Holders of the common stock are entitled to one vote for
each share held of record on all matters on which shareholders may vote.
There are no preemptive, conversion, redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of
common stock are fully paid and nonassessable. In the event of our
liquidation, dissolution or winding up, holders of common stock are
entitled to share ratably in the assets available for distribution.
PREFERRED STOCK
Our board of directors, without further action by the shareholders,
is authorized to issue an aggregate of 10,000,000 shares of preferred
stock in one or more series. Our board of directors may, without
shareholder approval, determine the dividend rates, redemption prices,
preferences on liquidation or dissolution, conversion rights, voting
rights and any other preferences. No such preferred stock may have voting
rights except as provided by Section 7-110-104 of Colorado law which
permits voting by the holders of any class of shares on amendments to
articles of incorporation that would affect the rights of holders of such
class. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control without further action of the
shareholders. The board of directors authorized the issuance of 770,000
shares of nonvoting Series A preferred stock in February 1999 of which
700,000 were issued to accredited investors in March and April 1999 in a
private offering. The other 70,000 shares are subject to a preferred
stock purchase warrant issued to NTB as the placement agent for the
private placement. Each share of preferred stock is convertible at any
time at the holder's option into one share of Class A common stock.
Automatic conversion of the preferred stock will occur upon the earlier to
occur of the consummation of the public offering of Class A common stock
in this prospectus or the date specified in a notice delivered by us any
time after January 1, 2004. Commencing on the date of issuance of the
preferred stock through the date of conversion, each holder will receive,
when, as and if declared by the board of directors, cumulative
preferential dividends at the rate of 5% per annum. Dividends are payable
quarterly either in cash or in shares of Class A common stock at our
option. All accrued and unpaid dividends will be paid upon conversion of
the preferred stock. Upon any liquidation, dissolution or winding up of
the company, whether voluntary or involuntary, the holders of the
preferred stock will be entitled to receive $6.00 per share, plus accrued
and unpaid dividends on the date fixed for distribution of assets prior to
and in preference to any distribution or payment of assets to holders of
our common stock. Since the conversion of the preferred stock into common
stock is expected to occur upon consummation of the public offering, it is
not expected that this right will be effected. In the 1999 private
placement memorandum, we agreed to include in this offering all of the
shares of common stock into which the preferred stock sold in the private
placement is convertible. However, each purchaser of our preferred stock
had to agree that their registered shares of common stock could not be
sold for nine months from the effective date of this prospectus without
the written consent of our underwriter. See "Lock-Up Arrangements" and
"Plan of Distribution".
PREFERRED STOCK WARRANT
We have warrants outstanding for the purchase of 70,000 shares of our
preferred stock. The warrants are exercisable at $3.00 per share for a
period of five years. Shares of our preferred stock are automatically
converted into Class A common stock upon consummation of the offering. If
Neidiger, Tucker, Bruner, Inc. ("NTB") exercises its warrants after the
consummation of the offering, the shares of preferred stock issuable upon
exercise of the warrants will be convertible into shares of Class A common
stock at the option of NTB. The warrants were issued to NTB in connection
with the February 1999 private placement of preferred stock described in
the preceding paragraph.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Our bylaws provide that any action that may be taken at a meeting of
the shareholders may be taken without a meeting if such action is
authorized by the unanimous written consent of all shareholders entitled
to vote at a meeting for such purposes. Since cavion.com has numerous
shareholders at this time and will have a much greater number after this
offering, it is not likely that action by unanimous written consent of the
shareholders is feasible.
SPECIAL MEETINGS
Our bylaws provide that special meetings of our shareholders may be
called by the board, by our president or by one or more written demands
for the meeting, stating the purposes for which it is to be held, signed
and dated by the holders of shares representing at least 10 percent of all
the votes entitled to be cast on any issue proposed to be considered at
the meeting. This provision may make it difficult for shareholders to
take action opposed by the board.
AMENDMENTS TO OUR BYLAWS
Our bylaws provide that they may be amended or repealed by the
shareholders or, except to the extent limited by Colorado law, by the
board of directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Colorado Business Corporation Act provides the power to indemnify
and pay the litigation expenses of any officer, director or agent who is
made a party to any proceeding. Our articles of incorporation also
provide for indemnification of our officers and directors for liabilities
arising out of their service to us to the maximum extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling
cavion.com pursuant to the foregoing provisions, we have been informed
that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Our bylaws provide that the company shall indemnify any person
against all liability and expense incurred by any reason of the person
being or having been a director or officer of the company to the full
extent and in any manner that directors may be indemnified under Colorado
law, our bylaws, a resolution of the board of directors or shareholders,
by contract or otherwise so long as such provision is legally permissible.
At the discretion of the board of directors, the company may also
indemnify any employee, fiduciary or agent who is not a director or
officer to the same extent as a director or officer.
Our bylaws authorize us to take steps to ensure that all persons
entitled to the indemnification are properly indemnified, including if the
board of directors so determines, purchasing and maintaining insurance.
We have also entered into indemnification agreements with our
officers and directors to indemnify them and to advance expenses to the
fullest extent permitted by law either in connection with the
investigation, defense, adjudication, settlement or appeal of a proceeding
or in connection with establishing or enforcing a right to indemnification
or advancement of expenses. In addition, the agreement provides that no
claim or cause of action may be asserted by us against such director or
officer after two years from the date of the alleged act or omission,
provided that if in fact the person has fraudulently concealed the facts,
then no claim or cause of action may be asserted after two years from the
earlier of the date we discover the facts or the date we should have
discovered such facts by the exercise of reasonable diligence. The term
of the agreement and our obligations apply while the person is our agent
and continues thereafter so long as the person is subject to any claim by
reason of the fact that he or she served as our agent.
LIMITATION OF LIABILITY
Our articles of incorporation provide that none of our directors
shall be personally liable to us or our shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability:
o for any breach of the director's duty of loyalty
o for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law
o for the payment of unlawful dividends and certain other
acts prohibited by Colorado corporate law
o for any transaction resulting in receipt by the director of
an improper personal benefit
We intend to obtain directors and officers' liability insurance to
provide directors and officers with insurance coverage for losses arising
from claims based on breaches of duty, negligence, error and other
wrongful acts. At present, there is no pending litigation or proceeding,
and we are not aware of any threatened litigation or proceeding, involving
any director, officer, employee or agent where indemnification will be
required or permitted under the articles of incorporation, our bylaws or
the indemnification agreements.
TRANSFER AGENT
The transfer agent for our common stock is American Securities
Transfer & Trust, Inc. in Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market
following the offering could adversely affect the market price of the
common stock and adversely affect our ability to raise capital at a time
and on terms favorable to us.
After the offering, there will be 4,606,326 shares outstanding,
including the automatic conversion of 700,000 shares of Series A preferred
stock into Class A common stock and including 1,200,000 shares of common
stock offered hereby (assuming that the underwriters do not exercise their
over-allotment option). We have agreed to register in this prospectus the
shares of Class A common stock that will be issued upon the automatic
conversion of the Series A preferred stock upon the consummation of the
offering. However, the holders of the preferred stock have agreed not to
sell their shares of preferred stock, or the shares of common stock into
which the preferred shares will be converted, for a period of nine months
after the date of the prospectus. See "Lock-Up Arrangements" below.
After the nine month period has expired, these holders will be able to
freely trade their shares of Class A common stock in the public market,
unless such shares are held by "affiliates," as that term is defined in
Rule 144(a) under the Securities Act of 1933. For purposes of Rule 144,
an "affiliate" of an issuer is a person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by or is
under common control with, such issuer. The remaining shares of common
stock to be outstanding after the offering are "restricted securities"
under the Securities Act of 1933 and may be sold in the public market upon
the expiration of certain holding periods under Rule 144, subject to the
volume, manner of sale and other limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year, including an "affiliate,"
as that term is defined in the Securities Act, is entitled to sell, within
any three-month period, a number of shares that does not exceed the
greater of:
o one percent of the then outstanding shares of our common
stock (approximately 46,063 shares immediately following the
offering)
o the average weekly trading volume during the four calendar
weeks preceding filing of notice of such sale
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about us. A shareholder who is deemed not to have been an
"affiliate" of ours at any time during the 90 days preceding a sale, and
who has beneficially owned restricted shares for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the
volume limitations, manner of sale provisions or public information
requirements.
As of June 9, 1999 there were options to purchase 403,500 shares of
common stock under our Equity Incentive Plan of which 13,750 will become
exercisable on June 30, 1999. An additional 346,500 shares are reserved
for issuance under our Equity Incentive Plan. We intend to register the
shares of common stock issued, issuable or reserved for issuance under the
Equity Incentive Plan as soon as practicable following the date of this
prospectus.
As of June 9, 1999, there were outstanding warrants to purchase
70,000 shares of Series A preferred stock held by Neidiger, Tucker,
Bruner, Inc. ("NTB"). Shares of our preferred stock will be automatically
converted into Class A common stock upon consummation of the offering. If
NTB exercises its warrant after the consummation of the offering, the
shares of preferred stock issuable upon exercise of the warrants will be
convertible into shares of Class A common stock at the option of NTB. NTB
is entitled to demand and piggyback registration rights with respect to
such Class A common stock. Exercise of such registration rights could
cause a large number of shares to be registered and sold in the public
market and such sales could have an adverse effect on the market price for
the Class A common stock. The warrants were issued to NTB in connection
with our February 1999 private placement of preferred stock. See
"Description of Capital Stock - Preferred Stock."
LOCK-UP ARRANGEMENTS
Along with our officers and directors, all of the holders of 5% or
more of the common stock (or securities convertible into common stock)
have agreed not to offer or sell any of their shares of common stock
without the prior written consent of NTB for a period of 12 months from
the effective date of this prospectus. In addition, all of the other
shareholders who own shares (or securities convertible into common stock)
prior to this public offering have agreed not to offer or sell or contract
to dispose of any of their shares of common stock for a period of 9 months
from the date of this prospectus without such written consent. All of
these shareholders have also agreed that, for a period of 18 months from
the date of this prospectus, any public sale of their shares, either under
Rule 144 or otherwise, will be made only in a transaction through NTB,
provided that NTB's compensation is competitive with other broker-dealers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our founding shareholders, Venture Funding, Ltd. ("Venture") and
Boutine, LLC ("Boutine") acquired 1,100,000, and 900,000 shares,
respectively, of our Class A common stock on August 18, 1998 for $0.0001
per share. On December 21, 1998, David Selina and Jeff Marshall, members
of our management, and Craig Lassen, a former member of our management,
purchased 208,452 shares each of Class A common stock for $.01 per share.
Their share ownership subsequently increased to 209,055 shares each
pursuant to the Agreement for Post-Closing Adjustments described below.
On September 14, 1998, we entered into an agreement to loan our
predecessor, LanXtra, Inc., a Colorado corporation (formerly known as
Sigmacom Corporation, then Cavion Technologies, Inc., now LanXtra, Inc.
and referred to herein as "LanXtra"), up to $300,000 (the "Loan
Agreement"). On December 29, 1998, cavion.com agreed to lend up to an
additional $55,000 under the same terms, and advanced $35,000 of this
amount. The loan was made to fund LanXtra's working capital, promotion
and marketing, and development of proprietary technology and was secured
by substantially all of the assets of LanXtra, including its technology.
In connection with the loan, LanXtra executed a promissory note requiring
monthly interest payments on the unpaid principal balance at an interest
rate of 16% per annum, with the entire remaining balance due on March 14,
1999. This loan was discharged on February 1, 1999, under the terms of
the Asset Purchase Agreement, as described more fully below.
In 1998, we conducted a private placement of securities which raised
$370,000 through the issuance of 15% secured notes due on October 19, 2000
(the "Notes") in the aggregate principal amount of $370,000, along with
warrants to purchase 2,400 shares of our Class A common stock for every
$20,000 of note principal at an exercise price of $0.01 per share (the
"Warrants"). Pursuant to a security agreement dated October 20, 1998, the
notes are secured by substantially all of our assets, now owned or
hereafter acquired, including cash, equipment, fixtures, general
intangibles, and all products and proceeds of the foregoing collateral,
accounts receivable, inventory, work in process and service contracts
receivables. The October 20, 1998 security agreement contains a covenant
which prohibits us from incurring any other liens on our assets. We
raised an additional $100,000 through this offering in 1999. The Warrants
were exercisable for a period of one year after repayment of the Notes.
On December 22, 1998, we accelerated the Warrants' exercise period to
begin on December 22, 1998. All holders exercised their Warrants by
February 8, 1999 and all of the shares purchased pursuant to the exercise
of the Warrants have been issued.
First Capital Investments, Inc. ("First Capital"), a broker/dealer
registered with the Securities and Exchange Commission, was engaged as our
exclusive placement agent and financial advisor for the private placement
pursuant to an Engagement Letter dated September 20, 1998 under which we
agreed to pay First Capital commissions of 8% of the gross proceeds of the
offering and reimburse expenses (not to exceed 3% of the gross proceeds of
the offering), and we issued First Capital a warrant to purchase 5,640
shares of Class A common stock, which was exercised on February 8, 1999.
First Capital was granted piggyback registration rights for these shares
in the Engagement Letter but will not exercise these rights for inclusion
of its shares in this offering. First Capital has agreed to forego any
commissions with respect to our 1999 private placement and this offering.
Under the terms of the Engagement Letter, for a period of two years after
the closing of our 1998 private placement, First Capital will provide us
with financial advisory services and is entitled to receive 8% of the
gross consideration and/or value attributed to any business combination
between us and a third party. First Capital and our underwriter, NTB,
have agreed that we will not be required to pay a double commission on
future corporate financing. Julie Graham, the spouse of Gary Graham, is
the sole member of Boutine, LLC, one of our principal shareholders. Gary
Graham is a principal of First Capital.
On December 31, 1998, we entered into an Asset Purchase Agreement to
purchase substantially all the assets and assume the liabilities of
LanXtra. The transaction closed on February 1, 1999. In exchange for the
sale of its assets, LanXtra received (i) 375,214 shares of our Class A
common stock (subsequently increased to 376,299 shares pursuant to the
Agreement for Post-Closing Adjustments described below), and (ii) 28,648
shares of our Class B common stock, which was issued to replace LanXtra's
nonvoting common stock. We assumed the following liabilities of LanXtra:
o The obligations reflected on LanXtra's balance sheet and
all accounts payable of LanXtra
o The accrued salaries and benefits of employees that
accepted employment with us
o All obligations and liabilities arising on or after the
closing with respect to LanXtra's assets or business
o The amounts due to us under the loan we made to LanXtra in
1998, resulting in a discharge of that loan
o Any liability of LanXtra in connection with the threatened
lawsuit described in "Our Business - Legal Proceedings" and
other contingent liabilities described in the Asset Purchase
Agreement
LanXtra was incorporated on June 26, 1992. The founding shareholders
were Craig E. Lassen, Herman Axelrod, and Kirk Dennis. On August 1, 1996,
the founders entered into an Investment Agreement with four investors,
British Far East Holdings, Ltd., William M. B. Burger Living Trust, Martin
Cooper and Fairway Realty Associates (the "1996 Investors") who received
stock in LanXtra and provided cash collateral in the amount of $600,000 as
security for LanXtra's loan with US Bank, N.A. in the same amount. The
loan from US Bank was made pursuant to a commercial loan agreement dated
August 1, 1996 and secured by $620,000 in cash collateral consisting of
letters of credit and certificates of deposit, of which $600,000 was
provided by the 1996 Investors and $20,000 was provided by LanXtra. As a
condition to providing the collateral for the loan, the 1996 Investors
were also granted certain benefits under a Put Agreement with LanXtra, a
Share Escrow Agreement between LanXtra, the 1996 Investors and Norwest
Bank Colorado (as escrow agent), a Subordination Agreement between LanXtra
and its founders, and, in the case of one 1996 Investor, an Advisor's
Option Agreement, each of which was dated as of August 1, 1996.
Collectively, these agreements were intended to ensure the reimbursement
of the 1996 Investors if LanXtra defaulted on the US Bank loan and the
1996 Investors' collateral was foreclosed. These agreements have been
terminated pursuant to the Termination and Modification Agreement of
September 28, 1998 between LanXtra, its founders and the 1996 Investors.
However, the Termination and Modification Agreement does include an
obligation for LanXtra to reimburse the 1996 Investors in the event of
foreclosure on their collateral by US Bank.
We borrowed $600,000 from US Bank pursuant to the Loan Agreement of
January 18, 1999, as amended March 24, 1999. The proceeds of the new loan
were used to pay off the 1996 loan to LanXtra. The new loan bears annual
interest at the rate of 1.5% over the reference rate payable monthly
beginning on February 28, 1999. The principal of the loan must be paid in
a single payment on December 31, 1999. The loan is secured by $620,000
cash collateral consisting of certificates of deposit and letter of
credit, of which $600,000 was provided by the 1996 Investors and $20,000
was provided by us. On January 15, 1999, the Termination and Modification
Agreement was amended to provide that upon closing of the Asset Purchase
Agreement, the shares of Class A common stock received by LanXtra as
consideration will not be distributed to its shareholders until our loan
with US Bank has been paid in full or the 1996 Investors have been
reimbursed for their collateral. Upon closing of the Asset Purchase
Agreement with LanXtra, we assumed LanXtra's obligations under the
Termination and Modification Agreement with the 1996 Investors, as
amended.
The LanXtra obligations we assumed also include the transactions
described below. Each of the creditors of these obligations has agreed to
defer repayment until the completion of this offering.
o On July 1 and August 1, 1992, LanXtra executed promissory
notes for $25,000 in favor of Mr. Axelrod and Mr. Lassen,
respectively, at an interest rate of 2% over prime. These notes
were originally secured by the assets of LanXtra which are now
owned by cavion.com. The original principal amounts of these
notes reflects $20,000 in cash loaned by each and $5,000 each of
co-signer liability on a $10,000 credit line at the Bank of
Boulder that LanXtra obtained at its inception. The credit line
was paid in full in August 1996, leaving an aggregate principal
balance of $40,000 on the notes. We assumed the obligation to
pay Mr. Axelrod and Mr. Lassen the principal balance of the
notes together with interest stated above which will continue to
be paid on a quarterly basis until the notes are paid in full.
o Between September 8, 1997 and October 15, 1997, Herman
Axelrod, the former president and director of LanXtra, and Mr.
Lassen, also a former president and director of LanXtra, made
factoring loans to LanXtra in the amounts of $50,190 and
$25,000, respectively. These loans were secured by an account
receivable for computer network integration work LanXtra
performed for Questar Infocomm ("Questar") and bear interest at
the rate of 3% of the loan amount for the first 30 days, and 1%
for each additional 10 days until the loan is paid in full.
Questar disputed the amount of LanXtra's invoice, and the
dispute was settled in September 1998 under which Questar paid
LanXtra the sum of $61,780. This amount was then paid against
the factoring loans on September 21, 1998 as follows: $41,238 to
Mr. Axelrod and $20,542 to Mr. Lassen leaving $28,331 due to Mr.
Axelrod and $13,441 due to Mr. Lassen. We assumed these
obligations, but no further interest will accrue on them.
o We assumed the obligation to pay Mr. Lassen $12,500 for
unpaid back salary. Between the months of October 1997 and
November 1997, Mr. Lassen agreed to defer payment of salary due
to a shortage of working capital during those months. No
interest will accrue on this obligation.
o We assumed the obligation to pay Mr. Axelrod $19,904 for
unpaid back salary. Between the months of September 1997 and
December 1997, Mr. Axelrod agreed to defer payment of salary due
to a shortage of working capital during those months. No
interest will accrue on this obligation.
o We assumed the obligation to pay Convergent Communications,
Inc. $78,673 for equipment purchased in connection with a
customer network upgrade performed by LanXtra in December 1997,
while Convergent was completing the purchase of LanXtra's
network integration business.
o On May 28, 1998, LanXtra borrowed an aggregate of $150,000
to be used for working capital from three of its shareholders,
British Far East Holdings, Ltd., Martin Cooper and Fairway
Realty Associates (in equal amounts) pursuant to a Bridge Loan
Agreement. On that same date, LanXtra entered into an
Additional Bridge Loan Agreement with David Selina, Jeff
Marshall and Randal Burtis, to borrow an additional $110,000
($30,000 from Mr. Selina, $50,000 from Mr. Marshall and $30,000
from Mr. Burtis), for working capital purposes. LanXtra issued
each of these shareholders and employees (1) a senior promissory
note bearing interest at a rate of 42% per annum, the principal
and interest of which was payable in three equal monthly
installments beginning on November 1, 1998; (2) shares of
LanXtra nonvoting common stock and; (3) put options to sell the
shares of the LanXtra nonvoting common stock back to LanXtra at
$7.00 a share beginning on January 1, 1999. We assumed
LanXtra's obligations under the senior promissory notes to pay
these individuals an aggregate of $260,000 in principal and
$59,480 in interest, which does not continue to accrue after the
closing of the Asset Purchase Agreement. We assumed LanXtra's
obligations under the put agreements by issuing to LanXtra at
the closing of the Asset Purchase Agreement 28,648 shares of our
Class B common stock. The terms of the cavion.com Class B
common stock contain put provisions which are identical to those
in the put agreements except that the exercise period for the
put begins 30 days after the 100 Credit Union Date, and we also
have an option to purchase all or part of the Class B common
stock at a price of $7.00. We have agreed with the LanXtra
shareholders who have rights to the Class B stock that their put
rights will mature upon completion of this offering. To
implement this agreement, after completion of this offering we
expect to offer these shareholders the option to redeem their
Class B shares at $7.00 per share, or to convert each Class B
share into one share of our Class A common stock.
LanXtra intends to convey the shares of our Class A and Class B
common stock it received through the Asset Purchase Agreement and the
Agreement for Post-Closing Adjustments to a newly formed limited liability
company named Zutano LLC. Zutano will have the same ownership as LanXtra,
and will hold the shares until they are distributed to LanXtra's
shareholders after the completion of this offering.
Beginning in February 1999, we conducted a private placement of our
Series A preferred stock in which we sold 700,000 shares at $3.00 per
share and raised gross proceeds of $2,100,000. In accordance with the
terms of our Series A preferred stock, these shares will automatically
convert into 700,000 shares of Class A common stock upon the closing of
this offering. The holders of the converted shares of common stock are
entitled to certain registration rights. See "Description of Capital
Stock." We engaged Neidiger, Tucker, Bruner, Inc., a registered broker
dealer ("NTB"), as our exclusive placement agent for the offering pursuant
to a Placement Agent Agreement dated March 10, 1999. NTB received (i) a
placement fee and non-accountable expense allowance equal to 10% and 2%,
respectively, of the gross proceeds in the offering, and (ii) warrants to
purchase 70,000 shares of preferred stock (10% of the shares sold in the
offering) exercisable at $3.00 per share for a term of five years. The
warrants provide NTB with piggyback and demand registration rights at our
expense. NTB has the right to demand up to two registrations at any time
before April 30, 2004. NTB has a right to exchange all or part of its
warrants for preferred stock in a cashless transaction which would result
in fewer shares being issued to NTB by us, but no cash would be paid to us
for the exercise. NTB has a non-contingent right of first
refusal to act as our investment banker with respect to any public or
private offering or sale of any of our securities, or the securities of
any subsidiary, for three years, or until December 22, 2001. In addition,
in the event of a closing of any such offering in the first 24 months in
which NTB does not act as our investment advisor, we must pay NTB a fee of
$200,000 and issue NTB a warrant in an amount equal to 3% of the
securities sold, exercisable for five years at a purchase price of 120% of
the price of the securities in that offering.
When we closed the Asset Purchase Agreement with LanXtra, our
founding shareholders (Venture Funding, Ltd. and Boutine, LLC) agreed with
LanXtra and our management shareholders (Mr. Selina, Mr. Marshall and Mr.
Lassen) that there would be a post-closing adjustment of the shares of our
Class A common stock held by these parties. Under the Agreement for Post-
Closing Adjustments, Venture Funding and Boutine bear the equity cost of
bringing us the first $1 million of new equity, while LanXtra and the
management shareholders share in the dilution of any additional equity.
This agreement was consummated as of April 16, 1999, with the transfer of
an aggregate of 2,894 shares of our Class A common stock from Venture
Funding and Boutine to LanXtra and the management shareholders.
THE SELLING SHAREHOLDERS
The following table sets forth certain information regarding the selling
shareholders and the shares offered by them in this prospectus. None of
the selling shareholders within the past three years has had any material
relationship with us or any of our affiliates except as described below.
<TABLE>
<CAPTION>
Name of No. of Shares No. of Shares Shares to be Beneficially
Selling Beneficially Being Owned on Completion
Shareholder Owned(1) Offered(1) of the Offering
------------------------
Number % of Class
----------- -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Anne D. Dyde
Trustee, Anne
D. Dyde Trust
of 1976 10,000 10,000 -0- -0-
James F. Dyde
Trustee for
James F. Dyde
Insurance Trust 10,000 10,000 -0- -0-
Jon D. Kostival 10,000 10,000 -0- -0-
James F. Seifert
& Nancy L. Seifert
as Trustees or the
Successor Trustees of
the James F. Seifert
Management Trust
dated October 8,
1992 10,000 10,000 -0- -0-
Dianne M. Giambusso 10,000 10,000 -0- -0-
Carol Nixon 20,000 20,000 -0- -0-
Adam Glickman 10,000 10,000 -0- -0-
Leland E. Tate 10,000 10,000 -0- -0-
William Ettenger 16,000 16,000 -0- -0-
Jeffrey Telsey
Trustee Alex M.
Telsey Special
Needs Trust 10,000 10,000 -0- -0-
Lincoln Trust
Company Custodian
FBO Jerry Schempp 10,000 10,000 -0- -0-
MBM Young 20,000 20,000 -0- -0-
Jeff Kavy 80,000 80,000 -0- -0-
William J. Nooney 10,000 10,000 -0- -0-
Robert C. Tucker &
Karen D. Tucker JT 10,000 10,000 -0- -0-
William Oyen &
Carolyn S. Oyen JT 20,000 20,000 -0- -0-
Michael Mara 10,000 10,000 -0- -0-
John E. Tarrillion 20,000 20,000 -0- -0-
Daniel E. Depre 10,000 10,000 -0- -0-
Carla G. Stewart 10,000 10,000 -0- -0-
Martin J. Sherlock
Trustee, Marion A.
Sherlock Trust 14,000 14,000 -0- -0-
Jerry Schempp &
Bruce E. Kobey
TENCOM 10,000 10,000 -0- -0-
Janet M. Searl &
Kent E. Searl JT 10,000 10,000 -0- -0-
Gregory Werts 10,000 10,000 -0- -0-
Julie A. Hackett 10,000 10,000 -0- -0-
Tyrone M. Clark 10,000 10,000 -0- -0-
Lisa H. Robb &
Michael B. Robb JT 10,000 10,000 -0- -0-
Jack C. Moore 10,000 10,000 -0- -0-
Robert C. Werts &
Patricia Schulte-
Werts JT 10,000 10,000 -0- -0-
Michael K. Carney 17,000 17,000 -0- -0-
Joseph Reinke 10,000 10,000 -0- -0-
Alan L. Talesnick &
Robert M. Bearman
TENCOM 10,000 10,000 -0- -0-
Roswell S. Monroe &
Wanda V. Monroe
Trustees of the
Roswell & Wanda
Monroe Family Trust
u/d/t dtd 1/31/90 10,000 10,000 -0- -0-
Walter J.
Schoefberger 10,000 10,000 -0- -0-
William Kilzer 10,000 10,000 -0- -0-
Robert L. Young &
Anna M. Young JT 10,000 10,000 -0- -0-
Karl D. Smith 10,000 10,000 -0- -0-
Schield Management
Company 10,000 10,000 -0- -0-
John R. McKowen 10,000 10,000 -0- -0-
John Metzger 10,000 10,000 -0- -0-
Trans-L A
Partnership 10,000 10,000 -0- -0-
Lucas Liakos 10,000 10,000 -0- -0-
Carl Brad Linder &
Cathy Linder JT 10,000 10,000 -0- -0-
Thomas J.
Obradovich 10,000 10,000 -0- -0-
Thomas R. Ashford 10,000 10,000 -0- -0-
Stanley Ranch 10,000 10,000 -0- -0-
Denora Corporation 10,000 10,000 -0- -0-
Ronald D. Devoe 10,000 10,000 -0- -0-
William Daniel
Carter TTEE of the
William Daniel
Carter Trust 10,000 10,000 -0- -0-
Third Millenium
Trading LLP 10,000 10,000 -0- -0-
Advent Fund LLC 10,000 10,000 -0- -0-
Mariusz Witek 10,000 10,000 -0- -0-
Randal A. Alford 10,000 10,000 -0- -0-
Farhad Ghaffarour 10,000 10,000 -0- -0-
Erven J. Nelson TTEE
for the Erven J.
Nelson Ltd. PSP 10,000 10,000 -0- -0-
Leonard B. Zelin 10,000 10,000 -0- -0-
Fiscal Dynamics
Corporation 13,000 13,000 -0- -0-
</TABLE>
(1) Represents shares of common stock issuable to shareholders who own
700,000 shares of our preferred stock. The preferred stock will
automatically convert into shares of Class A common stock upon the
consummation of the public offering in this prospectus.
We will not receive any of the proceeds from the sale of the shares
by the selling shareholders. We have agreed to bear certain expenses in
connection with the registration of the shares being offered and sold by
the selling shareholders, estimated to be $5,000. The selling
shareholders have agreed to pay all commissions and other compensation to
any securities broker-dealers through whom they sell any of the shares.
The selling shareholders have agreed that they would not sell the shares
of common stock they receive when they convert the preferred stock for a
period of nine months from the date this prospectus. They also agreed
that, for a period of 18 months from the date of this prospectus, any
public sale of their shares pursuant to Rule 144 of the rules and
regulations of the Securities and Exchange Commission or otherwise will be
made only in a transaction through NTB, provided that NTB's compensation
is competitive with other broker-dealers.
PLAN OF DISTRIBUTION
After conversion of shares of Series A preferred stock into Class A
common stock upon consummation of the offering, and subject to the
agreements by the selling shareholders described above, the selling
shareholders may sell the shares from time to time
o at market prices prevailing on the Nasdaq SmallCap Market
at the time of offer and sale, or at prices related to such
prevailing market prices
o in negotiated transactions
o a combination of such methods of sale
The selling shareholders may effect such transactions by offering and
selling the shares directly to or through securities broker-dealers, and
such broker-dealers may receive compensation in the form of discounts,
concessions, or commissions from the selling shareholders and/or the
purchasers of the shares for whom such broker-dealers may act as agent or
to whom the selling shareholders may sell as principal, or both (which
compensation as to a particular broker-dealer might be in excess of
customary commissions).
The selling shareholders and any broker-dealers who act in connection
with the sale of their shares may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act and any commissions
received by them and profit on any resale of the shares as principal might
be deemed to be underwriting discounts and commissions under the
Securities Act. We have agreed to indemnify the selling shareholders
against certain liabilities, including liabilities under the Securities
Act as underwriters or otherwise.
We have advised the selling shareholders that they and any securities
broker-dealers or others who may be deemed to be statutory underwriters
will be subject to the prospectus delivery requirements under the
Securities Act. Under applicable rules and regulations under the
Securities Exchange Act of 1934 any person engaged in a distribution of
any of the shares may not simultaneously engage in market activities with
respect to the common stock for the applicable period under Regulation M
prior to the commencement of such distribution. In addition and without
limiting the foregoing, the selling shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-5 and Regulation M,
which provisions may limit the timing of purchases and sales of any of the
shares by the selling shareholders. All of the foregoing may affect the
marketability of the common stock.
In the absence of this Registration Statement, the selling
shareholders would be able to sell their shares only subject to the
limitations of Rule 144 promulgated under the Securities Act of 1933
("Rule 144"). In general, under Rule 144 as currently in effect, an
"affiliate" of the issuer, or a person who has beneficially owned shares
which are "restricted securities" for at least one year, is entitled to
sell within any three-month period a number of shares that does not exceed
the greater of:
oone percent (1%) of the then outstanding shares of common stock of
the issuer
othe average weekly trading volume of the common stock during the
four calendar weeks preceding a sale by such person
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the issuer. Under Rule 144, however, a person who is
not, and for the three months prior to the sale of such shares has not
been, an affiliate of the issuer is free to sell shares which are
"restricted securities" which have been held for at least two years
without regard to the limitations contained in Rule 144. None of the
selling shareholders will be subject to the foregoing restrictions when
selling their shares pursuant to this prospectus.
Under Section 16 of the Exchange Act, executive officers, directors,
and 10% or greater shareholders of cavion.com will be liable to us for any
profit realized from any purchase and sale (or any sale and purchase) of
common stock within a period of less than six months.
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement,
the underwriters named below, for whom Neidiger, Tucker, Bruner, Inc.
("NTB") is acting as representative, have agreed to purchase from us the
respective number of shares of common stock shown opposite its name below.
<TABLE>
<CAPTION>
Number of Shares
Underwriter To Be Purchased
----------- ----------------
<S> <C>
Neidiger, Tucker, Bruner, Inc.
---------
TOTAL 1,200,000
=========
</TABLE>
In the underwriting agreement, the underwriters have agreed, to
purchase all shares offered hereby (other than the shares covered by the
underwriters' over-allotment option described below). In the event of a
default by any underwriter, the underwriting agreement provides that, in
certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the underwriting agreement may be
terminated.
The representative has advised us that the underwriters propose to
offer the shares to the public at the initial public offering price set
forth on the cover page of this prospectus, and to selected dealers at
such price less a concession not in excess of $ per share and
that the representative and such dealers may reallow a discount of not in
excess of $ per share to other dealers. The offering price and
the concession and discount to dealers may be changed by the
representative after the initial public distribution of the shares is
completed. The representative also has advised us that the underwriters
do not intend to confirm sales to any accounts over which any of them
exercise discretionary authority.
We have granted the underwriters an option, expiring at the close of
business 45 days after the date of this prospectus, to purchase up to
180,000 additional shares at the offering price less the 10% underwriting
discount and a 2% non-accountable expense allowance. The underwriters may
exercise this option only to satisfy over-allotments in the sale of the
shares. We will be obligated to sell these shares to the underwriters to
the extent the option is exercised.
We have agreed to pay the representative a non-accountable expense
allowance of 2% of the total proceeds of the offering of which we have
already paid $45,000. We have also agreed to pay all expenses in
connection with qualifying the shares for sale in the states selected by
the representative. The representative's expenses in excess of the non-
accountable expense allowance, including its legal expenses, will be borne
by the representative. To the extent that the expenses of the
representative are less than the non-accountable expense allowance, the
excess may be deemed additional underwriting compensation.
Until the distribution of the shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the
underwriters and certain selling group members to bid for and purchase our
common stock. As exceptions to these rules, the underwriters are
permitted to engage in certain transactions that stabilize the price of
the common stock. Such transactions may consist of over-allotment,
stabilizing transactions, syndicate covering transactions and penalty bids
in accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size,
which create a syndicate short position. Stabilizing transactions permit
bids to purchase the common stock so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve
purchases of the common stock in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty
bids permit the underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate
member are purchased in a syndicate covering transaction. Such
transactions, or any of them, may cause the price of the common stock to
be higher than it would otherwise be in the absence of such transactions.
Neither cavion.com nor the underwriters may make any representation
or prediction as to the direction or magnitude of any effect to that the
transactions described above may have on the price of the common stock.
If these activities are commenced, they may be discontinued by the
underwriters at any time without notice.
Our directors, officers and each holder of 5% or more of our common
stock have agreed not to sell their shares of cavion.com common stock
without the representative's prior written consent for a period of 12
months after the date of this prospectus. Each holder who owns less than
5% of our common stock (or securities convertible into common stock) prior
to the public offering has agreed not to offer or sell or contract to
dispose of any of their shares for a period of 9 months from the date of
this prospectus without prior written consent of the representative. All
of these shareholders have also agreed that, for a period of 18 months
from the date of this prospectus, any public sales of their shares, either
under Rule 144 or otherwise, will be made through the representative on an
exclusive basis, provided that the representative's compensation is
competitive with other broker-dealers. See "Shares Eligible for Future
Sale."
We have agreed to sell the representative on completion of the
offering, for $100, a warrant entitling the representative or its assigns
to purchase 120,000 shares of our common stock. The representative's
warrant will be exercisable for a period of four years beginning one year
from the date of this prospectus. The representative's warrant will
contain certain anti-dilution provisions and provide for the cashless
exercise of the warrant utilizing the value of the warrants being
surrendered. The exercise price of the representative's warrant is 120%
of the public offering price. The warrant is not redeemable by the
Company. The representative's warrant and the underlying common shares
will be restricted from sale and assignment for one year after the date of
this Prospectus, except to officers of the representative. Thereafter,
the representative's warrant and the underlying common shares will be
transferable provided such transfer is in accordance with the provisions
of the Securities Act of 1933. Subject to certain limitations, we have
agreed, at the representative's request, to register the common stock
underlying the representative's warrant issuable upon exercise of the
warrants. See "Description of Capital Stock - Preferred Stock Warrant"
and "Shares Eligible for Future Sale." We may find it more difficult to
raise additional equity capital while the representative's warrant is
outstanding.
The representative has agreed to provide investment banking services
to us upon completion of the offering for a period of two years for a fee
of $48,000, payable at the closing of the offering. The agreement also
provides for a fee ranging up to 5% of the consideration involved in any
transaction (including mergers and acquisitions) consummated by us in
which the representative introduced the other party to the company during
the term of the agreement provided the transaction is completed within 36
months from the close of the offering.
We have also agreed that for a period of two years from the date of
this offering, the representative shall have the right to designate one
person as an advisor to our board of directors. That person will be
reimbursed for his expenses in attending meetings of the board and will
receive cash compensation equal to that received by outside directors but
will have no power to vote as a director. We will indemnify that person
against any claim arising out of his or her participation in meetings of
the board to the same extent as directors. During such two-year period,
we have agreed with the representative to hold at least four meetings of
our board each year. In the event that we maintain a liability insurance
policy with coverage for acts of our officers and directors, we have
agreed that if possible we will include the advisor designee as an insured
under the policy. Any advisor designated by the representative must be
acceptable to us, which acceptance will not be unreasonably withheld.
The representative received a $210,000 commission and warrants to
purchase up to 70,000 shares of our preferred stock at $3.00 per share in
connection with our private offering of preferred stock completed in April
1999. See "Certain Relationships and Related Transactions."
In connection with this offering, cavion.com and the underwriters
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933 and if such indemnification
is unavailable or insufficient, cavion.com and the underwriters have
agreed to damage contribution arrangements based upon relative benefits
received from this offering and relative fault resulting from such damage.
Prior to the offering, there has been no public market for our
securities. The initial public offering price of the shares of common
stock has been determined by negotiation between us and the
representative. Among the factors considered in determining the initial
public offering price of the shares of common stock were:
o our earnings and certain other financial and operating
information in recent periods
o our future prospects and our industry in general
o the general condition of the securities markets at the time
of this offering
o the market prices of securities and certain financial and
operating information of companies engaged in activities similar
to ours
There can be no assurance, however, that the prices at which the
common stock will sell in the public market after this offering will not
be lower than the price at which it is sold by the underwriters.
Application will be made to have the common stock approved for quotation
on the NASDAQ system upon completion of this offering.
The foregoing does not purport to be a complete statement of the
terms and conditions of the underwriting agreement, copies of which are on
file at the offices of cavion.com, the representative and the Securities
and Exchange Commission.
ADDITIONAL INFORMATION
We will file annual, quarterly, special reports, proxy statements,
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy and other information can be inspected
and copied at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C.
20549, and at the following regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
Our common stock will be quoted on The Nasdaq SmallCap Market.
Reports, proxy statements and other information concerning cavion.com can
be inspected at the National Association of Securities Dealers, Inc., 1735
K Street, N.W., Washington, D.C. 20006. The Commission maintains a
Website that contains all information filed electronically by us. The
address of the Commission's Website is (http://www.sec.gov.).
This prospectus constitutes a part of a registration statement on
Form SB-2 (herein, together with all amendments and exhibits thereto,
referred to as the "Registration Statement") filed by us with the
Commission under the Securities Act, with respect to the securities
offered in this prospectus. This prospectus does not contain all the
information which is in the Registration Statement. Certain portions of
the Registration Statement are omitted as allowed by the rules and
regulations of the Commission. We refer to the Registration Statement and
to the exhibits to such Registration Statement for further information
with respect to cavion.com and the securities offered in this prospectus.
Copies of the Registration Statement and the exhibits to such Registration
Statement are on file at the offices of the Commission and may be obtained
upon payment of the prescribed fee or may be examined without charge at
the public reference facilities of the Commission described above.
Statements contained in this prospectus concerning the provisions of
documents are necessarily summaries of the material provisions of such
documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
The prospectus includes statistical data regarding Internet usage and
the credit union industry which were obtained from industry publications,
including reports generated by Callhan, International Data Corporation,
News.com, IDC Research, American Banker, PC World, and Online Banking
Report. These industry publications generally indicate that they have
obtained information from sources believed to be reliable, but do not
guarantee the accuracy and completeness of such information. While we
believe those industry publications to be reliable, we have not
independently verified such data. We also have not sought the consent of
any of these organizations to refer to their reports in this prospectus.
REPORTS TO SECURITY HOLDERS
We intend to distribute to our shareholders annual reports containing
audited financial statements and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
EXPERTS
The financial statements of cavion.com and LanXtra in this prospectus
and registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
Reference is made to said reports, which include explanatory paragraphs
with respect to the uncertainty regarding cavion.com's and LanXtra's
ability to continue as going concerns as discussed in Note 1 to each
financial statement.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for us by Gorsuch Kirgis LLP, Denver, Colorado. Certain legal
matters in connection with the offering will be passed upon for the
underwriters by John G. Herbert, P.C., Denver, Colorado.
INDEX TO FINANCIAL STATEMENTS
Page
----
Audited Financial Statements:
LanXtra, Inc.
Report of Independent Public Accountants
Balance Sheets at January 31, 1999, December 31, 1998 and 1997
Statements of Operations for the one-month period ended January
31, 1999 and for the years ended December 31, 1998 and 1997
Statements of Stockholders' Deficit for the period ended January
31, 1999 and for the years ended December 31, 1998 and 1997
Statements of Cash Flows for the one-month period ended January
31, 1999 and for the years ended December 31, 1998 and 1997
Notes to Financial Statements
Cavion Technologies, Inc.
Report of Independent Public Accountants
Balance Sheets at March 31, 1999, December 31, 1998 and 1997
Statements of Operations for the three-month period ended March
31, 1999 and for the period from Inception (August 8, 1998) to
December 31, 1998 and 1997
Statements of Stockholders' Equity for the three months ended
March 31, 1999 and for the period from Inception (August 18,
1998) to December 31, 1998
Statements of Cash Flows for the three months ended March 31,
1999 and for the period from Inception (August 18, 1998) to
December 31, 1998
Notes to Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LanXtra, Inc.:
We have audited the accompanying balance sheets of LANXTRA, INC. (a
Colorado corporation; formerly Cavion Technologies, Inc. and Sigmacom
Corporation) as of January 31, 1999, December 31, 1998 and 1997, and the
related statements of operations, stockholders' deficit and cash flows for
the one-month period ended January 31, 1999 and for the years ended
December 31, 1998 and 1997. 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 the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LanXtra, Inc. as of
January 31, 1999, December 31, 1998 and 1997, and the results of its
operations and its cash flows for the one-month period ended January 31,
1999 and for the years ended December 31, 1998 and 1997 all in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Effective February 1, 1999,
substantially all of the Company's assets were transferred to Cavion
Technologies, Inc. in exchange for common stock and the assumption of the
Company's liabilities. Subsequent to this transaction, the Company's
activities will be limited to holding warrants to purchase the common
stock of Convergent Communications Services, Inc. and common stock of
Cavion Technologies, Inc. In April 1999, the Board of Directors has
resolved to form a limited liability company and contribute the Company's
remaining assets into such company. The ability of the Company and its
successor limited liability company to continue operations depends upon
the ultimate value, if any, of the financial instruments held and the
resolution of the matters discussed in Note 7. This raises substantial
doubt about the Company and its successor's ability to continue as a going
concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
/s/ARTHUR ANDERSEN LLP
Denver, Colorado,
May 18, 1999.
Page 1 of 2
LANXTRA, INC.
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
January 31, December 31,
-----------------
ASSETS 1999 1998 1997
------ ---------- ----- -----
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 52,116 $ 350,443
Accounts receivable 16,458 17,695 114,599
Prepaids 33,120 38,295 -
Inventories 5,832 5,641 -
--------- --------- ---------
Total current assets 55,410 113,747 465,042
--------- --------- ---------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 7,674 7,674 7,674
Furniture and fixtures 44,330 44,330 44,330
Network equipment and licensed
software 391,880 354,577 233,471
--------- --------- ---------
443,884 406,581 285,475
Less - Accumulated depreciation (112,864) (104,712) (38,209)
--------- --------- ---------
Property and equipment, net 331,020 301,869 247,266
--------- --------- ---------
DEBT ISSUANCE COSTS, net of accumulated
amortization of $67,500, $67,500
and $49,091, respectively - - 18,409
DEPOSIT FOR LETTER OF CREDIT 20,000 20,000 20,000
OTHER ASSETS 21,815 20,179 17,313
--------- --------- ---------
TOTAL ASSETS $ 428,245 $ 455,795 $768,030
========= ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
Page 2 of 2
LANXTRA, INC.
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
January 31, December 31,
-----------------
LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998 1997
- ------------------------------------- ---------- ---- ----
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 256,222 $ 118,942 $ 81,032
Bank overdraft 19,397 - -
Accrued liabilities 186,444 171,908 211,347
Accrued interest 114,322 105,401 9,095
Deferred revenue and deposits 214,712 198,884 8,695
Related party collateralized loans 13,410 13,410 75,190
Current portion of capital
lease obligations 30,279 32,363 17,661
Notes payable to stockholders 300,000 300,000 40,000
Note payable to Cavion 335,000 335,000 -
Revolving line of credit 600,000 600,000 600,000
--------- --------- ---------
Total current liabilities 2,069,786 1,875,908 1,043,020
--------- --------- ---------
LONG-TERM LIABILITIES:
Capital lease obligations 32,832 32,832 20,475
PUTABLE COMMON STOCK; 58,648, 58,648
and 30,000 shares issued and
outstanding, respectively
(stated at accreted value;
total redemption value
of approximately $2.0 million) 1,700,236 1,650,236 837,500
COMMITMENTS AND CONTINGENCIES (Notes 1 and 7)
STOCKHOLDERS' DEFICIT:
Common stock; $.01 par value,
1,000,000 shares authorized;
315,112, 315,112 and 286,464
shares issued, and outstanding
including 58,648, 58,648 and
30,000 shares, respectively, of
putable common stock 3,151 3,151 2,865
Additional paid-in capital 410,735 410,735 410,735
Accumulated deficit (3,788,495) (3,517,067) (1,546,565)
--------- --------- ---------
Total stockholders' deficit (3,374,609) (3,103,181) (1,132,965)
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 428,245 $ 455,795 $ 768,030
========= ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
LANXTRA, INC.
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
One-Month
Period Ended Years Ended
January 31, December 31,
-----------------
1999 1998 1997
------------ ---- ----
<S> <C> <C> <C>
REVENUE:
Network access and connectivity
fees $ 24,381 $ 147,965 $ 24,430
Installation services 12,800 63,031 -
Software licensing fees 669 4,026 -
--------- --------- ---------
Total revenue 37,850 215,022 24,430
COST OF REVENUE:
Network access and connectivity 15,645 136,903 51,688
Installation services 16,253 85,516 -
--------- --------- ---------
Total cost of revenue 31,898 222,419 51,688
--------- --------- ---------
Gross profit (loss) 5,952 (7,397) (27,258)
--------- --------- ---------
OPERATING EXPENSES:
General and administrative 181,731 869,293 673,034
Research and development 31,580 248,599 363,741
--------- --------- ---------
Total operating expenses 213,311 1,117,892 1,036,775
--------- --------- ---------
LOSS FROM OPERATIONS (207,359) (1,125,289) (1,064,033)
INTEREST EXPENSE (64,069) (997,503) (808,822)
OTHER INCOME - 152,290 37,361
--------- --------- ---------
LOSS FROM CONTINUING OPERATIONS (271,428) (1,970,502)(1,835,494)
DISCONTINUED OPERATION:
Gain from disposal of discontinued
operation - - 418,848
Income from operations of
discontinued operation - - 653,528
--------- --------- ---------
- - 1,072,376
--------- --------- ---------
NET LOSS $(271,428) $(1,970,502) $(763,118)
========= ========= =========
BASIC AND DILUTED NET LOSS FROM
CONTINUING OPERATIONS PER SHARE $ (1.06) $ (7.66) $ (8.86)
BASIC AND DILUTED NET LOSS
PER SHARE $ (1.06) $ (7.66) $ (3.68)
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 256,464 257,319 207,205
========= ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
LANXTRA, INC.
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation)
STATEMENTS OF STOCKHOLDERS' DEFICIT
-----------------------------------
FOR THE PERIOD ENDED JANUARY 31, 1999 AND FOR THE YEARS ENDED
--------------------------------------------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
<TABLE>
<CAPTION>
Common Stock
Shares
(Including Shares of
Putable Common Stock) Amount
---------------------- ------
<S> <C> <C>
BALANCES, December 31, 1996 230,000 $ 2,300
Exercise of stock options by an
employee at an exercise price
of $.01 in May 1997 5,000 50
Issuance of common stock for cash at $7.77
per share in connection with the sale of
discontinued operation 51,464 515
Net loss - -
-------- --------
BALANCES, December 31, 1997 286,464 2,865
Issuance of putable common stock 28,648 286
Net loss - -
--------- ---------
BALANCES, December 31, 1998 315,112 3,151
Net loss - -
--------- ---------
BALANCES, January 31, 1999 315,112 $3,151
========= =========
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit
------------- -----------
<S> <C> <C>
BALANCES, December 31, 1996 $ 11,250 $ (783,447)
Exercise of stock options by an
employee at an exercise price
of $.01 in May 1997 - -
Issuance of common stock for cash at $7.77
per share in connection with the sale of
discontinued operation 399,485 -
Net loss - (763,118)
--------- ---------
BALANCES, December 31, 1997 410,735 (1,546,565)
Issuance of putable common stock - -
Net loss - (1,970,502)
---------- ----------
BALANCES, December 31, 1998 410,735 (3,517,067)
Net loss - (271,428)
---------- ----------
BALANCES, January 31, 1999 $410,735 $(3,788,495)
========= ===========
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Deficit
-------------
<S> <C>
BALANCES, December 31, 1996 $ (769,897)
Exercise of stock options by an
employee at an exercise price
of $.01 in May 1997 50
Issuance of common stock for cash at $7.77
per share in connection with the sale of
discontinued operation 400,000
Net loss (763,118)
----------
BALANCES, December 31, 1997 (1,132,965)
Issuance of putable common stock 286
Net loss (1,970,502)
-----------
BALANCES, December 31, 1998 (3,103,181)
Net loss (271,428)
-----------
BALANCES, January 31, 1999 $(3,374,609)
===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
LANXTRA, INC.
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
One-Month
Period Ended Years Ended
January 31, December 31,
-----------------
1999 1998 1997
------------ ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(271,428) $(1,970,502) $(763,118)
Adjustments to reconcile net
loss to net cash used in
operating activities-
Depreciation and amortization 8,152 84,912 58,284
Gain from disposal of
discontinued operations - - (418,848)
Provision for doubtful accounts - - 20,923
Accretion of putable stock 50,000 612,200 577,500
Accretion of discount on
bridge loan - 200,536 -
Change in operating assets
and liabilities-
Accounts receivable 1,237 96,904 (135,522)
Prepaids and inventories 4,984 (43,936) -
Other assets (1,636) (2,866) (7,970)
Accounts payable 137,280 37,910 69,186
Accrued liabilities 23,457 56,867 184,169
Deferred revenue 15,828 190,189 8,695
Decrease in net assets of
discontinued operations - - 64,884
--------- --------- ---------
Net cash used in
operating activities (32,126) (737,786) (341,817)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (37,303) (71,154) (181,422)
Proceeds from disposal of
discontinued operations - - 475,000
--------- --------- ---------
Net cash (used in)
provided by investing
activities (37,303) (71,154) 293,578
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft 19,397 - -
Proceeds from issuance of
common stock - 286 400,050
Repayments of related party loans - (61,780) (50,000)
Cash received on related party
loans - - 75,190
Repayments of stockholder notes - - (28,721)
Cash received from stockholder
notes - 260,000 -
Cash received from Cavion - 335,000 -
Payment on capital lease obligations (2,084) (22,893) (6,625)
--------- --------- ---------
Net cash provided by
financing activities 17,313 510,613 389,894
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (52,116) (298,327) 341,655
CASH AND CASH EQUIVALENTS,
beginning of period 52,116 350,443 8,788
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
end of period $ - $ 52,116 $ 350,443
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Property acquired with capital
leases $ - $ 49,952 $ 44,761
Putable common stock issued in
conjunction with stockholder
notes $ - $ 200,536 $ -
========= ========= =========
Cash paid for interest $ 5,148 $ 88,461 $ 66,496
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
LANXTRA, INC.
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE PERIOD ENDING JANUARY 31, 1999 AND FOR THE YEARS ENDED
--------------------------------------------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
(1) DESCRIPTION OF BUSINESS
-----------------------
Organization
------------
Sigmacom Corporation ("Sigmacom") was incorporated under the laws of the
state of Colorado on June 26, 1992. In 1998 Sigmacom changed its name to
Cavion Technologies, Inc. Effective January 1999, Cavion Technologies,
Inc. changed its name to LanXtra, Inc. ("LanXtra" or the "Company").
Before 1998, the Company was engaged in integrating computer networks and
communications technologies for financial institutions, Fortune 1000
companies and government agencies. On December 3, 1997, the Company
entered into an asset purchase agreement with Convergent Communications
Services, Inc. ("Convergent") for the sale of certain assets of the
Company, including all assets related to the Company's network integrator
business, including, without limitation, the name, "Sigmacom."
Since January 1, 1998, the Company has been engaged in developing and
marketing a suite of network products and services for the credit union
industry that includes: (1) a secure network that enables access via the
internet or an intranet; (2) secure internet financial products such as
internet banking software; and (3) secure internet access services for
credit unions.
Subsequent to the transaction discussed below, the Company's activities
will be limited to holding warrants for the purchase of Convergent common
stock and common stock of the new Cavion Technologies, Inc. Further, in
April 1999, the Board of Directors resolved to form a limited liability
company and contribute the Company's remaining assets into such company.
The ability of the Company and its successor limited liability company to
continue operations depends upon the ultimate value, if any, of the
financial instruments held and the resolution of the matters discussed in
Note 7. This raises substantial doubt about the Company and its
successor's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be
unable to continue as a going concern.
Transfer of the Company's Assets, Liabilities and Operations
------------------------------------------------------------
In August 1998, the Company signed a letter of intent to transfer its
assets and operations to a company to be renamed Cavion Technologies, Inc.
("Cavion"). In December 1998, the Company signed an Asset Purchase
Agreement (the "Purchase Agreement") with Cavion for the transfer of
substantially all the assets of the Company in exchange for 375,214 shares
and 28,648 shares of Cavion's Class A and B common stock, respectively,
and the assumption of liabilities. Also in December 1998, management
shareholders of LanXtra received 625,356 shares of Class A common stock
directly from Cavion. These management shareholders held sufficient
voting shares, directly and indirectly through irrevocable proxies, to
approve the transaction with Cavion.
The Class A common stock and Class B common stock of Cavion are alike in
all respects, except that the Class B common shareholders have the option
to put those shares to Cavion for $7 per share and a parallel call option
is held by Cavion. The Class A common stock issued to the Company
represents approximately 12% of the common equity of Cavion. The Purchase
Agreement was consummated on February 1, 1999 and Cavion has subsequently
assumed the operations of the Company. During the period from August 1998
through February 1, 1999, Cavion provided loans to the Company totaling
$335,000 at January 31, 1999. Such loans were forgiven as part of the
transaction. In management's opinion, the purchase of the Company's
assets and assumption of its liabilities by Cavion will qualify under
Internal Revenue Code regulations as a tax free reorganization.
Upon consummation of the Purchase Agreement, several of the Company's
contractual arrangements were significantly modified. The Company's
Investment Agreement, warrant and option agreements were cancelled and
certain debt maturities were rescheduled by the creditors (see Notes 3 and
5).
Cavion is an entity formed by various third parties to acquire the
business conducted by the Company. Through January 31, 1999, Cavion had
raised $370,000 through debt offerings, $335,000 of which was advanced to
the Company as of January 31, 1999. In February 1999, Cavion conducted a
private placement of its Series A preferred stock, raising approximately
$2 million.
The business now conducted by Cavion has never been profitable, and there
is substantial risk associated with the Company's investment in Cavion
common stock. It is probable that the value of this common stock will be
highly volatile and it is reasonably possible the ultimate value realized
from the stock could be zero.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
---------------------
Accounting for transactions during the one-month period ending January 31,
1999, is on the same basis of accounting as for the years ended December
31, 1998 and 1997. The Company has presented information as of and for
the one-month period ended January 31, 1999, as this represents the final
period in which the business transferred to Cavion was conducted by the
Company.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
The Company considered all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
-----------------------------------
The fair value of the Company's cash and cash equivalents, trade
receivables and payables approximated their carrying amounts due to their
short-term nature. The fair value of the Company's other financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------
Approximate
Carrying Fair
Amount Value
---------- ---------
<S> <C> <C>
Related party collateralized loans $ 13,410 $ 11,000
Notes payable to stockholders 300,000 260,000
Revolving line of credit 600,000 600,000
Putable stock 1,650,236 175,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------
Approximate
Carrying Fair
Amount Value
---------- ---------
<S> <C> <C>
Related party collateralized notes $ 75,190 $ 6,000
Notes payable to stockholders 40,000 3,000
Revolving line of credit 600,000 600,000
Putable stock 837,500 15,000
</TABLE>
Fair values at January 31, 1999 and December 31, 1998 have been estimated
using the values placed on them by the buyer in the transaction described
above. Fair values at December 31, 1997, have been estimated based upon
the terms of subsequent financings.
Concentration of Credit Risk
----------------------------
Financial instruments which potentially subjected the Company to
concentrations of credit risk were accounts receivable, which were
concentrated among credit union customers. The Company performed ongoing
credit evaluations of its customers' financial condition and generally
required no collateral. Additionally, the Company managed a portion of
its credit risk by billing certain services in advance. The Company had
no significant financial instruments with off-balance sheet risk of
accounting loss, such as foreign exchange contracts, option contracts or
other hedging arrangements.
Property and Equipment
----------------------
Property and equipment were recorded at cost and depreciated using the
straight-line method over the lesser of the lease term or their estimated
lives as follows:
Furniture and fixtures 7 years
Computer equipment 3 - 5 years
Licensed software 3 years
Leasehold improvements Life of the lease
Impairment of Long-Lived Assets
-------------------------------
The Company reviewed its long-lived assets for impairment whenever events
or changes in circumstances indicated that the carrying amount of an asset
may not be recoverable from future undiscounted cash flows. During 1997
and 1998 and in January 1999, no impairment losses were recorded.
Accrued Liabilities
-------------------
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 31, December 31,
------------
1999 1998 1997
---------- ---- ----
<S> <C> <C> <C>
Wages payable and accrued vacation $ 48,545 $ 44,661 $ 30,924
Accrued vendor payable 78,673 78,673 78,673
Accrued professional fees 41,257 27,500 9,657
Other liabilities 17,969 21,074 92,093
-------- -------- --------
Total accrued liabilities $186,444 $171,908 $211,347
======== ======== ========
</TABLE>
Income Taxes
------------
A current provision for income taxes was recorded for actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each
year. Deferred income tax assets and liabilities were recorded for the
expected future income tax consequences, based on enacted tax laws, of
temporary differences between the financial reporting and tax bases of
assets and liabilities and carryforwards. The overall change in deferred
tax assets and liabilities for the period measured the deferred tax
expense for the period. Effects of changes in tax laws on deferred tax
assets and liabilities were reflected as adjustments to tax expense in the
period of enactment. Deferred tax assets were recognized for the expected
future tax effects of all deductible temporary differences, loss
carryforwards and tax credit carryforwards. Deferred tax assets were 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, were not expected to be realized.
Net Loss per Share
------------------
The Company reports net loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
which requires the presentation of both basic and diluted earnings (loss)
per share. Basic net loss per common share has been computed based upon
the weighted average number of shares of common stock outstanding during
the period, excluding putable common stock as an assumed cash settlement
is more dilutive than a share settlement. Diluted net loss per share is
computed by dividing the net loss for the period by the weighted average
number of common and potential common shares outstanding during the period
if the effect of the potential common shares is dilutive. The Company has
excluded the weighted average effect of common stock issuable upon
exercise of all warrants and options for common stock from the computation
of diluted earnings per share as the effect of all such securities is anti-
dilutive for all periods presented. The shares excluded (without regard
to the treasury stock method) are as follows:
For the year ended December 31:
1998 531,978
1997 307,113
There are no such shares excluded for the month ended January 31, 1999 due
to the cancellation of options and warrants at December 31, 1998. Basic
and diluted net loss per share is computed using the following average
shares outstanding:
<TABLE>
<CAPTION>
Month Ended Years Ended
January 31, December 31,
------------
1999 1998 1997
---------- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding 315,112 304,130 237,205
Less: Weighted average shares
of able stock (58,648) (46,811) (30,000)
-------- -------- -------
Net weighted average shares
outstanding 256,464 257,319 207,205
</TABLE>
Stock Based Compensation
------------------------
The Company accounted for its employee stock option plans and other
employee stock-based compensation arrangements in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), and related interpretations. The
Company adopted the disclosure-only provisions of SFAS No. 123 "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), which allows entities to
continue to apply the provisions of APB 25 for transactions with employees
and provide pro forma disclosures for employee stock grants made in 1997
and future years as if the fair-value-based method of accounting in SFAS
No. 123 had been applied to these transactions. The Company accounted for
equity instruments issued to non-employees in accordance with the
provisions of SFAS No. 123.
Revenue Recognition
-------------------
The Company generated revenue from three sources: (1) service revenue for
the installation of internet access equipment at customer sites, (2)
software license fees, and (3) recurring monthly network access and
connectivity fees. Service revenue was recognized as the services were
performed. Software license arrangements typically provided for
enhancements over the term of the arrangement, and software license fees
were generally received in advance, deferred and recognized ratably over
the term of the arrangement. Network access and connectivity fees were
typically billed in advance and recognized in the month that the
access/connectivity was provided.
Software Development Costs
--------------------------
Capitalization of software development costs commenced upon the
establishment of technological feasibility of the software product. The
Company's software products were deemed to be technologically feasible at
the point the Company commenced field testing of the software. The period
from field testing to general customer release of the software was brief
and the costs incurred during this period were insignificant.
Accordingly, the Company did not capitalize any qualifying software
development costs.
Comprehensive Income
--------------------
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. From its inception through January 31, 1999, there were no
differences between comprehensive loss and net loss.
Segment Information
-------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. In
accordance with the provisions of SFAS No. 131, the Company has determined
that it had one reportable operating segment at December 31, 1998 and
January 31, 1999.
Recently Issued Accounting Pronouncement
----------------------------------------
Statement of Financial Accounting Standards No. 133
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is
required to adopt SFAS No. 133 in the year ended December 31, 2000. SFAS
No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as
other hedging activities. The Company's derivative financial instruments
include a written put on the Company's common stock and the Convergent
warrants (Note 8).
Reclassifications
-----------------
Certain amounts in the 1997 financial statements have been reclassified to
conform to the current year presentation.
(3) DEBT
----
Revolving Line of Credit
------------------------
In 1996, the Company entered into a two-year revolving line of credit (the
"Revolving Line of Credit") with a bank which allows for borrowings up to
$600,000. Interest accrues at a rate equal to the Bank's reference rate
plus 1.5% (9.25%, 9.25% and 10% at January 31, 1999, December 31, 1998 and
1997, respectively). The Revolving Line of Credit is collateralized by
letters of credit issued by the Company and certain stockholders as well
as by agreements among certain stockholders (see Note 5). In 1998, the
Revolving Line of Credit was extended and all amounts outstanding were due
on January 31, 1999. As part of the Purchase Agreement, the Revolving
Line of Credit was assumed by Cavion and the maturity date of the loan was
extended to December 31, 1999.
As part of the 1997 asset sale agreement with Convergent, it was agreed
that the Company would be reimbursed for interest expense incurred on the
Revolving Line of Credit if certain revenue targets were achieved on the
line of business sold. In 1998, Convergent reimbursed the Company for
interest expense totaling $30,334 until June 30, 1998, when such
reimbursements were discontinued because the revenue targets were not met.
Notes Payable to Stockholders
-----------------------------
The notes payable to stockholders consist of eight notes totaling $300,000
at January 31, 1999. Two of the notes have an aggregate principal balance
of $40,000 and accrue interest at a rate of prime plus 2% (9.75%, 9.75%
and 10.5% as of January 31, 1999, December 31, 1998 and 1997,
respectively). During 1999, 1998 and 1997, the Company continued to
accrue interest in accordance with the terms of the notes. The notes are
unsecured.
Effective May 28, 1998, the Company entered into six note payable
agreements (the "Bridge Loans") with certain stockholders and management
(the "Lenders"), whereby the Company borrowed $260,000. Interest on the
Bridge Loans was payable at the rate of 42% per year. Under the original
terms of the Bridge Loans, the principal was payable in monthly
installments and the balance, including accrued interest, was due on
January 1, 1999. In connection with the Purchase Agreement, the maturity
was extended to the date on which Cavion obtains 100 credit union
customers (the "100 Credit Union Date"). In addition, interest terms were
amended such that no interest will accrue after December 31, 1998. The
Bridge Loans are unsecured.
As additional consideration for the Bridge Loans, the Lenders were issued
28,648 shares of the Company's nonvoting common stock for $.01 per share.
The Lenders had the right to sell these shares back to the Company for a
purchase price of $7 per share, during a 60-day period beginning January
1, 1999. As a result of this transaction, $200,536 was recorded as a debt
discount and accreted as interest expense in 1998. The common stock was
accreted to its redemption value at December 31, 1998. The right to sell
shares back to the Company was canceled in conjunction with the Purchase
Agreement, in exchange for the stockholders being granted the same rights
in 28,648 shares of Cavion's Class B common stock.
Note Payable
------------
On September 14, 1998, the Company entered into a loan agreement with
Cavion to borrow up to $300,000, at an interest rate of 16% and a maturity
date of March 14, 1999. The note was secured by substantially all of the
tangible and intangible assets of the Company (including its technology).
On December 29, 1998, Cavion agreed to lend up to an additional $55,000
under the same terms, and advanced $35,000 of this amount. As part of the
Purchase Agreement, this loan was forgiven.
Related Party Collateralized Loans
----------------------------------
The Company entered into factoring agreements (the "Agreements") with
management and a stockholder of the Company. Accrued interest as of
January 31, 1999, December 31, 1998 and 1997, under the Agreements was
$27,952, $27,952 and $6,905, respectively, and is included in accrued
interest in the accompanying financial statements. Under the terms of the
Agreements, interest accrued on the outstanding balances at a rate of 3%
for the first 30 days and 1% for each additional 10 days until the
outstanding balances were paid in full. In connection with the Purchase
Agreement, the maturity of these loans was extended to the 100 Credit
Union Date. In addition, interest terms were amended such that no
interest will accrue after February 1, 1999.
(4) CAPITAL LEASE OBLIGATIONS
-------------------------
The Company entered into various capital lease agreements related to
computers and various office equipment. The capital leases have terms
ranging from 24 to 36 months with interest rates ranging between 11.4% and
20.3%.
As of December 31, 1998, the present value of future minimum lease
payments are as follows:
Year Ending December 31,
1999 $ 39,509
2000 21,513
2001 15,578
---------
76,600
Less: amounts representing interest (11,405)
---------
65,195
Less: current portion (32,363)
---------
Long-term capital lease obligation $ 32,832
The net book value of assets under capital lease obligations as of January
31, 1999 was $65,069.
(5) STOCKHOLDERS' DEFICIT
---------------------
Investment Agreement
--------------------
In August 1996, the Company entered into an investment agreement (the
"Investment Agreement") under which the Company sold 30,000 shares of
common stock to an investor group at par value, subject to a put option
agreement (the "Put Options"). The investor group provided letters of
credit for $600,000 to secure the Company's Revolving Line of Credit. The
Put Options were exercisable for a 60-day period beginning August 1, 1999.
The original terms of the Put Options provided that they would be canceled
if the Company completes a public stock offering and repaid the Revolving
Line of Credit. The amounts to be redeemed under the Put Options were
being accreted over the period to their exercise date using the straight
line method, and has been included in interest expense in the accompanying
statements of operations. Contingent upon consummation of the Purchase
Agreement with Cavion, the investor group, under a separate agreement, has
agreed to cancel the Put Options. The letters of credit provided by the
investor group continue to secure the Company's Revolving Line of Credit
until it is repaid by Cavion. However, LanXtra is obligated to reimburse
the investor group in the event of foreclosure on their collateral.
If Cavion defaults on the Revolving Line of Credit, 171,000 shares of the
Company's outstanding common stock held by certain members the Company's
investor group are to be forfeited and transferred back to the Company.
Warrants
--------
The Investment Agreement required that if the Company repaid its Revolving
Line of Credit but failed to complete a qualified initial public offering
by January 31, 2000, the investor group would be issued warrants to
purchase 30,000 shares of common stock. The warrants will have an
exercise price equal to the book value per share on December 31, 1999, and
are exercisable anytime within three years from the date of issuance. As
part of the Purchase Agreement, such warrants were canceled.
The Company also issued a stockholder warrants to purchase 7,113 shares of
common stock in consideration for services performed in connection with
the Investment Agreement. The warrants had an exercise price of $ 7.70
and are exercisable upon the expiration or the exercise of the Put Option.
No value was attributed to these warrants as it was unlikely these
warrants would be exercised prior to the exercise date. As part of the
Purchase Agreement, such warrants were canceled.
Stock Options
-------------
In 1997, the Company adopted a stock option plan. Stock options to
employees were granted at various exercise prices and vested between one
and five years.
The following table summarizes stock option activity for the plan:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ------- ------ -------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 270,000 $ 7.50 5,000 $0.01
Granted 196,217 4.60 292,105 $6.94
Cancelled (466,217) (5.93) (22,105) $0.01
Exercised - - (5,000) $0.01
------- ------ ------- ------
Outstanding at end of year - $ - 270,000 $7.50
Weighted average fair value of options
granted during the year $1.79 $1.63
==== =====
</TABLE>
As of December 31, 1998, all outstanding options for common stock were
canceled.
Under the fair value approach of SFAS 123, the total fair value of options
granted under the Plan during 1997 was approximately $478,000. If the
Company had accounted for its stock option plan in accordance with SFAS
123, the Company's net loss and pro forma net loss would have been
reported as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C> <C>
Net loss: As reported $(1,970,502) $(763,118)
Pro forma $(2,321,196) $(819,242)
Per share data: As reported $(7.66) $(3.68)
Pro forma $(9.02) $(3.95)
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the minimum value method. Assumptions used to calculate the fair
value were risk free interest rates of 6.22% to 6.25%, no dividend yields,
an expected life of three to five years and volatility of .001%.
(6) INCOME TAXES
------------
From inception, the Company has generated losses for both financial
reporting and tax purposes. At January 31, 1999, December 31, 1998 and
1997, the Company had a net operating loss carryforward for income tax
purposes of approximately $1,550,000, $1,328,000 and $530,000,
respectively. These would expire beginning in 2011 through 2018, if not
utilized. The net loss carryforwards resulted in a deferred tax asset of
approximately $613,000, $530,000 and $199,000 at January 31, 1999 and
December 31, 1998 and 1997, respectively. Due to the uncertainty relating
to the realization of the benefit of the net operating loss carryforward,
a valuation allowance has been recorded for the full amount.
The Company paid no federal or state income taxes in 1998 or 1997.
The effective tax rate differs from the statutory tax rate applied to the
loss from continuing operations for the following reasons:
<TABLE>
<CAPTION>
January
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Expected federal benefit $(92,285) $(669,971) $(624,067)
Expected state benefit,
net of federal (8,957) (65,027) (60,571)
Non-deductible accretion 18,650 403,998 229,039
Increase in valuation
allowance 82,592 331,000 455,599
-------- -------- --------
Provision/benefit for income
taxes related to loss from
continuing operations $ - $ - $ -
</TABLE>
No taxes were provided against the gain and results from discontinued
operations as no incremental taxes were due.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
------
The Company had operating lease agreements relating to office facilities
and equipment which expire through 2000. Future minimum lease payments
under these agreements were as follows:
Year Ended December 31,
1999 $60,049
2000 2,298
--------
$62,347
========
Rent expense for the years ended December 31, 1998 and 1997 was
approximately $60,621 and $73,000, respectively, and approximately $5,000
for January 1999. Obligations for payments under these leases were
assumed by Cavion.
Legal Matters
-------------
In the normal course of business, the Company is subject to, and may
become a party to, litigation arising out of its operations. In
management's opinion, none of the matters currently in actual or
threatened litigation will have a material impact on the Company's
financial position or results of operations.
In connection with the Purchase Agreement transaction, a shareholder of
the Company exercised his rights as a dissenting shareholder. If the
shareholder is permitted to pursue this claim in a legal proceeding, the
Company could be required to pay the shareholder the fair value of his
shares immediately before the closing date of the Purchase Agreement.
Management believes that the value paid on account of these shares
pursuant to the Purchase Agreement is greater than the amount which the
dissenting shareholder could recover under Colorado law. The dissenting
shareholder has asserted, however, that the value of his 50,000 LanXtra
shares immediately before the closing date of the Purchase Agreement is
approximately $250,000. The ultimate resolution of the matter, which is
expected to occur within one year, could result in an obligation to the
shareholder. Further, should the Company, or Cavion as successor, be
required to make a payment to this shareholder, such payment could result
in the Cavion purchase transaction being treated as a taxable transaction
which could subject Cavion or the Company to a significant tax liability.
(8) DISCONTINUED OPERATION
----------------------
On December 3, 1997, the Company sold the network integrator operations
(the "Discontinued Operation") of the Company for cash of $475,000. This
transaction resulted in a gain of $418,848. The Company also received
$30,334 in 1998 from Convergent related to this transaction and has
included this amount in other income for 1998.
In conjunction with the sale, the Company also issued Convergent 51,464
shares of common stock in exchange for $400,000.
The Company also received a warrant to purchase 50,000 shares of
Convergent's common stock at an exercise price of $7.50 per share. The
warrant was exercisable immediately and expires on December 3, 1999. As
of January 31, 1999, the Company had not exercised the warrant. No value
has been attributed to this warrant in the accompanying financial
statements as management believes the value of this warrant is nominal.
Convergent is not a publicly traded company, and based on information
available to the Company, the exercise price is significantly in excess of
the estimated market value of Convergent's common stock.
Summarized results of operations financial position and earnings per share
data of the discontinued operations were as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,1997
------------------
<S> <C>
Results of operations:
Revenue $3,723,130
Net income from discontinued operation 653,528
Basic and diluted per share information:
Basic and diluted net income from discontinued
operation $3.15
=====
Basic and diluted gain on sale of
discontinued operation $2.02
=====
</TABLE>
(9) PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------
The following presents balance sheet information of Cavion as of March 31,
1999 and pro forma statements of operations data for the year ended
December 31, 1998, and the three month period ended March 31, 1999 for the
Company and Cavion. For purposes of the pro forma statements of
operations, the transfer of the Company's assets and assumption of its
liabilities was assumed to be consummated on January 1, 1998. Pro forma
earnings per share are calculated as if the Purchase Agreement was
completed on January 1, 1998.
<TABLE>
<CAPTION>
Cavion
March 31,1999
--------------
<S> <C>
Current assets $1,241,069
Noncurrent assets 5,112,592
----------
Total assets $6,353,661
Current liabilities $1,788,418
Noncurrent liabilities 573,409
Stockholders' equity 3,991,834
----------
$6,353,661
==========
</TABLE>
The pro forma statement of operations for the year ended December 31, 1998
is as follows:
<TABLE>
<CAPTION>
Pro Forma
LanXtra Cavion Adjustments Pro Forma
-------- ------- ------------ ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue $ 215,022 $ - $ - $ 215,022
Cost of revenue 222,419 - - 222,419
--------- ------- ------- --------
Gross margin (loss) (7,397) - - (7,397)
Operating expenses 1,117,892 6,877914,146 (1) 2,038,915
Nonoperating expenses 845,213 29,067(584,480) (2) 289,800
--------- ------- ------- --------
Loss from continuing
operations $(1,970,502) $(35,944) $(329,666) $(2,336,112)
=========== ======= ========= ==========
Net loss from continuing
operations per basic
share $(7.66) $ (.02) $ (.77)
===== ====== ======
Weighted average shares
outstanding 3,029,218
=========
(1) Amortization of goodwill
(2) Reduction of interest expense to reflect Cavion's capital
structure.
</TABLE>
The pro forma statement of operations for the three month period ending
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Pro Forma
LanXtra Cavion Adjustments Pro Forma
-------- ------- ------------ ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue $ 37,850 $ 66,539 $ - $ 104,389
Cost of revenue 31,898 41,443 - 73,341
-------- -------- -------- ---------
Gross profit 5,952 25,096 - 31,048
Operating expenses 213,311 609,60979,388 (1) 902,308
Nonoperating expenses 64,069 73,656(52,932) (2) 84,793
-------- -------- -------- ---------
Net Loss $(271,428)$(658,169) $(26,456) $(956,053)
======== ======== ======== =========
Net loss per basic share $(1.06) $(.23) $(.32)
====== ===== =====
Weighted average shares outstanding 3,032,978
=========
</TABLE>
Adjustments
-----------
(1) Amortization of goodwill
(2) Reduction of interest expense to reflect Cavion's capital
structure
(10) CONDENSED FINANCIAL STATEMENTS, AFTER CONSUMMATION
--------------------------------------------------
OF PURCHASE AGREEMENT (UNAUDITED)
---------------------------------
The following unaudited balance sheet reflects the Company's balance sheet
at March 31, 1999 following the transfer of the Company's assets to and
assumption of its liabilities by Cavion which was completed February 1,
1999 (see Note 1). The investment in Cavion stock has been recorded at
the net book value of the assets transferred to and liabilities assumed by
Cavion. Because the liabilities assumed by Cavion exceeded the value of
the assets transferred and the Company was relieved from its obligations
for those transferred liabilities, the investment in Cavion was recorded
at zero. As discussed in Note 8, management believes that the fair value
of the Convergent warrant is zero.
Investment in Cavion common stock $ -
Investment in Convergent warrants -
------------------
$ -
==================
Stockholders' equity (deficit) $ -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cavion Technologies, Inc.:
We have audited the accompanying balance sheets of CAVION TECHNOLOGIES,
INC. (a Colorado corporation doing business as cavion.com; formerly
Network Acquisitions, Inc.; the "Company") as of March 31, 1999 and
December 31, 1998, and the related statements of operations, stockholders'
equity and cash flows for the three months ended March 31, 1999 and for
the period from inception (August 18, 1998) to December 31, 1998. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cavion Technologies,
Inc. as of March 31, 1999 and December 31, 1998, and the results of its
operations and its cash flows for the three months ended March 31, 1999
and for the period from inception (August 18, 1998) to December 31, 1998,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has acquired the business of an entity
that has suffered recurring and substantial operating losses. The Company
also assumed substantial liabilities, and its operating plans call for the
expenditure of significant amounts to support its anticipated growth. A
substantial portion of the equity of the Company has been derived from the
issuance of stock for non-cash consideration and is based upon estimates
of fair value which may or may not be substantiated by subsequent cash
offerings. These issues raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regards to
these matters are described in Note 1. The financial statements do not
include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities
that might result should the Company be unable to continue as a going
concern.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
May 18, 1999.
Page 1 of 2
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc. )
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,055,230 $ 19,735
Accounts receivable 9,393 -
Prepaid assets 50,841 -
Inventories 5,832 -
Deferred offering costs 119,773 -
----------- ----------
Total current assets 1,241,069 19,735
----------- ----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 17,809 -
Furniture and fixtures 27,157 -
Network equipment and licensed software 385,668 -
----------- ----------
430,634 -
Less - Accumulated depreciation (17,531) -
----------- ----------
Property and equipment, net 413,103 -
----------- -----------
DEBT ISSUANCE COSTS, net of accumulated
amortization of $12,103 and $4,232,
respectively 50,515 49,412
DEPOSIT FOR LETTER OF CREDIT 20,000 -
DEFERRED LANXTRA ACQUISITION COSTS - 2,204,814
GOODWILL AND OTHER INTANGIBLE ASSETS,
net of accumulated amortization of
$158,776 as of March 31, 1999 4,604,492 -
OTHER ASSETS 24,482 -
----------- ----------
TOTAL ASSETS $ 6,353,661 $ 2,273,961
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
Page 2 of 2
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc.)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 201,928 $ -
Accrued liabilities 286,657 31,185
Accrued interest 146,613 2,116
Deferred revenue and deposits 235,863 -
Related party collateralized loans 11,586 -
Current portion of capital lease obligations 52,378 -
Notes payable to stockholders 253,393 -
Revolving line of credit 600,000 -
----------- ----------
Total current liabilities 1,788,418 33,301
----------- ----------
LONG-TERM LIABILITIES:
Capital lease obligations 62,438 -
Notes payable 338,155 252,833
----------- ----------
Total long-term liabilities 400,593 252,833
----------- ----------
PUTABLE CLASS B COMMON STOCK; 30,000
shares authorized; 28,648, and 0 shares
issued and outstanding, respectively
(stated at accreted value; total redemption
value of $200,536) 172,816 -
COMMITMENTS AND CONTINGENCIES (Notes 1 and 7)
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock;
$.0001 par value, 10,000,000 shares
authorized; 567,000 and 0 issued and
outstanding, respectively (liquidation
value of $3,402,000) 1,496,880 -
Class A Common stock; $.0001 par value,
19,970,000 shares authorized;
3,006,210 and 2,625,356 issued and
outstanding, respectively 302 263
Warrants for common stock - 13,284
Additional paid-in capital 3,188,765 2,010,224
Accumulated deficit (694,113) (35,944)
----------- ----------
Total stockholders' equity 3,991,834 1,987,827
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,353,661 $ 2,273,961
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc. )
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Three- Period from
Months Inception
Period (August 8,
Ended 1998) to
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUE:
Network access and connectivity fees $ 55,578 $ -
Installation services 9,623 -
Software licensing fees 1,338 -
----------- ----------
Total revenue 66,539 -
----------- ----------
COST OF REVENUE:
Network access and connectivity 34,749 -
Installation services 6,694 -
----------- ----------
Total cost of revenue 41,443 -
----------- ----------
Gross profit 25,096 -
----------- ----------
OPERATING EXPENSES:
General and administrative 404,249 6,877
Research and development 46,584 -
Amortization of goodwill 158,776 -
----------- ----------
Total operating expenses 609,609 6,877
----------- ----------
LOSS FROM OPERATIONS (584,513) (6,877)
INTEREST EXPENSE (73,656) (29,067)
----------- ----------
NET LOSS $ (658,169) $ (35,944)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.23) $ (0.02)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 2,875,879 2,078,170
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
CAVION TECHNOLOGIES, INC.
-------------------------
(formerly Network Acquisitions, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------
AND FOR THE PERIOD FROM INCEPTION (AUGUST 18,1998)
--------------------------------------------------
TO DECEMBER 31, 1998
--------------------
<TABLE>
<CAPTION>
Series A
Convertible
Preferred Stock Common Stock
------------------- ----------------
Shares Amount Shares Amount
------- ------------------- ------
<S> <C> <C> <C> <C>
BALANCES, August 18, 1998 - $ - - $ -
Issuance of common stock
for $.0001 per share - - 2,000,000 200
Issuance of common stock
for $.01 per share, recorded
at December 21, 1998
estimated fair value of $3.00
per share - - 625,356 63
Issuance of warrants to note
holders - - - -
Repurchase of common stock - - (44,400) (4)
Issuance of warrants to Selling
Agent - - - -
Exercise of warrants by note
holders - - 44,400 4
Net loss - - - -
------- ---------- --------- ----
BALANCES, December 31, 1998 - - 2,625,356 263
Issuance of common stock for
LanXtra business, recorded at
February 1, 1999, estimated
fair value of $3.00 per share - - 375,214 38
Issuance of warrants to note
holders - - - -
Repurchase of common stock - - (12,000) (1)
Issuance of warrants to Selling
Agent - - - -
Exercise of warrants by
note holders and Selling
Agent - - 17,640 2
Issuance of Series A Preferred
Stock for $3.00 per share,
net of offering costs of
$204,120 567,000 1,496,880 - -
Net loss - - - -
------- ---------- --------- ----
BALANCES, March 31, 1999 567,000 $1,496,880 3,006,210 $302
======= ========== ========= ====
</TABLE>
<TABLE>
<CAPTION>
Addi- Warrants Total
tional for Accumu- Stock-
Paid-In Common lated holders'
Capital Stock Deficit Equity
---------- ---------- --------------------
<S> <C> <C> <C> <C>
BALANCES, August 18, 1998 $ - $ - $ - $ -
Issuance of common stock
for $.0001 per share - - - 200
Issuance of common stock
for $.01 per share,
recorded at December 21,
1998 estimated fair value
of $3.00 per share 1,876,005 - - 1,876,068
Issuance of warrants to
note holders - 133,775 - 133,775
Repurchase of common stock - - - (4)
Issuance of warrants to
Selling Agent - 13,284 - 13,284
Exercise of warrants by
note holders 134,219 (133,775) - 448
Net loss - - (35,944) (35,944)
---------- -------- --------- ----------
BALANCES, December 31, 1998 2,010,224 13,284 (35,944) 1,987,827
Issuance of common stock
for LanXtra business,
recorded at February 1,
1999, estimated fair
value of $3.00 per share 1,125,604 - - 1,125,642
Issuance of warrants to
note holders - 35,885 - 35,885
Repurchase of common stock - - - (1)
Issuance of warrants to
Selling Agent - 3,590 - 3,590
Exercise of warrants by
note holders and Selling
Agent 52,937 (52,759) - 180
Issuance of Series A
Preferred Stock for $3.00
per share, net of offering
costs of $204,120 - - - 1,496,880
Net loss - - (658,169) (658,169)
---------- -------- --------- ----------
BALANCES, March 31, 1999 $3,188,765 $ - $(694,113) $3,991,834
========== ======== ========= ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
CAVION TECHNOLOGIES, INC.
-------------------------
(formerly Network Acquisitions, Inc.)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Period from
Three Inception
Months (August 18,
Ended 1998) to
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (658,169) $ (35,944)
Adjustments to reconcile net loss to
net cash used in operating
activities-
Depreciation and amortization 184,178 -
Accretion of debt discount 24,880 16,608
Accretion of putable stock 5,619 4,232
Change in operating assets and
liabilities- 2,116
Accounts receivable 7,065 -
Prepaids and inventories (17,721) -
Other assets (2,667) -
Accounts payable (83,681) -
Accrued liabilities 162,031 -
Deferred revenue 21,151 -
Net cash used in operating
activities (357,314) (12,988)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (35,810) -
Acquisition of LanXtra - (335,000)
----------- -----------
Net cash used in investing
activities (35,810) (335,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 100,000 370,000
Proceeds from issuance of Common
Stock 178 6,898
Proceeds from issuance of Series A
Preferred Stock 1,701,000 -
Series A Preferred Stock offering
costs (204,120) -
Payment of debt issuance costs (36,567) (9,175)
Principal payments on capital leases (12,099) -
Deferred offering costs (119,773) -
----------- -----------
Net cash provided by financing
activities 1,428,619 367,723
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,035,495 19,735
CASH AND CASH EQUIVALENTS, beginning of period 19,735 -
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,055,230 $ 19,735
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 16,679 $ 6,111
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Property acquired with capital leases $ 63,804 $ -
Value of warrants to purchase common
stock issued to note holders $ 35,885 $ 133,775
Value of warrants to purchase common
stock issued to Selling Agent $ 3,590 $ 13,284
Debt issuance costs included in accrued
liabilities $ - $ 31,185
Estimated value of shares issued to
LanXtra management shareholders $ - $ 1,876,068
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
CAVION TECHNOLOGIES, INC.
-------------------------
(formerly Network Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
---------------------------------------------
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
-----------------------------------------------
TO DECEMBER 31, 1998
--------------------
(1) DESCRIPTION OF BUSINESS
-----------------------
Organization
------------
The Company was incorporated in Colorado on August 18, 1998 as Network
Acquisitions, Inc. to acquire the assets of Cavion Technologies, Inc., now
known as LanXtra, Inc. ("LanXtra"), which was engaged in providing
internet, intranet, and extranet services to the credit union industry.
On February 1, 1999, the Company acquired the business of LanXtra, and the
Company changed its name to Cavion Technologies, Inc., doing business as
cavion.com.
The Company has devoted substantially all of its efforts since inception
to the acquisition of LanXtra's assets and to raising capital and other
organizational activities. The Company financed its operations through a
private placement of its 15% notes, which were offered commencing on
October 20, 1998 (the "Offering") and the sale of Series A Preferred
Stock. The Company advanced a portion of the proceeds from the Offering
to LanXtra in anticipation of the acquisition of LanXtra. Through
December 31, 1998, the Company had raised $370,000 in the private
placement and had advanced LanXtra a total of $335,000 under an agreement
dated September 14, 1998. As of March 31, 1999, an additional $100,000
was raised from the Offering (see Note 3).
Purchase of LanXtra's Assets, Liabilities and Operations
--------------------------------------------------------
In August 1998, the Company signed a letter of intent to purchase
LanXtra's business. In December 1998, the Company signed an Asset
Purchase Agreement (the "Purchase Agreement") with LanXtra to purchase
substantially all the assets of LanXtra in exchange for approximately
375,214 shares and 28,648 shares of the Company's Class A and B common
stock, respectively, and the assumption by the Company of certain
liabilities of LanXtra. The number of Class A common stock shares issued
to LanXtra represents approximately 12% of the Company's equity interest.
The Purchase Agreement was consummated on February 1, 1999 and the Company
assumed the operations of LanXtra on that date. Upon consummation,
significant modifications were made to LanXtra's capital structure.
On December 21, 1998, the Company issued 625,356 shares to certain
shareholders of LanXtra who could continue as management of the Company.
One of these shareholders held directly and through irrevocable proxies
sufficient voting shares to approve the transaction. The shares are non-
forfeitable and not contingent upon the management's continued employment
with the Company. As a result, the shares have been considered additional
purchase consideration and are recorded at their estimated fair value of
$3 per share.
The estimated fair value of assets acquired, liabilities assumed, and
consideration issued in the transaction with LanXtra are as follows:
<TABLE>
<CAPTION>
<S> <C>
Consideration:
Class A common stock $3,001,710
Class B common stock 167,197
Cash 338,735
----------
3,507,642
Add: Net liabilities (assets) assumed:
Working capital deficit assumed 704,044
Property and equipment (331,020)
Borrowings assumed 924,417
Other assets (41,815)
----------
Goodwill and other intangible assets $4,763,268
==========
</TABLE>
The Company has recorded the fair value of its stock issued to LanXtra at
$3 per share based principally upon its private placement of Series A
Preferred Stock completed in February 1999. The transaction with LanXtra
resulted in approximately $4,760,000 of intangible assets (primarily
technology, customer lists and goodwill). These intangible assets will be
amortized over five years. The purchase price allocation is subject to
adjustment based on the final determination of the fair value of the
assets and liabilities assumed, which could take as long as one year from
February 1, 1999. Because the business now operated by the Company has
never been profitable, and due to the other risks and uncertainties
discussed herein, it is reasonably possible that an analysis of these long-
lived assets in future periods could result in a conclusion that they are
impaired, and the amount of the impairment could be substantial.
The Company's operations, as assumed from LanXtra, are subject to various
risks and uncertainties frequently encountered by companies in the early
stages of development, particularly companies in the new and rapidly
evolving market of internet-based products and services. Such risks and
uncertainties include, but are not limited to, its limited operating
history, evolving technology, and the management of rapid growth. To
address these risks, the Company must, among other things, maintain and
increase its customer base, implement and successfully execute its
business and marketing strategy, continue to develop and upgrade its
technology, provide superior customer service and attract, retain and
motivate qualified personnel. There can be no guarantee that the Company
will be successful in addressing such risks.
The business purchased from LanXtra has never achieved profitability and
the Company expects to incur net losses for the foreseeable future. This
business has never generated sufficient revenue to cover the substantial
amounts spent to create, launch and enhance its services. Even if the
Company's operations do achieve profitability in the future, it may not
sustain or increase its profitability. LanXtra historically funded its
operations through borrowings and sales of equity.
The Company has expended, and will continue to expend, significant
resources marketing its products and establishing a customer base.
Management believes, but cannot guarantee, that such products will be
accepted by the marketplace in sufficient quantities to provide for
profitable operations at some future date. The Company's ability to
achieve and attain profitable operations and positive cash flow from
operations depends upon various factors including, among others, the costs
of and resources for developing and marketing its products, the extent and
timing of market acceptance of the Company's products, competitive factors
and other factors, certain of which may be beyond the Company's control.
In order to execute its business plan, the Company will require additional
public or private debt or equity financing. There can be no guarantees
that such financing will be available in the future.
As a result of these factors, there is substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
Management intends to seek additional equity financing, and to continue to
aggressively market the Company's products to its identified market, in
response to these factors. Subsequent to March 31, 1999, the Company sold
an additional 133,000 shares of Series A Preferred Sock for gross proceeds
of $399,000. The Company believes that the proceeds of this offering and
the cash on hand at March 31, 1999 will be sufficient to fund the
Company's operations through September 1999 (see Note 9).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
As of March 31, 1999, the Company has recorded capital contributions of
$4,890,066, of which only $1,708,076 was issued for cash consideration.
The Company based the estimated fair value of its stock issued to LanXtra
management shareholders in December 1998, and the stock issued to LanXtra
in February 1999, upon its private placement of preferred shares in
February 1999. The Company believes its estimate of fair value is
reasonable, however, there can be no assurance that future cash offerings
will substantiate the estimated per share value of the Company's stock.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
----------------------------
Financial instruments which subject the Company to concentrations of
credit risk are accounts receivable and cash equivalents. The Company's
receivables are concentrated among credit unions. The Company performs
ongoing credit evaluations of its customers' financial condition and
generally requires no collateral. Additionally, the Company manages a
portion of its credit risk by billing certain services in advance. The
Company has no significant financial instruments with off-balance sheet
risk of accounting loss, such as foreign exchange contracts, option
contracts or other hedging arrangements.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist of cash, accounts receivable,
short-term trade payables, putable common stock and borrowings. The
carrying values of the instruments acquired from LanXtra approximate the
fair value placed upon them on February 1, 1999, in connection with their
assumption. Fair values were principally determined by discounting
expected future cash flows at a market cost of debt. The fair value of
the Company's other borrowings approximate their carrying values based
upon current market rates of interest.
Property and Equipment
----------------------
Property and equipment acquired from LanXtra was recorded at its estimated
fair value. Additions are recorded at cost. Property and equipment are
depreciated using the straight-line method over the lesser of the lease
term or their estimated lives as follows.
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures 7 years
Computer equipment 3 - 5 years
Licensed software 3 years
Leasehold improvements Life of the lease
</TABLE>
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable from future undiscounted cash flows. Impairment
losses are recorded for the difference between the carrying value and fair
value of the long-lived assets. The acquisition of LanXtra generated
approximately $4,760,000 of intangible assets. Because the Company is the
successor to a business which has not demonstrated the ability to achieve
profitable operations, it is reasonably possible that these intangibles
will be written down in the near future.
Deferred Offering Costs
-----------------------
The Company has recorded deferred offering costs totaling $119,773 at
March 31, 1999. Such costs represent legal and other professional fees
incurred related to the Company's proposed initial public offering. Such
costs will be offset against the initial public offering proceeds upon the
consummation of such offering. There can be no guarantee that the
offering will be consummated, and if the offering is unsuccessful, such
deferred offering costs would be expensed.
Accrued Liabilities
-------------------
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Accrued payroll and vacation $ 52,882 $ -
Accrued vendor payable 78,673 -
Accrued professional fees 133,657 -
Other liabilities 21,445 31,185
-------- -------
Total accrued liabilities $286,657 $31,185
</TABLE>
Income Taxes
------------
A current provision for income taxes is recorded for actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each
year. Deferred income tax assets and liabilities are recorded for the
expected future income tax consequences, based on enacted tax laws, of
temporary differences between the financial reporting and tax bases of
assets and liabilities and carryforwards. The overall change in deferred
tax assets and liabilities for the period measures the deferred tax
expense for the period. Effects of changes in tax laws on deferred tax
assets and liabilities are reflected as adjustments to tax expense in the
period of enactment. Deferred tax assets are recognized for the expected
future tax effects of all deductible temporary differences, loss
carryforwards and tax credit carryforwards. Deferred tax assets are
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.
Net Loss per Share
------------------
The Company reports net loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
which requires the presentation of both basic and diluted earnings (loss)
per share. Basic net loss per common share has been computed based upon
the weighted average number of shares of common stock outstanding during
the period. Weighted average common shares excludes 28,648 shares of
putable Class B common stock as an assumed cash settlement is more
dilutive. Diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of common and potential
common shares outstanding during the period if the effect of the potential
common shares is dilutive. The Company has excluded the weighted average
effect of common stock issuable upon exercise of all warrants and options
from the computation of diluted earnings per share as the effect of all
such securities is anti-dilutive for the periods presented. The shares
excluded (without regard to the treasury stock method) at March 31, 1999
and December 31, 1998 were 345,000 and 4,440, respectively.
Stock Based Compensation
------------------------
The Company accounts for its employee stock option plan and other employee
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB No. 25"), and related interpretations. The Company
adopted the disclosure-only provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which allows entities to
continue to apply the provisions of APB Opinion No. 25 for transactions
with employees and provide pro forma disclosures for employee stock grants
as if the fair-value-based method of accounting in SFAS No. 123 had been
applied to these transactions. The Company accounts for equity
instruments issued to non-employees in accordance with the provisions of
SFAS No. 123.
Revenue Recognition
-------------------
The Company generates revenue from three sources: (1) service revenue for
the installation of internet access equipment at customer sites, (2)
software license fees, and (3) recurring monthly network access and
connectivity fees. Service revenue is recognized as the services are
performed. Software license arrangements typically provide for
enhancements over the term of the arrangement, and software license fees
are generally received in advance, deferred and recognized ratably over
the term of the arrangement. Network access and connectivity fees are
typically billed in advance and recognized in the month that the
access/connectivity is provided.
Software Development Costs
--------------------------
Capitalization of software development costs commences upon the
establishment of technological feasibility of the software product. The
Company's software products are deemed to be technologically feasible at
the point the Company commences field testing of the software. The period
from field testing to general customer release of the software has been
brief and the costs incurred during this period were insignificant.
Accordingly, the Company has not capitalized any qualifying software
development costs.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use
("SOP 98-1")". In general, SOP 98-1 requires that certain costs to
develop software for internal use be capitalized effective for fiscal
years beginning after December 15, 1998. The adoption of this Statement
of Position has no impact on the Company's financial statements.
Comprehensive Income
--------------------
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting comprehensive income and its components in the
financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during a period from non-owner sources.
From inception through March 31, 1999, there have been no differences
between the Company's comprehensive loss and its net loss.
Segment Information
-------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS No. 131"). This statement establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company
believes it has one reportable segment at March 31, 1999.
Recently Issued Accounting Pronouncements
-----------------------------------------
Statement of Financial Accounting Standards No. 133
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is
required to adopt SFAS No. 133 in the year ended December 31, 2000. SFAS
No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as
other hedging activities. To date, the Company has not entered into any
derivative financial instruments or hedging activities.
Statement of Position 98-5
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities ("SOP 98-5")". SOP 98-5 provides
guidance on the financial reporting of start-up and organization costs and
requires costs of start-up activities and organization costs to be
expensed as incurred. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998, and was adopted by the Company on January 1,
1999. The adoption of SOP 98-5 had no impact on the Company's financial
statements as the Company had not capitalized any such costs.
(3) BORROWINGS
----------
The Company's borrowings at March 31, 1999 and December 31, 1998,
consisted of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
------------------------ ----------------------
Unamortized Unamortized
Face Value Discount Face Value Discount
---------- ----------- ---------------------
<S> <C> <C> <C> <C>
Notes payable $ 470,000 $(131,845) $370,000 $(117,167)
Revolving line of
credit 600,000 - - -
Notes payable to
stockholders 300,000 (46,607) - -
Related party
collateralized loans 13,410 (1,824) - -
---------- --------- -------- ---------
$1,383,410 $(180,276) $370,000 $(117,167)
========== ========= ======== =========
</TABLE>
Note Payable
------------
Beginning on October 20, 1998, the Company offered through its officers,
directors and First Capital Investments, Inc. (the "Selling Agent"), up to
$2,000,000 of 15% secured notes due October 19, 2000 (the "Notes") along
with warrants to purchase Class A common stock (the "Warrants"). At
December 31, 1998, the Company had raised $370,000 through the Offering.
The Company raised a total of $470,000 as of March 31, 1999 and the
Offering closed on February 8, 1999.
The Notes are secured by substantially all of the assets now owned and
hereafter acquired by the Company, including the assets acquired from
LanXtra in February 1999. There is no pre-payment penalty.
In connection with the Offering, the Company granted note holders warrants
to purchase 1,200 shares of the Company's Class A common stock for every
$10,000 of Notes Payable purchased. Accordingly, at December 31, 1998,
the Company had issued warrants for 44,400 shares, and in February 1999,
issued warrants for an additional 12,000 shares. Such warrants had an
exercise price of $0.01 per share. These detachable warrants were valued
at a total of $169,660 utilizing the Black-Scholes option pricing model,
assuming a volatility factor of 70%, a risk free interest rate of 4.31%
and a fair market value of the underlying common stock of $3 per share.
All warrants were exercised prior to March 31, 1999.
Revolving Line of Credit
------------------------
As part of the Purchase Agreement, a $600,000 Revolving Line of Credit was
assumed by the Company. The maturity date of the line of credit was
extended to December 31, 1999 and interest accrues at a rate equal to the
Bank's reference rate plus 1.5% (9.25% at March 31, 1999 and December 31,
1998). The Revolving Line of Credit is collateralized by letters of
credit issued by the Company and certain LanXtra stockholders as well as
by agreements among certain LanXtra stockholders. No additional amounts
may be drawn upon the line of credit.
Notes Payable to Stockholders
-----------------------------
The Company assumed notes payable to certain LanXtra stockholders as part
of the Purchase Agreement. The maturity date on these notes was extended
to the date on which Cavion obtains 100 credit union customers (the "100
Credit Union Date"). Management believes the 100 Credit Union Date will
be reached on or before December 31, 1999. In addition, interest terms
were amended such that no interest will accrue for the remaining term of
the notes payable. At the acquisition date, the notes were discounted to
reflect their fair value. The discount is being amortized as interest
expense over the remaining estimated term of the notes.
As additional consideration for shareholder notes with a face value of
$240,000, LanXtra issued 28,648 shares of its putable common stock. These
putable shares were exchanged for 28,648 shares of the Company's Class B
putable common stock. The Lenders have the right to sell these shares
back to the Company for a purchase price of $7 per share, 30 days after
the 100 Credit Union Date is reached, or can convert these shares into
equivalent shares of Class A common stock. As a result of this
transaction, the Class B shares have been recorded at their estimated fair
value of $167,197. The difference between this amount and the put value
is being accreted as interest expense over the estimated term of the
notes.
Related Party Collateralized Loans
----------------------------------
The Company also assumed certain factoring agreements (the "Agreements")
with management and a stockholder of the Company as part of the Purchase
Agreement. The interest terms were amended such that no interest will be
accrued for the remaining term of the loans and the maturity of these
loans was extended to the 100 Credit Union Date.
Maturities of Borrowings
------------------------
The maturities of the Company's borrowings are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 913,410
2000 470,000
----------
1,383,410
Less-debt discounts (180,276)
----------
$1,203,134
==========
</TABLE>
(4) CAPITAL LEASE OBLIGATIONS
-------------------------
The Company assumed several capital lease agreements related to computers
and various office equipment in conjunction with the Purchase Agreement.
The Company has also entered into additional capital lease agreements
during the period ending March 31, 1999. The capital leases have terms
ranging from 24 to 36 months with interest rates ranging between 11.4% and
20.3%.
As of March 31, 1999, the present value of future minimum lease payments
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Period ending March 31,
2000 $ 56,889
2001 43,339
2002 31,920
--------
132,148
Less: amounts representing interest (17,332)
--------
114,816
Less: current portion (52,378)
--------
Long-term capital lease obligation $ 62,438
========
</TABLE>
The net book value of assets under capital lease obligations as of March
31,1999 was approximately $120,000.
(5) STOCKHOLDERS' EQUITY
--------------------
The Company is authorized to issue 20,000,000 shares of common stock, par
value $.0001 per share. The common stock is segregated into two classes;
Class A and Class B. Of the 20,000,000 shares of common stock, 19,970,000
are designated as Class A and 30,000 are designated as Class B.
Class A Common Stock
--------------------
At March 31, 1999, 3,006,210 shares of Class A common stock were issued
and outstanding. Two million shares were issued for consideration of
$.0001 per share (par value). Certain LanXtra shareholders and management
were issued 625,356 shares for cash consideration of $.01 per share. The
estimated fair value assigned to these shares was $3 per share which is
consistent with the value assigned to the 375,214 shares issued to LanXtra
in February 1999. The holders of Class A common stock are entitled to one
vote for each share held on record on each matter submitted to a vote of
shareholders. Cumulative voting for election of directors is not
permitted. Holders of Class A common stock have no preemptive rights or
rights to convert their Class A common stock into any other securities.
Class B Common Stock
--------------------
As of March 31, 1999, there were 28,648 shares of the Class B voting
common stock issued and outstanding. These shares were issued in exchange
for similar securities of LanXtra as partial consideration for the
purchase of LanXtra's business, and are callable by the Company at $7 per
share. The holders of Class B common stock have the right to sell the
Class B common stock to the Company at $7 per share or convert their
shares to equivalent units of Class A common stock at the 100 Credit Union
Date. The Class B common stock was authorized so that the Company could
exchange its Class B common stock for LanXtra's existing nonvoting putable
common stock with similar terms.
Preferred Stock
---------------
In February 1999, the Board of Directors authorized the Company, without
further action by the shareholders, to issue 10,000,000 shares of one or
more series of preferred stock at a par value of $.0001, all of which is
nonvoting. The Board of Directors may, without shareholder approval,
determine the dividend rates, redemption prices, preferences on
liquidation or dissolution, conversion rights, voting rights and any other
preferences. In addition, the Company authorized the sale of 770,000
shares of Series A convertible preferred stock in conjunction with a
private placement offering of the stock. Each share of the Series A
preferred stock is convertible at any time at the holder's option into an
equal number of shares of Class A common stock of the Company at a
conversion price initially equal to the offering price, which was
established at $3 per share. Each share of the Series A preferred stock
is automatically convertible into an equal number of Class A shares, if
the Company completes a qualified initial public offering, which
Management believes will occur in 1999 (see Note 9). In addition, each
share of the Series A Preferred Stock is convertible into Class A shares
at the option of the Company beginning on January 1, 2004. The Series A
Preferred Stock will entitle each holder to receive cumulative
preferential dividends at the rate of 5% per year, payable in cash or in
shares of the Company's Class A common stock quarterly. The Series A
preferred stock also entitles the holder to a liquidation preference at a
liquidation value which is initially equal to two times the offering
price.
As of March 31, 1999, the Company sold 567,000 shares of Series A
Preferred Stock at $3 per share, raising proceeds of $1,701,000 before
offering costs. Subsequent to March 31, 1999, an additional 133,000
shares were sold, also at $3 per share.
Warrants
--------
In conjunction with the Series A Preferred Stock offering, the Placement
Agent received warrants to purchase shares of the Company's Series A
Preferred Stock as compensation. As of March 31, 1999, 56,700 warrants
were issued to the Placement Agent. The warrants can be exercised over a
five year period at an exercise price of $3.
The Company issued warrants with the private placement of notes payable
which allow the purchase of 1,200 shares of the Company's Class A common
stock for every $10,000 of notes payable. The exercise price was $0.01
per share. Originally, the warrant exercise period was for a period of
one year beginning on the maturity date of the notes payable. On December
22, 1998, the Company accelerated the exercise period to begin immediately
and end one year after each note's issuance date. All holders of warrants
at that date elected to immediately exercise their warrants. Warrants for
44,400 shares of Class A common stock were issued and exercised at
December 31, 1998. In the three months ended March 31, 1999, warrants for
an additional 12,000 shares of Class A common stock were issued and
immediately exercised.
The Company redeemed 17,640 and 44,400 shares of Class A common stock from
its existing shareholders for a redemption price of $.0001 per share
during the periods ended March 31, 1999 and December 31, 1998,
respectively. The redeemed shares were reissued in connection with the
exercise of the warrants issued to note holders and the Selling Agent
(discussed below).
As part of the Selling Agent's compensation, the Company agreed to issue
additional warrants for the Company's Class A common stock. The warrants
are exercisable at any time during a five-year term at 110% of the price
paid by the holders of the Notes for the Class A common stock. At
December 31, 1998, the Selling Agent earned the right to purchase 4,440
shares of the Company's Class A common stock at an exercise price of $.011
per share. At March 31, 1999, the Selling Agent earned the right to
purchase an additional 1,200 shares under the same terms. The 4,440
warrants outstanding at December 31, 1998, were valued at a total of
$13,284 and the additional 1,200 warrants were valued at $3,590, utilizing
the Black-Scholes option pricing model assuming a volatility factor of
70%, a risk free interest rate of 4.31% and a fair market value of the
underlying shares of $3 per share. The warrants were recorded as debt
issuance costs and are being amortized into interest expense over the life
of the debt. All such warrants were exercised prior to March 31, 1999.
Stock Options
-------------
Effective March 19, 1999, the Company adopted a stock option plan (the
"Plan"). The Plan provides for grants of incentive stock options,
nonqualified stock options and restricted stock to designated employees,
officers, directors, advisors and independent contractors. The Plan
authorizes the issuance of up to 750,000 shares of Class A common stock.
Under the Plan, the exercise price per share of a non-qualified stock
option must be equal to at least 50% of the fair market value of the
common stock at the grant date, and the exercise price per share of an
incentive stock option must equal the fair market value of the common
stock at the grant date. Through March 31, 1999, options for 345,000
shares of Class A common stock have been issued under the Plan. The
outstanding stock options have an exercise price of $3.00 per share and
vest over various terms with a maximum vesting period of 18 months and
expire after a maximum of 10 years.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
Granted to Granted to
Employees Non-Employees
---------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1998 - $ - - $ -
Granted 280,000 $3.00 65,000 $3.00
------- ----- ------ -----
Outstanding at March 31, 1999 280,000 $3.00 65,000 $3.00
======= ===== ====== =====
Exercisable at March 31, 1999 - $ - - $ -
======= ===== ====== =====
Weighted average fair value of options
granted during the year $ .41 $ .72
===== =====
</TABLE>
Under the fair value approach of SFAS 123, the total fair value of options
granted to employees under the Plan during 1999 was approximately
$113,646. If the Company had accounted for its stock option plan in
accordance with SFAS 123, the Company's net loss and pro forma net loss
would have been reported as follows:
<TABLE>
<CAPTION>
Three-Months
Ending
March 31, 1999
--------------
<S> <C> <C>
Net loss: As reported $(664,567)
Pro forma $(670,433)
Per share data: As reported $ (.23)
Pro forma $ (.23)
</TABLE>
The fair value of each employee option grant was estimated on the date of
the grant using the Black-Scholes option pricing model. Assumptions used
to calculate the fair value were risk free interest rates of 4.48% to
4.99%, no dividend yields, volatility of 0.001% and an expected life of
five years.
In March 1999, the Company granted options for 65,000 shares of Class A
common stock to non-employees in exchange for services. The fair value of
these options on the date of grant was approximately $47,000. Expense
related to such options will be recorded over the term the services are
provided. The fair value of each non-employee option grant was estimated
on the date of the grant using the Black-Scholes option pricing model.
Assumptions used to calculate the fair value were risk free interest rates
of 4.48% to 4.99%, no dividend yields, an expected life of five years and
volatility of 100%.
(6) INCOME TAXES
------------
From its inception, the Company has generated losses for both financial
reporting and tax purposes. In conjunction with the Purchase Agreement,
the Company obtained the right to LanXtra's net operating loss ("NOL")
carryforward, which was fully offset by a valuation allowance. At March
31, 1999 and December 31, 1998, the Company had a NOL carryforward for
income tax purposes of $2,001,000 and $12,459, respectively. The NOL is
subject to examination by the tax authorities and expire in various years
through 2019. A portion of the NOL is subject to limitations on use as
determined by the Internal Revenue Code. The NOL, as well as expenses
not yet deductible for tax purposes, resulted in a deferred tax asset of
approximately $770,000 and $7,000 at March 31, 1999 and December 31, 1998,
respectively. Due to the uncertainty relating to the realization of the
benefit of the deferred tax asset, a valuation allowance has been recorded
for the full amount. The difference between the statutory tax rate and
the effective tax rate is due to the following:
<TABLE>
<CAPTION>
Three
Months Inception
Ended Through
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Provision (benefit) at statutory rate $(225,953) $(12,221)
State tax benefit, net (21,931) (1,258)
Valuation allowance 247,884 13,479
--------- --------
Provision (benefit) $ - $ -
</TABLE>
The Company has acquired a net operating loss carryforward of
approximately $1.4 million from LanXtra. If the Company generates
sufficient taxable income to allow it to utilize this NOL, such
utilization will reduce cash tax payments due by the Company as well as
the amount of goodwill carried by the Company.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Legal Matters
-------------
In connection with the Purchase Agreement transaction, a shareholder of
LanXtra exercised his rights as a dissenting shareholder. The Company
assumed LanXtra's obligation (if any) to this dissenting shareholder. If
the shareholder is permitted to pursue his claim in a legal proceeding,
LanXtra could be required to pay the shareholder the fair value of his
shares immediately before the closing date of the Purchase Agreement. The
Company's and LanXtra's management believes that the value paid on account
of these shares pursuant to the Purchase Agreement is greater than the
amount which the dissenting shareholder could recover under Colorado law.
The dissenting shareholder has asserted that the value of his 50,000
LanXtra shares immediately before the closing date of the Purchase
Agreement would be approximately $250,000. The ultimate resolution of the
matter, which is expected to occur within one year, could result in an
obligation to such shareholder. Further, should LanXtra, or Cavion as
successor, be required to make a payment to this shareholder, such payment
could result in the purchase transaction being treated as a taxable
transaction which could subject Cavion to a significant tax liability.
In accordance with the Purchase Agreement, the Company may become legally
obligated to satisfy additional liabilities of LanXtra, including
liabilities arising on or after the closing date with respect to LanXtra's
assets or business. To date, no liabilities other than those identified
in the Purchase Agreement have arisen, however, other liabilities could
arise in the future. Any such liabilities would be evaluated in the
Company's determination of the fair value of liabilities assumed from
LanXtra.
(8) ACQUISITION OF LANXTRA BUSINESS
-------------------------------
As discussed above, the Company acquired the business of LanXtra on
February 1, 1999. The following is pro forma operating information. For
purposes of the pro forma statement of operations, the transaction was
assumed to be consummated on January 1, 1998. Pro forma earnings per
share are calculated as if the Purchase Agreement was completed on January
1, 1998 and the related 1,029,218 shares of common stock were issued on
that date.
The pro forma statement of operations for the year ended December 31, 1998
is as follows:
<TABLE>
<CAPTION>
Pro Forma
LanXtra Cavion Adjustments Pro Forma
(Unaudited) (Unaudited)
----------- --------- -------------------------
<S> <C> <C> <C> <C>
Revenue $ 215,022 $ - $ - $ 215,022
Cost of revenue 222,419 - - 222,419
----------- --------- --------- -----------
Gross loss (7,397) - - (7,397)
Operating expenses 1,117,892 6,877914,146 (1) 2,038,915
Nonoperating
expenses 845,213 29,067(584,480) (2) 289,800
----------- --------- --------- -----------
Loss from
continuing
operations $(1,970,502) $(35,944) $(329,666) $(2,336,112)
=========== ======== ========= ===========
Unaudited pro forma
net loss from
continuing
operations per
basic and diluted
share $(7.66) $(.02) $(.77)
====== ===== =====
Weighted average
shares
outstanding 3,029,218
=========
</TABLE>
The pro forma statement of operations for the three month period ending
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Pro Forma
LanXtra Cavion Adjustments Pro Forma
(Unaudited) (Unaudited)
----------- --------- -------------------------
<S> <C> <C> <C> <C>
Revenue $ 37,850 $ 66,539 $ - $ 104,389
Cost of revenue 31,898 41,443 - 73,341
----------- --------- --------- -----------
Gross profit 5,952 25,096 - 31,048
Operating expenses 213,311 609,609 79,388 (1) 902,308
Nonoperating
expenses 64,069 73,656(52,932) (2) 84,793
----------- --------- --------- -----------
Net Loss $ (271,428) $(658,169) $ (26,456) $(956,053)
=========== ======== ========= ===========
Net loss per
basic share $(1.06) $(.23) $(.32)
====== ===== =====
Weighted average
shares
outstanding 3,032,978
=========
</TABLE>
Adjustments
-----------
(3) Amortization of goodwill
(4) Reduction of interest expense to reflect Cavion's capital structure
(9) SUBSEQUENT EVENTS
-----------------
The Company intends to file an initial public offering with the Securities
and Exchange Commission to sell 1,200,000 shares of it's common stock in
the second quarter of 1999. There can be no guarantee that such offering
will be completed.
In April 1999, the Company repurchased 299,884 shares of Class A common
stock issued to its majority shareholders for a price of $.0001 per share
in satisfaction of an agreement to adjust share ownership following the
closing of the Purchase Agreement and the final determination of certain
factors in April 1999.
Change in Repayment Date (Unaudited)
The Company has obligations, discussed above, which had repayment terms
based upon the Company's achievement of the 100 Credit Union Date. On May
28, 1999, such repayment terms were modified such that these obligations
must be repaid on the date that the initial public offering discussed
above is completed.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, bylaw, contract or arrangement under which any
controlling person, director or officer of the company is insured or
indemnified in any matter against liability which he may incur in his
capacity as such, are as follows:
Article VIII of the Amended and Restated Articles of Incorporation of
the company include the following provisions:
INDEMNIFICATION
(a) The Corporation shall indemnify, to the fullest extent permitted
by applicable law in effect from time to time, any person, and the estate
and personal representative of any such person, against all liability and
expense (including attorneys' fees) incurred by reason of the fact that
such person is or was a director or officer of the Corporation or, while
serving as a director or officer of the Corporation, such person is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee, fiduciary or agent of, or in any similar managerial or
fiduciary position of, another domestic or foreign corporation or other
individual or entity or of an employee benefit plan. The Corporation
shall also indemnify any person who is serving or has served the
Corporation as director, officer, employee, fiduciary, or agent, and that
person's estate and personal representative, to the extent and in the
manner provided in any bylaw, resolution of the shareholders or directors,
contract, or otherwise, so long as such provision is legally permissible.
(b) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director or officer who is a party to a proceeding
in advance of final disposition of the preceding if:
(i) the director or officer furnishes to the Corporation a
written affirmation of his or her good faith belief that he or she has met
the standard of conduct described in Section 7-109-102 of the Colorado
Business Corporation Act;
(ii) the director or officer furnishes to the Corporation a
written undertaking, executed personally or on the director's or officer's
behalf, to repay the advance if it is ultimately determined that he or she
did not meet the standard of conduct; and
(iii) a determination is made that the facts known to those
making the determination would not preclude indemnification under Article
109 of the Colorado Business Corporation Act.
Article V of the Bylaws of the Company includes the following
provisions:
1. INDEMNIFICATION. The Corporation shall indemnify any person
against all liability and expense incurred by reason of the person being
or having been a director or officer of the Corporation to the full extent
and in any manner that directors may be indemnified under the Colorado
Business Corporation Act, as in effect at any time. The Corporation shall
also indemnify any person who is serving or has served the Corporation as
director or officer to the extent and in any manner provided in any bylaw,
resolution of the directors or shareholders, contract or otherwise, so
long as such provision is legally permissible. In the discretion of the
board of directors, the Corporation may indemnify an employee, fiduciary
or agent who is not a director or officer to the same extent as a director
or officer.
2. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of an individual who is or was a director, officer, employee,
fiduciary, or agent of this Corporation or who, while a director, officer,
employee, fiduciary, or agent of this Corporation, is or was serving at
the request of this Corporation as a director, officer, partner, trustee,
employee, fiduciary, or agent of any other entity (including without
limitation an employee benefit plan), against any liability asserted
against or incurred by the person in that capacity or arising from his or
her status as a director, officer, employee, fiduciary, or agent, whether
or not the Corporation would have power to indemnify the person against
the same liability under this Article. Any such insurance may be procured
from any insurance company designated by the board of directors, whether
such insurance company is formed under this state or any other
jurisdiction of the United States or elsewhere, including any insurance
company in which the Corporation has equity or any other interest through
stock ownership or otherwise.
3. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If the
Corporation indemnifies or advances expenses to a director in connection
with a proceeding by or in the right of the Corporation, the Corporation
shall give written notice of the indemnification or advance to the
shareholders with or before the notice of the next shareholders' meeting.
If the next shareholder action is taken without a meeting at the
instigation of the board of directors, such notice shall be given to the
shareholders at or before the time the first shareholder signs a writing
consenting to such action.
4. INDEMNIFICATION NONEXCLUSIVE; INUREMENT. The indemnification
provided by this Article shall not be deemed exclusive of any other rights
and procedures to which the indemnified party may be entitled under the
articles of incorporation, any bylaw, agreement, vote of the shareholders
or directors, contract or otherwise. Such indemnification shall continue
as to a person who has ceased to be a director, officer, employee,
fiduciary or agent and shall inure to the benefit of such person's heirs,
personal representatives and administrators.
The provisions of Article 109 of the Colorado Revised Statutes on
indemnification are as follows:
Section 7-109-101. Definitions. As used in this article:
(1) "Corporation" includes any domestic or foreign entity that is a
predecessor of a corporation by reason of a merger or other transaction in
which the predecessor's existence ceased upon consummation of the
transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation, is or
was serving at the corporation's request as a director, an officer, an
agent, an associate, an employee, a fiduciary, a manager, a member, a
partner, a promoter, or a trustee of, or to hold any similar position
with, another domestic or foreign corporation or other person or of an
employee benefit plan. A director is considered to be serving an employee
benefit plan at the corporation's request if the director's duties to the
corporation also impose duties on, or otherwise involve services by, the
director to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
(5) "Official capacity," means, when used with respect to a
director, the office of director in a corporation and, when used with
respect to a person other than a director as contemplated by Section 7-109-
107, the office in a corporation held by the officer or the employment,
fiduciary, or agency relationship undertaken by the employee, fiduciary,
or agent on behalf of the corporation. "Official capacity" does not
include service for any other domestic or foreign corporation or other
person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
Section 7-109-102 . Authority to indemnify directors. (1) Except
as provided in subsection (4) of this section, a corporation may indemnify
a person made a party to a proceeding because the person is or was a
director against liability incurred in the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) He reasonably believed:
(I) In the case of conduct in an official capacity with
the corporation, that his or her conduct was in the corporation's best
interests; and
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan
for a purpose the director reasonably believed to be in the interests of
the participants in or beneficiaries of the plan is conduct that satisfies
the requirements of subparagraph (II) of paragraph (b) of section (1) of
this section. A director's conduct with respect to an employee benefit
plan for a purpose that the director did not reasonably believe to be in
the interests of the participants in or beneficiaries of the plan shall
not be deemed not to satisfy the requirements of paragraph (a) of
subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of
conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with any proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(b) In connection with any proceeding charging that the
director derived an improper personal benefit, whether or not involving
action in an official capacity, in which proceeding the director was
adjudged liable on the basis that he or she derived an improper personal
benefit.
(5) Indemnification permitted under this section in connection with
a proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
Section 7-109-103. Mandatory indemnification of directors. Unless
limited by its articles of incorporation, a corporation shall indemnify a
person who was wholly successful, on the merits or otherwise, in defense
of any proceeding to which the person was a party because the person is or
was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
Section 7-107-104. Advance of expenses to directors. (1) A
corporation may pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding in advance of the final
disposition of the proceeding if:
(a) The director furnishes to the corporation a written
affirmation of the director's good faith belief that he or she has met the
standard of conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written
undertaking, executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that he or she did not meet the
standard of conduct; and
(c) A determination is made that the facts then known to those
making the determination would not preclude indemnification under this
article.
(2) The undertaking required by paragraph (b) of subsection (1) of
this section shall be an unlimited general obligation of the director but
need not be secured and may be accepted without reference to financial
ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in section 7-109-106.
Section 7-109-105. Court ordered indemnification of directors. (1)
Unless otherwise provided in the articles of incorporation, a director who
is or was a party to a proceeding may apply for indemnification to the
court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court, after giving any
notice the court considers necessary, may order indemnification in the
following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the corporation
to pay the director's reasonable expenses incurred to obtain court-ordered
indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
whether or not the director met the standard of conduct set forth in
section 7-109-102(1) or was adjudged liable in the circumstances described
in section 7-109-102(4), the court may order such indemnification as the
court deems proper; except that the indemnification with respect to any
proceeding in which liability shall have been adjudged in the
circumstances described in section 7-109-102(4) is limited to reasonable
expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
Section 7-109-106. Determination and authorization of
indemnification of directors.
(1) A corporation may not indemnify a director under section 7-109-
102 unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set
forth in section 7-109-102. A corporation shall not advance expenses to a
director under section 7-109-104 unless authorized in the specific case
after the written affirmation and undertaking required by section 7-109-
104(1)(a) and (1)(b) are received and the determination required by
section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this section
shall be made:
(a) By the board of directors by a majority vote of those
present at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in satisfying the
quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board or directors,
which committee shall consist of two or more directors not parties to the
proceeding; except that directors who are parties to the proceeding may
participate in the designation of directors for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a)
of subsection (2) of this section, and a committee cannot be established
under paragraph (b) of subsection (2) of this section, or, even if a
quorum is obtained or a committee is designated, if a majority of the
directors constituting such quorum or such committee so directs, the
determination required to be made by subsection (1) of this section shall
be made:
(a) By independent legal counsel selected by a vote of the
board of directors or the committee in the manner specified in paragraph
(a) or (b) of subsection (2) of this section or, if a quorum of the full
board cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full board of
directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall
be made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination that
indemnification or advance of expenses is permissible is made by
independent legal counsel, authorization of indemnification and advance of
expenses shall be made by the body that selected said counsel.
Section 7-109-107. Indemnification of officers, employees,
fiduciaries, and agents. (1) Unless otherwise provided in the articles
of incorporation:
(a) An officer is entitled to mandatory indemnification under
section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same extent
as a director;
(b) A corporation may indemnify and advance expenses to an
officer, fiduciary, employee, or agent of the corporation to the same
extent as a director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciaries, or agent who is not a director to a
greater extent, if not inconsistent with public policy, and if provided
for by its bylaws, general or specific action of its board of directors or
shareholders, or a contract.
Section 7-109-108. Insurance. A corporation may purchase and
maintain insurance on behalf of a person who is or was a director,
officer, employee, fiduciary, or agent of the corporation, or who, while a
director, officer, employee, fiduciary, or agent of the corporation, is or
was serving at the request of the corporation as a director, officer,
partner, trustee, employee, fiduciary, or agent of any other domestic or
foreign corporation or other person, or of an employee benefit plan,
against liability asserted against or incurred by the person in that
capacity or arising from his or her status as a director, officer,
employee, fiduciary, or agent, whether or not the corporation would have
the power to indemnify the person against the same liability under section
7-109-102, 7-109-103, or 7-109-107. Any such insurance may be procured
from any insurance company designated by the board of directors, whether
such insurance company is formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including any insurance
company in which the corporation has equity or any other interest through
stock ownership or otherwise.
Section 7-109-109. Limitation of indemnification of directors. (1)
A provision treating a corporation's indemnification of, or advance of
expenses to, directors that is contained in its articles of incorporation
or bylaws, in a resolution of its shareholders or board of directors, or
in a contract, except an insurance policy, or otherwise, is valid only to
the extent the provision is not consistent with sections 7-109-101 to 7-
109-108. If the articles of incorporation limit indemnification or
advances of expenses, indemnification and advance of expenses are valid
only to the extent not inconsistent with the articles of incorporation.
(a) Sections 7-109-101 to 7-109-108 do not limit a
corporation's power to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time when
he or she has not been made a named defendant or respondent in the
proceeding.
Section 7-109-110. Notice to shareholders of indemnification of
director. If a corporation indemnifies or advances expenses to a director
under this article in connection with a proceeding by or in the right of
the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the notice
of the next shareholders' meeting. If the next shareholder action is
taken without a meeting at the instigation of the board of directors, such
notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
Section 7-108-402(2) of the Colorado Revised Statutes states as
follows:
No director or officer shall be personally liable for any injury to
person or property arising out of a tort committed by an employee unless
such director or officer was personally involved in the situation giving
rise to the litigation or unless such director or director committed a
criminal offense in connection with such situation. The protection
afforded in this subsection (2) shall not restrict other common-law
protections and rights that an director or officer may have. This
subsection (2) shall not restrict the corporation's right to eliminate or
limit the personal liability of a director to the corporation or to its
shareholders for monetary damages for breach of fiduciary duty as a
director as provided in subsection (1) of this section.
Article VII of the Amended and Restated Articles of Incorporation of
the company includes the following provision:
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of
fiduciary duty as a director; except that this provision shall not
eliminate or limit the liability of the director to the Corporation or to
its shareholders for monetary damages otherwise existing for (i) any
breach of the director's duty of loyalty to the Corporation or to its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) acts specified
in Section 7-108-403 of the Colorado Business Corporation Act; or (iv) any
transaction from which the director derived an improper personal benefit.
If the Colorado Business Corporation Act is hereafter amended to eliminate
or limit further the liability of a director, then, in addition to the
elimination and limitation of liability provided by the preceding
sentence, the liability of each director shall be eliminated or limited to
the fullest extent permitted by the Colorado Business Corporation Act as
so amended. Any repeal or modification of this Article VII shall not
adversely affect any right or protection of a director of the Corporation
under this Article VII, as in effect immediately prior to such repeal or
modification, with respect to any liability that would have accrued, but
for this Article VII, prior to such repeal or modification.
Also, the Company has entered into indemnification agreements with
the officers and directors to indemnify them and to advance expenses to
the fullest extent permitted by law either in connection with the
investigation, defense, adjudication, settlement or appeal of a proceeding
or in connection with establishing or enforcing a right to indemnification
or advancement of expenses. In addition, the agreements provide that no
claim or cause of action may be asserted by the Company against any
director or officer after two years from the date of the alleged act or
omission, provided that if in fact the person has fraudulently concealed
the facts, then no claim or cause of action may be asserted after two
years from the earlier of the date the Company discovers the facts or the
date the Company should have discovered such facts by the exercise of
reasonable diligence. The term of the agreement and the Company's
obligations apply while the person is an agent of the Company and
continues thereafter so long as the person is subject to any claim by
reason of the fact that he or she served as an agent of the Company.
In addition, the Underwriting Agreement for the company's initial
public offering provides for indemnification by the Representative of the
company, its directors and officers against certain liabilities, including
liabilities under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling the company pursuant to the foregoing provisions, the company
has been informed that, in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Securities Act of 1933 and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimates of fees and expenses incurred or to be incurred in
connection with the issuance and distribution of securities being
registered, other than underwriting discounts and commissions are as
follows:
SEC Registration Fees $ 2,918*
Printing and Mailing Fees and Costs 50,000*
Transfer Agent Fees and Costs 2,150*
Legal Fees and Costs 120,000*
Accounting Fees and Costs 80,000*
Nasdaq Listing Fees 13,635*
Director & Officers Insurance Premium 15,000*
Miscellaneous Expenses 19,297*
---------
TOTAL $303,000*
* Estimated.
We have agreed to bear certain expenses in connection with the
registration of the shares of our Class A common stock into which our
Series A preferred stock is convertible, which are offered and sold by the
Selling Shareholders, estimated to be $5,000. The Selling Shareholders
have agreed to pay all commissions and other compensation to any
securities broker-dealers through whom they sell any of the shares of
common stock.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In August 1998, we issued 2,000,000 shares of $.0001 common stock to
our two founding shareholders at $.0001 per share. On October 20, 1998,
we began conducting a private placement pursuant to which, between October
27, 1998 and February 8, 1999, we issued $470,000 in 15% secured
promissory notes due October 19, 2000 (the "notes") and a total of 56,400
warrants to purchase shares of Class A common stock at an exercise price
of $.01 per share (the "Warrants"). Between December 28, 1998 and
February 8, 1999, all of the warrants were exercised. In connection with
the offering, the agent for the offering, First Capital Investments, Inc.
was issued an agent warrant to purchase 5,640 shares of Class A common
stock at $.01 per share which was exercised on February 8, 1999. In
December 1998, we issued 625,356 shares of Class A common stock to our
management shareholders at $.01 per share. In February 1999, we issued
375,214 shares of Class A common stock and 28,648 shares of Class B common
stock to LanXtra, Inc. in exchange for the assets and liabilities of
LanXtra. In March and April 1999, we issued 700,000 shares of
convertible preferred stock, Series A, convertible into Class A common
stock (the "preferred stock"), for an aggregate of $2,100,000, prior to
expenses and commissions. The initial conversion price was $3.00 per
share of Class A common stock, but the conversion price was subject to
adjustment upon certain events affecting cavion.com's capitalization. The
shares of preferred stock will automatically convert into Class A common
stock upon the earlier to occur of (i) consummation of a public offering
of common stock registered under the Securities Act of 1933, as amended or
(ii) the date specified in a notice thereof delivered by cavion.com on any
date after January 1, 2000. In connection with the offering, the agent
for the offering, NTB was issued a five year agent warrant to purchase
70,000 shares of preferred stock at an exercise price of $3.00 per share.
The following sets forth the owner, amount of notes, warrants, shares of
Class A common stock, Class B common stock, preferred stock, as well as
the price paid by the purchasers in our private placements of notes,
warrants, Class A common stock, Class B common stock and preferred stock:
<TABLE>
<CAPTION>
NATURE AND
TITLE AND NAME OF PERSON AGGREGATE
AMOUNT OF OR CLASS TO AMOUNT
DATE OF SECURITIES WHOM SECURITIES OF
SALE SOLD WERE SOLD CONSIDERATION
-------- ---------- --------------- -------------
<S> <C> <C> <C>
8-14-98 1,100,000(1) VENTURE FUNDING, LTD. $110.00
Class A Common CASH
8-14-98 900,000(1) BOUTINE, LLC $90.00
CLASS A COMMON CASH
12-2-98 $50,000 LORENE ALLISON TRUST $50,000.00
NOTE CASH
12-2-98 6,000 LORENE ALLISON TRUST $60.00
CLASS A COMMON CASH
12-2-98 $50,000 NEWPAX VENTURE CORP. $50,000.00
NOTE CASH
12-2-98 6,000 NEWPAX VENTURE CORP. $60.00
CLASS A COMMON CASH
12-2-98 $10,000 MN TRUST $10,000.00
NOTE CASH
12-2-98 1,200 MN TRUST $12.00
CLASS A COMMON CASH
12-2-98 $10,000 MLN TRUST $10,000.00
NOTE CASH
12-2-98 1,200 MLN TRUST $12.00
CLASS A COMMON CASH
12-2-98 $50,000 ARTHUR HARRISON $50,000.00
NOTE TRUST CASH
12-2-98 6,000 ARTHUR HARRISON $60.00
CLASS A COMMON TRUST CASH
12-2-98 $50,000 ILSE DIAMANT $50,000.00
NOTE CASH
12-2-98 6,000 ILSE DIAMANT $60.00
CLASS A COMMON CASH
12-2-98 $20,000 MATT ECCLES $20,000.00
NOTE CASH
12-2-98 2,400 MATT ECCLES $24.00
CLASS A COMMON CASH
12-2-98 $30,000 J. KIPP MONROE $30,000.00
NOTE CASH
12-2-98 3,600 J. KIPP MONROE $36.00
CLASS A COMMON CASH
12-2-98 $20,000 PETER PRATO $20,000.00
NOTE CASH
12-2-98 2,400 PETER PRATO $24.00
CLASS A COMMON CASH
12-2-98 $10,000 WESLEY ZEPELIN & $10,000.00
NOTE SUSAN ELLIOTT JT CASH
12-2-98 1,200 WESLEY ZEPELIN & 12.00
CLASS A COMMON SUSAN ELLIOTT JT CASH
12-2-98 $20,000 GO EAST, LLC $20,000.00
NOTE CASH
12-2-98 2,400 GO EAST, LLC $24.00
CLASS A COMMON CASH
12-2-98 $25,000 GALE DANIEL $25,000.00
NOTE CASH
12-2-98 3,000 GALE DANIEL $30.00
CLASS A COMMON CASH
12-2-98 $25,000 RIKE WOOTEN $25,000.00
NOTE CASH
12-2-98 3,000 RIKE WOOTEN $30.00
CLASS A COMMON CASH
12-21-98 208,452(1) CRAIG LASSEN $2,084.52
CLASS A COMMON CASH
12-21-98 208,452(1) DAVID J. SELINA $2,084.52
CLASS A COMMON CASH
12-21-98 208,452(1) JEFFREY W. MARSHALL $2,084.52
CLASS A COMMON CASH
2-1-99 $50,000 GAIL DANIEL $50,000.00
NOTE CASH
2-1-99 6,000 GAIL DANIEL $60.00
CLASS A COMMON CASH
2-1-99 $50,000 ARTHUR HARRISON $50,000.00
NOTE TRUST CASH
2-1-99 6,000 ARTHUR HARRISON $60.00
CLASS A COMMON TRUST CASH
2-1-99 375,214(1) LANXTRA, INC. $1,125,642
CLASS A COMMON ASSETS
2-1-99 28,648 LANXTRA, INC. $172,816
CLASS B COMMON ASSETS
2-8-99 5,640 FIRST CAPITAL $62.04
CLASS A COMMON INVESTMENT, INC. CASH
3-10-99 10,000 ANNE D. DYDE TRUSTEE $30,000
PREFERRED ANNE D. DYDE TRUST CASH
3-10-99 10,000 JAMES F. DYDE TRUSTEE $30,000.00
PREFERRED JAMES F. DYDE INSURANCE CASH
TRUST
3-10-99 10,000 JON D. KOSTIVAL $30,000.00
PREFERRED CASH
3-10-99 10,000 JAMES F. SEIFERT & $30,000
PREFERRED NANCY L. SEIFERT CASH
AS TRUSTEES OR SUCCESSOR
TRUSTEES OF JAMES F. SEIFERT
MANAGEMENT TRUST
3-10-99 10,000 DIANNE M. GIAMBUSSO $30,000.00
PREFERRED CASH
3-10-99 20,000 CAROL NIXON $60,000.00
PREFERRED CASH
3-10-99 10,000 ADAM GLICKMAN $30,000.00
PREFERRED CASH
3-10-99 10,000 LELAND E. TATE $30,000.00
PREFERRED CASH
3-10-99 16,000 WILLIAM ETTENGER $48,000.00
PREFERRED CASH
3-10-99 10,000 JEFFREY TELSEY $30,000.00
PREFERRED TRUSTEE SPECIAL NEEDS TRUST CASH
3-10-99 10,000 LINCOLN TRUST $30,000.00
PREFERRED COMPANY CUSTODIAN FOR CASH
JERRY SCHNEPP
3-10-99 20,000 MBM YOUNG $60,000.00
PREFERRED CASH
3-10-99 80,000 JEFF KAVY $240,000.00
PREFERRED CASH
3-10-99 10,000 WILLIAM J. NOONEY $30,000.00
PREFERRED CASH
3-10-99 10,000 ROBERT C. TUCKER JR. $30,000.00
PREFERRED & KAREN D. TUCKER JT CASH
3-10-99 20,000 WILLIAM OYEN & $60,000.00
PREFERRED CAROLYN S. OYEN JT CASH
3-10-99 10,000 MICHAEL MARA $30,000.00
PREFERRED CASH
3-10-99 20,000 JOHN E. TARRILLION $60,000.00
PREFERRED CASH
3-10-99 10,000 DANIEL A. DUPRE $30,000.00
PREFERRED CASH
3-10-99 10,000 CARLA G. STEWART $30,000.00
PREFERRED CASH
3-10-99 14,000 MARTIN J. SHERLOCK $42,000.00
PREFERRED TRUSTEE MARION A. CASH
SHERLOCK TRUST
3-10-99 10,000 JERRY SCHEMPP & $30,000.00
PREFERRED BRUCE E. KOBEY TEN COM CASH
3-10-99 10,000 JANET M. SEARL & $30,000.00
PREFERRED KENT E. SEARL JT TEN CASH
3-10-99 10,000 GREGORY WERTS $30,000.00
PREFERRED CASH
3-10-99 10,000 JULIE A. HACKETT $30,000.00
PREFERRED CASH
3-10-99 10,000 TYRONE M. CLARK $30,000.00
PREFERRED CASH
3-10-99 10,000 LISA H. ROBB & $30,000.00
PREFERRED MICHAEL B. ROBB JT TEN CASH
3-10-99 10,000 JACK C. MOORE $30,000.00
PREFERRED CASH
3-10-99 10,000 ROBERT C. WERTS & $30,000.00
PREFERRED PATRICIA CASH
SCHULTE-WERTS
JT TEN
3-10-99 17,000 MICHAEL K. CARNEY $51,000.00
PREFERRED CASH
3-10-99 10,000 JOSEPH REINKE $30,000.00
PREFERRED CASH
3-10-99 10,000 ALAN L. TALESNICK & $30,000.00
PREFERRED ROBERT M. BEARMAN CASH
TEN COM
3-31-99 10,000 ROSWELL S. MONROE & $30,000.00
PREFERRED WANDA V. MONROE TRUSTEES CASH
OF THE ROSWELL & WANDA
MONROE FAMILY TRUST
U/D/T DTD 1-31-90
3-31-99 10,000 WALTER J. $30,000.00
PREFERRED SCHOEFBERGER CASH
3-31-99 10,000 WILLIAM KILZER $30,000.00
PREFERRED CASH
3-31-99 10,000 ROBERT L. YOUNG & $30,000.00
PREFERRED ANNA M. YOUNG JT CASH
3-31-99 10,000 KARL D. SMITH $30,000.00
PREFERRED CASH
3-31-99 10,000 SCHIELD MANAGEMENT $30,000.00
PREFERRED COMPANY CASH
3-31-99 10,000 JOHN R. MCKOWEN $30,000.00
PREFERRED CASH
3-31-99 10,000 JOHN METZGER $30,000.00
PREFERRED CASH
3-31-99 10,000 TRANS-L A $30,000.00
PREFERRED PARTNERSHIP CASH
3-31-99 10,000 LUCAS LIAKOS $30,000.00
PREFERRED CASH
3-31-99 10,000 CARL BRAD LINDER & $30,000.00
PREFERRED CATHY LINDER JT CASH
3-31-99 10,000 THOMAS J. OBRADOVICH $30,000.00
PREFERRED CASH
4-30-99 10,000 THOMAS R. ASHFORD $30,000.00
PREFERRED CASH
4-30-99 10,000 STANLEY RANCH $30,000.00
PREFERRED CASH
4-30-99 10,000 DENORA CORPORATION $30,000.00
PREFERRED CASH
4-30-99 10,000 RONALD D. DEVOE $30,000.00
PREFERRED CASH
4-30-99 10,000 WILLIAM DANIEL $30,000.00
PREFERRED CARTER TTEE OF CASH
THE WILLIAM DANIEL
CARTER TRUST
4-30-99 10,000 THIRD MILLENIUM $30,000.00
PREFERRED TRADING LLP CASH
4-30-99 10,000 ADVENT FUND LLC $30,000.00
PREFERRED CASH
4-30-99 10,000 MARIUSZ WITEK $30,000.00
PREFERRED CASH
4-30-99 10,000 RANDAL A. ALFORD $30,000.00
PREFERRED CASH
4-30-99 10,000 FARHAD GHAFFAROUR $30,000.00
PREFERRED CASH
4-30-99 10,000 ERVEN J. NELSON $30,000.00
PREFERRED TTEE FOR THE ERVEN J. CASH
NELSON LTD PSP
4-30-99 10,000 LEONARD B. ZELIN $30,000.00
PREFERRED CASH
4-30-99 13,000 FISCAL DYNAMICS $39,000.00
PREFERRED CORPORATION CASH
</TABLE>
(1) Pursuant to certain agreements with our founding shareholders,
Venture Funding, Ltd. and Boutine, LLC, out of their initial purchases of
Class A common stock in August 1998, we redeemed 56,400 of their shares
for the exercise of the warrants in the October 1998 private placement,
603 shares were transferred by them to each of our management
shareholders, Craig Lassen, David J. Selina, and Jeffrey W. Marshall,
1,085 shares were transferred by them to LanXtra, Inc. and we redeemed an
additional 299,884 shares which were returned to authorized, but unissued
shares of our Class A common stock.
With respect to the offering of promissory notes and warrants
described above, First Capital Investments was paid a total offering
commission of $37,600. With respect to the offering of preferred stock
described above, the total offering commission was $80,000 which was paid
to NTB. The company relied on Sections 3(b),4(2) and 4(6) of the
Securities Act of 1993, as amended, and Rules 504, 505 and 506 of
Regulation D promulgated thereunder for both of the offerings. Each
investor was given access to complete information concerning the company.
The securities were offered for investment only and not for the purposes
of resale or distribution, and the transfer thereof was appropriately
restricted by the company. With respect to the shares of Class A common
stock purchased from the company in August and December 1998 and the
shares of Class A and Class B common stock transferred to LanXtra, Inc. in
February 1999, the company relied on Sections 3(b), 4(2) and 4(6) of the
Securities Act of 1993, as amended. The securities were offered for
investment only and not for the purposes of resale or distribution, and
the transfer thereof was appropriately restricted by the company.
ITEM 27. EXHIBITS.
Exhibit No. Description
- ---------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters
1.3 Representative's Warrant Agreement
2 Asset Purchase Agreement with Cavion Technologies, Inc.
dated December 31, 1998
3.1a Amended and Restated Articles of Incorporation as filed
with the Colorado Secretary of State on February 1, 1999
3.1b Articles of Amendment to the Amended and Restated
Articles of Incorporation setting forth Statement of
Designation of Series and Determination of Rights and
Preferences of convertible preferred stock, Series A, as
filed with the Colorado Secretary of State on February 26,
1999
3.2 Amended and Restated Bylaws of the Company as adopted
by its Board of Directors on March 22, 1999
4.1 Specimen Certificate for $.0001 par value Class A
common stock of the Company
4.2 Specimen Certificate for $.0001 par value Class B
common stock of the Company
4.3 Specimen Certificate for $.0001 par value Series A
preferred stock of the Company
4.4 Form of Subscription Agreement in the Offering of
Convertible preferred stock of the Company
4.5 Form of Preferred Stock Warrant issued to Neidiger,
Tucker, Bruner, Inc.
*5 Opinion of Gorsuch Kirgis LLP
10.1 Promissory Note to Herman D. Axelrod dated July 1, 1992
10.2 Promissory Note to Craig E. Lassen dated August 1, 1992
10.3 Factoring Agreements to Herman D. Axelrod dated
September 8, 1997 and September 15, 1997
10.4 Factoring Agreement to Craig E. Lassen dated October
15, 1997
10.5 Bridge Loan Agreement, Promissory Notes and Put
Agreement with Far East Holdings, Ltd., Martin Cooper and
Fairway Realty Associates with Sigmacom Corporation dated
May 28, 1998
10.6 Additional Bridge Loan Agreement, Promissory Notes and
Put Agreement with Jeff Marshall, David Selina and Randal
Burtis dated May 28, 1998
10.7 Termination and Modification Agreement dated September
28, 1998, and Amendment to Termination and Modification
Agreement dated January 15, 1999, with British Far East
Holdings, Ltd., William M.B. Berger Living Trust, Martin
Cooper, Fairway Realty Associates, Craig Lassen, Herman
Axelrod and David Selina
10.8 Engagement Letter with First Capital Investments, Inc.
dated September 20, 1998
10.9 Form of 15% Secured Promissory Notes due October 19,
2000
10.10 Agreement for Post-Closing Adjustments by and
among Venture Funding, Ltd., Boutine, LLC, Network
Acquisitions, Inc., Cavion Technologies, Inc., Craig E.
Lassen, David J. Selina and Jeff Marshall dated February 1,
1999
10.11 Share Allocation Agreement by and among Venture
Funding Ltd., Boutine, LLC, Cavion Technologies, Inc.,
LanXtra, Inc., Craig E. Lassen, David J. Selina and Jeff
Marshall, dated April 16, 1999
10.12 Office Lease Agreement with TTD Associates dated
December 4, 1996 for the corporate offices located at 7475
Dakin Street, Denver, Colorado
10.13 Business Loan Agreement and Promissory Note with
US Bank dated January 18, 1999, and First Amendment to
Business Loan Agreement with US Bank dated March 24, 1999
10.14 Executive Employment Agreement with David J.
Selina effective February 1. 1999
10.15 Executive Employment Agreement with Marshall E.
Aster effective March 8, 1999
10.16 Executive Employment Agreement with Jeff Marshall
effective February 1, 1999
10.17 Executive Employment Agreement with Craig E.
Lassen effective February 1, 1999
10.18 Equity Incentive Plan dated March 19, 1999
10.19 Form of Indemnification Agreement with officers
and directors
10.20 Agreement to Modify Deferred Obligations dated May
28, 1999 with British Far East Holdings, Ltd., William M.B.
Berger Living Trust, Martin Cooper, Fairway Realty
Associates, David J. Selina, Jeff Marshall, Randal W.
Burtis, Convergent Communications, Inc., Craig E. Lassen and
Herman D. Axelrod
10.21 Form of Secure Network Services Agreement
*10.22 Form of Lock-up Agreements among the officers and
directors of the Company, the 5% or more shareholders and
other shareholders and the Representative
23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Gorsuch Kirgis LLP contained in its opinion
filed as Exhibit 5
27 Financial Data Schedule
* To be filed by amendment
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(1) To treat the information omitted from this form of prospectus
filed as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Company under Rule
424(b)(1), or (4) or 497(h) under the Act as part of this registration
statement as of the time the Securities and Exchange Commission declared
it effective.
(2) To treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in
the registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
The undersigned Company hereby undertakes with respect to the
securities being offered and sold in this offering:
(1) To file, during any period in which offers or sales are being
made, a post- effective amendment to this registration statement:
(a) to include any prospectus required by Section 10(a)(3) of
the Act;
(b) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(c) to include any additional or changed material information
on the plan of distribution.
(2) That, for the purpose of determining liability under the Act,
each such post- effective amendment shall be deemed to be a new
registration statement of the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering.
(3) To remove from registration by means of a post-effective
amendment any of the securities which remain unsold at the end of the
offering.
SIGNATURES
In accordance with the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in the City and
County of Denver, State of Colorado, on June 10, 1999.
CAVION TECHNOLOGIES, INC.
By:/s/David J. Selina
David J. Selina, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
/s/David J. Selina Date: June 10, 1999
David J. Selina,
Director, President, Chief Executive Officer,
Principal Executive Officer and Chief
Operating Officer
/s/Marshall E. Aster Date: June 10, 1999
Marshall E. Aster, Chief Financial Officer
and Principal Financial and Accounting
Officer
/s/Andrew I. Telsey Date: June 10, 1999
Andrew I. Telsey, Director
/s/Stephen B. Friedman Date: June 10, 1999
Stephen B. Friedman, Director
/s/Jeffrey W. Marshall Date: June 10, 1999
Jeffrey W. Marshall, Director
EXHIBIT INDEX
All of the following exhibits were filed herewith electronically:
Exhibit No. Description
- ---------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters
1.3 Representative's Warrant Agreement
2 Asset Purchase Agreement with Cavion Technologies, Inc.
dated December 31, 1998
3.1a Amended and Restated Articles of Incorporation as filed
with the Colorado Secretary of State on February 1, 1999
3.1b Articles of Amendment to the Amended and Restated
Articles of Incorporation setting forth Statement of
Designation of Series and Determination of Rights and
Preferences of convertible preferred stock, Series A, as
filed with the Colorado Secretary of State on February 26,
1999
3.2 Amended and Restated Bylaws of the Company as adopted
by its Board of Directors on March 22, 1999
4.1 Specimen Certificate for $.0001 par value Class A
common stock of the Company
4.2 Specimen Certificate for $.0001 par value Class B
common stock of the Company
4.3 Specimen Certificate for $.0001 par value Series A
preferred stock of the Company
4.4 Form of Subscription Agreement in the Offering of
Convertible preferred stock of the Company
4.5 Form of Preferred Stock Warrant issued to Neidiger,
Tucker, Bruner, Inc.
10.1 Promissory Note to Herman D. Axelrod dated July 1, 1992
10.2 Promissory Note to Craig E. Lassen dated August 1, 1992
10.3 Factoring Agreements to Herman D. Axelrod dated
September 8, 1997 and September 15, 1997
10.4 Factoring Agreement to Craig E. Lassen dated October
15, 1997
10.5 Bridge Loan Agreement, Promissory Notes and Put
Agreement with Far East Holdings, Ltd., Martin Cooper and
Fairway Realty Associates with Sigmacom Corporation dated
May 28, 1998
10.6 Additional Bridge Loan Agreement, Promissory Notes and
Put Agreement with Jeff Marshall, David Selina and Randal
Burtis dated May 28, 1998
10.7 Termination and Modification Agreement dated September
28, 1998, and Amendment to Termination and Modification
Agreement dated January 15, 1999, with British Far East
Holdings, Ltd., William M.B. Berger Living Trust, Martin
Cooper, Fairway Realty Associates, Craig Lassen, Herman
Axelrod and David Selina
10.8 Engagement Letter with First Capital Investments, Inc.
dated September 20, 1998
10.9 Form of 15% Secured Promissory Notes due October 19,
2000
10.10 Agreement for Post-Closing Adjustments by and
among Venture Funding, Ltd., Boutine, LLC, Network
Acquisitions, Inc., Cavion Technologies, Inc., Craig E.
Lassen, David J. Selina and Jeff Marshall dated February 1,
1999
10.11 Share Allocation Agreement by and among Venture
Funding Ltd., Boutine, LLC, Cavion Technologies, Inc.,
LanXtra, Inc., Craig E. Lassen, David J. Selina and Jeff
Marshall, dated April 16, 1999
10.12 Office Lease Agreement with TTD Associates dated
December 4, 1996 for the corporate offices located at 7475
Dakin Street, Denver, Colorado
10.13 Business Loan Agreement and Promissory Note with
US Bank dated January 18, 1999, and First Amendment to
Business Loan Agreement with US Bank dated March 24, 1999
10.14 Executive Employment Agreement with David J.
Selina effective February 1. 1999
10.15 Executive Employment Agreement with Marshall E.
Aster effective March 8, 1999
10.16 Executive Employment Agreement with Jeff Marshall
effective February 1, 1999
10.17 Executive Employment Agreement with Craig E.
Lassen effective February 1, 1999
10.18 Equity Incentive Plan dated March 19, 1999
10.19 Form of Indemnification Agreement with officers
and directors
10.20 Agreement to Modify Deferred Obligations dated May
28, 1999 with British Far East Holdings, Ltd., William M.B.
Berger Living Trust, Martin Cooper, Fairway Realty
Associates, David J. Selina, Jeff Marshall, Randal W.
Burtis, Convergent Communications, Inc., Craig E. Lassen and
Herman D. Axelrod
10.21 Form of Secure Network Services Agreement
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
1,200,000 Shares
CAVION TECHNOLOGIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
NEIDIGER, TUCKER, BRUNER, INC.
300 Plaza Level
1675 Larimer Street
Denver, Colorado 80202
(as Representative of the Several
Underwriters named in Schedule I hereto)
____________________, 1999
Gentlemen:
Cavion Technologies, Inc., a Colorado corporation d/b/a cavion.com
(the "Company"), proposes, on the terms and subject to the conditions
stated herein, to issue and sell to the several underwriters named in
Schedule I hereto (collectively the "Underwriters"), on whose behalf
Neidiger, Tucker, Bruner, Inc. ("NTB") is acting as representative (the
"Representative"), a total of 1,200,000 shares (the "Firm Shares"), of the
Company's Common Stock, par value $.0001 per share (the "Common Stock").
The Underwriters will have the option to purchase from the Company up to
180,000 additional shares of Common Stock (the "Option Shares") solely to
cover over-allotments in the sale of the Firm Shares. The Firm Shares and
any Option Shares are referred to collectively herein as the "Securities."
The Company also proposes to issue and sell to you individually, and not
in your capacity as Representative, five-year warrants (the
"Representative's Warrants") to purchase, for 120% of the public offering
price of the Firm Shares, an aggregate of 120,000 shares of the Common
Stock as provided in Section 2 hereof. The Representative's Warrants and
the shares of Common Stock issuable upon exercise of the Representative's
Warrants are referred to collectively herein as the "Representative's
Securities."
As the Representative, you have advised the Company that you are
authorized to enter into this Agreement on behalf of the several
Underwriters and that the several Underwriters are willing, severally and
not jointly, to purchase the number of Firm Shares set forth opposite
their respective names on Schedule I. The term "Underwriters" refers to
any individual member of the underwriting syndicate and includes any party
or parties substituted for an Underwriter pursuant to Section 9 hereof.
In consideration of the mutual agreements contained herein, the
parties hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and agrees with each of the Underwriters that:
1.1 A registration statement on Form SB-2 (Reg. No. -----------)
with respect to the Securities, the Representative's Securities and other
shares of Common Stock for the benefit of the holders thereof, including a
preliminary form of prospectus, has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act") and has been filed with the Securities and Exchange
Commission (the "Commission"). The conditions for use of Form SB-2, set
forth in the General Instructions thereto, have been satisfied. Such
registration statement, as finally amended and revised at the time such
registration statement was or is declared effective by the Commission
(including the information contained in the form of final prospectus, if
any, filed with the Commission pursuant to Rule 424(b) and Rule 430A under
the Act and deemed to be part of the registration statement if the
registration statement has been declared effective pursuant to Rule
430A(b)) and as thereafter amended by post-effective amendment, if any, is
herein referred to as the "Registration Statement." The related final
prospectus in the form first filed with the Commission pursuant to Rule
424(b) or, if no such filing is required, as included in the Registration
Statement, or any supplement thereto, is herein referred to as the
"Prospectus." The prospectus subject to completion in the form included
in the Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and each such prospectus as
amended from time to time until the date of the Prospectus, is referred to
herein as the "Preliminary Prospectus." Reference made herein to each
Preliminary Prospectus or the Prospectus, as amended or supplemented,
shall include all documents and information incorporated by reference
therein under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Each Preliminary Prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the Act. The Company has prepared and
filed such amendments to the Registration Statement since its initial
filing with the Commission, if any, as may have been required to the date
hereof, and will file such additional amendments thereto as may hereafter
be required. There have been delivered to the Representative two signed
copies of the Registration Statement and each amendment thereto, if any,
including one copy of any document filed under the Exchange Act and deemed
to be incorporated by reference into the Registration Statement, together
with one copy of each exhibit filed therewith or incorporated by reference
therein, and such number of conformed copies for each of the Underwriters
of the Registration Statement and each amendment thereto, if any (but
without exhibits), and of each Preliminary Prospectus and of the
Prospectus as the Representatives have requested. For purposes of this
Agreement, "Rules and Regulations" means the rules and regulations adopted
by the Commission under either the Act or the Exchange Act, as the context
requires. For purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement to any of the foregoing shall be deemed to include
the copy filed with the Commission pursuant to EDGAR.
1.2 No stop order preventing or suspending the use of or
requiring the recirculation of any Preliminary Prospectus has been issued
by the Commission nor have any proceedings been instituted for the
purpose. Each Preliminary Prospectus, at the time of first delivery to
the Underwriters for distribution, conformed in all material respects to
the requirements of the Act and the Rules and Regulations, and did not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representation or
warranty as to the information contained in or omitted from any
Preliminary Prospectus in its reliance upon and in conformity with written
information furnished to the Company as stated in Section 7.1 hereof by or
on behalf of any Underwriter through the Representative expressly for use
with reference to the Underwriters in connection with the preparation of
the Registration Statement.
1.3 As of the time the Registration Statement (or any post-
effective amendment thereto) is or was declared effective by the
Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus), and at the Firm Closing
Date and the Option Closing Date (as defined in Section 2), the
Registration Statement and the Prospectus contain and will contain all
statements which are required to be made therein and conform and will
conform in all material respects to the requirements of the Act and the
Rules and Regulations, and neither the Registration Statement nor the
Prospectus contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to the
information contained in or omitted from the Registration Statement or the
Prospectus in its reliance upon and in conformity with written information
furnished to the Company as stated in Section 12 hereof by or on behalf of
any Underwriter through the Representative expressly for use with
reference to the Underwriters in connection with the preparation of the
Registration Statement. The Company meets all requirements for the use of
a Form SB-2 registration statement in connection with the offer and sale
of the Securities.
1.4 The Company does not own or control any corporation,
partnership, joint venture, unincorporated association or other entity.
The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state or country of its
organization, with full corporate power and authority and all consents,
authorizations, approvals, orders, licenses, certificates and permits of
and from all third parties, including without limitation, federal, state,
local and other governmental authorities and all courts and other
tribunals, as are necessary and material to enable the Company to own,
lease, license and use its properties and assets and conduct its business
as described in the Prospectus. The Company has not received notice of or
have knowledge of any basis for any proceeding or action for the
revocation or suspension of any such consent, authorization, approval,
order, license, certificate or permit or any other action or proposed
action by any regulatory authority having jurisdiction over the Company
that would have a material adverse effect on the Company. The Company is
duly qualified to do business and is in good standing in each jurisdiction
in which the character of the business conducted by it or the location of
the properties owned or leased by it makes such qualification necessary,
except where the failure to do so would not result in a material adverse
effect upon the Company.
1.5 The capitalization of the Company is, and upon consummation
of the transactions contemplated hereby will be, in all material respects
as set forth in the Prospectus. The outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully
paid and nonassessable, and the holders thereof are not subject to
personal liability by reason of being such holders and have no rights of
rescission with respect thereto which, if exercised, would have a material
adverse effect on the Company. None of such shares have been issued by
the Company in violation of any preemptive or similar rights or, to the
Company's knowledge, in violation of federal or state securities laws.
Except as described in the Prospectus, there is no commitment, plan or
arrangement to issue, and no outstanding option, warrant, convertible
security or other instrument or right calling for the issuance of, any
shares of capital stock of the Company or any security or other instrument
which is convertible into or exercisable or exchangeable for capital stock
of the Company. The capital stock of the Company, all stock option, stock
bonus and other stock plans or arrangements relating to any capital stock
of the Company, including the Securities and the Representative's
Securities, conform in all respects to the descriptions thereof contained
in the Prospectus.
1.6 The Securities have been duly authorized and, when issued
and paid for as provided herein, will be validly issued, fully paid and
nonassessable. No person has any preemptive or other similar rights with
respect to any of the Securities or the issue and sale thereof.
1.7 Except as described in the Prospectus, no holder of any
securities of the Company or of any options, warrants, or other
convertible or exchangeable securities of the Company (i) has the right to
include any securities of the Company in the Registration Statement or
(ii) has the right to include any securities issued by the Company in any
registration statement to be filed by the Company or to require the
Company to file a registration statement under the Act other than those
which have been waived or satisfied; and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
1.8 Arthur Anderson LLP, which has audited the financial
statements and related notes of the Company filed with the Commission as
part of the Registration Statement, are, and during the periods covered by
their reports were, independent certified public accountants with respect
to the Company as required by the Act and the Rules and Regulations.
1.9 The financial statements of the Company, together with
related notes, and schedules, as set forth in the Registration Statement,
comply in all material respects with the requirements of the Act and the
Rules and Regulations and present fairly the financial position and the
results of operations of the Company, at the indicated dates and for the
indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principals consistently
applied throughout the periods involved and with the Rules and
Regulations, and all adjustments necessary for a fair presentation of
results for such periods have been made. The Company maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (a) transactions are executed in accordance with management's general
or specific authorization and (b) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and the rules of regulatory authorities
having jurisdiction over the Company. No other financial statements or
schedules are required to be included or incorporated by reference in the
Registration Statement or the Prospectus. The selected financial data and
summary financial information included in the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent
with the financial statements in the Registration Statement.
1.10 The minute books and stock record books of the Company are
complete and correct and accurately reflect all material actions taken at
meetings of the shareholders and directors of the Company, and all
committees thereof, including, without limitation, the audit committee and
compensation committee, and all issuances and transfers of any shares of
the capital stock of the Company.
1.11 The Company has filed with the appropriate federal, state
and local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns,
which are required to be filed (or has duly obtained extensions of time
for the filing thereof) and has paid all taxes shown on such returns and
all assessments received by them to the extent that the same have become
due. The provisions for income taxes payable, if any, shown on the
financial statements filed with or as part of the Registration Statement
are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of
such financial statements. The Company has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the period
for assessment or collection of any income taxes and is not a party to any
pending action or proceeding by any foreign or domestic governmental
agency for assessment or collection of taxes; and no claims for assessment
or collection of taxes have been asserted against the Company.
1.12 Since the respective dates as of which information is given
in the Registration Statement and except as contemplated by the
Prospectus, there has not been (i) any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the business, condition (financial or other), earnings, results
of operations or properties of the Company, whether or not occurring the
ordinary course of business; (ii) any transaction entered into or any
liability or obligation, absolute or contingent, incurred by the Company
which is material to the Company or is otherwise required to be disclosed
in the Registration Statement; (iii) except as disclosed in the
Registration Statement, any change in the capital stock of the Company,
any increase in the short-term or long-term debt (including capitalized
lease obligations) of the Company, or any issuance of options, warrants,
convertible securities or other rights to purchase the capital stock of
the Company; or (iv) any dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock or any
acquisition by the Company of any capital stock of the Company. The
Company has no material contingent obligations or commitments which are
not disclosed in the Registration Statement.
1.13 The Company maintains insurance of the type and in the
amounts as are prudent and generally deemed adequate for their respective
businesses and consistent with insurance maintained by similar companies
in similar businesses, including general liability insurance, performance
guaranty bonds, and insurance covering all real and personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, including
computer failure, all of which insurance is in full force and effect. The
Company has not been refused any insurance or bonding coverage sought or
applied for; and the Company has no reason to believe that it will not be
able to renew its existing insurance coverage and any performance guaranty
bonds as and when such coverage expires or to obtain similar coverage from
insurers and bonding firms of recognized financial responsibility.
1.14 Except as disclosed in the Prospectus, there is no
litigation or governmental proceeding to which the Company is a party or
to which any property of the Company is subject or which is pending in
which either the Company has been served or, to the best knowledge of the
Company, is otherwise pending or threatened against the Company which, if
adversely determined, will result in any material adverse change in the
financial condition, results of operations, business or prospects of the
Company or which is required to be disclosed in the Prospectus which has
not been so disclosed. To the best knowledge of the Company, no labor
dispute by the employees of the Company exists or is imminent and which,
if it now exists or comes to exist, is expected materially to affect
adversely the financial condition, results of operations, business or
prospects of the Company or which is required to be disclosed in the
Prospectus.
1.15 Each of this Agreement, the Representative's Warrants and
NTB's Financial Consulting Agreement (as provided in Section 4.18 hereof)
constitutes the valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except insofar as rights
to indemnity and/or contribution may be limited by federal or state
securities laws or the public policy underlying such laws and except as
enforcement may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally, and be subject
to general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law). The Securities have
been duly and validly authorized by the Company and upon their delivery in
accordance herewith will be duly issued and will be validly issued, fully
paid and nonassessable. The shares of Common Stock issuable upon exercise
of the Representative's Warrants have been duly authorized and reserved
for issuance upon the exercise of such Warrants and when issued upon
payment of the exercise price therefor will be validly issued, fully paid
and nonassessable shares of Common Stock.
1.16 The Company is not in violation of or in default under, and
the consummation of the transactions contemplated herein and the
fulfillment of the terms hereof will not conflict with or result in a
violation of or default under, the Certificate or Articles of
Incorporation, Bylaws of the Company, or under foreign or domestic
judgment, decree, order, statute, rule or regulation applicable to the
Company or any of their respective properties, or under any permit, lease,
license, contract, indenture, mortgage, deed of trust, loan agreement or
other agreement, instrument or obligation to which the Company is a party
or by which any of them or of their respective properties is bound. Each
approval, consent, order, authorization, designation, declaration or
filing by or with any regulatory, administrative or other governmental
body or court necessary in connection with the execution and delivery of
the Company of this Agreement, the Representative's Warrants and the
Financial Consulting Agreement and the consummation of the transactions
contemplated hereby and thereby (except additional steps as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD"), or which may be necessary to qualify the Securities for public
offering by the Underwriters under state securities or "Blue Sky" Laws)
has been obtained or made and is in full force and effect.
1.17 Except as disclosed in the Prospectus, the business and
operations conducted by the Company are being conducted in compliance in
all material respects with all applicable federal, state and local laws.
1.18 The descriptions in the Registration Statement and the
Prospectus of material contracts, including the Company's licenses, leases
and other agreements, are accurate in all material respects and present
fairly the information required to be disclosed, and there are no
contracts or other documents required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration
Statement under the Act or the Rules and Regulations which have not been
so described or filed as required.
1.19 Each material contract or other instrument (however
characterized or described) to which the Company is a party or by which
its property or business is or may be bound or affected and to which
reference is made in the Prospectus has been duly and validly executed by
the Company, is in full force and effect in all material respects and is
enforceable against the parties thereto in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the rights
of creditors generally; and none of such contracts or instruments has been
assigned by the Company and neither the Company nor, to the best knowledge
of the Company, any other party is in default thereunder, which default
would have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company, and, to the best
knowledge of the Company, no event has occurred which, with the lapse of
time or the giving of notice, or both, would constitute a default
thereunder and would have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company.
1.20 Each employee benefit plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("Employee Benefit Plan"), and each bonus, retirement, pension, profit
sharing, stock bonus, thrift, stock option, stock purchase, incentive,
severance, deferred or other compensation or welfare benefit plan,
program, agreement or arrangement of, or applicable to employees of the
Company ("Benefit Plans"), which is presently in existence, or was in
existence at any time during the prior five calendar years, was or has
been established, maintained, and operated in all material respects in
compliance with all applicable federal, state and local statutes, orders,
governmental rules and regulations, including, but not limited to, ERISA
and the Internal Revenue Code of 1986, as amended (the "Code"). The
Company does not, either directly or indirectly as a member of a
controlled group within the meaning of Sections 414(b), (c), (m) and (o)
of the Code ("Controlled Group"), have any material liability that remains
unsatisfied for (A) the termination of any single employer plan under
Section 4062 or 4064 of ERISA, (B) any interest payments under Section
302(e) of ERISA or Section 412(m) of the Code, (C) any excise tax imposed
by Section 4971, Section 4972, Section 4975 or Section 4979 of the Code,
(D) any minimum funding contributions under Section 302(c)(11) of ERISA or
Section 412(c)(11) of the Code, (E) any accumulated funding deficiency
within the meaning of Section 412(a) of the Code, whether or not waived,
or (F) to the Internal Revenue Service, the Department of Labor, the
Pension Benefit Guaranty Corporation, or any Benefit Plan or any
multiemployer plan (as defined in Section 3(37) of ERISA) ("Multiemployer
Plan") under Subtitle D or Subtitle E of Title IV of ERISA, under
Subchapter D of Chapter 1 of Subtitle A of the Code or under Chapter 43 of
Subtitle D of the Code. No action, suit, grievance, arbitration or other
matter of litigation or claim with respect to any Benefit Plan (other than
routine claims for benefits made in the ordinary course of plan
administration for which plan administrative procedures have not been
exhausted) is pending or, to the Company's knowledge, threatened or
imminent against or with respect to any Benefit Plan, any member of a
Controlled Group that includes the Company, or any fiduciary within the
meaning of Section 3(21) of ERISA with respect to a Benefit Plan which, if
determined adversely to the Company, would have a material adverse effect
on the Company. Neither the Company, nor any member of a Controlled Group
that includes the Company has any knowledge of any facts that would give
rise to any action, suit, grievance, arbitration or any other manner of
litigation or claim with respect to any Benefit Plan.
1.21 The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its directors,
officers or stockholders or by others) designed to or which has
constituted or which might reasonably be expected to cause or result in,
under the Exchange Act or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities.
1.22 All transactions during the Company's current or last three
fiscal years between the Company and any person who is or was during such
time period an officer or director or the owner of 5% or more of the
outstanding voting stock of the Company have been disclosed in the
Prospectus to the extent required by the Act and the Rules and
Regulations; and the terms of each such transaction are and were in all
material respects fair to the Company and no less favorable to the Company
than the terms that could have been obtained from unrelated parties.
1.23 To the best knowledge of the Company after due inquiry, the
Company owns or has the irrevocable right to use all patents, trademarks,
service marks, assumed names, trade names, copyrights, and other
intellectual property rights (collectively referred to herein as
"Intellectual Property Rights") necessary to conduct their respective
businesses as now conducted or proposed to be conducted as described in
the Prospectus. The Company has no knowledge of (i) any infringement or
claimed infringement by it or the Subsidiary of any Intellectual Property
Rights of any third party or (ii) any infringement by any third party of
any such intellectual property right of the Company. Except as set forth
in the Prospectus, the Company is not obligated or any liability to make
any payment by way of royalty, fee or otherwise to any owner or licensee
of, or other claimant to, any Intellectual Property Rights with respect to
the Company's use thereof or in connection with the conduct of the
business of the Company.
1.24 The Company has taken reasonable measures to protect the
secrecy, confidentiality and value of all of its Intellectual Property
Rights in all material respects.
1.25 The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
described or referred to in the Prospectus to be owned or leased by it
free and clear of all liens of any kind whatsoever, other than (i) those
referred to in the Prospectus and (ii) liens for taxes not yet due and
payable.
1.26 Except as disclosed in the Registration Statement and the
Prospectus, the Company has not issued, sold or offered for sale within
the last three years any shares of its Common Stock, any right to acquire
any shares of its Common Stock or any securities or instrument exercisable
for or convertible into any shares of its Common Stock.
1.27 There are no agreements, claims, payments, issuances,
arrangements or understandings, whether oral or written, for services in
the nature of a finder's, consulting or origination fee with respect to
the sale of the Securities payments, issuances, arrangements or
understandings with respect to the Company or any of its officers,
directors, stockholders, partners, employees, or affiliates that may
affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD") or for which the Company
or any Underwriter may be responsible.
1.28 As of the effective date of the Registration Statement, (i)
the Common Stock has been duly registered under Section 12(g) of the
Exchange Act, and (ii) the Common Stock has been approved for inclusion in
the Automated Quotation System of the National Association of Securities
Dealers, Inc. ("NASDAQ") National Market System ("NMS").
1.29 Neither the Company nor to best of the Company's knowledge
any officer, director or employee of or agent acting on behalf of the
Company has at any time (i) made any contributions to any candidate for
political office in violation of law, or failed to disclose fully any
contributions to any candidate for political office in accordance with any
applicable statute, rule, regulation or ordinance requiring such
disclosure, (ii) made any payment to any governmental officer or official,
or other person charged with similar public or quasi-public duties, other
than payments required or allowed by applicable law, (iii) made any
payment outside the ordinary course of business to any purchasing or
selling agent or person charged with similar duties of any entity to which
the Company sells or from which the Company buys products for the purpose
of influencing such agent or person to buy products from or sell products
to the Company, or (iv) engaged in any transaction on behalf of the
Company, maintained any bank account for the Company, or used any
corporate funds of the Company, except for transactions, bank accounts and
funds which have been and are reflected in the normally maintained books
and records of the Company.
1.30 Except as set forth in the Prospectus, no officer, director
or principal stockholder of the Company, nor any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
Rules and Regulations) of any of the foregoing persons or entities, has or
has had, either directly or indirectly, (i) an interest in any person or
entity that (A) furnishes or sells services or products that are furnished
or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services,
or (ii) a beneficial interest in any contract or agreement to which the
Company is a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there are no
existing or proposed agreements, arrangements, understandings, or
transactions between or among the Company and any officer, director, or
principal stockholder of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
1.31 Any certificate signed by any officer of the Company on
behalf of the Company and delivered to the Representative or to
Representative's counsel shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
1.32 The Company is not, and upon completion of the transactions
contemplated hereby will not be, required to register as an investment
company under the Investment Company Act of 1940, as amended.
1.33 The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Securities other than such Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by
the Company, subject to the Representative's prior written approval
thereof or consent thereto.
1.34 The Company has obtained from each shareholder of the
Company an enforceable written agreement that for the agreed upon terms,
such shareholder will not, without the Representative's prior written
consent, offer, pledge, sell, contract to sell, grant any option for the
sale of, or other dispose of, directly or indirectly, any shares of Common
Stock or any security or other instrument which by its terms is
convertible into, exercisable for or exchangeable for shares of Common
Stock.
1.35 The Company has (i) entered into an employment agreement
with each of David J. Selina, Marshall E. Aster, and Jeffrey W. Marshall
in the forms filed as Exhibits 10.14, 10.15 and 10.16, respectively, to
the Registration Statement, and (ii) purchased term key-person insurance
on the lives of ---------- and ------------- each in the amount of
$1,000,000, which policies name the Company as the beneficiary thereof.
1.36 No action has been taken suspending the registration or
qualification of the Securities in any jurisdiction designated by the
Representative pursuant to Section 4.2 hereof, nor have any proceedings
been initiated or threatened for any such purpose.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES. The Company
agrees to sell the Firm Shares to the several Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase, at the price
set forth below, the number of Firm Shares set forth opposite its name on
Schedule I hereto, subject to adjustments in accordance with Section 9
hereof. The purchase price for the Firm Shares shall be $------ per
Share.
2.1 Payment for the Firm Shares shall be made to the Company by
wire transfer or certified or bank cashier's check in same-day funds
against delivery of certificates for the Firm Shares to the Representative
for the several accounts of the Underwriters. Such payment and delivery
shall be conducted at the offices of NTB, 300 Plaza Level, 1675 Larimer
Street, Denver, Colorado 80202 (or such other place as mutually may be
agreed upon by the Representative and the Company), at -------- a.m.
Denver, time, on the fourth full Business Day after the date of this
Agreement or at such other time and date thereafter as the Representative
and the Company shall agree upon, such time and date being herein referred
to as the "Firm Closing Date."
2.2 In addition, the Company hereby grants to the several
Underwriters an option to purchase, on the terms and subject to the
conditions set forth herein, up to 120,000 Option Shares at the price per
Share set forth above, solely to cover over-allotments in the sale of the
Firm Shares. Nothing contained herein shall obligate the Underwriters to
make any over-allotments in the sale of the Firm Shares. No Option Shares
shall be sold and delivered unless the Firm Shares previously have been,
or simultaneously are, sold and delivered.
2.3 The over-allotment option may be exercised, in whole or in
part, at any time upon written notice given within 45 days after the date
of this Agreement, by NTB, as Representative of the several Underwriters,
to the Company setting forth the number of Option Shares as to which the
several Underwriters are exercising the over-allotment option, the names
and denominations in which the certificates representing the Option Shares
are to be registered and the time and date at which such certificates are
to be delivered (such time and date being referred to herein as the
"Option Closing Date"). The Option Closing Date shall be determined by
the Representative but shall not be earlier than 3 nor later than 10 full
Business Days after the exercise of the over-allotment option, nor in any
event prior to the Firm Closing Date. If the date of exercise of the over-
allotment option is 3 or more days before the Firm Closing Date, the
notice of exercise shall set the Firm Closing Date as the Option Closing
Date. As Representative of the several Underwriters, NTB may cancel the
over-allotment option at any time prior to its expiration by giving
written notice of such cancellation to the Company. If the over-allotment
option is exercised, payment for the Option Shares shall be made to the
Company on the Option Closing Date by wire transfer or certified or bank
cashier's check in same-day funds against delivery of certificates for the
Option Shares at the above stated offices of NTB in Denver, Colorado.
Delivery of certificates for the Firm Shares and any Option Shares shall
be made by or on behalf of the Company through the facilities of the
Depository Trust Company ("DTC") to the Representative for the respective
accounts of the several Underwriters, against payment of the purchase
price therefore by wire transfer or certified or bank cashier's check in
same-day funds to the order of the Company. Certificates for the Firm
Shares and any Option Shares shall be registered in such names and
denominations as the Representative shall have requested at least 2 full
Business Days prior to the applicable Closing Date, and shall be made
available for checking and packaging at a location as may be designated by
the Representative at least 1 full Business Day prior to such Closing
Date. Time shall be of the essence, and delivery at the time and place
specified is a further condition to the obligations of each Underwriter.
2.4 At the closing of the sale of the Firm Shares, the Company
will sell and deliver to the Representative, at an aggregate purchase
price of $100, Representative's Warrants, dated the Firm Closing Date,
substantially in the form filed as an exhibit to the Registration
Statement, evidencing the right of the Representative, and/or
Representative's permitted designees, to purchase up to ---------------
shares (equal to 10% of the Firm Shares) of Common Stock (subject to
adjustment as provided in the Representative's Warrants) at the price per
share and on the terms and conditions provided in the Warrants. The
Company shall not be obligated to sell and deliver the Representative's
Warrants, and the Representative shall not be obligated to purchase and
pay for the Warrants, except upon payment for the Firm Shares.
3. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters intend to make a public offering of the Firm Shares as soon
as the Representative deems it advisable to do so. The Firm Shares are to
be initially offered to the public at the initial public offering price
set forth in the Prospectus. The Representative may from time to time
thereafter change the public offering price and other selling terms. To
the extent, if at all, that Option Shares are purchased pursuant to the
over-allotment option, the Underwriters will offer them to the public on
the foregoing terms. It is further understood that the Representative
will act as the representative for the Underwriters in the offering and
sale of the Securities pursuant to an Agreement Among Underwriters entered
into by the Representative and the several other Underwriters.
4. Covenants of the Company. The Company covenants and agrees with
each Underwriter as follows:
4.1 If the Registration Statement has not yet been declared
effective, the Company shall use its best efforts to cause the
Registration Statement and any amendment thereto to become effective under
the Act and, upon notification from the Commission that the Registration
Statement or any amendment thereto has become effective, shall so advise
you immediately, in writing. The Company shall comply with the provisions
of and make all requisite filings with the Commission pursuant to Rule
430A and Rule 424(b) under the Act and notify you in writing of all such
filings. The Company shall notify you promptly of any request by the
Commission for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional information; the Company
shall carefully prepare and file with the Commission promptly upon your
request, any amendment of or supplement to the Registration Statement or
Prospectus which, in your reasonable opinion, may be necessary or
advisable in connection with the distribution of the Securities; and the
Company shall not file or make any amendment of or supplement to the
Registration Statement or the Prospectus which is not approved by you
after reasonable notice from the Company to you, which approval shall not
be unreasonably withheld or delayed. The Company shall advise you
immediately of the issuance by the Commission, any state securities
commission or any other regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement, suspending or
preventing the use of any Preliminary Prospectus or the Prospectus or
suspending the qualification of the Securities for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose; and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop order or
other such order be issued, to obtain as soon as possible the lifting
thereof.
4.2 The Company shall cooperate with you and your counsel in
connection with the registration or qualification of the Securities for
sale under the securities or "Blue Sky" laws of such jurisdictions as the
Representative shall designate and the continuance of such qualification
in effect for so long a period as the Representative may reasonably
request, except the Company shall not be required to qualify as a foreign
corporation in any jurisdiction where it is not already so qualified or to
execute a general consent to service of process in actions other then
those arising out of the offer and sale of the Securities or take any
action which would subject it to taxation in any jurisdiction where it is
not now so subject.
4.3 Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company shall
comply with all requirements imposed upon it by the Act and the Exchange
Act, as now and hereafter amended, and by the Rules and Regulations, as
from time to time in force, so far as is necessary to permit the
continuance of sales of or dealings in the Securities as contemplated by
the provisions hereof and the Prospectus. If during such period any event
occurs as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or would omit to
state a material fact necessary to make the statements therein, in light
of the circumstances then existing, not misleading, or if during such
period it is otherwise necessary, in the opinion of the Company or in your
opinion, to amend the Registration Statement or supplement the Prospectus
to comply with the Act, the Company or you, as the case may be, shall
promptly notify the other party and the Company shall amend the
Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or effect such
compliance.
4.4 The Company shall make generally available to its security
holders (and shall deliver to you), in the manner contemplated by Rule
158(b) under the Act, as soon as practicable but in any event not later
then 45 days after the end of its fiscal quarter in which the first
anniversary date of the effective date of Registration Statement occurs,
an earnings statement satisfying the requirements of Section 11(a) of the
Act covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement; and will advise you in
writing when such statement has been made available.
4.5 For a period of five years from the Firm Closing Date, the
Company will deliver to you on a timely basis (i) a copy of each report,
including, without limitation, reports on Form 8-K, 10-C, 10-K (or 10-KSB)
and 10-Q (or 10-QSB) or any successor form and exhibits thereto filed with
or furnished by the Company to the Commission, any securities exchange or
the National Association of Securities Dealers, Inc. ("NASD") on the date
each such report or document is so filed or furnished; (ii) as soon as
practicable, copies of any reports or communications (financial or other)
of the Company mailed to its security holders; (iii) as soon as
practicable, a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 (or
any successor form) received or prepared by the Company from time to time;
and (iv) such additional information concerning the business and financial
condition of the Company as you may from time to time reasonably request
and which can be prepared or obtained by the Company without unreasonable
effort or expense.
4.6 The Company shall furnish or cause to be furnished to the
Representative or on the Representative's order, without charge, at such
place as the Representative may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or post-
effective amendments thereto, the Prospectus, and all amendments and
supplements thereto, including any Prospectus prepared after the effective
date of the Registration Statement, in each case as soon as available and
in such quantities as the Representative may request. The Company will
deliver to the Representative, at or before the Firm Closing Date, two
signed copies of the Registration Statement and all pre-effective or post-
effective amendments thereto including all exhibits filed therewith.
4.7 The Company shall not, during the 180 day period following
the Firm Closing Date, except with the Representative's prior written
consent, offer for sale, contract to sell, issue, distribute, grant any
option, right or warrant to purchase any shares of Common Stock or other
equity securities of the Company or any securities convertible into shares
of Common Stock or such other equity securities, except the Securities,
the Representative's Securities, those options to purchase shares of
Common Stock issued under the Company's Equity Incentive Plan and those
other options to purchase shares of Common Stock (collectively the
"Options") and shares of Common Stock issued upon exercise of the Options,
as those Options are described in the Prospectus.
4.8 The Company shall cause (i) each officer and director of
the Company and each holder of 5% or more of the Company's Common Stock
(or securities convertible into shares Common Stock) to furnish to the
Representative, prior to the date of this Agreement, in form and substance
satisfactory to Representative's counsel, whereby each such person shall
agree not to offer for sale, contract to sell, sell, distribute, grant any
option or other right to purchase or otherwise dispose of or contract to
dispose of any of their shares of the Company's Common Stock (or any
security convertible into shares of the Company's Common Stock) without
the Representative's prior written consent during the 12 month period
following the effective date of the Registration Statement; and (ii) each
other holder of the Company's Common Stock (or other security convertible
into Common Stock) to furnish to the Representative, prior to the date of
this Agreement, a written agreement, in form and substance satisfactory to
Representative's counsel whereby each such person shall agree not to offer
for sale, contract to sell, sell, distribute, grant any option or other
right to purchase or otherwise dispose of or contract to dispose of any of
their shares of the Company's Common Stock (or any security convertible
into shares of the Company's Common Stock) for a period of 9 months from
the effective date of the Registration Statement without the
Representative's prior written consent. The foregoing agreements shall
also provide that any sale of shares of the Company's Common Stock by any
such person during the 18 month period from the effective date of the
Registration Statement, and which sale is made pursuant to Rule 144 under
the Act (or comparable provision under the Act) shall be made only in a
transaction or transactions by or directly with the Representative,
providing the compensation charged by the Representative is competitive
with other broker-dealers.
4.9 The Company shall not take, or permit any of its officers
of directors or shareholders or any affiliate (within the meaning of the
term "affiliate" in the Rules and Regulations) to take, directly or
indirectly, any action designed to or which has constituted or might
reasonably be expected to cause or result, under the Exchange Act or
otherwise, in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities; and has not effected any sales of shares of Common Stock or
other securities that are required to be disclosed in response to Item 26
of Part II of the Registration Statement.
4.10 The Company shall apply the net proceeds from the sale of
the Securities in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus. No portion of the net proceeds
will be used, directly or indirectly, to acquire any securities issued by
the Company.
4.11 The Company shall timely file all such reports, forms and
other documents as may be required (including, without limitation, a Form
SR as may be required pursuant to Rule 463 under the Act) from time to
time under the Act, the Exchange Act, and the Rules and Regulations, and
all such reports, forms and documents filed shall comply as to form and
substance with the applicable requirements under the Act, the Exchange
Act, and the Rules and Regulations.
4.12 The Company shall use its best efforts to maintain the
inclusion of the Common Stock for quotation on the SmallCap Market of
NASDAQ.
4.13 For a period of three years from the Firm Closing Date, the
Company shall (i) retain American Securities Transfer & Trust, Inc.,
Denver, Colorado as the transfer agent for the Common Stock and shall
instruct the transfer agent to furnish to the Representative, as and to
the extent reasonably requested by the Representative, at the Company's
sole expense, with copies of the Company's stock transfer sheets relating
to the Company's securities, including a current list of the holders of
all of the Company's securities and a list of the beneficial owners of
securities held by Depository Trust Company; (ii) retain such accounting
firm as the Company's independent public accountants as shall be
reasonably acceptable to the Representative; and (iii) retain such
financial public relations firm as shall be reasonably acceptable to the
Representative for consecutive 6 month terms; provided, however, that any
renewal of such firm's engagement shall be subject to NTB's approval.
4.14 The Company shall take all necessary action, on an
expedited basis, to be included effective with the First Closing Date in
Standard and Poor's Corporate Records, Stock Quotes and Stock Guide
published by Standard and Poor's Corporation and to continue such
inclusion for a period of not less than seven years from the Firm Closing
Date.
4.15 Until that date which is 90 days after the Firm Closing
Date, the Company shall not, without the prior written approval of the
Representative, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade
releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations or
such releases as counsel for the Representative and the Company have
advised are necessary to comply with applicable law.
4.16 For a period of two years from the Firm Closing Date, the
Company agrees that NTB shall have the right to designate one person as an
advisor to the Company's Board of Directors. Such advisor will be
reimbursed for his or her expenses in attending meetings of the Board of
Directors and will receive cash compensation equal to that received by any
other outside director but will have no power to vote as a director. Such
person shall be indemnified by the Company against any claim arising out
of his or her participation in meetings of the Board of Directors to the
same extent as directors. During the stated two year period, NTB's
advisor to the Company's Board of Directors will be (i) invited to attend
all meetings of the Company's Board of Directors; (ii) provided with a
copy of all Actions by Unanimous Written Consent of the Board of Directors
in Lieu of an Actual Meeting; (iii) furnished with a copy of all public
filings by the Company and Company press releases as released; (iv)
updated by the Company's management, on at least a quarterly basis,
regarding the Company's activities, prospects and financial condition; and
(v) advised immediately of material events to the extent consistent with
applicable law. During the subject two year period, the Company shall
hold meetings of its Board of Directors at intervals of not less than once
each calendar quarter. Any advisor to the Company's Board of Directors
designated by NTB shall be acceptable to the Company, which acceptance
shall not be unreasonably withheld.
4.17 For a period of 12 months from the Firm Closing Date, the
Company shall not authorize or otherwise effect any change in the
compensation to any officer and/or director of the Company without 30
days' prior written notice to the Representative.
4.18 On the Firm Closing Date, the Company shall enter into a
consulting agreement, retaining NTB, individually, and not as
Representative of the Underwriters, as financial consultant to the Company
for a period of 24 months at a fee of $48.000 payable in full on the Firm
Closing Date. As financial consultant, the Representative will advise the
Company as to market conditions, financial alternatives, resource
allocation and similar investment banking services. Such consulting
agreement shall also provide for compensation to the Representative as
follows: 5% of the first $3 million, 2.5% of any consideration between $3
million and $5 million; 2% of any consideration between $5 million and $10
million; and 1% of any consideration greater than $10 million paid or
received by the Company (or its shareholders) in any transaction
(including mergers and acquisitions) consummated by the Company in which
the Representative introduced the other party to the Company within 36
months from the Firm Closing Date if such transaction is consummated
within 36 months from the Firm Closing Date.
4.19 For a period of three years from the Firm Closing Date, the
Company shall notify NTB in writing at least 30 days before a proposed
public offering or private offering involving securities of the Company or
any subsidiary (other than bank debt or similar financing, securities
offered solely to Company employees or securities issuable in transactions
enumerated in Rule 145(a) under the Act) so that NTB, individually and not
in its capacity as Representative or, at NTB's option, with a group of
investment bankers associated with NTB, shall have the right of first
refusal to effect the offering on terms at least as favorable to the
Company as those set forth in such notice (which notice will specify the
price to the underwriter or other method of determining the underwriting
discount or fee). NTB will notify the Company if NTB intends to exercise
its right of first refusal within 15 days of receipt by NTB of such notice
from the Company. If NTB fails to exercise the right of first refusal
within the 15 day period and the terms of the proposed subsequent
financing thereafter are altered in any material respect, the Company
shall again offer to NTB, individually and not in its capacity as
Representative, the right of first refusal to effect the financing
transaction upon such altered terms and NTB shall have 15 days from the
date of receipt of such notice to notify the Company of its acceptance.
The foregoing preferential rights provided to NTB shall continue in effect
during the entire three year period despite any exercise or failure to
exercise the preferential right granted herein during the stated term.
5. COSTS AND EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated, the Company will pay all
costs, expenses and fees incident to the performance of the obligations of
the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: (i) all expenses (including
stock transfer taxes, if any) incurred in connection with the delivery of
the Firm Shares and Option Shares to the Underwriters, (ii) all fees and
expenses (including, without limitation, fees and expenses of the
Company's accountants and counsel, but excluding fees and expenses of
counsel for the Underwriters, except as provided in (iii) below) in
connection with the preparation, printing, filing, delivery and shipping
of the Registration Statement (including the financial statements therein
and all amendments and exhibits thereto), each Preliminary Prospectus and
the Prospectus as amended or supplemented, and the printing, delivery and
shipping of this Agreement and other underwriting documents, including
Underwriters' Questionnaires, Underwriters' Powers of Attorney, Blue Sky
Memoranda, Agreements Among Underwriters and Selected Dealer Agreements
and any letters transmitting the offering material to selling group
members (including costs of shipment and delivery), (iii) all filing fees
and fees and disbursements of Representative's counsel incurred in
connection with the qualification of the Securities under state securities
laws as provided in Section 4.2 hereof, (iv) the filing fees of the
Commission and NASD, (v) the fees and expenses of inclusion of the Common
Stock on NASDAQ NMS as well as and any other securities exchange, (vi) the
cost of printing certificates representing the Common Stock, (vii) the
cost and charges of the transfer agent or registrar, (viii) the costs of
"tombstone" advertisements in such publications as you shall reasonably
request, as well as the costs of any other advertising undertaken at the
Company's request, (ix) the costs of preparing, printing and distributing
bound volumes for the Representative and its counsel, (x) all fees and
costs for due diligence information, examinations, (xi) the costs and
expenses associated with the production of materials related to and travel
expenses incurred by the Company's management and you in connection with,
the various meetings to be held between the Company's management and
prospective investors; and (xii) all other costs and expenses incident to
the performance of the obligations of the Company hereunder which are not
otherwise provided for in this section. In addition, the Company shall
also pay you, individually and not in your capacity as Representative, at
the applicable Closing Date, a non-accountable expense allowance equal to
2% of the initial public offering price of the Securities purchased on
such Closing Date (including Option Shares purchased pursuant to the
option granted pursuant to Section 2 hereof). If the sale of the
Securities provided for herein is not consummated by reason of any
termination of this Agreement pursuant to Section 10.2 hereof, or by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or because any
condition of the Underwriters' obligations set forth in Section 6 herein
is not fulfilled, the Company shall reimburse the Representative for all
of Representative's accountable out-of-pocket expenses (including fees and
disbursements of its counsel) actually incurred by the Representative in
connection with the investigation, preparing to market and marketing of
the Securities or in contemplation of performing its obligations
hereunder, such reimbursement not to exceed in the aggregate $65,000. You
acknowledge that $45,000 has been paid to you pursuant to the Company's
prior agreement to be applied against the expense allowance (and which
shall be applied toward such reimbursement of the Representative). You
agree that any portion of such $45,000 that is not necessary to reimburse
you for your out-of-pocket expenses actually incurred if the sale of the
Securities, as contemplated by this Agreement, is not consummated for any
reason shall be repaid to the Company.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase and pay for the Firm Shares on
the Firm Closing Date and the Option Shares, if any, on the Option Closing
Date shall be subject, as of the date hereof, the Firm Closing Date and
the relevant Option Closing Date, if any, respectively, of each of the
representations and warranties on the part of the Company contained
herein, to the performance by the Company of all of its agreements herein
contained, to the fulfillment of or compliance by the Company with all
covenants and conditions hereunder, and to the following additional
conditions:
6.1 The Registration Statement thereto shall have become
effective not later than 5:30 p.m., Washington, D.C. time, on the date of
this Agreement or such later date and time as shall be consented to in
writing by the Representative; all post-effective amendments thereto shall
have become effective and all filings required by Rule 424(b) and Rule
430A under the Act have been completed within the time period required by
the Rules and Regulations prior to the Firm Closing Date; no stop order
suspending the effectiveness of the Registration Statement, or any
amendment or supplement thereto shall have been issued and no proceedings
for the issuance of such an order shall have been indicated or threatened;
and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to Representative's satisfaction.
6.2 The Representative shall not have advised the Company that
(i) the Prospectus, or any supplement thereto, contains an untrue
statement of fact which, in the Representative's reasonable opinion, is
material, or omits to state a fact which, in the Representative's
reasonable opinion, is material and is required to be stated therein or is
necessary to make the statements therein, in light of the circumstances
under which they were made not misleading, or (ii) that the Registration
Statement, or any amendment thereto, contains an untrue statement of fact
which, in the Representative's reasonable opinion, is material, or omits
to state a fact which, in the Representative's reasonable opinion is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.
6.3 On or prior to the Firm Closing Date and the Option Closing
Date, if any, the Representative shall have received from John G. Herbert,
P.C., counsel for the Representative, such opinion or opinions with
respect to the sufficiency of all corporate proceedings and other legal
matters relating to this Underwriting Agreement and the transactions
contemplated hereby as the Representative reasonably may require, and such
counsel shall have received from the Company or counsel to the Company
such documents and information as they reasonably request to enable them
to pass upon such matters.
6.4 The Representative shall have received at or prior to the
date of this Agreement, the Firm Closing Date from John G. Herbert, P.C.,
a memorandum or written summary, in form and substance satisfactory to the
Representative, with respect to the qualification for offering and sale by
the Underwriters of the Securities under the state securities or Blue Sky
laws of such jurisdictions as the Representative may reasonably have
designated to the Company.
6.5 The Representative shall have received on the Firm Closing
Date the opinion of Gorsuch Kirgis LLP, counsel for the Company, dated
such Closing Date, addressed to the Representative covering the matters
set forth on Annex A attached hereto.
6.6 The Representative shall have received on the Firm Closing
Date the opinion of ---------------------, special counsel to the Company
with respect to intellectual property matters, dated such Closing Date,
addressed to the Representative covering the matters set forth on Annex B
attached hereto.
6.7 The Representative shall have received at the Option
Closing Date, if any, the favorable opinions of the Company's counsel and
special counsel, respectively, addressed to the Representative, confirming
as of such Option Closing Date the statements made by such counsel in its
opinion delivered on the Firm Closing Date.
6.8 As of the Firm Closing Date and Option Closing Date, if
any, (i) there shall have been no transaction, not in the ordinary course
of business, entered into by the Company after the latest date as of which
the financial condition of the Company is set forth in the Registration
Statement and Prospectus that is materially adverse to the Company; (ii)
the Company shall not be in material breach or material default under any
provision of any instrument relating to any outstanding indebtedness;
(iii) the Company shall not have issued any securities (other than as
described in the Registration Statement and other than the Securities and
the Representative's Securities) or declared or paid any dividend or made
any distribution in respect of its capital stock of any class and there
shall not have been any change in the capital stock or any material change
in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (iv) no material amount of the assets
of the Company shall have been pledged or mortgaged, except as set forth
in the Registration Statement and Prospectus; (v) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company, or involving or
affecting its business or properties, before or by any court or federal,
state or foreign commission, board or other administrative agency wherein
an unfavorable decision, ruling or finding could have a material adverse
effect on the Company, except as set forth in the Registration Statement
and Prospectus; and (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission or any state securities regulatory agency.
6.9 The Representative shall have received on the Firm Closing
Date and the Option Closing Date, if any, a certificate or certificates of
the Company, signed by the Chief Executive Officer and by the Chief
Financial Officer to the effect that each of such persons has carefully
reviewed the Registration Statement, the Prospectus and this Agreement,
and that, as of such Closing Date:
6.9.1 The Registration Statement has become
effective under the Act, no stop order suspending the
effectiveness of the Registration Statement has been issued, and
no proceedings for that purpose have been instituted or are
pending or are, to the best of each of such person's knowledge
after due inquiry, contemplated by the Commission; and
6.9.2 The representations and warranties of the
Company in this Agreement are true and correct, as if made on
and as of the Firm Closing Date or the Option Closing Date, as
the case may be, and the Company has complied with all
agreements and satisfied all conditions set forth in this
Agreement on its part to be performed or satisfied at or prior
to the Firm Closing Date or the Option Closing Date, as the case
may be; and
6.9.3 they have carefully examined the
Registration Statement, the Prospectus and any amendments or
supplements thereto, and (a) neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto,
contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (b)
since the effective date of the Registration Statement there has
occurred no event required to be set forth in an amended or
supplemented prospectus which has not been so set forth, (c)
subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the
Company has not incurred any material liability or obligation,
direct or contingent, or entered into any material transaction,
whether or not in the ordinary course of business, or declared
or paid any dividend on any capital stock of the Company, and
there has not been any change in the capital stock, or any
material increase, in the short-term debt or long-term debt
(including any capitalized lease obligation), or any issuance of
options, warrants, convertible securities or other rights to
purchase the capital stock, of the Company, or any material
adverse change, or any development involving a prospective
material change, in the business, key personnel, condition
(financial or other), properties, assets, net worth or results
of operations of the Company, and the Company has not sustained
any material loss or damage to its property or interference with
its business, whether or not any of the foregoing is insured,
which is material to the Company, and (d) except as disclosed in
the Prospectus, there is not pending, threatened or, to their
knowledge, contemplated any action, suit, proceeding or
investigation before or by any court or governmental agency or
body, or any arbitrator which would result in any material
adverse change in the general affairs, business, condition
(financial or other) properties, assets, net worth or results of
operations of the Company.
6.10 The Representative shall have received on or prior to the
date of this Agreement, the approval of the NASD of the terms of the
Underwriters' participation in the distribution of the Securities and the
amount and type of compensation allowable or payable to the Representative
and the Underwriters therefor.
6.11 The Representative shall have received a signed letter from
Arthur Anderson LLP, addressed to the Representative, on the date of this
Agreement, the Firm Closing Date and, if applicable, the Option Closing
Date, respectively, and a draft of such letter not less than five days
prior to each said date, from Arthur Anderson LLP dated as of the date
hereof, the Firm Closing Date and, if applicable, the Option Closing Date,
as the case may be, which shall confirm, on the basis of a review in
accordance with the procedures set forth in the letter to the
Representative delivered by Arthur Anderson LLP on the date hereof, which
letter shall be to the effect set forth in Annex C hereto, that nothing
has come to their attention during the period from the date not more than
5 days prior to date hereof, to a date not more than 5 days prior to the
Firm Closing Date and the Option Closing Date, as the case may be, which
would require any change in their letter dated the date hereof if it were
required to be dated and delivered on the Firm Closing Date or the Option
Closing Date, as the case may be. All such letters shall be in form and
substance satisfactory to the Representative.
6.12 On each of the Firm Closing Date and relevant Option
Closing Date, if any, there shall have been duly tendered to the
Representative for its account and the accounts of the several
Underwriters, certificates representing the Securities in the names and
denominations instructed by the Representative against payment therefor as
provided herein.
6.13 No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to Section 4.2
hereof shall have been issued and no proceedings for that purpose shall
have been instituted or shall be threatened.
6.14 On or before the Firm Closing Date, the Company shall have
executed and delivered to the Representative the Representative's Warrants
in such denominations and in the names of such designees as shall have
been instructed by the Representative in writing.
6.15 On or before the date of this Agreement, the Common Stock
shall have been duly approved for inclusion on NASDAQ SmallCap Market
subject to official notice of issuance.
6.16 Since the effective date of the Registration Statement, the
Company shall not have sustained any loss by fire, flood, accident or
other calamity, nor shall it have become a party to or the subject of any
litigation, individually or in the aggregate, which is materially adverse
to the Company, nor shall there have been a material adverse change in the
general affairs, business, key personnel, capitalization, financial
position or net worth of the Company, whether or not arising in the
ordinary course of business, which loss, litigation or change, in your
reasonable judgment, shall render it inadvisable to proceed with the
delivery of the Securities.
6.17 Subsequent to the date of this Agreement or, if earlier,
the dates as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto), there shall not have been (i) any change or decrease
specified in the letter or letters referred to in Section 6.11 or (ii) any
change, or any development involving a prospective change, in or affecting
the business or properties of the Company the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the judgment of the
Representative, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto).
6.18 At or prior to the Firm Closing Date, the Representative
shall have received the written agreements and performance of the matters
specified in Sections 4.8 and 4.18 hereof.
6.19 Prior to the Firm Closing Date, the Company shall have
furnished to the Representative such further information, certificates and
documents confirming the representations and warranties of the Company and
compliance with the conditions contained herein as the Representative may
reasonably have requested.
The options and certificates mentioned in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are
in all respects reasonably satisfactory to the Representative and its
counsel.
If any of the conditions established in this Section 6 shall not
have been fulfilled when and as required, the obligations of the
Underwriters hereunder may be terminated at the election of the
Representative upon written notification to the Company on or prior to the
Firm Closing Date or the Option Closing Date, if any, as the case may be
without liability on the part of any Underwriter, including the
Representative, or the Company except to the extent provided in Sections
5, 7 and 10 hereof.
7. INDEMNIFICATION.
7.1 The Company will indemnify and hold harmless each
Underwriter, its officers, directors and counsel and each person, if any,
who controls any Underwriter (including each person who may be substituted
for an Underwriter as provided in Section 9 hereof) within the meaning of
the Act or the Exchange Act, from and against any losses, claims, damages,
expenses, liabilities or actions in respect thereof ("Claims"), joint or
several, to which such Underwriter, its officers, directors or counsel or
each such controlling person may become subject under the Act, the
Exchange Act, Blue Sky Laws or other federal or state statutory laws or
regulations, at common law or otherwise (including payments made in
settlement of any litigation, if such settlement is effected with the
written consent of the Company), insofar as such Claims arise out of or
are based upon any breach of any representation, warranty or covenant made
by the Company in this Agreement, or any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or in any application or other document executed by
the Company or based upon written information furnished by the Company and
filed in any state or other jurisdiction to qualify any of the Shares for
offer/sale under the securities laws thereof or filed with the SEC or any
securities association or exchange (any such document, application or
information being hereinafter called an "Application") or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading (with respect to the Prospectus, in
light of the circumstances under which they were made). The Company
agrees to reimburse each such indemnified party for any legal fees or
other expense as incurred by such indemnified party in connection with
investigating, preparing to defend or defending against or appearing as a
third-party witness in connection with such Claims; provided, however, the
Company will not be liable in any such case to the extent that any such
Claims arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or in any Application in reliance upon and in
conformity with written information furnished by the Representative to
the Company pursuant to Section 12 of this Agreement. The indemnification
obligations of the Company as provided herein are in addition to and in no
way limit any liability the Company may otherwise have.
7.2 Each Underwriter, severally and not jointly, will indemnify
and hold harmless the Company, each of its directors and officers and each
person, if any, who controls the Company within the meaning of the Act or
the Exchange Act against any Claim to which the Company, or any such
director, officer or controlling person may become subject under the Act,
the Exchange Act, Blue Sky Laws or other federal or state statutory laws
or regulations, at common law or otherwise (including payments made in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter and the Representative), insofar as
such Claim arises out of or is based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application, or arises out of or is based upon the omission
or alleged omission to state a material fact required to be stated therein
or necessary to make the statements therein (with respect to the
Prospectus, in light of the circumstances under which they were made), not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or in
any Application in reliance solely upon and in conformity with written
information furnished by the Representative to the Company pursuant to
Section 12 of this Agreement. The indemnification obligations of each
Underwriter as provided above are in addition to any liabilities any such
Underwriter may otherwise have. Notwithstanding the provisions of this
section, no Underwriter shall be required to indemnify or reimburse the
Company, or any officer, director, controlling person in an aggregate
amount in excess of the total price at which the Shares purchased by any
such Underwriter hereunder were offered to the public, less the amount of
any damages such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged
omission.
7.3 Promptly after receipt by an indemnified party under this
section of notice of the commencement of any action in respect of a Claim,
such indemnified party will, if a Claim in respect thereof is to be made
against an indemnifying party under this section, notify the indemnifying
party in writing of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve an indemnifying party from
any liability it may have to any indemnified party under this section or
otherwise, except to the extent that the indemnifying party is prejudiced
in its ability to defend such action. In case any such action is brought
against any indemnified party, and such indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate in and, to the extent that he, she or it
may wish, jointly with all other indemnifying parties, similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such
action include both the indemnified party and any indemnifying party and
the indemnified party shall have reasonably concluded that there may be
legal defenses available to the indemnified party and/or other indemnified
parties which are different from or additional to those available to any
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties.
7.4 Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election to assume the
defense of such action and upon approval by the indemnified party of
counsel selected by the indemnifying party, the indemnifying party will
not be liable to such indemnified party under this section for any legal
fees or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (a) the indemnified party shall
have employed separate counsel in connection with the assumption of legal
defenses in accordance with the last sentence of Section 7.3 (it being
understood, however, that the indemnifying party shall not be liable for
the legal fees and expenses of more than one separate counsel approved by
the Representative, if one or more of the Underwriters or their officers,
directors, counsel or controlling persons are the indemnified parties);
(b) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after the indemnified party's notice to the
indemnifying party of commencement of the action; or (c) the indemnifying
party has authorized the employment of counsel at the expense of the
indemnifying party.
7.5 If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under subsection 7.1 or 7.2 hereof in
respect of any Claim referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall, subject to the
limitations hereinafter set forth, contribute to the amount paid or
payable by such indemnified party as a result of such Claim (a) in such
proportion as is appropriate to reflect the relative benefits received by
the Company and the Underwriters from the offering of the Shares; or (b)
if the allocation provided by clause (a) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (a), but also the relative fault of the
Company and the Underwriters in connection with the statements or
omissions which resulted in such Claim, as well as any other relevant
equitable considerations. The relative benefits received by each of the
Company and the Underwriters shall be deemed to be in such proportion so
that the Underwriters are responsible for that portion represented by the
percentage that the amount of the underwriting discounts and commissions
per Share appearing on the cover page of the Prospectus bears to the
public offering price per Share appearing thereon, and the Company is
responsible for the remaining portion. The relative fault of the Company
and the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable
by a party as a result of the Claims referred to above shall be deemed to
include, subject to the limitations set forth in subsections 7.3 and 7.4
of this section, any legal or other fees or expenses reasonably incurred
by such party in connection with investigating or defending any action or
claim.
7.6 The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this section were
determined by pro rata or per capita allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method or
allocation which does not take into account the equitable considerations
referred to in subsection 7.5 of this section. Notwithstanding the other
provisions of this section, no Underwriter shall be required to contribute
any amount that is greater than the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this section are several in
proportion to their respective underwriting commitments and not joint.
7.7 If any proceeding is brought in a court of competent
jurisdiction against any person in respect of which indemnification or
contribution may be sought under this Section 7, the other parties hereto
hereby (a) consent to the jurisdiction of the court in which such
proceeding is brought for purposes of enforcing this Section 7, (b) agree
that process issuing from such court may be served upon them by any other
person seeking indemnification or contribution; and (c) agree that they
may be joined as additional defendants in any such proceeding.
8. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND
REPRESENTATIONS. The indemnity and contribution agreements contained in
Section 7 and the representations, warranties and agreements of the
Company in Sections 1 and 4 hereof shall survive the delivery of the
Securities to the Underwriters hereunder and shall remain in full force
and effect, regardless of any termination or cancellation of this
Underwriting Agreement or any investigation made by or on behalf of any
indemnified party.
9. DEFAULT BY UNDERWRITERS; SUBSTITUTION. If on the Firm Closing
Date or the Option Closing Date, as the case may be, any Underwriter shall
fail to purchase and pay for the portion of the securities which such
Underwriter has agreed to purchase and pay for on such data (otherwise
than by reason of the nonfulfillment of any condition to its obligation to
do so hereunder), you, as Representative of the Underwriters, shall use
your best efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase such amounts as may be
agreed upon, and upon the terms set forth herein, of the Firm Securities
or Option Securities, as the case may be, which the defaulting Underwriter
or Underwriters failed to purchase. If during such 36 hours you, as
Representative, shall not have procured such other Underwriters, or any
others, to purchase the Firm Securities or Option Securities, as the case
may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of securities with respect
to which such default shall occur does not exceed 9.09% of the Firm
Securities or Option Securities as the case may be, covered hereby, the
other Underwriters shall be obligated, severally, in proportion to the
respective numbers of Firm Securities or Option Securities, as the case
may be, which they are obligated to purchase hereunder, to purchase the
Firm Securities or Option Securities, as the case may be, which such
defaulting Underwriter or Underwriters failed to purchase (provided that
any non-defaulting Underwriter shall not be obligated to purchase any
Securities which the defaulting Underwriter(s) agreed to purchase if such
additional purchase would cause the non-defaulting Underwriter to be in
violation of the net capital rules of the Commission), or (b) if the
aggregate number of Securities with respect to which such default shall
occur exceeds 9.09% of the Firm Securities or Option Securities, as the
case may be, covered hereby, you as the Representative of the Underwriters
will have the right, by written notice given within the next 36-hour
period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters, or of
the Company except for expenses to be borne by the Company as provided in
Section 5 hereof and the indemnity and contribution agreements in Section
7 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Firm Closing Date or Option Closing
Date, as the case may be, may be postponed for such period, not exceeding
seven days, as you, as Representative, may determine in order that the
required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. EFFECTIVE DATE AND TERMINATION.
10.1 Subject to its execution and delivery by the parties this
Agreement shall become effective at 10:00 a.m., Denver time, on the
earlier of (i) the first full Business Day following the date the
Registration Statement becomes effective or (ii) at such time after the
Registration Statement becomes effective as you, in your discretion, shall
release the Firm Shares for the sale to the public. You shall notify the
Company and its counsel immediately after you have taken any action that
causes this Agreement to become effective. Until this Agreement is
effective, it may be terminated by the Company by giving written notice as
hereinafter provided to you or by you giving notice as hereinafter
provided to the Company, except that the provisions of Sections 5, 7 and
10 hereof shall at all times be effective. For purposes of this
Agreement, the release of the Firm Shares for sale to the public shall be
deemed to have been made when you release, by telegram or otherwise, firm
offers of the Firm Shares to securities dealers or release for publication
a newspaper advertisement relating to the Securities, whichever occurs
first.
10.2 (a) Until the Firm Closing Date, this Agreement may be
terminated by the Representative (subject to Representative's
understandings with the NASD) by giving notice as hereinafter provided to
the Company in the event of any of the following: (i) the Company shall
have failed, refused or been unable, at or prior to the Closing Date, to
perform any agreement on its part to be performed hereunder unless
compliance therewith or performance or satisfaction thereof shall have
been expressly waived in writing by the Representative; (ii) any other
condition of the obligations of the Underwriters hereunder is not
fulfilled; (iii) suspension of trading in the Common Stock of the Company
by the Commission or by NASDAQ; (iv) any outbreak or escalation of
hostilities or declaration of war or national emergency after the
effective date of the Registration Statement or other national or
international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the
United States would, in the Representative's reasonable judgment make the
offering or delivery of the Securities impracticable or in advisable; (v)
suspension of trading in securities on the New York Stock Exchange or
NASDAQ or limitation on prices for securities on such Exchange or NASDAQ;
(vi) imposition of additional material restrictions, not in force on the
date of the effective date of the Registration Statement, upon trading in
securities in generally by the New York Stock Exchange or NASDAQ or by
order of the Commission or any court or other governmental authority;
(vii) declaration of a banking moratorium by either federal, Colorado or
New York authorities; or (viii) if there shall have occurred after the
effective date of the Registration Statement or if any Underwriter shall
have become aware after the effective date of the Registration Statement
of such a material adverse change in the conditions or prospects of the
Company, or such adverse material change in general market conditions as
in the Representative's judgment would make it impracticable or
inadvisable to proceed with the offering, sale or delivery of the Firm
Shares or to enforce contracts made by the Underwriters for the sale of
the Firm Shares.
(b) In the event the NASD determines that any person has
rendered services of any nature whatsoever to the Company for which such
person has received compensation required to be aggregated with the
compensation to be received by the Representatives, the Representative may
terminate this Agreement its obligations with respect to the public
offering, without liability on its part of any kind to the Company; and in
any such event the Company shall reimburse NTB for all of its accountable
expenses in the maximum amount of $65,000, inclusive of the $45,000
previously paid by the Company. However, if NTB's compensation is
determined by the NASD to be unfair for any reason other than the
aggregation of the compensation of another person as provided in this
Section 10.2, NTB shall proceed with the offering and shall determine in
its sole discretion which component of compensation to reduce.
Any termination of this Agreement pursuant to this Section 10
shall be without liability on the part of the Company or the Underwriters,
except as otherwise provided in Sections 5 and 7 hereof and this Section
10.
Any notice referred to above may be given at the address
specified in Section 10 hereof in writing or by telegraph, facsimile or
telephone, and if by telephone, shall be immediately confirmed in writing.
11. NOTICES. Except as otherwise provided in this Agreement, (a)
whenever notice is required by the provisions hereof to be given to the
Company, such notice shall be in writing and hand delivered or sent by
mail or facsimile transmission to Cavion Technologies, Inc., at 7475 Dakin
Street, Suite 607, Denver, Colorado 80221, facsimile number: (303) 657-
8212, Attn: President, and (b) whenever notice is required by the
provisions hereof to be given to the Representative, such notice shall be
in writing and hand delivered or sent by mail or facsimile transmission to
Neidiger, Tucker, Bruner, Inc., 300 Plaza Level, 1675 Larimer Street,
Denver, Colorado, 80202, facsimile number: (303) 623-9310, Attn:
Corporate Finance Department.
12. INFORMATION FURNISHED BY UNDERWRITERS. [to be completed]
13. PARTIES. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Underwriters, the Company and the
controlling persons, directors and officers referred to in Section 7
hereof, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal
or equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provisions herein contained. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by
reason merely of such purchase.
14. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado without
giving any effect to any choice of law or conflict of law provision or
rule whether of the State of Colorado or any other jurisdiction that would
cause the application of the laws of any jurisdiction other than the State
of Colorado. The parties agree to the exclusive jurisdiction of the
courts of the State of Colorado or of the United States of America for the
District of Colorado, and irrevocably submit to such jurisdiction, which
jurisdiction shall be exclusive, in connection with any action brought by
any party hereto relating to this Agreement or the transactions which are
the subject matter hereof.
15. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the
Representative's Warrant Agreement and the Financial Consultant Agreement
constitute the entire agreement of the parties hereto and supersede all
prior written or oral agreements, understandings, and negotiations with
respect to the subject matter hereof, including without limitation a
letter of intent dated December 22, 1998 and accepted December 23, 1998
between the Company and NTB. This Agreement may not be amended except in
a writing signed by the Representative and the Company.
16. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement. The parties agree,
however, that in the event any provision of this Agreement shall be
declared invalid or unenforceable, the parties shall negotiate a new
provision achieving to the extent possible the purpose of the invalid
provision.
17. DEFINITION OF BUSINESS DAY. For purposes of this Agreement,
"Business Day" means any day on which the New York Stock Exchange, Inc. is
open for trading.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and each of the several Underwriters.
Very truly yours,
CAVION TECHNOLOGIES, INC.
By -------------------------------------
David J. Selina
President and Chief Executive Officer
Confirmed and accepted
as of the date first above written:
NEIDIGER, TUCKER, BRUNER, INC.
As Representative of the several Underwriters
named in the attached Schedule I hereto
By: NEIDIGER, TUCKER, BRUNER, INC.
By -----------------------------------------
Anthony B. Petrelli
Senior Vice President
SCHEDULE I
Number of Firm
Name of Underwriter Shares to be Purchased
- ------------------
Neidiger, Tucker, Bruner, Inc...............
---------
TOTAL 1,200,000
=========
ANNEX A
Matters to be Covered in the Opinion of
Gorsuch Kirgis LLP, Counsel for the Company
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of
its organization, with full corporate power and authority necessary to own
or hold its properties and conduct the business in which it is presently
engaged as described in the Prospectus and is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the character of the business conducted by it or the
properties owned or held by it make such qualification necessary.
(ii) The authorized, issued and outstanding share capital of the
company as of the effective date of the Registration Statement is as set
forth under the caption "Capitalization" in the Prospectus, the Common
Stock and the Representative's Warrants conform to the descriptions
thereof contained under the captions "Description of Securities" and
"Underwriting" in the Prospectus. The outstanding shares of Common Stock
have been, and the Shares upon issuance and delivery and payment therefor
in the manner herein described and in the Representative's Warrants, will
be, duly authorized, validly issued, fully paid and nonassessable. There
are no preemptive or, except as described in the Registration Statement,
other rights to subscribe for or to purchase from the Company, or any
restriction upon the voting or transfer of, any Common Stock pursuant to
the Company's Articles of Incorporation or Bylaws, as amended, or other
governing documents or, to the best knowledge of such counsel, any
agreement or other instrument to which the Company is a party or by which
it is bound, except restrictions under applicable securities laws.
(iii) To the best of such counsel's knowledge, the Company is
not, or with the giving of notice or lapse of time or both would be, in
violation of or in default under, nor will the execution or delivery
hereof or of the Representative's Warrants or consummation of the
transactions contemplated hereby or thereby result in a violation of, or
constitute a default under, the Company's Articles of Incorporation or
Bylaws, as amended, or other governing documents of the Company, or any
agreement, indenture or other instrument to which the Company is a party
or by which it is bound nor will the performance by the Company of its
obligations hereunder or under the Representative's Warrants violate any
law, rule, administrative regulation or decree of any court or any
governmental agency or body having jurisdiction over the Company or any of
its properties which would have a material and adverse effect, or result
in the creation or imposition of any lien, charge, claim or encumbrance,
upon any property or asset of the Company.
(iv) Each of this Underwriting Agreement, the Representative's
Warrants and the Financial Consultant Agreement has been duly authorized,
executed and delivered by the Company, constitutes the valid and binding
agreement of the Company, and is enforceable against the Company in
accordance with its terms except insofar as rights to indemnity and/or
contribution may be limited by applicable securities laws or the public
policy underlying such laws and except as enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors' rights generally, and be subject to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(v) The shares of Common Stock issuable upon exercise of the
Representative's Warrants have been duly authorized and reserved for
issuance and, when issued and delivered in accordance with the terms of
the Representative's Warrants, respectively, will be duly and validly
issued, fully paid and nonassessable.
(vi) The certificates representing the Shares and the
Representative's Warrants are in due and proper form.
(vii) The information, if any, required to be set forth in the
Registration Statement in answer to Item ----- of Form SB-2 (insofar as
its relates to such counsel) is to the best of such counsel's knowledge
accurately and adequately set forth therein in all material respects, and
the description of the Company's Equity Incentive Plan and other option
arrangements, and the shares and options which may be issued and granted
thereunder, set forth in the Prospectus is accurate in all material
respects.
(viii) All descriptions in the Prospectus of statutes,
regulations, legal or governmental proceedings, contracts and other
documents and the description of the consequences to the Company of such
laws, proceedings or documents are accurate and fairly present the
information required to be shown; and to the best knowledge of such
counsel, there are no contracts or documents of a character required to be
summarized or described in the Prospectus or to be filed as exhibits to
the Registration Statement which are not so summarized, described or
filed, nor to the best knowledge of such counsel, is there any pending or
threatened litigation or any governmental proceeding, statute or
regulation required to be described in the Prospectus which is not so
described.
(ix) To the best of such counsel's knowledge, no holder of any
securities of the Company has any right to require registration of shares
of Common Stock or other securities of the Company under the Act, except
as any such right may arise under the Representative's Warrant Agreement.
(x) The presently outstanding shares of Common Stock of the Company
were issued in transactions which were not subject to the registration
provisions of the Act and applicable state securities laws. To the best
knowledge of such counsel, there is a reasonable basis to conclude that
neither the offering nor sale of any presently outstanding shares of
Common Stock will be integrated with the offering of the Shares for
purposes of registration under the Act or qualification under any state
securities laws.
(xi) Except for the order of the Commission declaring the
Registration Statement effective under the Act, and except for permits and
similar authorizations required under the securities or "Blue Sky" laws of
certain jurisdictions and for such permits and authorizations which have
been obtained, no consent, approval, authorization or order of any federal
or state court, governmental agency or body is required in connection with
the consummation by the Company of the transactions contemplated by this
Underwriting Agreement, the Representative's Warrants or the Financial
Consulting Agreement.
(xii) The Registration Statement and all post-effective
amendments thereto have become effective under the Act and, to the best of
such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending before or threatened by the
Commission or any state of the United States or other regulatory body and
all filings required by Rule 424 under the Act in connection with the
public offering of the Shares have been made within the time periods
required; and the Registration Statement and the Prospectus and any
amendment or supplement thereto, as of their respective effective dates,
comply as to form in all material respects with the requirements of the
Act (except that counsel need express no opinion with respect to the
financial statements, management's discussion and analysis or other
financial data included therein).
(xiii) The Company meets all the requirements for filing on Form
SB-2.
(xiv) The Company is not, and following completion of the
offering of the Shares and receipt and intended investment of proceeds
therefrom as described in the Final Prospectus, will not be, an
"investment company" as defined in the Investment Company Act of 1940, as
amended.
In rendering the foregoing opinion, counsel may state that such
opinion is limited to federal and applicable state law, and rely, as to
matters of fact, upon certificates of responsible officers of the Company
and on certificates of public officials, and may base its opinion upon
such reasonable investigations and assumptions as shall be set forth in
such opinion. In rendering such opinion such counsel may rely, to the
extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to counsel to the Underwriters) of other counsel
familiar with the applicable laws and admitted to practice in the
applicable jurisdiction. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that in their opinion you and they are
justified in relying thereon. In addition, such counsel shall state that
such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, representatives of the Underwriters and
counsel for the Underwriters at which the contents of the Registration
Statement and related matters were discussed and; although such counsel
has not independently verified, is not passing upon and does not assume
any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement, no facts have come to
the attention of such counsel that lead them to believe that the
Registration Statement, as of the date it is declared effective by the
Commission, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus as of the
Closing Date includes an untrue statement of a material tact or omits to
state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need not comment as to
the financial statements, management's discussion and analysis, and other
financial data included in the Registration Statement, the Prospectus or
the exhibits to the Registration Statement).
ANNEX B
Matters to be Covered in the Opinion of Special Counsel
1. such counsel represents the Company in certain matters relating
to intellectual property, including patents and proprietary rights;
2. such counsel is familiar with the technology and processes used
by the Company in its business and the manner of its use and has read the
portions of the Registration Statement and the Prospectus entitled "Risk
Factors-- --------------," and "Business-- -----------------," "Business--
- ---------------," "Proprietary Rights, Trade Names and Trademarks";
3. to the extent that the Intellectual Property Portion contains
descriptions of the Company's patent applications and patent applications
licensed to the Company (collectively the "Applications") and patents
issued to or otherwise owned or licensed by it (collectively the
"Patents"), such descriptions are accurate and do not omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading;
4. such counsel has reviewed the Patents and Applications which
Patents and Applications are described in the Intellectual Property
Portion, and based upon such review, a review of the prior art references
made known to counsel and discussions with Company personnel, such counsel
is aware of no valid United States or foreign issued patent that is or
would be infringed by the activities of the Company in the manufacture,
use or sale of any product or proposed product or other material as
described in the Prospectus and made or used according to the Patents or
the Applications;
5. The Applications have been properly prepared and filed on behalf
of the Company or its strategic partners, as the case may be, and are
being diligently pursued by the Company or its strategic partners, as the
case may be; each of the Applications is assigned or licensed to the
Company or its strategic partners, as the case may be; to such counsel's
knowledge, no other entity or individual has any right in or to any of the
inventions claimed in any of the Applications or patents sought to be
issued therefrom; and each of the Applications discloses patentable
subject matter; and
6. such counsel is aware of no pending or threatened judicial,
administrative or other proceedings by governmental authorities or others
relating to the Patents or Applications challenging the validity or scope
of the Patents or Applications (other than customary prosecution
proceedings relating to the Applications).
Such counsel shall also state that it has no reason to believe that
the information contained in the Intellectual Property Portion of the
Registration Statement or the Prospectus, as of its effective date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the information contained in the
Intellectual Property Portion of the Prospectus, as of its date or the
date of such opinion, included or includes any untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
In rendering any such opinion, such counsel may rely as to matters of
fact, to the extent they deem proper, on certificates and written
statements of responsible officers of the Company and public officials,
provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel.
References to the Registration Statement and the Prospectus in this
Annex shall include any amendment or supplement thereto at the date of
such opinion.
ANNEX C
Matters to be Covered in the Comfort Letter
of Arthur Anderson LLP
1. confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and
the applicable Rules and Regulations;
2. stating their opinion that, (i) the financial statements
examined by them of the Company at all dates and for all periods referred
to in their opinion and included in the Registration Statement and
Prospectus, comply in all material respects with the applicable accounting
requirements of the Act and the published Rules and Regulations thereunder
with respect to registration statements on Form SB-2, (ii) on the basis of
certain indicated procedures (but not an examination in accordance with
generally accepted accounting principles), including examinations of the
instruments of the Company set forth under "Capitalization" in the
Prospectus, a reading of the latest available interim unaudited financial
statements of the Company, whether or not appearing in the Prospectus,
inquiries of the officers of the Company or other persons responsible for
its financial and accounting matters regarding the specific items for
which representations are requested below and a reading of the minute
books of the Company, nothing has come to their attention which would
cause them to believe that during the period from the last audited balance
sheet included in the Registration Statement to a specified date not more
than five days prior to the date of such letter (a) there has been any
change in the capital stock or other securities of the Company or any
payment or declaration of any dividend or other distribution in respect
thereof or exchange therefor from that shown on its audited balance sheets
or in the debt of the Company from that shown or contemplated under
"Capitalization" in the Registration Statement or Prospectus other than as
set forth in or contemplated by the Registration Statement or Prospectus;
(b) there have been any material decreases in net current assets or net
assets as compared with amounts shown in the last audited balance sheet
included in the Prospectus so as to make said financial statements
misleading; and (c) on the basis of the indicated procedures and
discussions referred to in clause (ii) above, nothing has come to their
attention which, in their judgment, would cause them to believe or
indicate that (1) the unaudited financial statements and schedules set
forth in the Registration Statement and Prospectus do not present fairly
the financial position and results of the Company, for the periods
indicated, in conformity with the generally accepted accounting principles
applied on a consistent basis with the audited financial statements, and
(2) the comparison of specific dollar amounts, numbers of shares,
percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including
work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards), are not in
agreement;
3. stating that they have not during the immediately preceding five
year period (or such shorter period as the Company shall have been in
existence) brought to the attention of any of the Company's management any
"material weakness," as defined in Statement of Auditing Standard No.60
"Communication of Internal Control Structure Related Matters Noted in an
Audit," in any of the Company's internal controls;
4. stating that they have in addition carried out certain specified
procedures, not constituting an audit, with respect to certain pro forma
financial information which is included in the Registration Statement and
the Prospectus and that nothing has come to their attention as a result of
such procedures that caused them to believe such unaudited pro forma
financial information does not comply in form in all respects with the
applicable accounting requirements of Item 301 Regulation S-B or that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of that information; and
5. statements as to such other matters incident to the transaction
contemplated hereby as the Representative may request.
14
CAVION TECHNOLOGIES, INC.
AGREEMENT AMONG UNDERWRITERS
---------------------, 1999
NEIDIGER, TUCKER, BRUNER, INC.
As Representative of the Several Underwriters
300 Plaza Level
1675 Larimer Street
Denver, Colorado 80202
Gentlemen:
We confirm our agreement among you, the undersigned and the
other prospective Underwriters named in Schedule I to the
Underwriting Agreement with respect to the purchase, severally,
from Cavion Technologies, Inc., a Colorado corporation (the
"Company"), of an aggregate of 1,200,000 shares (the "Firm
Shares") of the Company's common stock, $.0001 par value per
share (the "Common Stock"). In addition, the Company has granted
to the Underwriters an option to purchase from the Company up to
an aggregate of 180,000 additional shares of Common Stock (the
"Option Shares") for the sole purpose of covering over-allotments
in the sale of the Firm Shares upon the terms and conditions
stated in the Underwriting Agreement. Unless otherwise defined
herein, capitalized terms in this Agreement shall have the
meanings given to such terms in the Underwriting Agreement. We
agree in accordance with the terms hereof and the Underwriting
Agreement to purchase the number of Firm Shares set forth
opposite our names in Schedule I to the Underwriting Agreement
and to purchase Option Shares in the same proportion as the
number of our Firm Shares is to the 1,200,000 shares of Common
Stock. The Firm Shares and any Option Shares purchased under the
Underwriting Agreement are hereinafter sometimes collectively
called the "Securities."
We confirm that our net capital and ratio of aggregate
indebtedness to net capital are such that we may, in accordance
with and pursuant to Rule 15c3-1, promulgated by the Securities
and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934 (the "1934 Act") and agree to purchase the
number of Securities set forth opposite our names in Schedule I
to the Underwriting Agreement (together with any increase in such
number provided for herein or in the Underwriting Agreement).
We are familiar with Rule 15c2-8 promulgated by the
Commission under the 1934 Act relating to the distribution of
preliminary and final prospectuses and confirm that we have
complied and will comply therewith. You hereby confirm that you
will make available to each Underwriter, from time to time, such
number of copies of the Preliminary Prospectus and Prospectus (as
amended or supplemented) as such underwriter may reasonably
request for the purposes contemplated by the Securities Act of
1933, as amended (the "1933 Act") or the 1934 Act, or the
applicable rules and regulations of the Commission thereunder.
SECTION 1. AUTHORITY OF THE REPRESENTATIVE. We authorize
you, as our Representative, (a) to execute and deliver the
Underwriting Agreement on our behalf in substantially the form
annexed hereto as Exhibit A, with such changes as in your
judgment are advisable or appropriate, including but not limited
to increases or decreases in the number of Securities to be
purchased hereunder, and changes in those who are to be
Underwriters and in the respective number of Securities to be
purchased by them (but not any increase in the number of
Securities to be purchased by us except with our consent or as
provided in this Agreement and the Underwriting Agreement), (b)
to exercise all the authority and discretion vested in the
Underwriters and in you by the provisions of the Underwriting
Agreement and (c) to take such other action as you deem advisable
or appropriate in connection with the performance of this
Agreement and the Underwriting Agreement and the purchase,
carrying, sale and distribution of the Securities, except that,
without the consent of a majority in interest of the Underwriters
(including yourselves), you shall not consent to any extension of
more than 24 hours of the time provided in Section 9(x) of the
form of Underwriting Agreement within which the Registration
Statement shall have become effective.
SECTION 2. SALE TO THE PUBLIC. It is expected that the
sale of the Securities to the public will commence as soon in
your judgment as advisable after the Registration Statement has
become effective. We will not sell any Securities until they are
released by you for that purpose.
The initial public advertisement will appear on such date
and will include the name of such of the Underwriters as you
may determine. Thereafter any Underwriter may advertise at its
own risk and expense.
SECTION 3. OFFERING TO SELECTED DEALERS AND OTHERS. We
authorize you, for our account, to reserve and offer for sale and
sell such number of Securities to be purchased by us as you shall
determine to dealers (the "Selected Dealers"), among whom any of
the Underwriters may be included, who shall be members of the
National Association of Securities Dealers, Inc. ("NASD"), or
foreign dealers who are not eligible for membership in the NASD
and which foreign dealers agree to make no sales of the
Securities within the United States, its territories or its
possessions or to persons who are nationals thereof or residents
therein and, in making such sales, to comply with the
requirements of the Conduct Rules of the NASD (including Rules
2730, 2740, and 2750, and Rule 2420 as that Rule applies to non-
member foreign dealers) and the Interpretation of the Board of
Governors of the NASD with respect to Free-riding and
Withholding. Such offering may be made under a Selected Dealer
Agreement substantially in the form attached hereto (the
"Selected Dealer Agreement") or otherwise. The price to Selected
Dealers shall be the public offering price less a concession to
be determined by you of not in excess of 50% of the difference
between the initial public offering price of the Securities and
the purchase price to be paid by the Underwriters for the
Securities. We also authorize you, for our account, to reserve
and offer for sale and sell Securities to be purchased by us, at
the public offering price, to institutions or other retail
purchasers other than Selected Dealers. Such reservations and
sales to others shall be as nearly as practicable in proportion
to our underwriting obligation, unless you agree to a smaller
proportion at our request. At or before the time of the public
offering you will advise us of the number of Securities to be
purchased by us which have not been reserved for sale as provided
in this Section.
Sales to Selected Dealers shall be made as nearly as
practicable in the ratio which the number of Securities reserved
for our account bears to the aggregate number of Securities
reserved for the account of all Underwriters, as evaluated from
day to day. You may deliver to any of the Underwriters from time
to time, (i) for earning purposes, or (ii) for sale by such
Underwriter, any of the Securities then reserved for offering and
sale to, but not purchased and paid for by, Selected Dealers or
others as above provided; but to the extent that Securities are
so delivered for sale by such Underwriter, the number of
Securities then reserved for the account of such Underwriter
shall be correspondingly reduced. Securities delivered for
carrying purposes only must be redelivered to you upon your
demand
We will repurchase any Securities sold by us, except through
you, which shall be contracted for or purchased by you in the
open market during the life of this Agreement or within seven
days after the termination thereof, on demand, at a price equal
to the cost of such purchase plus tax on redelivery and
commission, if any. In lieu thereof you may, in your discretion,
(i) sell the same for our account at such prices and upon such
terms and to such persons, including any of the other
Underwriters, as you may determine, charging the amount of any
loss and expense or crediting the amount of any profit, less any
expense, resulting from such sale, to our account, or (ii) charge
our account with an amount not in excess of the concession to
Selected Dealers on such Securities, plus commissions and taxes
paid in connection with such purchase.
Each Underwriter agrees that if any such offering is made
pursuant to a Selected Dealer Agreement, it will be governed by
the terms and provisions thereof.
SECTION 4. PAYMENT AND DELIVERY; SETTLEMENT OF ACCOUNT. On
or before the close of business, Denver time, on the last
Business Day prior to the Firm Closing Date and the Option
Closing Date, if any, referred to in the Underwriting Agreement
or on such other date as you may advise, we will deliver to NTB's
offices at 300 Plaza Level, 1675 Larimer Street, Denver, Colorado
80202, a certified or official bank check in Denver Clearing
House funds to your order for an amount equal to the initial
public offering price less the selling concession in respect of
the number of Securities which we have agreed to purchase
pursuant to the Underwriting Agreement. We authorize you for our
account to make payment of the purchase price of the Securities
which we have agreed to purchase against delivery to you of such
Securities, and the difference between the purchase price of the
Securities which we have agreed to purchase and an amount equal
to the initial public offering price less the selling concession
in respect of the number of Securities which we have agreed to
purchase shall be credited to our account. You may, in your
discretion, make payment of the purchase price on our behalf and,
if we are a member of, or clear through a member of, the
Depository Trust Company ("DTC") you may, in your discretion,
deliver our Securities through the facilities of DTC. You may,
in your discretion, make such payment on our behalf with your own
funds, in which event we will reimburse you upon demand. Any
such payment by you shall not relieve us from any of our
obligations hereunder or under the Underwriting Agreement.
Delivery of the Securities reserved by us for direct sale will be
made by you as soon as practicable following the Time of
Delivery.
Upon receiving payment for Securities reserved for Selected
Dealers and others as provided in Section 3 hereof, you are to
remit an amount equal to the amount paid by us to you in respect
of such Securities and credit or charge our account with the
difference, if any, between such amount and the price at which
such Securities were sold.
SECTION 5. COMPENSATION TO THE REPRESENTATIVE. As
compensation for your services in connection with the
underwriting and the managing of the offering, each Underwriter
agrees to pay you an amount to be determined by you for each of
the Securities which it agrees to purchase pursuant to the
Underwriting Agreement, and authorizes you to charge its account
with such amount.
SECTION 6. AUTHORITY OF THE REPRESENTATIVE TO BORROW. You
are herein authorized in your discretion to advance your own
funds for our account, charging current interest rates, or to
arrange loans for our account or the account of one or more of
the Underwriters, severally and not jointly, to execute and
deliver any notes or other instruments in connection therewith
and to pledge all or any part of the Securities which such
Underwriter or Underwriters shall have become obligated to
purchase under any of the terms of this Agreement or of the
Underwriting Agreement as security therefor. Any lender is
hereby authorized to accept your instructions as to the
disposition of the proceeds of any such loans. Each Underwriter
will be reimbursed or credited with the proceeds of loans made
for its account. You may deliver to us from time to time, for
carrying purposes only, any of our Securities held by you. We
will redeliver to you on demand any Securities as delivered to us
for carrying purposes.
SECTION 7. TRADING AMONG UNDERWRITERS AND SELECTED DEALERS.
You may purchase Securities from, or sell Securities to, any of
the Selected Dealers or any of the Underwriters at the public
offering price thereof less a concession no greater than the
concession allowed to Selected Dealers. The Underwriters and the
Selected Dealers may, with your consent, purchase Securities from
and sell Securities to each other at the public offering price
less a concession no greater than the concession allowed to
Selected Dealers.
SECTION 8. STABILIZATION. In order to facilitate the
distribution of the Securities, you may, for the account of each
Underwriter, during the life of this Agreement, make purchases
and sales of the Securities, in the open market or otherwise, for
long or short account, at such prices, in such amounts and in
such manner as you may determine, and, in arranging for sales to
Selected Dealers or others, may over-allot, and either before or
after the termination of this Agreement you may cover any short
position incurred pursuant to this Section; provided that at the
close of business on any day the net commitment of each
Underwriter, either for long or short account, resulting from
such purchases or sales shall not exceed 15% of the aggregate
number of Securities which such Underwriter has agreed to
purchase pursuant to the Underwriting Agreement, except that such
percentage may be increased with the approval of a majority in
interest of the Underwriters. Such purchases and sales including
over-allotments shall be made for the accounts of the
Underwriters as nearly as practicable in proportion to their
respective underwriting obligations. Each Underwriter agrees to
take up at cost on demand any Securities of the Company so
purchased for its account and to deliver to you on demand any
Securities of the Company so sold for its account, and to pay to
you on demand the amount of any losses or expenses incurred for
its account pursuant to this Section. In the event of default by
one or more Underwriters in respect of their obligations under
this Section, each nondefaulting underwriter shall assume its
proportionate share of the obligations of such defaulting
Underwriter without relieving such defaulting Underwriter of its
liability hereunder. Each Underwriter agrees that during the
life of this Agreement or such shorter period as you may
determine it will not bid for or purchase for any account in
which it has a beneficial interest any of the Securities or
attempt to induce any person to purchase any Securities of the
Company; provided, however, that the foregoing shall not prohibit
(i) offers to sell or the solicitation of offers to buy
Securities to be acquired by an Underwriter pursuant to the
Underwriting Agreement, (ii) brokerage transactions not involving
solicitation of customers' orders, and (iii) transactions with
your written consent or otherwise permitted under this Agreement.
Each Underwriter agrees that at any time or times prior to
the termination of this Agreement it will, upon your request,
report to you the number of Securities purchased by it and not
reserved for offering to Selected Dealers and others, as herein
provided, which remains unsold and will upon your request, at
such time or times, deliver to you for its account or sell to you
for the account of one or more of the Underwriters, such number
of unsold Securities as you may designate at the public offering
price thereof less an amount to be determined by you not in
excess of the concession allowed to Selected Dealers.
If you effect any stabilizing purchase pursuant to this
Section, you will promptly notify us of the date and time when
the first stabilizing purchase was effected and the date and time
when stabilizing was terminated. You will file with the
Commission such reports of purchases, sales and transfers made
for the account of the Underwriters pursuant to this Section as
are required to be filed by you "as manager" pursuant to Rule 17a-
2 under the 1934 Act. We will furnish to you, not later than
five business days following the date on which stabilizing was
terminated, a signed original report "not as manager" as required
by said Rule 17a-2, which you shall cause to be filed with the
Commission on our behalf.
SECTION 9. ALLOCATION OF EXPENSES. The accounts of the
Underwriters shall be charged with all transfer taxes on sales
and other transfers for their respective accounts, and, in
proportion to their respective underwriting obligations, with all
expenses incurred by you or with your approval in connection with
the Underwriting Agreement and this Agreement and the purchase,
carrying, sale and distribution of the Securities. Your
determination of the amount of such expenses and the allocation
thereof as among the Underwriters shall be final and conclusive.
Funds of the Underwriters at any time in your hands may be
held in your general funds without accountability for interest.
You may in your discretion at any time make partial distribution
of credit balances of the Underwriters and may at any time call
on the Underwriters to pay their respective debit balances.
SECTION 10. BLUE SKY QUALIFICATIONS. Upon application, you
will inform any of the Underwriters as to the jurisdictions in
which it is believed that the Securities are qualified for sale
under, or are exempt from the requirements of, the respective
securities laws of such jurisdictions; but you, individually or
as Representative, assume no obligation or responsibility as to
the right of any Underwriter to sell Securities in any
jurisdiction.
SECTION 11. MEMBERSHIP IN NATIONAL ASSOCIATION OF
SECURITIES DEALERS. INC.; FOREIGN DEALERS. We understand that
you are a member in good standing of the NASD. We hereby confirm
that we are actually engaged in the investment banking or
securities business and that we are a member in good standing of
the NASD and agree to comply with all applicable rules of the
NASD, including, without limitation, the Interpretation of the
Board of Governors of the NASD with respect to Free-Riding and
Withholding (IM-2110-1) and Rule 2740 of the Conduct Rules or, if
we are not such a member, we are a foreign dealer who is not
eligible for membership in the NASD (a) who hereby agrees to make
no sales within the United States, its territories or its
possessions (except that we may participate in Selected Dealer
Sales) or to persons who are nationals thereof or residents
therein, and, in making such sales, to comply with the
Interpretation with respect to Free-Riding and Withholding, and
Rules 2730, 2740 and 2750 of the Conduct Rules as if we were an
NASD member and Rule 2420 of the Conduct Rules as it applies to a
non-member broker or dealer in a foreign country, and (b) who in
connection with sales and offers to sell the Securities made by
us outside the United States, (i) will either furnish to each
person to whom any such sale or offer to sell is made a copy of
the then current preliminary prospectus or the Prospectus (as
then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), as the case may be, or
inform such person that such preliminary prospectus or the
Prospectus will be available upon request, and (ii) will furnish
to each person to whom any such sale or offer to sell is made
such prospectus, advertisement or other offering document
containing information relating to the Securities as may be
required under the laws of the jurisdiction in which such sale or
offer to sell is made. Any prospectus, advertisement or other
offering document furnished by us to any person in accordance
with clause (b)(ii) of the preceding sentence, and any such
additional offering material as we may furnish to any person, (i)
shall comply in all respects with the laws of the jurisdiction in
which it is so furnished, (ii) shall be prepared and so furnished
at our sole risk and expense, and (iii) shall not contain
information relating to the Securities or the Company which is
inconsistent in any respect with the information contained in the
then current preliminary prospectus or in the Prospectus (as then
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), as the case may be.
SECTION 12. TERMINATION OF AGREEMENT. The provisions of
Sections 2, 3, 6, 7 and 8 of this Agreement shall terminate at
the close of business on the thirtieth Business Day after the
effective date of the Registration Statement, except as otherwise
provided in said Sections or unless expanded or earlier
terminated as hereinafter provided. You may terminate such
provisions at any time by written or telegraphic notice to us.
As soon as practicable after termination of the referenced
Sections, you will deliver to us any of our Securities reserved
but not sold and our account will be settled and paid, provided
that if the aggregate of all reserved and unsold Securities
(excluding Option Shares) of all Underwriters does not exceed
10% of the Securities, you are authorized in your discretion to
sell such Securities for the account of the several Underwriters
at such prices, on such terms and in such manner as you may
determine, and provided further that you may reserve from
distribution to the several Underwriters such amount as you deem
advisable to cover possible additional expenses.
Notwithstanding any settlement of our accounts, we agree to
pay (i) our proportionate share based on our underwriting
obligations of all expenses of the Underwriters, including any
liability based on the claim that the Underwriters constitute an
association, unincorporated business or other separate entity,
and of any expenses incurred by you or any other Underwriter with
your approval in contesting any such claim or liability, and (ii)
any transfer taxes paid after such settlement on account of any
sale or transfer for our account.
You may extend the provisions referred to hereinabove by an
additional period or periods not exceeding thirty full business
days in the aggregate.
SECTION 13. DEFAULT BY UNDERWRITERS. Default by one or
more Underwriters in respect of their several obligations
pursuant hereto or to the Underwriting Agreement shall not
release any other Underwriter from its obligations (except as
provided in Section 9 of the Underwriting Agreement, or in any
way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from such default. If
one or more Underwriters default under the Underwriting
Agreement, you are authorized to increase pro rata with other
nondefaulting Underwriters the principal amount of Securities
which we shall be obligated to purchase pursuant to the
Underwriting Agreement, provided that the aggregate number of all
such increases for our account (exclusive of increases by
exercise of the right to purchase Option Shares) shall not exceed
10% of our total commitment to purchase the Firm Shares set forth
opposite our names in Schedule I to the Underwriting Agreement;
and you are further authorized, but shall not be obligated, to
arrange for the purchase by other persons, including
nondefaulting Underwriters, of the Securities not taken up by
such defaulting Underwriters. In the event any such arrangements
are made, the respective number of Securities purchased by
nondefaulting Underwriters and by any other persons shall be
taken as the basis for their underwriting obligations under this
Agreement, without relieving any such defaulting Underwriter of
its liability therefor.
SECTION 14. POSITION OF REPRESENTATIVE. Except as in this
Agreement otherwise specifically provided, you shall have full
authority to take such action as you may deem necessary or
advisable in respect of all matters pertaining to the
Underwriting Agreement, this Agreement and the purchase,
carrying, sale and distribution of the Securities; but you shall
be under no liability to us, except for your own want of good
faith, for obligations assumed by you in this Agreement and for
any liabilities arising under the 1933 Act. No obligations not
expressly assumed by you in this Agreement shall be implied
hereby or inferred herefrom. Authority with respect to matters
to be determined by you or by you and the Company pursuant to the
Underwriting Agreement or by you pursuant to this Agreement shall
survive the termination of this Agreement.
Nothing herein contained shall constitute the Underwriters
an association, or partners, with you, or with each other, or,
except as otherwise provided in this Agreement or in the
Underwriting Agreement, render any Underwriter liable for the
obligations of any other Underwriter and the rights, obligations
and liabilities of each of the Underwriters are several in
accordance with their respective obligations and not joint.
SECTION 15. INDEMNIFICATION.
(a) We will indemnify and hold harmless you and each other
Underwriter and each person, if any, who controls such
Underwriter within the meaning of Section 15 of the 1933 Act to
the extent that and upon the terms which each Underwriter agrees
to indemnify and hold harmless the Company as set forth in the
Underwriting Agreement.
(b) In the event, at any time, any claim or claims whether
alone or together with another claim or claims) shall be asserted
against you individually or as a result of your having acted as
Representative or against any other Underwriter, or against any
person who controls you or such other Underwriter within the
meaning of Section 15 of the 1933 Act, or otherwise involving the
Underwriters generally, relating to the Registration Statement or
any Preliminary Prospectus or the Prospectus, as from time to
time amended or supplemented, the public offering of the
Securities or any of the transactions contemplated by this
Agreement or the Underwriting Agreement, we authorize you to make
such investigations, to retain such counsel (including, in your
discretion, separate counsel for any Underwriter or group of
Underwriters; provided, however, that we may elect to retain, at
our expense, our own counsel) and to take such other action as
you shall deem necessary or desirable under the circumstances,
including settlement of any such claim or claims. We agree to
pay to you, on request, at such time or times as you determine,
our proportionate share (based upon our underwriting obligation)
of all expenses incurred by you, including, but not limited to,
the disbursements and fees of counsel so obtained, in
investigating, defending against, or negotiating with respect to
such claim or claims, and in our proportionate share (based upon
our underwriting obligation) of any liability incurred by you, by
any such other Underwriter or by any such controlling person in
respect to such claim or claims, and in our proportionate share
(based upon our underwriting obligation) of any liability
incurred by you, by any such other Underwriter or by any such
controlling person in respect of such claim or claims, whether
such liability shall be the result of a judgment or the result of
any such settlement. There shall be credited against any amount
paid or payable by us pursuant to this subsection any loss,
claim, damage, liability, or expense which is incurred by us as a
result of any such claim asserted against us; and if such loss,
claim, damage, liability, or expense is incurred by us subsequent
to any payment by us pursuant to this subsection, appropriate
provision shall be made to effect such credit, by refund or
otherwise. If any Underwriter or Underwriters default in its or
their obligation to make any payments under this subsection, each
nondefaulting Underwriter shall be obligated to pay its
proportionate share of all defaulted payments; provided, however,
that nothing herein relieves the defaulting Underwriter from
liability for its default. In addition, we will cooperate with
you and counsel retained by you in investigating, defending
against, and/or negotiating with respect to such claim or claims
and will make available to you and such counsel all records and
documents and appropriate personnel which you or such counsel
deem relevant. We understand that the discharge of any
obligations that we may have under the provisions of this
subsection shall not relieve us of any obligation that we may
have under subsection (a) of this Section 15.
(c) The provisions of this Section 15 and our agreements
contained herein shall remain in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or
controlling person and shall survive the delivery of the
Securities and the termination of this Agreement.
SECTION 16. NOTICES. Any notice from you to the
undersigned shall be deemed to have been duly given if mailed,
telephoned (excepting a notice pursuant to Section 12 hereof) or
sent by facsimile to us at our address appearing in Schedule I to
the Underwriting Agreement or in an Underwriter's Questionnaire
addressed to us.
SECTION 17. GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Colorado without giving any effect to any choice of law
or conflict of law provision or rule whether of the State of
Colorado or any other jurisdiction that would cause the
application of the laws of any jurisdiction other than the State
of Colorado. The parties agree to the exclusive jurisdiction of
the courts of the State of Colorado or of the United States of
America for the District of Colorado and irrevocably submit to
such jurisdiction, which jurisdiction shall be exclusive, in
connection with any action brought by any party hereto relating
to this Agreement or to the transactions which are the subject
matter hereof.
SECTION 18. MISCELLANEOUS. We understand that, in
consideration of your services in connection with the public
offering of the Securities, the Company has agreed with you,
individually, and not as Representative of the Underwriters: (a)
to sell to you and your designees the Representative's Warrant
provided in Section 2 of the Underwriting Agreement; (b) to pay
to you a nonaccountable expense allowance of 2% of the total
offering proceeds provided in Section 5 of the Underwriting
Agreement; (c) to allow you to designate one director or advisor
on the Company's Board of Directors for two years after the
effective date of the Registration Statement and (d) to pay
$48,000, in the aggregate, for services pursuant to a Financial
Consulting Agreement provided in Section 4 of the Underwriting
Agreement. We confirm to you that we will make no claims to the
Representative's Warrant, (or the underlying shares of Common
Stock), the nonaccountable expense allowance, the right to
designate a director advisor or consulting fees or arrangements.
You confirm to us that we shall have no obligation or liability
with respect to the purchase of the Representative's Warrant or
the exercise thereof, the nonaccountable expense allowance, the
right to designate a director advisor, or any consulting services
or arrangements.
SECTION 19. PURCHASE IN THE OPEN MARKET. Any Securities
sold by us otherwise than through you which you purchase in the
open market at or below the initial public offering price for the
account of any Underwriter shall be repurchased by us on demand
at the cost of such purchase, plus commissions and taxes on
redelivery. Securities delivered on such repurchase need not be
the identical certificates so purchased. In lieu of such action,
you may in your discretion sell for our account the Securities so
purchased and debit or credit our account for the loss or profit
resulting from such sale or charge our account with an amount not
in excess of the Selected Dealers concession with respect to such
Securities.
SECTION 20. EXECUTION OF THIS AGREEMENT. This Agreement
is being executed by and delivered to you in duplicate. Upon
your receipt of identical agreements from each of the other
Underwriters, please confirm this Agreement and return one copy
to us. This Agreement may be signed in any number of
counterparts which taken together shall constitute one and the
same instrument.
Very truly yours,
By:-------------------------------
(Attorney-in-fact for each of
the several Underwriters named
in Schedule I of the attached
Underwriting Agreement)
Confirmed as of the date first above written:
NEIDIGER, TUCKER, BRUNER, INC.
as Representative of the Several Underwriters
By:-------------------------
Name:
Title:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
ACT, OR AN OPINION OF COUNSEL SATISFACTION TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
CAVION TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
CAVION TECHNOLOGIES, INC., a Colorado corporation, and doing
business as cavion.com (the "Company"), hereby certifies that,
for value received, Neidiger, Tucker, Bruner, Inc. or its
registered assigns (the "Holder"), is entitled, on the terms and
subject to the conditions set forth herein, to purchase from the
Company at any time commencing -------, 2000 and before 5:00
p.m., Denver, Colorado time, on ------, 2004, ------ fully paid
and nonassessable shares of Common Stock (as hereinafter defined)
at a purchase price of $---- per share. The number of such
shares of Common Stock and the Purchase Price are subject to
adjustment as provided in this Warrant.
As used herein the following terms, unless the context
otherwise requires, have the indicated meanings:
"Company" means Cavion Technologies, Inc. and any person
(corporate or otherwise) that shall succeed to or assume the
obligations of Cavion Technologies, Inc. hereunder in accordance
with the terms hereof.
"Common Stock" means the Company's Class A Common Stock,
$.0001 par value per share, as authorized on the date hereof, and
any other securities into which or for which the Common Stock may
be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expiration Date" means --------, 2004.
"Holder" or "Holders" means the holder or holders of the
Registerable Securities, including the holder or holders of
Warrants to purchase Registerable Securities not then issued.
"Issue Date" means the -------, 2000 date of the original
issuance of this Warrant.
"Majority Holders" means the holder or holders of Warrants
and Registerable Securities theretofore issued upon exercise or
conversion of Warrants, who own or have the right to acquire upon
exercise or conversion of Warrants a majority of the Registerable
Securities that would be outstanding if all of the outstanding
Warrants were exercised in full on the date as of which the
determination is being made.
"Nasdaq" means the NASDAQ SmallCap Market.
"Other Securities" means any stock (other than Common Stock)
and other securities of the Company or any other person
(corporate or otherwise) which the Holder at any time shall be
entitled to receive, or shall have received, on the exercise of
this Warrant, in lieu of or in addition to Common Stock, or which
at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other
Securities as a result of the provisions of Section 4.
"Prospectus" means the prospectus included in the
Registration Statement as of the date it becomes effective under
the Securities Act ("SEC Effective Date"), including financial
statements and all documents incorporated by reference therein.
In the case of references to the Prospectus as of a date
subsequent to the SEC Effective Date, Prospectus means as
supplemented as of such subsequent date.
"Purchase Price" means $----- per share.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration
statement or statements in compliance with the Securities Act and
the declaration or ordering of effectiveness of such registration
statement by the United States Securities and Exchange Commission
(the "SEC").
"Registerable Securities" means the shares of Common Stock
issued or issuable upon exercise or conversion of the Warrant and
Other Securities issued or issuable as a result of the
provisions of Sections 4 or 5 hereof. References herein to
amounts or percentages of Registerable Securities as of or on any
particular date shall be deemed to refer to amounts or
percentages after giving effect to any applicable events
contemplated by the preceding sentence. As to any particular
Registerable Securities, such securities shall cease to be
Registerable Securities when they have been sold pursuant to an
effective registration statement or in compliance with Rule 144
or are eligible to be sold pursuant to subsection (k) of Rule
144.
"Registration Period" means the period from the Issue Date
to the earliest of (i) the date which is three years after the
SEC Effective Date, (ii) the date on which the Holder may sell
all of Holder's Registerable Securities without registration
under the Securities Act pursuant to subsection (k) of Rule 144,
without restriction on the manner of sale or the volume of
securities which may be sold in any period and without the
requirement for the giving of any notice to, or the mailing of
any filing with the SEC and (iii) the date on which the Holder no
longer owns any Registerable Securities.
"Registration Statement" means a registration statement of
the Company under the Securities Act on such form for which the
Company then qualifies and which permits the secondary resale
thereunder of Registerable Securities required by, the provisions
hereof to be included therein. The term "Registration Statement"
shall also include any amendment thereto and all exhibits and
financial statements and schedules and documents incorporated by
reference in such Registration Statement as of the SEC Effective
Date. In the case of references to the Registration Statement as
of a date subsequent to the SEC Effective Date, Registration
Statement means as amended or supplemented as of such subsequent
date.
"Rule 144" means Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may
at any time permit a holder of securities of the Company to sell
such Company securities to the public without registration under
the Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended.
"SEC" means the United States Securities and Exchange
Commission.
"SEC Effective Date" means the date the Registration
Statement is declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement
is first filed with the SEC pursuant to Section 20 hereof.
"Trading Day" means a day on which the principal securities
market for the Common Stock is open for general trading of
securities.
"Warrants" means this Warrant and any other warrants derived
from this Warrant originally issued by the Company to Neidiger,
Tucker, Bruner, Inc. on the Issue Date.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. This Warrant may be exercised by the
Holder, in full or in part, at any time, or from time to time,
commencing on the Issue Date to and including the Expiration Date
by surrender of this Warrant and the subscription form annexed
hereto (completed and signed by the Holder) to the principal
office of the Company or the Company's transfer agent and
registrar for the Common Stock, and by making payment by
certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying (a) the number of
shares of Common Stock designated by the Holder in the
subscription form by (b) the Purchase Price then in effect. The
Holder shall provide a copy of the subscription form to the
Company at the time of exercise and the Company will confirm the
exercise instructions given therein by notice to the Company's
transfer agent within one Trading Day after receiving such
subscription form. On any partial exercise the Company will
promptly issue and deliver to or upon the order of the Holder
hereof a new Warrant or Warrants of like tenor, in the name of
the Holder hereof or as the Holder (upon payment by the Holder of
any applicable transfer taxes) may request, providing in the
aggregate on the face or faces thereof for the purchase of the
number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
1.2 CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in Section 1.1, the Holder may elect to
exercise this Warrant in whole or in part by receiving shares of
Common Stock equal to the net issuance value (as determined
below) of this Warrant, or any part hereof upon surrender of this
Warrant to the principal office of the Company or the Company's
transfer agent and registrar for the Common Stock together with
the subscription form annexed hereto (completed and signed by the
Holder), in which event the Company shall issue to the Holder a
number of shares of Common Stock equal to X in the following
formula:
X = Y (A-B)
-------
A
Where:
Y = the number of shares of Common
Stock as to which this Warrant is to be
exercised.
A = the current fair market value
of one share of Common Stock calculated as of
the last Trading Day immediately preceding
the exercise of this Warrant.
B = the Purchase Price.
As used herein, current fair market value of Common
Stock as of a specified date shall mean with respect to each
share of Common Stock the closing sale price of the Common Stock
on the principal securities market on which the Common Stock may
at the time be listed or, if there have been no sales on any such
exchange on such day, the average of the reported closing bid and
asked prices on the principal securities market at the end of
such day, or, if on such day the Common Stock is not so listed,
the average of the representative bid and asked prices quoted in
the Nasdaq System as of 2:00 p.m., Denver, Colorado time, or, if
on such day the Common Stock is not quoted in the Nasdaq System,
the average of the highest bid and lowest asked price on such day
in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of five
consecutive Trading Days consisting of the day as of which the
current fair market value of a share of Common Stock is being
determined (or if such day is not a Trading Day, the Trading Day
next preceding such day) and the four consecutive Trading Days
prior to such day. If on the date for which current fair market
value is to be determined the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq System or the over-
the-counter market, the current fair market value of Common Stock
shall be the highest price per share which the Company could then
obtain from a willing buyer (not a current employee or director)
for shares of Common Stock sold by the Company from authorized
but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company
has become subject to a merger, acquisition or other
consolidation transaction pursuant to which the Company is not
the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received or
agreed to be paid by the holders of the Company's Common Stock
for each share thereof pursuant to such transaction.
2. DELIVERY UPON EXERCISE. As soon as practicable after
the exercise of this Warrant, and in any event within three (3)
Trading Days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder, or as the
Holder (upon payment by the Holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number
of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such
exercise, in such denominations as may be requested by the Holder
plus, in lieu of any fractional share to which the Holder would
otherwise be entitled, cash equal to such fraction multiplied by
the then current fair market value (as determined in accordance
with subsection 1.2) of one full share, together with any other
stock or other securities and property (including cash where
applicable) to which the Holder is entitled upon such exercise
pursuant to Section 1 or otherwise. Upon exercise of this
Warrant as provided herein, the Company's obligation to issue and
deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to
any provision thereof the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Company to the
Holder, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any
other person of any obligation to the Company, and irrespective
of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with such
exercise. If the Company fails to issue and deliver the
certificates for the Common Stock to the Holder pursuant to the
first sentence of this paragraph as and when required to do so,
in addition to any other liabilities the Company may have
hereunder and under applicable law, the Company shall pay or
reimburse the Holder on demand for all out-of-pocket expenses
including, without limitation, reasonable fees and expenses of
legal counsel incurred by the Holder as a result of such failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY ETC.;
RECLASSIFICATION ETC. In case at any time, or from time to
time, after the Issue Date, all the holders of Common Stock (or
Other Securities) shall have received, or (on or after the record
date fixed for the determination of stockholders eligible to
receive) shall have become entitled to receive, without payment
therefor:
3.1 other or additional stock or other securities or
property (other than cash) by way of dividend, or
3.2 any cash (excluding cash dividends payable solely
out of earnings or earned surplus of the Company), or
3.3 other or additional stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or
similar corporate rearrangement,
other than additional shares of Common Stock (or Other
Securities) issued as a stock dividend or in a stock-split
(adjustments in respect of which are provided for in Section 5),
then and in each such case the Holder, on the exercise hereof as
provided in Section 1, shall be entitled to receive the amount of
stock and other securities and property (including cash in the
cases referred to in subsections 3.2 and 3.3 of this Section 3)
which the Holder would hold on the date of such exercise if on
the date thereof the Holder had been the holder of record of the
number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such
shares and all such other or additional stock and other
securities and property (including cash in the case referred to
in subsections 3.2 and 3.3 of this Section 3) receivable by the
Holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 4.
Notwithstanding anything in this Section 3 to the contrary, no
adjustments pursuant to this Section 3 shall actually be made
until the cumulative effect of the adjustments called for by this
Section 3 since the date of the last adjustment actually made
would change the amount of stock or other securities and property
which the Holder would hold by more than 1%.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER ETC.
In case at any time or from time to time after the Issue Date,
the Company shall (a) effect a reorganization, (b) consolidate
with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person
under any plan or arrangement contemplating the dissolution of
the Company, then, in each such case, as a condition of such
reorganization, consolidation, merger, sale or conveyance the
Company shall cause lawful and adequate provisions to be made
whereby the Holder hereof shall thereafter have the right to
receive upon exercise of this Warrant, in addition to or in lieu
of (as the case may be) the shares of Common Stock of the Company
immediately issuable upon such exercise, such securities or other
property receivable upon such reorganization, consolidation,
merger, sale or conveyance as though the Holder had exercised the
Warrant and was the owner of the shares of Common Stock issuable
hereunder immediately prior to any such events at a price equal
to the product of (x) the number of shares issuable upon exercise
of the Warrant and (y) the Purchase Price applicable immediately
prior to the record date for such reorganization, consolidation,
merger, sale or conveyance as though Holder had exercised the
Warrant. The provisions of this Section shall apply to
successive reorganizations, consolidations, mergers, sales or
conveyances.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event
that after the Issue Date the Company shall (i) issue additional
shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock, or (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, in each event, the Purchase Price
shall, simultaneously with the happening of such event, be
adjusted by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately
prior to such event, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after
such event. and the product so obtained shall thereafter be the
Purchase Price then in effect. The Purchase Price, as so
adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described in this
Section 5. The Holder shall thereafter, on the exercise hereof
as provided in Section 1, be entitled to receive that number of
shares of Common Stock determined by multiplying the number of
shares of Common Stock which would be issuable on such exercise
immediately prior to such issuance by a fraction of which (i) the
numerator is the Purchase Price in effect immediately prior to
such issuance and (ii) the denominator is the Purchase Price in
effect on the date of such exercise.
6. ADJUSTMENT FOR CERTAIN STOCK ISSUANCES.
6.1 In case at any time the Company shall issue shares
of its Common Stock or debt or equity securities convertible into
or exercisable or exchangeable for shares of Common Stock
(collectively, the "Newly Issued Shares"), other than (i)
issuances in the private placement which is the subject of the
Placement Agent Agreement, dated March 10, 1999 between the
Company and Neidiger, Tucker, Bruner, Inc.; (ii) an issuance pro
rata to all holders of its outstanding Common Stock, (iii)
issuances pursuant to options, warrants and convertible
securities outstanding on the Issue Date and (iv) issuances
pursuant to employee stock option plans (other than in connection
with any corporate financing or acquisition transaction), at a
price below the Purchase Price in effect at the time of such
issuance, then, following such issuance of Newly Issued Shares,
the number of shares of Common Stock which the Holder shall be
entitled to receive upon exercise of this Warrant shall be
increased and the Purchase Price shall be decreased to the
respective amounts determined pursuant to this Section 6. The
number of shares of Common Stock purchasable upon the exercise of
this Warrant following any such adjustment shall be determined by
multiplying the number of shares purchasable upon exercise of
this Warrant immediately prior to such adjustment by a fraction,
the numerator of which shall be the sum of (a) the number of
shares of Common Stock outstanding or authorized to be
outstanding immediately prior to the issuance of the Newly Issued
Shares (calculated on a fully-diluted basis assuming the exercise
or conversion of all options, warrants, purchase rights or
convertible securities which are exercisable at the time of the
issuance of the Newly Issued Shares), plus (b) the number of
Newly Issued Shares, and the denominator of which shall be the
sum of (a) the number of shares of Common Stock outstanding
immediately prior to the issuance of the Newly Issued Shares
(calculated on a fully-diluted basis assuming the conversion of
all options, warrants, purchase rights or convertible securities
which are exercisable at the time of the issuance of the Newly
Issued Shares), plus (b) the number of shares of Common Stock
which the aggregate consideration, if any, received by the
Company for the number of Newly Issued Shares would purchase at a
price equal to the Purchase Price in effect at the time of such
issuance. Upon any adjustment under this Section 6, the number
of shares of Common Stock purchasable upon exercise of this
Warrant in full immediately after such adjustment shall be
rounded to the nearest one-one-hundredth of a share of Common
Stock subject, however, to Section 2 of this Warrant relating to
fractional shares of Common Stock. Such adjustment of the number
of shares purchasable provided for in this Section 6 may be
expressed in the following formula:
X = W x [O+N]
------
[O+(C/P)]
Where:
C = aggregate consideration
received by the Company for the Newly Issued
Shares.
N = number of Newly Issued Shares.
O = number of shares of Common
Stock outstanding or authorized to be
outstanding (on a fully diluted basis, as
described above) immediately prior to the
issuance of the Newly Issued Shares.
P = Purchase Price in effect
immediately prior to the time of the issuance
of the Newly Issued Shares.
W = number of shares of Common
Stock issuable upon exercise of this Warrant
prior to the issuance of the Newly Issued
Shares.
X = number of shares of Common
Stock issuable upon exercise of this Warrant
after the issuance of the Newly Issued
Shares.
Upon the issuance of such Newly Issued Shares, the Purchase Price
shall, simultaneously with the happening of such event, be
adjusted by multiplying the Purchase Price in effect immediately
prior to such event by a fraction, the numerator of which shall
be the number of shares of Common Stock issuable upon exercise of
this Warrant prior to the issuance of the Newly Issued Shares and
the denominator of which shall be the number of shares of Common
Stock issuable upon the exercise of this Warrant after the
issuance of the Newly Issued Shares as provided in this Section
6, and the product so obtained shall thereafter be the Purchase
Price then in effect. The number of shares of Common Stock
issuable upon exercise of this Warrant and the Purchase Price, as
each is so adjusted, shall be readjusted in the same manner upon
the happening of any successive issuances of Newly Issued Shares
described in this Section 6.
6.2 The foregoing provisions of subsection 6.1 shall
be in addition to, and not in lieu of, the adjustment or
adjustments provided by the provisions of Section 5, captioned
"CONVERSION," of the Articles of Amendment to the Amended and
Restated Articles of Incorporation of Cavion Technologies, Inc.
Setting Forth the Statement of Designation of Series and
Determination of Rights and Preferences of Convertible Common
Stock, Series A, as dated February 26, 1999 and filed with the
Colorado Secretary of State.
7. FURTHER ASSURANCES. The Company will take all action
that may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares
of stock, free from all taxes, liens and charges with respect to
the issue thereof, on the exercise of all or any portion of this
Warrant from time to time outstanding.
8. NOTICES OF RECORD DATE, ETC. In the event of:
8.1 any taking by the Company of a record of the
holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend on,
or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property,
or to receive any other right, or
8.2 any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all of the assets
of the Company to or consolidation or merger of the Company with
or into any other person (other than a wholly-owned subsidiary of
the Company), or
8.3 any voluntary or involuntary dissolution,
liquidation or winding-up of the Company, then and in each such
event the Company will mail or cause to be mailed to the Holder,
at least ten days prior to such record date, a notice specifying
(i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any
is to be fixed as of which the holders of record of Common Stock
(or Other Securities) shall be entitled to exchange their shares
of Common Stock (or Other Securities) for securities or other
property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up, and (iii) the amount and character of
any stock or other securities or rights or options with respect
thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to
whom such proposed issue or grant is to be offered or made. Such
notice shall also state that the action in question or the record
date is subject to the effectiveness of a registration statement
under the Securities Act, or a favorable vote of stockholders if
either is required. Such notice shall be mailed at least ten
days prior to the date specified in such notice on which any such
action is to be taken or the record date, whichever is earlier.
9. RESERVATION OF STOCK ISSUABLE ON EXERCISE. The Company
will at all times reserve and keep available out of its
authorized but unissued shares of capital stock solely for
issuance and delivery on the exercise of this Warrant, a
sufficient number of shares of Common Stock (or Other Securities)
to effect the full exercise of this Warrant and the exercise,
conversion or exchange of any other warrant or security of the
Company exercisable for, convertible into, exchangeable for or
otherwise entitling the holder to acquire shares of Common Stock
(or Other Securities), and if at any time the number of
authorized but unissued shares of Common Stock (or Other
Securities) shall not be sufficient to effect such exercise,
conversion or exchange, the Company shall take such action as may
be necessary to increase its authorized but unissued shares of
Common Stock (or Other Securities) to such number as shall be
sufficient for such purposes.
10. TRANSFER OF WARRANT. This Warrant shall inure to the
benefit of the successors to and assigns of the Holder. This
Warrant and all rights hereunder, in whole or in part, are
Registerable at the principal office of the Company or the office
of the Company's transfer agent and registrar by the Holder
hereof in person or by his duly authorized attorney, upon
surrender of this Warrant properly endorsed.
11. REGISTER OF WARRANTS. The Company shall maintain, at
the principal office of the Company (or such other office or
agency as it may designate by notice to the Holder hereof), a
register in which the Company shall record the name and address
of the person in whose name this Warrant has been issued, as well
as the name and address of each successor and prior owner of such
Warrant. The Company shall be entitled to treat the person in
whose name this Warrant is so registered as the sole and absolute
owner of this Warrant for all purposes.
12. EXCHANGE OF WARRANT. This Warrant is exchangeable,
upon the surrender hereof by the Holder hereof at the principal
office of the Company or the office of the Company's transfer
agent and registrar, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be
subscribed for and purchased hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number
of shares as shall be designated by said Holder hereof at the
time of such surrender.
13. REPLACEMENT OF WARRANT. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction of this Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof,
a new Warrant of like tenor.
14. WARRANT AGENT. American Securities Transfer & Trust.
Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202,
has been appointed the Company's Transfer Agent and Registrar and
the Company's exercise agent for purposes of issuing shares of
Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1. The Company may, by notice to the
Holder, appoint an agent having an office in the United States of
America for the purpose of exchanging this Warrant pursuant to
Section 12 and replacing this Warrant pursuant to Section 13, or
either of the foregoing, and thereafter any such exchange or
replacement, as the case may be, shall be made at such office by
such agent.
15. REMEDIES. The Company stipulates that the remedies at
law of the Holder in the event of any default or threatened
default by the Company in the performance of or compliance with
any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the
terms hereof or otherwise.
16. RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant
shall not entitle the Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision of this
Warrant, in the absence of affirmative action by the Holder
hereof to purchase Common Stock, and no mere enumeration herein
of the rights or privileges of the Holder hereof, shall give rise
to any liability of the Holder for the Purchase Price or as a
stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
17. NOTICES. ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be
deemed to be sufficiently given when delivered personally (by
hand, by courier or by facsimile, with answer back confirmation)
and shall be effective upon receipt, addressed: (i) if to the
Company, at 7475 Dakin Street, Suite 607, Denver, Colorado 80221,
Attn: President, facsimile number (303) 657-8212 and (ii) if to
the Holder, at 300 Plaza Level, 1675 Larimer Street, Denver,
Colorado 80202, Attn: President, facsimile number (303) 623-9310,
or at such other address or facsimile number as a party shall
have provided to the other party by written notice given in
accordance with these provisions.
18. SECURITIES LAW RESTRICTIONS. By acceptance of this
Warrant, the Holder represents to the Company that this Warrant
is being acquired for the Holder's own account and for the
purpose of investment and not with a view to, or for sale in
connection with, the distribution thereof, nor with any present
intention of distributing or selling this Warrant or the Common
Stock issuable upon exercise of this Warrant. Neither this
Warrant nor the shares of Common Stock issuable upon the exercise
or conversion of this Warrant have been registered under the
Securities Act or under the securities laws of any state.
Neither this Warrant, nor the shares of Common Stock issuable
upon the exercise or conversion of this Warrant, may be sold,
transferred, hypothecated, assigned, offered for sale or
otherwise disposed of unless registered pursuant to the
Securities Act and applicable state securities laws or unless in
the opinion of counsel who is reasonably satisfactory to the
Company an exemption from such registration is available.
Certificates representing securities issued upon exercise or
conversion of this Warrant shall bear a legend as provided in
Section 19 hereof.
19. LEGEND. Unless theretofore registered for resale
under the Securities Act, each certificate for shares issued upon
exercise of this Warrant shall bear the following legend:
The securities represented by this
certificate have not been registered under
the Securities Act of 1933, as amended (the
"Act"). The securities have been acquired
for investment and may not be resold,
transferred or assigned in the absence of an
effective registration statement for the
securities under the Act, or an opinion of
counsel satisfactory to the issuer that
registration is not required under the Act.
20. REGISTRATION RIGHTS. Nothing contained herein shall
be construed as requiring the exercise of this Warrant prior to
the initial filing of any registration statement provided herein
or the effectiveness thereof.
20.1 MANDATORY REGISTRATION. The Company shall
prepare and file with the SEC a Registration Statement which
covers a public offering of the Company's securities for its own
account, the resale of the Registerable Securities by the Holder
and the resale of shares of Common Stock issued or issuable upon
conversion of up to 700,000 shares of Common Stock in accordance
with the registration rights agreements entered into under
subscription agreements between the Company and the certain
investors. The registration rights provided in this subsection
20.1 shall be in addition to the registration rights provided in
subsections 20.2 and 20.3 below and such additional registration
rights shall not be diminished in any way by the decision of the
Holder not to include the Registerable Securities of the Holder
in the Registration Statement provided by this subsection 20.1.
No right to registration of Registerable Securities under this
subsection 20.1 shall be construed to limit any registration
required under subsections 20.2 and 20.3.
20.2 DEMAND REGISTRATION. At any time on or before -
- -------, 2004, a Majority of the Holders shall have the right to
request registration under the Securities Act for all or any
portion of the Registerable Securities upon the terms and
conditions set forth in this subsection 20.2. Promptly after
receipt of a request for registration pursuant to this subsection
20.2 the Company shall notify all other Holders in writing of
such request for registration. Upon receipt of such notice from
the Company (the "Company Notice"), each such holder may give the
Company a written request to register all or some of such
holder's Registerable Securities in the Registration Statement
described in the Company Notice, provided that such written
request is given within 10 days after the date on which the
Company Notice is given (with such request stating (i) the amount
of Registerable Securities to be included and (ii) any other
information reasonably requested by the Company to properly
effect the registration of such Registerable Securities). The
Company shall as soon as practicable after the date on which the
Company Notice is given, file with the SEC and use its best
efforts to cause to become effective a Registration Statement
which shall cover the Registerable Securities specified in the
Demand Notice and in any written request from any other holder
received by the Company within 10 days of the date on which the
Company Notice is given. No right to registration of
Registerable Securities under this subsection 20.2 shall be
construed to limit any registration required under subsections
20.1 and 20.3 hereof. The obligations of the Company under this
subsection 20.2 shall expire after the Company has afforded the
Holder the opportunity to exercise registration rights under this
subsection 20.2 for two registrations. Notwithstanding any other
provision of this Agreement, if the Registration Statement
required to be filed pursuant to Section 20.1 of this Agreement
shall have been ordered effective by the SEC and the Company
shall have maintained the effectiveness of such registration as
required hereunder and if the Company shall otherwise have
complied in all material respects with its obligations hereunder,
then the Company shall not be obligated to registered any
Registerable Securities on such Registration Statement referred
to in this subsection 20.2.
20.3 PIGGY-BACK REGISTRATION. If at any time the
Company shall determine to prepare and file with the SEC a
Registration Statement relating to an offering for its own
account or the account of others under the Securities Act of any
securities of the Company, other than on Form S-4 or Form S-8 or
their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock
option or other employee benefit plans, the Company shall send to
the Holder and each other holder who is entitled to registration
rights under this subsection 20.3 written notice of such
determination and if, within 10 days after receipt of such
notice, Holder shall so request in writing, the Company shall
include in such Registration Statement all or any part of the
Registerable Securities the Holder requests to be registered,
except that if, in connection with any underwritten public
offering for the account of the Company, the managing
underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock (or Other Securities) which may be
included in the Registration Statement because, in such
underwriter(s)' judgement, such limitation is necessary to effect
an orderly public distribution, then the Company shall be
obligated to include in such Registration Statement only such
limited portion of the Registerable Securities with respect to
which Holder has requested inclusion. Any exclusion of
Registerable Securities shall be made pro rata among all holders
who have requested that Registerable Securities be included, in
proportion to the number of Registerable Securities specified in
their respective requests; provided, however, that the Company
shall not exclude any Registerable Securities unless the Company
has first excluded all outstanding securities the holders of
which are not entitled by right to inclusion of securities in
such Registration Statement; and provided further, however, that,
after giving effect to the immediately preceding proviso, any
exclusion of Registerable Securities shall be made pro rata with
holders of other securities having the right to include such
securities in the Registration Statement, based on the number of
securities for which registration is requested except to the
extent such pro rata exclusion of such other securities is
prohibited under any written agreement entered into by the
Company with the holder of such other securities prior to the
Issue Date of this Certificate, in which case such other
securities shall be excluded, if at all, in accordance with the
terms of such agreement. No right to registration of
Registerable Securities under this subsection 20.3 shall be
construed to limit any registration required under subsections
20.1 or 20.2 hereof. The obligations of the Company under this
subsection 20.3 may be waived by a Majority of the Holders and
such obligations of the Company shall expire after the Company
has afforded the opportunity to the holders to exercise
registration rights under this subsection 20.3 for two
registrations; provided, however, that any Holder who shall have
had any Registerable Securities excluded from any Registration
Statement in accordance with this subsection 20.3 shall be
entitled to include in an additional Registration Statement filed
by the Company the Registerable Securities so excluded.
Notwithstanding any other provision of this Agreement, if the
Registration Statement required to be filed pursuant to
subsection 20.1 of this Agreement shall have been ordered
effective by the SEC and the Company shall have maintained the
effectiveness of such Registration Statement as required
hereunder and if the Company shall otherwise have complied in all
material respects with the obligations hereunder, then the
Company shall not be obligated to register any Registerable
Securities on such Registration Statement referred to subsection
20.3.
20.4 OBLIGATIONS OF THE COMPANY. In connection with
the registration of the Registerable Securities, the Company
shall:
20.4.1 prepare promptly and file with the SEC the
Registration Statement provided in Section 20.1 with respect to
the Registerable Securities and thereafter to use its best
efforts to cause such Registration Statement relating to the
Registerable Securities to become effective as soon as possible
after such filing, and keep the Registration Statement effective
at all times during the Registration Period; submit to the SEC,
within three Business Days after the Company learns that no
review of the Registration Statement will be made by the staff of
the SEC or the staff of the SEC has no further comments on the
Registration Statement, as the case may be, a request for
acceleration of the effectiveness of the Registration Statement
to a time and date not later then 48 hours after the submission
of such request; notify the Holder of the effectiveness of the
Registration Statement on the date the Registration Statement is
declared effective; and, the Company represents and warrants to,
and covenants and agrees with the Holder that the Registration
Statement (including any amendments or supplements thereto and
prospectuses contained therein, at the time it is first filed
with the SEC, at the time it is ordered effective by the SEC and
al all time during which it is required to be effective
hereunder) and each such amendment and supplement at the time it
is filed with the SEC and all times during which it is available
for use in connection with the offer and sale of Registerable
Securities shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
20.4.2 prepare and file with the SEC such
amendments (including post-effective amendments) and supplements
to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to
keep the Registration Statement effective at all times during the
Registration Period, and during the Registration Period, comply
with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities of the Company covered
by the Registration Statement until such time as all of such
Registerable Securities have been disposed of in accordance with
the intended methods of disposition by the Holder or Holders
thereof as set forth in the Registration Statement;
20.4.3 furnish to each Holder whose Registerable
Securities are included in the Registration Statement and its
legal counsel, (i) promptly after the same is prepared and
publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment
thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, each letter written by or on
behalf of the Company to the SEC or the staff of the SEC and each
item of correspondence from the SEC or the staff of the SEC
relating to such Registration Statement (other than any portion
of any thereof which contains information for which the Company
has sought confidential treatment) and (ii) such number of copies
of a prospectus, including a preliminary prospectus and all
amendments and supplements thereto and such other documents, as
such Holder reasonably may request in order to facilitate the
disposition of the Registerable Securities owned by such Holder;
20.4.4 use reasonable efforts to (i) register and
qualify the Registerable Securities covered by the Registration
Statement under such securities or blue sky laws of such
jurisdictions as the Holders who hold a majority of the
Registerable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain
the effectiveness thereof at all times until the end of the
Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period and (iv) take
all other actions reasonably necessary or advisable to qualify
the Registerable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in
connection therewith or as a condition thereto (I) to qualify to
do business in any jurisdiction where it would not otherwise be
required to qualify but for this subsection 20.4.4, (II) to
subject itself to general taxation in any such jurisdiction,
(III) to file a general consent to service of process in any such
jurisdiction, or (IV) to make any change in its Articles of
Incorporation or Bylaws which the Board of Directors of the
Company determines to be contrary to the best interests of the
Company and its stockholders;
20.4.5 in the event that the Registerable
Securities are being offered in an underwritten offering, enter
into and perform its obligations under an underwriting agreement
in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
underwriters of such offering;
20.4.6 as promptly as practicable after becoming
aware of such event or circumstance, notify each Holder of any
event or circumstance of which the Company has knowledge, as a
result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct
such untrue statement or omission, file such supplement or
amendment with the SEC at such time as shall permit the Holder to
sell Registerable Securities pursuant to the Registration
Statement as promptly as practicable, and deliver a number of
copies of such supplement or amendment to each Holder as such
Holder may reasonably request;
20.4.6 as promptly as practicable after becoming
aware of such event, notify each Holder who holds Registerable
Securities being sold (or, in the event of an underwritten
offering the managing underwriters) of the issuance by the SEC of
any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
20.4.7 permit one legal counsel designated as
selling stockholders' counsel by the Holder(s) holding a majority
of the Registerable Securities being sold to review and comment
on the Registration Statement and all amendments and supplements
thereto a reasonable period of time prior to their filing with
the SEC;
20.4.8 make generally available to its security
holders as soon as practical, but not later than ninety (90) days
after the close of the period covered thereby, an earnings
statement (in form complying with the provisions of Rule 158
under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration
Statement;
20.4.9 at the request of the Holder(s) who hold a
majority of the Registerable Securities being sold, furnish on
the date that Registerable Securities are delivered to an
underwriter, if any, for sale in connection with the Registration
Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as
is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to
the underwriters; and (ii) an opinion, dated such date, from
counsel representing the Company for purposes of such
Registration Statement, in form and substance as is customarily
given in an underwritten public offering, addressed to the
underwriters and the Investors;
20.4.10 make available for inspection by Holder,
any underwriter participating in any distribution or disposition
pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by Holder or underwriter
(collectively, the "Inspectors"), all pertinent financial and
other records, pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably
necessary to enable Holder to exercise Holder's due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided,
however, that each Inspector shall hold in confidence and shall
not make any disclosure (except to a Holder) of any Record or
other information which the Company determines in good faith to
be confidential, and of which determination the Inspectors are so
notified, unless (i) the disclosure of such Records is necessary
to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction or (iii) the
information in such Records has been made generally available to
the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose
any confidential information in such Records to any Inspector
until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to
the Company) with the Company with respect thereto;
20.4.11 use its best efforts (i) to cause all the
Registerable Securities covered by the Registration Statement to
be listed on the NASDAQ or such other principal securities market
on which securities of the same class or series issued by the
Company are then listed or traded or (ii) if securities of the
same class or series as the Registerable Securities are not then
listed on the NASDAQ or any such other securities market, to
cause all of the Registerable Securities covered by the
Registration Statement to be listed on the NASDAQ, New York Stock
Exchange or the American Stock Exchange;
20.4.12 provide a transfer agent and registrar,
which may be a single entity, for the Registerable Securities not
later than the effective date of the Registration Statement;
20.4.13 cooperate with the Holder and the
managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registerable Securities to be
offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case
may be, as the managing underwriter or underwriters, if any, or
the Holder may reasonably request and registered in such names as
the managing underwriter or underwriters, if any, or the Holder
may request;
20.4.14 during the period the Company is required
to maintain effectiveness of the Registration Statement pursuant
to subsection 20.4.1, the Company shall not bid for or purchase
any Common Stock or Other Securities or any right to purchase
Common Stock or Other Securities or attempt to induce any person
to purchase any such security or right if such bid, purchase or
attempt would in any way limit the right of the Holder to sell
Registerable Securities by reason of the limitations set forth in
Regulation M under the Exchange Act; and
20.4.15 take all other reasonable actions
necessary to expedite and facilitate disposition by the Holder of
the Registerable Securities pursuant to the Registration
Statement.
20.4.16 With a view to making available to the
Holders the benefits of Rule 144, the Company agrees to: (i) make
and keep public information available, as those terms are
understood and defined in Rule 144; (ii) file with the SEC in a
timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and (iii)
furnish to each Holder so long as such Holder owns Registerable
Securities, promptly upon request, (I) a written statement by the
Company that it has complied with the reporting requirements of
Rule 144 and the Exchange Act, (II) a copy of the most recent
annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (III) such other
information as may be reasonably requested to permit the Holders
to sell such securities pursuant to Rule 144 without
registration.
20.5 OBLIGATIONS OF THE HOLDER. In connection with
the registration of the Registerable Securities, the Holder shall
have the following obligations:
20.5.1 it shall be a condition precedent to the
obligations of the Company to complete the registration pursuant
hereto with respect to the Holder's Registerable Securities that
the Holder shall furnish to the Company such information
regarding Holder, the Registerable Securities held by Holder and
the intended method of disposition of the Registerable Securities
held by Holder as shall be reasonably required to effect the
registration of such Registerable Securities and shall execute
such documents in connection with such registration as the
Company may reasonably request. At least five days prior to the
first anticipated filing date of the Registration Statement, the
Company shall notify the Holder of the information the Company
requires from the Holder (the "Requested Information") if any of
Holder's Registerable Securities are eligible for inclusion in
the Registration Statement. If at least two Business Days prior
to the filing date the Company has not received the Requested
Information from the Holder (at such time Holder becoming a "Non-
Responsive Holder"), then the Company may file the Registration
Statement without including Registerable Securities of Non-
Responsive Holder but shall not be relieved of its obligation to
file a Registration Statement with the SEC relating to the
Registerable Securities of Non-Responsive Holder promptly after
Non-Responsive Holder provides the Requested Information;
20.5.2 by Holder's acceptance of the Registerable
Securities, Holder agrees to cooperate with the Company as
reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder,
unless Holder has notified the Company in writing of such
Holder's election to exclude all of Holder's Registerable
Securities from the Registration Statement;
20.5.3 in the event Holder(s) holding a majority
of the Registerable Securities being registered determine to
engage the services of an underwriter, each Holder agrees to
enter into and perform such Holder's obligations under an
underwriting agreement, in usual and customary form, including,
without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registerable
Securities, unless such Holder has notified the Company in
writing of such Investor's election to exclude all of such
Investor's Registerable Securities from the Registration
Statement;
20.5.4 Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in subsections 20.4.6 or 20.4.7, Holder will
immediately discontinue disposition of Registerable Securities
pursuant to the Registration Statement covering such Registerable
Securities until Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsections
20.4.6 or 20.4.7 and, if so directed by the Company, Holder shall
deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all
copies in such Investor's possession of the prospectus covering
such Registerable Securities current at the time of receipt of
such notice;
20.5.5 Holder may not participate in any
underwritten registration hereunder unless Holder (i) agrees to
sell Holder's Registerable Securities on the basis provided in
any underwriting arrangements approved by the Holders entitled
hereunder to approve such arrangements, (ii) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and (iii)
agrees to pay its pro rata share of all underwriting discounts
and commissions and other fees and expenses of investment bankers
and any manager or managers of such underwriting and legal
expenses to the underwriters applicable with respect to its
Registerable Securities, in each case to the extent not payable
by the Company pursuant to the terms of this Agreement; and
20.5.6 Holder agrees to take all reasonable
actions necessary to comply with the prospectus delivery
requirements of the Securities Act applicable to its sales of
Registerable Securities.
20.6 EXPENSES OF REGISTRATION. All costs and expenses,
other than underwriting or brokerage discounts, commissions and
other fees related to the distribution of the Registerable
Securities, incurred in connection with registrations, filings or
qualifications pursuant to subsections 20.1, 20.2 and 20.3,
including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees
and disbursements of counsel for the Company shall be borne by
the Company, provided, however, that the Holder(s) shall bear the
fees and out-of-pocket expenses of the one legal counsel selected
by the Holder(s) pursuant to subsection 20.4.8 hereof and all
reasonable costs and expenses incurred in connection with the
second demand registration permitted by subsection 20.2,
including all registration, listing and qualification fees,
printers and accounting fees and the fees and disbursements of
the Company counsel, shall be borne by the Holder(s) of the
Registerable Securities covered by such registration.
20.7 INDEMNIFICATION. In the event any Registerable
Securities are included in a Registration Statement under this
Agreement:
20.7.1 To the extent permitted by law, the Company
will indemnify and hold harmless each Holder who holds such
Registerable Securities, the directors, if any, of such Holder,
the officers, if any, of such Holder, each person, if any, who
controls any Holder within the meaning of the Securities Act or
the Exchange Act, any underwriter (as defined in the Securities
Act) for the Holders, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person,
if any, who controls any such underwriter within the meaning of
the Securities Act or the Exchange Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to
which any of them may become subject under the Securities Act,
the Exchange Act or otherwise, insofar as such Claims (or actions
or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations in the Registration
Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement,
or contained in the final prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements
therein were made, not misleading or (iii) any violation or
alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through
(iii) being, collectively, "Violations"). Subject to the
restrictions set forth in subsection 20.7.4 with respect to the
number of legal counsel, the Company shall reimburse the Holders
and the other Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification
agreement contained in this subsection 20.7.1: (I) shall not
apply to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in
connection with the preparation of the Registration Statement,
the prospectus or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the
Company pursuant to subsection 20.4.3 hereof; (II) with respect
to any preliminary prospectus shall not inure to the benefit of
any Indemnified Person if the untrue statement or omission of
material fact contained in the preliminary prospectus was
corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant
to subsection 20.4.3 hereof; and (III) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent
shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the
transfer of the Registerable Securities by the Holders pursuant
to Section 24.
20.7.2 In connection with any Registration Statement
in which a Holder is participating, each such Holder agrees to
indemnify and hold harmless, to the same extent and in the same
manner set forth in subsection 20.7.1, the Company, each of its
directors, each of its officers who signs the Registration
Statement, each person on, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act, any
underwriter and any other stockholder selling securities pursuant
to the Registration Statement or any of its directors or officers
or any person who controls such stockholder or underwriter within
the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may
become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon
any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by
such Holder expressly for use in connection with such
Registration Statement; and such Holder will reimburse any legal
or other expenses reasonably incurred by any Indemnified Party,
promptly as such expenses are incurred and are due and payable,
in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this
subsection 20.7.2 shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior
written consent of such Holder, which consent shall not be
unreasonably withheld; provided, further, however, that the
Holder shall be liable under this subsection 20.7.2 for only that
amount of a Claim as does not exceed the amount by which the net
proceeds to such Holder from the sale of Registerable Securities
pursuant to such Registration Statement exceeds the cost of such
Registerable Securities to such Holder. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registerable Securities by the Holders
pursuant to Section 10. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
subsection 20.7.2 with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party if the
untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.
20.7.3 The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers
and similar securities industry professionals participating in
any distribution, to the same extent as provided above, with
respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
20.7.4 Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 20.7 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party
under Section 20.7, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel selected by the indemnifying party
but reasonably acceptable to the Indemnified Person or the
Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel
in such proceeding. In such event, the Company shall pay for
only one separate legal counsel for the Investors; such legal
counsel shall be selected by the Holders holding a majority in
interest of the Registerable Securities included in the
Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 20.7,
except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required
by Section 20.7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as
such expense, loss, damage or liability is incurred and is due
and payable.
20.8 The agreements, representations and warranties of
the Company and the Holder set forth or provided in this Section
20 shall survive any exercise of this Warrant and the delivery of
and payment for the Registerable Securities hereunder and shall
remain in full force and effect, regardless of any investigation
made by or on behalf of the Company and the Holder.
21. MISCELLANEOUS. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of
Colorado. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or
enforceability of any other provision.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be executed on its behalf by one of its officers thereunto duly
authorized.
Dated: ---------, 1999 CAVION TECHNOLOGIES, INC.
--------------------------
David J. Selina, President
FORM OF SUBSCRIPTION
CAVION TECHNOLOGIES, INC.
(To be signed only on exercise of Warrant)
TO: Cavion Technologies, Inc.
7475 Dakin Street, Suite 607
Denver, Colorado 80221
Attn: President
1. The undersigned Holder of the attached original, executed
Warrant hereby elects to exercise its purchase right under such
Warrant with respect to -------- shares of Common Stock, as
defined in the Warrant, of Cavion Technologies, Inc., a Colorado
corporation (the "Company").
2. The undersigned Holder (check one):
(a) elects to pay the aggregate
purchase price for such shares of Common Stock
(the "Exercise Shares") (i) by lawful money of the
United States or the enclosed certified or
official bank check payable in United States
dollars to the order of the Company in the amount
of $-------, or (ii) by wire transfer of United
States funds to the account of the Company in the
amount of $--------, which transfer has been made
before or simultaneously with the delivery of this
Form of Subscription pursuant to the instructions
of the Company;
or
(b) elects to receive shares of Common
Stock having a value equal to the value of the
Warrant calculated in accordance with Section 1.2
of the Warrant.
3. Please issue a stock certificate or certificates
representing the appropriate number of shares of Common Stock in
the name of the undersigned or in such other name as is specified
below:
Name:----------------------------------------
Address:-------------------------------------
----------------------------------------
Dated:----------------- --------------------------
(Signature must conform to
name of Holder as
specified on the face of
the Warrant)
--------------------------
--------------------------
(Address)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of
December 31, 1998, by and between NETWORK ACQUISITIONS, INC., a Colorado
corporation ("Buyer"), and CAVION TECHNOLOGIES, INC., a Colorado
corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Seller provides secure Internet, intranet and extranet
products for credit unions and other financial institutions (the
"Business") and owns certain intellectual property and assets used in
connection with the Business;
WHEREAS, this Agreement sets forth the terms and conditions upon
which Seller is willing to sell and Buyer is willing to purchase
substantially all of Seller's assets.
NOW THEREFORE, in consideration of the mutual promises of the
parties, in reliance on the representations, warranties, covenants and
conditions contained in this Agreement, and for other good and valuable
consideration, the parties agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, Seller shall sell, convey, assign,
transfer and deliver to Buyer, and Buyer shall purchase, at the
closing (as defined in Section 2.1), all of Seller's assets,
properties, rights, claims and goodwill, of every kind,
character and description, tangible and intangible, real and
personal, wherever located and whether or not reflected on the
books and records of Seller, which are used in the Business,
including, without limitation, the following (collectively, the
"Assets"):
(a) all furniture, furnishings, fixtures, machinery, equipment
(including computers and office equipment), and leasehold
improvements, which (i) are located at Seller's facilities
in Denver, Colorado and Colorado Springs, Colorado, which
facilities are described more particularly on Schedule
1.1(a) (the "Facilities") or (ii) are listed on Exhibit A
to the Bill of Sale referred to in Section 2.3(a);
(b) all cash Seller has on hand and any and all of Seller's
accounts, whether checking, savings, investment,
certificate of deposit, with any financial institution as
of the Closing Date (as defined in Section 2.1);
(c) all parts, supplies (including office supplies) and
incidentals which (i) are located at the Facilities or (ii)
are listed on Exhibit A to the Bill of Sale referred to in
Section 2.3(a);
(d) all accounts receivable of Seller arising in connection
with the Business ("Accounts Receivable"), subject to
Section 2.6;
(e) all credit, prepaid expenses and other items, security
deposits and unbilled costs and fees of Seller attributable
to the Assets or Business;
(f) subject to Section 1.2 regarding Excluded Assets, all
right, title and interest of Seller in and to intellectual
property and other intangible property associated with the
Business, including, without limitation, customer lists,
data bases and other goodwill, trade secrets, methods,
inventions and other know-how, and trademarks, service
marks, trade names (including the name "Cavion
Technologies"), domain names, and copyrights, whether
registered or unregistered, and any applications therefor;
(g) all rights of Seller under the Material Contracts (as
defined in section 3.10);
(h) all books, records, manuals and other materials (in any
form or medium) relating to, or used by Seller in
connection with, the Assets or Business;
(i) all rights, claims and actions arising out of occurrences
before or after the Closing, which relate to, or arise
from, the Assets or Business;
(j) all licenses, permits, authorizations and approvals of
governmental or other regulatory authorities which relate
to the Assets or Business; and
(k) subject to Section 1.2 regarding Excluded Assets, all
assets and properties reflected on the Balance Sheet (as
defined in Section 3.4(a)), excepting only those assets and
properties which have been disposed of by Seller in the
ordinary course of the Business after the date of the
Balance Sheet.
1.2 EXCLUDED ASSETS. Notwithstanding Section 1.1, this Agreement
shall not effect the transfer of, and the term "Assets" shall be
deemed not to include the following:
(a) warrants to purchase common stock of Convergent
Communications, Inc. currently held by Seller.
1.3 ASSUMPTION OF LIABILITIES. Subject to the terms and conditions
of this Agreement, at the Closing, Buyer shall assume and agree
to pay, discharge or perform, as appropriate, (i) all
obligations and liabilities of Seller reflected on the Balance
Sheet (as updated to the Closing Date), on the list of accounts
payable delivered pursuant to Section 2.7, or on Schedules 3.5
or 3.8 to this Agreement, (ii) all obligations of Seller for
accrued salaries, wages and other benefits of the Continuing
Employees (as defined in Section 2.8), and (iii) all obligations
and liabilities arising on or after the Closing Date with
respect to the Assets or the Business (collectively the "Assumed
Liabilities"). The Assumed Liabilities will include all amounts
due Buyer under the Loan Agreement dated as of September 14,
1998 between Buyer and Seller. Except as specifically assumed
by Buyer under this Section, Seller shall retain and agree to
pay, discharge or perform, as appropriate, all obligations and
liabilities arising prior to the Closing Date with respect to
the Assets or the Business.
1.4 AMOUNT OF PURCHASE PRICE. In consideration for Seller's sale of
assets, Buyer will (i) issue and deliver to Seller the number of
shares of Buyer's Class A common stock determined according to
Section 1.5, and 28,648 shares of Buyer's Class B common stock,
and (ii) assume the liabilities of Seller described in Section
1.3. The parties intend the transactions contemplated by this
Agreement to qualify as a tax-free reorganization under section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended.
1.5 CLASS A SHARES ISSUED. The number of shares of Buyer's Class A
common stock issued and delivered to Seller at the Closing will
be the number in cell J43 of the capitalization table included
in Schedule 4.6, as updated to the Closing Date. The parties
agree that this number will be equal to 12% of the equity
interest in Buyer on a fully diluted basis as of the completion
of the Closing, subject to the following adjustments:
(a) The warrants issued to purchasers of Units (consisting of
15% Secured Notes due October 19, 2000 along with Class A
Common Stock Purchase Warrants) under the Private Placement
Memorandum dated October 20, 1998 (the "Debt Offering"),
shall be counted as if exercised in full prior to the
Closing.
(b) The Convertible Preferred Stock, Series A of Buyer (the
"Preferred Stock") shall be counted as if converted in full
prior to the Closing, to the extent of (i) one-half of the
total $2 million offering of Preferred Stock, plus (ii) the
number of additional shares of Preferred Stock that, at the
offering price, results in proceeds equal to the
underwriter's total cash compensation (including expense
allowance) related to the shares counted under clause (i),
and the additional underwriter's compensation related to
all additional shares counted under this clause (ii), plus
(iii) the number of additional shares of Preferred Stock
that, at the offering price, results in proceeds equal to
Buyer's total other costs related to the offering of
Preferred Stock (including without limitation amounts
payable to counsel, accountants and the printer for the
offering).
The number shown in cell J43 of the Schedule 4.6 capitalization
table is based on Buyer's estimate of costs related to the
offering of Preferred Stock at $75,000. At the Closing, Buyer
will provide a true and accurate final accounting of Buyer's
costs related to the offering. The number of shares of Buyer's
Class A common stock issued and delivered to Seller at the
Closing will be adjusted according to (i) Buyer's final cost
accounting, and (ii) the number of shares of Preferred Stock
offered in Buyer's $2 million offering (if different from that
shown in cell L21 of the Schedule 4.6 capitalization table).
2. CLOSING AND POST-CLOSING MATTERS
2.1 TIME AND PLACE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place
at 10:00 a.m. Mountain Time, at the principal offices of Buyer
in Englewood, Colorado, or such other place as Buyer and Seller
shall mutually agree, on the earliest date on which Buyer and
Seller are able to satisfy their respective obligations under
Sections 2.2 and 2.3 (the "Closing Date").
2.2 BUYER'S DELIVERIES AT CLOSING. At the Closing, Buyer shall
deliver to Seller the following:
(a) certificates representing the shares of Buyer's Class A
common stock and Class B common stock to be issued and
delivered to Seller under this Agreement;
(b) a Bill of Sale, Assignment, and Assumption Agreement, in
the form of Exhibit 2.3(a), in which Buyer assumes and
agrees to pay, discharge or perform as appropriate the
Assumed Liabilities;
(c) the other agreements, opinions, certificates and other
documents referred to in Section 7 and elsewhere in this
Agreement; and,
(d) the Buyer Balance Sheet (as defined in Section 4.4),
updated to the Closing Date. The updated Buyer Balance
Sheet shall show that Buyer has cash of at least
$1,000,000, and has no liabilities except for (i) 15%
Secured Notes issued under the Private Placement Memorandum
of Buyer dated October 20, 1998, aggregating approximately
the amount advanced by Buyer to Seller pursuant to that
certain Promissory Note dated September 8, 1998 between
Buyer and Seller, and (ii) offering costs in connection
with raising the cash and placing the Secured Notes.
2.3 SELLER'S DELIVERIES AT CLOSING. At the Closing, Seller shall
deliver to Buyer the following:
(a) a Bill of Sale, Assignment, and Assumption Agreement in the
form of Exhibit 2.3(a), and such other instruments of
conveyance, assignment, transfer, in form and substance
reasonably satisfactory to Buyer's counsel, as shall be
effective to transfer and assign to, and vest in, Buyer all
of the Assets; and
(b) the other agreements, opinions, certificates and other
documents referred to in Section 7 and elsewhere in this
Agreement.
In addition, Seller shall take such other steps as reasonably
may be necessary to put Buyer in actual possession and operating
control of the Assets.
2.4 THIRD PARTY CONSENTS. To the extent Seller's rights under any
agreement, commitment, plan, authorization or other Asset to be
assigned to Buyer hereunder may not be assigned without the
consent of another person or entity which has not been obtained,
this Agreement shall not constitute an agreement to assign the
same if an attempted assignment would constitute a breach
thereof or be unlawful, and Seller, at its expense, shall use
its commercially reasonable efforts to obtain any such required
consent as promptly as possible. If any such consent is not
obtained, or if any attempted assignment would be ineffective or
would impair Buyer's rights under the Asset so that Buyer would
not in effect acquire the benefit of all such rights, Seller
shall, to the maximum extent permitted by law and the Asset, act
after the Closing as Buyer's agent in order to obtain for Buyer
the benefits thereunder and shall cooperate, to the maximum
extent permitted by law and the Asset, with Buyer in any other
reasonable arrangement designed to provide such benefits to
Buyer.
2.5 SELLER'S FURTHER ASSURANCES. Seller from time to time after the
Closing shall execute, acknowledge and deliver to Buyer such
other instruments of conveyance and transfer and shall take such
other actions and execute and deliver such other documents,
certificates and further assurances as Buyer reasonably may
request in order to vest more effectively in Buyer, or to put
Buyer more fully in possession of, the Assets, or to better
enable Buyer to complete, perform or discharge the Assumed
Liabilities.
2.6 ACCOUNTS RECEIVABLE. At Closing, Seller shall deliver to Buyer
a schedule containing a complete and accurate list of all of
Seller's Accounts Receivable as of the Closing Date. All
proceeds from Accounts Receivable collected by Buyer or Seller
after Closing shall be retained by Buyer, and shall be paid by
Seller to Buyer, as applicable.
2.7 ACCOUNTS PAYABLE. At Closing, Seller shall deliver to Buyer a
schedule containing a complete and accurate list of all of
Seller's Accounts Payable as of the Closing Date.
2.8 EMPLOYMENT MATTERS. Effective as of the Closing Date, Buyer
shall offer employment to those employees listed on Schedule 2.8
who are employed by Seller principally in the operation of the
Business, at wage and salary levels and with employee benefits
as are listed on Schedule 2.8. Seller shall use its commercially
reasonable efforts to cause such employees to accept such
employment with Buyer. All such employees hired by Buyer as of
the Closing Date shall be referred to in this Agreement as the
"Continuing Employees." Except as provided herein, Buyer shall
have no liability or obligation to any employee of Seller
(including Continuing Employees) resulting from the transactions
contemplated hereby, including, without limitation, change of
control, payments or liabilities incurred upon termination of
employment by Seller. Seller specifically acknowledges that the
Assets to be transferred to Buyer pursuant to this Agreement
include Seller's rights (including rights of specific
enforcement) under all proprietary and confidentiality
agreements and agreements regarding ownership of intellectual
property between Seller and any employee of Seller, whether past
or present as of the Closing Date, regardless of whether said
employee is a Continuing Employee.
2.9 CHANGE OF NAMES. As soon as reasonably possible (taking into
consideration Colorado law), but in no event later than 30 days
after Closing, Seller shall change its corporate name to a name
not including the word "Cavion", and Buyer shall change its
corporate name to "Cavion Technologies, Inc."
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 CORPORATE ORGANIZATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Colorado, with full power and authority (corporate,
governmental and otherwise) to own and operate its properties
and business as currently conducted and as contemplated to be
conducted. Seller is not qualified to do business as a foreign
corporation in any jurisdiction other than the state of
Colorado.
3.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance of this Agreement by Seller
is within its corporate power and authority, and has been duly
authorized by all requisite corporate action. This Agreement
has been, and the other agreements, documents and instruments
required to be delivered by Seller pursuant to this Agreement
(together with this Agreement, the "Seller's Documents") will be
duly executed and delivered on behalf of Seller. This Agreement
constitutes, and the Seller's Documents when executed and
delivered will constitute, the legal, valid and binding
obligations of Seller, enforceable against it in accordance with
their respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency or other laws relating to
or affecting creditors' rights generally and by general
equitable principles.
3.3 NO CONFLICTS; CONSENTS. The execution, delivery and performance
of the Seller's Documents by Seller does not and will not (with
or without the giving of notice or the passage of time, or both)
violate, conflict with, result in a breach or default under,
give rise to any rights of acceleration, modification,
termination or cancellation of, result in the creation of any
lien, claim or encumbrance pursuant to, or require any notice or
consent under (except as described in Schedule 3.10), the
charter or bylaws of Seller, or any mortgage, indenture,
instrument, agreement, understanding or commitment of any kind,
or any law, regulation, rule, order, judgement or decree, to
which Seller is a party or by which Seller is bound or affected,
other than such notices and consents which have been given or
obtained. No authorization, permit, approval or consent of, and
no registration or filing with any governmental or regulatory
authority is required in connection with the execution, delivery
and performance by Seller of the Seller's Documents.
3.4 FINANCIAL STATEMENTS. Seller has delivered to Buyer true and
complete copies of the following financial statements (the
"Financial Statements") which are attached hereto as Schedule
3.4, all of which have been prepared from Seller's books and
records in accordance with generally accepted accounting
principles (except for the absence of footnotes) consistently
applied and maintained throughout the periods indicated and
present fairly and accurately the financial condition and
results of operations of the Business at the dates and for the
periods covered:
(a) balance sheet as of October 31, 1998 (the "Balance Sheet");
and
(b) income statement for the ten months ended October 31, 1998.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
Balance Sheet, the list of accounts payable delivered pursuant
to Section 2.7, and the Schedules to this Agreement (including
Schedule 3.5), Seller has no material liabilities, obligations
or commitments arising from or associated with the Business or
the Assets. Without limiting the foregoing, Seller has not
incurred any obligation to pay any broker's, finder's or similar
fees or commissions based on the transactions contemplated by
this Agreement.
3.6 ABSENCE OF CHANGES OR EVENTS. Since the date of the Balance
Sheet, there has not been any change, development, event or
condition which has had or which could reasonably be expected to
have a material adverse effect on the financial condition or
operations of Seller, as reflected in the Financial Statements,
the Assets or the Business ("Material Adverse Effect"). Since
the date of the Balance Sheet, except as disclosed in the
Financial Statements and on Schedule 3.6, Seller has not
declared (directly or indirectly) or paid a dividend or made any
other distribution with respect to its capital stock (including,
without limitation, the redemption or purchase of shares), (b)
directly or indirectly acquired any shares of its capital stock,
(c) made any capital expenditures in connection with the
Business in excess of $10,000, (d) incurred any indebtedness in
connection with the Business in excess of $10,000, or (e)
entered into any transaction with respect to the Assets or
Business other than in the ordinary course.
3.7 TITLE TO AND CONDITION OF ASSETS. Seller has, and at the
Closing Buyer will obtain, good, valid and marketable title to
the Assets, free and clear of any lien, claim or encumbrance of
any kind, except (i) as expressly set forth on the Balance Sheet
or as otherwise expressly permitted by this Agreement, (ii)
liens for current taxes not yet due, (iii) Permitted Liens, as
defined in Article 1 of the Loan Agreement dated as of September
14, 1998 between Buyer and Seller, or (iv) minor matters that,
in the aggregate, are not substantial in amount and do not and
could not reasonably be expected to materially impair the use of
the Assets or the conduct of the Business. Except as set forth
in Section 1.2, the Assets constitute all of the assets and
properties used in the conduct of the Business and are adequate
and sufficient for the current operations of the Business.
Except as set forth in Section 1.2, there are no assets or
properties located at the Facilities which are not being
transferred to Buyer hereunder. All furniture, fixtures,
equipment, machinery and similar property to be acquired by
Buyer hereunder are in good operating condition and repair,
reasonable wear and tear excepted, are free from material
defects and are suitable for the purposes used.
3.8 TAXES. Seller timely has filed with the appropriate authority
all required federal, state and local income and other tax
returns and reports relating to Seller's assets or business.
Except as set forth on Schedule 3.8, Seller has paid or caused
to be paid in full all taxes, assessments and other governmental
charges (including interest and penalties thereon) which are due
and payable by Seller, or in respect of Seller's assets or
business (including, but not limited to, property, sales,
intangible and payroll taxes).
3.9 LITIGATION. Except as described on Schedule 3.9, there is no
pending claim, action, suit, proceeding or investigation
judicial, governmental or otherwise), nor any order, decree or
judgement in effect, or, to the Seller's knowledge, threatened,
against Seller which reasonably could be expected to have a
Material Adverse Effect or which relates to the transactions
contemplated by this Agreement.
3.10 CONTRACTS. Schedule 3.10 hereto contains a complete description
of each written and oral agreement, understanding and commitment
relating to the Assets or Business to which Seller is a party or
by which Seller is bound (other than agreements with Buyer),
which, measured from and after Closing, provides for aggregate
payments exceeding $1,000, has a term greater than one year, or
which is otherwise material to the Assets or Business (such oral
or written agreements, understanding and commitments are
referred to as the "Material Contracts"). Except as described
in Schedule 3.10, each Material Contract is valid, binding and
enforceable, is fully assignable to Buyer (without requiring a
consent or approval which has not been obtained), and Seller is
not in default thereunder (or will be with the giving of notice,
the passage of time, or both). Seller has no reason to believe
that any Material Contract can not be replaced on substantially
similar terms.
3.11 COMPLIANCE. Seller has complied in all material respects with
all federal, state and local ordinances, regulations and orders
applicable to the Business or the ownership of the Assets.
Seller is not in violation of any order, writ, injunction or
decree of any court or any federal, state, municipal or other
domestic governmental department, commission, board, bureau,
agency or instrumentality, which violation could reasonably be
expected to have a Material Adverse Effect. Except with respect
to regulatory approvals which may in the future be required with
respect to products or services offered or to be offered in
connection with the Business, Seller has all federal, state and
local governmental licenses and permits material to and
necessary in the conduct of the Business; such licenses and
permits are in full force and effect, no violations have been
recorded in respect of any such licenses or permits, and no
proceeding is pending or threatened to revoke or limit any
thereof. Schedule 3.11 hereto contains a list of all federal,
state and local governmental or administrative licenses and
permits obtained by Seller in force and effect as of the Closing
Date. Except as described in Schedule 3.11, none of such
licenses and permits will be affected in any material respect by
the consummation of the transaction contemplated in this
Agreement.
3.12 INSURANCE. Seller warrants that all insurance policies,
including, but not limited to, liability, theft, business
interruption, life, fire, workers' compensation, health and
other forms of insurance maintained by Seller in connection with
the Business are in full force and effect and no notice of
cancellation or similar notice has been given to Seller. Seller
will undertake all reasonably necessary steps and execute all
reasonably necessary documents to have all of Seller's insurance
policies transferred to Buyer upon Closing and to ensure that
Buyer is covered under said insurance policies for any and all
losses or claims relating to the Assets or Assumed Liabilities.
3.13 ACCOUNTS RECEIVABLE. Schedule 3.13 contains a complete and
accurate list of all Accounts Receivable as of the date of the
Balance Sheet. The schedule delivered by Seller to Buyer on the
Closing Date pursuant to Section 2.6 will contain a complete and
accurate list of all Accounts Receivable as of the Closing Date.
3.14 ACCOUNTS PAYABLE. Schedule 3.14 contains a complete and
accurate list of all Accounts Payable as of the date of the
Balance Sheet. The schedule delivered by Seller to Buyer on the
Closing Date pursuant to Section 2.7 will contain a complete and
accurate list of all Accounts Payable as of the Closing Date.
3.15 EMPLOYMENT MATTERS. Except as set forth on Schedule 3.15, all
of Seller's employees involved in the Business are employed on
an "at-will" basis and may be terminated by Buyer without
liability. Schedule 3.15 lists each salaried employee involved
in the Business and describes his or her position and salary,
and describes all benefit plans and other benefits provided or
available to Seller's employees (including, without limitation,
retirement, health and death, incentive compensation, and
vacation benefits). None of Seller's employees is a member of a
labor union, nor has Seller encountered any labor union
activity. There are no unfunded pension or similar liabilities
regarding employees of Seller. Except as set forth on Schedule
3.15, all pension plans have been properly funded and have at
all times been administered in material compliance with all
applicable laws (including, without limitation, ERISA).
3.16 INTELLECTUAL PROPERTY. Seller (i) owns or has the right to use
all trademarks, trade names, service marks, copyrights, patents,
licenses and rights with respect thereto ("Intellectual
Property"), used in or necessary for the conduct of the Business
without, to Seller's knowledge, infringing upon or otherwise
acting adversely to the right or claimed right of any person
under or with respect to any of the foregoing and (ii) is not
obligated or under any liability to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or
other claimant to, any Intellectual Property with respect to the
use thereof or in connection with the conduct of the Business,
other than license fees for third party software used to develop
and deliver Seller's products and services. A list of all
Intellectual Property used in or necessary for the conduct of
the Business and the nature of the ownership or rights with
respect thereto (including all registrations issued or applied
for in respect thereof), are set forth on Schedule 3.16.
3.17 RELATED PARTY TRANSACTIONS. Except as contemplated or otherwise
disclosed on Schedule 3.17, no shareholder, officer, director or
employee of Seller, nor any "affiliate" or "associate" of such
persons, is a party to, or otherwise has a direct or indirect
interest in, any transaction with Seller as it relates to the
Business, including without limitation, any contract, agreement
or other arrangement providing for the employment of, furnishing
of services by, rental of real or personal property from, or
otherwise requiring payments to any such person or entity.
3.18 COMPLETE AND ACCURATE DISCLOSURE. No representation or warranty
made to Buyer in this Agreement contains, or will contain, an
untrue statement of material fact, or omits or will omit to
state a material fact necessary to make such representation or
warranty not misleading. All documents and information which
have been or will be delivered to Buyer or its representatives
by or on behalf of Sellers are and will be true, correct and
complete copies of the documents they purport to represent.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
4.1 CORPORATE ORGANIZATION. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Colorado, with full power and authority (corporate,
governmental and otherwise) to own and operate its properties
and business as currently conducted and as contemplated to be
conducted.
4.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance of this Agreement by Buyer
is within such party's corporate power and authority, and has
been duly authorized by all requisite corporate action. This
Agreement has been, and the other agreements, documents and
instruments required to be delivered by Buyer pursuant to this
Agreement (together with this Agreement, the "Buyer's
Documents") will be duly executed and delivered on behalf of
Buyer. This Agreement constitutes, and the Buyer's Documents
when executed and delivered will constitute, the legal, valid
and binding obligations of Buyer, enforceable against it in
accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency
or other laws relating to or affecting creditors' rights
generally and by general equitable principles.
4.3 NO CONFLICTS; CONSENTS. The execution, delivery and performance
of the Buyer's Documents by Buyer, does not and will not (with
or without the giving of notice or the passage of time, or both)
violate, conflict with, result in a breach or default under,
give rise to any rights of acceleration, modification,
termination or cancellation of, result in the creation of any
lien, claim or encumbrance pursuant to, or require any notice or
consent under, the charter or bylaws of Buyer, or any mortgage,
indenture, instrument, agreement, understanding or commitment of
any kind, or any law, regulation, rule, order, judgement or
decree, to which Buyer is a party or by which Buyer is bound or
affected. No authorization, permit, approval or consent of, and
no registration or filing with, any governmental or regulatory
authority is required in connection with the execution, delivery
and performance by Buyer of the Buyer's Documents.
4.4 FINANCIAL STATEMENTS. Buyer has delivered to Seller true and
complete copies of the following financial statements (the
"Buyer Financial Statements") which are attached hereto as
Schedule 4.4, all of which have been prepared from Buyer's books
and records in accordance with generally accepted accounting
principles (except for the absence of footnotes) consistently
applied and maintained throughout the periods indicated and
present fairly and accurately the financial condition and
results of operations of Buyer at the dates and for the periods
covered:
(a) balance sheet as of the date hereof (the "Buyer Balance
Sheet"); and
(b) income statement for the period from inception to the date
hereof.
4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Buyer has had no operations
to date except for certain financing activities as described on
Schedule 4.5. Except as set forth on the Buyer Balance Sheet and
on Schedule 4.5, Buyer has no material liabilities, obligations
or commitments. Without limiting the foregoing, Buyer has not
incurred any obligation to pay any broker's, finder's or similar
fees or commissions based on the transactions contemplated by
this Agreement.
4.6 CAPITALIZATION OF BUYER. Schedule 4.6 includes a complete
capitalization table of Buyer as of the Closing, and an accurate
and complete copy of the terms and conditions affecting each
class of security reflected in the table. Except as shown in
Schedule 4.6, Buyer does not have outstanding any securities or
rights which are convertible into or exchangeable for any of its
capital stock, any phantom stock, profit participation or
similar rights, any rights to acquire any of the foregoing, and
Buyer is not subject to any obligation (contingent or otherwise)
to reacquire any shares of its capital stock. No shareholder of
Buyer has any preemptive or other purchase rights with respect
to the issuance of Buyer's capital stock.
4.7 COMPLETE AND ACCURATE DISCLOSURE. No representation or warranty
made to Seller in this Agreement contains, or will contain, an
untrue statement of material fact, or omits or will omit to
state a material fact necessary to make such representation or
warranty not misleading. All documents and information which
have been or will be delivered to Seller or its representatives
by or on behalf of Buyer are and will be true, correct and
complete copies of the documents they purport to represent.
5. COVENANTS OF SELLER PENDING CLOSING
Seller covenants and agrees with Buyer that from the date of this
Agreement to the Closing:
5.1 CONDUCT OF BUSINESS. Seller shall conduct the Business only in
the ordinary course, consistent with its prior practices and
prudent business practices prevailing in the industry. For
example (and not in limitation of the foregoing), Seller shall
(i) preserve, maintain the condition of, and maintain insurance
at current levels on, its Assets, (ii) preserve for the benefit
of Buyer the goodwill of the Business and relations with its
employees, agents, customers and suppliers. Without limiting
the foregoing, Seller shall consult with Buyer regarding all
significant developments, transactions and proposals relating to
the Assets or Business. Seller shall not take any action or
omit to take any action which reasonably could be expected to
render inaccurate the representations and warranties contained
in this Agreement, as if such representations and warranties
were made at and as of the Closing.
5.2 ACCESS TO INFORMATION. Upon reasonable notice and during
regular business hours, Seller will give Buyer's representatives
full access to Seller's personnel and to all properties,
documents, contracts, books and records of Seller as Buyer may
reasonably require for due diligence purposes and in order to
consummate the transactions contemplated by this Agreement.
However, the representations and warranties made in this
Agreement, or in connection with this transaction, shall not be
affected or deemed waived by reason of the fact that Buyer or
its representatives knew or should have known that any such
representation or warranty is, or might be, inaccurate.
5.3 CONTINUING DISCLOSURE. Seller shall promptly disclose to Buyer
any information contained in its representations and warranties
made pursuant to this Agreement which, because of an event
occurring after the date hereof, is incomplete or no longer is
materially correct as of all times after the date hereof until
the Closing Date; provided, however, that none of such
disclosures shall be deemed to modify, amend or supplement the
representations and warranties of Seller or the schedules hereto
for the purposes of Section 7 hereof, unless Buyer shall have
consented thereto in writing.
5.4 CONFIDENTIALITY. Unless and until the Closing has been
consummated, Seller shall hold, and shall cause its employees,
agents and representatives to hold in confidence any
confidential data or information of Buyer made available to
Seller in the course of its discussions with Buyer in connection
with this Agreement, using the same standard of care to protect
such confidential data or information as is used to protect
Seller's confidential information. If the transactions
contemplated by this Agreement are not consummated, Seller shall
return or cause to be returned to Buyer all written materials
and all copies thereof that were supplied to Seller by Buyer and
that contain any such confidential data or information.
5.5 NO SHOPPING. Seller shall not negotiate with any other person,
or solicit or entertain any proposal, or furnish to any other
person any information, concerning the acquisition in any form
of the Assets or Business or a material interest therein, other
than Buyer.
5.6 PRESS RELEASES. Except as required by applicable law or as
contemplated herein, Seller shall not give notice to third
parties or otherwise make any public statement or release
concerning this Agreement or the transactions contemplated
hereby except for such written information as shall have been
approved in writing as to form and content by Buyer, which
approval shall not be unreasonably withheld.
6. COVENANTS OF BUYER PENDING CLOSING
Buyer covenants and agrees with Seller that from the date of this
Agreement to the Closing:
6.1 ACCESS TO INFORMATION. Upon reasonable notice and during
regular business hours, Buyer will give Seller's representatives
full access to Buyer's personnel and to all properties,
documents, contracts, books and records of Buyer as Seller may
reasonably require for due diligence purposes and in order to
consummate the transactions contemplated by this Agreement.
However, the representations and warranties made in this
Agreement, or in connection with this transaction, shall not be
affected or deemed waived by reason of the fact that Seller or
its representatives knew or should have known that any such
representation or warranty is, or might be, inaccurate.
6.2 CONTINUING DISCLOSURE. Buyer shall promptly disclose to Seller
any information contained in its representations and warranties
made pursuant to this Agreement which, because of an event
occurring after the date hereof, is incomplete or no longer is
materially correct as of all times after the date hereof until
the Closing Date; provided, however, that none of such
disclosures shall be deemed to modify, amend or supplement the
representations and warranties of Buyer or the schedules hereto
for the purposes of Section 8 hereof, unless Seller shall have
consented thereto in writing.
6.3 CONFIDENTIALITY. Unless and until the Closing has been
consummated, Buyer shall hold, and shall cause its employees,
agents and representatives to hold, in confidence any
confidential data or information of Seller made available to
Buyer in the course of its discussions with Seller in connection
with this Agreement, using the same standard of care to protect
such confidential data or information as is used to protect
Buyer's confidential information. Buyer will disseminate such
confidential data or information, prior to the consummation of
the Closing, only with the knowledge and consent of Seller,
which consent shall not be unreasonably withheld. Seller
recognizes that Buyer may utilize certain of Seller's
confidential data or information in preparing for the operation
of the Business following the Closing, which may include, but
shall not be limited to, Buyer's effort to secure additional
financing for the Business or to provide for a strategic
relationship with one or more persons or entities. At all
times, however, Buyer shall take reasonable care to protect
Seller's confidential data and information. If the transactions
contemplated by this Agreement are not consummated, Buyer shall
return or cause to be returned to Seller all written materials
and all copies thereof supplied to Buyer by Seller containing
any such confidential data or information.
6.4 PRESS RELEASES. Except as required by applicable law or as
contemplated herein, Buyer shall not give notice to third
parties or otherwise make any public statement or releases
concerning this Agreement or the transactions contemplated
hereby except for such written information as shall have been
approved in writing as to form and content by Seller, which
approval shall not be unreasonably withheld.
7. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to close is subject to the fulfillment of each of the
following conditions precedent (any of which may be waived by Buyer), and
Seller shall use its commercially reasonable efforts to cause each
condition to be fulfilled:
7.1 PERFORMANCE OF OBLIGATIONS. Seller shall have complied with and
performed in all material respects each agreement, covenant and
condition in this Agreement which are required to be performed
or complied with by it at or prior to Closing.
7.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Seller contained in this Agreement or made in
connection with this transaction shall be true and correct in
all material respects at and as of the date of the Closing, as
if such representations and warranties were made at and as of
Closing.
7.3 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
no event or development has occurred, and no condition has
arisen, that has had, or reasonably could be expected to have, a
Material Adverse Effect.
7.4 KEY EMPLOYEE AGREEMENTS. Craig E. Lassen, Dave Selina and Jeff
Marshall ("Key Employees") shall each have executed and
delivered to Buyer an employment agreement in substantially the
form attached as Exhibit 7.4.
7.5 CONSENTS AND LICENSES. Buyer shall have obtained all
governmental approvals, permits and licenses, and shall have
obtained all other consents and approvals as are necessary in
the opinion of Buyer's counsel to consummate the transactions
contemplated herein and to enable Buyer to operate the Business
as it now is operated.
7.6 DIRECTOR AND SHAREHOLDER CONSENTS. Seller shall obtain, execute
and deliver to Buyer resolutions of the Seller's Board of
Directors and Shareholders affirming their knowledge and consent
to the transactions contemplated herein, in a manner
satisfactory to Buyer's counsel.
7.7 LOAN EXTENSIONS. Seller shall obtain and deliver to Buyer
Extension Agreements for its liabilities listed on Schedule 7.7.
The Extension Agreements shall defer the listed obligations to
the date on which 100 credit unions (or other entities
associated with the credit union industry that provide
equivalent economics) have subscribed and connected to the
Company's secure network (or equivalent Company service), or
otherwise to the satisfaction of Buyer.
7.8 SATISFACTION WITH DUE DILIGENCE. Buyer shall be satisfied, in
its sole reasonable discretion, with the results of its due
diligence investigation (including, without limitation, its
investigation of the condition of the Assets and its review of
Seller's financial statements).
7.9 ADDITIONAL DOCUMENTS. Buyer shall have received such documents,
certificates and other evidence as Buyer or its counsel
reasonably may request relating to the existence and standing of
Seller, the authorization, execution and delivery of this
Agreement by Seller, the accuracy of the representations and
warranties of Seller contained herein, and the compliance by
Seller with its obligations hereunder.
8. CONDITIONS TO SELLER'S OBLIGATIONS TO CLOSE
Seller's obligations to close is subject to the fulfillment of each of the
following conditions precedent (any of which may be waived by Seller), and
Buyer shall use its commercially reasonable efforts to cause each
condition to be fulfilled:
8.1 PERFORMANCE OF OBLIGATIONS. Buyer shall have complied with and
performed in all material respects each agreement, covenant and
condition in this Agreement which are required to be performed
or complied with by it at or prior to Closing.
8.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer contained in this Agreement, or made in
connection with this transaction, shall be true and correct in
all material respects at and as of the date of the Closing, as
if such representations and warranties were made at and as of
Closing.
8.3 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
no event or development has occurred, and no condition has
arisen, that has had, or reasonably could be expected to have, a
Material Adverse Effect on Buyer.
8.4 KEY EMPLOYEE AGREEMENTS. Buyer shall have executed and
delivered to each of Craig E. Lassen, Dave Selina and Jeff
Marshall an employment agreement in substantially the form
attached as Exhibit 7.4.
8.5 CONSENTS AND LICENSES. Buyer shall have obtained all
governmental approvals, permits and licenses, and the parties
shall have obtained all other consents and approvals as are
necessary in the opinion of Seller's counsel to consummate the
transactions contemplated herein and to enable Buyer to operate
the Business as it now is operated.
8.6 SHAREHOLDER CONSENT. Seller shall have obtained consent of
Seller's Shareholders to the transactions contemplated herein
satisfactory to Seller's counsel.
8.7 SATISFACTION WITH DUE DILIGENCE. Seller shall be satisfied, in
its sole reasonable discretion, with the results of its due
diligence investigation (including, without limitation, its
review of Buyer's financial statements).
8.8 ADDITIONAL DOCUMENTS. Seller shall have received such
documents, certificates and other evidence as Seller or its
counsel reasonably may request relating to the existence and
standing of Buyer, the authorization, execution and delivery of
this Agreement by Buyer, the accuracy of the representations and
warranties of Buyer contained herein, and the compliance by
Buyer with its obligations hereunder. Buyer and Buyer's
controlling shareholders shall have executed and delivered to
Seller an Agreement for Sharing of Dilution in substantially the
form attached as Exhibit 8.8.
9. ADDITIONAL OBLIGATIONS FOLLOWING CLOSING
9.1 PRESERVATION OF GOODWILL. Following Closing, Seller and its
officers, directors, employees and shareholders will restrict
their activities so that Buyer's reasonable expectations with
respect to the goodwill, business reputation, employee
relations, and prospects connected with the Assets and the
Business will not be materially impaired thereby.
9.2 PAYMENTS RECEIVED. Seller and Buyer shall hold and promptly
will transfer and deliver to the other, from time to time as and
when received, any cash, checks (with appropriate endorsements)
or other property that properly belongs to the other, including,
without limitation, any insurance proceeds, and after the
Closing, Buyer shall have the right and authority to endorse
without recourse the name of the Seller on any check or any
other evidences of indebtedness received by Buyer on account of
the Business or the Assets.
9.3 POST-CLOSING PAYMENTS. Buyer shall pay the obligations listed
on Schedule 7.7 on the date (the "100 Customer Date") on which
100 credit unions (or other entities associated with the credit
union industry that provide equivalent economics) have
subscribed and connected to the Company's secure network (or
equivalent Company service), or otherwise in accordance with the
Extension Agreement applying to each obligation.
9.4 STOCK TRANSFERS. Upon Seller's request after Closing, Buyer
shall transfer on its books the shares of Buyer's Class A common
stock and Class B common stock delivered to Seller hereunder,
into the names of Seller's shareholders in the proportions
requested by Seller, and shall issue stock certificates
accordingly against surrender of the stock certificates
delivered to Seller at Closing.
10. INDEMNIFICATION
10.1 INDEMNIFICATION BY SELLER. Seller agrees to indemnify, defend
and hold harmless Buyer and its shareholders, officers,
directors, employees and agents, and their respective successors
and assigns, from and against any and all claims, suits, losses,
reasonable expenses (legal, accounting, investigation and
otherwise), damages and liabilities (including, without
limitation, tax liabilities), arising out of or relating to (i)
any liability, obligation or commitment of Seller other than the
Assumed Liabilities, (ii) the conduct of, or conditions existing
with respect to, the Business prior to Closing, and (iii) any
misrepresentation or breach of warranty or covenant made by
Seller in this Agreement or the Seller's Documents. However,
Seller does not indemnify any shareholder of Buyer with respect
to any claim by that shareholder.
10.2 INDEMNIFICATION BY BUYER. Buyer agrees to indemnify, defend and
hold harmless Seller and its shareholders, officers, directors,
employees and agents, and their respective successors and
assigns, from and against any and all claims, suits, losses,
reasonable expenses (legal, accounting, investigation and
otherwise), damages and liabilities, arising out of or relating
to (i) any Assumed Liability, (ii) the conduct of, or conditions
arising with respect to, the Business after Closing, except to
the extent such conduct or conditions were caused by a breach of
Seller's representations or conditions under this Agreement, and
(iii) any misrepresentation or breach of warranty or covenant
made by Buyer in this Agreement or the Buyer's Documents.
However, Buyer does not indemnify any shareholder of Seller with
respect to any claim by that shareholder.
10.3 PAYMENT. Upon the determination of the liability under Sections
10.1 and 10.2 hereof, the appropriate party shall pay the other,
as the case may be, within ten days after such determination,
the amount of any claim for indemnification made hereunder. In
the event that the indemnified party is not paid in full for any
such claim pursuant to the foregoing provisions promptly after
the other party's obligation to indemnify has been determined in
accordance herewith, it shall have the right, notwithstanding
any other rights that it may have against any other person, to
set off the unpaid amount of any such claim against any amounts
owed by it under this Agreement, the Seller's Documents or the
Buyer's Documents. Upon the payment in full of any claim,
either by set off or otherwise, the entity making payment shall
be subrogated to the rights of the indemnified party against any
person with respect to the subject matter of such claim.
10.4 NOTICE AND CONTROL. In each case, the indemnity is subject to
the conditions that (a) the indemnifying party is notified of
the claim in a timely manner; (b) the indemnified party provides
all reasonable assistance to defend against the claim at the
indemnifying party's expense; and (c) the indemnifying party is
given control of the defense and settlement.
11. MISCELLANEOUS
11.1 TERMINATION.
(a) This Agreement may be terminated by written notice of
termination at any time prior to the Closing, as follows:
(i) by mutual consent of Seller and Buyer;
(ii) by Buyer, (A) at any time if the representations and
warranties of Seller contained herein were incorrect
in any material respect when made or at any time
thereafter, (B) upon the material breach by Seller
of any covenant made herein which cannot be cured
within 30 days of breach or (C) upon written notice
to Seller given at any time after January 31, 1999
if all of the conditions precedent set forth in
Section 7 hereof have not been met (provided that
Seller shall have 10 business days after the notice
to cure the failure of condition); or
(iii) by Seller, (A) at any time if the representations
and warranties of Buyer contained herein were
incorrect in any material respect when made or at
any time thereafter, (B) upon the material breach by
Buyer of any covenant of Buyer made herein which
cannot be cured within 30 days of breach or (C) upon
written notice to Buyer given at any time after
January 31, 1999 if all of the conditions precedent
set forth in Section 8 hereof have not been met
(provided that Buyer shall have 10 business days
after the notice to cure the failure of condition).
(b) If Buyer terminates this Agreement for any reason, then, 60
days after the date of termination, (a) all amounts
outstanding under the Loan Agreement dated as of September
14, 1998 between Buyer and Seller will be due and payable,
(b) Seller will reimburse Buyer for out-of-pocket expenses
incurred during its due diligence investigation, and (c)
Seller will pay a $25,000 cancellation fee.
11.2 EXPENSES. If the Closing is completed, insurance costs, sales,
use and transfer taxes arising out of the transactions
contemplated herein, and legal, accounting and other costs and
expenses incurred in connection with the transactions
contemplated herein shall be borne by Buyer. If this Agreement
is terminated without a Closing, except as otherwise provided
herein, legal, accounting and other costs and expenses incurred
in connection with the transactions contemplated herein shall be
paid by the party incurring such expenses.
11.3 NOTICES.
(a) All notices and other communications made pursuant to this
Agreement shall be in writing and shall be deemed to have
been given upon receipt by (1) personal delivery, (2)
telephonically confirmed fax, (3) receipted courier service
or (4) certified or registered mail, return receipt
requested, addressed as shown below. Refusal to accept
delivery shall be deemed receipt. All notices shall be
directed to the following addresses:
(i) If to Seller:
Cavion Technologies, Inc.
7475 Dakin Street, Suite 607
Denver, Colorado 80221-6920
Fax: 303-657-8210
Voice: 303-657-8212
Attn: Chief Executive Officer
(ii) If to Buyer:
Network Acquisitions, Inc.
5325 S. Valentia Way, Suite 220
Englewood, CO 80111
Fax: 303-740-9013
Voice: 303-740-9013
Attn: Caron Harte
(b) Any party hereto may change the address to which notices
shall be directed under this Section 11.3 by giving written
notice of such change to the other party.
11.4 WAIVERS. The rights and remedies under this Agreement shall be
cumulative and not exclusive of any rights or remedies which the
parties hereto otherwise would have. No failure or delay in
exercising any right shall operate as waiver of such right. Any
waiver or indulgence granted shall not constitute a modification
of this Agreement, except to the extent expressly provided in
such waiver or indulgence, or constitute a course of dealing at
variance with the terms of the Agreement such as to require
further notice of the intent to require strict adherence to the
terms of the Agreement in the future. Any such actions shall
not, in any way, affect the ability of the parties, in their
sole discretion, to exercise any rights available to them under
this Agreement.
11.5 COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, each of which shall be deemed to be an
original, but all such separate counterparts shall together
constitute but one and the same instrument.
11.6 GOVERNING LAW; BINDING EFFECT. This Agreement and each of the
other Documents attached hereto or contemplated hereby have been
delivered to and shall be deemed to have been made in Englewood,
Colorado, and shall be interpreted, and the rights and
liabilities of the parties hereto shall for all purposes be
governed by and construed and enforced without giving effect to
the principles of conflicts of laws, in accordance with the laws
of the State of Colorado applicable to agreements executed,
delivered and performed within such State.
11.7 HEADINGS. The headings used in this Agreement are for
convenience only and shall not be used in connection with the
interpretation of any provision hereof.
11.8 AMENDMENT AND WAIVER. Neither this Agreement nor any term
hereof may be amended orally, nor may any provision hereof be
waived orally but only by a written instrument signed by the
parties hereto.
11.9 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement and the other documents described or
contemplated herein embody the entire agreement and
understanding among the parties hereto and supersede all prior
agreements and understandings relating to the subject matter
hereof.
11.10 DRAFTING PARTY. This Agreement expresses the mutual intent of
the Buyer and Seller. Accordingly, regardless of the party
preparing any document, the rule of construction against the
drafting party shall have no application to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
or caused it to be executed by their duly authorized officers as of the
day and year first above written.
CAVION TECHNOLOGIES, INC. NETWORK ACQUISITIONS, INC.
/s/Craig E. Lassen /s/Caron Harte
By: Craig E. Lassen, CEO By: Caron Harte, President
LIST OF SCHEDULES
SCHEDULE NUMBER DESCRIPTION
- --------------- -----------
1.1(a) Description of Facilities
2.8 List of Employees
3.4 Financial Statements
3.5 Contingent Liabilities
3.6 Certain Changes or Events
3.8 Tax Matters
3.9 Litigation and Investigations
3.10 Material Contracts
3.11 Licenses and Permits
3.13 Accounts Receivable
3.14 Accounts Payable
3.15 Salaried Employees
3.16 Intellectual Property
3.17 Related Party Transactions
4.4 Buyer Financial Statements
4.5 Buyer Obligations
4.6 Capitalization of Buyer
7.7 Liabilities to be Deferred
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
2.3(a) Bill of Sale, Assignment and Assumption
Agreement
7.4 Form of Contract for Employment
8.8 Agreement for Sharing of Dilution
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NETWORK ACQUISITIONS, INC.
The following Amended and Restated Articles of Incorporation were
duly adopted by the shareholders of Network Acquisitions, Inc. pursuant to
the Colorado Business Corporation Act. The number of shares voted for the
Amended and Restated Articles of Incorporation was sufficient for
approval. These articles correctly set forth the provisions of the
Articles of Incorporation, as amended, and supersede the original Articles
of Incorporation and all amendments thereto.
ARTICLE I
NAME
The name of the Corporation is Cavion Technologies, Inc.
ARTICLE II
AUTHORIZED CAPITAL
A. COMMON STOCK
CLASS A COMMON STOCK. The Corporation shall have authority to issue
19,970,000 shares which shall be designated as Class A Common Stock,
$.0001 par value per share.
CLASS B COMMON STOCK. The Corporation shall have authority to issue
30,000 shares which shall be designated as Class B Common Stock, $.0001
par value per share.
The shares of Class A Common Stock and Class B Common Stock
(collectively, the "Common Stock") shall be identical in all respects
except that the Class B Common Stock is subject to an option (the "Put")
for the holder thereof to sell the shares to the Corporation, and a option
(the "Call") for the Corporation to buy the shares from the holder, in
each case at the price of $7.00 per share (as adjusted pursuant to the
terms set forth below). The terms of the Put and the Call are as follows:
The Put shall be exercisable only by the holder giving notice
of exercise to the Corporation during a 60-day period beginning on
the date that is 30 days after the date on which 100 credit unions,
or other entities associated with the credit union industry that
provide equivalent revenue generating opportunities to the
corporation, have subscribed and connected to the Corporation's
secure network, or equivalent services of the Corporation (the
"Exercise Period"), specifying the number of shares of Class B Common
Stock as to which the Put is exercised. If not exercised within the
Exercise Period, the Put shall expire at 5:00 p.m., Denver time, on
the last day of the Exercise Period.
The Call shall be exercisable by the Corporation at any time
from the date of Issuance of the Class B Common Stock through the
expiration of the Exercise Period by written notice to any holder of
Class B Common Stock with respect to all or any part of the shares of
Class B Common Stock owned by such holder.
No later than 60 days after the end of the Exercise Period, the
Corporation shall tender payment in full for all shares of Class B
Common Stock as to which the Put or the Call is exercised (plus any
accumulated but unpaid dividends on such shares), in immediately
available funds, against delivery to the principal offices of the
Corporation of certificates representing such shares, accompanied by
executed stock powers in proper form for transfer, free and clear of
all liens, claims and encumbrances.
In the event of any recapitalization, stock split, combination
of shares, or stock dividend, any shares into which shares of Class B
Common Stock are converted shall be subject to the Put and the Call,
and appropriate adjustment shall be made in the purchase price for
the Put and the Call.
If at the end of the Exercise Period neither the Put nor the
Call has been exercised with respect to any shares of Class B Common
Stock, then each outstanding share of Class B Common Stock shall
automatically be converted into one share of Class A Common Stock,
effective on the day after the last day of the Exercise Period.
The authorization for issuance of Class B Common Stock hereunder
shall automatically terminate on the earlier of (i) the date on which
exercise notices with respect to either the Put or the Call shall have
been issued with respect to all shares of Class B Common Stock; or (ii)
the date of automatic conversion of all outstanding shares of Class B
Common Stock pursuant to the foregoing paragraph.
Immediately upon the termination of the authorization for issuance of
Class B Common Stock hereunder, the Class A Common Stock shall
automatically be redesignated as Common Stock, and only one class of
Common Stock shall be authorized.
The Common Stock shall have unlimited voting rights, and shall
constitute all of the voting shares of the Corporation, except to the
extent that any additional class or classes of voting shares may hereafter
be established in accordance with the Colorado Business Corporation Act.
Upon liquidation of the Corporation, the shares of Common Stock shall be
entitled to receive the net assets of the Corporation after payment of the
liquidation preference provided for with respect to any issued and
outstanding Preferred Stock of the Corporation. Each shareholder shall be
entitled to one vote for each share of Common Stock held of record by such
shareholder at the time for determining the holders thereof entitled to
vote.
B. PREFERRED STOCK
The Corporation shall have authority to issue 10,000,000 shares which
shall be designated as Preferred Stock, $.0001 par value per share.
Except as provided by Section 7-110-104 of the Colorado Business
Corporation Act, the shares of Preferred Stock shall have no voting
rights. The Board of Directors of the Corporation may authorize the
issuance of one or more series of Preferred Stock and may determine the
preferences, limitations, and relative rights of any such series in
accordance with Section 7-106-102 of the Colorado Business Corporation
Act.
ARTICLE III
OFFICES
A. The street address of the registered office of the Corporation
is 7475 Dakin Street, Suite 607, Denver, Colorado 80221, and name of the
registered agent at that address is David J. Selina. The written consent
of the registered agent to the appointment as such is set forth below.
B. The address of the Corporation's initial principal office is
7475 Dakin Street, Suite 607, Denver, Colorado 80221.
ARTICLE IV
PURPOSES
The purposes for which the Corporation is organized are to transact
any legal and lawful purpose pursuant to the Colorado Business Corporation
Act.
ARTICLE V
PREEMPTIVE RIGHTS
The shareholders shall not have preemptive rights.
ARTICLE VI
CUMULATIVE VOTING
Cumulative voting shall not be permitted in the election of
directors.
ARTICLE VII
LIMITATION ON DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of
fiduciary duty as a director; except that this provision shall not
eliminate or limit the liability of a director to the Corporation or to
its shareholders for monetary damages otherwise existing for (i) any
breach of the director's duty of loyalty to the Corporation or to its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) acts specified
in Section 7-108-403 of the Colorado Business Corporation Act; or (iv) any
transaction from which the director directly or indirectly derived any
improper personal benefit. If the Colorado Business Corporation Act is
hereafter amended to eliminate or limit further the liability of a
director, then, in addition to the elimination and limitation of liability
provided by the preceding sentence, the liability of each director shall
be eliminated or limited to the fullest extent permitted by the Colorado
Business Corporation Act as so amended. Any repeal or modification of
this Article VII shall not adversely affect any right or protection of a
director of the Corporation under this Article VII, as in effect
immediately prior to such repeal or modification, with respect to any
liability that would have accrued, but for this Article VII, prior to such
repeal or modification.
ARTICLE VIII
INDEMNIFICATION
(a) The Corporation shall indemnify, to the fullest extent permitted
by applicable law in effect from time to time, any person, and the estate
and personal representative of any such person, against all liability and
expense (including attorneys' fees) incurred by reason of the fact that
such person is or was a director or officer of the Corporation or, while
serving as a director or officer of the Corporation, such person is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee, fiduciary, or agent of, or in any similar managerial or
fiduciary position of, another domestic or foreign corporation or other
individual or entity or of an employee benefit plan. The Corporation
shall also indemnify any person who is serving or has served the
Corporation as director, officer, employee, fiduciary, or agent, and that
person's estate and personal representative, to the extent and in the
manner provided in any bylaw, resolution of the shareholders or directors,
contract, or otherwise, so long as such provision is legally permissible.
(b) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director or officer who is a party to a proceeding
in advance of final disposition of the proceeding if:
(i) the director or officer furnishes to the Corporation a
written affirmation of his or her good faith belief that he or she
has met the standard of conduct described in Section 7-109-102 of the
Colorado Business Corporation Act;
(ii) the director or officer furnishes to the Corporation a
written undertaking, executed personally or on the director's or
officer's behalf, to repay the advance if it is ultimately determined
that he or she did not meet the standard of conduct; and
(iii) a determination is made that the facts then known to
those making the determination would not preclude indemnification
under Article 109 of the Colorado Business Corporation Act.
ARTICLE IX
TERM OF EXISTENCE
The duration of the Corporation shall be perpetual.
Dated: February 1, 1999
CAVION TECHNOLOGIES, INC.
By: /s/ David J. Selina
David J. Selina, President
The undersigned consents to the appointment as the registered agent
of Cavion Technologies, Inc.
/s/ David J. Selina
David J. Selina
AMENDED ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CAVION TECHNOLOGIES, INC.
SETTING FORTH THE
AMENDED STATEMENT OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF CONVERTIBLE PREFERRED STOCK, SERIES A
TO THE SECRETARY OF STATE OF THE STATE OF COLORADO:
Pursuant to Article 106-102 of the Colorado Business Corporation Act,
CAVION TECHNOLOGIES, INC., a Colorado corporation (the "Corporation"),
submits the following articles of amendment to its Second Amended and
Restated Articles of Incorporation setting forth the statement of
designation of series and determination of rights and preferences of its
Convertible Preferred Stock, Series A.
FIRST: The name of the corporation is Cavion Technologies, Inc., a
Colorado corporation.
SECOND: The Board of Directors of the Corporation, by unanimous
written consent in lieu of a meeting pursuant to Section 108-202 of the
Colorado Business Corporation Act, duly adopted the following resolution
on February 1, 1999. No shareholder action was required.
WHEREAS, the Second Amended and Restated Articles of Incorporation of
the Corporation (the "Articles of Incorporation") authorize a class of
preferred stock, consisting of 10,000,000 shares, par value $.0001 per
share (the "Preferred Stock"), issuable from time to time in one or more
series; and
WHEREAS, the Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law and by the provisions of Article
THIRD of the Articles of Incorporation, to authorize the issuance of one
or more series of Preferred Stock and may determine the preferences,
limitations and relative rights of any such series in accordance with
Section 106-102 of the Colorado Business Corporation Act; and
WHEREAS, the Board of Directors of the Corporation has determined
that a series of 770,000 shares of Convertible Preferred Stock, Series A
should be reserved for issuance subject to the designation, preferences,
limitations and relative rights set forth below.
NOW THEREFORE BE IT RESOLVED that pursuant to Article THIRD of the
Articles of Incorporation, there is hereby established a new series of
770,000 shares of Convertible Preferred Stock of the Corporation, to have
the designation, preferences, limitations and relative rights set forth
below; and be it further
RESOLVED, that pursuant to Article THIRD of the Articles of
Incorporation and Section 106-102 of the Colorado Business Corporation
Act, the Articles of Incorporation be, and they hereby are, amended by the
addition of the following as the Statement of Designation, Preferences,
Limitations and Relative Rights of the Convertible Preferred Stock, Series
A.
A. The Convertible Preferred Stock, Series A, shall rank in
priority on a parity with the Parity Securities as to payment of dividends
and as to distributions on liquidation and, to the extent provided herein,
ahead of the Junior Securities (as the same may be adjusted from time to
time to reflect stock splits, stock dividends, recapitalizations,
combinations and the like) and shall be subject to the following rights,
preferences, priorities, conditions, limitations and restrictions:
1. DESIGNATION. The shares of such series shall be designated
"Convertible Preferred Stock, Series A" (hereinafter referred to as the
"Series A Preferred").
2. DIVIDENDS. The holders of record of the Series A Preferred
shall be entitled to receive, as and when declared by the Board of
Directors, dividends as follows:
(a) from and after the date of issuance of the Series A
Preferred, the holders of the Series A Preferred shall be entitled to
receive cumulative preferential dividends at the rate of 5% per annum,
such dividends to accrue and be cumulative from said date and to be
payable quarterly on the last day of March, June, September and December
of each year, commencing March 31, 1999, such dividend rate to be based on
the offering price of $3.00 per share of Series A Preferred (the "Offering
Price"), and
(b) such dividends may, at the option of the Corporation,
be paid in Class A Common Stock of the Company or in cash, with any
payment in Class A Common Stock being in that number of shares of Class A
Common Stock that is calculated by dividing the amount of cash that would
be payable if such dividend were paid in cash by the market value of a
share of Class A Common Stock of the Corporation on the date such dividend
is payable (as determined in good faith by the Directors). The market
value determined by the Directors for this purpose shall be no higher than
the most recent price per share of Class A Common Stock issued by the
Corporation.
Such dividends shall be cumulative and no dividend shall be
declared, paid or set apart for payment upon the Junior Securities unless
all then unpaid and accumulated dividends on the Series A Preferred up to
and including the dividend payment for the last completed period for which
such dividends shall be payable shall have been declared and paid or set
apart for payment.
The mailing of checks or of certificates for shares of
Class A Common Stock, as applicable, shall satisfy such dividends to the
extent of the sum or sums represented thereby. Each dividend on the
Series A Preferred shall be paid to the registered holders appearing on
the register at the close of business on such day (which shall not be more
than thirty (30) days preceding the date fixed for payment of such
dividend) as may be determined from time to time by the Directors.
3. LIQUIDATION. In the event of the liquidation, dissolution
or winding-up of the Corporation or other distribution of assets of the
Corporation among stockholders for the purpose of winding up its affairs,
or in the event of the merger of the Corporation into any entity as a
result of which the Corporation is not the surviving corporation or the
sale of all or substantially all of the assets of the Corporation, the
holders of the Series A Preferred shall, before any amount shall be paid
to or any property or assets of the Corporation distributed among the
holders of Junior Securities, be entitled to receive a sum equal to two
times the Offering Price per share, together with all accrued and unpaid
dividends (which for such purpose shall be calculated as if such dividends
were accruing from day to day for the period from the expiration of the
last period for which dividends have been paid up to and including the
date of distribution). If, upon any such liquidation, dissolution,
distribution, winding up, merger or sale of all or substantially all of
the assets of the Corporation, the liquidation preferences with respect to
the Series A Preferred and any Parity Securities are not paid in full, the
holders of the Series A Preferred and such Parity Securities will share
ratably in any distribution of assets of the Corporation in proportion to
the full liquidation preferences to which each is entitled. After payment
to the holders of the Series A Preferred of the amounts so payable to
them, they shall not be entitled to share in any further distribution of
the property or assets of the Corporation.
4. VOTING. Except as required by law, the holders of the
Series A Preferred shall not be entitled to vote such shares on any other
matter to be voted on by the stockholders of the Corporation.
5. CONVERSION.
(a) Subject to and upon compliance with the provisions of
this Paragraph A.5, shares of the Series A Preferred shall be convertible,
at the option of the holder, into fully paid and non-assessable shares of
Class A Common Stock as determined by dividing the amount of the Offering
Price by the conversion price provided in Paragraph A.5(e) below, as such
conversion price may be adjusted in Paragraph A.5(f) below.
(b) A holder of Series A Preferred may exercise the
conversion right provided hereby by surrendering the certificate or
certificates representing the shares of Series A Preferred which are to be
converted, together with a written notice requesting such conversion, to
the Corporation at any time during usual business hours. If only a
portion of the shares represented by any such certificates is to be
converted, upon such conversion the Corporation shall issue and deliver a
new certificate or certificates for the remainder of the shares to the
holder thereof at the expense of the Corporation.
(c) As promptly as practicable after the surrender, as
herein provided, of the shares of Series A Preferred for conversion, the
Corporation shall deliver or cause to be delivered, to or upon the written
order of the holder, a certificate representing fully paid and non-
assessable shares of Class A Common Stock into which such shares may be
converted in accordance with this Paragraph A.5. Subject to the
provisions of this Paragraph A.5(c) and Paragraph A.5(f), such conversion
shall be deemed to have been immediately prior to the close of business on
the date (the "Conversion Date") that such shares shall have been
surrendered for conversion, accompanied by written notice of election to
exercise the conversion right provided hereby, so that the right of the
holder of such shares of Series A Preferred as holder thereof shall cease
with respect to such shares of Series A Preferred being converted at such
time, and the person or persons entitled to receive the shares of Class A
Common Stock upon conversion shall be treated for all purposes as having
become the record holder or holders thereof at such time and shall be
entitled to rank equally with the registered holders of all other Common
Stock in respect of all dividends payable to holders of Class A Common
Stock of record on any date after the date of conversion.
(d) The amount of accrued and unpaid dividends, if any, as
of the Conversion Date, with respect to any shares of Series A Preferred
being converted, shall be paid in cash or in shares of Class A Common
Stock by the Corporation (calculated as provided in Paragraph A.2), and a
check or share certificate representing such accrued and unpaid dividends
shall be forwarded to the holder together with the certificate
representing the shares of Class A Common Stock into which such shares
have been converted.
(e) The initial conversion price (the "Conversion Price")
at which shares of Class A Common Stock shall be issuable upon conversion
of shares of Series A Preferred shall be the amount equal to the Offering
Price per share of Class A Common Stock with each share of Series A
Preferred having a value equal to the Offering Price for this purpose.
(f) The Conversion Price shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall (A) pay a dividend
or make a distribution on its shares of Common Stock in shares of its
capital stock, (B) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares of Common Stock or, (C)
combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, the Conversion Price in effect
at the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall
be appropriately adjusted so that the holder of any share of Series A
Preferred shall be entitled to receive, upon any conversion of Series A
Preferred thereafter, the number of shares of Common Stock, or the number
and kind of other shares of capital stock of the Corporation, which the
holder would have owned or been entitled to receive after the happening of
any of the events described above had such share of Series A Preferred
been converted immediately prior to any such event.
(ii) In case the Corporation shall issue shares of
Common Stock without consideration or for a consideration less than two
times the Conversion Price in effect immediately prior to any such
issuance, other than as covered in subparagraph (i) above (a "Price
Protection Offering"), the Conversion Price shall be adjusted so that the
same shall equal one-half of the price per share at which Common Stock is
issued in such Price Protection Offering. Such adjustment shall be made
upon the closing with respect to the Price Protection Offering. However,
the foregoing provisions of this subparagraph (ii) shall not apply to any
issuance of shares of Common Stock in connection with a Strategic Partner
Transaction. In case the Corporation shall issue shares of Common Stock
in a Strategic Partner Transaction for consideration which has a Fair
Market Value per share that is less than the Conversion Price in effect
immediately prior to any such issuance, the Conversion Price shall be
adjusted so that the same shall equal the Fair Market Value per share at
which the Common Stock is issued in such Strategic Partner Transaction.
(iii) In case the Corporation shall issue any
securities convertible into shares of Common Stock (or any rights,
warrants or options to subscribe for or purchase securities convertible
into shares of Common Stock), other than as covered in subparagraph (i)
above, and the total consideration per share of Common Stock for the
issuance and exercise of such convertible securities, rights, warrants or
options (including the conversion price per share of Common Stock under
the convertible securities purchasable upon exercise any such rights,
warrants or options) (the "Total Consideration") is less than two times
the Conversion Price in effect immediately prior to any such issuance, the
Conversion Price shall be adjusted so that the same shall equal one-half
of the Total Consideration. However, the foregoing provisions of this
subparagraph (iii) shall not apply to any Strategic Partner Transaction.
In case the Corporation shall issue any securities convertible into shares
of Common Stock (or any rights, warrants or options to subscribe for or
purchase securities convertible into shares of Common Stock) in a
Strategic Partner Transaction, and the sum of the Fair Market Value per
share of Common Stock of the total consideration for the issuance and
exercise of such convertible securities, rights, warrants or options
(including the conversion price per share of Common Stock under the
convertible securities purchasable upon exercise of any such rights,
warrants or options) (the "Total Value") is less than the Conversion Price
in effect immediately prior to any such issuance, the Conversion Price
shall be adjusted so that the same shall equal the Total Value.
(iv) In case the Corporation shall distribute to all
holders of its shares of Common Stock any evidences of its indebtedness or
any assets (excluding cash dividends or distributions, and dividends or
distributions referred to in subparagraph (i) above), then in each such
case the Conversion Price in effect thereafter shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior thereto by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding on
the record date referred to below multiplied by the Conversion Price in
effect immediately prior to such distribution, from which shall then be
deducted the fair market value (as determined by the Corporation) of said
evidences of indebtedness or assets so distributed, and the denominator of
which shall be the total number of shares of Common Stock outstanding on
the record date referred to below multiplied by the Conversion Price in
effect immediately prior to such distribution. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution; provided however that nothing in
this subparagraph (iv) shall be interpreted to permit any distribution
prohibited by paragraph A.12.
(v) In any case in which this Paragraph A.5(f) shall
require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence
of such event (A) issuing to the holder thereof, if shares of Series A
Preferred are converted after such record date and before the occurrence
of such event, the additional shares of Class A Common Stock or other
securities issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock
issuable upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Paragraph A.5(h); provided, however, that the Corporation
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares or other
securities and such cash upon the occurrence of the event requiring such
adjustment.
(vi) No adjustment in the Conversion Price shall be
required (A) with respect to shares of Class A Common Stock issued upon
conversion of shares of Series A Preferred or (B) unless such adjustment
would require an increase or decrease in the Conversion Price of at least
$.05; provided, however, that any adjustments which by reason of this
subparagraph (vi) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Paragraph A.5 shall be made to the nearest $.01.
(vii) No adjustment in the Conversion Price shall be
required under subparagraph (ii) or (iii) above with respect to (A) the
grant or exercise of stock options or the award of stock grants, stock
appreciation rights or similar instruments to directors or employees of
the Corporation or advisors providing bona fide services to the
Corporation, as approved by the Directors, or (B) any issuance of
securities of the Corporation in connection with acquisition by the
Corporation of assets or securities of any other entity.
(viii) Whenever the Conversion Price is adjusted as
herein provided, the Corporation shall promptly mail or cause to be mailed
a notice of such adjustment to the holders of Series A Preferred at such
holder's last address as the same appears on the Corporation's records.
(g) In case of any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination covered by (f)(i) above), or in
case of any consolidation of the Corporation with, or merger of the
Corporation with or into, another person (other than a consolidation or
merger in which the Corporation is the continuing entity and which does
not result in any reclassification or change of the outstanding shares of
Common Stock), or in case of any conveyance or transfer to another person
of all or substantially all of the property of the Corporation, the
holders of Series A Preferred shall have the right to convert such shares
into the kind and amount of shares of beneficial interest and other
securities and property which would have been receivable by such holder
upon such reclassification, change, consolidation, merger, conveyance or
transfer if such shares of Series A Preferred had been converted into
shares of Class A Common Stock immediately prior thereto.
(h) No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of shares of Series A
Preferred. If any conversion results in a fraction, an amount equal to
such fraction multiplied by the Conversion Price then in effect shall be
paid to such holder in cash by the Corporation.
(i) The issue of certificates on conversions of shares of
Series A Preferred shall be made without charge to the converting holder
for any tax in respect of the issue thereof. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Class A Common
Stock in any name other than that of the holder of the shares being
converted and the Corporation shall not be required to issue or deliver
any certificate in respect of shares of Class A Common Stock unless and
until the person or persons requesting the issue thereof shall have paid
to the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(j) The Corporation covenants that all shares of Class A
Common Stock which may be issued upon conversion of shares of Series A
Preferred will upon issue be fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof. The
Corporation does hereby reserve out of its authorized but unissued Class A
Common Stock 1,000,000 shares of Class A Common Stock for the conversion
of Series A Preferred and shall at all times hereafter retain a sufficient
number of shares of authorized but unissued Class A Common Stock to
satisfy the conversion privilege of all of the issued shares of Series A
Preferred.
(k) In case at any time the Corporation shall propose:
(i) to pay any dividend on its shares of Common Stock
in shares of its capital stock or to make any distribution (other than a
regular cash dividend) to the holders of its shares of Common Stock; or
(ii) to offer for subscription pro rata to the holders
of its shares of Common Stock any additional shares of beneficial interest
of any Class or any other rights or warrants; or
(iii) to consolidate or merge with or into another
person;
(iv) to effect any reorganization, reclassification,
liquidation, dissolution or winding-up of the Corporation; or
(v) to effect any conveyance or transfer to another
person of all or substantially all of the property of the Corporation;
Then and in any one or more of such cases, the
Corporation shall cause at least ten days notice thereof to be given to
the holders of Series A Preferred of the date on which (x) the Corporation
shall close, or cause a record to be taken, for such dividend on shares of
Common Stock, distribution, or offering of rights or warrants or (y) such
consolidation, merger, reorganization, reclassification, liquidation,
dissolution, winding-up, conveyance or transfer shall be effective, as the
case may be.
6. AUTOMATIC CONVERSION. Each share of Series A Preferred
shall automatically be converted into shares of Class A Common Stock at
the Conversion Price then in effect on the earlier to occur of (i)
consummation of a public offering of any of the Common Stock of the
Corporation; or (ii) the date specified in a notice thereof delivered by
the Corporation at any time after January 1, 2004.
7. NO PREEMPTIVE RIGHTS. The holders of the Series A
Preferred shall not, as such, be entitled to any preemptive rights or
other rights to subscribe for or purchase any issue of shares, bonds,
debentures or other securities of the Corporation or any part thereof.
8. INCREASES IN AUTHORIZED CAPITAL. Except as herein
expressly provided, nothing herein contained shall be deemed to limit the
right of the Corporation from time to time to increase its capital stock
or to subdivide, consolidate, change, classify or reclassify any shares
now or hereafter authorized upon compliance with the then applicable laws.
9. PAYMENTS. All payments to be made hereunder in cash on or
in respect of the Series A Preferred whether on account of capital,
dividends or otherwise, shall be made in U.S. funds.
10. NO SENIOR PREFERRED STOCK. The Corporation shall not while
any of the shares of the Series A Preferred remain outstanding issue any
series of preferred stock, the terms of which provide that such series has
priority over the Series A Preferred as to the payment of dividends or as
to repayment of capital.
11. NO REDEMPTION OF JUNIOR SECURITIES. So long as any shares
of Series A Preferred are outstanding, the Corporation shall not, and
shall not permit any subsidiary to, redeem, purchase or otherwise acquire
any shares of any Junior Securities, except (i) from directors, employees
or advisors of the Corporation pursuant to the terms of stock option,
stock purchase or similar agreements with such directors, employees or
advisors providing for purchase of or right of first refusal with respect
to such Junior Securities, or (ii) payments (including settlement
payments) made with respect to claims of statutory dissenters' rights.
12. LIMITATION ON DIVIDENDS AND DISTRIBUTIONS. Until all of
the Series A Preferred has been converted into Class A Common Stock,
except for cash dividends of amounts approved by the Directors payable in
any year out of the Net Cash Flow earned by the Corporation in such year,
the Corporation shall not distribute to any holders of Junior Securities
any evidences of its indebtedness or assets (excluding dividends or
distributions referred to in subparagraph A.5(f)(i) above), unless the
holders of a majority of the Series A Preferred consent to the
distribution. However, no consent shall be required with respect to any
distribution in connection with (i) a liquidation, dissolution or winding-
up of the Corporation, or (ii) a conveyance or transfer to another person
of all or substantially all of the property of the Corporation.
B. DEFINITIONS. The following words and phrases whenever used
herein shall, unless there be something in the context inconsistent
therewith, have the following meanings:
"Common Stock" means the Class A and Class B common stock of the
Corporation, par value $.0001 per share.
"Directors" means the Board of Directors of the Corporation for
the time being, and reference to an action by the Directors shall
mean action by the Directors as a Board or by any authorized
Committee thereof.
"Fair Market Value" of any non-cash consideration shall mean the
fair market value of such non-cash consideration as determined in
good faith by the Directors.
"Junior Securities" means the Common Stock of the Corporation
and any series of preferred stock subsequently issued by the
Corporation, the terms of which specifically provide that such series
is subordinate to the Series A Preferred as to payment of dividends
and as to repayment of capital and any other Class of shares of the
Corporation at any time which ranks after or is subordinate to the
Series A Preferred as to payment of dividends and as to repayment of
capital.
"Net Cash Flow" means the Corporation's cash flow from
operations after deducting all overhead, general and administrative
expenses, salaries and bonuses to all officers and employees of the
Corporation, taxes, debt service, payment of principal amounts due on
any indebtedness and dividends on the Series A Preferred.
"Parity Securities" means any series of preferred stock
subsequently issued by the Corporation, the terms of which either
specifically provide that such series will rank on a parity with the
Series A Preferred or fail to specify the ranking of such series
relative to the Series A Preferred.
"Strategic Partner Transaction" means any transaction undertaken
to create a strategic business liaison between the Company and the
investor and which may either enhance revenues to the Company or
reduce Company costs.
"U.S. Funds" or sums of money referred to by "$" or "dollars"
shall mean United States dollars.
Words importing the singular number only shall include the
plural and vice versa and words importing the masculine gender shall
include the feminine gender and vice versa and words importing
persons shall include firms, associations and corporations and vice
versa.
IN WITNESS WHEREOF, Cavion Technologies, Inc., a Colorado
corporation, has caused this Amendment to be signed by its President, this
26th day of February, 1999.
CAVION TECHNOLOGIES, INC.
By:/s/David J. Selina
Name: David J. Selina
Title: President
BYLAWS
OF
CAVION TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
----
ARTICLE I SHAREHOLDERS 1
1. Annual Shareholders' Meeting 1
2. Special Shareholders' Meeting 1
3. Record Date for Determination of Shareholders 1
4. Voting List 2
5. Notice to Shareholders 2
6. Quorum and Manner of Acting 3
7. Voting Entitlement of Shares 4
8. Proxies; Acceptance of Votes and Consents 4
9. Waiver of Notice 4
10. Action by Shareholders Without a Meeting 5
11. Meetings by Telecommunications 5
12. Conduct of Meetings 5
ARTICLE II DIRECTORS 5
1. Authority of the Board of Directors 5
2. Number 6
3. Qualification 6
4. Election 6
5. Term 6
6. Resignation 6
7. Removal 6
8. Vacancies 6
9. Meetings 7
10. Notice of Special Meeting 7
11. Quorum 7
12. Waiver of Notice 8
13. Attendance by Telephone 8
14. Deemed Assent to Action 8
15. Action by Directors Without a Meeting 8
ARTICLE III COMMITTEES OF THE BOARD OF DIRECTORS 9
1. Committees of the Board of Directors 9
ARTICLE IV OFFICERS 10
1. General 10
2. Term 10
3. Removal and Resignation 10
4. President 10
5. Vice President 11
6. Secretary 11
7. Assistant Secretary 11
8. Chief Financial Officer 12
9. Compensation 12
ARTICLE V INDEMNIFICATION 12
1. Indemnification 12
2. Insurance 12
3. Notice to Shareholders of Indemnification of Director 13
4. Indemnification Nonexclusive; Inurement 13
ARTICLE VI SHARES 13
1. Certificates 13
2. Facsimile Signatures 14
3. Transfers of Shares 14
4. Shares Held For Account of Another 14
ARTICLE VII MISCELLANEOUS 15
1. Corporate Seal 15
2. Fiscal Year 15
3. Receipt of Notices by the Corporation 15
4. Amendment of Bylaws 15
BYLAWS
OF
CAVION TECHNOLOGIES, INC.
ARTICLE I
SHAREHOLDERS
1. ANNUAL SHAREHOLDERS' MEETING. The annual shareholders' meeting
shall be held on the date and at the time and place fixed from time to
time by the board of directors; provided, however, that the first annual
meeting shall be held on a date that is within six months after the close
of the first fiscal year of the Corporation, and each successive annual
meeting shall be held on a date that is within the earlier of six months
after the close of the last fiscal year or fifteen months after the last
annual meeting.
2. SPECIAL SHAREHOLDERS' MEETING. A special shareholders' meeting
for any purpose or purposes may be called by the board of directors or the
president. The Corporation shall also hold a special shareholders'
meeting in the event it receives one or more written demands for the
meeting, stating the purpose or purposes for which it is to be held,
signed and dated by the holders of shares representing not less than ten
percent of all of the votes entitled to be cast on any issue proposed to
be considered at the meeting. Special meetings shall be held at the
principal office of the Corporation or at such other place as the board of
directors or the president may determine.
3. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders entitled
to notice of or to vote at any shareholders' meeting or at any adjournment
of a shareholders' meeting, entitled to demand a special shareholders'
meeting, entitled to take any other action, entitled to receive payment
of a share dividend or a distribution or for any other purpose, the board
of directors may fix a future date as the record date for such
determination of shareholders. The record date may be fixed not more than
seventy days and not less than ten days before the date of the proposed
action.
(b) Unless otherwise specified when the record date is fixed,
the determination of shareholders shall be as of the Corporation's close
of business on the record date.
(c) A determination of shareholders entitled to be given notice
of or to vote at a shareholders' meeting is effective for any adjournment
of the meeting unless the board of directors fixes a new record date,
which the board shall do if the meeting is adjourned to a date more than
one hundred twenty days after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for
determining shareholders entitled to be given notice of and to vote at an
annual or special shareholders' meeting is the day before the first notice
is given to shareholders.
(e) The record date for determining shareholders entitled to
take action without a meeting pursuant to Section 10 of this Article is
the date upon which the first writing necessary to effect the action is
received by the Corporation.
4. VOTING LIST.
(a) After a record date is fixed for a shareholders' meeting,
the Corporation shall prepare a list of the names of all its shareholders
who are entitled to be given notice of the meeting. The list shall be
arranged by voting groups and within each voting group by class or series
of shares, shall be alphabetical within each class or series, and shall
show the address of, and the number of shares of each such class and
series that are held by, each shareholder.
(b) The shareholders' list shall be available for inspection by
any shareholder, beginning the earlier of ten days before the meeting for
which the list was prepared or two business days after notice of the
meeting is given and continuing through the meeting, and any adjournment
thereof, at the Corporation's principal office or at a place identified in
the notice of the meeting in the city where the meeting will be held.
(c) The Corporation shall make the shareholders' list available
at the meeting, and any shareholder or agent or attorney of a shareholder
is entitled to inspect the list at any time during the meeting or any
adjournment.
5. NOTICE TO SHAREHOLDERS.
(a) The Corporation shall give notice to shareholders of the
date, time and place of each annual and special shareholders' meeting no
fewer than ten nor more than sixty days before the date of the meeting;
except that, if the Articles of Incorporation are to be amended to
increase the number of authorized shares, at least thirty days' notice
shall be given. Except as otherwise required by the Colorado Business
Corporation Act, the Corporation shall be required to give such notice
only to shareholders entitled to vote at the meeting.
(b) Notice of an annual shareholders' meeting need not include
a description of the purpose or purposes for which the meeting is called
unless a purpose of the meeting is to consider an amendment to the
Articles of Incorporation, a restatement of the Articles of Incorporation,
a plan of merger or share exchange, disposition of substantially all of
the property of the Corporation, consent by the Corporation to the
disposition of property by another entity, or dissolution of the
Corporation.
(c) Notice of a special shareholders' meeting shall include a
description of the purpose or purposes for which the meeting is called.
(d) Notice of a shareholders' meeting shall be in writing and
shall be given
(1) by deposit in the United States mail, properly
addressed to the shareholder's address shown in the Corporation's current
record of shareholders, first class, postage prepaid, and, if so given,
shall be effective when mailed; or
(2) by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail or private carrier or by personal
delivery to the shareholder, and, if so given, shall be effective when
actually received by the shareholder.
(e) If an annual or special shareholders' meeting is adjourned
to a different date, time or place, notice need not be given of the new
date, time or place if the new date, time or place is announced at the
meeting before adjournment; provided, however, that, if a new record date
for the adjourned meeting is fixed pursuant to Section 3(c) of this
Article, notice of the adjourned meeting shall be given to persons who are
shareholders as of the new record date.
(f) If three successive notices are given by the Corporation,
whether with respect to a shareholders' meeting or otherwise, to a
shareholder and are returned as undeliverable, no further notices to such
shareholder shall be necessary until another address for the shareholder
is made known to the Corporation.
6. QUORUM AND MANNER OF ACTING.
(a) Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. A majority of the votes entitled to be cast
on the matter by the voting group shall constitute a quorum of that voting
group for action on the matter. If a quorum does not exist with respect
to any voting group, the president or any shareholder or proxy that is
present at the meeting, whether or not a member of that voting group, may
adjourn the meeting to a different date, time or place, notice need not be
given of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment. If a new record date for the
adjourned meeting is or must be fixed pursuant to Section 3(c) of this
Article, notice of the adjourned meeting shall be given pursuant to
Section 5 of this Article to persons who are shareholders as of the new
record date. At any adjourned meeting at which a quorum exists, any
matter may be acted upon that could have been acted upon at the meeting
originally called; provided, however, that if new notice is given of the
adjourned meeting, then such notice shall state the purpose or purposes of
the adjourned meeting sufficiently to permit action on such matters. Once
a share is represented for any purpose at a meeting, including the purpose
of determining that a quorum exists, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or shall be set for that adjourned
meeting.
(b) If a quorum exists, action on a matter other than the
election of directors is approved if the votes cast by the shareholders
favoring the action exceed the votes cast by the shareholders opposing the
action, unless the vote of a greater number is required by law, the
Articles of Incorporation or any shareholder agreement among the
shareholders of the Corporation. At each election of directors, that
number of candidates equaling the number of directors to be elected,
having the highest number of votes cast in favor of their election, shall
be elected to the board of directors.
7. VOTING ENTITLEMENT OF SHARES. Except as stated in the Articles
of Incorporation, each outstanding share, regardless of class, is entitled
to one vote and each fractional share is entitled to a corresponding
fractional vote, on each matter voted on at a shareholders' meeting. Each
shareholder shall be entitled to one vote for each of the shares owned by
him or her in the election of each director to be elected and for whose
election the shareholder has the right to vote.
8. PROXIES; ACCEPTANCE OF VOTES AND CONSENTS.
(a) A shareholder may vote either in person or by proxy.
(b) An appointment of a proxy is effective against the
Corporation when received by the Corporation. An appointment is valid
for eleven months unless a different period is expressly provided in the
appointment form.
(c) The Corporation may accept or reject any appointment of a
proxy, revocation of appointment of a proxy, vote, consent, waiver, or
other writing purportedly signed by or for a shareholder, if such
acceptance or rejection is in accordance with the provisions of Sections 7-
107-203 and 7-107-205 of the Colorado Business Corporation Act.
9. WAIVER OF NOTICE.
(a) A shareholder may waive any notice required by the Colorado
Business Corporation Act, by the Articles of Incorporation or these
Bylaws, whether before or after the date or time stated in the notice as
the date or time when any action will occur or has occurred. The waiver
shall be in writing, be signed by the shareholder entitled to the notice,
and be delivered to the Corporation for inclusion in the minutes or filing
with the corporate records, but such delivery and filing shall not be
conditions of the effectiveness of the waiver.
(b) By attending a meeting, a shareholder waives any objection
to (1) lack of notice or defective notice of such meeting unless he or she
objects, at the beginning of the meeting, to the holding of the meeting or
the transaction of business at the meeting or (2) consideration at such
meeting of any matter not within the purpose or purposes described in the
notice of the meeting unless he or she objects to considering the matter
when it is presented.
10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required
or permitted to be taken at a shareholders' meeting may be taken without a
meeting if all of the shareholders entitled to vote thereon consent to
such action in writing. Action taken pursuant to this Section shall be
effective when the Corporation has received writings that describe and
consent to the action, signed by all of the shareholders entitled to vote
thereon. Action taken pursuant to this Section shall be effective as of
the date the last writing necessary to effect the action is received by
the Corporation, unless all of the writings necessary to effect the action
specify another date, which may be before or after the date the writings
are received by the Corporation. Such action shall have the same effect
as action taken at a meeting of shareholders and may be described as such
in any document. Any shareholder who has signed a writing describing and
consenting to action taken pursuant to this Section may revoke such
consent by a writing signed by the shareholder describing the action and
stating that the shareholder's prior consent thereto is revoked, if such
writing is received by the Corporation before the effectiveness of the
action.
11. MEETINGS BY TELECOMMUNICATIONS. Any or all of the shareholders
may participate in an annual or special shareholders' meeting by, or the
meeting may be conducted through the use of, any means of communication by
which all persons participating in the meeting may hear each other during
the meeting. A shareholder participating in a meeting by this means is
deemed to be present in person at the meeting.
12. CONDUCT OF MEETINGS. All meetings of the shareholders shall be
conducted in accordance with the Guidelines for the Conduct of
Stockholders' Meetings published by the Corporate Governance Committee of
the American Bar Association Business Law Section, from and after approval
of the Guidelines by the Corporate Governance Committee; provided,
however, that the Guidelines shall not be followed to the extent of any
inconsistency with the Articles of Incorporation, these Bylaws, or
applicable law.
ARTICLE II
DIRECTORS
1. AUTHORITY OF THE BOARD OF DIRECTORS. The corporate powers shall
be exercised by or under the authority of, and the business and affairs of
the Corporation shall be managed under the direction of, a board of
directors.
2. NUMBER. The number of directors shall be fixed by resolution of
the board of directors from time to time and may be increased or decreased
by resolution adopted by the board of directors from time to time, but no
decrease in the number of directors shall have the effect of shortening
the term of any incumbent director.
3. QUALIFICATION. Directors shall be natural persons at least
eighteen years old but need not be residents of the State of Colorado or
shareholders of the Corporation.
4. ELECTION. The board of directors shall be elected at the annual
meeting of the shareholders or at a special meeting called for that
purpose.
5. TERM. Unless otherwise provided in the Articles of
Incorporation, each director shall be elected to hold office until the
next annual meeting of shareholders and until the director's successor is
elected and qualified.
6. RESIGNATION. A director may resign at any time by giving
written notice of his or her resignation to the Corporation. The
resignation shall be effective when it is received by the Corporation
unless the notice of resignation specifies a later effective date.
Acceptance of such resignation shall not be necessary to make it effective
unless the notice so provides.
7. REMOVAL. Any director may be removed by the shareholders, with
or without cause, at a meeting called for that purpose. The notice of the
meeting shall state that the purpose, or one of the purposes, of the
meeting is removal of the director. A director may be removed only if the
number of votes cast in favor of removal exceeds the number of votes cast
against removal.
8. VACANCIES.
(a) If a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors:
(1) The shareholders may fill the vacancy at the next
annual meeting or at a special meeting called for that purpose; or
(2) The board of directors may fill the vacancy; or
(3) If the directors remaining in office constitute fewer
than a quorum of the board, they may fill the vacancy by the affirmative
vote of a majority of all the directors remaining in office.
(b) Notwithstanding Section 8(a) of this Article, if the vacant
office was held by a director elected by a voting group of shareholders,
then, if one or more of the remaining directors were elected by the same
voting group, only such directors are entitled to vote to fill the vacancy
if it is filled by directors, and they may do so by the affirmative vote
of a majority of such directors remaining in office; and only the holders
of shares of that voting group are entitled to vote to fill the vacancy if
it is filled by the shareholders.
(c) A vacancy that will occur at a specific later date, by
reason of a resignation that will become effective at a later date under
Section 6 of this Article or otherwise, may be filled before the vacancy
occurs, but the new director may not take office until the vacancy occurs.
9. MEETINGS. The board of directors may provide by resolution the
date, time and place, either within or outside Colorado, for the holding
of regular meetings without other notice. Special meetings may be called
by the president or by any two directors and shall be held at any time,
date and place specified in the notice of the meeting. At any time when
the board consists of a single director, that director may act at any
time, date or place without a meeting.
10. NOTICE OF SPECIAL MEETING. Notice of a special meeting shall be
given to every director at least twenty-four hours before the time of the
meeting, stating the date, time and place of the meeting. The notice need
not describe the purpose of the meeting. Notice may be given orally to
the director, personally or by telephone or other wire or wireless
communication. Notice may also be given in writing by telegraph,
teletype, electronically transmitted facsimile, electronic mail, mail or
private carrier. Notice shall be effective at the earliest of the time it
is received; five days after it is deposited in the United States mail,
properly addressed to the last address for the director shown on the
records of the Corporation, first class, postage prepaid; or the date
shown on the return receipt if mailed by registered or certified mail,
return receipt requested, postage prepaid, in the United States mail and
if the return receipt is signed by the director to whom the notice is
addressed.
11. QUORUM. Except as provided in Section 8 of this Article, a
majority of the number of directors fixed in accordance with these Bylaws
shall constitute a quorum for the transaction of business at all meetings
of the board of directors. The act of a majority of the directors present
at any meeting at which a quorum is present shall be the act of the board
of directors, except as otherwise specifically required by law.
12. WAIVER OF NOTICE.
(a) A director may waive any notice before or after the time
and date of the meeting stated in the notice. Except as provided by
Section 12(b) of this Article, the waiver shall be in writing and shall be
signed by the director. Such waiver shall be delivered to the Corporation
for filing with the corporate records, but such delivery and filing shall
not be conditions of the effectiveness of the waiver.
(b) A director's attendance at or participation in a meeting
waives any required notice to him or her of the meeting unless, at the
beginning of the meeting or promptly upon his or her later arrival, the
director objects to holding the meeting or transacting business at the
meeting because of lack of notice or defective notice and does not
thereafter vote for or assent to action taken at the meeting.
13. ATTENDANCE BY TELEPHONE. One or more directors may participate
in a regular or special meeting by, or conduct the meeting through the use
of, any means of communication by which all directors participating may
hear each other during the meeting. A director participating in a meeting
by this means is deemed to be present in person at the meeting.
14. DEEMED ASSENT TO ACTION. A director who is present at a meeting
of the board of directors when corporate action is taken shall be deemed
to have assented to all action taken at the meeting unless:
(a) The director objects at the beginning of the meeting, or
promptly upon his or her arrival, to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to any
action taken at the meeting;
(b) The director contemporaneously requests that his or her
dissent or abstention as to any specific action taken be entered in the
minutes of the meeting; or
(c) The director causes written notice of his or her dissent or
abstention as to any specific action to be received by the presiding
officer of the meeting before adjournment of the meeting or by the
Corporation promptly after adjournment of the meeting.
The right of dissent or abstention pursuant to this Section as to a
specific action is not available to a director who votes in favor of the
action taken.
15. ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted by law to be taken at a board of directors' meeting may be taken
without a meeting if all members of the board consent to such action in
writing. Action shall be deemed to have been so taken by the board at the
time the last director signs a writing describing the action taken,
unless, before such time, any director has revoked his or her consent by a
writing signed by the director and received by the Corporation or any
other person authorized by the Bylaws or the board of directors to receive
such a revocation. Such action shall be effective at the time and date it
is so taken unless the directors establish a different effective date.
Such action has the same effect as action taken at a meeting of directors
and may be described as such in any document.
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
1. COMMITTEES OF THE BOARD OF DIRECTORS.
(a) Subject to the provisions of Section 7-109-106 of the
Colorado Business Corporation Act, the board of directors may create one
or more committees and appoint one or more members of the board of
directors to serve on them. The creation of a committee and appointment
of members to it shall require the approval of a majority of all the
directors in office when the action is taken, whether or not those
directors constitute a quorum of the board.
(b) The provisions of these Bylaws governing meetings, action
without meeting, notice, waiver of notice and quorum and voting
requirements of the board of directors apply to committees and their
members as well.
(c) To the extent specified by resolution adopted from time to
time by a majority of all the directors in office when the resolution is
adopted, whether or not those directors constitute a quorum of the board,
each committee shall exercise the authority of the board of directors with
respect to the corporate powers and the management of the business and
affairs of the Corporation; except that a committee shall not:
(1) Authorize distributions;
(2) Approve or propose to shareholders action that the
Colorado Business Corporation Act requires to be approved by shareholders;
(3) Fill vacancies on the board of directors or any of its
committees;
(4) Amend the Articles of Incorporation pursuant to
Section 7-110-102 of the Colorado Business Corporation Act;
(5) Adopt, amend or repeal Bylaws;
(6) Approve a plan of merger not requiring shareholder
approval;
(7) Authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the board of directors; or
(8) Authorize or approve the issuance or sale of shares,
or a contract for the sale of shares, or determine the designation and
relative rights, preferences and limitations of a class or series of
shares; except that the board of directors may authorize a committee or an
officer to do so within limits specifically prescribed by the board of
directors.
(d) The creation of, delegation of authority to, or action by,
a committee does not alone constitute compliance by a director with the
standard of conduct described in section 7-108-401 of the Colorado
Business Corporation Act.
ARTICLE IV
OFFICERS
1. GENERAL. The Corporation shall have as officers a president, a
secretary, and a chief financial officer, who shall be appointed by the
board of directors. The board of directors may appoint as additional
officers a chairman and other officers of the board. The board of
directors, the president, and such other subordinate officers as the board
of directors may authorize from time to time, acting singly, may appoint
as additional officers one or more vice presidents, assistant secretaries,
and such other subordinate officers as the board of directors, the
president, or such other appointing officers deem necessary or
appropriate. The officers of the Corporation shall hold their offices for
such terms and shall exercise such authority and perform such duties as
shall be determined from time to time by these Bylaws, the board of
directors, or (with respect to officers who are appointed by the president
or other appointing officers) the persons appointing them; provided,
however, that the board of directors may change the term of offices and
the authority of any officer appointed by the president or other
appointing officers. Any two or more offices may be held by the same
person. The officers of the Corporation shall be natural persons at least
eighteen years old.
2. TERM. Each officer shall hold office from the time of
appointment until the time of removal or resignation pursuant to Section 3
of this Article or until the officer's death.
3. REMOVAL AND RESIGNATION. Any officer appointed by the board of
directors may be removed at any time by the board of directors. Any
officer appointed by the president or other appointing officer may be
removed at any time by the board of directors or by the person appointing
the officer. Any officer may resign at any time by giving written notice
of resignation to any director (or to any director other than the
resigning officer if the officer is also a director), to the president, to
the secretary, or to the officer who appointed the officer. Acceptance of
such resignation shall not be necessary to make it effective, unless the
notice so provides.
4. PRESIDENT. The president shall preside at all meetings of
shareholders, and the president shall also preside at all meetings of the
board of directors unless the board of directors has appointed a chairman,
vice chairman, or other officer of the board and has authorized such
person to preside at meetings of the board of directors instead of the
president. Subject to the direction and control of the board of directors,
the president shall be the chief executive officer of the Corporation and
as such shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. The president may negotiate, enter
into, and execute contracts, deeds, and other instruments on behalf of the
Corporation as are necessary and appropriate to conduct the business and
affairs of the Corporation or as are approved by the board of directors.
The president shall have such additional authority and duties as are
appropriate and customary for the office of president and chief executive
officer, except as the same may be expanded or limited by the board of
directors from time to time.
5. VICE PRESIDENT. The vice president, if any, or, if there are
more than one, the vice presidents in the order determined by the board of
directors or the president (or, if no such determination is made, in the
order of their appointment), shall be the officer or officers next in
seniority after the president. Each vice president shall have such
authority and duties as are prescribed by the board of directors or
president. Upon the death, absence, or disability of the president, the
vice president, if any or, if there are more than one, the vice presidents
in the order determined by the board of directors or the president, shall
have the authority and duties of the president.
6. SECRETARY. The secretary shall be responsible for the
preparation and maintenance of minutes of the meetings of the board of
directors and of the shareholders and of the other records and information
required to be kept by the Corporation under Section 7-116-101 of the
Colorado Business Corporation Act and for authenticating records of the
Corporation. The secretary shall also give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the board of
directors, keep the minutes of such meetings, have charge of the corporate
seal and have authority to affix the corporate seal and/or attest to any
instrument requiring it, be responsible for the maintenance of all other
corporate records and files and for the preparation and filing of reports
to governmental agencies (other than tax returns), and have such other
authority and duties as are appropriate and customary for the office of
secretary, except as the same may be expended or limited by the board of
directors from time to time.
7. ASSISTANT SECRETARY. The assistant secretary, if any, or, if
there are more than one, the assistant secretaries in the order determined
by the board of directors or the secretary (or, if no such determination
is made, in the order of their appointment) shall, under the supervision
of the secretary, perform such duties and have such authority as may be
prescribed from time to time by the board of directors or the secretary.
Upon the death, absence, or disability of the secretary, the assistant
secretary, if any, or, if there are more than one, the assistant
secretaries in the order designated by the board of directors or the
secretary (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the secretary.
8. CHIEF FINANCIAL OFFICER. The chief financial officer shall have
control of the funds and the care and custody of all stocks, bonds, and
other securities owned by the Corporation, and shall be responsible for
the preparation and filing of tax returns. The chief financial officer
shall receive all moneys paid to the Corporation and, subject to any
limits imposed by the board of directors, shall have authority to give
receipts and vouchers, to sign and endorse checks and warrants in the
Corporation's name and on the Corporation's behalf, and give full
discharge for the same. The chief financial officer shall also have
charge of disbursement of funds of the Corporation, shall keep full and
accurate records of the receipts and disbursements, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as shall be designated by the board of
directors. The chief financial officer shall have such additional
authority and duties as are appropriate and customary for the office of
chief financial officer, except as the same may be expanded or limited by
the board of directors from time to time.
9. COMPENSATION. Officers shall receive such compensation for
their services as may be authorized or ratified by the board of directors.
Election or appointment of an officer shall not of itself create a
contractual right to compensation for services performed as such officer.
ARTICLE V
INDEMNIFICATION
1. INDEMNIFICATION. The Corporation shall indemnify any person
against all liability and expense incurred by reason of the person being
or having been a director or officer of the Corporation to the full extent
and in any manner that directors may be indemnified under the Colorado
Business Corporation Act, as in effect at any time. The Corporation shall
also indemnify any person who is serving or has served the Corporation as
director or officer to the extent and in the manner provided in any bylaw,
resolution of the directors or shareholders, contract or otherwise, so
long as such provision is legally permissible. In the discretion of the
board of directors, the Corporation may indemnify an employee, fiduciary
or agent who is not a director or officer to the same extent as a director
or officer.
2. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of a person who is or was a director, officer, employee,
fiduciary, or agent of the Corporation, or who, while a director, officer,
employee, fiduciary, or agent of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, trustee,
employee, fiduciary, or agent of any other entity (including without
limitation an employee benefit plan), against liability asserted against
or incurred by the person in that capacity or arising from his or her
status as a director, officer, employee, fiduciary, or agent, whether or
not the Corporation would have power to indemnify the person against the
same liability under this Article. Any such insurance may be procured
from any insurance company designated by the board of directors, whether
such insurance company is formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including any insurance
company in which the Corporation has an equity or any other interest
through stock ownership or otherwise.
3. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If the
Corporation indemnifies or advances expenses to a director in connection
with a proceeding by or in the right of the Corporation, the Corporation
shall give written notice of the indemnification or advance to the
shareholders with or before the notice of the next shareholders' meeting.
If the next shareholder action is taken without a meeting at the
instigation of the board of directors, such notice shall be given to the
shareholders at or before the time the first shareholder signs a writing
consenting to such action.
4. INDEMNIFICATION NONEXCLUSIVE; INUREMENT. The indemnification
provided by this Article shall not be deemed exclusive of any other rights
and procedures to which the indemnified party may be entitled under the
articles of incorporation, any bylaw, agreement, vote of the shareholders
or directors, contract of insurance or otherwise. Such indemnification
shall continue as to a person who has ceased to be a director, officer,
employee, fiduciary or agent and shall inure to the benefit of such
person's heirs, personal representatives and administrators.
ARTICLE VI
SHARES
1. CERTIFICATES. Certificates representing shares of the capital
stock of the Corporation shall be in such form as is approved by the board
of directors and shall be signed by the chairman or vice chairman of the
board of directors, chief executive officer, president or any vice
president, and by the secretary, assistant secretary, or chief financial
officer. If the Corporation has only one officer, the certificates may be
signed by that officer alone. All certificates shall be consecutively
numbered, and the names of the owners, the number of shares, and the date
of issue shall be entered on the books of the Corporation. Each
certificate representing shares shall state:
(a) On the front of the certificate (1) that the Corporation is
organized under the laws of the State of Colorado; (2) the name of the
person to whom issued; and (3) the number and class of the shares and the
designation of the series, if any, that the certificate represents; and
(b) On the front or back of the certificate (1) a conspicuous
statement that the Corporation will furnish to the shareholder, on request
in writing and without charge, information concerning the designations,
preferences, limitations, and relative rights applicable to each class,
the variations in preferences, limitations, and rights determined for each
series, and the authority of the board of directors to determine
variations for future classes or series; and (2) a conspicuous statement
summarizing any restrictions imposed by the Corporation upon the transfer
of the shares represented by the certificate.
2. FACSIMILE SIGNATURES. Where a certificate is signed by a
transfer agent or registrar other than the Corporation or its employee,
any or all of the officers' signatures on the certificate required by
Section 1 of this Article may be facsimile. If any officer, transfer
agent or registrar who has signed, or whose facsimile signature or
signatures have been placed upon, any certificate, shall cease to be such
officer, transfer agent, or registrar, whether because of death,
resignation, or otherwise, before the certificate is issued by the
Corporation, it may nevertheless be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar
at the date of issue.
3. TRANSFERS OF SHARES. Transfers of shares shall be made on the
books of the Corporation only upon presentation of the certificate or
certificates representing such shares properly endorsed by the person or
persons appearing upon the face of such certificate to be the owner, or
accompanied by a proper transfer or assignment separate from the
certificate, except as may otherwise be expressly provided by the statutes
of the State of Colorado or by order of a court of competent jurisdiction.
The officers or transfer agents of the Corporation may, in their
discretion, require a signature guaranty before making any transfer. The
Corporation shall be entitled to treat the person in whose name any shares
are registered on its books as the owner of those shares for all purposes
and shall not be bound to recognize any equitable or other claim or
interest in the shares on the part of any other person, whether or not the
Corporation shall have notice of such claim or interest.
4. SHARES HELD FOR ACCOUNT OF ANOTHER. The board of directors may
adopt by resolution a procedure whereby a shareholder of the Corporation
may certify in writing to the Corporation that all or a portion of the
shares registered in the name of such shareholder are held for the account
of a specified person or persons. The resolution shall set forth:
(a) The classification of shareholders who may certify;
(b) The purpose or purposes for which the certification may be
made;
(c) The form of certification and information to be contained
herein;
(d) If the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or the
closing of the stock transfer books within which the certification must be
received by the Corporation; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable. Upon receipt by the Corporation of a
certification complying with the procedure, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in
the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
ARTICLE VII
MISCELLANEOUS
1. CORPORATE SEAL. The board of directors may adopt a seal,
circular in form and bearing the name of the Corporation and the words
"SEAL" and "COLORADO," which, when adopted, shall constitute the seal of
the Corporation. The seal may be used by causing it or a facsimile of it
to be impressed, affixed, manually reproduced, or rubber stamped with
indelible ink.
2. FISCAL YEAR. The board of directors may, by resolution, adopt a
fiscal year for the Corporation.
3. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder
writings consenting to action, and other documents or writings shall be
deemed to have been received by the Corporation when they are received:
(a) At the registered office of the Corporation in the State of
Colorado;
(b) At the principal office of the Corporation addressed to the
attention of the secretary of the Corporation; or
(c) By any other person authorized from time to time by the
board of directors, the president, or the secretary to receive such
writings, wherever such person is found.
4. AMENDMENT OF BYLAWS. These Bylaws may at any time and from time
to time be amended, supplemented, or repealed by the shareholders, or
(except as restricted by Article 110 of the Colorado Business Corporation
Act, as amended) by the board of directors.
(Front of Stock Certificate)
Number Shares
- ------ ------
cavion.com
Incorporated under the Laws of the State of Colorado
19,970,000 Authorized Shares $.0001 Par Value
CLASS A COMMON STOCK
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $.0001 PAR VALUE CLASS A
COMMON STOCK OF
Cavion Technologies, Inc.
transferable only on the books of the Company in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent
and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to
be executed by the facsimile signature of its duly authorized officers and
to be sealed with the facsimile seal of the Company.
Dated:
- ------------------------ ---------------------------
Marshall E. Aster David J. Selina
Secretary President
CAVION TECHNOLOGIES, INC.
CORPORATE SEAL
COLORADO
COUNTERSIGNED AND REGISTERED:
American Securities Transfer &
Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By---------------------------
Transfer Agent & Registrar
Authenticated Signature
(Back of Stock Certificate)
CAVION TECHNOLOGIES, INC.
TRANSFER FEE: $20.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT ---Custodian---
TEN ENT -as joint tenants by the (Cust)
entireties under Uniform Gift to Minors
JT TEN -as joint tenants with Act----------------
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in above list.
- -------------------------------------------------------------------------
For Value Received, --------------- hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------
- -------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------Shares
of the Class A Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint -----------
attorney-in-fact to transfer the said stock on the books of the within-
named Corporation, with full power of substitution in the premises.
Dated ---------------
-------------------------------------------
-------------------------------------------
NOTICE: The signature(s) to this assignment
must correspond without alteration or
enlargement or any change whatsoever.
Signature(s) Guaranteed:
- -------------------------------------
The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbroker, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant
to S.E.C. Rule 17Ad-15.
(Front of Stock Certificate)
Incorporated under the laws
of the State of Colorado
Number Shares
- ------ ------
CAVION TECHNOLOGIES, INC.
CLASS B
CAPITAL STOCK 30,000 AUTHORIZED SHARES $.0001 PAR VALUE
THIS CERTIFIES THAT ------------------------------------------- is the
registered holder of ------------------------------------------ Shares
CAVION TECHNOLOGIES, INC. FULLY PAID AND NON-ASSESSABLE
transferable only on the books of the Corporation by the holders hereof in
person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ------- day of ----------A.D.----------
- -------------------------- ------------------------------
Secretary President
(Back of Stock Certificate)
For Value Received, --------------- hereby sell, assign and transfer
unto ---------------------------------------------------------------------
- ------------------------------------------------------------------Shares
represented by the within Certificate, and do hereby irrevocably
constituTe and appoint --------------------- Attorney to transfer the said
Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated ----------------------
In presence of -------------------------------------
- -----------------------------
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
(Front of Stock Certificate)
Number Shares
- ------ ------
CAVION TECHNOLOGIES
Incorporated under the Laws of the State of Colorado
10,000,000 Authorized Shares $0.0001 Par Value
SERIES A CONVERTIBLE PREFERRED STOCK
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $0.0001 PAR VALUE SERIES A
CONVERTIBLE PREFERRED STOCK OF
Cavion Technologies, Inc.
transferable only on the books of the Company in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent
and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to
be executed by the facsimile signature of its duly authorized officers and
to be sealed with the facsimile seal of the Company.
Dated:
---------------------------
David J. Selina
President and Secretary
CAVION TECHNOLOGIES, INC.
CORPORATE SEAL
COLORADO
COUNTERSIGNED AND REGISTERED:
American Securities Transfer &
Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By---------------------------
Transfer Agent & Registrar
Authenticated Signature
(Back of Stock Certificate)
CAVION TECHNOLOGIES, INC.
TRANSFER FEE: $20.00 PER NEW CERTIFICATE ISSUED
The following abbreviations when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT ---Custodian---
TEN ENT -as joint tenants by the (Cust)
entireties under Uniform Gift to Minors
JT TEN -as joint tenants with Act----------------
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in above list.
- -------------------------------------------------------------------------
For Value Received, --------------- hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------
- -------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------Shares
of the Series A Convertible Preferred Stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint -----------
attorney-in-fact to transfer the said stock on the books of the within-
named Corporation, with full power of substitution in the premises.
Dated ---------------
-------------------------------------------
-------------------------------------------
NOTICE: The signature(s) to this assignment
must correspond without alteration or
enlargement or any change whatsoever.
Signature(s) Guaranteed:
- -------------------------------------
The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbroker, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant
to S.E.C. Rule 17Ad-15.
SUBSCRIPTION AGREEMENT AND
CONFIDENTIAL INVESTOR QUESTIONNAIRE
-----------------------------------
THIS SUBSCRIPTION AGREEMENT is entered into as of this ------ day of
- --------, 1999, between CAVION TECHNOLOGIES, INC., a Colorado corporation
with its principal offices at 7475 Dakin Street, Suite 607, Denver,
Colorado 80221 (the "Company"), and the undersigned (the "Subscriber").
WHEREAS, the Company desires to issue 700,000 shares (the "Shares")
of its Convertible Preferred Stock, Series A, par value $0.0001 per Share
(the "Convertible Preferred Stock"), in a private placement, convertible
into the Company's Class A Common Stock, $0.0001 par value per Share (the
"Common Stock"), as described in the Articles of Amendment to the Amended
and Restated Articles of Incorporation of Cavion Technologies, Inc.
setting forth the Statement of Designation of Series and Determination of
Rights and Preferences of Convertible Preferred Stock, Series A, included
as Exhibit A to the Memorandum (defined below) on the terms and conditions
hereinafter set forth;
WHEREAS, the Company has retained Neidiger, Tucker, Bruner, Inc. (the
"Placement Agent") to serve as the Company's exclusive placement agent in
connection with the offer and sale of the Shares; and
WHEREAS, the Subscriber desires to acquire that number of Shares set
forth on the signature page hereof;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto do hereby agree
as follows:
I. SUBSCRIPTION FOR SHARES AND REPRESENTATIONS BY AND COVENANTS OF
SUBSCRIBER
1.1 Subject to the terms and conditions hereof, the Subscriber
hereby subscribes for and agrees to purchase from the Company such number
of Shares as is set forth upon the signature page hereof at a price equal
to $3.00 per Share, and the Company agrees to sell such Shares to the
Subscriber for said purchase price. The purchase price is payable to
American Securities Transfer Trust, Inc. - Escrow Agent for Cavion
Technologies Inc., or by wire transfer of funds, contemporaneously with
the execution and delivery of this Subscription Agreement. The
certificates for the Shares will be delivered by the Company to the
Subscriber not later than ten (10) days following the consummation of this
offering as set forth in Article II hereof. The Subscriber understands
however, that this purchase of Shares is contingent upon the Company
making sales of at least 425,000 Shares prior to the Termination Date as
defined in Article II hereof.
1.2 The Subscriber recognizes that the purchase of Shares
involves a high degree of risk in that (i) the Company is in the
development stage, has not completed development of all of its proposed
products and services and will require substantial funds in addition to
the proceeds of this private placement; (ii) an investment in the Company
is highly speculative, and only investors who can afford the loss of their
entire investment should consider investing in the Company and the Shares;
(iii) investors may not be able to liquidate their investment; (iv)
transferability of the Shares is extremely limited; and (v) in the event
of a disposition of Shares, an investor could sustain the loss of his
entire investment, as well as other risk factors as more fully set forth
herein and in the Confidential Private Placement Memorandum dated February
3, 1999, relating to the Company and the Shares (the "Memorandum").
1.3 The Subscriber represents that he or she is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated
under the United States Securities Act of 1933, as amended (the "Act"), as
indicated by the Subscriber's responses to the Confidential Investor
Questionnaire contained in Article VI hereof, and that the Subscriber is
able to bear the economic risk of an investment in the Shares.
1.4 The Subscriber acknowledges that Subscriber either has a
preexisting personal or business relationship with the Company or with one
or more of its officers, directors or controlling persons, or by reason of
the Subscriber's business or financial experience, including investment in
non-listed and non-registered securities, or the business or financial
experience of the Subscriber's professional advisors who are unaffiliated
with and who are not compensated by the Company or any affiliate or
selling agent of the Company, directly or indirectly, could be reasonably
assumed to have the capacity to protect the Subscriber's own interests in
connection with an investment in the Shares. The Subscriber further
acknowledges that he or she has the capacity to evaluate the merits and
risks of such an investment and that the Subscriber recognizes the highly
speculative nature of this investment.
1.5 The Subscriber acknowledges receipt and careful review of
the Memorandum and the attachments thereto (the "Offering Documents") and
hereby represents that the Subscriber has been furnished by the Company
during the course of this transaction with all information regarding the
Company which the Subscriber had requested or desired to know; that all
documents which could be reasonably provided, including the Company's
internal business plans, operating projections, etc. (all of which
Subscriber acknowledges and agrees are qualified by and subject to the
forward-looking statements disclaimer in the Offering Documents), have
been made available for the Subscriber's inspection and review; that such
information and documents have, in Subscriber's opinion, afforded the
Subscriber generally with the same substantive information that would be
provided to the Subscriber in a registration statement filed under the
Act; that the Subscriber has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers or other
representatives of the Company concerning the terms and conditions of the
offering and the Offering Documents; and that Subscriber has been provided
any additional information which the Subscriber had requested.
1.6 The Subscriber acknowledges that this offering may involve
tax consequences, and that the contents of the Offering Documents do not
contain tax advice or information. The Subscriber acknowledges that the
Subscriber must retain the Subscriber's own professional advisors to
evaluate the tax and other consequences of an investment in the Shares.
1.7 The Subscriber acknowledges that this offering has not been
reviewed by the United States Securities and Exchange Commission ("SEC")
because of the Company's representations that this is intended to be a
nonpublic offering pursuant to Sections 4(2) or 4(6) of the Act. The
Subscriber represents that the Shares being purchased by the Subscriber
are being purchased for the Subscriber's own account, for investment and
not for distribution or resale to others. The Subscriber agrees that the
Subscriber will not sell or otherwise transfer the Shares unless they are
registered under the Act or unless an exemption from such registration is
available.
1.8 The Subscriber understands that the Shares have not been
registered under the Act by reason of a claimed exemption under the
provisions of the Act which depends, in part, upon the Subscriber's
investment intention. In that connection, the Subscriber understands that
it is the position of the SEC that the statutory basis for such exemption
would not be present if the Subscriber's representation merely meant that
the Subscriber's present intention was to hold such securities for a short
period, such as the capital gains period of tax statutes, for a deferred
sale, for a market rise, assuming that a market develops, or for any other
similarly fixed period. The Subscriber realizes that, in the view of the
SEC, a purchase now with an intent to resell would represent a purchase
with an intent inconsistent with the Subscriber's representation to the
Company, and the SEC might regard such a sale or disposition as a sale to
which such exemptions are not available.
1.9 The Subscriber understands that there is no public market
for the Shares or the underlying Common Stock into which Shares are
convertible. The Subscriber understands that even if a public market
develops for the Common Stock issuable upon conversion of the Shares, Rule
144 (the "Rule") promulgated under the Act requires, among other
conditions, a one-year holding period prior to the resale (in limited
amounts) of securities acquired in a non-public offering without having to
satisfy the registration requirements under the Act. The Subscriber
understands that the Company makes no representation or warranty regarding
its fulfillment in the future of any reporting requirements under the
Securities Exchange Act of 1934, as amended, or its dissemination to the
public of any current financial or other information concerning the
Company, as is required by the Rule as one of the conditions of its
availability. The Subscriber understands and hereby acknowledges that the
Company is under no obligation to register the Shares or the Common Stock
issuable upon conversion of the Shares under the Act, with the exception
of certain limited registration rights set forth in Article IV hereof.
The Subscriber consents that the Company may, if it desires, permit the
transfer of the Shares out of the Subscriber's name only when the
Subscriber's request for transfer is accompanied by an opinion of counsel
reasonably satisfactory to the Company that neither the sale nor the
proposed transfer results in a violation of the Act or any applicable
state "blue sky" laws (collectively "Securities Laws") and subject to the
provisions of Section 1.10 hereof. The Subscriber agrees to hold the
Company and its directors, officers and controlling persons and their
respective heirs, representatives, successors and assigns harmless and to
indemnify them against all liabilities, costs and expenses incurred by
them as a result of any misrepresentation made by the Subscriber contained
herein or in the Confidential Investor Questionnaire contained in Article
VI hereof or any sale or distribution by the undersigned Subscriber in
violation of any Securities Laws.
1.10 The Subscriber agrees not to sell, transfer, assign, or
otherwise publicly dispose of the Shares or the Class A Common Stock
issued upon conversion thereof for a period of nine months following the
effective date of the registration statement with respect to any public
offering of the Company's Common Stock in respect of which such Shares or
shares are registered without the underwriter's prior consent.
1.11 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Shares stating that they have
not been registered under the Act and setting forth or referring to the
restrictions on transferability and sale thereof.
1.12 The Subscriber understands that the Company will review
this Subscription Agreement and the Confidential Investor Questionnaire
contained herein and is hereby given authority by the undersigned, if an
individual, to call his or her bank or place of employment or otherwise
review the financial standing of the Subscriber insofar as is relevant to
the Subscriber's representations herein; and it is further agreed that the
Company reserves the unrestricted right to reject or limit any
subscription and to close any offer of Shares at any time.
1.13 The Subscriber hereby represents that the address of
Subscriber furnished by the Subscriber at the end of this Subscription
Agreement is the undersigned's principal residence if the Subscriber is an
individual or its principal business address if the Subscriber is a
corporation or other entity.
1.14 THE SUBSCRIBER HEREBY REPRESENTS AND WARRANTS THAT, EXCEPT
AS SET FORTH IN THE OFFERING DOCUMENTS, NO REPRESENTATIONS OR WARRANTIES
HAVE BEEN MADE TO THE SUBSCRIBER BY THE COMPANY OR ANY AGENT, EMPLOYEE,
REPRESENTATIVE OR AFFILIATE OF THE COMPANY AND THAT, IN ENTERING INTO THIS
TRANSACTION AND SUBSCRIBING FOR SHARES, THE SUBSCRIBER IS NOT RELYING ON
ANY INFORMATION, OTHER THAN THAT CONTAINED IN THE OFFERING DOCUMENTS AND
THE RESULTS OF SUBSCRIBER'S INDEPENDENT INVESTIGATION.
1.15 The Subscriber acknowledges that at such time, if ever, as
the shares of Common Stock issuable upon conversion of Shares are
registered, sales of such securities will be subject to Securities Laws,
which may require, among other requirements, any securities sold to be
sold through a registered broker-dealer or in reliance upon an exemption
from registration.
II. TERMS OF SUBSCRIPTION
2.1 The subscription period will begin on the date of the
Memorandum and will terminate at 5:00 p.m. Denver time sixty (60) days
thereafter, unless extended by the Company and the Placement Agent for up
to an additional sixty (60) days (the "Termination Date"). The minimum
subscription per subscriber shall be 10,000 Shares for an aggregate price
of $30,000.
2.2 Placement of the Shares will be made by the Placement
Agent, which will receive (i) a placement fee in the amount of 10% of the
purchase price of the Shares placed; (ii) a non-accountable expense
allowance of 2% of the purchase price of the Shares placed; (iii) warrants
to purchase a number of shares of the Convertible Preferred Stock equal to
10% of the Shares placed; and (iv) other compensation as summarized in the
Memorandum.
2.3 Pending the sale of the Shares, all funds paid hereunder
shall be deposited by the Company in escrow with American Transfer Trust,
Inc. and if the Company shall not have obtained subscriptions (including
this subscription) for purchases of 425,000 Shares for an aggregate
purchase price of $1,275,000 on or before the Termination Date, then this
subscription shall be void and all funds paid hereunder by the Subscriber,
without interest, shall be promptly returned to the Subscriber, subject to
paragraph 2.5 hereof. If 425,000 Shares are subscribed and the price
therefor received on or prior to the Termination Date, then all
subscription proceeds shall be paid over to the Company at the mutual
consent of the Company and the Placement Agent.
2.4 The Subscriber hereby authorizes and directs the Company to
deliver the securities to be issued to such Subscriber pursuant to this
Subscription Agreement to the residential or business address indicated in
the Confidential Investor Questionnaire included herein.
2.5 The Subscriber hereby authorizes and directs the Company to
return any funds for unaccepted subscriptions to the same account from
which the funds were drawn, including any customer account maintained with
the Placement Agent.
2.6 If the Subscriber is not a United States person, such
Subscriber hereby represents that he, she or it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Shares or any use of this Agreement,
including (i) the legal requirements within its jurisdiction for the
purchase of the Shares, (ii) any foreign exchange restrictions applicable
to such purchase, (iii) any governmental or other consents that may need
to be obtained, and (iv) the income tax and other tax consequences, if
any, that may be relevant to the purchase, holding, redemption, sale or
transfer of the Shares. The Subscriber represents and warrants that the
Subscriber's subscription and payment for, and the Subscriber's continued
beneficial ownership of the Shares, will not violate any applicable
securities or other laws of the Subscriber's jurisdiction.
III. REGISTRATION RIGHTS
3.1 CERTAIN DEFINITIONS. For purposes of this Section, the
following definitions shall apply:
(a) The terms "register," "registered," and "registration"
refer to a registration under the Act effected by preparing and filing a
registration statement in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or amendment
thereto.
(b) The term "Registrable Securities" means any shares of
Common Stock issued or issuable upon exercise of the Convertible Preferred
Stock.
3.2 REGISTRATION RIGHTS.
(a) If the Company shall determine to proceed with the
actual preparation and filing of a registration statement under the Act in
connection with the proposed offer and sale of any of its Common Stock by
it or any of its security holders, subject to the lock-up provisions of
Section 1.10 hereof, the Company will, except as herein provided, cause
all such Registrable Securities to be included in such registration
statement, all to the extent required to permit the sale or other
disposition by the prospective seller or sellers of the Registrable
Securities to be so registered; provided, further, that nothing herein
shall prevent the Company from, at any time, abandoning or delaying any
registration. Registrable Securities included in any registration
pursuant to this Section 3.2 shall be included in the underwriting on the
same terms and conditions as the securities otherwise being sold through
the underwriters thereof. If in the good faith judgment of the managing
underwriter of such public offering the inclusion of all of the
Registrable Securities (the "Requested Stock") would reduce the number of
shares to be offered by the Company or interfere with the successful
marketing of the shares of stock offered by the Company, the number of
shares of Requested Stock otherwise to be included in the underwritten
public offering may be reduced pro rata (by number of shares) among the
holders thereof or excluded in their entirety if so required by the
underwriter. To the extent only a portion of the Requested Stock is
included in the underwritten public offering, those shares of Requested
Stock which are thus excluded from the underwritten public offering shall
be withheld from the market by the holders thereof for a period, not to
exceed 270 days, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering. The
obligation of the Company under this Section 3.2 shall not apply to
Registrable Securities that at such time are eligible for immediate resale
pursuant to the Rule (without regard to volume limitations).
(b) The Company may suspend the effectiveness of any such
registration effected pursuant to this Section 3.2 in the event, and for
such period of time as, such a suspension is required by the rules and
regulations of the SEC and may suspend use of the prospectus included in
the Registration Statement if such prospectus ceases to meet the
requirements of Section 10 of the Act. The Company will immediately
advise the security holders participating in such registration of any such
suspension, and will use its best efforts to cause such suspension to
terminate at the earliest possible date. The Subscriber agrees that
following receipt of any such notice, and until such suspension is
terminated, the Subscriber will not make use of the suspended prospectus
and will make no sales requiring delivery of such prospectus.
3.3 REGISTRATION PROCEDURES. If and when the Company is
required by the provisions of Section 3.2 to effect the registration of
Registrable Securities under the Act, the Company will:
(a) prepare and file with the SEC a registration statement
with respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective until the
Registrable Securities are freely salable without the volume limitations
of the Rule;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective until
the Registrable Securities are freely salable without regard to the volume
limitations of the Rule;
(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating
holders may reasonably request in writing within twenty (20) days
following the original filing of such registration statement, except that
the Company shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(e) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a supplement to
any prospectus forming a part of such registration statement has been
filed;
(f) notify such holders promptly of any request by the SEC
for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) prepare and file with the SEC, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for
such holders (and concurred in by counsel for the Company), is required
under the Act or the rules and regulations thereunder in connection with
the distribution of Common Stock by such holder;
(h) prepare and promptly file with the SEC and promptly
notify such holders of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading; and
(i) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
3.4 EXPENSES.
(a) With respect to each inclusion of Registrable
Securities in a registration statement pursuant to Section 3.2 hereof, all
fees, costs and expenses of and incidental to such registration, inclusion
and public offering (as specified in paragraph (b) below) in connection
therewith shall be borne by the Company; provided, however, that any
security holders participating in such registration shall bear their pro
rata share of underwriting discounts and commissions and transfer taxes.
(b) The fees, costs and expenses of registration to be
borne by the Company as provided in paragraph (a) above shall include,
without limitation but subject to paragraph (a) above, all registration,
filing, and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or
blue sky laws of any jurisdictions in which the securities to be offered
are to be registered and qualified. Fees and disbursements of counsel,
other advisors and accountants for the holders of Registrable Securities
and any other expenses incurred by the holders not expressly included
above shall be borne by the holders.
3.5 INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each
holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Section 3.1 or 3.2 hereof, its
directors and officers, and any underwriter (as defined in the Act) for
such holder and each person, if any, who controls such holder or such
underwriter within the meaning of the Act, from and against, and will
reimburse such holder and each such underwriter and controlling person
with respect to, any and all loss, damage, liability, cost and expense to
which such holder or any such underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent that
any such loss, damage, liability, cost or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such
holder, such underwriter or such controlling person in writing
specifically for use in the preparation thereof.
(b) Each holder of Registrable Securities included in a
registration pursuant to the provisions of Section 3.2 hereof will
indemnify and hold harmless the Company, its directors and officers, any
controlling person and any underwriter from and against, and will
reimburse the Company, its directors and officers, any controlling person
and any underwriter with respect to, any and all loss, damage, liability,
cost or expense to which the Company or any controlling person and/or any
underwriter may become subject under the Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by or on
behalf of such holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (a) or (b) of this Section 3.5 of
notice of the commencement of any action involving the subject matter of
the foregoing indemnity provisions such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the indemnifying
party of the commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this Section 3.5. In
case such action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying party
shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are
different from or in addition to those available to the indemnified party,
or if there is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the
indemnified party or parties have the right to select separate counsel to
participate in the defense of such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant
to the provisions of paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless (i)
the indemnified party shall have employed counsel in accordance with the
provisions of the preceding sentence, (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after the
notice of the commencement of the action, or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.
IV. MISCELLANEOUS
4.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail,
return receipt requested. Notices sent to the Company shall be addressed
to the Company's office at 7475 Dakin Street, Suite 607, Denver, Colorado
80221: Attention: President. Notices sent to the Subscriber shall be
addressed to the Subscriber's address indicated on the last page of this
Subscription Agreement. Notices shall be deemed to have been given on the
date of mailing, except notices of change of address, which shall be
deemed to have been given when received.
4.2 This Subscription Agreement shall not be changed, modified
or amended except by a writing signed by the parties to be charged, and
this Subscription Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be
charged.
4.3 This Subscription Agreement shall be binding upon and inure
to the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Subscription Agreement sets
forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
4.4 Notwithstanding the place where this Subscription Agreement
may be executed by any of the parties hereto, the parties expressly agree
that all the terms and provisions hereof shall be construed in accordance
with and governed by the laws of the State of Colorado.
4.5 Each of the Company and the Subscriber agree that any
action or proceeding based hereon, or arising out of the Memorandum
hereunder, shall be brought and maintained exclusively in the courts of
the State of Colorado located in the City and County of Denver or in the
United States District Court for the District of Colorado. The Company
and the Subscriber each hereby irrevocably submit to the jurisdiction of
the courts of the State of Colorado located in the City and County of
Denver and of the United States District Court for the District of
Colorado for the purpose of any such action or proceeding as set forth
above and irrevocably agree to be bound by any judgment rendered thereby
in connection with such action or proceeding. Each of the Company and the
Subscriber hereby irrevocably waive, to the fullest extent permitted by
law, any objection which it may have or hereafter may have to the laying
of venue of any such action or proceeding brought in any such court
referred to above and any claim that any such action or proceeding has
been brought in an inconvenient forum.
4.6 This Subscription Agreement may be executed in
counterparts. Upon the execution and delivery of this Subscription
Agreement by the Subscriber, this Subscription Agreement shall become a
binding obligation of the Subscriber with respect to the purchase of
Shares as herein provided; subject, however, to the right hereby reserved
to the Company to enter into the same agreements with other subscribers
and to add and/or to delete other persons as subscribers.
4.7 The holding of any provision of this Subscription Agreement
to be invalid or unenforceable by a court of competent jurisdiction shall
not affect any other provision of this Subscription Agreement, which shall
remain in full force and effect.
4.8 It is agreed that a waiver by either party of a breach of
any provision of this Subscription Agreement shall not operate, or be
construed, as a waiver of any subsequent breach by that same party.
4.9 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out more fully the
purposes and intent of this Subscription Agreement.
4.10 The Company agrees not to disclose the names, addresses or
any other information about the Subscriber, except as required by law,
provided, that the Company may use information relating to the Subscriber
in any registration statement under the Act.
V. CONFIDENTIAL INVESTOR QUESTIONNAIRE
5.1 SUBSCRIBER CATEGORIES. The Subscriber represents and
warrants that he, she or it comes within one category marked below, and
that for any category marked, he, she or it has truthfully set forth,
where applicable, the factual basis or reason the Subscriber comes within
that category. ALL INFORMATION IN RESPONSE TO THIS SECTION WILL BE KEPT
STRICTLY CONFIDENTIAL. The undersigned agrees to furnish any additional
information which the Company deems necessary in order to verify the
answers set forth below.
Category A ----- The undersigned is an individual (not a
partnership, corporation, etc.) whose individual
net worth, or joint net worth with his or her
spouse, presently exceeds $1,000,000
EXPLANATION: In calculating net worth you may
include equity in personal
property and real estate,
including your principal
residence, cash, short-term
investments, stock and securities.
Equity in personal property and
real estate should be based on the
fair market value of such property
less debt secured by such
property.
Category B ----- The undersigned is an individual (not a
partnership, corporation, etc.) who had an income
in excess of $200,000 in each of the two most
recent years, or joint income with his or her
spouse in excess of $300,000 in each of those
years (in each case including foreign income, tax
exempt income and full amount of capital gains
and losses but excluding any income of other
family members and any unrealized capital
appreciation) and has a reasonable expectation of
reaching the same income level in the current
year.
Category C ----- The undersigned is a director or
executive officer of the Company which is issuing
and selling the Shares.
Category D ----- The undersigned is a bank; a savings
and loan association; insurance company;
registered investment company; registered
business development company; licensed small
business investment company ("SBIC"); or employee
benefit plan within the meaning of Title I of
ERISA and (a) the investment decision is made by
a plan fiduciary which is either a bank, savings
and loan association, insurance company or
registered investment advisor, or (b) the plan
has total assets in excess of $5,000,000 or is a
self directed plan with investment decisions made
solely by persons that are accredited investors.
------------------------------------------------
-------------------------------------
(describe entity)
Category E ----- The undersigned is a private business
development company as defined in section
202(a)(22) of the Investment Advisors Act of
1940.
------------------------------------------------
------------------------------------------------
(describe entity)
Category F ----- The undersigned is either a
corporation, partnership, Massachusetts business
trust, or non-profit organization within the
meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the
specific purpose of acquiring the Shares and with
total assets in excess of $5,000,000.
------------------------------------------------
------------------------------------------------
(describe entity)
Category G ----- The undersigned is a trust with total
assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Shares,
where the purchase is directed by a
"sophisticated person" as defined in Regulation
506(b)(2)(ii).
Category H ----- The undersigned is an entity (other
than a trust) all the equity owners of which are
"accredited investors" within one or more of the
above categories. If relying upon this Category
alone, each equity owner must complete a separate
copy of this Agreement.
------------------------------------------------
------------------------------------------------
(describe entity)
Category I ----- The undersigned is not within any of
the categories above and is therefor not an
accredited investor.
The undersigned covenants and agrees that the undersigned will notify the
Company at any time on or prior to the Company's acceptance of this
subscription in the event that the representations and warranties in this
Agreement shall cease to be true, accurate and complete.
5.2 SUITABILITY. (Please answer each question)
(a) For an individual Subscriber, please describe your
current employment, including the company by which you
are employed and its principal business:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
(b) For an individual Subscriber, please describe any
college or graduate degrees held by you:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
(c) For all Subscribers, please check types of prior
investments:
U.S. Government Securities ---- Private Placements ----
Publicly Traded Corporate ---- Mutual Funds ----
Securities ----
Real Estate Investments ---- Other (describe) ----
(d) For all Subscribers, please state whether you have
participated in other private placements before:
YES----- NO-----
(e) For all Subscribers, please indicate frequency of such
prior participation in private placements:
Public Companies Private Companies Companies
---------------- ----------------- ---------
Frequently ----- ----- -----
Occasionally ----- ----- -----
Never ----- ----- -----
5.3 MANNER IN WHICH TITLE TO BE HELD. (Circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of Survivorship (both parties
must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
*IF SHARES ARE BEING SUBSCRIBED FOR BY AN ENTITY, THE
ATTACHED CERTIFICATE OF SIGNATORY MUST ALSO BE COMPLETED.
5.4 NASD AFFILIATION:
Are you associated with an NASD member firm? (Please check
one)
YES----- NO-----
If Yes, please describe:-----------------------------------
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--------------------------------------------------------
(1) The NASD defines a "person associated with a member"
or "associated person of a member" as being every sole
proprietor, general or limited partner, officer,
director or branch manager of any member, or any
natural person occupying a similar status or
performing similar functions, or any natural person
engaged in the investment banking or securities
business who is directly or indirectly controlling or
controlled by such member (for example, any employee),
whether or not any such person is registered or exempt
from registration with the NASD. Thus, "person
associated with a member" or "associated person of a
member" includes a sole proprietor, general or limited
partner, officer, director or branch manager of an
organization of any kind (whether a corporation,
partnership or other business entity) which itself is
either a "member" or a "Person associated with a
member" or "associated person of a member." In
addition, an organization of any kind is a "person
associated with a member" or "associated person of a
member" if its sole proprietor or any one of its
general or limited partners, officers, directors or
branch managers is a "member," "person associated with
a member" or "associated person of a member."
(2) The NASD defines a "member" as being any individual,
partnership, corporation or other legal entity that is
a broker or dealer admitted to membership in the NASD.
*IF SUBSCRIBER IS A REGISTERED REPRESENTATIVE WITH AN NASD
MEMBER FIRM, HAVE THE FOLLOWING ACKNOWLEDGMENT SIGNED BY
THE APPROPRIATE PARTY:
The undersigned NASD member firm acknowledges receipt of
the notice required by Rule 3050 of the NASD Conduct Rules or any
successor rules or regulations.
-----------------------------------
Name of NASD Member Firm
By: -------------------------------
Authorized Officer
Date: -----------------------------
5.5 RELIANCE. The undersigned is informed of the significance
to the Company of the foregoing representations and answers contained in
the Confidential Investor Questionnaire contained in this Article V and
such answers have been provided under the assumption that the Company will
rely on them.
INDIVIDUAL INVESTOR SIGNATURE PAGE
----------------------------------
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the day and year first written above.
NUMBER OF SHARES [------] x [$--------] = [$--------]
- ----------------------------------- -----------------------------------
Signature Signature (if purchasing jointly)
- ----------------------------------- -----------------------------------
Name Typed or Printed Name Typed or Printed
- ----------------------------------- -----------------------------------
Address Address
- ----------------------------------- -----------------------------------
City, State and Zip Code City, State and Zip Code
- ----------------------------------- -----------------------------------
Telephone - Business Telephone - Business
- ----------------------------------- -----------------------------------
Telephone-Residence Telephone-Residence
- ----------------------------------- -----------------------------------
Facsimile - Business Facsimile - Business
- ----------------------------------- -----------------------------------
Facsimile - Residence Facsimile - Residence
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Tax ID# or Social Security # Tax ID# or Social Security #
Name in which securities should be issued: ------------------------------
Dated:----------------, 1998
This Subscription Agreement is agreed to and accepted as of ------------,
- -----.
CAVION TECHNOLOGIES, INC.
By:--------------------------------
Title:-----------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE RESOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE ACT, OR AN OPINION OF COUNSEL SATISFACTION TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
CAVION TECHNOLOGIES, INC.
Preferred Stock Purchase Warrant
CAVION TECHNOLOGIES, INC., a Colorado corporation, and doing business
as cavion.com (the "Company"), hereby certifies that, for value received,
Neidiger Tucker Bruner, Inc. or its registered assigns (the "Holder"), is
entitled, on the terms and subject to the conditions set forth herein, to
purchase from the Company at any time commencing -----------, 1999 and
before 5:00 p.m., Denver, Colorado time, on March 31, 2004, ----- fully
paid and nonassessable shares of Preferred Stock (as hereinafter defined)
at a purchase price of $3.00 per share. The number of such shares of
Preferred Stock and the Purchase Price are subject to adjustment as
provided in this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the indicated meanings:
"Company" means Cavion Technologies, Inc. and any person (corporate
or otherwise) that shall succeed to or assume the obligations of Cavion
Technologies, Inc. hereunder in accordance with the terms hereof.
"Common Stock" means the Company's Class A Common Stock, $.0001 par
value per share, as authorized on the date hereof, and any other
securities into which or for which the Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" means March 31, 2004.
"Holder" or "Holders" means the holder or holders of the Registrable
Securities, including the holder or holders of Warrants to purchase
Registerable Securities not then issued.
"Issue Date" means the --------, 1999 date of the original issuance
of this Warrant.
"Majority Holders" means the holder or holders of Warrants and
Registrable Securities theretofore issued upon exercise or conversion of
Warrants, who own or have the right to acquire upon exercise or conversion
of Warrants a majority of the Registerable Securities that would be
outstanding if all of the outstanding Warrants were exercised in full on
the date as of which the determination is being made.
"Nasdaq" means the NASDAQ SmallCap Market.
"Other Securities" means any stock (other than Preferred Stock) and
other securities of the Company or any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive, or
shall have received, on the exercise of this Warrant, in lieu of or in
addition to Preferred Stock, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Preferred
Stock or Other Securities as a result of the provisions of Section 4.
"Preferred Stock" means the Company's Convertible Preferred Stock,
Series A, $.0001 par value per share, as authorized on the Issue Date, and
any other securities into which or for which the Preferred Stock may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Prospectus" means the prospectus included in the Registration
Statement as of the date it becomes effective under the Securities Act
("SEC Effective Date"), including financial statements and all documents
incorporated by reference therein. In the case of references to the
Prospectus as of a date subsequent to the SEC Effective Date, Prospectus
means as supplemented as of such subsequent date.
"Purchase Price" means $3.00 per share, subject to adjustment
pursuant to the provisions of Section 5, captioned "CONVERSION," of the
Articles of Amendment to the Amended and Restated Articles of
Incorporation of Cavion Technologies, Inc. Setting Forth the Statement of
Designation of Series and Determination of Rights and Preferences of
Convertible Preferred Stock, Series A, as dated February 26, 1999 and
filed with the Colorado Secretary of State and subject to adjustment as
otherwise provided in this Warrant.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
"Registerable Securities" means the shares of Preferred Stock issued
or issuable upon exercise or conversion of the Warrant, shares of Common
Stock issued or issuable upon conversion of such Preferred Stock and Other
Securities issued or issuable as a result of the provisions of Sections 4
or 5 hereof. References herein to amounts or percentages of Registrable
Securities as of or on any particular date shall be deemed to refer to
amounts or percentages after giving effect to any applicable events
contemplated by the preceding sentence. As to any particular Registrable
Securities, such securities shall cease to be Registerable Securities when
they have been sold pursuant to an effective registration statement or in
compliance with Rule 144 or are eligible to be sold pursuant to subsection
(k) of Rule 144.
"Registration Period" means the period from the Issue Date to the
earliest of (i) the date which is three years after the SEC Effective
Date, (ii) the date on which the Holder may sell all of Holder's
Registerable Securities without registration under the Securities Act
pursuant to subsection (k) of Rule 144, without restriction on the manner
of sale or the volume of securities which may be sold in any period and
without the requirement for the giving of any notice to, or the mailing of
any filing with the SEC and (iii) the date on which the Holder no longer
owns any Registerable Securities.
"Registration Statement" means a registration statement of the
Company under the Securities Act on such form for which the Company then
qualifies and which permits the secondary resale thereunder of
Registerable Securities required by, the provisions hereof to be included
therein. The term "Registration Statement" shall also include any
amendment thereto and all exhibits and financial statements and schedules
and documents incorporated by reference in such Registration Statement as
of the SEC Effective Date. In the case of references to the Registration
Statement as of a date subsequent to the SEC Effective Date, Registration
Statement means as amended or supplemented as of such subsequent date.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit a
holder of securities of the Company to sell such Company securities to the
public without registration under the Securities Act.
"Securities Act" means the Securities Act of 1993, as amended.
"SEC" means the United States Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 20 hereof.
"Trading Day" means a day on which the principal securities market
for the Common Stock is open for general trading of securities.
"Warrants" means this Warrant and any other warrants derived from
this Warrant originally issued by the Company to Neidiger, Tucker, Bruner,
Inc. on March 10, 1999.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. This Warrant may be exercised by the Holder, in
full or in part, at any time, or from time to time, commencing on the
Issue Date to and including the Expiration Date by surrender of this
Warrant and the subscription form annexed hereto (completed and signed by
the Holder) to the principal office of the Company or the Company's
transfer agent and registrar for the Preferred Stock, and by making
payment by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying (a) the number of shares of
Preferred Stock designated by the Holder in the subscription form by (b)
the Purchase Price then in effect. The Holder shall a provide a copy of
the subscription form to the Company at the time of exercise and the
Company will confirm the exercise instructions given therein by notice to
the Company's transfer agent within one Trading Day after receiving such
subscription form. On any partial exercise the Company will promptly
issue and deliver to or upon the order of the Holder hereof a new Warrant
or Warrants of like tenor, in the name of the Holder hereof or as the
Holder (upon payment by the Holder of any applicable transfer taxes) may
request, providing in the aggregate on the face or faces thereof for the
purchase of the number of shares of Preferred Stock for which such Warrant
or Warrants may still be exercised.
1.2 CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in Section 1.1, the Holder may elect to exercise this Warrant in
whole or in part by receiving shares of Preferred Stock equal to the net
issuance value (as determined below) of this Warrant, or any part hereof
upon surrender of this Warrant to the principal office of the Company or
the Company's transfer agent and registrar for the Preferred Stock
together with the subscription form annexed hereto (completed and signed
by the Holder), in which event the Company shall issue to the Holder a
number of shares of Preferred Stock equal to X in the following formula:
X = Y (A-B)
-------
A
Where:
Y = the number of shares of Preferred Stock as to which
this Warrant is to be exercised.
A = the current fair market value of one share of Common
Stock calculated as of the last Trading Day
immediately preceding the exercise of this Warrant.
B = the Purchase Price.
As used herein, current fair market value of Common Stock as of a
specified date shall mean with respect to each share of Common Stock the
closing sale price of the Common Stock on the principal securities market
on which the Common Stock may at the time be listed or, if there have been
no sales on any such exchange on such day, the average of the reported
closing bid and asked prices on the principal securities market at the end
of such day, or, if on such day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq
System as of 2:00 p.m., Denver, Colorado time, or, if on such day the
Common Stock is not quoted in the Nasdaq System, the average of the
highest bid and lowest asked price on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau, Incorporated,
or any similar successor organization, in each such case averaged over a
period of five consecutive Trading Days consisting of the day as of which
the current fair market value of a share of Common Stock is being
determined (or if such day is not a Trading Day, the Trading Day next
preceding such day) and the four consecutive Trading Days prior to such
day. If on the date for which current fair market value is to be
determined the Common Stock is not listed on any securities exchange or
quoted in the Nasdaq System or the over-the-counter market the current
fair market value of Common Stock shall be the highest price per share
which the Company could then obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company from
authorized but unissued shares, as determined in good faith by the Board
of Directors of the Company, unless prior to such date the Company has
become subject to a merger, acquisition or other consolidation transaction
pursuant to which the Company is not the surviving party, in which case
the current fair market value of the Common Stock shall be deemed to be
the value received or agreed to be paid by the holders of the Company's
Common Stock for each share thereof pursuant to such transaction.
2. DELIVERY UPON EXERCISE. As soon as practicable after the
exercise of this Warrant, and in any event within three (3) Trading Days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder, or as the Holder (upon payment by the Holder of
any applicable transfer taxes) may direct, a certificate or certificates
for the number of fully paid and nonassessable shares of Preferred Stock
(or Other Securities) to which the Holder shall be entitled on such
exercise, in such denominations as may be requested by the Holder plus, in
lieu of any fractional share to which the Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current fair
market value (as determined in accordance with subsection 1.2) of one full
share, together with any other stock or other securities and property
(including cash where applicable) to which the Holder is entitled upon
such exercise pursuant to Section 1 or otherwise. Upon exercise of this
Warrant as provided herein, the Company's obligation to issue and deliver
the certificates for Preferred Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the
same, any waiver or consent with respect to any provision thereof the
recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of
the Company to the Holder, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder
or any other person of any obligation to the Company, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with such exercise. If the Company
fails to issue and deliver the certificates for the Preferred Stock to the
Holder pursuant to the first sentence of this paragraph as and when
required to do so, in addition to any other liabilities the Company may
have hereunder and under applicable law, the Company shall pay or
reimburse the Holder on demand for all out-of-pocket expenses including,
without limitation, reasonable fees and expenses of legal counsel incurred
by the Holder as a result of such failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY ETC.;
RECLASSIFICATION ETC. In case at any time, or from time to time, after
the Issue Date, all the holders of Preferred Stock (or Other Securities)
shall have received, or (on or after the record date fixed for the
determination of stockholders eligible to receive) shall have become
entitled to receive, without payment therefor:
3.1 other or additional stock or other securities or property
(other than cash) by way of dividend, or
3.2 any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
3.3 other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Preferred Stock (or Other Securities)
issued as a stock dividend or in a stock-split (adjustments in respect of
which are provided for in Section 5), then and in each such case the
Holder, on the exercise hereof as provided in Section 1, shall be entitled
to receive the amount of stock and other securities and property
(including cash in the cases referred to in subsections 3.2 and 3.3 of
this Section 3) which the Holder would hold on the date of such exercise
if on the date thereof the Holder had been the holder of record of the
number of shares of Preferred Stock called for on the face of this Warrant
and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and all such
other or additional stock and other securities and property (including
cash in the case referred to in subsections 3.2 and 3.3 of this Section 3)
receivable by the Holder as aforesaid during such period, giving effect to
all adjustments called for during such period by Section 4.
Notwithstanding anything in this Section 3 to the contrary, no adjustments
pursuant to this Section 3 shall actually be made until the cumulative
effect of the adjustments called for by this Section 3 since the date of
the last adjustment actually made would change the amount of stock or
other securities and property which the Holder would hold by more than 1%.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER ETC. In
case at any time or from time to time after the Issue Date, the Company
shall (a) effect a reorganization, (b) consolidate with or merge into any
other person, or (c) transfer all or substantially all of its properties
or assets to any other person under any plan or arrangement contemplating
the dissolution of the Company, then, in each such case, as a condition of
such reorganization, consolidation, merger, sale or conveyance the Company
shall cause lawful and adequate provisions to be made whereby the Holder
hereof shall thereafter have the right to receive upon exercise of this
Warrant, in addition to or in lieu of (as the case may be) the shares of
Preferred Stock of the Company immediately issuable upon such exercise,
such securities or other property receivable upon such reorganization,
consolidation, merger, sale or conveyance as though the Holder had
exercised the Warrant and was the owner of the shares of Preferred Stock
issuable hereunder immediately prior to any such events at a price equal
to the product of (x) the number of shares issuable upon exercise of the
Warrant and (y) the Purchase Price applicable immediately prior to the
record date for such reorganization, consolidation, merger, sale or
conveyance as though Holder had exercised the Warrant. The provisions of
this Section shall apply to successive reorganizations, consolidations,
mergers, sales or conveyances.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that after
the Issue Date the Company shall (i) issue additional shares of Preferred
Stock as a dividend or other distribution on outstanding Preferred Stock,
(ii) subdivide or reclassify its outstanding shares of Preferred Stock, or
(iii) combine its outstanding shares of Preferred Stock into a smaller
number of shares of Preferred Stock, then, in each event, the Purchase
Price shall, simultaneously with the happening of such event, be adjusted
by multiplying the Purchase Price in effect immediately prior to such
event by a fraction, the numerator of which shall be the number of shares
of Preferred Stock outstanding immediately prior to such event, and the
denominator of which shall be the number of shares of Preferred Stock
outstanding immediately after such event, and the product so obtained
shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described in this Section 5.
The Holder shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive that number of shares of Preferred Stock
determined by multiplying the number of shares of Preferred Stock which
would be issuable on such exercise immediately prior to such issuance by a
fraction of which (i) the numerator is the Purchase Price in effect
immediately prior to such issuance and (ii) the denominator is the
Purchase Price in effect on the date of such exercise.
6. ADJUSTMENT FOR CERTAIN STOCK ISSUANCES.
6.1 In case at any time the Company shall issue shares of its
Preferred Stock or debt or equity securities convertible into or
exercisable or exchangeable for shares of Preferred Stock (collectively,
the "Newly Issued Shares"), other than (i) issuances in the private
placement which is the subject of the Placement Agent Agreement, dated
March 10, 1999 between the Company and Neidiger, Tucker, Bruner, Inc.;
(ii) an issuance pro rata to all holders of its outstanding Preferred
Stock, (iii) issuances pursuant to options, warrants and convertible
securities outstanding on the Issue Date and (iv) issuances pursuant to
employee stock option plans (other than in connection with any corporate
financing or acquisition transaction), at a price below the Purchase Price
in effect at the time of such issuance, then, following such issuance of
Newly Issued Shares, the number of shares of Preferred Stock which the
Holder shall be entitled to receive upon exercise of this Warrant shall be
increased and the Purchase Price shall be decreased to the respective
amounts determined pursuant to this Section 6. The number of shares of
Preferred Stock purchasable upon the exercise of this Warrant following
any such adjustment shall be determined by multiplying the number of
shares purchasable upon exercise of this Warrant immediately prior to such
adjustment by a fraction, the numerator of which shall be the sum of (a)
the number of shares of Preferred Stock outstanding or authorized to be
outstanding immediately prior to the issuance of the Newly Issued Shares
(calculated on a fully-diluted basis assuming the exercise or conversion
of all options, warrants, purchase rights or convertible securities which
are exercisable at the time of the issuance of the Newly Issued Shares),
plus (b) the number of Newly Issued Shares, and the denominator of which
shall be the sum of (a) the number of shares of Preferred Stock
outstanding immediately prior to the issuance of the Newly Issued Shares
(calculated on a fully-diluted basis assuming the conversion of all
options, warrants, purchase rights or convertible securities which are
exercisable at the time of the issuance of the Newly Issued Shares), plus
(b) the number of shares of Preferred Stock which the aggregate
consideration, if any, received by the Company for the number of Newly
Issued Shares would purchase at a price equal to the Purchase Price in
effect at the time of such issuance. Upon any adjustment under this
Section 6, the number of shares of Preferred Stock purchasable upon
exercise of this Warrant in full immediately after such adjustment shall
be rounded to the nearest one-one-hundredth of a share of Preferred Stock
subject, however, to Section 2 of this Warrant relating to fractional
shares of Preferred Stock. Such adjustment of the number of shares
purchasable provided for in this Section 6 may be expressed in the
following formula:
X= W x [O+N]
---------
[O+(C/P)]
Where:
C = aggregate consideration received by the Company for
the Newly Issued Shares.
N = number of Newly Issued Shares.
O = number of shares of Preferred Stock outstanding or
authorized to be outstanding (on a fully diluted
basis, as described above) immediately prior to the
issuance of the Newly Issued Shares.
P = Purchase Price in effect immediately prior to the time
of the issuance of the Newly Issued Shares.
W = number of shares of Preferred Stock issuable upon
exercise of this Warrant prior to the issuance of the
Newly Issued Shares.
X = number of shares of Preferred Stock issuable upon
exercise of this Warrant after the issuance of the
Newly Issued Shares.
Upon the issuance of such Newly Issued Shares, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by
multiplying the Purchase Price in effect immediately prior to such event
by a fraction, the numerator of which shall be the number of shares of
Preferred Stock issuable upon exercise of this Warrant prior to the
issuance of the Newly Issued Shares and the denominator of which shall be
the number of shares of Preferred Stock issuable upon the exercise of this
Warrant after the issuance of the Newly Issued Shares as provided in this
Section 6, and the product so obtained shall thereafter be the Purchase
Price then in effect. The number of shares of Preferred Stock issuable
upon exercise of this Warrant and the Purchase Price, as each is so
adjusted, shall be readjusted in the same manner upon the happening of any
successive issuances of Newly Issued Shares described in this Section 6.
6.2 The foregoing provisions of subsection 6.1 shall be in
addition to, and not in lieu of, the adjustment or adjustments provided by
the provisions of Section 5, captioned "Conversion," of the Articles of
Amendment to the Amended and Restated Articles of Incorporation of Cavion
Technologies, Inc. Setting Forth the Statement of Designation of Series
and Determination of Rights and Preferences of Convertible Preferred
Stock, Series A, as dated February 26, 1999 and filed with the Colorado
Secretary of State.
7. FURTHER ASSURANCES. The Company will take all action that may
be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all
taxes, liens and charges with respect to the issue thereof, on the
exercise of all or any portion of this Warrant from time to time
outstanding.
8. NOTICES OF RECORD DATE, ETC. In the event of:
8.1 any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
8.2 any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company
or any transfer of all or substantially all of the assets of the Company
to or consolidation or merger of the Company with or into any other person
(other than a wholly-owned subsidiary of the Company), or
8.3 any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then and in each such event the Company will
mail or cause to be mailed to the Holder, at least ten days prior to such
record date, a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or riaht, and
stating the amount and character of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be
fixed as of which the holders of record of Preferred Stock (or Other
Securities) shall be entitled to exchange their shares of Preferred Stock
(or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up, and (iii)
the amount and character of any stock or other securities or rights or
options with respect thereto, proposed to be issued or granted, the date
of such proposed issue or grant and the persons or class of persons to
whom such proposed issue or grant is to be offered or made. Such notice
shall also state that the action in question or the record date is subject
to the effectiveness of a registration statement under the Securities Act,
or a favorable vote of stockholders if either is required. Such notice
shall be mailed at least ten days prior to the date specified in such
notice on which any such action is to be taken or the record date,
whichever is earlier.
9. RESERVATION OF STOCK ISSUABLE ON EXERCISE. The Company will at
all times reserve and keep available out of its authorized but unissued
shares of capital stock solely for issuance and delivery on the exercise
of this Warrant, a sufficient number of shares of Preferred Stock (or
Other Securities) to effect the full exercise of this Warrant and the
exercise, conversion or exchange of any other warrant or security of the
Company exercisable for, convertible into, exchangeable for or otherwise
entitling the holder to acquire shares of Preferred Stock (or Other
Securities), and if at any time the number of authorized but unissued
shares of Preferred Stock (or Other Securities) shall not be sufficient to
effect such exercise, conversion or exchange, the Company shall take such
action as may be necessary to increase its authorized but unissued shares
of Preferred Stock (or Other Securities) to such number as shall be
sufficient for such purposes.
10. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of
the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, are registrable at the principal office of
the Company or the office of the Company's transfer agent and registrar by
the Holder hereof in person or by his duly authorized attorney, upon
surrender of this Warrant property endorsed.
11. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office or agency as it may
designate by notice to the Holder hereof), a register in which the Company
shall record the name and address of the person in whose name this Warrant
has been issued, as well as the name and address of each successor and
prior owner of such Warrant. The Company shall be entitled to treat the
person in whose name this Warrant is so registered as the sole and
absolute owner of this Warrant for all purposes.
12. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the Holder hereof at the principal office of the
Company or the office of the Company's transfer agent and registrar, for
one or more new Warrants of like tenor representing in the aggregate the
right to subscribe for and purchase the number of shares of Preferred
Stock which may be subscribed for and purchased hereunder, each of such
new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said Holder hereof at the time
of such surrender.
13. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant and, in the case of any such loss, theft or destruction of
this Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
14. WARRANT AGENT. American Securities Transfer & Trust, Inc., 1825
Lawrence Street, Suite 444, Denver, Colorado 80202, has been appointed the
Company's Transfer Agent and Registrar and the Company's exercise agent
for purposes of issuing shares of Preferred Stock (or Other Securities) on
the exercise of this Warrant pursuant to Section 1. The Company may, by
notice to the Holder, appoint an agent having an office in the United
States of America for the purpose of exchanging this Warrant pursuant to
Section 12 and replacing this Warrant pursuant to Section 13, or either of
the foregoing, and thereafter any such exchange or replacement, as the
case may be, shall be made at such office by such agent.
15. REMEDIES. The Company stipulates that the remedies at law of
the Holder in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
16. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall
not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence
of affirmative action by the Holder hereof to purchase Preferred Stock,
and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of the Holder for the Purchase
Price or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
17. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to be
sufficiently given when delivered personally (by hand, by courier or by
facsimile, with answer back confirmation) and shall be effective upon
receipt, addressed: (i) if to the Company, at 7475 Dakin Street, Suite
607, Denver, Colorado 80221, Attn: President, facsimile number (303) 657-
8212 and (ii) if to the Holder, at 300 Plaza Level, 1675 Larimer Street,
Denver, Colorado 80202, Attn: President, facsimile number (303) 623-9310,
or at such other address or facsimile number as a party shall have
provided to the other party by written notice given in accordance with
these provisions.
18. SECURITIES LAW RESTRICTIONS. By acceptance of this Warrant, the
Holder represents to the Company that this Warrant is being acquired for
the Holder's own account and for the purpose of investment and not with a
view to, or for sale in connection with, the distribution thereof, nor
with any present intention of distributing or selling this Warrant or the
Preferred Stock issuable upon exercise of this Warrant. Neither this
Warrant nor the shares of Preferred Stock issuable upon the exercise or
conversion of this Warrant have been registered under the Securities Act
or under the securities laws of any state. Neither this Warrant, nor the
shares of Preferred Stock issuable upon the exercise or conversion of this
Warrant, may be sold, transferred, hypothecated, assigned, offered for
sale or otherwise disposed of unless registered pursuant to the Securities
Act and applicable state securities laws or unless in the opinion of
counsel who is reasonably satisfactory to the Company an exemption from
such registration is available. Certificates representing securities
issued upon exercise or conversion of this Warrant shall bear a legend as
provided in Section 19 hereof.
19. LEGEND. Unless theretofore registered for resale under the
Securities Act, each certificate for shares issued upon exercise of this
Warrant shall bear the following legend:
The securities represented by this certificate have
not been registered under the Securities Act of 1993,
as amended (the "Act"). The securities have been
acquired for investment and may not be resold,
transferred or assigned in the absence of an effective
registration statement for the securities under the
Act, or an opinion of counsel satisfactory to the
issuer that registration is not required under the
Act.
20. REGISTRATION RIGHTS. Nothing contained herein shall be
construed as requiring the exercise of this Warrant prior to the initial
filing of any registration statement provided herein or the effectiveness
thereof.
20.1 MANDATORY REGISTRATION. The Company shall prepare, and on
or prior to April 30, 1999, file with the SEC a Registration Statement
which covers a public offering of the Company's securities for its own
account, the resale of the Registerable Securities by the Holder and the
resale of shares of Common Stock issued or issuable upon conversion of up
to 700,000 shares of Preferred Stock in accordance with the registration
rights agreements entered into under subscription agreements between the
Company and the certain investors. The registration rights provided in
this subsection 20.1 shall be in addition to the registration rights
provided in subsections 20.2 and 20.3 below and such additional
registration rights shall not be diminished in any way by the decision of
the Holder not to include the Registerable Securities of the Holder in the
Registration Statement provided by this subsection 20.1. No right to
registration of Registerable Securities under this subsection 20.1 shall
be construed to limit any registration required under subsections 20.2 and
20.3.
20.2 DEMAND REGISTRATION. At any time on or before April 3O,
2004, a Majority of the Holders shall have the right to request
registration under the Securities Act for all or any portion of the
Registerable Securities upon the terms and conditions set forth in this
subsection 20.2. Promptly after receipt of a request for registration
pursuant to this subsection 20.2 the Company shall notify all other
Holders in writing of such request for registration. Upon receipt of
such, notice from the Company (the "Company Notice"), each such holder may
give the Company a written request to register all or some of such
holder's Registerable Securities in the Registration Statement described
in the Company Notice, provided that such written request is given within
10 days after the date on which the Company Notice is given (with such
request stating (i) the amount of Registerable Securities to be included
and (ii) any other information reasonably requested by the Company to
property effect the registration of such Registerable Securities). The
Company shall as soon as practicable after the date on which the Company
Notice is given, file with the SEC and use its best efforts to cause to
become effective a Registration Statement which shall cover the
Registerable Securities specified in the Demand Notice and in any written
request from any other holder received by the Company within 10 days of
the date on which the Company Notice is given. No right to registration
of Registerable Securities under this subsection 20.2 shall be construed
to limit any registration required under subsections 20.1 and 20.3 hereof.
The obligations of the Company under this subsection 20.2 shall expire
after the Company has afforded the Holder the opportunity to exercise
registration rights under this subsection 20.2 for two registrations.
Notwithstanding any other provision of this Agreement, if the Registration
Statement required to be filed pursuant to Section 20.1 of this Agreement
shall have been ordered effective by the SEC and the Company shall have
maintained the effectiveness of such registration as required hereunder
and if the Company shall otherwise have complied in all material respects
with its obligations hereunder, then the Company shall not be obligated to
registered any Registerable Securities on such Registration Statement
referred to in this subsection 20.2.
20.3 PIGGY-BACK REGISTRATION. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement
relating to an offering for its own account or the account of others under
the Securities Act of any securities of the Company, other than on Form S-
4 or Form S-8 or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock option or
other employee benefit plans, the Company shall send to the Holder and
each other holder who is entitled to registration rights under this
subsection 20.3 written notice of such determination and if, within 10
days after receipt of such notice, Holder shall so request in writing, the
Company shall include in such Registration Statement all or any part of
the Registerable Securities the Holder requests to be registered, except
that if, in connection with any underwritten public offering for the
account of the Company, the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included
in the Registration Statement because, in such underwriter(s)' judgement
such limitation is necessary to effect an orderly public distribution,
then the Company shall be obligated to include in such Registration
Statement only such limited portion of the Registerable Securities with
respect to which Holder has requested inclusion. Any exclusion of
Registerable Securities shall be made pro rata among all holders who have
requested that Registerable Securities be included, in proportion to the
number of Registerable Securities specified in their respective requests;
provided, however, that the Company shall not exclude any Registerable
Securities unless the Company has first excluded all outstanding
securities the holders of which are not entitled by right to inclusion of
securities in such Registration Statement; and provided further, however,
that, after giving effect to the immediately preceding proviso, any
exclusion of Registerable Securities shall be made pro rata with holders
of other securities having the right to include such securities in the
Registration Statement, based on the number of securities for which
registration is requested except to the extent such pro rata exclusion of
such other securities is prohibited under any written agreement entered
into by the Company with the holder of such other securities prior to the
Issue Date of this Certificate, in which case such other securities shall
be excluded, if at all, in accordance with the terms of such agreement.
No right to registration of Registerable Securities under this subsection
20.3 shall be construed to limit any registration required under
subsections 20.1 or 20.2 hereof. The obligations of the Company under
this subsection 20.3 may be waived by a Majority of the Holders and such
obligations of the Company shall expire after the Company has afforded the
opportunity to the holders to exercise registration rights under this
subsection 20.3 for two registrations; provided, however, that any Holder
who shall have had any Registerable Securities excluded from any
Registration Statement in accordance with this subsection 20.3 shall be
entitled to include in an additional Registration Statement filed by the
Company the Registerable Securities so excluded. Notwithstanding any
other provision of this Agreement, if the Registration Statement required
to be filed pursuant to subsection 20.1 of this Agreement shall have been
ordered effective by the SEC and the Company shall have maintained the
effectiveness of such Registration Statement as required hereunder and if
the Company shall otherwise have complied in all material respects with
the obligations hereunder, then the Company shall not be obligated to
register any Registerable Securities on such Registration Statement
referred to subsection 20.3.
20.4 OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registerable Securities, the Company shall:
20.4.1 prepare promptly, and file with the SEC not later
than April 30, 1999 the Registration Statement provided in Section 20.1
with respect to the Registrable Securities and thereafter to use its best
efforts to cause such Registration Statement relating to the Registerable
Securities to become effective as soon as possible after such filing, and
keep the Registration Statement effective at all times during the
Registration Period; submit to the SEC, within three Business Days after
the Company learns that no review of the Registration Statement will be
made by the staff of the SEC or the staff of the SEC has no further
comments on the Registration Statement, as the case may be, a request for
acceleration of the effectiveness of the Registration Statement to a time
and date not later then 48 hours after the submission of such request;
notify the Holder of the effectiveness of the Registration Statement on
the date the Registration Statement is declared effective; and, the
Company represents and warrants to, and covenants and agrees with the
Holder that the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein, at the time it is
first filed with the SEC, at the time it is ordered effective by the SEC
and at all times during which it is required to be effective hereunder)
and each such amendment and supplement at the time it is filed with the
SEC and all times during which it is available for use in connection with
the offer and sale of Registerable Securities shall not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading;
20.4.2 prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration
Statement as may be necessary to keep the Registration Statement effective
at all times during the Registration Period, and during the Registration
Period, comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities of the Company covered by
the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods
of disposition by the Holder or Holders thereof as set forth in the
Registration Statement;
20.4.3 furnish to each Holder whose Registrable
Securities are included in the Registration Statement and its legal
counsel, (i) promptly after the same is prepared and publicly distributed,
filed with the SEC or received by the Company, one copy of the
Registration Statement and any amendment thereto, each preliminary
prospectus and prospectus and each amendment or supplement thereto, each
letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the
SEC relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought
confidential treatment) and (ii) such number of copies of a prospectus,
including a preliminary prospectus and all amendments and supplements
thereto and such other documents, as such Holder reasonably may request in
order to facilitate the disposition of the Registrable Securities owned by
such Holder;
20.4.4 use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement
under such securities or blue sky laws of such jurisdictions as the
Holders who hold a majority of the Registrable Securities being offered
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times until the end of the Registration
Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the
Registration Period and (iv) take all other actions reasonably necessary
or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto (I) to qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection 20.4.4, (II) to subject itself to general
taxation in any such jurisdiction, (III) to file a general consent to
service of process in any such jurisdiction, or (IV) to make any change in
its Articles of Incorporation or Bylaws which the Board of Directors of
the Company determines to be contrary to the best interests of the Company
and its stockholders;
20.4.5 in the event that the Registrable Securities are
being offered in an underwritten offering, enter into and perform its
obligations under an underwriting agreement in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering;
20.4.6 as promptly as practicable after becoming aware
of such event or circumstance, notify each Holder of any event or
circumstance of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the
SEC at such time as shall permit the Holder to sell Registrable Securities
pursuant to the Registration Statement as promptly as practicable, and
deliver a number of copies of such supplement or amendment to each Holder
as such Holder may reasonably request;
20.4.7 as promptly as practicable after becoming aware
of such event, notify each Holder who holds Registrable Securities being
sold (or, in the event of an underwritten offering the managing
underwriters) of the issuance by the SEC of any stop order or other
suspension of effectiveness of the Registration Statement at the earliest
possible time;
20.4.8 permit one legal counsel designated as selling
stockholders' counsel by the Holder(s) holding a majority of the
Registrable Securities being sold to review and comment on the
Registration Statement and all amendments and supplements thereto a
reasonable period of time prior to their filing with the SEC;
20.4.9 make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close
of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of the
Registration Statement;
20.4.10 at the request of the Holder(s) who hold a
majority of the Registrable Securities being sold, furnish on the date
that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement (i) a letter, dated
such date, from the Company's independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed
to the underwriters; and (ii) an opinion, dated such date, from counsel
representing the Company for purposes of such Registration Statement, in
form and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors;
20.4.11 make available for inspection by Holder, any
underwriter participating, in any distribution or disposition pursuant to
the Registration Statement, and any attorney, accountant or other agent
retained by Holder or underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be
reasonably necessary to enable Holder to exercise Holder's due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information which any Inspector may reasonably request for
purposes of such due diligence; provided, however, that each Inspector
shall hold in confidence and shall not make any disclosure (except to a
Holder) of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors
are so notified, unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration Statement,
(ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or
(iii) the information in such Records has been made generally available to
the public other than by disclosure in violation of this or any other
agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect
thereto;
20.4.12 use its best efforts (i) to cause all the
Registrable Securities covered by the Registration Statement to be listed
on the Nasdaq or such other principal securities market on which
securities of the same class or series issued by the Company are then
listed or traded or (ii) if securities of the same class or series as the
Registrable Securities are not then listed on Nasdaq or any such other
securities market, to cause all of the Registrable Securities covered by
the Registration Statement to be listed on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market;
20.4.13 provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement;
20.4.14 cooperate with the Holder and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates (not bearing any restrictive legends)
representing Registerable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Holder may reasonably request and
registered in such names as the managing underwriter or underwriters, if
any, or the Holder may request;
20.4.15 during the period the Company is required to
maintain effectiveness of the Registration Statement pursuant to
subsection 20.4.1, the Company shall not bid for or purchase any Common
Stock or any right to purchase Common Stock or attempt to induce any
person to purchase any such security or right if such bid, purchase or
attempt would in any way limit the right of the Holder to sell Registrable
Securities by reason of the limitations set forth in Regulation M under
the Exchange Act; and
20.4.16 take all other reasonable actions necessary to
expedite and facilitate disposition by the Holder of the Registrable
Securities pursuant to the Registration Statement.
20.4.17 With a view to making available to the Holders
the benefits of Rule 144, the Company agrees to: (i) make and keep public
information available, as those terms are understood and defined in Rule
144; (ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act; and (iii) furnish to each Holder so long as such Holder owns
Registrable Securities, promptly upon request, (I) a written statement by
the Company that it has complied with the reporting, requirements of Rule
144 and the Exchange Act, (II) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so
filed by the Company and (III) such other information as may be reasonably
requested to permit the Holders to sell such securities pursuant to Rule
144 without registration.
20.5 OBLIGATIONS OF THE HOLDER. In connection with the
registration of the Registrable Securities, the Holder shall have the
following obligations:
20.5.1 it shall be a condition precedent to the
obligations of the Company to complete the registration pursuant hereto
with respect to the Holder's Registrable Securities that the Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by Holder and the intended method of disposition of the
Registrable Securities held by Holder as shall be reasonably required to
effect the registration of such Registrable Securities and shall execute
such documents in connection with such registration as the Company may
reasonably request. At least five days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify the
Holder of the information the Company requires from the Holder (the
"Requested Information") if any of Holder's Registrable Securities are
eligible for inclusion in the Registration Statement. If at least two
Business Days prior to the filing date the Company has not received the
Requested Information from the Holder (at such time Holder becoming a "Non-
Responsive Holder"), then the Company may file the Registration Statement
without including Registrable Securities of Non-Responsive Holder but
shall not be relieved of its obligation to file a Registration Statement
with the SEC relating to the Registrable Securities of Non-Responsive
Holder promptly after Non-Responsive Holder provides the Requested
Information;
20.5.2 by Holder's acceptance of the Registrable
Securities, Holder agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless Holder has notified the
Company in writing of such Holder's election to exclude all of Holder's
Registrable Securities from the Registration Statement;
20.5.3 in the event Holder(s) holding a majority of the
Registrable Securities being registered determine to engage the services
of an underwriter, each Holder agrees to enter into and perform such
Holder's obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification
and contribution obligations, with the managing underwriter of such
offering and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities,
unless such Holder has notified the Company in writing of such Investor's
election to exclude all of such Investor's Registrable Securities from the
Registration Statement;
20.5.4 Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
subsections 20.4.6 or 20.4.7, Holder will immediately discontinue
disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by
subsections 20.4.6 or 20.4.7 and, if so directed by the Company, Holder
shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in
such Investor's possession of the prospectus covering such Registrable
Securities current at the time of receipt of such notice;
20.5.5 Holder may not participate in any underwritten
registration hereunder unless Holder (i) agrees to sell Holder's
Registrable Securities on the basis provided in any underwriting
arrangements approved by the Holders entitled hereunder to approve such
arrangements, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and
(iii) agrees to pay its pro rata share of all underwriting discounts and
commissions and other fees and expenses of investment bankers and any
manager or managers of such underwriting and legal expenses to the
underwriters applicable with respect to its Registrable Securities, in
each case to the extent not payable by the Company pursuant to the terms
of this Agreement; and
20.5.6 Holder agrees to take all reasonable actions
necessary to comply with the prospectus delivery requirements of the
Securities Act applicable to its sales of Registrable Securities.
20.6 EXPENSES OF REGISTRATION. All costs and expenses, other
than underwriting or brokerage discounts, commissions and other fees
related to the distribution of the Registerable Securities, incurred in
connection with registrations, filings or qualifications pursuant to
subsections 20.1, 20.2 and 20.3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting
fees and the fees and disbursements of counsel for the Company shall be
borne by the Company, provided, however, that the Holder(s) shall bear the
fees and out-of-pocket expenses of the one legal counsel selected by the
Holder(s) pursuant to subsection 20.4.8 hereof and all reasonable costs
and expenses incurred in connection with the second demand registration
permitted by subsection 20.2, including all registration, listing and
qualification fees, printers and accounting fees and the fees and
disbursements of the Company counsel, shall be borne by the Holder(s) of
the Registerable Securities covered by such registration.
20.7 INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
20.7.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Holder who holds such Registrable
Securities, the directors, if any, of such Holder, the officers, if any,
of such Holder, each person, if any, who controls any Holder within the
meaning of the Securities Act or the Exchange Act, any underwriter (as
defined in the Securities Act) for the Holders, the directors, if any, of
such underwriter and the officers, if any, of such underwriter, and each
person, if any, who controls any such underwriter within the meaning of
the Securities Act or the Exchange Act (each, an "Indemnified Person"),
against any losses, claims, damages, liabilities or expenses (joint or
several) incurred (collectively, "Claims") to which any of them may become
subject under the Securities Act, the Exchange Act or otherwise, insofar
as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration
Statement or any post-effective amendment thereof, or any prospectus
included therein: (i) any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any post-
effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein
any material fact necessary to make the statements made therein, in light
of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth
in subsection 20.7.4 with respect to the number of legal counsel, the
Company shall reimburse the Holders and the other Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any
legal fees or other reasonable expenses incurred by them in connection
with investigating or defending any such Claim. Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained
in this subsection 20.7.1: (I) shall not apply to a Claim arising out of
or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified
Person or underwriter for such Indemnified Person expressly for use in
connection with the preparation of the Registration Statement, the
prospectus or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to subsection
20.4.3 hereof; (II) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was
corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to subsection
20.4.3 hereof; and (III) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent
of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Holders pursuant
to Section 24.
20.7.2 In connection with any Registration Statement in
which a Holder is participating, each such Holder agrees to indemnify and
hold harmless, to the same extent and in the same manner set forth in
subsection 20.7.1, the Company, each of its directors, each of its
officers who signs the Registration Statement, each person on, if any, who
controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers
or any person who controls such stockholder or underwriter within the
meaning of the Securities Act or the Exchange Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any
Claim to which any of them may become subject, under the Securities Act,
the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for
use in connection with such Registration Statement; and such Holder will
reimburse any legal or other expenses reasonably incurred by any
Indemnified Party, promptly as such expenses are incurred and are due and
payable, in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this
subsection 20.7.2 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of
such Holder, which consent shall not be unreasonably withheld; provided,
further, however, that the Holder shall be liable under this subsection
20.7.2 for only that amount of a Claim as does not exceed the amount by
which the net proceeds to such Holder from the sale of Registrable
Securities pursuant to such Registration Statement exceeds the cost of
such Registrable Securities to such Holder. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Holders pursuant to Section 10.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this subsection 20.7.2 with respect
to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
20.7.3 The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in any
distribution, to the same extent as provided above, with respect to
information so furnished in writing by such persons expressly for
inclusion in the Registration Statement.
20.7.4 Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 20.7 of notice of the commencement
of any action (including any governmental action), such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under Section 20.7, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the riaht to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel selected by the indemnifying party but reasonably
acceptable to the Indemnified Person or the Indemnified Party, as the case
may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party
and any other party represented by such counsel in such proceeding. In
such event, the Company shall pay for only one separate legal counsel for
the Investors; such legal counsel shall be selected by the Holders holding
a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 20.7, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action. The indemnification
required by Section 20.7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
20.8 The agreements, representations and warranties of the
Company and the Holder set forth or provided in this Section 20 shall
survive any exercise of this Warrant and the delivery of and payment for
the Registerable Securities hereunder and shall remain in full force and
effect, regardless of any investigation made by or on behalf of the
Company and the Holder.
21. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed
by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of
Colorado. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed on its behalf by one of its officers thereunto duly authorized.
Dated: ------------, 1999 CAVION TECHNOLOGIES, INC.
--------------------------
David J. Selina, President
FORM OF SUBSCRIPTION
CAVION TECHNOLOGIES, INC.
(To be signed only on exercise of Warrant)
TO: Cavion Technologies, Inc.
7475 Dakin Street, Suite 607
Denver, Colorado 80221
Attn: President
1. The undersigned Holder of the attached original, executed
Warrant hereby elects to exercise its purchase right under such Warrant
with respect to ------------ shares of Preferred Stock, as defined in the
Warrant, of Cavion Technologies, Inc., a Colorado corporation (the
"Company").
2. The undersigned Holder (check one):
[ ] (a) elects to pay the aggregate purchase price for
such shares of Preferred Stock (the "Exercise Shares")
(i) by lawful money of the United States or the
enclosed certified or official bank check payable in
United States dollars to the order of the Company in
the amount of $-------------- or (ii) by wire
transfer of United States funds to the account of the
Company in the amount of $----------, which transfer
has been made before or simultaneously with the
delivery of this Form of Subscription pursuant to the
instructions of the Company;
or
[ ] (b) elects to receive shares of Preferred Stock
having a value equal to the value of the Warrant
calculated in accordance with Section 1.2 of the
Warrant.
3. Please issue a stock certificate or certificates representing
the appropriate number of shares of Preferred Stock in the name of the
undersigned or in such other name as is specified below:
Name:---------------------------------------------------
Address: ----------------------------------------------
----------------------------------------------
Dated:-------------------- ----------------------------------------
(Signature must conform to name of Holder
as specified on the face of the Warrant)
----------------------------------------
----------------------------------------
(Address)
SIGMACOM CORPORATION
5741 ARAPAHOE RD., SUITE 2B
BOULDER, COLORADO 80303
(303) 440-8214
FAX (303) 440-8201
NON NEGOTIABLE PROMISSORY NOTE
Herman D. Axelrod ("Payee") at 2865 Juilliard Street, Boulder, CO
80303, or such other address of which Debtor may be notified, agrees to
loan SigmaCom Corporation ("Debtor") up to Twenty Five Thousand and
no/100's dollars ($25,000.00), in lawful money of the United States, which
may be borrowed from time to time upon notice by Debtor. Debtor promises
to pay to Payee interest on the money borrowed at the rate of 2% over
prime (as defined in THE WALL STREET JOURNAL), and such payments will be
made quarterly beginning on October 1, 1992, and subsequently thereafter.
The payment of principal and final interest will be due three years from
the date hereof. Debtor may prepay at any time without penalty.
If this Note or any payment scheduled herein is not paid when due or
declared due hereunder, the entire principal and accrued interest thereon
shall draw interest at the rate of eighteen percent (18%) per annum, and
failure to make any payment of principal or interest when due or any
default under any encumbrance or agreement securing this Note shall cause
the whole Note to become due at once, or the interest to be counted as
principal, at the option of the payee.
The Debtor hereof waives presentment for payment, protest, notice of
non-payment and of protest, and agrees to any extension of the time of
payment and partial payments before, at or after maturity, and if this
Note or interest thereon is not paid when due at stated or accelerated
maturity, or suit is brought, Debtor agrees to pay all reasonable costs of
collection, including reasonable attorney's fees.
This promissory note is secured by the furniture, fixtures,
computers, peripherals, software, accounts receivables, and all other
assets, whether stated or not, of Sigmacom Corporation.
PAYEE SIGMACOM CORPORATION
/s/ Herman D. Axelrod /s/ Herman D. Axelrod
- --------------------------------- ---------------------------------
Herman D. Axelrod, President
7-1-92
- -------------------
Date
SIGMACOM CORPORATION
5741 ARAPAHOE RD., SUITE 2B
BOULDER, COLORADO 80303
(303) 440-8214
FAX (303) 440-8201
NON NEGOTIABLE PROMISSORY NOTE
Craig E. Lassen ("Payee") at 2285 Birch Street, Denver, CO 80207, or
such other address of which Debtor may be notified, agrees to loan
SigmaCom Corporation ("Debtor") up to Twenty Five Thousand and no/100's
dollars ($25,000.00), in lawful money of the United States, which may be
borrowed from time to time upon notice by Debtor. Debtor promises to pay
to Payee interest on the money borrowed at the rate of 2% over prime (as
defined in THE WALL STREET JOURNAL), and such payments will be made
quarterly beginning on October 1, 1992, and subsequently thereafter. The
payment of principal and final interest will be due three years from the
date hereof. Debtor may prepay at any time without penalty.
If this Note or any payment scheduled herein is not paid when due or
declared due hereunder, the entire principal and accrued interest thereon
shall draw interest at the rate of eighteen percent (18%) per annum, and
failure to make any payment of principal or interest when due or any
default under any encumbrance or agreement securing this Note shall cause
the whole Note to become due at once, or the interest to be counted as
principal, at the option of the payee.
The Debtor hereof waives presentment for payment, protest, notice of
non-payment and of protest, and agrees to any extension of the time of
payment and partial payments before, at or after maturity, and if this
Note or interest thereon is not paid when due at stated or accelerated
maturity, or suit is brought, Debtor agrees to pay all reasonable costs of
collection, including reasonable attorney's fees.
This promissory note is secured by the furniture, fixtures,
computers, peripherals, software, accounts receivables, and all other
assets, whether stated or not, of Sigmacom Corporation.
PAYEE SIGMACOM CORPORATION
/s/ Craig E. Lassen /s/ Herman D. Axelrod
- --------------------------------- ---------------------------------
Herman D. Axelrod, President
8-1-92
- -------------------
Date
FACTORING AGREEMENT
September 8, 1997
SIGMACOM Corporation has borrowed $12,000 from Herman D. Axelrod, which is
considered factoring money. The factoring money is collateralized by the
following final invoice(s):
Customer Inv # Amount Factored
- ----------------- ---------------- ---------------
Questar InfoComm To be determined $12,000
SIGMACOM will repay the factoring money within 5 business days of receipt
of payment for the above listed invoice(s). If for any reason the
encumbered invoices are not paid by the customer within 90 days of invoice
date, SIGMACOM will immediately repay the loan to Herman Axelrod.
Factoring money will bear interest at the rate of 3% of the factoring
money amount for the first thirty days, and 1% for each additional 10 days
until the factoring money is paid in full. No pro-rata of interest amount
will be made for partial time periods.
Borrower: Lender:
/s/ Craig E. Lassen /s/ Herman D. Axelrod
- --------------------------------- ---------------------------------
Craig E. Lassen, CEO Herman D. Axelrod
Sigmacom Corporation
FACTORING AGREEMENT
September 15, 1997
SIGMACOM Corporation has borrowed $13,000 from Herman D. Axelrod, which is
considered factoring money. The factoring money is collateralized by the
following final invoice(s):
Customer Inv # Amount Factored
- ----------------- ---------------- ---------------
Questar InfoComm To be determined $13,000
SIGMACOM will repay the factoring money within 5 business days of receipt
of payment for the above listed invoice(s). If for any reason the
encumbered invoices are not paid by the customer within 90 days of invoice
date, SIGMACOM will immediately repay the loan to Herman Axelrod.
Factoring money will bear interest at the rate of 3% of the factoring
money amount for the first thirty days, and 1% for each additional 10 days
until the factoring money is paid in full. No pro-rata of interest amount
will be made for partial time periods.
Borrower: Lender:
/s/ Craig E. Lassen /s/ Herman D. Axelrod
- --------------------------------- ---------------------------------
Craig E. Lassen, CEO Herman D. Axelrod
Sigmacom Corporation
FACTORING AGREEMENT
September 30, 1997
SIGMACOM Corporation has borrowed $25,190.26 from Herman D. Axelrod, which
is considered factoring money. The factoring money is collateralized by
the following final invoice(s):
Customer Inv # Amount Factored
- ----------------- ---------------- ---------------
Questar InfoComm To be determined $25,190.26
SIGMACOM will repay the factoring money within 5 business days of receipt
of payment for the above listed invoice(s). If for any reason the
encumbered invoices are not paid by the customer within 90 days of invoice
date, SIGMACOM will immediately repay the loan to Herman Axelrod.
Factoring money will bear interest at the rate of 3% of the factoring
money amount for the first thirty days, and 1% for each additional 10 days
until the factoring money is paid in full. No pro-rata of interest amount
will be made for partial time periods.
Borrower: Lender:
/s/ Craig E. Lassen /s/ Herman D. Axelrod
- --------------------------------- ---------------------------------
Craig E. Lassen, CEO Herman D. Axelrod
Sigmacom Corporation
FACTORING AGREEMENT
October 15, 1997
SIGMACOM Corporation has borrowed $25,000 from Craig E. Lassen, which is
considered factoring money. The factoring money is collateralized by the
following final invoice(s):
Customer Inv # Amount Factored
- ----------------- ---------------- ---------------
Questar InfoComm To be determined $25,000
SIGMACOM will repay the factoring money within 5 business days of receipt
of payment for the above listed invoice(s). If for any reason the
encumbered invoices are not paid by the customer within 90 days of invoice
date, SIGMACOM will immediately repay the loan to Craig Lassen.
Factoring money will bear interest at the rate of 3% of the factoring
money amount for the first thirty days, and 1% for each additional 10 days
until the factoring money is paid in full. No pro-rata of interest amount
will be made for partial time periods.
Borrower: Lender:
/s/ Herman D. Axelrod /s/ Craig E. Lassen
- --------------------------------- ---------------------------------
Herman D. Axelrod, President Craig E. Lassen
Sigmacom Corporation
BRIDGE LOAN AGREEMENT
This Bridge Loan Agreement is made as of May 28, 1998 between Cavion
Technologies, Inc., a Colorado corporation formerly known as Sigmacom
Corporation (the "Company"), and the investors listed on the SCHEDULE OF
INVESTORS attached hereto (the "Investors").
Pursuant to the Investment Agreement dated as of August 1, 1996, the
Investors (together with the William M. B. Berger Living Trust) provided
letters of credit and certificates of deposit as security for the
Company's credit facility with US Bank, formerly known as Colorado
National Bank, and received stock in the Company. The Investors also were
granted additional rights with respect to the Company and its other
shareholders under the Investment Agreement, a Put Agreement between the
Company and the Investors, a Share Escrow Agreement between the Company,
the Investors, and Norwest Bank Colorado (as escrow agent), and a
Subordination Agreement between the Company and its other shareholders
(the "Shareholder Subordination Agreement"), each of which was dated as of
August 1, 1996.
Management of the Company is now investigating the potential for a
new equity investment or sale of the Company, but will not be able to
complete any such transaction without an immediate infusion of short-term
working capital. In order to provide for this need, the Investors and the
Company are now entering into a bridge loan in the aggregate amount of
$150,000, and related transactions, on the terms of this Agreement.
The Company is also anticipating possible additional bridge loans
aggregating $150,000 or less by certain other persons identified in the
SCHEDULE OF POSSIBLE ADDITIONAL INVESTORS (the "Additional Investors")
attached hereto and possible further bridge loans by others who are
presently shareholders of the Company (the "Other Shareholder Investors")
in the amount of not more than $50,000 for each such Other Shareholder
Investor (in each case, with the purchase of nonvoting shares with put).
There is no assurance that any Additional Investor or any Other
Shareholder Investor will make any such additional bridge loan, and the
obligations of the Company and the Investors under this Bridge Loan and
the instruments and agreements contemplated herein are not conditioned
upon the making of any such additional bridge loan.
In consideration of the mutual covenants contained in this Agreement,
it is agreed as follows:
1. INITIAL BRIDGE TRANSACTION. Concurrently with execution of this
Agreement, each Investor will deliver to the Company funds equal to
the "Loan Amount" listed on the Schedule of Investors, plus (as
consideration for purchase of the Shares) funds equal to $0.01 times
the "Share Amount" listed on the Schedule of Investors. Upon receipt
of the funds, the Company will issue to each Investor:
(a) a Senior Promissory Note in the form attached as EXHIBIT A
(which, with any notes on substantially the same terms that may
be issued to any or all of the Additional Investors or the Other
Shareholder Investors under bridge loan agreements on
substantially the same terms as contained in this Agreement, are
herein called the "Senior Notes"), in a principal amount equal
to the "Loan Amount" listed on the Schedule of Investors;
(b) a number of shares of the nonvoting common stock, par value
$0.01 per share, of the Company (the "Shares") equal to the
"Share Amount" listed on the Schedule of Investors; and
(c) a Put Agreement in the form attached as EXHIBIT B.
2. ADDITIONAL BRIDGE TRANSACTION. Each Investor acknowledges and agrees
that one or more or all of the Additional Investors and of the Other
Shareholder Investors may participate in additional bridge loans to
the Company (and the purchase of nonvoting shares with put) on terms
essentially equivalent to those herein extended to the Investors.
3. SUBORDINATION.
(a) All indebtedness of the Company to the Investors, and all other
rights of the Investors under the Investment Agreement, the Put
Agreement, the Share Escrow Agreement, and the Shareholder
Subordination Agreement (collectively the "1996 Rights"), are
hereby made subordinate and junior to the Senior Indebtedness
(as defined below). Upon
(1) any distribution of all or substantially all of the assets
of the Company, or
(2) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property, or
securities, to creditors in connection with any
dissolution, winding-up, total or partial liquidation or
reorganization of the Company,
all principal and interest due or to become due upon all Senior
Indebtedness will first be paid in full before any Investor will be
entitled to receive any payments or retain any assets so paid or
distributed with respect to the 1996 Rights; and the Investors irrevocably
authorize and direct the Company to effect all payments required by this
sentence.
(b) For purposes of this Agreement, "Senior Indebtedness" means all
principal, premium, interest, costs and other amounts due in
respect of the Senior Notes (and all renewals, extensions,
refundings, refinancings and replacements of such obligations).
(c) Nothing in this Agreement will impair the Company's obligation
to any Investor to pay such Investor in accordance with the
terms of the 1996 Rights. No claim or right of any Investor is
subordinated hereby to any claim against the Company by any
other person except to the extent expressly provided in this
Agreement.
(d) The provisions of this section will terminate upon payment to
the holder of each Senior Note of an amount equal to the
principal amount of each Senior Note.
4. COMPANY'S REPRESENTATIONS AND COVENANT. The Company represents,
warrants and covenants to each Investor as follows:
(a) the Company has entered into the bridge transaction after
careful consideration of all alternatives;
(b) the Company is aware of the potential return to the Investors
pursuant to the bridge transaction, and acknowledges that the
amount of the potential return to the Investors appropriately
reflects the risk inherent in the bridge transaction; and
(c) the Company hereby covenants not to assert a defense of usury to
any action by an Investor to collect any amount due under a
Senior Note or the Put Agreement.
5. INVESTORS' REPRESENTATIONS. Each Investor represents and warrants to
the Company as follows:
(a) the Investor is an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act");
(b) the Investor is acquiring the Shares for its own account for
purposes of investment, and not with a view toward the sale or other
distribution thereof,
(c) the Investor has received or had access to all information it
deems necessary to make a judgment with respect to the acquisition of the
Shares, including the opportunity to ask questions of and discuss the
Company's business with management of the Company;
(d) the Investor understands that the Shares must be held
indefinitely unless registered under the Securities Act or unless an
exemption from registration exists, that no public market now exists for
the Shares, and that there may never exist a public market for the Shares;
and
(e) the Investor understands that the Shares have not been
registered under the Securities Act (on the ground that the sale of the
Shares is exempt from registration as not involving a public offering),
and that the reliance of the Company on such exemption is based upon the
representations made in this section.
6. RESTRICTED SECURITIES. The Shares have not been registered under the
Securities Act or any state securities law, and are not transferable
except pursuant to
(a) a public offering registered under the Securities Act, or
(b) subject to the conditions specified in the following subsection,
Rule 144 of the Securities and Exchange Commission (if
available), or any other legally available means of transfer.
In connection with the transfer of any Shares (except in a registered
public offering), the Investor shall deliver to the Company written
notice describing the proposed transfer in reasonable detail,
together with an opinion of counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters,
to the effect that such transfer may be effected without registration
or qualification of such Shares under the Securities Act or
applicable state securities laws. The Investor shall not transfer
the certificates representing the Shares until the transferee has
confirmed to the Company in writing its agreement to be bound by the
conditions contained in this section. Any person acquiring any
securities of the Company from any Investor shall, upon acquiring
such securities, become bound by the terms of this Agreement, and the
transfer of such securities shall not be made on the books of the
Company until a copy of this Agreement has been executed by such
person. Failure or refusal of the transferee to sign this Agreement
shall not relieve such person from any obligations under this
Agreement.
7. NOTICES. All notices under this Agreement will be in writing and
deemed given upon receipt, by (1) personal delivery, (2)
telephonically confirmed fax, (3) receipted courier service or (4)
certified or registered mail, return receipt requested, addressed to
the principal office of the Company (if to the Company), or to the
address shown on the shareholder records of the Company (if to an
Investor). Refusal to accept delivery will be deemed receipt.
8. GENERAL. This Agreement will be governed by the laws of the State of
Delaware. This Agreement will be binding upon the personal
representatives, successors and assigns of the parties hereto, but
will not be assignable without the prior written consent of the non-
assigning party. This Agreement constitutes the entire agreement
between the parties and may not be waived or modified except in
writing. This Agreement may be executed in any number of
counterparts, each of which will be an original and all of which
together will be one instrument. The headings used in this Agreement
are for convenience only and will not affect the interpretation
hereof.
[Signatures follow.]
IN WITNESS WHEREOF, the parties have executed this Bridge Loan
Agreement as of the date first set forth above.
CAVION TECHNOLOGIES, INC. BRITISH FAR EAST HOLDINGS LTD.
By: /s/ Craig E. Lassen By:/s/Arthur Lipper
Craig E. Lassen Arthur Lipper III
Chairman and Chief Chairman
Executive Officer
FAIRWAY REALTY ASSOCIATES
/s/ Martin Cooper /s/Robert Ingenito
MARTIN COOPER, individually Robert Ingenito
General Partner
By:/s/John DiNozzi
John DiNozzi
General Partner
SCHEDULE TO
BRIDGE LOAN AGREEMENT
SCHEDULE OF INVESTORS
NAME AND ADDRESS SHARE LOAN
AMOUNT AMOUNT
British Far East Holdings Ltd. 5,509 50,000
Tax id no: 13 359 1950
14911 Caminito Ladera
Del Mar, CA 92014-3929
Attn: Arthur Lipper III, Chairman
Fax: 619-793-7199
Voice: 619-793-7100
Martin Cooper 5,509 50,000
Tax id no: 34 120 4626
100 Via de la Valle
Del Mar, CA 92014
Fax: 619-481-2322
Voice: 619-481-2700
Fairway Realty Associates 5,509 50,000
Tax id no: 11 307 0403
c/o Access Direct Systems, Inc.
91 Executive Boulevard
Farmingdale, NY 11735-4713
Attn: Ronald J. Palumberi, Director of Finance
Fax: 516-420-1647
Voice: 516-420-0770 x.203
SCHEDULE TO
BRIDGE LOAN AGREEMENT
SCHEDULE OF POSSIBLE ADDITIONAL INVESTORS
SHARING UP TO $150,000 IN LOAN PRINCIPAL AND
16,527 SHARES AMONG THEM
Craig E. Lassen
2218 Elm Street
Denver, CO 80207
David J. Selina
5523 South Jasper Way
Aurora, CO 80015
Jeff Marshall
6198 South Killarney Dr.
Aurora, CO 80016
Randal W. Burtis
1665 Logan #944
Denver, CO 80203
EXHIBIT A TO
BRIDGE LOAN AGREEMENT
CAVION TECHNOLOGIES, INC.
-------------------------
SENIOR PROMISSORY NOTE
$50,000 May 28, 1998
Cavion Technologies, Inc., a Colorado corporation ("Maker"), hereby
promises to pay to ----------------------------------------- ("Holder"),
at --------------------------------------------- or at such other address
as may be specified by Holder, the principal sum of Fifty Thousand Dollars
($50,000), together with interest as described below, in lawful money of
the United States of America.
The principal indebtedness evidenced by this Note shall earn interest
at the rate of forty-two percent (42%) per annum. Principal and interest
shall be paid in three monthly installments of $20,479.51 each, commencing
on November 1, 1998, and continuing on the first day of each of the
subsequent three months, with the entire balance of principal and accrued
interest being due and payable on January 1, 1999.
This Note may be prepaid in full, but not in part, at any time,
subject to a prepayment penalty equal to the difference obtained by
subtracting (1) all amounts paid on this Note to and including the
prepayment from (2) all amounts that would have been paid on this Note had
payment been made only as and when scheduled in the preceding sentence.
Upon failure of Maker to pay any installment in full when due, Holder
may, by notice to Maker, accelerate the obligation of Maker to pay the
entire balance of this Note, and upon such acceleration there shall be due
to Holder such amount as would be due if the Note had been prepaid in
accordance with the preceding paragraph on the date notice of acceleration
was given by Holder.
The principal amount of this Note is "Senior Indebtedness" as defined
in the Bridge Loan Agreement dated the date hereof among Maker, Holder and
certain other investors in Maker.
This Note is registered on the books of Maker and is transferable
only by surrender thereof at the principal office of Maker, duly endorsed
or accompanied by a written instrument of transfer executed by the
registered Holder of this Note. Payment of or on account of principal and
interest on this Note shall be made only to or upon the order in writing
of the registered Holder.
The provisions of this Note and of all agreements now or hereafter
existing between Maker and Holder are hereby expressly limited so that in
no event whatever shall the amount paid or agreed to be paid to Holder for
the use, forbearance or detention of the sums evidenced by this Note
exceed the maximum amount permissible under applicable law. If from any
circumstance whatever the performance or fulfillment of any provision of
this Note, or of any other agreement between Maker and Holder, should
involve or purport to require any payment in excess of the limit
prescribed by law, then the obligation to be performed or fulfilled is
hereby reduced to the limit of such validity, and if from any circumstance
whatever Holder should ever receive as interest an amount which would
exceed the highest lawful rate, then the amount which would be excessive
interest shall be applied to the reduction of principal (or, at Maker's
option, be paid over to Maker) and shall not be counted as interest.
Maker hereby waives presentment, protest, demand or notice of any
kind in connection with any failure to pay when due the indebtedness
evidenced by this Note. If Maker fails to pay the indebtedness when due,
Maker agrees to pay Holder's reasonable legal fees and expenses incurred
in connection with the enforcement of this Note.
Regardless of the place of its execution, this Note shall be
construed in accordance with the laws of the State of Delaware.
CAVION TECHNOLOGIES, INC.,
a Colorado corporation
By:----------------------------------
Craig E. Lassen, Chairman and CEO
EXHIBIT B
TO
BRIDGE LOAN AGREEMENT
PUT AGREEMENT
This Put Agreement is made as of May 28, 1998 between Cavion
Technologies, Inc., a Colorado corporation (the "Company"), and the
investors listed on the signature pages hereof (the "Investors").
The Investors have purchased from the Company an aggregate of 16,527
shares of the nonvoting common stock, par value $0.01 per share, of the
Company (the "Shares"), pursuant to the Bridge Loan Agreement between the
Investors and the Company dated the date hereof (the "Bridge Loan
Agreement"). As a condition of the purchase, the Company has agreed to
grant the Investors an option to sell all or part of the Shares to the
Company on the terms of this Agreement. In consideration of the Bridge
Loan Agreement, and for other valuable consideration, it is agreed as
follows:
1 GRANT OF PUT. The Company grants to each Investor an option (the
"Put"), subject to the conditions of this Agreement, to sell to the
Company all or part of the Shares held by such Investor during the
Exercise Period (as defined below), at a price of $7.00 per share (as
adjusted pursuant to section 4).
2 EXERCISE OF PUT.
(a) The Put shall be exercisable only by giving notice of exercise
to the Company during a 60-day period beginning on January 1, 1999 (the
"Exercise Period"), specifying the number of shares as to which the Put is
exercised. If not exercised within the Exercise Period, the Put shall
expire at 5:00 Denver, Colorado time on the last day of the Exercise
Period.
(b) Within 60 days after the end of the Exercise Period, the Company
shall tender payment in full for the shares as to which the Put is
exercised (plus any accumulated but unpaid dividends), in immediately
available funds, against delivery to the principal offices of the Company
of certificates representing the shares, accompanied by executed stock
powers in proper form for transfer, free and clear of all liens, claims,
and encumbrances.
3 TERMINATION. The Put shall terminate upon completion of the
transactions described in the preceding section.
4 ADJUSTMENT. In the event of any recapitalization, stock split,
combination of shares, or stock dividend, any shares into which the Shares
are converted shall be subject to the Put, and appropriate adjustment
shall be made in the purchase price of the Put.
5 Notices. All notices under this Agreement shall be in writing and
deemed given upon receipt, by (1) personal delivery, (2) telephonically
confirmed fax, receipted courier service or (4) certified or registered
mail, return receipt requested, addressed to the principal office of the
Company (if to the Company), or to the address shown on the shareholder
records of the Company (if to an Investor). Refusal to accept delivery
shall be deemed receipt.
6 GENERAL. This Agreement shall be governed by the laws of the State
of Delaware. This Agreement shall be binding upon the personal
representatives, successors and assigns of the parties hereto, but shall
not be assignable without the prior written consent of the non-assigning
party. This Agreement constitutes the entire agreement between the
parties and may not be waived or modified except in writing. This
Agreement may be executed in any number of counterparts, each of which
shall be an original and all of which together shall be one instrument.
The headings used in this Agreement are for convenience only and shall not
affect the interpretation hereof.
[Signatures follow.]
IN WITNESS WHEREOF, the parties have executed this Put Agreement as
of the date first written above.
CAVION TECHNOLOGIES, INC. BRITISH FAR EAST HOLDINGS LTD.
By: /s/ Craig E. Lassen By:/s/Arthur Lipper
Craig E. Lassen Arthur Lipper III
Chairman and Chief Chairman
Executive Officer
FAIRWAY REALTY ASSOCIATES
/s/ Martin Cooper By:/s/Robert Ingenito
MARTIN COOPER, individually Robert Ingenito
General Partner
By:/s/John DiNozzi
John DiNozzi
General Partner
ADDITIONAL BRIDGE LOAN AGREEMENT
This Additional Bridge Loan Agreement is made as of May 28, 1998
between Cavion Technologies, Inc., a Colorado corporation formerly known
as Sigmacom Corporation (the "Company"), and the investors listed on the
SCHEDULE OF ADDITIONAL INVESTORS attached hereto (the "Additional
Investors").
Management of the Company is now investigating the potential for a
new equity investment or sale of the Company, but will not be able to
complete any such transaction without an immediate infusion of short-term
working capital. In order to provide for this need, the Additional
Investors and the Company are now entering into a bridge loan in the
aggregate amount of $130,000, and related transactions, on the terms of
this Agreement.
The Company has also entered into a similar bridge loan with British
Far East Holdings Ltd., Martin Cooper, and Fairway Realty Associates in
the aggregate amount of $150,000. The Company is also anticipating
possible additional bridge loans by others who are presently shareholders
of the Company (the "Other Shareholder Investors") in the amount of not
more than $50,000 for each such Other Shareholder Investor (in each case,
with the purchase of nonvoting shares with put). There is no assurance
that any Other Shareholder Investor will make any such additional bridge
loan, and the obligations of the Company and the Additional Investors
under this Bridge Loan and the instruments and agreements contemplated
herein are not conditioned upon the making of any such additional bridge
loan.
In consideration of the mutual covenants contained in this Agreement,
it is agreed as follows:
1. INITIAL BRIDGE TRANSACTION. Concurrently with execution of this
Agreement, each Additional Investor will deliver to the Company funds
equal to the Loan Amount listed on the Schedule of Additional
Investors, plus (as consideration for purchase of the Shares) funds
equal to $0.01 times the Share Amount listed on the Schedule of
Additional Investors. Upon receipt of the funds, the Company will
issue to each Additional Investor:
(a) a Senior Promissory Note in the form attached as EXHIBIT A
(which, with any notes on substantially the same terms that may
be issued to any or all of the Additional Investors or the Other
Shareholder Investors under bridge loan agreements on
substantially the same terms as contained in this Agreement, are
herein called the Senior Notes, in a principal amount equal to
the Loan Amount listed on the Schedule of Additional Investors;
(b) a number of shares of the nonvoting common stock, par value
$0.01 per share, of the Company (the "Shares") equal to the
Share Amount listed on the Schedule of Additional Investors; and
(c) a Put Agreement in the form attached as EXHIBIT B.
2. ADDITIONAL BRIDGE TRANSACTION. Each Additional Investor acknowledges
and agrees that British Far East Holdings Ltd., Martin Cooper, and
Fairway Realty Associates have participated in a similar bridge loan
and that one or more or all of the Other Shareholder Investors may
participate in additional bridge loans to the Company (and the
purchase of nonvoting shares with put) on terms essentially
equivalent to those herein extended to the Additional Investors.
3. COMPANY'S REPRESENTATIONS AND COVENANT. The Company represents,
warrants and covenants to each Additional Investor as follows:
(a) the Company has entered into the bridge transaction after
careful consideration of all alternatives;
(b) the Company is aware of the potential return to the Additional
Investors pursuant to the bridge transaction, and acknowledges
that the amount of the potential return to the Additional
Investors appropriately reflects the risk inherent in the bridge
transaction; and
(c) the Company hereby covenants not to assert a defense of usury to
any action by an Additional Investor to collect any amount due
under a Senior Note or the Put Agreement.
4. ADDITIONAL INVESTORS' REPRESENTATIONS. Each Additional Investor
represents and warrants to the Company as follows:
(a) the Additional Investor is an "accredited investor" within the
meaning of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act");
(b) the Additional Investor is acquiring the Shares for his own
account for purposes of investment, and not with a view toward
the sale or other distribution thereof,
(c) the Additional Investor has received or had access to all
information he deems necessary to make a judgment with respect
to the acquisition of the Shares, including the opportunity to
ask questions of and discuss the Company's business with
management of the Company;
(d) the Additional Investor understands that the Shares must be held
indefinitely unless registered under the Securities Act or
unless an exemption from registration exists, that no public
market now exists for the Shares, and that there may never exist
a public market for the Shares; and
(e) the Additional Investor understands that the Shares have not
been registered under the Securities Act (on the ground that the
sale of the Shares is exempt from registration as not involving
a public offering), and that the reliance of the Company on such
exemption is based upon the representations made in this
section.
5. RESTRICTED SECURITIES. The Shares have not been registered under the
Securities Act or any state securities law, and are not transferable
except pursuant to
(a) a public offering registered under the Securities Act, or
(b) subject to the conditions specified in the following subsection,
Rule 144 of the Securities and Exchange Commission (if
available), or any other legally available means of transfer.
In connection with the transfer of any Shares (except in a registered
public offering), the Additional Investor shall deliver to the
Company written notice describing the proposed transfer in reasonable
detail, together with an opinion of counsel which (to the Company's
reasonable satisfaction) is knowledgeable in securities law matters,
to the effect that such transfer may be effected without registration
or qualification of such Shares under the Securities Act or
applicable state securities laws. The Additional Investor shall not
transfer the certificates representing the Shares until the
transferee has confirmed to the Company in writing its agreement to
be bound by the conditions contained in this section. Any person
acquiring any securities of the Company from any Additional Investor
shall, upon acquiring such securities, become bound by the terms of
this Agreement, and the transfer of such securities shall not be made
on the books of the Company until a copy of this Agreement has been
executed by such person. Failure or refusal of the transferee to
sign this Agreement shall not relieve such person from any
obligations under this Agreement.
6. NOTICES. All notices under this Agreement will be in writing and
deemed given upon receipt, by (1) personal delivery, (2)
telephonically confirmed fax, (3) receipted courier service or (4)
certified or registered mail, return receipt requested, addressed to
the principal office of the Company (if to the Company), or to the
address shown on the shareholder records of the Company (if to an
Additional Investor). Refusal to accept delivery will be deemed
receipt.
7. GENERAL. This Agreement will be governed by the laws of the State of
Delaware. This Agreement will be binding upon the personal
representatives, successors and assigns of the parties hereto, but
will not be assignable without the prior written consent of the non-
assigning party. This Agreement constitutes the entire agreement
between the parties and may not be waived or modified except in
writing. This Agreement may be executed in any number of
counterparts, each of which will be an original and all of which
together will be one instrument. The headings used in this Agreement
are for convenience only and will not affect the interpretation
hereof.
[Signatures follow.]
IN WITNESS WHEREOF, the parties have executed this Additional Bridge
Loan Agreement as of the date first set forth above.
CAVION TECHNOLOGIES, INC.
By:/s/Craig E. Lassen /s/Randal W. Burtis
Craig E. Lassen RANDAL W. BURTIS, individually
Chairman and Chief
Executive Officer
- ------------------------------ /s/Jeff Marshall
CRAIG E. LASSEN, individually JEFF MARSHALL, individually
/s/David J. Selina
DAVID J. SELINA, individually
SCHEDULE TO
ADDITIONAL BRIDGE LOAN AGREEMENT
SCHEDULE OF ADDITIONAL INVESTORS
NAME AND ADDRESS SHARE LOAN
AMOUNT AMOUNT
Craig E. Lassen 2,204 $20,000
Tax id no:--------------------------
2218 Elm Street
Denver, Colorado 80207
Home voice telephone: 303-320-0861
Office voice telephone: 303-412-3160
David J. Selina 3,306 $30,000
Tax id no:--------------------------
5523 South Jasper Way
Aurora, Colorado 80015
Home voice telephone: 303-766-9448
Office voice telephone: 303-412-3165
Fax: 303-657-8210
Jeff Marshall 5,509 $50,000
Tax id no:--------------------------
6198 South Killarney Dr.
Aurora, Colorado 80016
Home voice telephone: 303-617-7177
Office voice telephone: 303-412-3178
Fax: 303-657-8210
Randal W. Burtis 3,306 $30,000
Tax id no:--------------------------
1665 Logan #944
Denver, Colorado 80203
Home voice telephone: 303-831-8674
Office voice telephone: 303-412-3175
Fax: 303-657-8210
EXHIBIT A TO
ADDITIONAL BRIDGE LOAN AGREEMENT
CAVION TECHNOLOGIES, INC.
-------------------------
SENIOR PROMISSORY NOTE
$50,000 May 28,1998
Cavion Technologies, Inc., a Colorado corporation ("Maker"), hereby
promises to pay to -------------------------------- ("Holder"), at -------
- ------------------------------------------ or at such other address as may
be specified by Holder, the principal sum of ----------------------------
Dollars ($-), together with interest as described below, in lawful money
of the United States of America.
The principal indebtedness evidenced by this Note shall earn interest
at the rate of forty-two percent (42%) per annum. Principal and interest
shall be paid in three monthly installments of $-------------------- each,
commencing on November 1, 1998, and continuing on the first day of each of
the subsequent three months, with the entire balance of principal and
accrued interest being due and payable on January 1, 1999.
This Note may be prepaid in full, but not in part, at any time,
subject to a prepayment penalty equal to the difference obtained by
subtracting (1) all amounts paid on this Note to and including the
prepayment from (2) all amounts that would have been paid on this Note had
payment been made only as and when scheduled in the preceding sentence.
Upon failure of Maker to pay any installment in full when due, Holder
may, by notice to Maker, accelerate the obligation of Maker to pay the
entire balance of this Note, and upon such acceleration there shall be due
to Holder such amount as would be due if the Note had been prepaid in
accordance with the preceding paragraph on the date notice of acceleration
was given by Holder.
All amounts due under this Note are "Senior Indebtedness" as defined
in the Bridge Loan Agreement dated the date hereof among Maker and certain
investors in Maker (including British Far East Holdings Ltd., Martin
Cooper, and Fairway Realty Associates). Payments on this Note shall be
made in pari passu with payments on the other Senior Promissory Notes of
Maker dated the date hereof, as described in the Bridge Loan Agreement.
This Note is registered on the books of Maker and is transferable
only by surrender thereof at the principal office of Maker, duly endorsed
or accompanied by a written instrument of transfer, executed by the
registered Holder of this Note. Payment of or on account of principal and
interest on this Note shall be made only to or upon the order in writing
of the registered Holder.
The provisions of this Note and of all agreements now or hereafter
existing between Maker and Holder are hereby expressly limited so that in
no event whatever shall the amount paid or agreed to be paid to Holder for
the use, forbearance or detention of the sums evidenced by this Note
exceed the maximum amount permissible under applicable law. If from any
circumstance whatever the performance or fulfillment of any provision of
this Note, or of any other agreement between Maker and Holder, should
involve or purport to require any payment in excess of the limit
prescribed by law, then the obligation to be performed or fulfilled is
hereby reduced to the limit of such validity, and if from any circumstance
whatever Holder should ever receive as interest an amount which would
exceed the highest lawful rate, then the amount which would be excessive
interest shall be applied to the reduction of principal (or, at Maker's
option, be paid over to Maker) and shall not be counted as interest.
Maker hereby waives presentment, protest, demand or notice of any
kind in connection with any failure to pay when due the indebtedness
evidenced by this Note. If Maker fails to pay the indebtedness when due,
Maker agrees to pay Holder's reasonable legal fees and expenses incurred
in connection with the enforcement of this Note.
Regardless of the place of its execution, this Note shall be
construed in accordance with the laws of the State of Delaware.
CAVION TECHNOLOGIES, INC.,
a Colorado corporation
By:----------------------------------
Craig E. Lassen, Chairman and CEO
EXHIBIT B
TO
ADDITIONAL BRIDGE LOAN AGREEMENT
PUT AGREEMENT
This Put Agreement is made as of May 28, 1998 between Cavion
Technologies, Inc., a Colorado corporation (the "Company"), and the
investors listed on the signature pages hereof (the "Additional
Investors").
The Additional Investors have purchased from the Company an aggregate
of 12,121 shares of the nonvoting common stock, par value $0.01 per share,
of the Company (the "Shares"), pursuant to the Additional Bridge Loan
Agreement between the Additional Investors and the Company dated the date
hereof (the "Additional Bridge Loan Agreement"). As a condition of the
purchase, the Company has agreed to grant the Additional Investors an
option to sell all or part of the Shares to the Company on the terms of
this Agreement. In consideration of the Additional Bridge Loan Agreement,
and for other valuable consideration, it is agreed as follows:
1 GRANT OF PUT. The Company grants to each Additional Investor an
option (the "Put"), subject to the conditions of this Agreement, to sell
to the Company all or part of the Shares held by such Additional Investor
during the Exercise Period (as defined below), at a price of $7.00 per
share (as adjusted pursuant to section 4).
2 EXERCISE OF PUT.
(a) The Put shall be exercisable only by giving notice of exercise
to the Company during a 60-day period beginning on January 1, 1999 (the
"Exercise Period"), specifying the number of shares as to which the Put is
exercised. If not exercised within the Exercise Period, the Put shall
expire at 5:00 p.m. Denver, Colorado time on the last day of the Exercise
Period.
(b) Within 60 days after the end of the Exercise Period, the Company
shall tender payment in full for the shares as to which the Put is
exercised (plus any accumulated but unpaid dividends), in immediately
available funds, against delivery to the principal offices of the Company
of certificates representing the shares, accompanied by executed stock
powers in proper form for transfer, free and clear of all liens, claims,
and encumbrances.
3 TERMINATION. The Put shall terminate upon completion of the
transactions described in the preceding section.
4 ADJUSTMENT. In the event of any recapitalization, stock split,
combination of shares, or stock dividend, any shares into which the Shares
are converted shall be subject to the Put, and appropriate adjustment
shall be made in the purchase price of the Put.
5 NOTICES. All notices under this Agreement shall be in writing and
deemed given upon receipt, by (1) personal delivery, (2) telephonically
confirmed fax, (3) receipted courier service or (4) certified or
registered mail, return receipt requested, addressed to the principal
office of the Company (if to the Company), or to the address shown on the
shareholder records of the Company (if to an Additional Investor).
Refusal to accept delivery shall be deemed receipt.
6 GENERAL. This Agreement shall be governed by the laws of the State
of Delaware. This Agreement shall be binding upon the personal
representatives, successors and assigns of the parties hereto, but shall
not be assignable without the prior written consent of the non-assigning
party. This Agreement constitutes the entire agreement between the
parties and may not be waived or modified except in writing. This
Agreement may be executed in any number of counterparts, each of which
shall be an original and all of which together shall be one instrument.
The headings used in this Agreement are for convenience only and shall not
affect the interpretation hereof.
[Signatures follow.]
IN WITNESS WHEREOF, the parties have executed this Put Agreement as
of the date first written above.
CAVION TECHNOLOGIES, INC.
By:--------------------------- -------------------------------------
Craig E. Lassen RANDAL W. BURTIS, individually
Chairman and Chief
Executive Officer
- ------------------------------ -------------------------------------
CRAIG E. LASSEN, individually JEFF MARSHALL, individually
-------------------------------------
DAVID J. SELINA, individually
TERMINATION AND MODIFICATION AGREEMENT
This Termination and Modification Agreement is made as of September
28, 1998 between Cavion Technologies, Inc., a Colorado corporation (the
"Company"), the investors listed on the SCHEDULE OF INVESTORS attached
hereto (the "Investors"), the founding shareholders listed on the SCHEDULE
OF FOUNDERS attached hereto (the "Founders"), and David J. Selina
("Selina").
Pursuant to the Investment Agreement dated as of August 1, 1996, the
Investors provided letters of credit and certificates of deposit (the
"Investor Collateral") as security for the Company's $600,000 credit
facility (the "Credit Facility") with US Bank, fka Colorado National Bank
(the "Lending Bank"), and received stock in the Company. The Investors
also were granted additional rights with respect to the Company and its
other shareholders under the Investment Agreement, a Put Agreement between
the Company and the Investors (the "1996 Put Agreement"), a Share Escrow
Agreement between the Company, the Investors, and Norwest Bank Colorado
(as escrow agent), a Subordination Agreement between the Company and its
other shareholders, and (in the case of one investor) an Advisor's Option
Agreement, each of which was dated as of August 1, 1996.
As of May 28, 1998, the Company entered into a Bridge Loan Agreement
with certain of the Investors (the "Bridge Lenders"). As shown on the
SCHEDULE OF INVESTORS, each of the Bridge Lenders received a Senior
Promissory Note earning interest at the rate of 42% per annum, shares of
nonvoting common stock of the Company, and a Put Agreement giving the
Bridge Lenders the right to sell the shares back to the Company for $7.00
per share (the "Bridge Put Agreement"). As of May 28, 1998, the Company
entered into an Additional Bridge Loan Agreement with certain employees,
including Selina. Each of the Additional Bridge Lenders also received a
Senior Promissory Note, shares of nonvoting common stock of the Company,
and a Put Agreement (the "Additional Bridge Put Agreement").
The Company plans to sell substantially all of its assets and certain
liabilities to Network Acquisitions, Inc. (the "NAI transaction").
Following the sale, the holders of Company voting common stock will
receive an aggregate of 352,941 shares of NAI Class A common stock, and
the holders of Company nonvoting common stock will receive an aggregate of
28,648 shares of NAI class B common stock. As a condition to closing of
the NAI transaction, the Company and the Investors have agreed to
termination of the Investment Agreement and certain modifications to the
Bridge Loan Agreement and the Credit Facility, on the terms contained in
this agreement.
In consideration of the NAI transaction and the mutual covenants
contained in this agreement, it is agreed as follows:
1. Upon closing of the NAI transaction, the Investment
Agreement, the 1996 Put Agreement, the Subordination Agreement and
the Advisor's Option Agreement will terminate without further action
of the parties. The Investors will continue to have reimbursement
rights as described in the following section.
2. Any notice from the Lending Bank of default on the Credit
Facility or of a draw on the Investor Collateral will be provided to
the Investors contemporaneously with the Company. If the Lending
Bank draws on the Investor Collateral, the Company will reimburse the
Investors for the amount of the draws, immediately upon receiving
notice of such draws from the Investors.
3. Upon closing of the NAI transaction, the Share Escrow
Agreement will be revised according to the Amendment to Share Escrow
Agreement dated as of the date hereof, without further action of the
parties. The Share Escrow Agreement will continue to apply to an
equivalent number of shares owned by the Founders, as shown in the
SCHEDULE OF FOUNDERS.
4. If the Lending Bank draws on the Investor Collateral and the
Company fails to reimburse the Investors within 60 days after
receiving notice from the Investors, any Investor may give a Default
Notice to the Escrow Agent under the Share Escrow Agreement, with
copies to the Founders, and the Escrowed Shares will be returned to
the Company's treasury. If the Lending Bank releases the Investor
Collateral without making a draw, or if the Investors are reimbursed,
any Founder may give a Termination Notice to the Escrow Agent, with
copies to the Investors, and the Escrowed Shares will be returned to
the Founders. The terms "Escrowed Shares", "Default Notice" and
"Termination Notice" are defined in the Share Escrow Agreement, as
amended.
5. Upon closing of the NAI transaction, (a) all debt
obligations of the Company to Craig E. Lassen that are deferred in
connection with the NAI transaction will be subordinated to payment
of the Credit Facility, and (b) all obligations of the Company to
Selina in connection with the Additional Bridge Loan Agreement
(including principal, interest and the Additional Bridge Put
Agreement, as amended in connection with the NAI transaction) will be
subordinated to payment of the Credit Facility. The amounts
described in the preceding sentence will not be paid until the Credit
Facility has been paid in full.
6. Following the closing of the NAI transaction, the Company
plans to distribute to its existing voting shareholders certain
interests in the warrant to purchase common stock of Convergent
Communications, Inc. currently held by the Company (the "Convergent
warrants"). Each Founder agrees that if he exercises Convergent
warrants received from the Company and sells the resulting Convergent
stock, his Net Profit (as defined below) will be held in trust for
the Investors as described in this section. If the Lending Bank
draws on the Investor Collateral and the Company fails to reimburse
the Investors within 60 days after receiving notice from the
Investors, all Net Profit of the Founders will be paid pro rata to
the 1996 investors (to the extent of their lost collateral). For
this purpose, "Net Profit" is defined as the proceeds of sale of the
Convergent stock less the Cost of Exercise. The "Cost of Exercise"
is defined as the sum of (1) the exercise price under the Convergent
warrants, (2) a return on the exercise price from the date of
exercise to the date of sale of 10% per annum (or, if higher, the
interest and fees paid on any funds borrowed from a disinterested
third party to pay the exercise price), and (3) the shareholder's tax
liability and transaction costs (such as brokerage fees) arising out
of sale of the Convergent stock, if any.
7. The Founders' obligations under the preceding section will
terminate when the Lending Bank releases the Investor Collateral
without making a draw, or when the Investors are reimbursed for their
collateral by the Company. However, at any time that the Lending
Bank has drawn on the Investor Collateral and the Company has failed
to reimburse the Investors within 60 days after receiving notice, any
Founder may offer any Convergent stock received upon exercise of
warrants received from the Company to the Investors for a price equal
to the Cost of Exercise. To the extent the offer is accepted within
30 days, the Founder will sell the stock pro rata to the accepting
Investors. To the extent the offer is not accepted within 30 days,
the Founder's obligations under the preceding section (as to the
stock offered and not accepted) will terminate.
8. Upon closing of the NAI transaction, each Senior Promissory
Note issued in connection with the Bridge Loan Agreement will be
amended by revising the second paragraph to read as follows:
The principal indebtedness evidenced by this Note shall bear
interest at the rate that yields a total amount of interest
earned as of the maturity date of $11,438.53. Principal and
interest shall be due and payable in full 30 days after the date
on which 100 credit unions (or other entities associated with
the credit union industry that provide equivalent economics)
have subscribed and connected to the Company's secure network
(or equivalent Company service).
9. The Bridge Put Agreement, as amended by this section, will
apply to the shares of NAI Class B common stock received by each
Bridge Lender following the NAI transaction. Upon closing of the NAI
transaction, section 2(a) of the Bridge Put Agreement will be amended
by deleting the words "January 1, 1999" and substituting the
following:
the date that is 30 days after the date on which 100 credit
unions (or other entities associated with the credit union
industry that provide equivalent economics) have subscribed and
connected to the Company's secure network (or equivalent Company
service)
10. Each Bridge Lender grants to the Company an option
(the "Call") to purchase from the Bridge Lender all or part of the
shares of NAI Class B common stock received by such Bridge Lender
following the NAI transactions at a price of $7.00 per share. The
Call will be exercisable at any time after closing of the NAI
transaction and prior to the end of the Exercise Period (as defined
in the Bridge Put Agreement, as amended). All other terms that apply
to the Put under the Bridge Put Agreement will also apply to the
Call.
11. Each Investor will execute and deliver to the Company
whatever documents are necessary or appropriate in connection with
(a) consummation of the NAI transaction, and (b) distribution of the
Convergent Communications Inc. warrants that the Company intends to
distribute to its shareholders following the transaction. Without
limiting the foregoing, each Investor will execute and deliver to the
Company whatever documents are necessary or appropriate in connection
with extension of the maturity date of the Credit Facility to the
same maturity date provided for the Senior Promissory Notes under
section 3 above.
12. If negotiations concerning the NAI transaction are
terminated without closing the NAI transaction or a substantially
similar transaction, this agreement will terminate.
13. All notices under this agreement will be in writing and
deemed given upon receipt, by (1) personal delivery, (2) receipted
courier service or (3) certified or registered mail, return receipt
requested, addressed to the principal office of the Company (if to
the Company), or to the address shown on the attached schedules.
Refusal to accept delivery will be deemed receipt.
14. This agreement will be governed by the laws of the State of
Delaware. This agreement will be binding upon the personal
representatives, successors and assigns of the parties hereto, but
will not be assignable without the prior written consent of the non-
assigning parties, except that the Company may assign its rights and
obligations under this agreement to NAI without consent. This
agreement constitutes the entire agreement between the parties and
may not be waived or modified except in writing. This agreement may
be executed in any number of counterparts, each of which will be an
original and all of which together will be one instrument. The
headings used in this agreement are for convenience only and will not
affect the interpretation hereof.
IN WITNESS WHEREOF, the parties have executed this Termination and
Modification Agreement as of the date first set forth above.
CAVION TECHNOLOGIES, INC. BRITISH FAR EAST HOLDINGS LTD.
By:/s/Craig E. Lassen By:/s/Arthur Lipper
Craig E. Lassen, CEO Arthur Lipper III, Chairman
WILLIAM M. B. BERGER LIVING TRUST
/s/Craig E. Lassen By:/s/William M.B. Berger
Craig E. Lassen William M. B. Berger, Trustee
/s/Herman D. Axelrod /s/Martin Cooper
Herman D. Axelrod Martin Cooper
FAIRWAY REALTY ASSOCIATES
- --------------------------- By:/s/Robert Ingenito
Kirk W. Dennis Robert Ingenito, General Partner
/s/David J. Selina By:/s/John DiNozzi
David J. Selina John DiNozzi, General Partner
AMENDMENT TO
TERMINATION AND MODIFICATION AGREEMENT
This Amendment to Termination and Modification Agreement is made as
of January 15, 1999 between Cavion Technologies, Inc., a Colorado
corporation (the "Company"), the investors listed on the SCHEDULE OF
INVESTORS attached hereto (the "Investors"), the founding shareholders
listed on the SCHEDULE OF FOUNDERS attached hereto (the "Founders"), and
David J. Selina ("Selina").
The parties entered into a Termination and Modification Agreement as
of September 28, 1998 (the "Modification Agreement"), which contemplated
certain changes to the Investment Agreement, the Bridge Loan Agreement and
related documents (as described in the Modification Agreement). The
Modification Agreement called for the signature of Kirk W. Dennis
("Dennis"), who was one of the original parties to the Share Escrow
Agreement. Dennis has refused to execute the Modification Agreement. The
parties have agreed that the Modification Agreement will remain effective,
subject to the terms contained in this agreement.
In consideration of the foregoing and the NAI transaction, it is
agreed as follows:
1. Upon closing of the NAI transaction, if Dennis has not executed
the Modification Agreement and the Amendment to Share Escrow Agreement
(described in the next section), the shares of NAI Class A common stock
received by the Company in the NAI transaction will be held by the
Company, and will not be distributed to its shareholders, until (a) the
Credit Facility (as defined in the Modification Agreement) has been paid
in full and the collateral provided by the Investors has been released, or
the Investors have been reimbursed in accordance with the Modification
Agreement, and (b) all amounts due under the Bridge Loan Agreement (as
defined in the Modification Agreement), as modified by the Modification
Agreement, have been paid in full.
2. The Amendment to Share Escrow Agreement, executed in connection
with the Modification Agreement, contemplates that the Share Escrow
Agreement will continue to apply to an equivalent number of shares owned
by the Founders (including Dennis), as shown in the SCHEDULE OF FOUNDERS
attached to the Modification Agreement. This Amendment to the Share
Escrow Agreement will not be implemented unless Dennis has executed the
Modification Agreement and the Amendment to Share Escrow Agreement at or
before the closing of the NAI transaction.
3. The parties agree that the Modification Agreement is effective
without Dennis' signature, and the Modification Agreement is amended by
deleting Dennis from the definition of "Founder". If Dennis has executed
the Modification Agreement at or before the closing of the NAI
transaction, this section 3 will no longer be in effect.
4. The cross-reference in section 11 of the Termination and
Modification Agreement to "section 3 above" is incorrect, and should read
"section 8 above". The parties acknowledge that the Termination and
Modification Agreement supersedes the Termination Agreement between the
Company and the Investors dated as of November 24, 1997. Except as
expressly modified by this agreement, the Termination and Modification
Agreement remains unmodified and effective in accordance with its terms,
notwithstanding that it has not been executed by Kirk W. Dennis.
IN WITNESS WHEREOF, the parties have executed this Amendment to
Termination and Modification Agreement as of the date first set forth
above.
CAVION TECHNOLOGIES, INC. BRITISH FAR EAST HOLDINGS LTD.
By:/s/Craig E. Lassen By:/s/Arthur Lipper
Craig E. Lassen, CEO Arthur Lipper III, Chairman
WILLIAM M. B. BERGER LIVING TRUST
/s/Craig E. Lassen By:/s/William M.B. Berger
Craig E. Lassen William M. B. Berger, Trustee
/s/Herman D. Axelrod /s/Martin Cooper
Herman D. Axelrod Martin Cooper
FAIRWAY REALTY ASSOCIATES
/s/David J. Selina By:/s/Robert Ingenito
David J. Selina Robert Ingenito, General Partner
/s/David J. Selina By:/s/John DiNozzi
David J. Selina John DiNozzi, General Partner
September 20, 1998
Caron Harte
Secretary/Treasurer
Network Acquisitions, Inc.
5325 S. Valentia Way, Suite 220
Englewood, CO 80111
RE: ENGAGEMENT LETTER
Dear Ms. Harte:
This letter agreement (the "Agreement") confirms our prior conversations
concerning the parameters attendant upon First Capital Investments, Inc.
("FCI"), a broker/dealer registered with the Securities and Exchange
Commission and member in good standing with the National Association of
Securities Dealers and Securities Investor Protection Corporation, acting
as an exclusive financial placement agent and advisor to Network
Acquisitions Inc., its subsidiaries and affiliates ("NAI"), to be re-named
Cavion Technologies, Inc., upon completion of the pending acquisition of
Cavion Technologies, Inc., NAI and FCI are sometimes hereinafter
collectively referred to as the "Parties."
In this regard and in consideration for the mutual benefit derived
herefrom and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged and accepted, the Parties jointly
and severally represent, warrant, covenant and agree as follows:
1. ENGAGEMENT: NAI hereby engages and retains FCI as an exclusive
placement agent and financial advisor for and on behalf of NAI to perform
the Services (as that term is hereinafter defined) and FCI hereby accepts
such appointment on the terms and subject to the conditions hereinafter
set forth, and agrees to use its best efforts in providing such Services.
2. SERVICES. The Services to be provided by FCI will include, but are
not necessarily limited to, coordinating and introducing NAI and/or any of
its affiliates to one or more individuals, firms or entities (the
"Candidate(s)") who may have an interest in providing investment capital
in the form of bridge financing, private placement financing, media
financing, or in pursuing a form of Business Combination with NAI. As
used in this Agreement, the term "Business Combination" shall mean any
form of merger, acquisition, joint venture, licensing agreement, product
sales and/or marketing, distribution, combination and/or consolidation,
etc., involving NAI and/or any of its subsidiaries, affiliates and any
other entity, either introduced by FCI or any other entity, which utilizes
the efforts or work product of FCI. As used in this Agreement, the term
"investment" shall include the contribution of anything of value by the
Candidate to NAI, its subsidiaries or affiliates. NAI and FCI hereby
confirm their express written intent that FCI shall only be required to
devote such time to the performance of the Services as FCI, in its sole
and exclusive discretion, shall deem necessary and proper to discharge its
responsibilities under this Agreement.
Furthermore, FCI will act as financial advisor and exclusive
financial placement agent for and on behalf of NAI to consummate:
(a) A Private Placement of securities or an investment by a
strategic partner or partners of up to Eight Million Dollars
($8,000,000.00);
(b) A Business Combination as defined under "Services" above; and
(c) Additionally, FCI will provide financial advisory Services on an
ongoing basis after the closing of the private placement of securities
transaction identified in Section 2(b) for a monthly fee as set forth
below under Section 3, Compensation.
The above items are subject to and conditioned upon the results of
FCI's due diligence, prevailing market conditions, and any adverse
material changes of NAI of any form or nature, affecting its financial or
business condition between the date of this letter and the closing of the
transactions contemplated herein. If, in the opinion of FCI, a material
change occurs or is identified, further performance under the terms of
this Agreement, including, but not limited to, the funding and/or closing
of any transaction, shall be suspended until the provisions of this
Agreement are revised to the satisfaction of FCI.
In conjunction with the Services, FCI agrees to: (i) make itself
available to the officers of NAI at such mutually agreed upon place during
normal business hours for reasonable periods of time, subject to
reasonable advance notice and mutually convenient scheduling, for the
purpose of advising and assisting NAI in the preparation of such reports,
summaries, corporate and/or transaction profiles, due diligence packages
and/or other material and documentation as shall be necessary, in the
opinion of FCI, to properly present NAI as an investment opportunity to
potential Candidates; (ii) aiding and assisting NAI's management in
structuring the nature, extent and corporate finance and other parameters
of the private or other offer(s) to be made to the Candidate(s); (iii)
make itself available for telephone conferences with the principal
financial sales and/or operating officer(s) of NAI during normal business
hours; (iv) evaluating proposals and participating in negotiations with
the Candidate(s); and (v) perform such other corporate finance, investment
banking, and other similar advisory services relating to the Candidate
and/or such other aspects of NAI's operations, management, or development
as the principal executive, financial, sales and/or operating officer(s)
of NAI reasonably may request, consistent with the provisions of this
Agreement. The foregoing are hereafter collectively referred to as the
"Services," and incorporated into the definition of "Services" set forth
hereinabove.
3. COMPENSATION. In consideration for the Services, and in addition to
the expense allowances set forth in Section 5 hereinbelow, NAI shall pay
to FCI and FCI hereby agrees to accept as compensation for the Services:
(a) PRIVATE PLACEMENT. A cash fee equal to eight per cent (8%) of
the total gross dollar amount received by NAI as proceeds from the private
placement financing prior to any deductions (e.g., $ ,000,000 x 8% = $
00,000 commission), payable as NAI is paid proportionately in the course
of the private placement financing. In addition, NAI shall issue to FCI
Common Stock Purchase Warrants entitling FCI to purchase 10% of the total
amount of any Securities issued (the "Warrants"). The Warrants shall be
exercisable at any time during a five year term at 110% of the price paid
by the initial investors for the stock, convertible debt, or other
equivalent securities of NAI. For example, if NAI issues 250,000 shares
of stock at $4.00 per share, then FCI shall be granted an option to
purchase 25,000 shares at $4.40 per share for a five year period. If a
$1,000,000 note convertible into 250,000 equity shares at S4.00 per share
is issued, then FCI shall be entitled to an option to purchase 25,000
shares at $4.40 per share for a five year period. In the event the
transaction consummated by FCI for NAI pursuant to this Agreement is a
100% debt financing deal, FCI shall be entitled to options to purchase
24,000 shares of NAI.
(b) ADVISORY SERVICES: $-0- per month for a period of two (2) years
beginning on the date of successful closing of the private placement or
media financing, for ongoing financial advisory Services.
(c) BUSINESS COMBINATIONS: Eight per cent of the total gross
consideration and/or value attributed to the business combination of any
form or nature. As used herein, the phrase "total gross consideration
and/or value attributed to the business combination" shall be deemed to
mean the total gross amount of money and/or securities or any other
compensation and/or investment that the Candidate agrees to pay to NAI,
its subsidiaries, affiliates, and/or its stockholders for the business
combination between NAI and the Candidate and/or any of their respective
subsidiaries or affiliates, or the total gross purchase price to be paid,
the total gross value of the transaction to a third party (providing that
the eight per cent to be paid to FCI is based on the value of NAI only and
not on any combined value of NAI and an acquiring third party), or total
gross investment made by NAI in the transaction if applicable.
4. OTHER MATERIAL TERMS AND CONDITIONS.
(a) NAI will use the proceeds from the financings exclusively for the
designated purposes as set forth on the schedule attached as Exhibit "A"
("Use of Proceeds"), incorporated herein by this reference. Any deviation
therefrom will require FCI's prior written consent.
(b) FCI may act in concert and associate with other broker/dealers,
advisors and consultants in order to accomplish the goals and objectives
set forth herein, and as such may apportion or reallow such portion of its
commissions and fees to those Parties as it deems appropriate.
(c) NAI will prepare, or cause to have prepared on its behalf, in a
timely manner and at NAI's sole expense, any promissory notes, private
placement memoranda, or other documentation deemed reasonably necessary to
effectuate and facilitate any financing referenced herein, in a form and
content reasonably satisfactory to FCI.
(d) NAI agrees to furnish FCI with written notice via facsimile (or
overnight delivery service) of the proposed closing date of the
transaction or business combination on the same day as it receives notice
thereof from its counsel or from any other entity.
(e) Upon the closing of any transaction made the subject of this
Agreement (the "Closing"), FCI shall receive its cash fee and the delivery
of any Warrants at such closing.
(f) If applicable, in the event FCI agrees to receive all or any
portion of its commissions or fees in securities or other non-cash
compensation (the "Shares"), NAI hereby covenants and agrees to cause the
Candidate to grant and to extend to FCI, at FCI's sole discretion, the
same demand and/or "piggyback" registration rights NAI receives. FCI
hereby agrees that if the Shares of the Candidate's securities being
tendered to NAI are unregistered, it will execute and deliver to the
Candidate a standard form of investment letter and consent to the
imposition of the appropriate restrictive legend and stop transfer orders
on and against all certificates it receives as compensation.
Additionally, and in any event, NAI agrees to cooperate with FCI in any
registration, assignment, and/or transfer of securities FCI acquires and
deems necessary or advisable to assign, transfer or liquidate, in whole or
in part, for its own business purposes.
(g) Any funds, securities or any other value received by NAI during
the term of this Agreement, regardless of its source, shall be subject to
the terms and conditions of this Agreement.
5. EXPENSES. In addition to the compensation outlined in Section 3
hereinabove, it expressly is agreed and understood that FCI's compensation
as provided in this Agreement also does not include the normal and
reasonable out-of-pocket expenses, including, but not limited to, long
distance communication, airfare, hotel lodging and meals, transportation,
express mail, outside consultants, etc., incurred by FCI in carrying out
its duties under this Agreement, and NAI hereby agrees to reimburse FCI
therefor promptly, upon receipt of an invoice from FCI. Whenever
feasible, FCI will request advance payment of approved expenses. FCI
shall not incur any expense in excess of Two Hundred Dollars ($200.00)
without NAI's prior consent, which consent shall not be unreasonably
withheld. The reimbursement for expenses shall not be subject to any
maximum allocation, and shall be reimbursed fully.
6. COOPERATION WITH REGISTRATION OF SECURITIES.
(a) "PIGGY BACK" REGISTRATION RIGHTS: If NAI shall, at any time
after the Closing and prior to the fifth (5th) anniversary of closing
thereof, propose the registration of an offering of its debt or equity
securities, the NAI shall give written notice as promptly as possible of
such proposed registration to FCI and use all reasonable efforts to cause
the offering of such amount of Shares owned by FCI, as FCI shall request,
within fifteen (15) calendar days after the giving of such notice, to be
included, upon the same terms (including the method of distribution) of
any such offer.
(b) SECURITIES REGISTRATION EXPENSES: Unless otherwise agreed to by
FCI and NAI in writing, NAI shall pay all costs and expenses associated
with any registration initiated by NAI, including without limitation: (i)
all filing fees with the SEC; (ii) fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel
in connection with blue sky qualifications of the Shares); (iii) printing
expenses; (iv) the fees and expenses incurred in connection with the
listing of the Shares; and (v) fees and expenses of counsel and
independent certified public accountants for NAI (including the expenses
of any comfort letters), including costs associated with registrations
requested by FCI. NAI agrees to provide full cooperation in a timely
manner for any registration statement requested by FCI.
FCI shall pay all of its own costs and expenses incurred, including
all commissions, legal fees and expenses associated with registration and
compliance under the various blue sky laws (including fees and
disbursements of counsel in connection with blue sky qualifications of the
Securities) for the sale or other distribution of the Shares with any
states selected by FCI not previously registered by NAI, pursuant to the
terms of this Agreement.
(c) PRIVATE SALE RIGHTS: NAI will timely cooperate with and approve
any private sale or transfer of stock or warrants issued to FCI and
provide and/or deliver opinions and all reasonable documentation, and
execute as necessary, any registration statements and documents
customarily utilized in connection therewith.
Any private sale or transfer may include, but shall not be limited to
transactions made or consummated under or pursuant to the 33 Act or the
rules or regulations adopted thereunder including but not limited to
Regulation S and Regulation D. In this regard, NAI specifically covenants
and agrees to prepare, execute and deliver any and all documentation
necessary to cause its securities counsel to publish opinions and deliver
written instructions to NAI's transfer agent within (10) business days
from the date FCI or its designee delivers written request to NAI for the
transfer, sale, and/or removal of restrictive legend (where applicable) of
or from the Shares, if applicable.
In any event, NAI agrees to reasonably cooperate with FCI in any
private sale, other sales or transfers of its Shares under applicable law.
7. TERM AND TERMINATION. This Agreement shall be effective upon its
execution and shall remain in effect for two (2) years from the closing
date of the last financing. NAI shall have the right to terminate FCI's
engagement hereunder by furnishing FCI with a 60-day advance written
notice. However, no termination of this Agreement shall in any way affect
the right of FCI to receive as a result of the Services rendered
hereunder: (i) reimbursement for billed, accrued and/or unbilled
disbursements and expenses which right the Parties hereby agree and
consent is absolute, or (ii) its compensation, fees, Shares or Warrants on
any transactions which result in NAI receiving benefits, or (iii) the full
amount of the compensation, fees, Shares or Warrants upon the closing of a
Business Combination between NAI and any Candidate occurring during the
term of this Agreement, or (iv) its advisory fees for the term of this
Agreement after closing of any financing, or (v) compensation, fees,
Shares or Warrants on any transaction which utilizes to any extent the
efforts or work product of FCI. Furthermore, if NAI enters into any deal
with a Candidate introduced to NAI by FCI, or any person or entity to
whom FCI made a presentation or supplied information regarding NAI, FCI
shall be entitled to the full compensation called for in this Agreement as
if the Agreement were in full force and effect.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS. In order to implement the
operation of this Agreement, NAI and FCI hereby jointly and severally
represent, warrant, covenant, agree and consent as follows:
(a) The execution, delivery and performance of this Agreement, in
the time and manner herein specified, will not conflict with, result in a
breach of, or constitute a default under any existing agreement,
indenture, or other instrument to which either NAI or FCI is a party or by
which either entity may be bound or affected.
(b) Both NAI and FCI have full legal authority to enter into this
Agreement and to perform the same in the time and manner contemplated.
(c) This Agreement has been submitted to, ratified and approved by
the respective Board of Directors of NAI and FCI.
(d) NAI will cooperate with FCI, and promptly will provide FCI with
all pertinent materials and requested information in order for FCI to
perform its Services pursuant to this Agreement.
(e) When issued, both the Warrants and the Shares of NAI's Common
Stock issuable upon exercise thereof shall be duly and validly issued,
fully paid and non-assessable.
9. CONFIDENTIAL DATA:
(a) FCI shall not divulge to others, any trade or confidential
information, knowledge, or data concerning or pertaining to the business
and affairs of NAI, obtained by it as a result of its engagement
hereunder, unless authorized, in writing, by NAI.
(b) NAI shall not divulge to others, any trade secret or
confidential information, knowledge, or data concerning or pertaining to
the business and affairs of FCI, obtained by it as a result of its
engagement hereunder, unless authorized by FCI.
(c) FCI shall not be in the performance of its duties to divulge to
NAT or any officer, director, agent or employee of NAI, any secret or
confidential information, knowledge, or data concerning any other person,
firm or entity (including, but not limited to, any such persons, firm or
entity which may be a competitor or potential competitor of NAI) which FCI
may have or be able to obtain otherwise than as a result of the
relationship established by this Agreement.
10. INDEPENDENT CONTRACTOR. FCI shall be, and in all respects be deemed
to be, an independent contractor in the performance of its duties
hereunder, any law of any jurisdiction to the contrary notwithstanding.
FCI shall not, by reason of this Agreement or the performance of the
Services, be, or be deemed to be, an employee, agent, partner, co-venturer
or controlling person of NAI, and FCI shall have no power to enter into
any agreement on behalf of or otherwise bind NAI. FCI shall not have, or
be deemed to have, fiduciary obligations or duties to NAI and shall be
free to pursue, conduct and carry on for its own account (or for the
account of others) such activities, employments, ventures, businesses and
other pursuits as FCI in its sole, absolute and unfettered discretion, may
elect.
11. INDEMNITY. NAI hereby agrees and consents at its sole cost and
expense to indemnify and hold FCI harmless from any and all claims or
liabilities brought against FCI or its affiliates, by individuals or
entities not a party to this Agreement, including claims or liabilities of
every kind, nature and description, fixed or contingent (including,
without limitations, counsel fees and expenses in connection with any
action, claim or proceeding relating to such liabilities), arising out of
any action or event related to this Agreement, commencing or occurring as
a result of or by reason of any untrue or misleading statement of a
material fact, or omission of a material fact, or breach by or failure of
NAI to perform under any representation, covenant, or commitment made by
NAI hereunder, or as a result of any misrepresentation made by NAI
hereunder.
12. ASSIGNMENTS. This Agreement is binding upon and shall inure to the
benefit of and be enforceable against the Parties hereto and their
respective subsidiaries, affiliates, successors and assigns.
Notwithstanding the foregoing, neither Party shall assign or transfer any
rights or obligations hereunder, except that, (i) NAI may assign or
transfer this Agreement to a successor corporation in the event of a
merger, consolidation, or transfer, or sale of all or substantially all of
the assets of NAI, provided that no such assignment shall relieve NAI from
liability for the obligations assumed by it hereunder; and (ii) FCI may
assign or transfer this Agreement to any firm which is an affiliate of
FCI, provided that no such assignment shall relieve FCI from liability for
its obligations hereunder.
13. ADDITIONAL INSTRUMENTS. Each of the Parties shall from time to time,
at the request of others, execute, acknowledge and deliver to the other
Party any and all further instruments that reasonably may be reasonably
required to give full effect and force to the provisions of this
Agreement.
14. ENTIRE AGREEMENT. Each Party hereby covenants that this Agreement is
intended to and does contain and embody all of the understandings and
agreements, both written or oral, of the Parties with respect to the
subject matter of this Agreement, and that there exists no oral agreement
or understanding, expressed or implied, whereby the absolute, final and
unconditional character and nature of this Agreement shall be in any way
invalidated or affected. There are no representations, warranties or
covenants other than those set forth in this Agreement.
15. LAWS OF THE STATE OF COLORADO. This Agreement shall be deemed to be
made in, governed by, interpreted under and construed in all respects in
accordance with the laws of the State of Colorado, irrespective of the
country or place of domicile or residence of either Party, and without
giving effect to any choice or conflict of laws provision or rule (whether
of the State of Colorado or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Colorado. In the event of controversy arising out of the interpretation,
construction, performance or breach of this Agreement, the Parties hereby
agree and consent to the jurisdiction and venue of the District or County
Court of Arapahoe County, Colorado; or the United States District Court
for the District of Colorado, and further agree and consent that personal
service or process in any such action or proceeding outside of the State
of Colorado and Arapahoe County shall be tantamount to service in person
within Arapahoe County, Colorado and shall confer personal jurisdiction
and venue upon either of the said Courts.
16. FACSIMILE SIGNATURES / COUNTERPARTS. Facsimile signatures on this
shall be sufficient and acceptable to bind the Parties and for execution
of this Agreement. This Agreement shall only be effective and binding
when executed by all Parties hereto. This Agreement may he executed in
counterparts by facsimile, each of which so executed shall be deemed an
original and constitute one and the same agreement.
17. ADDRESS OF PARTIES. Each Party shall at all times keep the other
informed of its principal place of business if different from that stated
herein, and shall promptly notify the other of any change, giving the
address of the new principal place of business or residence.
18. NOTICES. All notices required to be sent, or which may be sent,
pursuant to any provision of this Agreement shall be sent by certified
mail, return receipt requested, or by overnight package delivery service
to each of the Parties at the address appearing herein, and shall be
effective from the date of mailing or the validated air bill.
19. MODIFICATION AND WAIVER. A modification or waiver of any of the
provisions of this Agreement shall be effective only if made in writing
and executed with the same formality as this Agreement. The failure of
any Party to insist upon strict performance of any of the provisions of
this Agreement shall not be construed as a waiver of any subsequent
default of the same or similar nature or of any other nature.
20. INJUNCTIVE RELIEF. Solely by virtue of their execution of this
Agreement and in consideration for the mutual covenants of each other, NAI
and FCI hereby agree, consent and acknowledge that, in the event of the
failure by NAI to pay the consideration to FCI or in the event of breach
of any other material term, FCI will be without adequate remedy-at-law and
shall therefore, be entitled to immediately redress any material breach of
this Agreement by temporary or permanent injunctive or mandatory relief
obtained in an action or proceeding instituted in the District or County
Court of Arapahoe County, State of Colorado or the United States District
Court for the District of Colorado, without the necessity of proving
damages and without prejudice to any other remedies which FCI may have at
law or in equity. For the purposes of this Agreement, NAI agrees and
consents that upon a material breach of this Agreement as aforesaid, in
addition to any other legal and/or equitable remedies, FCI may present a
conformed copy of this Agreement to the aforesaid courts and thereby shall
be able to obtain a permanent injunction enforcing this Agreement or
barring, enjoining or otherwise prohibiting NAI from circumventing the
express written intent of the Parties as enumerated in this Agreement. In
the event any action is commenced by either Party to enforce the terms of
this Agreement, the prevailing Party in any such action shall be entitled
to its related costs and reasonable attorney fees.
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
If the foregoing correctly sets forth our understanding and
agreement, please indicate your acceptance by signing the enclosed copy of
this Agreement in the indicated space and returning the same to the
undersigned at your earliest convenience.
Very truly yours, AGREED AND ACCEPTED:
FIRST CAPITAL INVESTMENTS, INC. NETWORK ACQUISITIONS, INC.
By: /s/ Gary J. Graham By: /s/ Caron Harte
--------------------------- --------------------------------
Gary J. Graham, President Caron Harte, Secretary/Treasurer
EXHIBIT "A"
USE OF PROCEEDS
PRIVATE PLACEMENT FINANCING:
Initial Investment $8,000,000.00
Less Cost of Offering 720,000.00
Funding Under the Business Plan 5,400,000.00
Repayment of Outstanding Payables* 1,400,000.00
Working Capital 480,000.00
------------
Total Proceeds: $8,000,000.00
* NAI's outstanding payables will not be paid until such time as NAI
has signed and connected 100 credit unions.
EXHIBIT "B"
BUSINESS PLAN
NETWORK ACQUISITIONS, INC.
PROMISSORY NOTE
THESE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144
UNDER THE ACT. THESE NOTES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
U.S. $---------- ---------------
Denver, Colorado (Date)
FOR VALUE RECEIVED, Network Acquisitions, Inc. (the "Company"), a
Colorado corporation, promises to pay to the order of ----------------
(the "Lender") at -----------------------------, or at such other place as
the Lender may direct, in payments as herein provided, in lawful money of
the United States of America, the sum of --------------------- ($--------)
and interest on the unpaid balance thereof. The Company agrees to pay the
Lender interest on the unpaid principal balance of Fifteen percent (15%)
per annum from the date of this Promissory Note until maturity. Principal
and interest are payable in the manner and form as follows: interest
shall be payable monthly and all principal and other sums which may become
due hereunder are due and payable two years from the date of this Note,
unless otherwise extended by the Company pursuant to the terms and
conditions of a Note Purchase and Loan Agreement dated October 20, 1998, a
copy of which is attached.
This Promissory Note (the "Note") may be prepaid at any time, in
whole or in part, without notice or penalty.
This Note and the obligations of the Company hereunder are secured by
a Note Purchase and Loan Agreement (the "Loan Agreement") between and
among the Company, the Lender and the holders of Promissory Notes not
exceeding an aggregate amount of Two Million Dollars ($2,000,000). The
exercise of Lender's remedies are subject to the terms of the Loan
Agreement.
Subject to the terms of the Loan Agreement and in the event that: (a)
any regularly scheduled installment payment due under the terms of this
Note should not be paid within thirty (30) days after the scheduled date
for payment; (b) any other payment required under the terms of this Note
shall not be made within thirty (30) days of demand therefor; (c) any
other Event of Default under the Loan Agreement shall occur and any
applicable cure period thereunder shall expire; (d) the Company shall file
a voluntary petition in bankruptcy or shall be adjudicated bankrupt or
insolvent or shall file any petition or answer seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under present or future applicable federal, state or other
statute or law, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of the Company or of
any substantial part of all the properties of the Company; (e) such
proceedings shall not have been dismissed within sixty (60) days after the
commencement of any proceeding against the Company seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal
bankruptcy act or any other present or future applicable federal, state or
other statute or law; (f) within sixty (60) days after the appointment
without the consent of or acquiescence of the Company of any trustee,
receiver or liquidator of the Company's, or of any substantial part or all
of the properties of the Company, such appointment shall not have been
vacated or stayed on appeal or otherwise, or if, within thirty (30) days
after the expiration of any such stay, such appointment shall not have
been vacated; or (g) any governmental authority shall take possession of
any substantial part of the property of, or assume control over the
affairs or the operations of the Company, this Note shall become due and
be payable forthwith without any further demand, notice of nonpayment,
presentment, protest or notice of dishonor, all of which are hereby
expressly waived by the Company at the option of the Lender. The failure
of the Lender to exercise such option upon default shall not be taken or
construed to be a waiver of the right to exercise such option for any
subsequent default and the Company expressly waives presentment for
payment, notice of dishonor, protest, notice of protest and diligence in
collection.
Any payment not made when due hereunder shall bear interest at the
rate of eighteen percent (18%) per annum. Cure shall restore the Company
to its rights as though no default occurred.
The Lender intends to conform strictly to the usury laws now or
hereafter in force in the State of Colorado. Any interest payable under
this Note shall be subject to reduction by the amount in excess of the
maximum non-usurious amount allowed under the usury laws of Colorado as
now or hereafter construed by the courts having jurisdiction over such
matters. The aggregate of all interest (however designated) contracted
for, chargeable or receivable under this Note, or any other document
connected with this loan transaction, shall not exceed the maximum legal
rate upon the principal balance of this Note remaining unpaid. In the
event such interest does exceed the maximum legal rate, it shall be deemed
a mistake and such excess shall be canceled automatically and, if
theretofore paid, rebated to the undersigned or credited on the principal
amount of this Note. If the Note has been prepaid, then such excess shall
be rebated to the undersigned.
Any notice provided for in this Note shall be in writing and shall be
effective as described in the Loan Agreement.
Upon written request by the Lender, the Company shall provide to the
Lender a list of the last known addresses of each Lender of a Promissory
Note subject to the terms of the Loan Agreement.
At the option of the Company, payments under this Note may be made by
check payable to the Lender and mailed to the Lender at his address,
postage prepaid in the U.S. mails. Such payment shall be deemed made when
so mailed.
If this Note, or any part thereof is not paid at maturity, whether by
acceleration or otherwise, and is placed in the hands of an attorney for
collection, whether or not suit is filed hereon, the Lender shall be
entitled to reasonable attorneys' fees incurred if the Lender prevails in
such proceedings.
This Note shall be governed by and construed, in all respects,
according to the laws of the State of Colorado.
IN WITNESS WHEREOF, the Company has duly executed this Note in
Denver, Colorado as of the date and year first above written.
NETWORK ACQUISITIONS, INC.
- ---------------------------------
By: Caron Harte, President
AGREEMENT FOR POST-CLOSING ADJUSTMENTS
This Agreement for Post-Closing Adjustments is made as of February 1,
1999, by and among Venture Funding, Ltd., a Colorado corporation ("VFL"),
Boutine, LLC, a Colorado limited liability company ("Boutine"), Network
Acquisitions, Inc., a Colorado corporation ("NAI"), Cavion Technologies,
Inc., a Colorado corporation ("Cavion"), Craig E. Lassen, David J. Selina
and Jeff Marshall.
Pursuant to the Asset Purchase Agreement dated December 31, 1998 (the
"Purchase Agreement") between Cavion and NAI, NAI has agreed to purchase
substantially all of Cavion's assets for shares of NAI's common stock and
assumption of certain liabilities. This agreement is being entered into
in connection with the closing under the Purchase Agreement. VFL and
Boutine are the controlling shareholders of NAI. Lassen, Selina and
Marshall (the "Managers") are the management shareholders of NAI.
NAI is in the process of raising capital through an offering of NAI's
Convertible Preferred Stock, Series A (the "preferred stock offering").
NAI's obtaining this capital is a condition to Cavion's obligation to
close under the Purchase Agreement. The parties have agreed to close the
transaction contemplated by the Purchase Agreement (the "Asset Closing"),
subject to later completion of the preferred stock offering. This
structure will require a post-closing adjustment of the holdings of common
stock among VFL, Boutine, Cavion and the Managers in order to implement
the parties' intention with respect to percentage ownership of the common
stock. The purpose of this agreement is to provide for the post-closing
adjustment of common stock holdings, and to determine what will occur if
the preferred stock offering does not close.
NAI and Cavion have agreed that (1) the number of shares of NAI's
Class A common stock (the "common stock") issued to Cavion will be equal
to 12% of the equity interest in NAI (fully diluted) as of the closing
under the preferred stock offering, subject to certain adjustments
described below, and (2) the number of shares of common stock held by the
Managers will be equal to 20% of the equity interest in NAI (fully
diluted), subject to the same adjustments.
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. POST-CLOSING ADJUSTMENT OF SHARES. Within ten business days
after the initial closing of the preferred stock offering (the "Offering
Closing"), NAI will deliver to all parties a true and accurate final
accounting of all costs related to the offering, and the following
adjustments will be made.
(a) VFL and Boutine will assign and deliver shares of common stock
to Cavion, or Cavion will assign and deliver shares of common
stock to VFL and Boutine, as required so that Cavion holds 12%
of the equity interest in NAI on a fully diluted basis as of the
Offering Closing, subject to the calculations described in the
following section.
(b) VFL and Boutine will assign and deliver shares of common stock
to Lassen, Selina and Marshall, or Lassen, Selina and Marshall
will assign and deliver shares of common stock to VFL and
Boutine, as required so that the Managers hold 20% of the equity
interest in NAI on a fully diluted basis as of the Offering
Closing, subject to the calculations described in the following
section.
2. CALCULATION OF ADJUSTMENT. For purposes of calculating the
equity interests of Cavion and the Managers under this agreement, the
following principles will apply:
(a) The warrants issued under the Private Placement Memorandum dated
October 20, 1998 will be counted as if exercised in full prior
to the Offering Closing.
(b) The Convertible Preferred Stock, Series A of NAI (the "Preferred
Stock") will be counted as if converted in full prior to the
Offering Closing, to the extent of (1) one-half of the total $2
million offering of Preferred Stock, plus (2) the number of
additional shares of Preferred Stock that, at the offering
price, results in proceeds equal to the underwriter's total cash
compensation (including expense allowance) related to the shares
counted under clause (1), and the additional underwriter's
compensation related to all additional shares counted under this
clause (2), plus (3) the number of additional shares of
Preferred Stock that, at the offering price, results in proceeds
equal to NAI's total other costs related to the preferred stock
offering (including without limitation amounts payable to
counsel, accountants and the printer for the offering).
3. IMPLEMENTATION OF STOCK TRANSFER. If so requested by Cavion,
VFL and Boutine will assign to the voting shareholders of Cavion the
number of shares deliverable to Cavion under Section 1, and will deliver
these shares to Cavion for the benefit of its voting shareholders.
4. EFFECT OF FAILURE TO CLOSE THE PREFERRED STOCK OFFERING. As
used in this agreement, the "Trigger Date" means (a) the Termination Date
of the preferred stock offering (as defined in the final Private Placement
Memorandum for the preferred stock offering), or (b) such other date as
VFL, Boutine, NAI and Cavion agree. If the Offering Closing has not
occurred by the Trigger Date, then Cavion will be entitled to rescind the
transaction described in the Purchase Agreement by giving notice to NAI,
VFL and Boutine. The notice will state the effective date of the
rescission (the "Rescission Date"), which will be at least five business
days after the date of the notice.
5. IMPLEMENTATION OF ASSET RETRANSFER. If Cavion exercises its
rescission right under the preceding section, the parties will take the
following actions on the Rescission Date:
(a) The assets and liabilities assigned to and assumed by NAI under
the Bill of Sale, Assignment and Assumption Agreement, as
increased or decreased in the ordinary course of business
following the Asset Closing, will be assigned to and assumed by
Cavion, free and clear of all liens, claims and encumbrances
other than those in place as of the Asset Closing. The shares
of NAI Class A and Class B Common Stock received by Cavion at
the Asset Closing will be assigned to NAI, free and clear of all
liens, claims and encumbrances.
(b) The retransfer of assets, liabilities and shares will be subject
to representations, warranties and indemnities equivalent to the
representations, warranties and indemnities in the Purchase
Agreement, with NAI being treated as the Seller and Cavion as
the Buyer for the period between the Asset Closing and the
Rescission Date.
(c) Cavion will agree to pay NAI an amount equal to (1) all amounts
due as of the Asset Closing under the Loan Agreement dated as of
September 14, 1998 between NAI and Cavion, plus (2) the cash
used in operations between the date of the Asset Closing and the
Rescission Date, plus (or minus) (3) the amount by which the
cash and cash equivalents transferred to Cavion on the
Rescission Date exceeds (or is less than) the cash and cash
equivalents transferred to NAI at the Asset Closing. This
amount will be due 60 days after the Rescission Date, and will
otherwise be subject to the terms of the Loan Agreement.
(d) The employment contracts between the Managers and NAI, the
Agreement for Sharing of Dilution executed at the Asset Closing,
and sections 1, 2 and 3 of this agreement, will be terminated.
The Managers will resign as officers and directors of NAI.
(e) Following the Rescission Date, each party will continue to be
subject to the confidentiality provisions of the Purchase
Agreement. These obligations will remain in effect for three
years following the Rescission Date, or with respect to any
trade secret, for as long as such information remains a trade
secret.
6. COVENANTS DURING THE OFFERING PERIOD. Until the Offering
Closing, NAI covenants with Cavion as follows:
(a) NAI will not, without the approval of those board members of NAI
who are also board members of Cavion, (1) merge, consolidate
with any entity, liquidate, dissolve, or reorganize; (2) acquire
or dispose of material assets in other than in the ordinary
course of business; (3) declare or pay any dividends, make any
distribution of assets to any shareholder, or acquire any of its
equity securities; (4) issue any equity securities of any kind
except in connection with the Offering; (5) institute any
methods of accounting that differ materially from the methods
used as of the Asset Closing; or (6) agree to do any of the
foregoing.
(b) Except with the approval of those board members of NAI who are
also board members of Cavion, NAI will (1) carry on the business
acquired from Cavion in substantially the same manner as it was
conducted prior to the Asset Closing; (2) use its best efforts
to maintain and support the name and business relationships
acquired from Cavion; (3) pay when due all indebtedness incident
to its operations (except as contested in good faith and with
appropriate accounting reserves); (4) keep its properties in
good repair, and appropriately insured; and (5) comply with all
material applicable legal requirements.
7. TERM. This agreement will terminate upon completion of the
adjustments described in section 1, or upon completion of the transactions
described in section 5, whichever comes sooner.
8. GENERAL. This agreement is governed by the laws of the State of
Colorado. This agreement supersedes all agreements previously made
between the parties concerning its subject matter, and may not be waived
or modified except in writing signed by the parties. If any provision of
this agreement is found to be invalid or unenforceable, such provision
will be modified to the minimum extent necessary to be valid and
enforceable, and the remainder hereof will not be affected. This
agreement is binding on and enforceable by and against the parties and
their successors, legal representatives and assigns. No party may assign
its obligations under this agreement except to a purchaser of
substantially all of that party's stock in NAI. The obligations of VFL
and Boutine under this agreement are joint and several. Notices under
this agreement will be in writing and will be effective when received by
certified mail to the addresses given below. Refusal to accept delivery
will be deemed receipt. This agreement does not supersede or exclude any
remedy that any party may have as a result of failure to close the
preferred stock offering or otherwise. The prevailing party will be
entitled to reimbursement of reasonable fees and costs in connection with
any dispute regarding this agreement.
[END OF AGREEMENT;
SIGNATURE PAGE FOLLOWS NEXT]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement for Post-Closing Adjustments as of the date first referenced
above.
CAVION TECHNOLOGIES, INC. NETWORK ACQUISITIONS, INC.
/s/ David. J. Selina /s/Andrew I. Telsey
By: David J. Selina, President By: Andrew I. Telsey, President
7475 Dakin Street, Suite 607 2851 S. Parker Road, Suite 720
Denver, Colorado 80221-6920 Aurora, Colorado 80014
VENTURE FUNDING, LTD. BOUTINE, LLC
/s/Andrew I. Telsey /s/Gary Graham
By: Andrew I. Telsey, President By: Gary Graham, Manager
2851 S. Parker Road, Suite 720 c/o First Capital Investments, Inc.
Aurora, Colorado 80014 5460 S. Quebec Street, Suite 220
Englewood, Colorado 80111
/s/ Craig E. Lassen /s/David J. Selina
Craig E. Lassen David J. Selina
c/o Cavion Technologies, Inc. 5523 S. Jasper Way
7475 Dakin Street, Suite 605 Aurora, Colorado 80015
Denver, Colorado 80221-6920
/s/Jeff Marshall
Jeff Marshall
6198 S. Killarney Drive
Aurora, Colorado 80016
SHARE ALLOCATION AGREEMENT
This Share Allocation Agreement is made as of April 16, 1999, by and
among Venture Funding, Ltd., a Colorado corporation ("VFL"), Boutine, LLC,
a Colorado limited liability company ("Boutine"), Cavion Technologies,
Inc., a Colorado corporation formerly known as Network Acquisitions, Inc.
("Cavion"), LanXtra, Inc., a Colorado corporation formerly known as Cavion
Technologies, Inc. ("LanXtra"), Craig E. Lassen, David J. Selina and Jeff
Marshall.
Pursuant to the Asset Purchase Agreement dated December 31, 1998 (the
"Purchase Agreement") between LanXtra and Cavion, Cavion has purchased
substantially all of LanXtra's assets for shares of Cavion's common stock
and assumption of certain liabilities. VFL and Boutine are the
controlling shareholders of Cavion. As of the closing under the Purchase
Agreement, Lassen, Selina and Marshall (the "Managers") were the
management shareholders of Cavion.
At the closing under the Purchase Agreement, the parties entered into
an Agreement for Post-Closing Adjustments (the "Adjustment Agreement")
that provides for adjustment of the holdings of common stock among VFL,
Boutine, LanXtra and the Managers in order to implement the parties'
intention with respect to percentage ownership of the common stock. The
parties now have sufficient information to consummate the Adjustment
Agreement.
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1. OFFERING EXPENSES. First Capital Investments, Inc., financial
advisor to Cavion, has delivered on behalf of Cavion the following
accounting of all costs related to the private offering of Cavion's
Secured Notes and Class A Common Stock Purchase Warrants, and the private
offering of Cavion's Convertible Preferred Stock, Series A (the
"offerings"):
ITEM AMOUNT
Legal fees (Coudert Brothers) $ 65,000
Accounting fees (Arthur Andersen) 5,970
Commissions (First Capital Investments, Inc.) 28,400
Expenses (First Capital Investments, Inc.) 2,785
--------
TOTAL $102,155
2. POST-CLOSING ADJUSTMENT OF SHARES. Based on the preceding
accounting of the costs of the offerings, the Adjustment Agreement calls
for adjustments to the share ownership of the parties in accordance with
the capitalization table attached as Exhibit A. Accordingly, the parties
agree to the following share adjustments:
(a) VFL assigns 989 shares to LanXtra
Boutine assigns 96 shares to LanXtra
(b) VFL assigns 603 shares to Selina
Boutine assigns 603 shares to Lassen
Boutine assigns 603 shares to Marshall
Simultaneously with the execution of this agreement, the parties will
execute stock assignments, deliver share certificates, and take whatever
other actions may be required to accomplish the transfers contemplated by
this agreement (including any actions required by Cavion's transfer
agent).
3. ADDITIONAL ADJUSTMENT. If within one year from the date of this
agreement Cavion pays additional costs related to the offerings that
aggregate $3,000 or more, VFL and Boutine will promptly assign to LanXtra
and the Managers the appropriate number of additional shares.
Notwithstanding that the Adjustment Agreement states that it terminates
with the implementation of this agreement, the additional adjustment
described in this section will be governed by the terms of the Adjustment
Agreement. If so requested by LanXtra, VFL and Boutine will assign to the
voting shareholders of LanXtra the number of shares deliverable to LanXtra
under this section, and will deliver these shares to LanXtra for the
benefit of its voting shareholders.
4. GENERAL. This agreement is governed by the laws of the State of
Colorado. This agreement supersedes all agreements previously made
between the parties concerning its subject matter, and may not be waived
or modified except in writing signed by the parties. If any provision of
this agreement is found to be invalid or unenforceable, such provision
will be modified to the minimum extent necessary to be valid and
enforceable, and the remainder hereof will not be affected. This
agreement is binding, on and enforceable by and against the parties and
their successors, legal representatives and assigns. No party may assign
its obligations under this agreement except to a purchaser of
substantially all of that party's stock in Cavion. The obligations of VFL
and Boutine under this agreement are joint and several. Notices under
this agreement will be in writing and will be effective when received by
certified mail to the addresses given below. Refusal to accept delivery
will be deemed receipt. This agreement does not supersede or exclude any
remedy that any party may have as a result of failure to close the
preferred stock offering or otherwise. The prevailing party will be
entitled to reimbursement of reasonable fees and costs in connection with
any dispute regarding this agreement.
[END OF AGREEMENT;
SIGNATURE PAGE FOLLOWS NEXT]
IN WITNESS WHEREOF, the parties have executed and delivered this
Share Allocation Agreement as of the date first referenced above.
CAVION TECHNOLOGIES, INC. LANXTRA, INC.
/s/ David J. Selina /s/ David J. Selina
By: David J. Selina, President By: David J. Selina, President
7475 Dakin Street, Suite 607 7475 Dakin Street, Suite 607
Denver, Colorado 80221-6920 Denver, Colorado 80221-6920
VENTURE FUNDING, LTD. BOUTINE, LLC
/s/ Andrew I. Telsey /s/ Gary Graham
By: Andrew I. Telsey, President By: Gary Graham, Manager
2851 S. Parker Road, Suite 720 c/o First Capital Investments, Inc.
Aurora, Colorado 80014 5460 S. Quebec Street, Suite 220
Englewood, Colorado 80111
/s/ Craig E. Lassen /s/ David J. Selina
Craig E. Lassen David J. Selina
245 Poplar Street 5523 S. Jasper Way
Denver, Colorado 80220 Aurora, Colorado 80015
/s/ Jeff Marshall
Jeff Marshall
6198 S. Killarny Drive
Aurora, Colorado 80016
OFFICE LEASE
THIS LEASE, dated and entered into this 4th day of December, 1996, by
and between TTD ASSOCIATES, a Colorado Limited Liability Company having an
office at 1301 Dove Street, Suite 920, Newport Beach, California 92660
(hereinafter called "Lessor") and SIGMACOM CORPORATION, a Colorado
corporation (hereinafter called "Lessee").
WITNESSETH:
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
certain premises in a building known as:
TURNPIKE TOWER
7475 Dakin Street, Suite 607/635
Denver, Colorado 80221
as shown outlined in red on Exhibit "A", attached hereto and made a part
hereof, consisting of approximately four thousand five hundred sixty four
(4,564) rentable square feet, (hereinafter referred to as the "Premises").
Lessee shall also have the right to use in conjunction with other tenants
in the building certain common facilities, hallways, rest room facilities,
elevators and stairs.
1. TERM
The term of this Lease shall be for a period of three (3) years,
commencing on January 1, 1997, ("Commencement Date") and expiring on
December 31, 1999 ("Expiration Date") unless sooner terminated pursuant to
any provision hereof. In the event the Commencement Date is delayed, the
Expiration Date will be extended by the same number of days.
If the Premises are not ready for occupancy by the above
Commencement Date because remodelling described in Paragraph 4 hereof has
not been sufficiently completed, the Commencement Date shall be extended
until such time as Lessor obtains a Certificate of Occupancy from the
appropriate building department. In such event, the Expiration Date of
this Lease shall also be extended by the same number of days as the
Commencement Date is extended.
If no Certificate of Occupancy is required, then the
Commencement Date shall be extended until such date as remodelling to be
performed by Lessor pursuant to Paragraph 4 hereof has been substantially
completed so that the Lessee can take possession of the Premises. In such
event, the Expiration Date shall also be extended accordingly.
In the event the Commencement Date and the Expiration Date are
extended hereby, the parties agree to execute Exhibit "D", entitled
"Acceptance of Premises", attached hereto and incorporated herein.
2. RENT
(a) Lessee agrees to pay Lessor for the full term a minimum
rental on said Premises in the total sum of One Hundred Fifty Nine
Thousand Five Hundred Eleven and 80/100 Dollars ($159,511.80), payable in
advance in monthly installments as set forth below on the first day of
each month during the term hereof without prior notice or demand,
deduction or set off, in lawful money of the United States of America.
Rental payments shall be prorated at the rate of one-thirtieth (1/30th) of
the monthly rental per day for any partial month. Rental payments shall
be paid to Lessor at Axis Commercial Realty, 1660 South Albion Street,
Suite 806, Denver, Colorado 80222, or at such other place or places as
Lessor may from time to time designate in writing. Lessee agrees to pay
the rent as herein provided promptly at the times and in the manner herein
specified. The minimum rental rate for Year 1 of the Lease term is Eleven
and 15/100 Dollars ($11.15) per square foot per year, or Four Thousand Two
Hundred Forty and 72/100 Dollars ($4,240.72) per month. The minimum
rental rate for Year 2 of the Lease term is Eleven and 65/100 Dollars
($11.65) per square foot per year, or Four Thousand Four Hundred Thirty
and 88/100 Dollars ($4,430.88) per month. The minimum rental rate for
Year 3 of the Lease term is Twelve and 15/100 Dollars ($12.15) per square
foot per year, or Four Thousand Six Hundred Twenty One and 05/100 Dollars
($4,621.05) per month.
ADDITIONAL RENT
(b) Lessee agrees to pay additional rent as provided for in
Paragraph 3.
SECURITY DEPOSIT
(c) It is agreed that Lessee, at the time of execution of this
Lease, has deposited with the Lessor, and will keep on deposit at all
times during the term and any extended term of this Lease, the sum of
Thirteen Thousand Eight Hundred Sixty Three and 15/100 Dollars
($13,863.15) as security for the full and faithful performance of every
provision of this Lease to be performed by Lessee. If Lessee defaults
with respect to any provision of this Lease, including but not limited to
the provisions relating to the payment of rent, Lessor may, without
further notice to Lessee, use, apply or retain all or any part of this
security deposit for the payment of any rent or any sum, in default, or
for the payment of any other amount which Lessor may spend or become
obligated to spend by reasons of Lessee's default or to compensate Lessor
for any other loss or damage which Lessor may suffer by reason of Lessee's
default. If any portion of said deposit is so used or applied, Lessee
shall within five (5) days after written demand therefor deposit cash with
Lessor in an amount sufficient to restore the security deposit to its
original amount and Lessee's failure to do so shall be a material breach
of this Lease. Said deposit shall not be considered as liquidated damages
and if claims of Lessor exceed said deposit, Lessee shall remain liable
for the balance of such claims. The Lessor shall not be required to keep
this security deposit separate from its general funds and Lessee shall not
be entitled to interest on such deposit. If Lessee shall fully and
faithfully perform every provision of this Lease to be performed by it,
the security deposit or any balance thereof shall be returned to Lessee
within sixty (60) days (or, at Lessor's option, to the last assignee of
Lessee's interest hereunder) of the expiration of the Lease term and upon
Lessee's vacation of the Premises and Lessee's performance of all
provisions of the Lease. In the event of termination of Lessor's interest
in this Lease, Lessor shall transfer said deposit to Lessor's successor in
interest, whereupon, Lessee agrees to release Lessor from liability for
the return of such deposit or the accounting therefor.
3. EXPENSE STOP
In the event the building operating expenses, as hereinafter
defined in Paragraph 6 for operating the subject building, paid for and
sustained by Lessor in any calendar year are greater than the Actual
Operating Expenses per rentable square foot for the building for the 1997
calendar year, "Expense Stop", Lessee shall pay to Lessor as additional
rent for each calendar year or portion thereof an amount equal to the
portion of such additional amount as the rentable area of the Premises
bears to the rentable area of the building, as adjusted for the actual
time during said calendar year when Lessee actually leases the Premises.
The liability of Lessee for payment of such costs shall commence on the
Lease commencement date. Lessee's pro rata share shall be based on
Lessor's estimate of said costs. Lessor shall estimate the expense for
each calendar year and shall make reasonable efforts to notify Lessee of
its pro rata share by February 15 of each full calendar year. Lessee
shall then commence payments, as additional rent, in advance on the first
day of each successive month, after notification, at the same time and
place stated for payment of minimum rent. Lessor shall make reasonable
efforts to provide Lessee with an accounting of the difference between the
estimated costs and the actual costs within ninety (90) days following the
end of the calendar year. The necessary refund by Lessor, or additional
payment by Lessee, shall be paid within thirty (30) days following notice
to Lessee of the amount due; provided, however, that no refund shall be
paid Lessee should Lessee be in default on its leasehold obligations.
4. CONDITION OF PREMISES
Lessor agrees to provide the Premises to Lessee in their present
"as is" condition, except as specified in attached Exhibit "B". Any
remodeling undertaken by Lessee at Lessee's expense shall also be
designated in said Exhibit "B" or some other suitable document.
5. USE OF PREMISES
(a) Lessee covenants to use the Premises for general office
purposes and to use them in a careful, safe and proper manner; to pay on
demand for any damage to the Premises caused by negligent act or omission
of such Premises by Lessee, its agents or employees or of any other person
entering upon the Premises under express or implied invitation of Lessee;
not to use or permit the Premises to be used for any purposes prohibited
by the laws of the United States, the State of Colorado, the County of
Adams, or the ordinances of the City of Denver; and not to commit waste,
nor suffer, nor permit waste to be committed, nor permit any nuisance on
or in the Premises.
(b) Lessee agrees to keep the Premises in a neat, clean and
attractive condition; to comply properly with all laws, ordinances, and
other governmental rules and regulations concerning the Premises or the
streets, sidewalks, alleys, parks, parkways, and other public property
abutting the Premises; to use the Premises for no purpose which would
render void the fire, extended coverage and added perils insurance on the
building. Lessee agrees to pay all extra insurance premiums on the
building on which the Premises are a part if such extra insurance premiums
are reasonably required as the result of the use which Lessee shall make
of the Premises.
(c) Lessee will not at any time without obtaining Lessor's
prior written consent conduct or permit any fire, bankruptcy or auction
sale on the Premises; or change the exterior color of the building or any
part thereof; or park, operate, load or unload any truck or other delivery
vehicle at any place other than the loading area designated for such use;
or use the plumbing facilities for any purpose other than that for which
they were constructed or dispose of any foreign substance therein; or
install any shades, awnings, machinery, motors, or ducts, or install any
amplifiers, loudspeakers, phonographs, microphones, or similar devices for
any purpose, or use any advertising medium, which may be heard or seen
inside or outside the building; permit any rubbish or garbage to
accumulate on the Premises in other than rubbish removal areas; or
install, maintain, alter, or operate any sign or display visible to public
view inside or outside of the building, except as approved by Lessor, or
store materials, supplies, equipment or other materials outside the
building or outside of the space occupied by Lessee.
(d) Lessee will not at any time deface or injure any portion of
the Premises or burn anything in or about the Premises; or keep or display
any merchandise or other object on or otherwise obstruct any sidewalks,
stairways, walkways, streets, parks or parkways; or use or permit the use
of any portion of the Premises as a living quarters, sleeping rooms or for
similar uses.
(e) The Rules and Regulations attached hereto and marked
Exhibit "C", as well as rules and regulations as may be hereafter adopted
from time to time by Lessor for the safety, care and cleanliness of the
Premises and the preservation of good order thereon, are hereby expressly
made a part hereof, and Lessee agrees to obey all such Rules and
Regulations.
6. BUILDING OPERATING EXPENSES
Building operating expenses ("Building Operating Expenses")
shall mean any and all expenses incurred by the Lessor in connection with
the ownership, maintenance, operation, upkeep and repair of the building
including the equipment, adjacent walks, loading and parking areas,
landscaped areas, and other improvements to the building, including but
not limited to salaries, hourly wages, payroll taxes, social security,
uniforms and dry cleaning thereof for employees of the Lessor engaged in
the operation, maintenance and repair of the building; the costs of all
charges for electricity, steam and water or other utilities furnished to
the building, including any taxes thereon, other than those chargeable to
individual tenants by reason of their extraordinary consumption of such
utilities; the costs of all charges for insurance directly relating to the
use and/or the operation of the building as aforesaid; the costs of
building and cleaning supplies and materials; the costs of all charges for
cleaning, maintenance and service contracts and other services with
independent contractors, including snow and trash removal and landscaping;
salaries of building superintendents and assistants; allowance for
management fees and services; and overhead and legal expenses directly
relating to the use and/or operation of the building; real estate taxes
and other taxes and assessments incurred in connection with the ownership,
operation and maintenance of the building; and all other costs and
expenses reasonably necessary in the operation and maintenance of a first-
class office building. If the property where the Premises are located
consists of multiple buildings, Lessor may operate and account for said
buildings jointly, apportioning all Building Operating Expenses prorata
among the total square footage of all the buildings. Building Operating
Expenses shall not include interest on debt, capital retirement of debt,
capital expenditures (except for capital expenditures which reduce
operating expenses, in which case such expenditures shall be amortized
over the life of the objects for such capital expenditures), or any cost
which is charged to and collected from any tenant of the building on
account of negligent or willful act or omission of such tenant or for
which such tenant may be liable, contractually or otherwise.
7. MAINTENANCE, ALTERATIONS AND REPAIRS
(a) Lessee shall keep the Premises in good condition and repair
and said Premises shall not be altered, repaired or changed without the
written consent of Lessor, which consent shall not be unreasonably
withheld. Lessee shall keep the Premises and building of which the
Premises are a part free and clear of any liens, and shall indemnify, hold
harmless and defend Lessor from any liens and encumbrances arising out of
any work performed or materials furnished by or at the direction of
Lessee. In the event any lien is filed, Lessee shall do all acts
necessary to discharge any lien within ten (10) days of filing; or, if
Lessee desires to contest any lien, then Lessee shall deposit with Lessor
such security as Lessor shall demand to insure payment of the lien claim.
In the event Lessee shall fail to pay any lien claim when due, or fail to
deposit the security with Lessor, then Lessor shall have the right to
expend all sums necessary to discharge the lien claim, and Lessee shall
pay as additional rental, when the next rental payment is due, all sums
expended by Lessor in discharging any lien, including attorney's fees and
costs. Lessor shall save and hold Lessee harmless from any loss or damage
arising from any lien or encumbrance asserted against the demised Premises
due to any act of Lessor.
(b) Should Lessor permit Lessee to make any repairs,
alterations, additions or improvements to the Premises or any part
thereof, Lessor may impose as a condition to the aforesaid consent such
requirements as Lessor may reasonably deem necessary in its sole
discretion, including without limitation thereto, the manner in which the
work is done, a right of approval of the contractor by whom the work is to
be performed, and the times during which it is to be accomplished. If
Lessee requests Lessor to make repairs, alterations, additions or
improvements to the Premises, Lessee agrees to pay Lessor therefor in an
amount equal to Lessor's substantiated direct costs plus fifteen percent
(15%) to cover Lessor's overhead costs, which sums shall be payable
fifteen (15) days after receipt of Lessor's invoice by Lessee. All such
repairs, alterations, additions or improvements shall at the expiration or
earlier termination of the Lease become the property of Lessor and shall
remain upon and be surrendered with the Premises, unless agreed otherwise
by the parties in writing. Lessee shall, on termination of the Lease,
surrender the Premises to Lessor in good condition and repair, normal wear
and tear excepted.
8. BUILDING SERVICES
(a) As a part of the rent, Lessor agrees to furnish to the
Premises during hours of generally recognized business days, as stated in
Exhibit "C", Paragraph 1, and subject to the Rules and Regulations of the
building which the Premises are a part, water and electricity suitable for
normal office use of the Premises, heat and air conditioning required in
Lessor's reasonable judgment for the comfortable use and occupation of the
Premises, and usual janitorial and maintenance service in the building.
Lessor shall maintain and keep in repair plumbing, electrical wiring,
heating and air conditioning equipment required to supply said utilities
to the Premises. Lessor shall also maintain and keep lighted the common
stairs and entries during generally recognized business days, and shall
maintain and keep in repair the general structure, roof and windows of the
building of which the Premises are a part.
(b) Lessor shall not be liable for and Lessee shall not be
entitled to any abatement or reduction of rental by reason of Lessor's
failure to furnish any of the foregoing services, when such failure is
caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character, riots, civil disturbances
or by any other cause beyond the reasonable control of Lessor, provided
that Lessor attempts to correct such failure of services with due
diligence after notice thereof.
(c) Wherever heat generating machines or equipment, including
telephone equipment, are used in the Premises which substantially affect
the temperature otherwise maintained by the air conditioning system,
Lessor reserves the right to install supplementary air conditioning units
in the Premises and the cost thereof, including the cost of installation,
and the costs of operation and maintenance thereof, shall be paid by
Lessee to Lessor upon demand by Lessor.
(d) Lessee will not without the consent of Lessor use any
apparatus or device in the Premises which will in any way unreasonably
increase the amount of electricity or water usually furnished or supplied
for use of the Premises; nor connect with electrical current, except
through existing electrical outlets in the Premises, or water pipes, any
apparatus or device for the purpose of using electric current or water.
If Lessee shall require water or electric current in excess of that
usually furnished or supplied for the use of the Premises, Lessee shall
first procure the consent of Lessor to the use thereof and Lessor may
cause a water meter or electric current meter to be installed in the
Premises so as to measure the amount of water and electric current
consumed for any such other use. The costs of any such meters and of
installation, maintenance and repair thereof shall be paid for by Lessee,
and Lessee agrees to pay to Lessor promptly upon demand thereof by Lessor
for all such water and electric current consumed, as shown by said meters,
at the rates charged for such services by the local public authority, or
the local public utility, as the case may be furnished the same.
9. PERSONAL PROPERTY TAXES
During the term hereof, Lessee shall pay prior to delinquency
all taxes assessed against and levied upon fixtures, furnishings,
equipment and all other personal property of Lessee contained in the
Premises; and Lessee shall cause said fixtures, furnishings, equipment and
other personal property to be assessed and billed separately from the real
and personal property of Lessor. In the event any or all of the Lessee's
fixtures, furnishing, equipment and other personal property shall be
assessed and taxed with the Lessor's real property, Lessee shall pay to
Lessor its share of such taxes within ten (10) days after delivery to
Lessee by Lessor of a statement in writing setting forth the amount of
such taxes applicable to the Lessee's property.
10. QUIET ENJOYMENT
Lessor covenants that Lessee shall peaceably and quietly possess
and enjoy the Premises as against all persons claiming any right, title or
interest in and to said Premises as long as Lessee shall faithfully
perform the covenants, obligations, agreements and conditions of this
Lease. Lessor reserves the right to subject its interest in this Lease at
all times to the lien of any mortgages or deeds of trust hereafter placed
upon the building or any part thereof and to grant to other Lessees in the
building rights to use the common areas and other portions of the building
not within the Premises.
11. PARKING
Lessee shall be entitled throughout the term of this Lease to
use the parking area on a non-exclusive open basis, which may at Lessor's
option be assigned or unassigned space. Lessor reserves the right to
exercise his option to assign parking spaces at any time during the term
of this Lease. Lessee will cooperate with Lessor if it shall become
necessary to temporarily interrupt the use of the parking area due to
reconstruction or repair of the parking area.
12. ENTRY BY LESSOR
Lessor and its agents shall have the right to enter the Premises
at all reasonable times for the purpose of examining or inspecting the
same, to supply janitorial services and any other service to be provided
by Lessor to Lessee hereunder, to show the same to prospective purchasers
or tenants of the building, and to make such alterations, repairs,
improvements or additions to the Premises or to the building of which they
are a part as Lessor may deem necessary or desirable with the minimum
possible disturbance to Lessee's business operations. If, during the last
month of the term hereof, Lessee shall have removed substantially all of
its property therefrom, Lessor may immediately enter and alter, renovate
and redecorate the Premises without elimination or abatement of rent or
incurring liability to Lessee.
13. PREMISES VACATED DURING TERM OF LEASE
If the Lessee shall abandon or vacate said Premises before the
end of the term of this Lease, Lessor may, at its option and without
notice, enter said Premises, remove any signs of the Lessee therefrom, and
relet the same, or any part thereof, as it may see fit, without thereby
voiding or terminating this Lease, and, for the purpose of such reletting,
the Lessor is authorized to make any repairs, changes and/or alterations
necessary or desirable for the purpose of such reletting, and if a
sufficient sum shall not be realized from such reletting.
14. REMOVAL OF LESSEE'S PROPERTY
If the Lessee shall fail to remove all effects from said
Premises upon the abandonment thereof or upon the termination of this
Lease for any cause whatsoever, the Lessor, at its option, may remove the
same in any manner that it shall choose, and store the said effects
without liability to the Lessee for loss thereof, and Lessee agrees to pay
the Lessor on demand any and all expenses incurred in such removal,
including court costs and attorney's fees and storage charges on such
effects for any length of time that the same shall be in the Lessor's
possession; or the Lessor may, at its option, without notice, sell said
effects, or any of the same, at public or private sale and without court
order, for such prices as the Lessor may obtain, and apply the proceeds of
such sale upon any amounts due under this Lease from the Lessee to the
Lessor and upon the expense incident to the removal and said effects.
15. EMINENT DOMAIN
In the event the Premises, or any part thereof, shall be taken
by an exercise of the right of eminent domain or by action of any public
or other authority during this Lease or any extension thereof, and such
taking shall render the Premises unusable as determined by Lessor's
architect or engineer, then this Lease shall terminate as of the date of
such taking unless Lessor's architect or engineer determines that the
Premises can be reasonably restored with the proceeds from the award to
Lessor from such taking and Lessor elects to do so. The Lessor reserves
all rights to damages to said Premises and the leasehold hereby created,
hereafter accruing by an exercise of the right of eminent domain, or by
reason of anything lawfully done and in pursuance of any public or other
authority; and by way of confirmation, the Lessee grants to the Lessor all
of the Lessee's right to such damages and covenants to execute and deliver
such further instruments of assignment thereof as the Lessor may from time
to time request. Nothing in this paragraph shall give Lessor any interest
in, or preclude Lessee from, seeking on its own account any award
attributable to the taking of personal property or trade fixtures
belonging to Lessee, or for the interruption of Lessee's business, or for
any moving or relocation expenses, or for any other separate claim which
does not reduce or adversely affect in any way the amount of Lessor's
award.
16. SALE BY LESSOR
In the event of a sale or conveyance by Lessor of the building
containing the Premises, such sale or conveyance shall operate to release
Lessor from any future liability upon any of the covenants or conditions,
express or implied, herein contained in favor of Lessee, and in such event
Lessee agrees to look solely to the responsibility of the successor in
interest of Lessor in and to this Lease. This Lease shall not be affected
by any such sale, and the Lessee agrees to attorn to the purchaser or
assignee.
17. DAMAGE TO PROPERTY; INJURY TO PERSONS
(a) Lessee hereby waives all claims or liability Lessee or
Lessee's successors or assigns may have against Lessor, and Lessee hereby
indemnifies and agrees to hold Lessor harmless from and to defend Lessor
against any and all costs, claims or liability or any injury or damage to
any person or property whatsoever; (1) occurring in, on or about the
Premises or any part thereof, and (2) occurring in, on or about any
facilities (including without limiting the generality of the term
"facilities", elevators, stairways, passage ways, hallways, bathrooms,
health and exercise areas, conference rooms and parking structures and
areas), the use of which Lessee may have in conjunction with other tenants
of the building, when such injury or damage is caused solely by the act,
neglect, fault of or omission of any duty with respect to the same by
Lessee, its agents, contractors, employees or invitees. Lessor shall not
be liable to Lessee for any damage by or from any act of negligence of any
co-tenant or other occupant of the same building, or by any owner or
occupant of adjoining or contiguous property, not caused or contributed to
by Lessor. Lessee agrees to pay for all damages to the building, as well
as all damages to tenants or occupants thereof, by Lessee's misuse or
neglect of said Premises and facilities.
(b) Lessor or its agents shall not be liable for any damage to
property entrusted to Lessor, its agents or employees of the building
manager, if any, nor for the loss of or damage to any property by theft or
otherwise, by any means whatsoever, nor for any injury or damage to
persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water or rain which may leak from any part of the
building or from the pipes, appliances, or plumbing works therein or from
the roof, street or subsurface or from any other place or resulting from
dampness or any other cause whatsoever, unless caused by or due to
negligence of Lessor, its agents, servants or employees. Lessee shall
give prompt notice to Lessor in case of fire or accidents in the Premises
or in the building or other defects therein or in the fixtures or
equipment.
(c) Anything contained herein to the contrary notwithstanding,
the Lessor and the Lessee and all parties claiming under them hereby
mutually release and discharge each other from all claims and liabilities
arising from any cause whatsoever to the extent that it is covered by
insurance on the leased property and/or Premises or covered by insurance
in connection with the property and/or activities conducted on the leased
property and/or Premises, regardless of the cause of the damage or loss.
This release shall be valid and binding only to the extent that it is
permissible and does not adversely affect insurance coverage on the
Premises and the building. The parties shall endeavor to obtain a Waiver
of Subrogation Rights from the insurance carriers and the Lessee hereby
agrees to pay any increased costs of such insurance coverage resulting
from said Waiver of Subrogation Rights.
18. INDEMNIFICATION AND INSURANCE
(a) Lessor shall not be liable and Lessee hereby waives all
claims against Lessor for any damage to any property or any injury to any
person in or about the Premises or the Building by or from any cause
whatsoever, (including without limiting the foregoing, rain or water
leakage of any character from the roof, windows, walls, basement, pipes,
plumbing works or appliances, the Building not being in good condition or
repair, gas, fire, oil, electricity or theft); except that Lessor will
indemnify and hold Lessee harmless from such claims to the extent caused
by the negligent or willful act of Lessor, or its agents, employees or
contractors. Lessee shall defend, indemnify, and save Lessor harmless
from and against any and all claims, actions, lawsuits, damages,
liability, and expense (including, without limitation, attorneys' fees)
arising from: (a) the act, neglect, fault, or omission to meet the
standard imposed by any duty with respect to the loss, damage, or injury
by Lessee, its agents, servants, employees, contractors, customers or
invitees; (b) the conduct or management of any work or thing whatsoever
done by the Lessee in or about the Premises or from transactions of the
Lessee concerning the Premises; (c) Lessee's failure to comply with any
and all governmental laws, ordinances and regulations applicable to the
use of the Premises and its occupancy; or (d) any breach or default on the
part of the Lessee in the performance of any covenant or agreement on the
part of the Lessee to be performed pursuant to the Lease. The provisions
of this Article shall survive the termination of this Lease with respect
to any claims or liability occurring prior to such termination.
(b) Lessee shall at its expense carry with a company acceptable
to Lessor, and keep in full force and effect, public liability insurance
with a minimum single limit of One Million Dollars ($1,000,000.00). Said
insurance policy shall name Lessor, by endorsements, as an additional
insured and shall not be cancellable as to Lessor, by either Lessee or
said insurance company without thirty (30) days written notice to Lessor.
Lessee shall furnish Lessor a Certificate of Insurance as to such policy.
(c) Lessor agrees also to maintain public liability insurance
on the building in which the Premises are located in the amount of One
Million Dollars ($1,000,000.00) minimum single limit.
19. DAMAGE OR DESTRUCTION
(a) Lessor shall purchase, carry and keep in full force and
effect on the building fire, extended coverage and added perils insurance
in amounts as deemed appropriate by Lessor or required by Lessor's
lenders. Lessor and any holder or holders of any mortgages or deeds of
trust covering the Premises, or the property of which the same are a part
thereof, shall be the sole insured under said policy and shall be entitled
to all proceeds thereunder.
(b) In the event the Premises or the building of which the same
are a part are damaged by fire or casualty, the damage shall be repaired
by and at the expense of Lessor (unless the damage was caused by the
negligence of Lessee) provided such repairs can, in Lessor's sole opinion,
be made within ninety (90) days after the occurrence of such damage
without the payment of overtime or other premiums, and until such repairs
are completed, the rent shall be abated in proportion to the part of the
Premises which is unusable by Lessee in the conduct of its business (but
there shall be no abatement of rent by reason of any portion of the
Premises being unusable for a period equal to ten (10) days or less. If
the damage is due to the negligent act or omission of Lessee or its
employees, agents or invitees, there shall be no abatement of rent.
Lessor's obligation to promptly and fully restore the Premises to their
condition prior to the destruction or damage is subject always to delays
caused by acts of God, strikes, lockouts, inability to get materials,
accidents, fire or matters beyond the control of Lessor, for which Lessor
cannot be held responsible by Lessee. If repairs cannot, in Lessor's sole
opinion, be made within ninety (90) days, Lessor may at its option make
them within a reasonable time, and in such event, this Lease shall
continue in effect and the rent shall be apportioned in the manner
provided above. If Lessor does not elect as aforesaid within forty-five
(45) days, then either party may, by written notice to the other, cancel
this Lease as of the date of the occurrence of such damages. A total
destruction of the building in which the Premises are located shall
automatically terminate this Lease. If repairs cannot be completed with
180 days, lessee has the right to terminate the lease.
(c) Except as provided in Paragraph 19(b) above, there shall be
no abatement of rent and no liability of Lessor by reason of any injury to
or interference with Lessee's business or property arising from the making
of any repairs, alterations or improvements in or to any portion of the
building of the Premises, or in or to fixtures, appurtenances and
equipment therein, unless caused by the gross negligent act or omission of
agents, employees, representatives or servants of Lessor. Lessee
understands that Lessor will not carry insurance of any kind on Lessee's
furniture and furnishings or on any fixtures or equipment removable by
Lessee under the provisions of this Lease; and that Lessor shall not be
obligated to repair any damage thereto or replace the same unless caused
by the gross negligent act or omission of agents, employees,
representatives or servants of Lessor. The Lessor shall not be required
to repair any injury or damage by fire or other cause, or to make any
repairs or replacements of improvements installed in the Premises by or
for Lessee, unless caused by the gross negligent act or omission of
agents, employees, representatives or servants of Lessor.
(d) In the event that the building in which the demised
Premises is situated may be destroyed to the extent of not less than
thirty-three and one-third percent (33-1/3%) of the replacement cost
thereof, Lessor may elect to terminate this Lease, whether the Premises be
injured or not.
20. INVOLUNTARY TERMINATION
If at the date fixed as the commencement of the term of this
Lease, or if at any time during the term hereby demised, there shall be
filed by or against Lessee in any court pursuant to any statute, either
the United States or of any State, a petition in bankruptcy or insolvency
or for reorganization or for the appointment of a receiver or trustee of
all or a portion of Lessee's property, and within thirty (30) days thereof
Lessee fails to secure a discharge thereof, or if Lessee makes an
assignment for the benefit of creditors or petitions for or enters into an
arrangement, this Lease, at the option of Lessor, exercised within a
reasonable time after notice of the happening of any one or more of such
events, may be cancelled and terminated, in which even neither Lessee nor
any person claiming through or under Lessee by virtue of any statute or
any order of any court shall be entitled to possession or to remain in
possession of the Premises demised, but shall forthwith quit and surrender
the Premises; and Lessor, in addition to the other rights and remedies
Lessor has by virtue of any other provision contained in this Lease or by
virtue of any statute or rule of law, may retain as liquidated damages any
rent, security deposit or monies received by it from Lessee or others on
behalf of Lessee.
21. INABILITY TO PERFORM
This Lease and the obligation of Lessee to pay rent hereunder
and perform all of the other covenants and agreements hereunder on the
part of Lessee to be performed shall in no way be affected, impaired or
excused because Lessor is temporarily unable to fulfill any of its
obligations under this Lease or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed
in making any repairs, additions, alterations, or decorations or is unable
to supply or is delayed in supplying any equipment or fixtures, if Lessor
is prevented or delayed from doing so by reason of an act of God, strike,
labor troubles or any outside cause whatsoever, including but not limited
to riots and civil disturbances or governmental preemption in connection
with a national emergency or by reason of any rule, order or regulation of
any department or subdivision thereof of any government agency or by
reason of the conditions of supply and demand which have been or are
affected by way or other emergency. Lessor agrees to use due diligence in
attempting to correct such default and to attempt to reinstitute any
service which it is obligated to provide within a reasonable period of
time.
22. RIGHT OF LESSOR TO PERFORM
Except as otherwise contained herein, or unless otherwise agreed
to in writing by the parties, all covenants and agreements to be performed
by Lessee under any of the terms of this Lease shall be performed by
Lessee at Lessee's sole cost and expense and without abatement of rent.
If the Lessee shall fail to pay any sum of money, other than rent,
required to be paid by it hereunder, or shall fail to perform any other
act on its part to be performed hereunder and such failures shall continue
for twenty (20) days after notice thereof by the Lessor, the Lessor may,
but shall not be obligated to do so, and without waiving or releasing the
Lessee from any obligations of the Lessee, make any such payment or
perform any such other act on the Lessee's part to be made or performed as
in this Lease provided. All sums so paid by Lessor and all necessary
incidental costs together with interest thereon at the rate of eighteen
percent (18%) per annum, or the prime interest rate as charged by Citibank
of New York plus six percent (6%), whichever interest rate is greater,
from the date of such payment by the Lessor shall be payable to the Lessor
by Lessee on demand, and the Lessee covenants to pay such sums, and the
Lessor shall have (in addition to any other right or remedy of the Lessor)
the same rights and remedies in the event of the nonpayment thereof by the
Lessee as in the case of default by the Lessee in the payment of rent.
23. DEFAULT
(a) In the event Lessee fails to observe, keep or perform any
of the terms, covenants, agreements or conditions of this Lease, and such
breach is not cured within ten (10) days after the giving of written
notice by Lessor of such breach, except in the event of a breach for the
failure to pay rent or any other sum due Lessor from Lessee under this
Lease in which case no such notice shall be required, or in the event of
Lessee's insolvency or liquidation, then Lessor, besides other rights or
remedies it may have, shall have the immediate right of reentry and may
remove all persons and property from the Premises, such property may be
removed and stored in any other place in the building in which the
Premises are situated or in any other place, for the account of and at the
expense and at the risk of Lessee. In the event Lessee shall not
immediately pay the cost of storage of such property after Demand
therefore by Lessor, Lessor may sell any or all thereof at a public
auction or private sale in such manner and at such times and places, as
Lessor in its sole discretion may deem appropriate without notice to or
demand upon Lessee. Lessee hereby releases Lessor from all claims for
damages which may be caused by Lessor's reentry and taking possession of
the Premises or removing or storing the furniture and property as herein
provided. Lessee further agrees that it will save and hold Lessor
harmless from any loss, costs or damages occasioned Lessee thereby and no
such reentry shall be considered to be a forcible entry. Lessor shall
also have the right to the entire amount of all Rent (and estimated
Additional Rent for the remainder of the Lease Term as determined by
Lessor) which would have become due and payable during the remainder of
the Lease Term to be due and payable immediately, in which event Lessee
agrees to pay the same to Lessor immediately. Such payment shall
constitute payment in advance of the Minimum Rent and Additional Rent
stipulated for the remainder of the Lease Term. Acceptance by Lessor of
the payment of such amounts shall not constitute a waiver of any then
existing default not entirely cured by the tender of such amounts or any
default thereafter occurring.
(b) Should Lessor elect to reenter, as herein provided, or
should it take possession pursuant to legal proceedings or pursuant to any
notice provided for by law, it may either terminate this Lease, or it may
from time to time, without terminating this Lease, relet said Premises or
any part thereof in a reasonable fashion and for such term or terms and at
such rental or rentals and upon such other terms and conditions as Lessor
in its sole discretion may deem advisable, with the right to make
alterations and repairs to said Premises. Rentals received by Lessor from
such reletting shall be applied as follows: first, to the payment of any
indebtedness, other than rent, due hereunder from Lessee to Lessor;
second, to the payment of any cost of reletting; third, to the payment of
the cost of any alterations and repairs to the Premises; fourth, to the
payment of rent due and unpaid hereunder; and the residue, if any, shall
be held by Lessor and applied in payment of future rent as the same may
become due and payable hereunder. Should such rentals received from such
reletting during any month be less than that agreed to be paid during that
month by Lessee hereunder then Lessee shall pay such deficiency to Lessor.
Such deficiency shall be calculated and paid monthly. Under no
circumstances shall Lessor be entitled to the collection of rent from both
Lessee and another subsequent Lessee.
(c) No such reentry or taking possession of said Premises by
Lessor shall be construed as an election on its part to terminate this
Lease unless a written notice of such intention be given to Lessee, or
unless the termination thereof be decreed by a court of competent
jurisdiction. Should Lessor at any time terminate this Lease for any
breach, in addition to any other remedy it may have, it may recover from
Lessee all damages incurred including the rent reserved in this Lease for
the remainder of the stated term.
(d) No payments of money by the Lessee to the Lessor after the
termination of this Lease, in any manner, or after the giving of any
notice (other than a demand for the payment of money) by the Lessor to the
Lessee, shall reinstate, continue or extend the term of this Lease or
affect any notice given to the Lessee prior to the payment of such money,
it being agreed that after the service of notice or the commencement of a
suit or after final judgment granting the Lessor possession of said
Premises, the Lessor may receive and collect any sums of money whether as
rent or otherwise, the receipt of which shall not constitute a waiver of
said notice, or in any manner affect any pending suit or any judgment
theretofore obtained.
24. NON-PAYMENT OF RENT AND OTHER AMOUNTS DUE
If the rent due from Lessee to Lessor hereunder is paid later
than the 5th day of the month when due, a late fee will be charged
calculated at the rate of fifteen percent (15%) of the months Rent then
due or $50.00 whichever is greater, but the payment of such fee shall not
excuse or cure any default by Lessee under this Lease.
25. HOLDING OVER
If Lessee shall remain in possession of the Premises after
expiration of the term of this Lease, or any extension thereof, without
written agreement as to such possession, then Lessee shall be a tenant
from month-to-month at a monthly rental equal to one and one-half (1-1/2)
times the highest monthly rate provided for herein. The rental shall be
paid in advance on the first day of each month during such hold over term.
Such tenancy shall continue until terminated by Lessor or until Lessee
shall have given Lessor a written notice at least one (1) month prior to
the date of termination of such monthly tenancy of its intention to
terminate such tenancy. Such holding over shall not constitute an
extension of this Lease.
26. ATTORNEY'S FEES
In case suit shall be brought for an unlawful detainer of the
said Premises for the recovery of any rent due under the provisions of
this Lease, or because of the breach of any other covenant herein
contained, on the part of Lessee to be kept or performed, Lessee shall pay
to Lessor all reasonable attorney's fees, in the event Lessor prevails in
said litigation. In the event Lessee shall bring suit for breach of
Lessor's covenants herein contained and shall prevail therein, or shall
prevail in a suit brought by Lessor as herein provided, Lessor shall pay
to Lessee all reasonable attorney's fees.
27. WAIVER
The waiver by either party of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of such
term, covenant or condition of any subsequent breach of the same, or any
other term, covenant or condition herein contained. The acceptance of
rent hereunder shall not be construed to be a waiver of any breach by
Lessee of any term, covenant or condition of this lease, regardless of
Lessor's knowledge of such breach at the time of acceptance of the rent.
It is understood and agreed that the remedies herein given to the parties
shall be cumulative, and the exercise of any one remedy by a party shall
not be the exclusion of any other remedy.
28. NOTICE
Any notice from Lessor to the Lessee or from the Lessee to the
Lessor shall be deemed duly served if mailed by registered or certified
mail, addressed to the Lessee at said Premises, or to a place Lessee may
designate in writing from time to time, whether or not Lessee has departed
from, vacated or abandoned the Premises, or to the Lessor at the place
from time to time established for the payment of rent, and the customary
registered or certified mail receipt shall be conclusive evidence of such
service.
29. SUBLETTING AND ASSIGNMENT
Lessee shall not either voluntarily, or by operation of law,
sell, assign, transfer, mortgage, pledge, hypothecate or encumber the
Premises or Lessee's leasehold interest therein, and shall not sublet the
Premises or any part thereof, or any right or privilege appurtenant
thereto, or allow any other person (the employees, agents, servants and
invitees of Lessee excepted) to occupy or use said Premises, or any
portion thereof, without first obtaining the written consent of Lessor
such consent shall not be unreasonably withheld. Any change in the name
under which Lessee is doing business shall require prior notification to
Lessor. Any transfer by operation of law, sale or other transfer of
greater than fifty percent (50%) of the stock of Lessee, if Lessee is a
corporation, or transfer of any general partnership interests in Lessee if
Lessee is a partnership, or a transfer of all or substantially all of
Lessee's assets, shall constitute a prohibited assignment within the
meaning of this Article 29. A consent by Lessor to any assignment,
subletting, occupation or use by any other person shall not be deemed to
be a consent to any subsequent assignment, subletting, occupation or use
by any other person. Consent to any such assignment or subletting shall
in no way relieve Lessee of any liability under this Lease. Any such
assignment or subletting without Lessor's consent shall be void, and
shall, at the option of the Lessor, constitute a Lessee Default under the
terms of this Lease. Lessee shall give Lessor at least thirty (30) days
prior notice of any such request which notice shall include the name and
address of the proposed assignee or subtenant, all financial information
available with respect to said proposed party and any other documentation
reasonably required by Lessor.
In the event that Lessor shall consent to a sublease or
assignment hereunder, Lessee shall pay Lessor a fee of Two Hundred Fifty
and 00/100 Dollars ($250.00).
30. SUBORDINATION
This Lease is subject and subordinate to all ground and
underlying leases, mortgages, and deeds of trust which now or hereafter
may affect the real property of which the Premises form a part or affect
the ground or underlying leases, and to all renewals, modifications,
consolidations, replacements and extensions thereof. It is further agreed
that this Lease may, at the option of the Lessor, be made subordinate to
any ground or underlying leases, mortgages or deeds of trust which may
hereafter affect the real property of which the Premises form a part or
affect the ground or underlying leases, and that Lessee, or its successors
in interest, will execute and deliver upon the demand of Lessor any and
all reasonable instruments desired by Lessor subordinating in the manner
requested by Lessor this Lease to such lease, mortgages or deeds of trust.
Lessor shall obtain the agreement of the holder of any such superior
interest not to disturb Lessee's possession of the premises except in
accordance with the terms of this Lease.
31. ESTOPPEL
Lessee shall, from time to time, upon not less than ten (10)
days prior written notice from the Lessor, execute, acknowledge and
deliver to the Lessor a statement in writing certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the dates to which rental and
other charges are paid in advance, if any, and acknowledging that there
are not, to Lessee's knowledge, any uncured defaults on the part of Lessee
hereunder, or specifying such defaults if they are claimed. It is
expressly understood and agreed that any such statement may be relied upon
by any prospective purchaser, encumbrancer or subtenant, on all or any
portion of the real property of which the Premises are a part. The
failure of Lessee to deliver such statement within such time shall be
conclusive upon Lessee that this Lease is in full force and effect, and
that there are no uncured defaults in the performance hereunder and that
not more than one (1) months' rental has been paid in advance by Lessee.
If Lessee fails to execute and deliver such statement within such ten (10)
day time period, then Lessor may execute, acknowledge and deliver such
statement on behalf of Lessee, and Lessee hereby appoints Lessor its true
and lawful attorney-in-fact for such purpose. This power of attorney is
coupled with an interest, shall be irrevocable, and shall not be affected
by the disability of Lessee.
32. RELOCATION OF PREMISES
(a) CONDITIONS. For the purpose of maintaining an economical
and proper distribution of tenants throughout the building acceptable to
Lessor and/or affecting the expansion or reconstruction of the building,
Lessor shall have the right from time to time during the term of this
Lease to relocate the Lessee in the building or to another building
acceptable to Lessee subject to the following terms and conditions:
i. The rentable area of the new location shall be no less
than equal size to the Premises, provided the amount of rent payable under
this Lease does not increase;
ii. Lessor shall pay the cost of providing tenant
improvements in the new location comparable to the tenant improvements in
the Premises to the reasonable satisfaction of the Lessee; and
iii. Lessor shall pay the expenses reasonably incurred by
Lessee in connection with such relocation of Premises, including but not
limited to costs of moving, door lettering, telephone relocation and
reasonable quantities to match the stationery used by Lessee prior to such
relocation.
(b) NOTICE. Lessor shall deliver to Lessee written notice of
Lessor's election to relocate the Lessee, specifying the new location and
the amount of rent payable therefore at least thirty (30) calendar days
prior to the effective date of the relocation. If the relocation of the
Premises is not acceptable to Lessee, Lessee for a period of ten (10)
calendar days after receipt of Lessor's notice to relocate shall have the
fight to terminate this Lease effective thirty (30) calendar days after
delivery of written notice to Lessor. Lessee shall give such notice of
its intent to terminate the Lease in writing to Lessor.
33. MISCELLANEOUS PROVISIONS
(a) The words "Lessor" and "Lessee" as used herein shall
include the plural as well as the singular. Words used in masculine
gender include the feminine and neuter. If there be more than one Lessee,
the obligations hereunder imposed upon Lessee shall be joint and several.
The titles to the paragraphs of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any
part hereof
(b) Time is of the essence of this Lease, and each and all of
its provisions.
(c) Submission of this instrument for examination or signature
by Lessee does not constitute a reservation of or option for lease, and it
is not effective as a lease or otherwise until execution and delivery by
both Lessor and Lessee.
(d) Exhibits, clauses, plats, and riders, if any, signed by
Lessor and Lessee and endorsed on or affixed to this Lease are a part
hereof, and in the event of variation or discrepancy, the duplicate
original hereof, including such clauses, plats and riders, if any, held by
Lessor shall control. Rules and Regulations attached hereto are hereby
specifically made a part of this Lease, whether signed by Lessee or not.
(e) Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof, and such other provisions shall remain in full
force and effect.
(f) This Lease contains the entire agreement between the
parties and any agreement hereafter made shall be ineffective to change,
modify or discharge it in whole or in part, unless such agreement is in
writing and signed by the party sought to be charged.
(g) This Lease shall be governed by and construed pursuant to
the laws of the State of Colorado.
(h) Lessee hereby grants Lessor permission to obtain from time
to time investigative consumer reports to ascertain the credit worthiness
of Lessee and Lessee's guarantors, if applicable.
34. SUCCESSORS AND ASSIGNS
The covenants and conditions herein contained shall, subject to
the provisions as to assignment, apply to and bind the heirs, successors,
executors, administrators and assigns of the parties hereto and all of the
parties hereto shall be jointly and severally liable hereunder.
35. BUILDING NAME
Lessee agrees that Lessor may at any time during the term of
this Lease change the name of the building.
36. ADA COMPLIANCE
Lessee shall not cause or permit any violation of the Americans
with Disabilities Act (the "ADA") to occur upon or about the Premises by
Lessee, its agents, employees, contractors or invitees. Lessee shall
indemnify, defend and hold Lessor harmless from any and all claims,
judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the Premises,
damages for the loss or restriction of use of rentable or usable space or
of any amenity of the Premises, damages arising from any adverse impact on
marketing of space of the Premises, and sums paid in settlement of claims,
attorney's fees, consultation fees and expert fees) which arise during or
after the term as a result of such violation. This indemnification of
Lessor by Lessee includes, without limitation, costs incurred in
connection with any investigation of site conditions or any remedial work
required by any federal, state or local governmental agency or political
subdivision because of any ADA violation present on or about the Premises.
Lessee shall be permitted to make such alterations to the Premises as may
be necessary to comply with the ADA, at Lessee's sole expense and upon the
prior written consent of Lessor. Without limiting the foregoing, if the
presence of any ADA violation on the Premises caused or permitted by
Lessee results in remedial work on the Premises, Lessee shall promptly
take all actions at its sole expense as are required by any federal, state
or local governmental agency or political subdivision to comply with the
ADA; provided that Lessor's consent to such actions shall first be
obtained. Lessor's consent under this section shall not be unreasonably
withheld.
37. CORPORATE AUTHORIZATION
If Lessee is a corporation, each individual executing this Lease
on behalf of said corporation represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said corporation
in accordance with a duly adopted resolution of the Board of Directors of
said corporation and that this Lease is binding upon said corporation in
accordance with its terms. Lessee agrees to provide Lessor with such a
resolution within five (5) days of the execution of this Lease.
38. EXHIBITS
See Exhibits "A", "B", "C", "D" and "E" attached hereto and
incorporated herein by reference.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the
day and year first above written.
LESSEE: LESSOR:
SIGMACOM CORPORATION, TTD ASSOCIATES,
a Colorado corporation a Colorado Limited Liability Company
By: Warren Lortie Investments,
By: /s/ Craig E. Lassen Managing Member
- ------------------------
Craig E. Lassen By: /s/ Warren H. Lortie
Title: President --------------------------------
Warren H. Lortie
Its: President
BUSINESS LOAN AGREEMENT
BETWEEN
U.S. BANK NATIONAL ASSOCIATION
AND
NETWORK ACQUISITIONS, INC.
The undersigned, jointly and severally if more than one (herein called
"Borrower"), hereby warrants, covenants and agrees with U.S. BANK NATIONAL
ASSOCIATION (herein called "Bank"), as follows:
1. BORROWING
In consideration of the mutual promises herein contained and in
reliance upon the representations and warranties herein subject to
the terms and conditions hereof, Bank does hereby commit or loan to
Borrower, and Borrower acknowledges the following described
indebtedness to Bank currently outstanding or which may be hereafter
advanced:
$600,000.00 Revolving Line of Credit
2. REPAYMENT
Borrower promises and agrees to repay the Loan and all other
Indebtedness (as hereinafter defined) of Borrower to Bank with
interest in accordance with the terms and conditions of the
promissory note or notes (herein called the "Note") executed by
Borrower on even date herewith and any extensions or renewals
thereof, it being agreed that all Indebtedness not evidenced by such
Note shall be payable by Borrower to Bank upon demand.
3. COLLATERAL
As collateral for the Indebtedness to Bank, the Borrower grants to
the Bank a security interest in the following:
a) Three (3) Certificates of Deposits issued by U.S. Bank National
Association as follows:
CERTIFICATE NUMBER AMOUNT NAME
--------------------------- ----
394311236639 20,000.00 Network Acquisitions, Inc.
------------ ---------- --------------------------
394311236738 100,000.00 Fairway Realty Associates
------------ ---------- -------------------------
394311236688 300,000.00 William M.B. Berger Living Trust
------------ ---------- ---------------------------------
b) Two Letters of Credit for the benefit of U.S. Bank National
Association as follows:
ISSUER ............. AMOUNT
------ ------
Peninsula Bank of San Diego $100,000.00
--------------------------- -----------
Marathon National Bank of New York $100,000.00
---------------------------------- -----------
4. AFFIRMATIVE COVENANTS
So long as any part of the Indebtedness to Bank remains unpaid,
Borrower will:
a) Carry on and conduct its business in substantially the same
manner and in substantially the same fields as such business is
now and has heretofore been carried on, and maintain its legal
existence and comply with all valid and applicable statutes,
rules and regulations.
b) Maintain a system of bookkeeping and accounting in accordance
with generally accepted accounting principles.
c) Maintain executive management reasonably acceptable to the Bank
and give notice to the Bank of any changes thereof.
d) Furnish to Bank such other information as Bank may reasonably
request, and allow Bank, by or through its officers, agents,
attorneys or accountants, to examine and inspect the books and
records of the Borrower and to make abstracts and copies thereof
and to visit and inspect any of the property of the Borrower.
e) File all Federal, State and other tax and similar returns and
has paid, or provided for the payment of, all taxes and
assessments due thereunder through the current date, including
all withholding, FICA, franchise and other taxes and will
continue to file and pay, or provide for the payment of, such
returns and taxes before any penalties are imposed, except where
the validity of any tax is being diligently contested in good
faith. Borrower's Federal income tax returns have been accepted
as filed by the Internal Revenue Service and there are no unpaid
deficiency assessments for any taxes payable now or for any
prior years.
f) Maintain all of Borrowers depository accounts and balances with
U.S. Bank National Association.
g) If, in the banks opinion, the financial condition of the banks
issuing any of the Letters of Credit pledged as collateral for
this Loan deteriorates, the Borrower will be required to a)
substitute collateral acceptable to the Bank or b) pay down the
Loan to a balance acceptable to the Bank. At that time, the
Bank will reduce the availability of the Revolving Line of
Credit accordingly.
h) Comply in all material respects, with all applicable laws,
rules, regulations and orders of any government authority, non-
compliance with which would materially adversely affect its
business or credit.
5. REPORTING REQUIREMENTS:
a) Borrower agrees to furnish to the Bank, the following:
i) Within sixty (60) days after the end of each quarter:
a) For that period and fiscal year to date, a balance
sheet and statement of income and expenses in a format
acceptable to Bank.
ii) Within ninety (90) days after the Borrowers fiscal year
end:
a) CPA audited financial statements.
6. NEGATIVE COVENANTS.
a) So long as any part of the Indebtedness to Bank remains unpaid,
Borrower will not, without Bank's prior written consent:
i) Invest in, organize or participate in the organization of
any other business entity or merge, consolidate with or
into any other corporation or entity;
ii) Pay or declare any dividends; or
iii) Incur, assume, or permit any liability to exist for
borrowed money except from Bank, or incur, assume or permit
any other debts outside of the ordinary course of business
or loan money to, or guarantee or otherwise become in any
way liable for the obligations of, a firm, person or
corporation.
iv) Engage in any line of business substantially different from
the current business.
7. ENVIRONMENTAL PROVISIONS.
a) The Borrower shall carry on the business and operations at the
property to comply in all respects, and will remain in
compliance, with all applicable federal, state, regional, county
or local laws, statutes, rules, regulations or ordinances,
concerning public health, safety or the environment including,
without limitation,
i) laws or regulations relating to releases, discharges,
emissions or disposals to air, water, land or groundwater,
ii) to the withdrawal or use of groundwater,
iii) to the use, handling or disposal of polychlorinated
biphenyls (PCB's), asbestos or urea formaldehyde,
iv) to the treatment, storage, disposal or management of
hazardous substances (including, without limitation,
petroleum, its derivatives, by-products or other
hydrocarbons), and any other solid, liquid or gaseous
substance, exposure to which is prohibited, limited or
regulated, or may or could pose a hazard to the health and
safety of the occupants of the Side and Facility or the
property adjacent to or surrounding the Site,
V) to the exposure of persons to toxic, hazardous, or other
controlled, prohibited or regulated substance,
vi) to the transportation, storage, disposal, management or
release of gaseous or liquid substances, and any
regulation, order, injunction, judgment, declaration,
notice or demand issued thereunder.
b) Bank's obligation to advance funds on a line of credit or other
open ended credit arrangement will terminate upon the occurrence
of a breach of any provision of this Section. Borrower agrees
to indemnify and hold harmless Bank, its assigns, successors,
and grantees against any and all claims and losses resulting
from a breach of this Section and Borrower will pay or reimburse
Bank for all costs and expenses for expert opinions or
investigations required or requested by Bank in Bank's sole
discretion, to insure compliance with this Section. This
obligation to indemnify shall survive the payment of the
Indebtedness of Borrower to Bank.
8. EVENTS OF DEFAULT.
a) Upon the occurrence of any of the following events, Bank, may,
at its option and upon notice to Borrower, declare the principal
of and interest on any Note of Borrower and all Indebtedness of
Borrower then remaining unpaid to be immediately due and
payable, all without demand, presentment or other notice of any
kind, which are hereby expressly waived:
i) Non-payment of any principal or interest on its
Indebtedness to Bank or material non-contested liability to
others when and as the same shall have come due and
payable, whether at maturity, by acceleration or otherwise.
ii) Failure to promptly perform and observe the covenants,
terms and conditions hereof, in the application relative
thereto, or of any statement, warranty or representation
made herein, or in any agreement, application, or writing
made or executed and delivered to Bank in connection
herewith is or proves to be untrue or misleading in any
material respect.
iii) Borrower's adjudication as a bankrupt, or if it makes any
general assignment for the benefit of creditors, or the
institution by or against it of any type of insolvency
proceeding or of any proceeding for the liquidation or
winding up of its affairs, or the appointment of a receiver
or trustee for Borrower or for any of its assets, or the
approval of a properly filed petition for its
reorganization under the Bankruptcy Act or other similar
act, or the filing of any petition by Borrower for an
arrangement under Chapter XI of the Bankruptcy Act or other
similar act, except that institution of an insolvency
proceeding against Borrower will not be a default if
dismissed within 45 days..
iv) Termination or dissolution of Borrower.
v) If the Bank in good faith believes that the prospect of
prompt payment of Indebtedness in full as and when due or
the full performance of Borrower's obligations by Borrower
is impaired.
vi) If any of the Letters of Credit that have been pledged as
collateral for this loan are not renewed.
vii) The occurrence of any event described in Section 8 a) i),
ii), iii), iv), v) or vi) hereof with respect to any
endorser or guarantor or any other party liable for payment
of Borrower's Indebtedness to Bank.
9. MISCELLANEOUS
a) As used herein "Indebtedness" means and includes:
i) all Indebtedness and liabilities of whatsoever kind, nature
or description owed to Bank by Borrower, whether direct or
indirect, absolute or contingent due or to become due,
whether now existing or acquired, whether joint, joint and
several, or several, and
ii) all costs and expenses incurred by Bank in the protection,
preservation, enforcement and collection of any of the
foregoing, including, without limitation, attorney's fees.
b) In all cases where the context and construction so require, all
words used in the singular shall be deemed to have been used in
the plural, and words phrased in one gender shall included all
genders.
c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, their respective heirs, representatives,
successors, and assigns.
d) The laws of the State of Colorado shall govern this Agreement
and all rights and obligations hereunder, including matters of
construction, validity and performance.
e) No course of dealing on the part of the Bank, its officers or
employees, nor any failure or delay by Bank with respect to the
exercise of any right, power or privilege by Bank under this
loan agreement shall operate as a waiver thereof, and any single
or partial exercise of any such right, power or privilege shall
not preclude any later exercise thereof or any exercise of any
other right, power or privilege hereunder. No waiver or default
shall be effective unless in writing, signed by an officer of
the Bank. No waiver of any default or forbearance on the part
of Bank in enforcing any of its rights under this loan agreement
shall operate as a waiver of any other default or right or of
the same default or right on a future occasion.
f) If there is any conflict between this Agreement and the
Additional Provisions contained in the Note, this Agreement
controls.
Signed and sealed by Borrower this 18th day of January, 1999.
NETWORK ACQUISITIONS, INC.
7475 Dakin Street, Suite 607
Denver, Colorado 80221
BY: /s/ Craig E. Lassen
Craig E. Lassen, CEO
U.S. BANK NATIONAL ASSOCIATION
8401 East Belleview Avenue
Denver, CO 80237
BY: /s/ Ralph P. Atkinson
Ralph P. Atkinson
Vice President
PROMISSORY NOTE
---------------
FOR BANK USE ONLY
Initial Rate:
Scheduled Maturity:
Note No.:
This Note renews/replaces Note
No.
Dated:
Officer Approval: /s/
(Single/Multiple Advance - Single Pay/Demand/Installment - Commercial/
Construction/Agricultural)
MAY 31, 1998 DENVER, CO
-------------- ------------------------------
Note Date City, State where Bank located
For value received, the undersigned (if more than one, jointly and
severally, the "Borrower") promises to pay to the order of U.S. BANK
NATIONAL ASSOCIATION (The "Bank"), its successors and assigns, at the
Bank's office at 918 17TH STREET, DENVER, CO 80202, or at any other place
designated in writing by the Bank or any subsequent holder hereof (the
"Holder"), in lawful money of the United States of America, the principal
sum of SIX HUNDRED THOUSAND AND NO/100 Dollars ($600,000.00) or so much
thereof as has been advanced and remains outstanding hereunder on the
Maturity Date, as shown by the Holder's books and records, together with
interest at a rate described below (calculated on the basis of actual days
elapsed and a 360-day year) on the unpaid principal hereof, from time to
time outstanding, from the date hereof until this Promissory Note ("Note")
is fully paid, as follows:
A. INTEREST RATE:
[--] A fixed annual rate of ----------%.
[XX] A variable annual rate equal to the Reference Rate plus 1.50% (The
term "Reference Rate" means the rate determined and announced from
time to time as U.S. Bank National Association's Reference Rate. The
Bank may lend to its customers at rates that are at, above, or below
the Reference Rate).
[--] A variable annual rate equal to the Prime Rate ------------------
(The term "Prime Rate" means the highest rate published from time to
time in the WALL STREET JOURNAL as the Prime Rate. If a range of
rates is so published, the Holder may choose any rate within the
range.).
[--] Other ---------------------------------------------------------------
-------------------------------------------------------------------
If the index used to compute a variable rate ceases to be available, the
Holder may choose a comparable successor index.
If this Note bears interest at a variable rate, the annual rate of
interest hereon shall never exceed the highest rate permitted by
applicable law; and the rate of interest shall be determined initially as
of the date hereof and thereafter shall be adjusted when and as the index
changes.
B. PAYMENTS:
[--] Principal and interest shall be paid in a single payment on ---------
------------------ ("Maturity Date").
[XX] Principal shall be paid in a single payment: [--] on demand or [X]
on 01/31/99 ("Maturity Date"); interest shall be paid [X]]monthly or
[--] quarterly or [--]--------------------- commencing on 06/30/98,
and continuing on the same day of each successive month/quarter/MONTH
(as applicable) thereafter with a final payment of all unpaid
interest at the time of payment of the principal.
[--] Principal shall be paid in ----------------------------- (---) equal
[--] monthly, [--] quarterly, [--] semi-annual or[--] annual
installments of $---------- each, commencing on ---------------, and
continuing on the same day of each successive month/quarter/six
months/year (as applicable) thereafter, with a final payment of all
unpaid principal on ------------------ ("Maturity Date"); interest
shall be paid [--] monthly or [--] quarterly or [--] --------------
commencing on ---------------------, and continuing on the same day
of each successive month/quarter/ -------------(as applicable)
thereafter until the final payment of all unpaid principal is
received.
[--] Principal and interest shall be paid in ------------ (------) equal [-
-] monthly, [--] quarterly, [--] semi-annual, or [--] annual
installments of $------------ each, commencing on ------------, and
continuing an the same day of each successive month/quarter/ six
months/year (as applicable) thereafter with a final payment of all
unpaid principal and interest on ------------ ("Maturity Date").
The Bank may charge the Borrower's Account No. ------------ maintained
with the Bank for payments of [--] interest only, or [--] principal and
interest due under this Note.
All principal and interest due but not paid on the Maturity Date shall
bear interest at a rate of interest five percent (5%) per annum in excess
of the rate otherwise applicable to this Note on the Maturity Date, unless
applicable law limits the rate of interest which may be charged after the
Maturity Date, in which event unpaid principal shall bear interest after
the Maturity Date at the rate in effect on the Maturity Date.
C. MISCELLANEOUS:
[XX] To the extent the Bank has agreed in a separate written agreement,
amounts repaid may be readvanced to the Borrower and be evidenced by
this Note.
[XX] This Note is secured. [--] This Note Is guaranteed.
The Bank has no obligation to renew, modify or extend this Note.
Purpose:
[--] This Note evidences a construction loan in accordance with C.R.S. 4-9-
313(l)(c).
[XX] Other: WORKING CAPITAL
OTHER TERMS:
[--] This Note Is delivered in connection with a certain written agreement
dated ---------------------.
[XX] (2) LETTERS OF CREDIT AND (3) U.S. BANK NATIONAL ASSOCIATION BANK
TCD'S
JURY TRIAL WAIVER. THE BANK AND THE BORROWER EACH IRREVOCABLY WAIVES ITS
RIGHT TO A JURY TRIAL IN ANY ACTION OR PROCEEDING OF ANY ISSUE, CLAIM,
COUNTERCLAIM OR OTHER CAUSE OF ACTION, WHETHER IN CONTRACT OR TORT, BASED
UPON OR ARISING OUT OF THIS NOTE, THE DEBT EVIDENCED HEREBY, ANY
COLLATERAL PROPERTY SECURING SUCH DEBT, OR ANY OTHER AGREEMENT OR DEALINGS
RELATING TO THIS NOTE OR SUCH DEBT.
THIS NOTE IS SUBJECT TO THE ADDITIONAL PROVISIONS
SET FORTH ON THE SECOND PAGE HEREOF.
CAVION TECHNOLOGIES, INC.
/s/ Craig E. Lassen (Its) CEO
- ----------------------------------
Address 7475 DAKIN STREET
of Borrower DENVER, CO 80221
ADDITIONAL PROVISIONS
---------------------
Prepayment
- ----------
So long as this Note bears interest at a variable rate, it may be
prepaid in whole or in part at any time. Unless otherwise agreed to in
writing by the Holder, any prepayment shall be applied first to unpaid
accrued interest with the remainder applied to reduction of principal,
and, if principal is payable in installments, shall be applied to
principal in the inverse order of maturities. If the demand feature of
this Note does not apply and this Note bears interest at a rate that is
fixed or based upon multiple fixed rate advances, this Note or any fixed
rate advance hereunder may only be prepaid with the prior written consent
of the Holder. The Holder may impose a prepayment charge as a condition
for granting such consent.
Holidays
- --------
Any extension of time for the payment of the principal of this Note
resulting from the Maturity Date failing on a Saturday, Sunday or legal
holiday shall be included in the computation of interest.
Default
- -------
If payments of principal or interest hereon are not paid when due; or
if any other indebtedness of the Borrower, or of any guarantor, endorser
or surety hereof (an "Accommodator"), to the Holder is not paid when due;
or if a garnishment summons or a writ of attachment or levy is issued
against or served upon the Holder for the attachment of any property of
the Borrower or an Accommodator in the Holder's possession or any
indebtedness owing by the Holder to the Borrower or an Accommodator; or if
the Borrower or an Accommodator shall submit to the Holder any credit
application or financial statement containing information which shall
prove to be incorrect in any material respect when submitted; or if the
Borrower or an Accommodator shall fail to provide annual financial
statements upon request; or if the Borrower shall fail to pay when due any
indebtedness the Borrower may owe to others for money borrowed; or if the
Borrower or an Accommodator shall violate any terms of any mortgage,
security agreement or guaranty securing this Note, including any "due on
sale" clause, or of any other agreement relating to this Note; or if the
Holder shall at any time in good faith believe that the prospect of due
and punctual payment of this Note is impaired, THEN, in any such event,
the Holder may, at its option, declare this Note to be immediately due and
payable and thereupon this Note shall be immediately due and payable,
together with all unpaid interest accrued hereon, without notice or
demand; provided, however, that if this Note is payable upon demand,
nothing herein contained shall preclude or limit the Holder from demanding
payment of this Note at any time and for any reason, without prior notice.
This Note shall also become automatically due and payable (together
with unpaid interest accrued hereon) without notice or demand should the
Borrower or any Accommodator die (if an individual), or should a petition
be filed by or against the Borrower or an Accommodator under the United
States Bankruptcy Code or any other law relating to insolvency,
reorganization, receivership or relief of debtors.
Cost, Setoff
- ------------
If this Note is not paid on the Maturity Date or any event occurs
that would entitle the Holder to declare this Note to be immediately due
and payable, the Borrower and each Accommodator agree to pay all costs of
collection, including reasonable attorney fees, where not prohibited by
state law. Any sums credited by or due from the Holder to the Borrower or
any Accommodator and any other property of any Borrower or any
Accommodator in the Holder's possession may at all times be held and
treated as collateral security for the payment hereof. The Holder shall
have the right to setoff the indebtedness evidenced by this Note against
any indebtedness of the Holder to the Borrower or to an Accommodator.
Waivers
- -------
The Holder may at any time renew or modify this Note, extend its
Maturity Date for any period, accept partial payments, or release or
substitute any security for or any party to (including any other
Accommodator) this Note, all without notice to or consent of and without
releasing any Accommodator, or affecting their liability to the Holder.
Each Accommodator waives any and all defenses that may be available to a
surety, and any right to require the Holder to proceed against any
security for this Note prior to proceeding under this Note against any
Accommodator or the Borrower. except as said rights may otherwise be set
forth in separate instruments between Bank and any Accommodator.
Presentment or other demand for payment, protest, notice of dishonor
and notice of protest are hereby waived by the Borrower and each
Accommodator.
Miscellaneous
- -------------
The Borrower and each Accommodator agree that each provision, for
which the box immediately preceding such provision is checked, is part of
this Note and those provisions for which the relevant box is not checked
are not a part of this Note.
This Note shall be governed by the substantive laws of the state
COLORADO, except insofar as the Bank may rely on the laws of the United
States to justify the interest rate charged hereunder.
The unenforceability of any provision of this Note shall not affect
the enforceability or validity of any other provision hereof.
CONTRACT FOR EMPLOYMENT
Network Acquisitions, Inc., located at 7475 Dakin Street, Denver,
Colorado 80221, which is intending to acquire certain assets and
liabilities of and subsequently change its name to Cavion Technologies,
Inc., ("Cavion") (referred to herein as the "Company" and specifically
referring to Cavion, both before and after the acquisition), and David J.
Selina, 5523 South Jasper Way, Aurora, Colorado 80015 ("Employee"), in
consideration of the mutual promises made herein, enter into this contract
for employment (the "Contract"), pursuant to the following terms,
conditions, covenants, and provisions:
ARTICLE 1. EMPLOYMENT
1.1 ACCEPTANCE OF EMPLOYMENT. The Company hereby employs Employee and
Employee hereby accepts employment with the Company. The term of
this Contract will commence on the date shown on the signature page
and, subject to the further provisions of this Contract, and unless
otherwise terminated earlier, will end on December 31, 2001.
ARTICLE 2. DUTIES OF EMPLOYEE
2.1 POSITION DESCRIPTION AND DUTIES. Employee will serve as the
Company's President and Chief Operating Officer. Employee's duties
will include, but not be limited to, the following: Direct the
Company's operations and serve as a member of the Company's Board of
Directors (the "Board"); work with the Board and the senior executive
team to develop objectives, plans and policies for all Company
functions, taking into account the strategic objectives of the
Company; implement and monitor the Company's plans and policies,
including primary responsibility for meeting any defined sales,
marketing, operations and financial goals; hire, develop, supervise
and support the sales and marketing staffs and other key personnel of
the Company; manage the sales and marketing functions, including the
Company's relationships with current and potential customers;
represent the Company in key business relationships; serve as a
member of the senior executive team in planning the business and
setting the strategic direction of the Company; and perform such
other duties as reasonably are assigned by the Company's Board or
Chief Executive Officer.
2.2 TIME AND ATTENTION. Employee agrees to devote substantially all of
his working time, attention and energy to the performance of his
duties pursuant to this Contract, and to perform such duties to the
best of his ability. Employee will not engage in the business of any
other person or entity while employed by the Company.
2.3 ADHERENCE TO RULES. Employee will adhere strictly to all the
Company's rules and policies now or hereafter in effect governing the
conduct of Company employees.
2.4 OBLIGATIONS TO THIRD PARTIES. Employee warrants and represents that
he has the ability to enter into this Contract, and that he has no
contract with or obligation to any third party that would conflict,
or reasonably may conflict, with his performance under this Contract.
ARTICLE 3. COMPENSATION
3.1 BASE COMPENSATION. Employee will be paid an initial base annual
salary of $125,000.00, subject to periodic raises on the same basis
as the Company's other senior executives. Employee's base salary
will be payable in accordance with the Company's standard payroll
practice for executive employees, and will be subject to the
customary withholding tax and other employment taxes and
contributions.
3.2 COMMISSIONS. The Company will create a commission or cash bonus pool
(the "Pool") based upon the Company's business goals, as defined by
the Board, and the profitability of the Company. The Pool will be
divided among the Company's senior management, including Employee, in
proportion to their salaries on a quarterly basis. All decisions
regarding the Pool, including, without limitation, the monies
contributed to the Pool and the distribution of any monies in the
Pool, rest with the Board in its sole and absolute discretion. As a
member of the Board, Employee will abstain from any votes relating,
in any manner or form to Employee's compensation, including bonuses,
incentives or benefits.
3.3 VACATION. Employee will receive three (3) weeks paid vacation per
year, governed by the Company's rules and policies concerning
vacations, providing, however, that any unused vacation time at the
end of each calendar year shall be forfeited by the Employee and
there will be no carry-over of any vacation time from one calendar
year to the next.
3.4 GROUP HEALTH INSURANCE. As further compensation, Employee is
entitled to participate, under the terms afforded to other employees
of the Company, in any group health insurance provided by the Company
to such other employees. At any time when the Company's group health
insurance policy requires employees to pay monthly premiums for
coverage of the employee's spouse and dependents, the Company will
pay, as further compensation to employee, such monthly premiums for
family coverage on behalf of the Employee. This compensation will
take the form of additional pay added to the base compensation set
forth in section 3.1 hereinabove.
3.5 OTHER BENEFITS. Employee will be entitled to such other benefits as
the Board lawfully may adopt and approve.
ARTICLE 4. COMPANY INTELLECTUAL PROPERTY
4.1 NONSOLICITATION. Employee acknowledges that an important part of
Employee's duties will be to develop good will for the Company
through his personal contacts with others having business
relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Employee if
his employment relationship with the Company is terminated.
Accordingly, Employee agrees he will not, either directly or
indirectly:
(a) render, or offer to render, to any Company customer services of
the kind offered by the Company;
(b) solicit for employment or employ any employee of the Company; or
(c) persuade, or attempt to persuade, any Company customer or any
person or entity who has referred customers to the Company not
to do business with the Company.
As used in this section, "Company customer" includes any client or
customer of the Company, and any person or entity identified, by
Employee or otherwise, as a prospect to become a client or customer
of the Company, during the year prior to termination of Employee's
employment.
4.2 CONFIDENTIALITY. As used in this Contract, the phrase "Company
confidential information" means all information, except as excluded
in the following sentence, that: (1) Employee obtains from the
Company or learns, conceives, or creates during the term of
Employee's employment with the Company, that directly relates to the
Company's business, or (2) the Company obtains in confidence from
third parties. As used herein, "Company confidential information"
does not include (1) information made generally available to the
public, other than through Employee's actions, or (2) general skills
or experience gained by Employee during Employee's employment with
the Company.
Recognizing the foregoing definition, Employee covenants that:
(a) Employee will not, either directly or indirectly, copy, disclose
to others, use for the benefit of any person or entity other
than the Company, or otherwise appropriate any Company
confidential information, except as reasonably may be required
in the performance of Employee's duties under this Contract;
(b) Employee will protect Company confidential information from
unauthorized use or disclosure, in accordance with Company
policy; and
(c) Employee immediately will notify the Company upon discovery of
any loss, unauthorized disclosure, or unauthorized use of
Company confidential information.
4.3 WORK PRODUCT. As used in this Contract, the phrase "Company work
product" means all work products developed by Employee that (1)
result from work performed by Employee for the Company, (2) relate to
the business of the Company, (3) relate to the Company's actual or
demonstrably anticipated research or development, or (4) involve the
use of Company confidential information or Company facilities.
Recognizing the foregoing definition, Employee covenants and
acknowledges as follows:
(a) All copyrightable work products developed by Employee within the
scope of Employee's employment under this Contract are "works
made for hire." Employee further acknowledges that the Company
owns all copyrights thereto. Employee hereby assigns to the
Company any and all other rights, including, without limitation,
all patent, copyright, and trade secret rights, and all rights
to recover for infringement, Employee has or may have in all
Company work product developed by Employee, regardless of
whether or not such Company work product is patentable.
Employee has described in Exhibit "A" to this Contract, which is
incorporated herein by this reference, (1) all work products
possibly related to the Company's business in which Employee
has, or may have, rights from previous employment, and (2) any
and all of Employee's prior obligations related to intellectual
property.
(b) Employee promptly will document and disclose to the Company all
Company work product developed by Employee. Employee will
provide all reasonable assistance to the Company, at the
Company's expense, in perfecting or protecting the Company's
rights in any Company work product developed by Employee. If
Employee is not available to provide such assistance, Employee
irrevocably appoints the Company as Employee's attorney-in-fact
to perform all acts reasonably related to perfecting or
protecting the Company's rights in any Company work product
developed by Employee.
(c) Employee will not disclose to the Company, or use in any of
Employee's work, any confidential or proprietary information
belonging to others, unless both the owner and the Company have
consented, in writing, to such disclosure or use. Work
performed by Employee during the term of Employee's employment
with the Company will not knowingly infringe upon or violate any
patent, copyright, trade secret, or other property right of any
third party, including, without limitation, any former employer.
4.4 EFFECT OF TERMINATION. All Company confidential information and
Company work product is the sole property of the Company. Upon
termination of Employee's employment with the Company, for any
reason, or at any time upon request of the Company, Employee will
deliver to the Company all materials of any nature in the Employee's
possession or control which (1) contain Company confidential
information or Company work product, or (2) are otherwise the
property of the Company, or any Company supplier, client, or
strategic partner. Employee will not retain any copies of such
materials.
4.5 TERM OF OBLIGATIONS. Unless otherwise expressly set forth in this
Article, Employee's obligation to protect Company confidential
information under section 4.2 hereinabove will survive termination of
Employee's employment, for any reason, for a period of three (3)
years, or in the case of any trade secret, as long as such
information remains a trade secret. Employee's obligation to protect
Company's work product under section 4.3 hereinabove will survive
termination of Employee's employment for a period of three (3) years
(with respect to work product developed by Employee during employment
with the Company). Employee's nonsolicitation obligations under
section 4.1 hereinabove will survive termination of Employee's
employment for a period of one (1) year.
4.6 REMEDIES. Employee acknowledges that violation of this Article 4
would cause irreparable harm to the Company, for which the Company
could not be compensated adequately in damages. The Company
therefore will be entitled, in addition to any remedies otherwise
available to it, to injunctive and other equitable relief, without
the requirement that a bond be posted, to enforce, and prevent any
breach of, this Article 4.
ARTICLE 5. TERMINATION
5.1 RESIGNATION. Employee will provide the Company with a minimum of 30
days written notice of resignation.
5.2 IMMEDIATE TERMINATION. During the term of this Contract, the Company
may terminate Employee's employment at any time upon notice to
Employee, upon occurrence of any of the following events:
(a) voluntary or involuntary dissolution, liquidation, bankruptcy or
receivership of the Company;
(b) death of Employee;
(c) disability that prevents Employee from reasonably performing the
duties of the position for a period of six (6) calendar months
or an aggregate of 130 or more business days in any 12 month
period; or
(d) for cause.
As used in this section, the term "cause" includes: (1) dishonesty,
fraud, embezzlement or intentional injury or attempted injury, in
each case with respect to the Company or its business; (2) a serious
crime which reflects on Employee's suitability as an agent of the
Company or on Employee's ability to perform under this Contract; (3)
willful breach of duty, habitual neglect of duty, or failure to
perform the material duties of the position, resulting in
unsatisfactory job performance; (4) competition with the Company; or
(5) Employee's material breach of this Contract. If the Company
deems Employee to be in violation of items (3) or (5) of the
preceding sentence, Employee will receive written notice and have the
opportunity to correct the violation within 30 days. If Employee
fails to correct such violation within 30 days, Employee may be
terminated immediately.
5.3 TERMINATION AFTER NOTICE. The Company may terminate Employee's
employment at any time upon 30 days notice to Employee, provided the
Company pays severance compensation, as described in section 5.4(b)
hereinbelow.
5.4 EFFECT OF TERMINATION ON COMPENSATION.
(a) If Employee resigns, or is terminated for any of the reasons
described in section 5.2 hereinabove, Employee, or his estate,
will be entitled to compensation (as described in Article 3 of
this Contract) earned prior to the date of termination, but not
yet paid.
(b) If Employee is terminated for reasons other than those described
in section 5.2 hereinabove, Employee will be entitled to
severance compensation equal to: (1) compensation earned prior
to the date of termination, but not yet paid, plus (2) severance
pay equal to twelve months of base salary (in effect at the time
of termination).
(c) In the event of a termination following a change of control, as
defined below, Employee will be entitled to severance
compensation, as described in section 5.4(b) hereinabove. As
used herein, the phrase "termination following a change of
control" means that (1) Employee is terminated by the Company
within three (3) months after a change of control, or (2)
Employee resigns for good reason, as defined below, within three
(3) months after a change of control. As used herein, the
phrase "Change of Control" means: (1) a sale or liquidation of
substantially all of the assets or outstanding stock of the
Company, or a merger or reorganization in which the Company is
not the surviving corporation, or Contract by the Company to
enter into any such transaction; or (2) any change in the
ownership of Company shares that results in a person, entity or
group (as defined in section 13(d)(3) of the Securities Exchange
Act of 1934) holding more than 40% of the outstanding voting
shares of the Company.
Issuance of shares to executives or affiliates of the Company
under a compensatory stock grant, stock purchase or option
approved by the Board will not be considered a change of control
for this purpose.
As used in this Contract, the phrase "resigns for good reason"
means a resignation following: (1) a substantial change in
Employee's authority or responsibilities; (2) a substantial
reduction in Employee's salary or benefits; (3) failure of a
successor entity to agree to the terms of this Contract; or (4)
a requirement for the Employee to relocate.
(d) If Employee is terminated because of Employee's death or
disability, the Board, in its sole discretion, may elect to pay
to Employee or Employee's estate all or a portion of the
severance compensation described in section 5.4(b) hereinabove.
5.5 DUTIES FOLLOWING TERMINATION. Following any termination of his
employment, Employee will cooperate with the Company in the orderly
transfer of Employee's responsibilities to whomever is designated by
the Company. Employee will provide reasonable cooperation at the
Company's expense in any third party litigation or other dispute in
which the Company is a party and which relates to the period of
Employee's employment. Employee immediately will transfer all
Company property in his possession to the Company's designee.
ARTICLE 6. GENERAL PROVISIONS
6.1 NOTICES. Any notices to be given by either party to the other may be
effected in writing either by personal delivery or by registered or
certified mail, postage prepaid with return receipt requested,
addressed to the address appearing in this Contract (or any new
address of which the parties are notified in writing). Refusal to
accept delivery will be deemed receipt under this section.
6.2 DISPUTES.
(a) In the event of any dispute under this Contract, the party
claiming a dispute will give notice to the other party
describing the dispute. Both parties will make good faith
efforts to resolve the dispute informally within the Company.
If the dispute has not been resolved within 30 days after the
notice, either party may, upon notice to the other, submit the
dispute to mediation in Denver, Colorado, before a mutually
acceptable mediator. If the parties are unable to agree upon a
mediator, either party may request the appointment of a mediator
by the Center for Public Resources or any other established
dispute resolution organization.
(b) If mediation is not successful within 90 days or if either party
will not submit to mediation, either party may, upon notice to
the other, submit the dispute to binding arbitration in Denver,
Colorado, in accordance with the rules of the Center for Public
Resources, or any other established dispute resolution
organization, by a single arbitrator. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. 1-16,
and judgment upon the award may be entered by any court of
competent jurisdiction. The arbitrator will not be empowered to
award damages in excess of actual damages, but will be
empowered, but not required, to require any party to pay the
reasonable attorney fees, expert witness fees, and other
arbitration costs of any other party.
(c) Except as stated in section 4.6 hereinabove, the procedures
specified in this section will be the exclusive procedures for
the resolution of disputes relating to this Contract. However,
either party may seek preliminary judicial relief in Denver,
Colorado, to avoid irreparable damage, while continuing to
participate in good faith in mediation or arbitration. Both
parties to this Contract submit to the jurisdiction of the
binding arbitration and of any state or federal court located in
Denver, Colorado.
6.3 GENERAL MATTERS.
(a) This Contract is governed by the laws of the State of Colorado.
(b) This Contract is binding upon the personal representatives,
successors and assigns of the parties hereto.
(c) This Contract is not assignable by Employee but shall inure to
the benefit of any successor or acquirer of the Company.
(d) This Contract constitutes the entire agreement between the
parties and may not be waived or modified, except in a writing
signed by all parties to this Contract.
(e) The headings used in this Contract are for convenience only and
do not, and will not, limit the interpretation hereof.
(f) In the event any provision in this Contract is held to be
invalid, void, or unenforceable, the provision will be modified
to the minimum extent necessary, and the remainder of this
Contract will continue in full force and effect, so as to
effectuate, as closely as possible, the intent of this Contract.
IN WITNESS WHEREOF, the parties have signed and delivered this
Contract for Employment.
NETWORK ACQUISITIONS, INC. DAVID J. SELINA
/s/ Andrew I. Telsey /s/ David J. Selina
- ------------------------------ --------------------------------------
By: Andrew I. Telsey
Title: President
Dated: February 1, 1999
------------------------
EXHIBIT "A"
TO
NETWORK ACQUISITION, INC.
CONTRACT FOR EMPLOYMENT
Employee has described below all work products possibly related to the
Company's business and created prior to Employee's employment by the
Company in which Employee has any right, title or interest that Employee
does not assign to the Company:
NONE
[IF NONE, PLEASE SO INDICATE. DESCRIBE WORK PRODUCT WITHOUT DISCLOSING
CONFIDENTIAL INFORMATION.]
Employee has described below all prior obligations, written or oral, that
may restrict Employee's actions as an employee of the Company (such as
confidentiality or noncompete agreements):
Date Parties Nature of Restrictions
- ---- ------- ----------------------
[IF NONE, PLEASE SO INDICATE.]
NETWORK ACQUISITIONS, INC. DAVID J. SELINA
/s/ Andrew I. Telsey /s/ David J. Selina
- ------------------------------ --------------------------------------
By: Andrew I. Telsey
Title: President
CONTRACT FOR EMPLOYMENT
Cavion Technologies, Inc., located at 7475 Dakin Street, Denver, Colorado
80221 (the "Company"), and Marshall E. Aster, 5382 S. Geneva Way,
Englewood, Colorado 80111 ("Employee"), in consideration of the mutual
promises made herein, enter into this contract for employment (the
"Contract"), pursuant to the following terms, conditions, covenants, and
provisions:
ARTICLE 1. EMPLOYMENT
1.1 ACCEPTANCE OF EMPLOYMENT. The Company hereby employs Employee and
Employee hereby accepts employment with the Company. The term of this
Contract will commence on the date shown on the signature page and,
subject to the further provisions of this Contract, and unless
otherwise terminated earlier, will end on February 28, 2002. Upon
expiration, the term of this Contract will automatically renew for
subsequent one-year terms unless the Company has provided at least
180 days notice of non-renewal.
ARTICLE 2. DUTIES OF EMPLOYEE
2.1 POSITION DESCRIPTION AND DUTIES. Employee will serve as the
Company's Chief Financial Officer. Employee's duties will include,
but not be limited to, the following: work with the Company's Board
of Directors (the "Board") and the senior executive team to develop
objectives, plans and policies for all Company financial functions,
taking into account the strategic objectives of the Company;
implement and monitor the Company's plans and policies, including
primary responsibility for the company's financing plan, budgets and
financial policies; hire, develop, supervise and support the finance
staff and human resources staff of the Company; manage the Company's
financial and human resources functions, including the Company's
financial and budgetary controls, records, forecasting and analysis,
as well as financial statements and any other financial information
required by the Board; oversee compliance with regulatory and
accepted accounting practices; oversee compliance with human
resources regulations and practices; manage and make recommendations
for management information systems; serve as a member of the senior
executive team in planning the business and setting the strategic
direction of the Company; and perform such other duties as reasonably
are assigned by the Company's Board or Chief Executive Officer.
2.2 TIME AND ATTENTION. Employee agrees to devote substantially all of
his working time, attention and energy to the performance of his
duties pursuant to this Contract, and to perform such duties to the
best of his ability. Employee will not engage in the business of any
other person or entity while employed by the Company.
2.3 ADHERENCE TO RULES. Employee will adhere strictly to all the
Company's rules and policies now or hereafter in effect governing the
conduct of Company employees.
2.4 OBLIGATIONS TO THIRD PARTIES. Employee warrants and represents that
he has the ability to enter into this Contract, and that he has no
contract with or obligation to any third party that would conflict,
or reasonably may conflict, with his performance under this Contract.
ARTICLE 3. COMPENSATION
3.1 BASE COMPENSATION. Employee will be paid an initial base annual
salary of $105,000, subject to periodic raises on the same basis as
the Company's other senior executives. Employee's base salary will
be payable in accordance with the Company's standard payroll practice
for executive employees, and will be subject to the customary
withholding tax and other employment taxes and contributions.
3.2 BONUS. The Company will create a commission or cash bonus pool (the
"Pool") based upon the Company's business goals, as defined by the
Board, and the profitability of the Company. The Pool will be divided
among the Company's senior management, including Employee, in
proportion to their salaries on a quarterly basis. All decisions
regarding the Pool, including, without limitation, the monies
contributed to the Pool and the distribution of any monies in the
Pool, rest with the Board in its sole and absolute discretion. The
Board may also award bonuses to Employee or any other member of the
Company's senior management without regard to the Pool.
3.3 EQUITY INCENTIVE. Employee will participate in the Company's equity
incentive plan as determined by the Compensation Committee of the
Board of Directors.
3.4 VACATION. Employee will receive three (3) weeks paid vacation per
year, governed by the Company's rules and policies concerning
vacations, providing, however, that any unused vacation time at the
end of each calendar year shall be forfeited by the Employee and
there will be no carry-over of any vacation time from one calendar
year to the next.
3.5 GROUP HEALTH INSURANCE. As further compensation, Employee is
entitled to participate, under the terms afforded to other employees
of the Company, in any group health insurance provided by the Company
to such other employees.
3.6 OTHER BENEFITS. Employee will be entitled to such other benefits as
the Board lawfully may adopt and approve.
ARTICLE 4. COMPANY INTELLECTUAL PROPERTY
4.1 NONSOLICITATION. Employee acknowledges that an important part of
Employee's duties will be to develop good will for the Company
through his personal contacts with others having business
relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Employee if
his employment relationship with the Company is terminated.
Accordingly, Employee agrees he will not, either directly or
indirectly:
(a) render, or offer to render, to any Company customer services of
the kind offered by the Company;
(b) solicit for employment or employ any employee of the Company; or
(c) persuade, or attempt to persuade, any Company customer or any
person or entity who has referred customers to the Company not
to do business with the Company.
As used in this section, "Company customer" includes any client or
customer of the Company, and any person or entity identified, by
Employee or otherwise, as a prospect to become a client or customer
of the Company, during the year prior to termination of Employee's
employment.
4.2 CONFIDENTIALITY. As used in this Contract, the phrase "Company
confidential information" means all information, except as excluded
in the following sentence, that: (1) Employee obtains from the
Company or learns, conceives, or creates during the term of
Employee's employment with the Company, that directly relates to the
Company's business, or (2) the Company obtains in confidence from
third parties. As used herein, "Company confidential information"
does not include (1) information made generally available to the
public, other than through Employee's actions, or (2) general skills
or experience gained by Employee during Employee's employment with
the Company.
Recognizing the foregoing definition, Employee covenants that:
(a) Employee will not, either directly or indirectly, copy, disclose
to others, use for the benefit of any person or entity other
than the Company, or otherwise appropriate any Company
confidential information, except as reasonably may be required
in the performance of Employee's duties under this Contract;
(b) Employee will protect Company confidential information from
unauthorized use or disclosure, in accordance with Company
policy; and
(c) Employee immediately will notify the Company upon discovery of
any loss, unauthorized disclosure, or unauthorized use of
Company confidential information.
4.3 WORK PRODUCT. As used in this Contract, the phrase "Company work
product" means all work products developed by Employee that (1)
result from work performed by Employee for the Company, (2) relate to
the business of the Company, (3) relate to the Company's actual or
demonstrably anticipated research or development, or (4) involve the
use of Company confidential information or Company facilities.
Recognizing the foregoing definition, Employee covenants and
acknowledges as follows:
(a) All copyrightable work products developed by Employee within the
scope of Employee's employment under this Contract are "works
made for hire." Employee further acknowledges that the Company
owns all copyrights thereto. Employee hereby assigns to the
Company any and all other rights, including, without limitation,
all patent, copyright, and trade secret rights, and all rights
to recover for infringement, Employee has or may have in all
Company work product developed by Employee, regardless of
whether or not such Company work product is patentable.
Employee has described in Exhibit "A" to this Contract, which is
incorporated herein by this reference, (1) all work products
possibly related to the Company's business in which Employee
has, or may have, rights from previous employment, and (2) any
and all of Employee's prior obligations related to intellectual
property.
(b) Employee promptly will document and disclose to the Company all
Company work product developed by Employee. Employee will
provide all reasonable assistance to the Company, at the
Company's expense, in perfecting or protecting the Company's
rights in any Company work product developed by Employee. If
Employee is not available to provide such assistance, Employee
irrevocably appoints the Company as Employee's attorney-in-fact
to perform all acts reasonably related to perfecting or
protecting the Company's rights in any Company work product
developed by Employee.
(c) Employee will not disclose to the Company, or use in any of
Employee's work, any confidential or proprietary information
belonging to others, unless both the owner and the Company have
consented, in writing, to such disclosure or use. Work performed
by Employee during the term of Employee's employment with the
Company will not knowingly infringe upon or violate any patent,
copyright, trade secret, or other property right of any third
party, including, without limitation, any former employer.
4.4 EFFECT OF TERMINATION. All Company confidential information and
Company work product is the sole property of the Company. Upon
termination of Employee's employment with the Company, for any
reason, or at any time upon request of the Company, Employee will
deliver to the Company all materials of any nature in the Employee's
possession or control which (1) contain Company confidential
information or Company work product, or (2) are otherwise the
property of the Company, or any Company supplier, client, or
strategic partner. Employee will not retain any copies of such
materials.
4.5 TERM OF OBLIGATIONS. Unless otherwise expressly set forth in this
Article, Employee's obligation to protect Company confidential
information under section 4.2 hereinabove will survive termination of
Employee's employment, for any reason, for a period of three (3)
years, or in the case of any trade secret, as long as such
information remains a trade secret. Employee's obligation to protect
Company's work product under section 4.3 hereinabove will survive
termination of Employee's employment for a period of three (3) years
(with respect to work product developed by Employee during employment
with the Company). Employee's nonsolicitation obligations under
section 4.1 hereinabove will survive termination of Employee's
employment for a period of one (1) year.
4.6 REMEDIES. Employee acknowledges that violation of this Article 4
would cause irreparable harm to the Company, for which the Company
could not be compensated adequately in damages. The Company
therefore will be entitled, in addition to any remedies otherwise
available to it, to injunctive and other equitable relief, without
the requirement that a bond be posted, to enforce, and prevent any
breach of, this Article 4.
ARTICLE 5. TERMINATION
5.1 RESIGNATION. Employee will provide the Company with a minimum of 30
days written notice of resignation.
5.2 IMMEDIATE TERMINATION. During the term of this Contract, the Company
may terminate Employee's employment at any time upon notice to
Employee, upon occurrence of any of the following events:
(a) voluntary or involuntary dissolution, liquidation, bankruptcy or
receivership of the Company;
(b) death of Employee;
(c) disability that prevents Employee from reasonably performing the
duties of the position for a period of six (6) calendar months
or an aggregate of 130 or more business days in any 12 month
period; or
(d) for cause.
As used in this section, the term "cause" includes: (1) dishonesty,
fraud, embezzlement or intentional injury or attempted injury, in
each case with respect to the Company or its business; (2) a serious
crime which reflects on Employee's suitability as an agent of the
Company or on Employee's ability to perform under this Contract; (3)
willful breach of duty, habitual neglect of duty, or failure to
perform the material duties of the position, resulting in
unsatisfactory job performance; (4) competition with the Company; or
(5) Employee's material breach of this Contract. If the Company
deems Employee to be in violation of items (3) or (5) of the
preceding sentence, Employee will receive written notice and have the
opportunity to correct the violation within 30 days. If Employee
fails to correct such violation within 30 days, Employee may be
terminated immediately. Notwithstanding sections 5.3 and 5.4(b), the
Company may terminate Employee's employment at any time upon notice
to Employee, without paying severance compensation, if the notice is
given within the first 90 days of employment.
5.3 TERMINATION AFTER NOTICE. The Company may terminate Employee's
employment at any time upon 30 days notice to Employee, provided the
Company pays severance compensation, as described in section 5.4(b)
hereinbelow.
5.4 EFFECT OF TERMINATION ON COMPENSATION.
(a) If Employee resigns, or is terminated for any of the reasons
described in section 5.2 hereinabove, Employee, or his estate,
will be entitled to compensation (as described in Article 3 of
this Contract) earned prior to the date of termination, but not
yet paid.
(b) If Employee is terminated for reasons other than those described
in section 5.2 hereinabove, Employee will be entitled to
severance compensation equal to: (1) compensation earned prior
to the date of termination, but not yet paid, plus (2) severance
pay equal to the number of months of base salary (in effect at
the time of termination), determined as follows: (i) beginning
on the 91st day of employment, six months of base salary; (ii)
beginning on the first anniversary of employment, if the Company
is profitable on an after-tax basis, an increase to one year of
base salary; (iii) beginning on the second anniversary of
employment, an increase to one year of base salary.
(c) In the event of a termination following a change of control, as
defined below, Employee will be entitled to severance
compensation, as described in section 5.4(b) hereinabove. As
used herein, the phrase "termination following a change of
control" means that (1) Employee is terminated by the Company
within three (3) months after a change of control, or (2)
Employee resigns for good reason, as defined below, within three
(3) months after a change of control. As used herein, the
phrase "change of control" means: (1) a sale or liquidation of
substantially all of the assets or outstanding stock of the
Company, or a merger or reorganization in which the Company is
not the surviving corporation, or agreement by the Company to
enter into any such transaction; or (2) any change in the
ownership of Company shares that results in a person, entity or
group (as defined in section 13(d)(3) of the Securities Exchange
Act of 1934) holding more than 40% of the outstanding voting
shares of the Company.
Issuance of shares to executives or affiliates of the Company
under a compensatory stock grant, stock purchase or option
approved by the Board will not be considered a change of control
for this purpose.
As used in this Contract, the phrase "resigns for good reason"
means a resignation following: (1) a substantial change in
Employee's authority or responsibilities; (2) a substantial
reduction in Employee's salary or benefits; (3) failure of a
successor entity to agree to the terms of this Contract; or (4)
a requirement for the Employee to relocate.
(d) If Employee is terminated because of Employee's death or
disability, the Board, in its sole discretion, may elect to pay
to Employee or Employee's estate all or a portion of the
severance compensation described in section 5.4(b) hereinabove.
5.5 DUTIES FOLLOWING TERMINATION. Following any termination of his
employment, Employee will cooperate with the Company in the orderly
transfer of Employee's responsibilities to whomever is designated by
the Company. Employee will provide reasonable cooperation at the
Company's expense in any third party litigation or other dispute in
which the Company is a party and which relates to the period of
Employee's employment. Employee immediately will transfer all
Company property in his possession to the Company's designee.
ARTICLE 6. GENERAL PROVISIONS
6.1 NOTICES. Any notices to be given by either party to the other may be
effected in writing either by personal delivery or by registered or
certified mail, postage prepaid with return receipt requested,
addressed to the address appearing in this Contract (or any new
address of which the parties are notified in writing). Refusal to
accept delivery will be deemed receipt under this section.
6.2 DISPUTES.
(a) In the event of any dispute under this Contract, the party
claiming a dispute will give notice to the other party
describing the dispute. Both parties will make good faith
efforts to resolve the dispute informally within the Company.
If the dispute has not been resolved within 30 days after the
notice, either party may, upon notice to the other, submit the
dispute to mediation in Denver, Colorado, before a mutually
acceptable mediator. If the parties are unable to agree upon a
mediator, either party may request the appointment of a mediator
by the Center for Public Resources or any other established
dispute resolution organization.
(b) If mediation is not successful within 90 days or if either party
will not submit to mediation, either party may, upon notice to
the other, submit the dispute to binding arbitration in Denver,
Colorado, in accordance with the rules of the Center for Public
Resources, or any other established dispute resolution
organization, by a single arbitrator. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. ?? 1-
16, and judgment upon the award may be entered by any court of
competent jurisdiction. The arbitrator will not be empowered to
award damages in excess of actual damages, but will be
empowered, but not required, to require any party to pay the
reasonable attorney fees, expert witness fees, and other
arbitration costs of any other party.
(c) Except as stated in section 4.6 hereinabove, the procedures
specified in this section will be the exclusive procedures for
the resolution of disputes relating to this Contract. However,
either party may seek preliminary judicial relief in Denver,
Colorado, to avoid irreparable damage, while continuing to
participate in good faith in mediation or arbitration. Both
parties to this Contract submit to the jurisdiction of the
binding arbitration and of any state or federal court located in
Denver, Colorado.
6.3 GENERAL MATTERS.
(a) This Contract is governed by the laws of the State of Colorado.
(b) This Contract is binding upon the personal representatives,
successors and assigns of the parties hereto.
(c) This Contract is not assignable by Employee but shall inure to
the benefit of any successor or acquirer of the Company.
(d) This Contract constitutes the entire agreement between the
parties and may not be waived or modified, except in a writing
signed by all parties to this Contract.
(e) The headings used in this Contract are for convenience only and
do not, and will not, limit the interpretation hereof.
(f) In the event any provision in this Contract is held to be
invalid, void, or unenforceable, the provision will be modified
to the minimum extent necessary, and the remainder of this
Contract will continue in full force and effect, so as to
effectuate, as closely as possible, the intent of this Contract.
IN WITNESS WHEREOF, the parties have signed and delivered this
Contract for Employment.
CAVION TECHNOLOGIES, INC. MARSHALL E. ASTER
/s/David J. Selina /s/Marshall E. Aster
By: David J. Selina
Title: President
Dated: March 8, 1999
EXHIBIT "A"
TO
CAVION TECHNOLOGIES, INC.
CONTRACT FOR EMPLOYMENT
Employee has described below all work products possibly related to the
Company's business and created prior to Employee's employment by the
Company in which Employee has any right, title or interest that Employee
does not assign to the Company:
[IF NONE, PLEASE SO INDICATE. DESCRIBE WORK PRODUCT WITHOUT DISCLOSING
CONFIDENTIAL INFORMATION.]
Employee has described below all prior obligations, written or oral, that
may restrict Employee's actions as an employee of the Company (such as
confidentiality or noncompete agreements):
Date Parties Nature of Restrictions
- ---- ------- ----------------------
[IF NONE, PLEASE SO INDICATE.]
CAVION TECHNOLOGIES, INC. MARSHALL E. ASTER
- ------------------------- ---------------------------------
By: David J. Selina
Title: President
CONTRACT FOR EMPLOYMENT
Network Acquisitions, Inc., located at 7475 Dakin Street, Denver,
Colorado 80221, which is intending to acquire certain assets and
liabilities of and subsequently change its name to Cavion Technologies,
Inc., ("Cavion") (referred to herein as the "Company" and specifically
referring to Cavion, both before and after the acquisition), and Jeff
Marshall, 6198 S. Killarney Drive, Aurora, Colorado 80016 ("Employee"), in
consideration of the mutual promises made herein, enter into this contract
for employment (the "Contract"), pursuant to the following terms,
conditions, covenants, and provisions:
ARTICLE 1. EMPLOYMENT
1.1 ACCEPTANCE OF EMPLOYMENT. The Company hereby employs Employee and
Employee hereby accepts employment with the Company. The term of
this Contract will commence on the date shown on the signature page
and, subject to the further provisions of this Contract, and unless
otherwise terminated earlier, will end on December 31, 2001.
ARTICLE 2. DUTIES OF EMPLOYEE
2.1 POSITION DESCRIPTION AND DUTIES. Employee will serve as the
Company's Vice President of Software Development. Employee's duties
will include, but not be limited to, the following: Direct the
Company's product development and networking operations; work with
the senior executive team to develop objectives and plans for product
development and engineering, taking into account the Company's
strategic objectives; implement and monitor the plans, including
primary responsibility for meeting any defined technology goals;
hire, develop, supervise and support the product development and
engineering functions of the Company; serve as a member of the senior
executive team in planning the business and setting the strategic
direction of the Company; and perform such other duties as reasonably
are assigned by the Company's Chief Operating Officer.
2.2 Time and Attention. Employee agrees to devote substantially all of
his working time, attention and energy to the performance of his
duties pursuant to this Contract, and to perform such duties to the
best of his ability. Employee will not engage in the business of any
other person or entity while employed by the Company.
2.3 ADHERENCE TO RULES. Employee will adhere strictly to all the
Company's rules and policies now or hereafter in effect governing the
conduct of Company employees.
2.4 OBLIGATIONS TO THIRD PARTIES. Employee warrants and represents that
he has the ability to enter into this Contract, and that he has no
contract with or obligation to any third party that would conflict,
or reasonably may conflict, with his performance under this Contract.
ARTICLE 3. COMPENSATION
3.1 BASE COMPENSATION. Employee will be paid an initial base annual
salary of $100,000.00, subject to periodic raises on the same basis
as the Company's other senior executives. Employee's base salary
will be payable in accordance with the Company's standard payroll
practice for executive employees, and will be subject to the
customary withholding tax and other employment taxes and
contributions.
3.2 COMMISSIONS. The Company will create a commission or cash bonus pool
(the "Pool") based upon the Company's business goals, as defined by
the Board, and the profitability of the Company. The Pool will be
divided among the Company's senior management, including Employee, in
proportion to their salaries on a quarterly basis. All decisions
regarding the Pool, including, without limitation, the monies
contributed to the Pool and the distribution of any monies in the
Pool, rest with the Board in its sole and absolute discretion.
3.3 VACATION. Employee will receive three (3) weeks paid vacation per
year, governed by the Company's rules and policies concerning
vacations, providing, however, that any unused vacation time at the
end of each calendar year shall be forfeited by the Employee and
there will be no carry-over of any vacation time from one calendar
year to the next.
3.4 GROUP HEALTH INSURANCE. As further compensation, Employee is
entitled to participate, under the terms afforded to other employees
of the Company, in any group health insurance provided by the Company
to such other employees. At any time when the Company's group health
insurance policy requires employees to pay monthly premiums for
coverage of the employee's spouse and dependents, the Company will
pay, as further compensation to employee, such monthly premiums for
family coverage on behalf of the Employee. This compensation will
take the form of additional pay added to the base compensation set
forth in section 3.1 hereinabove.
3.5 OTHER BENEFITS. Employee will be entitled to such other benefits as
the Board lawfully may adopt and approve.
ARTICLE 4. COMPANY INTELLECTUAL PROPERTY
4.1 NONSOLICITATION. Employee acknowledges that an important part of
Employee's duties will be to develop good will for the Company
through his personal contacts with others having business
relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Employee if
his employment relationship with the Company is terminated.
Accordingly, Employee agrees he will not, either directly or
indirectly:
(a) render, or offer to render, to any Company customer services of
the kind offered by the Company;
(b) solicit for employment or employ any employee of the Company; or
(c) persuade, or attempt to persuade, any Company customer or any
person or entity who has referred customers to the Company not
to do business with the Company.
As used in this section, "Company customer" includes any client or
customer of the Company, and any person or entity identified, by
Employee or otherwise, as a prospect to become a client or customer
of the Company, during the year prior to termination of Employee's
employment.
4.2 CONFIDENTIALITY. As used in this Contract, the phrase "Company
confidential information" means all information, except as excluded
in the following sentence, that: (1) Employee obtains from the
Company or learns, conceives, or creates during the term of
Employee's employment with the Company, that directly relates to the
Company's business, or (2) the Company obtains in confidence from
third parties. As used herein, "Company confidential information"
does not include (1) information made generally available to the
public, other than through Employee's actions, or (2) general skills
or experience gained by Employee during Employee's employment with
the Company.
Recognizing the foregoing definition, Employee covenants that:
(a) Employee will not, either directly or indirectly, copy, disclose
to others, use for the benefit of any person or entity other
than the Company, or otherwise appropriate any Company
confidential information, except as reasonably may be required
in the performance of Employee's duties under this Contract;
(b) Employee will protect Company confidential information from
unauthorized use or disclosure, in accordance with Company
policy; and
(c) Employee immediately will notify the Company upon discovery of
any loss, unauthorized disclosure, or unauthorized use of
Company confidential information.
4.3 WORK PRODUCT. As used in this Contract, the phrase "Company work
product" means all work products developed by Employee that (1)
result from work performed by Employee for the Company, (2) relate to
the business of the Company, (3) relate to the Company's actual or
demonstrably anticipated research or development, or (4) involve the
use of Company confidential information or Company facilities.
Recognizing the foregoing definition, Employee covenants and
acknowledges as follows:
(a) All copyrightable work products developed by Employee within the
scope of Employee's employment under this Contract are "works
made for hire." Employee further acknowledges that the Company
owns all copyrights thereto. Employee hereby assigns to the
Company any and all other rights, including, without limitation,
all patent, copyright, and trade secret rights, and all rights
to recover for infringement, Employee has or may have in all
Company work product developed by Employee, regardless of
whether or not such Company work product is patentable.
Employee has described in Exhibit "A" to this Contract, which is
incorporated herein by this reference, (1) all work products
possibly related to the Company's business in which Employee
has, or may have, rights from previous employment, and (2) any
and all of Employee's prior obligations related to intellectual
property.
(b) Employee promptly will document and disclose to the Company all
Company work product developed by Employee. Employee will
provide all reasonable assistance to the Company, at the
Company's expense, in perfecting or protecting the Company's
rights in any Company work product developed by Employee. If
Employee is not available to provide such assistance, Employee
irrevocably appoints the Company as Employee's attorney-in-fact
to perform all acts reasonably related to perfecting or
protecting the Company's rights in any Company work product
developed by Employee.
(c) Employee will not disclose to the Company, or use in any of
Employee's work, any confidential or proprietary information
belonging to others, unless both the owner and the Company have
consented, in writing, to such disclosure or use. Work
performed by Employee during the term of Employee's employment
with the Company will not knowingly infringe upon or violate any
patent, copyright, trade secret, or other property right of any
third party, including, without limitation, any former employer.
4.4 EFFECT OF TERMINATION. All Company confidential information and
Company work product is the sole property of the Company. Upon
termination of Employee's employment with the Company, for any
reason, or at any time upon request of the Company, Employee will
deliver to the Company all materials of any nature in the Employee's
possession or control which (1) contain Company confidential
information or Company work product, or (2) are otherwise the
property of the Company, or any Company supplier, client, or
strategic partner. Employee will not retain any copies of such
materials.
4.5 TERM OF OBLIGATIONS. Unless otherwise expressly set forth in this
Article, Employee's obligation to protect Company confidential
information under section 4.2 hereinabove will survive termination of
Employee's employment, for any reason, for a period of three (3)
years, or in the case of any trade secret, as long as such
information remains a trade secret. Employee's obligation to protect
Company's work product under section 4.3 hereinabove will survive
termination of Employee's employment for a period of three (3) years
(with respect to work product developed by Employee during employment
with the Company). Employee's nonsolicitation obligations under
section 4.1 hereinabove will survive termination of Employee's
employment for a period of one (1) year.
4.6 REMEDIES. Employee acknowledges that violation of this Article 4
would cause irreparable harm to the Company, for which the Company
could not be compensated adequately in damages. The Company
therefore will be entitled, in addition to any remedies otherwise
available to it, to injunctive and other equitable relief, without
the requirement that a bond be posted, to enforce, and prevent any
breach of, this Article 4.
ARTICLE 5. TERMINATION
5.1 RESIGNATION. Employee will provide the Company with a minimum of 30
days written notice of resignation.
5.2 IMMEDIATE TERMINATION. During the term of this Contract, the Company
may terminate Employee's employment at any time upon notice to
Employee, upon occurrence of any of the following events:
(a) voluntary or involuntary dissolution, liquidation, bankruptcy or
receivership of the Company;
(b) death of Employee;
(c) disability that prevents Employee from reasonably performing the
duties of the position for a period of six (6) calendar months
or an aggregate of 130 or more business days in any 12 month
period; or
(d) for cause.
As used in this section, the term "cause" includes: (1) dishonesty,
fraud, embezzlement or intentional injury or attempted injury, in
each case with respect to the Company or its business; (2) a serious
crime which reflects on Employee's suitability as an agent of the
Company or on Employee's ability to perform under this Contract; (3)
willful breach of duty, habitual neglect of duty, or failure to
perform the material duties of the position, resulting in
unsatisfactory job performance; (4) competition with the Company; or
(5) Employee's material breach of this Contract. If the Company
deems Employee to be in violation of items (3) or (5) of the
preceding sentence, Employee will receive written notice and have the
opportunity to correct the violation within 30 days. If Employee
fails to correct such violation within 30 days, Employee may be
terminated immediately.
5.3 TERMINATION AFTER NOTICE. The Company may terminate Employee's
employment at any time upon 30 days notice to Employee, provided the
Company pays severance compensation, as described in section 5.4(b)
hereinbelow.
5.4 EFFECT OF TERMINATION ON COMPENSATION.
(a) If Employee resigns, or is terminated for any of the reasons
described in section 5.2 hereinabove, Employee, or his estate,
will be entitled to compensation (as described in Article 3 of
this Contract) earned prior to the date of termination, but not
yet paid.
(b) If Employee is terminated for reasons other than those described
in section 5.2 hereinabove, Employee will be entitled to
severance compensation equal to: (1) compensation earned prior
to the date of termination, but not yet paid, plus (2) severance
pay equal to twelve months of base salary (in effect at the time
of termination).
(c) In the event of a termination following a change of control, as
defined below, Employee will be entitled to severance
compensation, as described in section 5.4(b) hereinabove. As
used herein, the phrase "termination following a change of
control" means that (1) Employee is terminated by the Company
within three (3) months after a change of control, or (2)
Employee resigns for good reason, as defined below, within three
(3) months after a change of control. As used herein, the
phrase "Change of Control" means: (1) a sale or liquidation of
substantially all of the assets or outstanding stock of the
Company, or a merger or reorganization in which the Company is
not the surviving corporation, or Contract by the Company to
enter into any such transaction; or (2) any change in the
ownership of Company shares that results in a person, entity or
group (as defined in section 13(d)(3) of the Securities Exchange
Act of 1934) holding more than 40% of the outstanding voting
shares of the Company.
Issuance of shares to executives or affiliates of the Company
under a compensatory stock grant, stock purchase or option
approved by the Board will not be considered a change of control
for this purpose.
As used in this Contract, the phrase "resigns for good reason"
means a resignation following: (1) a substantial change in
Employee's authority or responsibilities; (2) a substantial
reduction in Employee's salary or benefits; (3) failure of a
successor entity to agree to the terms of this Contract; or (4)
a requirement for the Employee to relocate.
(d) If Employee is terminated because of Employee's death or
disability, the Board, in its sole discretion, may elect to pay
to Employee or Employee's estate all or a portion of the
severance compensation described in section 5.4(b) hereinabove.
5.5 DUTIES FOLLOWING TERMINATION. Following any termination of his
employment, Employee will cooperate with the Company in the orderly
transfer of Employee's responsibilities to whomever is designated by
the Company. Employee will provide reasonable cooperation at the
Company's expense in any third party litigation or other dispute in
which the Company is a party and which relates to the period of
Employee's employment. Employee immediately will transfer all
Company property in his possession to the Company's designee.
ARTICLE 6. GENERAL PROVISIONS
6.1 NOTICES. Any notices to be given by either party to the other may be
effected in writing either by personal delivery or by registered or
certified mail, postage prepaid with return receipt requested,
addressed to the address appearing in this Contract (or any new
address of which the parties are notified in writing). Refusal to
accept delivery will be deemed receipt under this section.
6.2 DISPUTES.
(a) In the event of any dispute under this Contract, the party
claiming a dispute will give notice to the other party
describing the dispute. Both parties will make good faith
efforts to resolve the dispute informally within the Company.
If the dispute has not been resolved within 30 days after the
notice, either party may, upon notice to the other, submit the
dispute to mediation in Denver, Colorado, before a mutually
acceptable mediator. If the parties are unable to agree upon a
mediator, either party may request the appointment of a mediator
by the Center for Public Resources or any other established
dispute resolution organization.
(b) If mediation is not successful within 90 days or if either party
will not submit to mediation, either party may, upon notice to
the other, submit the dispute to binding arbitration in Denver,
Colorado, in accordance with the rules of the Center for Public
Resources, or any other established dispute resolution
organization, by a single arbitrator. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. 1-16,
and judgment upon the award may be entered by any court of
competent jurisdiction. The arbitrator will not be empowered to
award damages in excess of actual damages, but will be
empowered, but not required, to require any party to pay the
reasonable attorney fees, expert witness fees, and other
arbitration costs of any other party.
(c) Except as stated in section 4.6 hereinabove, the procedures
specified in this section will be the exclusive procedures for
the resolution of disputes relating to this Contract. However,
either party may seek preliminary judicial relief in Denver,
Colorado, to avoid irreparable damage, while continuing to
participate in good faith in mediation or arbitration. Both
parties to this Contract submit to the jurisdiction of the
binding arbitration and of any state or federal court located in
Denver, Colorado.
6.3 GENERAL MATTERS.
(a) This Contract is governed by the laws of the State of Colorado.
(b) This Contract is binding upon the personal representatives,
successors and assigns of the parties hereto.
(c) This Contract is not assignable by Employee but shall inure to
the benefit of any successor or acquirer of the Company.
(d) This Contract constitutes the entire agreement between the
parties and may not be waived or modified, except in a writing
signed by all parties to this Contract.
(e) The headings used in this Contract are for convenience only and
do not, and will not, limit the interpretation hereof.
(f) In the event any provision in this Contract is held to be
invalid, void, or unenforceable, the provision will be modified
to the minimum extent necessary, and the remainder of this
Contract will continue in full force and effect, so as to
effectuate, as closely as possible, the intent of this Contract.
IN WITNESS WHEREOF, the parties have signed and delivered this
Contract for Employment.
NETWORK ACQUISITIONS, INC. JEFF MARSHALL
/s/ Andrew I. Telsey /s/ Jeff Marshall
- ------------------------------ -----------------------------
By: Andrew I. Telsey
Title: President
Dated: February 1, 1999
-------------------
EXHIBIT "A"
TO
NETWORK ACQUISITION, INC.
CONTRACT FOR EMPLOYMENT
Employee has described below all work products possibly related to the
Company's business and created prior to Employee's employment by the
Company in which Employee has any right, title or interest that Employee
does not assign to the Company:
NONE
[IF NONE, PLEASE SO INDICATE. DESCRIBE WORK PRODUCT WITHOUT DISCLOSING
CONFIDENTIAL INFORMATION.]
Employee has described below all prior obligations, written or oral, that
may restrict Employee's actions as an employee of the Company (such as
confidentiality or noncompete agreements):
Date Parties Nature of Restrictions
- ---- ------- ----------------------
[IF NONE, PLEASE SO INDICATE.]
NETWORK ACQUISITIONS, INC. JEFF MARSHALL
/s/ Andrew I. Telsey /s/ Jeff Marshall
- ------------------------------ -----------------------------
By: Andrew I. Telsey
Title: President
CONTRACT FOR EMPLOYMENT
Network Acquisitions, Inc., located at 7475 Dakin Street, Denver,
Colorado 80221, which is intending to acquire certain assets and
liabilities of and subsequently change its name to Cavion Technologies,
Inc., ("Cavion") (referred to herein as the "Company" and specifically
referring to Cavion, both before and after the acquisition), and Craig E.
Lassen, 2218 Elm Street, Denver, Colorado 80207 ("Employee"), in
consideration of the mutual promises made herein, enter into this contract
for employment (the "Contract"), pursuant to the following terms,
conditions, covenants, and provisions:
ARTICLE 1. EMPLOYMENT
1.1 ACCEPTANCE OF EMPLOYMENT. The Company hereby employs Employee and
Employee hereby accepts employment with the Company. The term of
this Contract will commence on the date shown on the signature page
and, subject to the further provisions of this Contract, and unless
otherwise terminated earlier, will end on December 31, 2001.
ARTICLE 2. DUTIES OF EMPLOYEE
2.1 POSITION DESCRIPTION AND DUTIES. Employee will serve as the
Company's Chairman and Chief Executive Officer. Employee's duties
will include, but not be limited to, the following: chair the
Company's Board of Directors (the "Board") and lead the Company's
senior executive team in planning the Company's business and setting
the strategic direction of the Company; represent the Company in key
business relationships; work with the Board and the senior executive
team to develop the Company's objectives, plans and policies, taking
into account the Company's strategic objectives; oversee
implementation of the Company's plans and policies, including
assuming primary responsibility for supervising the Company's
strategic direction, technical focus and financing strategy; and
perform such other duties as reasonably are assigned by the Board.
2.2 TIME AND ATTENTION. Employee agrees to devote substantially all of
his working time, attention and energy to the performance of his
duties pursuant to this Contract, and to perform such duties to the
best of his ability. Employee will not engage in the business of any
other person or entity while employed by the Company.
2.3 ADHERENCE TO RULES. Employee will adhere strictly to all the
Company's rules and policies now or hereafter in effect governing the
conduct of Company employees.
2.4 OBLIGATIONS TO THIRD PARTIES. Employee warrants and represents that
he has the ability to enter into this Contract, and that he has no
contract with or obligation to any third party that would conflict,
or reasonably may conflict, with his performance under this Contract.
ARTICLE 3. COMPENSATION
3.1 BASE COMPENSATION. Employee will be paid an initial base annual
salary of $125,000.00, subject to periodic raises on the same basis
as the Company's other senior executives. Employee's base salary
will be payable in accordance with the Company's standard payroll
practice for executive employees, and will be subject to the
customary withholding tax and other employment taxes and
contributions.
3.2 COMMISSIONS. The Company will create a commission or cash bonus pool
(the "Pool") based upon the Company's business goals, as defined by
the Board, and the profitability of the Company. The Pool will be
divided among the Company's senior management, including Employee, in
proportion to their salaries on a quarterly basis. All decisions
regarding the Pool, including, without limitation, the monies
contributed to the Pool and the distribution of any monies in the
Pool, rest with the Board in its sole and absolute discretion. As a
member of the Board, Employee will abstain from any votes relating,
in any manner or form to Employee's compensation, including bonuses,
incentives or benefits.
3.3 VACATION. Employee will receive four (4) weeks paid vacation per
year, governed by the Company's rules and policies concerning
vacations, providing, however, that any unused vacation time at the
end of each calendar year shall be forfeited by the Employee and
there will be no carry-over of any vacation time from one calendar
year to the next.
3.4 GROUP HEALTH INSURANCE. As further compensation, Employee is
entitled to participate, under the terms afforded to other employees
of the Company, in any group health insurance provided by the Company
to such other employees. At any time when the Company's group health
insurance policy requires employees to pay monthly premiums for
coverage of the employee's spouse and dependents, the Company will
pay, as further compensation to employee, such monthly premiums for
family coverage on behalf of the Employee. This compensation will
take the form of additional pay added to the base compensation set
forth in section 3.1 hereinabove.
3.5 OTHER BENEFITS. Employee will be entitled to such other benefits as
the Board lawfully may adopt and approve.
ARTICLE 4. COMPANY INTELLECTUAL PROPERTY
4.1 NONSOLICITATION. Employee acknowledges that an important part of
Employee's duties will be to develop good will for the Company
through his personal contacts with others having business
relationships with the Company, and that there is a danger that this
good will, a proprietary asset of the Company, may follow Employee if
his employment relationship with the Company is terminated.
Accordingly, Employee agrees he will not, either directly or
indirectly:
(a) render, or offer to render, to any Company customer services of
the kind offered by the Company;
(b) solicit for employment or employ any employee of the Company; or
(c) persuade, or attempt to persuade, any Company customer or any
person or entity who has referred customers to the Company not
to do business with the Company.
As used in this section, "Company customer" includes any client or
customer of the Company, and any person or entity identified, by
Employee or otherwise, as a prospect to become a client or customer
of the Company, during the year prior to termination of Employee's
employment.
4.2 CONFIDENTIALITY. As used in this Contract, the phrase "Company
confidential information" means all information, except as excluded
in the following sentence, that: (1) Employee obtains from the
Company or learns, conceives, or creates during the term of
Employee's employment with the Company, that directly relates to the
Company's business, or (2) the Company obtains in confidence from
third parties. As used herein, "Company confidential information"
does not include (1) information made generally available to the
public, other than through Employee's actions, or (2) general skills
or experience gained by Employee during Employee's employment with
the Company.
Recognizing the foregoing definition, Employee covenants that:
(a) Employee will not, either directly or indirectly, copy, disclose
to others, use for the benefit of any person or entity other
than the Company, or otherwise appropriate any Company
confidential information, except as reasonably may be required
in the performance of Employee's duties under this Contract;
(b) Employee will protect Company confidential information from
unauthorized use or disclosure, in accordance with Company
policy; and
(c) Employee immediately will notify the Company upon discovery of
any loss, unauthorized disclosure, or unauthorized use of
Company confidential information.
4.3 WORK PRODUCT. As used in this Contract, the phrase "Company work
product" means all work products developed by Employee that (1)
result from work performed by Employee for the Company, (2) relate to
the business of the Company, (3) relate to the Company's actual or
demonstrably anticipated research or development, or (4) involve the
use of Company confidential information or Company facilities.
Recognizing the foregoing definition, Employee covenants and
acknowledges as follows:
(a) All copyrightable work products developed by Employee within the
scope of Employee's employment under this Contract are "works
made for hire." Employee further acknowledges that the Company
owns all copyrights thereto. Employee hereby assigns to the
Company any and all other rights, including, without limitation,
all patent, copyright, and trade secret rights, and all rights
to recover for infringement, Employee has or may have in all
Company work product developed by Employee, regardless of
whether or not such Company work product is patentable.
Employee has described in Exhibit "A" to this Contract, which is
incorporated herein by this reference, (1) all work products
possibly related to the Company's business in which Employee
has, or may have, rights from previous employment, and (2) any
and all of Employee's prior obligations related to intellectual
property.
(b) Employee promptly will document and disclose to the Company all
Company work product developed by Employee. Employee will
provide all reasonable assistance to the Company, at the
Company's expense, in perfecting or protecting the Company's
rights in any Company work product developed by Employee. If
Employee is not available to provide such assistance, Employee
irrevocably appoints the Company as Employee's attorney-in-fact
to perform all acts reasonably related to perfecting or
protecting the Company's rights in any Company work product
developed by Employee.
(c) Employee will not disclose to the Company, or use in any of
Employee's work, any confidential or proprietary information
belonging to others, unless both the owner and the Company have
consented, in writing, to such disclosure or use. Work
performed by Employee during the term of Employee's employment
with the Company will not knowingly infringe upon or violate any
patent, copyright, trade secret, or other property right of any
third party, including, without limitation, any former employer.
4.4 EFFECT OF TERMINATION. All Company confidential information and
Company work product is the sole property of the Company. Upon
termination of Employee's employment with the Company, for any
reason, or at any time upon request of the Company, Employee will
deliver to the Company all materials of any nature in the Employee's
possession or control which (1) contain Company confidential
information or Company work product, or (2) are otherwise the
property of the Company, or any Company supplier, client, or
strategic partner. Employee will not retain any copies of such
materials.
4.5 TERM OF OBLIGATIONS. Unless otherwise expressly set forth in this
Article, Employee's obligation to protect Company confidential
information under section 4.2 hereinabove will survive termination of
Employee's employment, for any reason, for a period of three (3)
years, or in the case of any trade secret, as long as such
information remains a trade secret. Employee's obligation to protect
Company's work product under section 4.3 hereinabove will survive
termination of Employee's employment for a period of three (3) years
(with respect to work product developed by Employee during employment
with the Company). Employee's nonsolicitation obligations under
section 4.1 hereinabove will survive termination of Employee's
employment for a period of one (1) year.
4.6 REMEDIES. Employee acknowledges that violation of this Article 4
would cause irreparable harm to the Company, for which the Company
could not be compensated adequately in damages. The Company
therefore will be entitled, in addition to any remedies otherwise
available to it, to injunctive and other equitable relief, without
the requirement that a bond be posted, to enforce, and prevent any
breach of, this Article 4.
ARTICLE 5. TERMINATION
5.1 RESIGNATION. Employee will provide the Company with a minimum of 30
days written notice of resignation.
5.2 IMMEDIATE TERMINATION. During the term of this Contract, the Company
may terminate Employee's employment at any time upon notice to
Employee, upon occurrence of any of the following events:
(a) voluntary or involuntary dissolution, liquidation, bankruptcy or
receivership of the Company;
(b) death of Employee;
(c) disability that prevents Employee from reasonably performing the
duties of the position for a period of six (6) calendar months
or an aggregate of 130 or more business days in any 12 month
period; or
(d) for cause.
As used in this section, the term "cause" includes: (1) dishonesty,
fraud, embezzlement or intentional injury or attempted injury, in
each case with respect to the Company or its business; (2) a serious
crime which reflects on Employee's suitability as an agent of the
Company or on Employee's ability to perform under this Contract; (3)
willful breach of duty, habitual neglect of duty, or failure to
perform the material duties of the position, resulting in
unsatisfactory job performance; (4) competition with the Company; or
(5) Employee's material breach of this Contract. If the Company
deems Employee to be in violation of items (3) or (5) of the
preceding sentence, Employee will receive written notice and have the
opportunity to correct the violation within 30 days. If Employee
fails to correct such violation within 30 days, Employee may be
terminated immediately.
5.3 TERMINATION AFTER NOTICE. The Company may terminate Employee's
employment at any time upon 30 days notice to Employee, provided the
Company pays severance compensation, as described in section 5.4(b)
hereinbelow.
5.4 EFFECT OF TERMINATION ON COMPENSATION.
(a) If Employee resigns, or is terminated for any of the reasons
described in section 5.2 hereinabove, Employee, or his estate,
will be entitled to compensation (as described in Article 3 of
this Contract) earned prior to the date of termination, but not
yet paid.
(b) If Employee is terminated for reasons other than those described
in section 5.2 hereinabove, Employee will be entitled to
severance compensation equal to: (1) compensation earned prior
to the date of termination, but not yet paid, plus (2) severance
pay equal to twelve months of base salary (in effect at the time
of termination).
(c) In the event of a termination following a change of control, as
defined below, Employee will be entitled to severance
compensation, as described in section 5.4(b) hereinabove. As
used herein, the phrase "termination following a change of
control" means that (1) Employee is terminated by the Company
within three (3) months after a change of control, or (2)
Employee resigns for good reason, as defined below, within three
(3) months after a change of control. As used herein, the
phrase "Change of Control" means: (1) a sale or liquidation of
substantially all of the assets or outstanding stock of the
Company, or a merger or reorganization in which the Company is
not the surviving corporation, or Contract by the Company to
enter into any such transaction; or (2) any change in the
ownership of Company shares that results in a person, entity or
group (as defined in section 13(d)(3) of the Securities Exchange
Act of 1934) holding more than 40% of the outstanding voting
shares of the Company.
Issuance of shares to executives or affiliates of the Company under a
compensatory stock grant, stock purchase or option approved by the
Board will not be considered a change of control for this purpose.
As used in this Contract, the phrase "resigns for good reason" means
a resignation following: (1) a substantial change in Employee's
authority or responsibilities; (2) a substantial reduction in
Employee's salary or benefits; (3) failure of a successor entity to
agree to the terms of this Contract; or (4) a requirement for the
Employee to relocate.
(d) If Employee is terminated because of Employee's death or
disability, the Board, in its sole discretion, may elect to pay
to Employee or Employee's estate all or a portion of the
severance compensation described in section 5.4(b) hereinabove.
5.5 DUTIES FOLLOWING TERMINATION. Following any termination of his
employment, Employee will cooperate with the Company in the orderly
transfer of Employee's responsibilities to whomever is designated by
the Company. Employee will provide reasonable cooperation at the
Company's expense in any third party litigation or other dispute in
which the Company is a party and which relates to the period of
Employee's employment. Employee immediately will transfer all
Company property in his possession to the Company's designee.
ARTICLE 6. GENERAL PROVISIONS
6.1 NOTICES. Any notices to be given by either party to the other may be
effected in writing either by personal delivery or by registered or
certified mail, postage prepaid with return receipt requested,
addressed to the address appearing in this Contract (or any new
address of which the parties are notified in writing). Refusal to
accept delivery will be deemed receipt under this section.
6.2 DISPUTES.
(a) In the event of any dispute under this Contract, the party
claiming a dispute will give notice to the other party
describing the dispute. Both parties will make good faith
efforts to resolve the dispute informally within the Company.
If the dispute has not been resolved within 30 days after the
notice, either party may, upon notice to the other, submit the
dispute to mediation in Denver, Colorado, before a mutually
acceptable mediator. If the parties are unable to agree upon a
mediator, either party may request the appointment of a mediator
by the Center for Public Resources or any other established
dispute resolution organization.
(b) If mediation is not successful within 90 days or if either party
will not submit to mediation, either party may, upon notice to
the other, submit the dispute to binding arbitration in Denver,
Colorado, in accordance with the rules of the Center for Public
Resources, or any other established dispute resolution
organization, by a single arbitrator. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. 1-16,
and judgment upon the award may be entered by any court of
competent jurisdiction. The arbitrator will not be empowered to
award damages in excess of actual damages, but will be
empowered, but not required, to require any party to pay the
reasonable attorney fees, expert witness fees, and other
arbitration costs of any other party.
(c) Except as stated in section 4.6 hereinabove, the procedures
specified in this section will be the exclusive procedures for
the resolution of disputes relating to this Contract. However,
either party may seek preliminary judicial relief in Denver,
Colorado, to avoid irreparable damage, while continuing to
participate in good faith in mediation or arbitration. Both
parties to this Contract submit to the jurisdiction of the
binding arbitration and of any state or federal court located in
Denver, Colorado.
6.3 GENERAL MATTERS.
(a) This Contract is governed by the laws of the State of Colorado.
(b) This Contract is binding upon the personal representatives,
successors and assigns of the parties hereto.
(c) This Contract is not assignable by Employee but shall inure to
the benefit of any successor or acquirer of the Company.
(d) This Contract constitutes the entire agreement between the
parties and may not be waived or modified, except in a writing
signed by all parties to this Contract.
(e) The headings used in this Contract are for convenience only and
do not, and will not, limit the interpretation hereof.
(f) In the event any provision in this Contract is held to be
invalid, void, or unenforceable, the provision will be modified
to the minimum extent necessary, and the remainder of this
Contract will continue in full force and effect, so as to
effectuate, as closely as possible, the intent of this Contract.
IN WITNESS WHEREOF, the parties have signed and delivered this
Contract for Employment.
NETWORK ACQUISITIONS, INC. CRAIG E. LASSEN
/s/ Andrew I. Telsey /s/ Craig E. Lassen
- ---------------------------- ---------------------------------
By: Andrew I. Telsey
Title: President
Dated: February 1, 1999
-----------------
EXHIBIT "A"
TO
NETWORK ACQUISITION, INC.
CONTRACT FOR EMPLOYMENT
Employee has described below all work products possibly related to the
Company's business and created prior to Employee's employment by the
Company in which Employee has any right, title or interest that Employee
does not assign to the Company:
[IF NONE, PLEASE SO INDICATE. DESCRIBE WORK PRODUCT WITHOUT DISCLOSING
CONFIDENTIAL INFORMATION.]
Employee has described below all prior obligations, written or oral, that
may restrict employee's actions as an employee of the company (such as
confidentiality or noncompete agreements):
Date Parties Nature of Restrictions
- ---- ------- ----------------------
[IF NONE, PLEASE SO INDICATE.]
NETWORK ACQUISITIONS, INC. CRAIG E. LASSEN
/s/ Andrew I. Telsey /s/ Craig E. Lassen
- ---------------------------- ---------------------------------
By: Andrew I. Telsey
Title: President
CAVION TECHNOLOGIES, INC.
EQUITY INCENTIVE PLAN 1999
1. PURPOSE. Cavion Technologies, Inc. (the "Company") hereby
establishes its Equity Incentive Plan (the "Plan"). The purpose of the
Plan is to help the Company and its subsidiaries to attract and retain
competent employees, officers, directors, advisors and independent
contractors by providing them with an opportunity to participate in the
increased value of the Company which their effort, initiative, and skill
have helped produce.
2. GENERAL PROVISIONS.
(a) The Plan will be administered by the Compensation Committee
of the Board of Directors of the Company (the "Committee"). The Committee
shall be comprised of two or more directors designated by the Board of
Directors (the "Board"). If and to the extent that Securities Exchange Act
Rule 16b-3 or Internal Revenue Code Section 162 are applicable to the
Plan, Committee members shall qualify as "Non-Employee Directors" within
the meaning of Securities Exchange Act Rule 16b-3 and as "outside
directors" within the meaning of Treasury Regulation Section 1.162-
27(e)(3). (In the event Rule 16b-3 or Treasury Regulation Section 1.162-
27(e)(3) is amended, modified or repealed, the requirements for being a
member of the Committee shall reflect the then current requirements of the
successor rule or regulation, if any.) Options granted under the Plan are
intended to qualify for the "qualified performance based compensation"
exception to Internal Revenue Code Section 162(m). Notwithstanding the
foregoing, if it would be consistent with all applicable laws, including
without limitation Rule 16b-3 and Treasury Regulation Section 1.162-
27(e)(3), then the Plan may be administered by the Board of Directors, and
if so administered all subsequent references to the Committee shall be
read as referring to the Board of Directors.
(b) The Committee shall have full power to construe and
interpret the Plan and to establish and amend rules and regulations for
its administration. The Committee shall determine, in its sole discretion,
which participants under the Plan shall be granted restricted stock, stock
options or stock appreciation rights, the time or times at which stock,
options and rights are granted, as well as the number of shares and the
duration of the options or rights which are granted to participants;
provided, however, that no participant may be granted more than 250,000
options under the Plan in any three year period. The Committee shall also
determine any other terms and conditions relating to restricted stock,
options and rights granted under the Plan as the Committee may prescribe,
in its sole discretion. The Committee shall make all other determinations
and take all other actions which it deems necessary or advisable for the
administration of the Plan. All decisions, determinations and
interpretations made by the Committee shall be binding and conclusive on
all participants in the Plan and on their legal representatives, heirs and
beneficiaries.
(c) Any action of the Committee with respect to the Plan shall
be taken by majority vote or by the unanimous written consent of the
Committee members. The Committee may, in its discretion, delegate its
administrative duties with respect to the Plan to an officer or employees,
or to a committee composed of officers or employees, of the Company.
(d) The Board (with members of the Committee abstaining) shall
have the authority to make grants under the Plan to members of the
Committee and may also establish a formula by which grants will
automatically be made to members of the Committee. The Committee shall
have the authority to make grants hereunder to members of the Board other
than Committee members and may also establish a formula by which grants
will automatically be made to Board members.
3. ELIGIBILITY. Employees, officers, directors, advisors and
independent contractors of the Company and its subsidiaries shall be
eligible to participate in the Plan and to receive restricted stock,
options and rights hereunder, except where the Committee determines that a
particular subsidiary will not participate in the Plan. However, Incentive
Stock Options may only be granted to officers and directors who are
employees of the Company or its subsidiaries at all times during the
period beginning on the date of grant of the option and ending on the day
three months before the date of exercise.
4. SHARES SUBJECT TO PLAN. The aggregate number of shares of the
Company's Common Stock which may be issued to participants shall be
750,000 shares, subject to adjustment as provided in Section 9. These
shares may consist of shares of the Company's authorized but unissued
Class A Common Stock or shares of the Company's authorized and issued
Class A Common Stock reacquired by the Company and held in its treasury or
any combination thereof. To the extent that a participant pays for the
exercise of an option with shares of the Company's stock rather than cash,
the tendered shares shall be deemed to be added back to the Plan,
increasing the total number of shares subject to and reserved for the Plan
by that amount. If an option granted under the Plan is surrendered, or for
any other reason ceases to be exercisable in whole or in part, the shares
as to which the option ceases to be exercisable shall be available to be
granted to the same or other participants under the Plan, except to the
extent that an option is deemed surrendered by the exercise of a tandem
stock appreciation right and that right is paid by the Company in stock,
in which event the shares issued in satisfaction of the right shall not be
available for new options or rights under the Plan. Shares of restricted
stock that are forfeited under the Plan shall be deemed to be added back
to the Plan, increasing the total number of shares subject to and reserved
for the Plan by that amount.
5. STOCK OPTIONS.
(a) TYPE OF OPTIONS. Options granted may be either
Nonqualified Stock Options or Incentive Stock Options as determined by the
Committee in its sole discretion and as reflected in the Notice of Grant
issued by the Committee. "Incentive Stock Option" means an option
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
"Nonqualified Stock Option" means an option not intended to qualify as an
Incentive Stock Option or an Incentive Stock Option which is converted to
a Nonqualified Stock Option, either under Section 8(b) hereof or by
operation of law.
(b) OPTION PRICE. The price at which options may be granted
under the Plan shall be determined by the Committee at the time of grant
as follows:
(i) For Incentive Stock Options the option price shall be
equal to 100% of the Fair Market Value of the stock (as defined below);
provided, however, that for Incentive Stock Options granted to any person
who, at the time such option is granted, owns (as defined in Section 422
of the Code) shares possessing more than 10% of the total combined voting
power of all classes of shares of the Company or its parent or subsidiary
corporation, the Option Price shall be 110% of the Fair Market Value.
(ii) For Nonqualified Stock Options the option price may be
less than the Fair Market Value of the stock, but in no event shall the
option price be less than fifty percent (50%) of the Fair Market Value.
However, any grant of a Nonqualified Stock Option at a price less than
Fair Market Value will not qualify for the "qualified performance based
compensation" exception to Internal Revenue Code Section 162(m).
(iii) "Fair Market Value" shall mean, if there is an
established market for the Company's Common Stock on a stock exchange, in
an over-the-counter market or otherwise, the mean of the highest and
lowest quoted selling prices on the valuation date. Unless otherwise
specified by the Committee at the time of grant (or in the formula
applicable to such grant), the valuation date for purposes of determining
the option price shall be the date of grant. The Committee (or the Board
of Directors with respect to grants to Committee members) may specify
that, instead of the date of grant, the valuation date shall be a
valuation period of up to ninety (90) days prior to the date of grant, and
Fair Market Value for purposes of such grant shall be the average over the
valuation period of the mean of the highest and lowest quoted selling
prices on each date on which sales were made in the valuation period. If
the Committee fails to specify a valuation period and there were no sales
on the date of grant then Fair Market Value shall be determined as if the
Committee had specified a thirty (30) day valuation period. If there is no
established market for the Company's Common Stock, or if there were no
sales during the applicable valuation period, the determination of Fair
Market Value shall be established by the Committee in its sole discretion,
considering the criteria set forth in Treas. Reg. Section 20.2031-2 or
successor regulations.
(c) EXERCISE OF OPTION. The right to purchase shares covered
by any option or options under the Plan shall be exercisable only in
accordance with the terms and conditions of the grant to the participant.
Such terms and conditions may include a time period or schedule over which
the options become exercisable, or "vested", and may provide that certain
conditions, such as continuous service or specified performance criteria
or goals, must be satisfied for such vesting. The determination as to
whether to impose any such vesting schedule or performance criteria, and
the terms of such schedule or criteria, shall be within the sole
discretion of the Committee. These terms and conditions may be different
for different participants.
The Committee may provide that an option will be
exercisable prior to vesting, and that upon exercise the participant will
receive restricted stock (as described in Section 7), subject to
restrictions reflecting any vesting period or conditions of the option
that are unfulfilled at the time of exercise.
Options shall be exercised when written notice of exercise
by the participant, and full payment for the shares with respect to which
the option is exercised, has been received by the Company at its principal
office. The exercise of options shall be paid for in cash or in shares of
the Company's Common Stock, or any combination thereof. Shares tendered
as payment for option exercises shall be valued at the Fair Market Value
of the shares on the date of exercise. The Committee may, in its
discretion, agree to a loan by the Company to one or more participants of
a portion of the exercise price (not to exceed the exercise price minus
the par value of the shares to be acquired, if any) for up to three (3)
years with interest payable at the prime rate quoted in the Wall Street
Journal on the date of exercise. The Board may approve such loans to
members of the Committee.
The Committee may also permit a participant to effect a net
exercise of an option without tendering any shares of the Company's stock
as payment for the option. In such an event, the participant will be
deemed to have paid for the exercise of the option with shares of the
Company's stock and shall receive from the Company a number of shares
equal to the difference between (i) the shares that would have been
tendered to pay the option price and withholding taxes, if any, and (ii)
the number of options exercised.
The Committee may also cause the Company to enter into
arrangements with one or more licensed stock brokerage firms whereby
participants may exercise options without payment therefor but with
irrevocable orders to such brokerage firm to immediately sell the number
of shares necessary to pay the option price and withholding taxes, if any,
and then to transmit the proceeds from such sales directly to the Company
in satisfaction of such obligations.
A participant shall have no rights as a shareholder with
respect to any shares of common stock subject to an option prior to the
date of exercise of the option.
(d) DURATION OF OPTIONS. Unless otherwise prescribed by the
Committee or the Plan, options granted hereunder shall expire ten (10)
years from the date of grant, subject to early termination as provided in
Section 8.
(e) INCENTIVE STOCK OPTION LIMITATIONS. In no event shall an
Incentive Stock Option be granted to any person who, at the time such
option is granted, owns (as defined in Section 422 of the Code) shares
possessing more than 10% of the total combined voting power of all classes
of shares of the Company or of its parent or subsidiary corporation,
unless the option price is at least 110% of the Fair Market Value of the
stock subject to the option, and such option is by its terms not
exercisable after the expiration of five (5) years from the date of grant.
The aggregate Fair Market Value (determined as of the time that option is
granted) of the shares with respect to which Incentive Stock Options are
exercisable for the first time by any individual employee during any
single calendar year under the Plan shall not exceed $100,000. In
addition, employees are advised that in order to receive the tax benefits
of an Incentive Stock Option, they must not resell or otherwise dispose of
the stock acquired upon exercise of the Incentive Stock Option until two
(2) years after the date the option was granted and one (1) year after it
was exercised.
6. STOCK APPRECIATION RIGHTS.
(a) GRANT. Stock appreciation rights may be granted by the
Committee under the Plan upon such terms and conditions as it may
prescribe. A stock appreciation right may be granted in connection with
an option (the "Related Option") previously granted or to be granted under
the Plan (a "Tandem Right"), or may be granted separately (a "Separate
Right"). Upon grant of a Separate Right, the Committee shall specify an
exercise price for the right. Upon exercise of a stock appreciation right,
the participant is entitled to receive the excess of Fair Market Value, on
the date of exercise, of the Company's Common Stock over the option price
of the Related Option (in the case of a Tandem Right), or over the
exercise price of the right (in the case of a Separate Right). Such excess
is hereafter called "the differential."
(b) EXERCISE OF STOCK APPRECIATION RIGHTS. Stock appreciation
rights shall be exercisable and payable in the following manner:
(i) A Separate Right shall be exercisable at the time or
times prescribed by the Committee. A Tandem Right shall be exercisable at
the same time or times that the Related Option could be exercised. Stock
appreciation rights shall be exercised when written notice of exercise by
the participant has been received by the Company at its principal office.
Upon receipt of such notice, the Company shall determine, in its sole
discretion, whether the participant's stock appreciation rights shall be
paid in cash or in shares of the Company's Common Stock or any combination
of cash and shares and thereupon shall, without deducting any transfer or
issue tax, deliver to the person exercising such right an amount of cash
or shares of the Company's Common Stock or a combination thereof with a
value equal to the differential minus withholding taxes, if any. No
fractional share of Common Stock shall be issued; rather, the Committee
shall determine whether cash shall be given in lieu of such fractional
share or whether such fractional share shall be disregarded.
(ii) The exercise of a Tandem Right shall automatically
result in the surrender of the Related Option by the participant on a
share for share basis. Likewise, the exercise of a stock option shall
automatically result in the surrender of the related Tandem Right.
(iii) The Committee may impose any other terms and
conditions it prescribes upon the exercise of a stock appreciation right,
which conditions may include a condition that the stock appreciation right
may only be exercised in accordance with rules and regulations adopted by
the Committee from time to time.
(c) LIMITATION ON PAYMENTS. Notwithstanding any other
provision of the Plan, the Committee may from time to time determine,
including at the time of exercise, the maximum amount of cash or stock
which may be given upon exercise of any stock appreciation right in any
year; provided, however, that all such amounts shall be paid in full no
later than the end of the year immediately following the year in which the
participant exercised such stock appreciation rights. Any determination
under this paragraph may be changed by the Committee from time to time
provided that no such change shall require the participant to return to
the Company any amount theretofore received or to extend the period within
which the Company is required to make full payment of the amount due as
the result of the exercise of the participant's stock appreciation rights.
(d) EXPIRATION OF STOCK APPRECIATION RIGHTS. Unless earlier
terminated under Section 8, each Tandem Right shall expire on the date on
which the Related Option expires or terminates, and each Separate Right
shall expire on the date prescribed by the Committee.
7. RESTRICTED STOCK.
(a) GRANT. The Committee may grant shares of the Company's
Common Stock to persons eligible for grants under the Plan, subject to
such restrictions, if any, as may be determined by the Committee,
including but not limited to that person's continuous employment by or
service to the Company for a specified period of time or the attainment of
specified performance goals or objectives by that person, a group of
persons or the Company as a whole. The determination as to whether to
impose any such vesting schedule or performance criteria, and the terms of
such schedule or criteria, shall be within the sole discretion of the
Committee. These terms and conditions may be different for different
participants.
(b) VOTING RIGHTS. A participant will have all voting,
dividend, liquidation and other rights with respect to the shares of
restricted stock in accordance with its terms upon becoming the holder of
record of such stock; provided, however, that the participant shall have
the right to sell or otherwise transfer such stock only to the extent that
vesting and performance criteria have been satisfied. Such limitations
may be enforced, in the sole discretion of the Committee, by placing a
restrictive legend on the stock certificates, or by making arrangements
for custody of the stock certificates.
8. EARLY TERMINATION.
(a) DEATH OR DISABILITY. If a participant's employment or
engagement by the Company terminates because of total disability (as
defined below) or because of retirement at 65 years of age or later, any
options or stock appreciation rights granted to such participant shall
expire three (3) months after such termination. If the participant dies
while employed or engaged by the Company, to the extent that the option
was exercisable at the time of the participant's death, such option may,
within one year after the participant's death, be exercised by the person
or persons to whom the participant's rights under the option pass by will
or by the applicable laws of descent and distribution; provided, however,
that an option or stock appreciation right may not be exercised after the
expiration date as originally granted. In the event of termination by
reason of death or total disability as described in this paragraph, all
employment period and other restrictions applicable to restricted stock
then held by the participant shall lapse, and such stock shall become
fully nonforfeitable.
An employee who is absent from work with the Company
because of total disability, as defined below, shall not by virtue of such
absence alone be deemed to have terminated such participant's employment
with the Company. All rights which such participant would have had to
exercise options or stock appreciation rights granted hereunder will be
suspended during the period of such absence and may be exercised
cumulatively by such participant upon return to the Company so long as
such rights are exercised prior to the expiration of the option or stock
appreciation right as originally granted. For purposes of the Plan,
"total disability" means disability, as a result of sickness or injury, to
the extent that the participant is prevented from engaging in any
substantial gainful activity and is eligible for and receives a disability
benefit under Title II of the Federal Social Security Act.
(b) OTHER TERMINATIONS. If a participant's employment or
engagement by the Company terminates for any other reason, whether
terminated by the participant or the Company, with or without cause, then
(i) all options granted to such participant under the Plan shall terminate
and no longer be exercisable as of the date of such termination, and (ii)
any restricted stock as to which the employment period or other
restrictions have not been satisfied shall be forfeited. The preceding
sentence will not apply if the participant becomes or remains a non-
employee officer, director, advisor or independent contractor. In that
event, any Incentive Stock Option held by the participant shall be
converted to a Nonqualified Stock Option on the date the participant's
employment or engagement terminates.
(c) WAIVER OF VESTING RESTRICTIONS. In any circumstance
described in this section, the Committee shall have the discretion to
waive any vesting restrictions on the participant's restricted stock,
options or rights, or the early termination thereof.
9. CAPITAL ADJUSTMENTS. If any changes are made to the shares of
Common Stock (whether by reason of reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Committee shall make the
adjustments it deems appropriate in: (i) the number of outstanding stock
options and stock appreciation rights, (ii) the option price thereof, and
(iii) the aggregate number of shares which may be made subject to stock
options or which may be granted to any one participant hereunder. If any
such adjustment results in a fractional share, the fraction shall be
disregarded.
10. NONTRANSFERABILITY. During a participant's lifetime, a right or
an option may be exercised only by the participant. Options and rights
granted under the Plan, restricted stock as to which the vesting and
performance criteria have not been satisfied, and the rights and
privileges conferred thereby, shall not be subject to execution,
attachment or similar process and may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by the applicable laws of descent and
distribution. Notwithstanding the foregoing, to the extent permitted by
applicable law (including Exchange Act Rule 16b-3), the Committee may, in
its sole discretion, (i) permit a recipient of a Nonqualified Stock Option
to designate in writing during the participant's lifetime a beneficiary to
receive and exercise the participant's Nonqualified Stock Options in the
event of such participant's death, (ii) grant Nonqualified Stock Options
that are transferable to the immediate family or a family trust of the
participant, and (iii) modify existing Nonqualified Stock Options to be
transferable to the immediate family or a family trust of the participant.
Any other attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of any option or right or unvested restricted stock under the
Plan, or of any right or privilege conferred thereby, contrary to the
provisions of the Plan shall be null and void.
11. RESALE OF SHARES PURCHASED. Except as provided in Section 7
with respect to restricted stock, all shares of stock acquired under the
Plan may be freely resold, subject to applicable state and federal
securities laws restricting their transfer. However, the Company may
impose various conditions to exercise of an option, including a
requirement that the person exercising such option represent and warrant
that, at the time of such exercise, the shares of Common Stock being
purchased are being purchased for investment and not with a view to resale
or distribution thereof. In addition, the resale of shares purchased upon
the exercise of Incentive Stock Options may cause the employee to lose
certain tax benefits if the employee fails to comply with the holding
period requirements described in Section 5(e) hereof.
12. ACCELERATION OF RIGHTS AND OPTIONS. If the Company or its
shareholders agree to dispose of all or substantially all of the assets or
stock of the Company (whether by sale, merger or other reorganization,
liquidation, or otherwise), any right or option granted pursuant to the
Plan shall become immediately and fully exercisable during the period from
the date of the agreement to the date the agreement is consummated (or, if
earlier, the date the right or option terminates in accordance with the
Plan). However, no option or right shall be accelerated under this section
if the shareholders of the Company immediately before the contemplated
transaction will own 50% or more of the total combined voting power of all
classes of voting stock of the surviving entity (whether the Company or
some other entity) immediately after the transaction. In the event the
contemplated transaction terminates without being consummated, the options
and rights granted pursuant to the Plan shall thereafter be treated as if
that agreement had never been entered into.
13. TAX WITHHOLDING. Each participant agrees that, if and to the
extent required by law, the Company shall withhold or require the payment
by the participant of any state, federal or local taxes resulting from the
exercise of an option or right or the grant or vesting of restricted
stock; provided, however, that to the extent permitted by law, the
Committee may in its discretion, permit some or all of such withholding
obligation to be satisfied by the delivery by the participant of, or the
retention by the Company of, shares of its Common Stock.
14. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be issued
with respect to any option or right granted under the Plan unless the
exercise of that option and the issuance and delivery of the shares
pursuant thereto shall comply with all relevant provisions of state and
federal law, including without limitation the Securities Act of 1933, as
amended, the rules and regulations promulgated thereunder and the
requirements of any stock exchange or automated quotation system upon
which shares of the Company's stock may then be listed or traded, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance. Each participant must consent to the
imposition of a legend on the certificate representing the shares of
Common Stock issued upon the exercise of the option or right restricting
their transferability as may be required by law, the option or right, or
the Plan.
15. REPORTS TO PARTICIPANTS. The Company shall furnish to each
participant a copy of the annual report, if any, sent to the Company's
shareholders. Upon written request, the Company shall furnish to each
participant a copy of its most recent annual report, if any, filed with
the Securities and Exchange Commission and each quarterly report to
shareholders issued since the end of the Company's most recent fiscal
year.
16. NO EMPLOYEE CONTRACT. The grant of restricted stock or an
option or right under the Plan shall not confer upon any participant any
right with respect to continuation of employment by, or the rendition of
advisory or consulting services to, the Company, nor shall it interfere in
any way with the Company's right to terminate the participant's employment
or services at any time.
17. NONEXCLUSIVITY OF THE PLAN. Approval of the Plan does not
create any limitations on the authority of the Company to adopt other
incentive or compensation arrangements of any nature, nor does it modify
any other compensation practice of the Company.
18. AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN. The Committee
may at any time suspend or terminate the Plan and (except as described
below) may amend it from time to time in such respects as the Committee
may deem advisable in order that options and rights granted hereunder
shall conform to any change in the law, or in any other respect which the
Committee may deem to be in the best interests of the Company. However, no
such amendment shall, without the participant's consent, alter or impair
any of the rights or obligations under any option or stock appreciation
rights theretofore granted to a participant under the Plan. Further, no
such amendment shall, without shareholder approval: (a) increase the total
number of shares available for grants of options or rights under the Plan
(except as provided by Section 9 hereof); or (b) effect any change to the
Plan which is required by law (including without limitation the
regulations promulgated under Section 422 of the Code) to be approved by
the shareholders.
19. EFFECTIVE DATE. The effective date of the Plan shall be March
19, 1999. The Plan shall be submitted for ratification by the Company's
shareholders as required by applicable law (including as required to
qualify for the "qualified performance based compensation" exception to
Code Section 162(m)). Until the Plan has been ratified by the Company's
shareholders, all grants under the Plan also shall be subject to
shareholder ratification.
20. TERMINATION DATE. Unless the Plan shall have been previously
terminated by the Committee, the Plan shall terminate on March 18, 2009,
and no stock, option or right shall be granted after that date. Stock,
options and rights outstanding under the Plan at that date shall continue
to be governed by the provisions of the Plan.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is entered into as of April --, 1999,
between Cavion Technologies, Inc. (the "Company"), and ------------------
("Indemnitee").
The Company has determined that, due to the legal risks incurred by
persons serving as officers and directors of corporations in the present
business environment, it is in the best interest of the Company to offer
contractual protection against such risks to its officers and directors,
in order to attract the most qualified individuals to serve as officers
and directors. In order to induce Indemnitee to serve as ---------------
of the Company, the Company has agreed to provide Indemnitee with the
protections set forth in this agreement. Indemnitee has agreed to serve
the Company as -------------------------- on the condition that the
Company provide Indemnitee with such protections. Therefore, in
consideration of the foregoing and the terms of this agreement, the
Company and Indemnitee hereby agree as follows:
1. DEFINITIONS. For purposes of this agreement, the following terms
shall have the following meanings:
"AGENT OF THE COMPANY" means any person who (1) is or was a director,
officer, employee, fiduciary or other agent of the Company or a
Subsidiary, or (2) is or was serving at the request of, for the
convenience of or to represent the interest of the Company or a
Subsidiary as a director, officer, employee, fiduciary or other agent
of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise.
"CHANGE OF CONTROL" means any of the following events: (1) the
acquisition by a third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, of shares of
the Company having (together with any shares of the Company held by
such person at the time of such acquisition) 30% or more of the total
number of votes that may be cast for the election of directors of the
Company, (2) shareholder approval of the acquisition of the Company,
or substantially all of its assets, by another entity or of a merger,
reorganization, consolidation or other business combination to which
the Company is a party or (3) the election during any period of
twelve months or less of 33% or more of the directors of the Company
where such directors were not in office immediately prior to such
period.
"CORPORATE STATUS" means the status of an Agent of the Company, and
includes anything done or not done by an Agent of the Company in any
such capacity.
"DISINTERESTED DIRECTOR" means a director of the Company who is not
and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
"EXPENSES" includes all direct and indirect costs of any type or
nature whatsoever (including, without limitation, all attorneys' fees
and related disbursements, other out-of-pocket costs and reasonable
compensation for time spent by Indemnitee for which Indemnitee is not
otherwise specifically compensated by the Company or any third party)
actually and reasonably incurred by Indemnitee either in connection
with the investigation, defense, adjudication, settlement or appeal
of a Proceeding or in connection with establishing or enforcing a
right to indemnification or advancement of Expenses under this
agreement, the Articles of Incorporation or Bylaws of the Company,
applicable law or otherwise; provided, however, that Expenses shall
not include judgments, fines, penalties or amounts paid in settlement
of a Proceeding.
"GOOD FAITH" means in good faith and (1) with respect to actions
taken in the capacity of a director of the Company, in a manner
Indemnitee reasonably believed to be in the best interests of the
Company, (2) with respect to all other actions, in a manner
Indemnitee reasonably believed to be not opposed to the best
interests of the Company, and (3) with respect to any criminal
Proceeding, with no reasonable cause to believe Indemnitee's conduct
was unlawful. A director of the Company shall be deemed not to have
acted in Good Faith with respect to a Proceeding charging improper
personal benefit to the director if he or she is finally adjudged in
such Proceeding to be liable on the basis that personal benefit was
improperly received by him or her.
"INDEPENDENT COUNSEL" means a lawyer or law firm that is experienced
in matters of corporation law and neither presently is, nor in the
past three years has been, retained to represent (1) the Company or
Indemnitee in any matter material to either such party (except
representation as Independent Counsel under this agreement or any
similar agreement), or (2) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any
person who, under the applicable standards of professional conduct
then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine
Indemnitee's rights under this agreement.
"PROCEEDING" means any threatened, pending or completed action, suit
or other proceeding whether civil, criminal, administrative,
investigative or of any other type whatsoever.
"SUBSIDIARY" means any corporation of which more than 50% of the
outstanding voting securities is owned directly or indirectly by the
Company, by the Company and one or more other Subsidiaries, or by one
or more other Subsidiaries.
2. INDEMNIFICATION.
(a) GENERAL. In connection with any Proceeding, the Company shall
indemnify and advance Expenses to Indemnitee to the fullest
extent permitted by applicable law in effect on the date hereof
and to such greater extent as applicable law may thereafter from
time to time permit. Without limiting the generality of the
foregoing, the Company shall indemnify and advance Expenses to
Indemnitee as provided in this agreement.
(b) PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. If, by reason of Indemnitee's Corporate Status,
Indemnitee is, or is threatened to be made, a party to any
Proceeding, other than a Proceeding by or in the right of the
Company, Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with such Proceeding or any
claim, issue or matter therein, if Indemnitee acted in Good
Faith.
(c) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. If, by reason of
Indemnitee's Corporate Status, Indemnitee is, or is threatened
to be made, a party to any Proceeding brought by or in the right
of the Company to procure a judgment in its favor, Indemnitee
shall be indemnified against Expenses actually and reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection
with such Proceeding if Indemnitee acted in Good Faith.
Notwithstanding the foregoing, no such indemnification shall be
made in respect of any claim, issue or matter in such Proceeding
as to which Indemnitee shall have been adjudged to be liable to
the Company if applicable law prohibits such indemnification;
provided, however, that indemnification shall nevertheless be
made in such event to the extent that the court in which such
Proceeding shall have been brought or is pending shall
determine.
(d) INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.
If Indemnitee is, by reason of Indemnitee's Corporate Status, a
party to and is successful, on the merits or otherwise, in any
Proceeding, Indemnitee shall be indemnified to the maximum
extent permitted by law, against all Expenses, judgments,
penalties, fines, and amounts paid in settlement, actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. For purposes of this Section 2(d) and
without limitation, the termination of any claim, issue or
matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such
claim, issue or matter, so long as there has been no finding
(either adjudicated or pursuant to Section 4) that Indemnitee
did not act in Good Faith.
(e) INDEMNIFICATION FOR EXPENSES OF A WITNESS. If Indemnitee is, by
reason of Indemnitee's Corporate Status, a witness in any
Proceeding, Indemnitee shall be indemnified against all expenses
actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection therewith.
3. ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable
Expenses which, by reason of Indemnitee's Corporate Status, were
incurred by or on behalf of Indemnitee in connection with any
Proceeding, within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or
advances, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably detail the
Expenses incurred by Indemnitee and shall be accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses if it
is ultimately determined that Indemnitee is not entitled to be
indemnified against such Expense. Any undertaking to repay pursuant
to this Section 3 shall be unsecured and interest free.
4. PROCEDURES FOR DETERMINATION OF GOOD FAITH.
(a) METHOD OF DETERMINATION. If required by Colorado Revised
Statutes Section 7-109-106, a determination with respect to
Indemnitee's Good Faith shall be made as follows:
(1) If a Change of Control has occurred, unless Indemnitee
shall request in writing that such determination be made in
accordance with Section 4(a)(2) below, the determination
shall be made by Independent Counsel in a written opinion
to the Board, a copy of which shall be delivered to
Indemnitee.
(2) If a Change of Control has not occurred, the determination
shall be made by the Board by a majority vote of a quorum
consisting of Disinterested Directors. In the event that a
quorum of the Board consisting of Disinterested Directors
is not obtainable or such quorum of Disinterested Directors
so directs, the determination shall be made by Independent
Counsel in a written opinion to the Board, a copy of which
shall be delivered to Indemnitee.
(b) SELECTION AND PAYMENT OF INDEPENDENT COUNSEL. In the event that
the determination of Good Faith is to be made by Independent
Counsel pursuant to Section 4(a), the Independent Counsel shall
be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board), and Indemnitee shall give
written notice to the Company advising it of the identity of the
Independent Counsel so selected. The Company shall pay any and
all reasonable fees and expenses of Independent Counsel incurred
by such Independent Counsel in connection with acting pursuant
to this agreement.
(c) AUTHORIZATION OF INDEMNIFICATION. In the event that a
determination is made by Independent Counsel that Indemnitee
acted in Good Faith, the Board shall, within fifteen (15) days
after receipt of such determination, evaluate the reasonableness
of the Expenses as to which indemnification is sought, and shall
authorize payment of such Expenses as it determines are
reasonable, and of all other amounts as to which indemnification
is sought. The evaluation of Expenses shall be made in the
Board's reasonable good faith judgment, and shall be subject to
de novo review pursuant to Section 7(b).
(d) FAILURE TO MAKE DETERMINATION. In the event that the Board
fails or refuses to make a determination pursuant to Section
4(a)(2), or fails or refuses to authorize indemnification
following a determination by Independent Counsel that Indemnitee
has acted in Good Faith, within fifteen (15) days after receipt
by the Company of the request for indemnification or the
determination of Independent Counsel, as applicable, such
failure or refusal shall be treated as a determination that
Indemnitee is entitled to the indemnification sought.
(e) PAYMENT. If the Board determines that Indemnitee has acted in
Good Faith, payment to Indemnitee shall be made within ten (10)
days after such determination. If Independent Counsel
determines that Indemnitee has acted in Good Faith, payment to
Indemnitee shall be made within ten (10) days after
authorization pursuant to Section 4(c).
5. PROCEEDINGS INVOLVING THIS AGREEMENT. Notwithstanding any other
provision of this agreement to the contrary, the Company shall
indemnify and hold harmless Indemnitee against all Expenses incurred
by Indemnitee in connection with any proceeding between the Company
and Indemnitee involving the interpretation or enforcement of the
rights of Indemnitee under this agreement, unless a court of
competent jurisdiction determines that each of the claims and/or
defenses of Indemnitee in any such Proceeding was frivolous or made
in bad faith.
6. NOTICE OF PROCEEDINGS. Promptly after receipt by Indemnitee of
notice of the commencement or the threat of commencement of any
Proceeding with respect to which Indemnitee believes that Indemnitee
may be entitled to indemnification or the advancement of Expenses
under this agreement, Indemnitee shall notify the Company in writing
of the commencement or the threat of commencement thereof; provided,
however, that Indemnitee's failure to provide any such notice shall
not relieve the Company of any of its obligations under this
agreement. Indemnitee shall have the right to retain control of the
defense of such Proceeding.
7. DISPUTES.
(a) ADJUDICATION. In the event of a dispute arising under this
agreement, Indemnitee, at Indemnitee's option, shall be entitled
to an adjudication in an appropriate court of the State of
Colorado, or binding arbitration to be conducted in Denver,
Colorado by a single arbitrator pursuant to the rules of the CPR
Institute for Dispute Resolution (or other rules as agreed).
(b) DE NOVO REVIEW. In the event that the Board fails or refuses to
authorize payment of indemnification in the amount sought
following a determination pursuant to Section 4 of this
agreement that Indemnitee has acted in Good Faith, any judicial
proceeding or arbitration commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial or
arbitration on the merits, and Indemnitee shall not be
prejudiced by reason of that action of the Board.
8. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No claim or cause of
action shall be asserted by or in the right of the Company or a
Subsidiary against Indemnitee or the spouse, heirs, estate, executors
or administrators of Indemnitee, after the expiration of two (2)
years from the date of the alleged act or omission of Indemnitee upon
which such claim or cause of action is based; provided, however, that
in the event that Indemnitee has fraudulently concealed the facts
underlying such claim or cause of action, no claim or cause of action
shall be asserted after the expiration of two (2) years from the
earlier of the date the Company or any Subsidiary discovers such
facts or the date the Company or any Subsidiary should have
discovered such facts by the exercise of reasonable diligence, and
any and all of such claims and causes of action of the Company or a
Subsidiary against Indemnitee shall be extinguished and deemed
released unless asserted by filing of a legal action within such
period.
9. NON-EXCLUSIVITY; OTHER PROVISIONS. The benefits and rights provided
to Indemnitee under this agreement shall not be deemed exclusive of
any other rights which Indemnitee may have under any law, the
Articles of Incorporation or Bylaws of the Company, other agreements
or otherwise.
10. INTERPRETATION. The parties hereto intend for this agreement to be
interpreted and enforced so as to provide indemnification and
advancement of Expenses to Indemnitee to the fullest extent which is
now or hereafter allowed by applicable law and, in the event that the
validity, legality or enforceability of any provision of this
agreement is in question, such provision shall be interpreted in a
manner such that the provision will be valid, legal and enforceable
to the greatest extent possible. For purposes of this agreement, the
termination of any Proceeding by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have
any particular belief or that a court has determined that Indemnitee
is not entitled to indemnification or expense advance or that
indemnification or expense advance is not permitted by applicable
law.
11. CHANGE OF LAW. If Title 7, Article 109 of the Colorado Revised
Statutes, or any successor statute, is hereafter amended (the
"Amended Statute") in a manner that expands the authority of the
Company to indemnify or advance Expenses to Indemnitee, this
agreement shall thereupon be deemed modified to provide for
indemnification of and advancement of Expenses to Indemnitee to the
fullest extent allowed by the Amended Statute.
12. TERM OF INDEMNIFICATION. The term of this agreement and all
obligations of the Company hereunder shall continue during the period
Indemnitee is an Agent of the Company and shall continue thereafter
so long as Indemnitee is subject to any possible claim or threatened,
pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Indemnitee was
serving as an Agent of the Company.
13. SEVERABILITY. If any provision of this agreement is held by a court
of competent jurisdiction to be invalid or unenforceable for any
reason whatsoever, the validity and enforceability of the remaining
provisions of this agreement shall not in any way be affected or
impaired thereby, and to the fullest extent possible the other
provisions of this agreement shall be construed so as to give effect
to the intent manifested by the provision held invalid or
unenforceable and to give effect to Section 10 hereof.
14. NOTICES. All notices under this Agreement will be in writing and
deemed given upon receipt, by (1) personal delivery, (2)
telephonically confirmed fax, (3) receipted courier service or (4)
certified or registered mail, return receipt requested, addressed to
the address shown on the signature page of this agreement (or any new
address provided by written notice). Refusal to accept delivery will
be deemed receipt.
15. GENERAL. This agreement may be executed in one or more counterparts,
each of which shall be an original but all of which shall constitute
one and the same agreement. The headings in this agreement are for
convenience and shall not limit the interpretation of the text. This
agreement shall be governed by the laws of the State of Colorado, as
applied to contracts between Colorado residents entered into and to
be performed entirely within Colorado. The terms of this agreement
shall bind, and shall inure to the benefit of, the successors and
assigns of the parties hereto. Except as expressly provided herein,
no modification or amendment of this agreement shall be binding
unless executed in writing by both parties. No waiver of any
provision of this agreement shall be deemed a continuing waiver or a
waiver of any other provision.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Indemnification Agreement as of the date first given above.
CAVION TECHNOLOGIES, INC. INDEMNITEE
By:--------------------- ---------------------------------
David J. Selina
President
Cavion Technologies, Inc. ---------------------------------
7475 Dakin Street, Suite 607 ---------------------------------
Denver, Colorado 80221-6920 ---------------------------------
Attn: President ---------------------------------
Fax: 303-657-8210 ---------------------------------
Voice: 303-657-8212 ---------------------------------
AGREEMENT TO MODIFY DEFERRED OBLIGATIONS
This Agreement to Modify Deferred Obligations is made as of May 28,
1999 between Cavion Technologies, Inc., a Colorado corporation (the
"Company"), LanXtra, Inc., a Colorado corporation formerly known as Cavion
Technologies, Inc. ("LanXtra"), and the creditors listed on the SCHEDULE
OF CREDITORS attached hereto (the "Creditors").
On February 1, 1999, the Company acquired substantially all the
assets of LanXtra, and assumed certain liabilities of LanXtra, including
liabilities to the Creditors. Prior to the closing of the acquisition,
LanXtra and the Creditors entered into various agreements listed on the
SCHEDULE OF CREDITORS (the "Deferral Agreements"). Under the Deferral
Agreements, the payment of various amounts owed to the Creditors by
LanXtra was deferred until the date when 100 credit unions (or equivalent
entities) have subscribed and connected to the Company's secure network
(the "100 Credit Union Date"), or a date measured from the 100 Credit
Union Date. The parties have now agreed that the Deferral Agreements will
be amended as described in this agreement.
It is agreed as follows:
1. All obligations of LanXtra and the Company that were deferred under
any of the Deferral Agreements are hereby modified as follows: all such
obligations will become due and payable on the date that is fifteen days
after the closing of an underwritten initial public offering of the
Company's common stock pursuant to an effective registration statement
(the "IPO Date").
2. The Company's $600,000 credit facility (the "Credit Facility") with
US Bank, fka Colorado National Bank, will be paid in full on the date that
is fifteen days after the IPO Date. Each Investor (as defined in the
Termination and Modification Agreement referenced on the SCHEDULE OF
CREDITORS) will execute and deliver to the Company whatever documents are
necessary or appropriate in connection with extension of the maturity date
of the Credit Facility to the date that is fifteen days after the IPO
Date.
3. This agreement will be effective as to each Deferral Agreement of
which all parties have signed this agreement. If any of the signatories
referenced below do not sign this agreement, this agreement will remain in
effect, but will not modify any Deferral Agreement of which that signatory
is a party.
4. Except as expressly modified by this agreement, each Deferral
Agreement remains unmodified and effective in accordance with its terms.
END OF AGREEMENT [Signature Page follows next]
IN WITNESS WHEREOF, the parties have executed this Agreement to
Modify Deferred Obligations as of the date first set forth above.
CAVION TECHNOLOGIES,INC. LANXTRA, INC.
By:/s/David J. Selina By:/s/David J. Selina
David J. Selina, President David J. Selina, President
BRITISH FAR EAST HOLDINGS LTD. WILLIAM M. B. BERGER LIVING TRUST
By:/s/Arthur Lipper III By:/s/William B. Berger
Arthur Lipper III, Chairman William M. B. Berger, Trustee
/s/Martin Cooper FAIRWAY REALTY ASSOCIATES
Martin Cooper
/s/Craig E. Lassen By:/s/Robert Ingenito
Craig E. Lassen Robert Ingenito, General
Partner
/s/Herman D. Axelrod By:/s/John DiNozzi
Herman D. Axelrod John DiNozzi, General Partner
/s/David J. Selina /s/Jeff Marshall
David J. Selina Jeff Marshall
/s/Randal W. Burtis
Randal W. Burtis
CONVERGENT COMMUNICATIONS, INC.
By:/s/John R. Evans
John R. Evans, CEO
Schedule to
Agreement to Modify Deferred Obligations
Schedule of Creditors
1. Obligations deferred under Termination and Modification Agreement
dated as of September 28, 1998, as amended by Amendment to Termination
and Modification Agreement dated as of January 15, 1999:
British Far East Holdings Ltd. William M. B. Berger Living Trust
14911 Caminito Ladera c/o Berger Associates
Del Mar, CA 92014-3929 210 University Blvd., Suite 900
Attn: Arthur Lipper III, Chairman Denver, CO 80206
Fairway Realty Associates Martin Cooper
c/o Access Direct Systems, Inc. 100 Via de la Valle
91 Executive Boulevard Del Mar, CA 92014
Farmingdale, NY 11735-4713
Attn: Ronald J. Palumberi,
Director of Finance
2. Obligations deferred under Agreement for Deferral of Bridge Loan dated
as of December 31, 1998:
David J. Selina Jeff Marshall
5523 S. Jasper Way 6198 South Killarney Dr.
Aurora CO 80015 Aurora, Colorado 80016
Randal W. Burtis
1665 Logan #944
Denver, Colorado 80203
3. Obligations deferred under letter dated as of January 6, 1999:
Convergent Communications, Inc.
400 Inverness Drive South, Suite 400
Englewood, CO 80112
4. Obligations deferred under Agreement for Deferral of Obligations dated
as of January 18, 1999:
Craig E. Lassen Herman D. Axelrod
245 Poplar Street 2865 Juilliard Street
Denver, CO 80220 Boulder CO 80303
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) in this Registration Statement
on Form SB-2 dated June 10, 1999.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
June 10, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 19,735 1,055,230
<SECURITIES> 0 0
<RECEIVABLES> 0 9,393
<ALLOWANCES> 0 0
<INVENTORY> 0 5,832
<CURRENT-ASSETS> 19,735 1,241,069
<PP&E> 0 430,634
<DEPRECIATION> 0 17,531
<TOTAL-ASSETS> 2,273,961 6,353,661
<CURRENT-LIABILITIES> 33,301 1,788,418
<BONDS> 0 0
0 0
0 1,496,880
<COMMON> 263 302
<OTHER-SE> 1,987,564 2,494,652
<TOTAL-LIABILITY-AND-EQUITY> 2,273,961 6,353,661
<SALES> 0 66,539
<TOTAL-REVENUES> 0 66,539
<CGS> 0 41,443
<TOTAL-COSTS> 0 41,443
<OTHER-EXPENSES> 6,877 609,609
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 29,067 73,656
<INCOME-PRETAX> (35,944) (658,169)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (35,944) (658,169)
<EPS-BASIC> (0.02) (0.23)
<EPS-DILUTED> (0.02) (0.23)
</TABLE>
CAVION.COM
SECURE NETWORK SERVICES AGREEMENT
(CREDIT UNION CLIENT)
This Secure Network Services Agreement is between Cavion
Technologies, Inc., a Colorado corporation doing business as cavion.com
("Cavion"), and --------------- ("Client"). Cavion offers a variety of
data connectivity services ("network services") through Cavion's CUiNet(R)
network. CUiNet is a secure interactive network for electronic
communications and commerce among credit unions, their members, leagues,
service organizations and vendors of services to credit unions. This
agreement governs Client's use of CUiNet and the network services selected
on the attached Services Schedule.
It is agreed as follows:
1. SERVICES. Client subscribes for the network services selected on the
attached Services Schedule. Cavion will contract with a local
telecommunications provider to establish and maintain a connection from
Client's data processing and associated equipment ("Client's equipment")
to CUiNet. Upon mutual agreement of the parties, the Services Schedule
may be modified or additional Services Schedules may be added at any time
to add or reduce services or telecommunications bandwidth. Cavion
reserves the right to discontinue services included in the Services
Schedule, upon at least 30 days notice to Client.
2. FEES. The fees for access to CUiNet and for each network service are
as described in the Services Schedule. In addition to the listed fees,
Client will pay any applicable sales, use, value-added, personal property
or similar taxes. The non-refundable set-up fee is due one-half upon
execution of this agreement and one-half upon receipt of invoice from
Cavion after activation of the network connection. Monthly recurring fees
will begin upon commencement of service, and are due upon receipt of
invoice from Cavion. Fees for additional services or telecommunications
bandwidth will begin upon commencement of the new or upgraded service.
Monthly fees for discontinued services will not be prorated. Fees may be
increased for any renewal term of this agreement, upon notice to Client at
least 60 days prior to the end of the current term. Fees may also be
increased on an annual basis to reflect changes in the All-Urban Consumer
Price Index as published by the Bureau of Labor Statistics. Failure to pay
any fees on time may result in suspension of service.
3. SET-UP OF THE SERVICES.
3.1 Any network servers, routers and other equipment paid for by
Client as part of the set-up fees described in the attached Equipment
Schedule belong to Client, whether located at a Client facility or a
Cavion facility. All other equipment associated with CUiNet and Client's
connection to CUiNet is owned or leased by Cavion, whether located at a
Client facility or a Cavion facility. Title and risk of loss to any
equipment purchased by Client will pass to Client upon delivery to the
shipping carrier. Cavion retains a security interest in equipment
purchased until final payment of the set-up fees. Client is responsible
for equipment installation and wiring at Client's facility, with
assistance from Cavion engineering staff. Equipment is deemed accepted
upon the first successful use of the network.
3.2 Cavion will complete the interface between Cavion's network
services software and Client's host data processing software (if required
for the network services selected by Client). Client will cooperate with
this process, including providing access to Client's technical personnel
and host data processing vendor. Any fees of the host data processing
vendor associated with completing this interface are the responsibility of
Client.
4. NETWORK OPERATIONS.
4.1 Client is responsible for the design of, and maintaining the
content of, Client's web site (if any). Upon request, Cavion will refer
Client to a web site design consultant. If transactional services are
selected, Client is responsible for validating the transactions of its
members, including assigning passwords. Client is solely responsible for
providing support to its members regarding their use of CUiNet and the
network services.
4.2 Cavion will provide telephone support to Client during regular
business hours at the nearest Cavion staffed facility. Emergency support
is available 24 hours per day, 365 days per year. Cavion will maintain,
administer and upgrade the network as appropriate (in Cavion's judgment)
for effective network operations. Should an upgrade of the network
require upgrade of Client's equipment or software to remain compatible,
the upgrade of Client's equipment or software will be Client's
responsibility.
4.3 Cavion will maintain the network connection equipment provided
to Client's facility under this agreement, whether the equipment belongs
to Client or Cavion. However, Client is responsible for maintaining an
appropriate operating environment and restricting access to the connection
equipment. Cavion relies on Client to promptly notify Cavion of any
problem affecting Client's connection to the network, and to cooperate
with Cavion (including providing access to Client's facility and technical
personnel) as needed to correct any such problem.
4.4 CUiNet uses standard telecommunication links and standard
network server technology. While expected to be minimal, unscheduled
temporary service disruptions cannot be completely eliminated. Network
service will also be limited or interrupted from time to time for
scheduled maintenance, network expansion, upgrades or other administrative
purposes. Cavion will make commercially reasonable efforts to notify
clients in advance of scheduled downtime, and to limit scheduled downtime
to off-peak hours.
4.5 Cavion reserves the right to monitor CUiNet traffic as
appropriate (in Cavion's judgment) for proper operation of the network and
as otherwise required or permitted by law. However, Cavion does not have
the practical ability to control the conduct of users of the network and
assumes no liability for such conduct.
5. STANDARDS OF USE. Client will use CUiNet and the network services,
and will permit the use of CUiNet and the network services, only in a
manner that is lawful, consistent with the rights of other users and third
parties, in keeping with accepted Internet etiquette, and not disruptive
to the operations of the network. Except for the limited access provided
to members of Client as end users of the network services, Client will
provide access to the network or the Internet only to its employees,
independent contractors and examiners, and only from equipment located at
Client's facilities. Client will communicate the restrictions described
in this section to anyone to whom it provides access. Vendors who use the
network to provide services to Client or its members must do so by
agreement with Cavion. Client agrees to comply with any rules and
policies posted on CUiNet's web server that are generally applicable to
users of CUiNet or a network service. Material breach of this section
will be cause for immediate suspension of service or termination of this
agreement.
6. INTERNET ENVIRONMENT. Client acknowledges that (a) the availability,
performance, reliability, legality and appropriateness of resources
accessed through the Internet are beyond the control of Cavion, and (b)
there can be no assurance of privacy with respect to data sent or received
across the Internet in unencrypted form.
7. SECURITY. Cavion will take commercially reasonable steps to ensure
that network services sessions accessed from the Internet, and CUiNet
interfaces to the Internet, are protected using network firewalls,
encryption, and/or other appropriate security measures. Client is
responsible for (a) the security of network equipment located at Client's
facility, and (b) safeguarding any passwords or other validation
information assigned to Client or Client's users. In addition, while the
private telecommunication circuits between Client's facility and CUiNet
provide physical security for Client's unencrypted network traffic, these
circuits are owned and operated by telecommunications providers and Cavion
does not guarantee their security.
8. LIMITED WARRANTIES.
8.1 Except as described in section 4.4, CUiNet will be online and
available 24 hours per day, 365 days per year. Each network service will
be capable of performing the functions described in the online
documentation associated with the service, for the term of this agreement,
provided the service is used with an approved web browser and otherwise in
accordance with the documentation. Cavion does not guarantee that
operation of CUiNet or the network services will be uninterrupted or error-
free. Cavion is not responsible for network unavailability caused by
Client's equipment, equipment of Client's members, telecommunications
circuits or the Internet. Client is responsible for selecting which of
the telecommunications circuits offered by CUiNet will be used, and for
the adequacy of the telecommunications circuit to carry Client's traffic
over CUiNet. Warranty protection for equipment sold to Client under this
agreement will be as provided by the equipment manufacturer.
8.2 Claims for breach of this warranty should be submitted in
writing, including as much detail as possible concerning the circumstances
of the problem. If Cavion is unable to correct the problem (with Client's
cooperation) within 30 days, Cavion will refund the monthly charges
relating to the service in which the problem is experienced, prorated for
the affected period.
8.3 This section sets forth Cavion's exclusive warranties with
respect to the performance of CUiNet and the network services. Cavion
disclaims any other warranties, express or implied, including any
warranties of merchantability, fitness for any particular purpose, title,
authority or noninfringement. These warranties are exclusively for the
benefit of Client, and are not transferable without Cavion's prior written
consent.
9. LIMITATION OF LIABILITY. Client is exclusively responsible for all
financial risks associated with access to and use of CUiNet and the
network services by Client's members, including validation of all
transactions. In no event will Cavion be liable for lost data, lost
profits, or any other incidental, consequential or exemplary damages, even
if Cavion is aware of the possibility of such damages. In no event will
Cavion's liability for any claim related to this agreement exceed the
amount paid by Client under this agreement during the six months prior to
the claim.
10. OWNERSHIP AND LICENSE.
10.1 "Cavion technology" means all inventions, designs, software and
intellectual property of any kind used in the operation of CUiNet and the
network services, including all portions and complete or partial copies
thereof, all derivatives, modifications and enhancements thereof, and any
documentation associated therewith. "Cavion technology" does not include
Client's host data processing software. Cavion owns or licenses from
third parties all Cavion technology.
10.2 Cavion hereby grants to Client, during the term of this
agreement and subject to the provisions of this agreement, a nonexclusive
nontransferable license (a) to use the Cavion technology (other than the
network services software) for the purpose of connecting to, and
transmitting and receiving data across, the network as contemplated by
this agreement, and (b) to use any network services software subscribed
and paid for under the Services Schedule to access, employ and make
available to Client's members the corresponding network services. This
license does not include rights to (a) use the Cavion technology for any
other purpose, (b) modify, translate, or merge any network services
software with another program, (c) create a derivative work based on the
Cavion technology, or (d) sublicense or transfer the Cavion technology to
any third party (except for the implied sublicense to Client's members to
use the network services as contemplated by this agreement). Client will
not reverse-engineer, disassemble, decompile, or make any attempt to
discover the source code of the network services software. Client will
not copy the network services software, except for temporary browser-
embedded copies as required to run the software. All rights not
explicitly granted to Client under this section are reserved to Cavion.
10.3 Cavion hereby grants to Client, during the term of this
agreement and subject to the provisions of this agreement, a nonexclusive,
nontransferable license to use the CUiNet name and any materials
concerning CUiNet provided by Cavion, for the purpose of promoting the
network and the network services.
11. CONFIDENTIALITY.
11.1 "Confidential information" means any and all confidential
business information concerning either party that is disclosed to the
other party in connection with this agreement, including all confidential
information disclosed to Client concerning Cavion technology and including
the terms of this agreement. Any confidential financial information of
Client's members to which Cavion has access as network administrator will
be treated as confidential information of Client. "Confidential
information" does not include information which the recipient can show (a)
is public (other than through the recipient's actions), (b) was rightfully
disclosed to the recipient by a third party, or (c) was independently
developed by the recipient. Information that is not otherwise
confidential will not be treated as confidential merely because it is
disclosed under this agreement.
11.2 Each party (and its employees and agents) (a) will use the same
degree of care (and at least a reasonable degree of care) to prevent the
unauthorized disclosure or use of confidential information as it uses to
protect its own confidential information of a similar nature, and (b) will
immediately notify the disclosing party upon discovery of any loss,
unauthorized disclosure, or unauthorized use of confidential information.
11.3 Upon termination of this agreement, or at any time upon the
request of the disclosing party, the recipient will promptly return or
destroy all confidential information in any form (including computer
media), and the recipient will not retain any copies of confidential
information in any form. Notwithstanding the preceding sentence, Cavion
may keep archival copies of network traffic as required in Cavion's
discretion for proper operation of the network. Cavion will not be
required to return or destroy these copies, but will continue to treat
them as confidential information under this section as long as they are
retained.
11.4 Any breach of this section will cause the disclosing party
irreparable harm for which it cannot be adequately compensated in damages.
The disclosing party will therefore be entitled, in addition to any
remedies otherwise available, to injunctive and other equitable relief,
without posting bond, to enforce this section and to prevent any breach of
this section. The provisions of this section will survive termination of
this agreement for the longest of the following: (a) two years, (b) in the
case of archive copies as described in the preceding subsection, any
period for which Cavion retains such copies, or (c) in the case of any
trade secret, as long as such information remains a trade secret.
12. INDEMNITIES. Each party indemnifies the other (and its affiliates
and agents) against all loss, liability or expense (including reasonable
attorney and witness fees and expenses) arising out of any claim that
materials of the indemnifying party infringe the patent, copyright,
trademark or trade secret rights of any third party. For this purpose,
"materials" of a party means any technology or content supplied by that
arty for use or publication on the network or the Internet. Client
indemnifies Cavion (and its affiliates and agents) against all loss,
liability or expense (including reasonable attorney and witness fees and
expenses) arising out of any use of the network, the network services or
the Internet by anyone to whom Client provides access. In each case, the
indemnity is subject to the conditions that:
(a) the indemnifying party is notified of the claim in a timely
manner;
(b) the indemnified party provides all reasonable assistance to
defend against the claim at the indemnifying party's expense; and
(c) the indemnifying party is given control of the defense and
settlement.
If any materials are held or are believed by the indemnifying party
to infringe, the indemnifying party will have the option, at its
expense, to (a) modify the materials to be non-infringing, (b) obtain
for the indemnified party the right to continue using the materials,
or (c) terminate the use of the materials under this agreement. The
provisions of this section will survive termination of this agreement
for a period equal to the statute of limitations governing the
indemnified claim, and will continue to apply to any claim filed
within that period.
13. Term and Termination.
13.1 The term of this agreement will be for three years from the date
hereof. Thereafter, this agreement will automatically renew for
additional three year periods unless (a) terminated by either party by
notice at least 60 days prior to the renewal date, or (b) replaced by a
new agreement governing access to CUiNet and the network services.
13.2 Either party may terminate this agreement upon notice to the
other:
(a) if the other party materially breaches any of its
obligations under this agreement and such breach is not cured within 60
days after notice thereof; or
(b) if insolvency proceedings pursuant to any federal or state
law are filed by the other party, or are filed against the other party and
not dismissed within 60 days; if substantially all of the assets of the
other party are transferred to an assignee for the benefit of creditors, a
receiver or a trustee in bankruptcy; if the other party is adjudged
bankrupt; or if the other party ceases to carry on business.
13.3 Termination of this agreement will not be exclusive of any other
remedy available under this agreement or applicable law. Upon
termination, each party will promptly make any payments owed to the other
party. Cavion will reasonably cooperate with Client in the transfer of
Client's domain hosting, if any. Monthly network services fees will not
be prorated. Access to the network and network services will be
discontinued upon termination. Within 30 days after termination, each
party will return (or will provide reasonable access to its facilities for
the other party to retrieve) any equipment in its possession that belongs
to the other party.
14. DISPUTES. Except as otherwise agreed, any dispute concerning this
agreement will be resolved as follows:
14.1 If either party believes that a dispute cannot be resolved by
informal negotiation, the matter will be submitted to mediation. The
parties will agree upon a neutral impartial mediator experienced in the
field of interactive electronic networks. At the commencement of the
mediation, the parties will agree upon (a) a procedure for exchange of
information related to the dispute, and (b) ground rules and a schedule
for conducting the proceeding before the mediator.
14.2 If a dispute is not settled pursuant to mediation within the
agreed time period, or if any party will not participate in the mediation,
the dispute will be submitted to binding arbitration in Denver, Colorado,
in accordance with the rules of the CPR Institute for Dispute Resolution.
The arbitration will be by a single arbitrator (or, if the amount in
controversy is greater than $50,000, by three arbitrators, none of whom
will be appointed by either party) experienced in the field of interactive
electronic networks. The arbitration will be governed by the United
States Arbitration Act, and judgment upon the award may be entered by any
court having jurisdiction thereof. The arbitrators will not be empowered
to award damages in excess of actual damages, but will be empowered (not
required) to require any party to pay the reasonable attorney fees, expert
witness fees, and other arbitration costs of any other party.
14.3 Except as specified in section 11.4, the procedures described in
this section will be the exclusive procedures for the resolution of
disputes; provided, however, that either party may seek preliminary
judicial relief in Denver, Colorado, if in the judgment of that party such
relief is necessary to avoid irreparable damage. Despite the initiation
of any such judicial proceedings, the parties will continue to participate
in good faith in the mediation or arbitration. Any cause of action either
party may have with respect to this agreement will be barred unless it is
commenced within one year after the cause of action arises, is discovered,
or should have been discovered with the exercise of reasonable diligence.
15. GENERAL.
15.1 The parties are independent contractors. Neither party is an
agent or partner of the other, or has the right to incur any obligation on
behalf of the other. Each party may use the other's name and trademarks
only with the other's prior written consent (except that Cavion may use
Client's name in any listing of CuiNet clients). Upon termination of this
agreement, all use of such names and trademarks will immediately be
discontinued, and each party will return to the other all promotional
materials and other items bearing the other's name or trademarks that are
in its possession.
15.2 Neither party will be liable for any delay or failure in its
performance under this agreement (except for payment obligations) directly
or indirectly due to acts of the other party or its agents, or to causes
beyond the control of the delaying party (including equipment failure,
utility failure, casualty, emergency conditions, acts of governmental
authorities, labor disputes, and acts of suppliers, telecommunications
providers or other third parties).
15.3 Notices under this agreement will be in writing and will be
effective when received by certified mail, overnight courier, fax or hand
delivery to the address set forth below (as may be changed from time to
time by written notice). Refusal to accept delivery will be deemed
receipt.
15.4 This agreement will be binding upon the assigns and successors
in interest of Cavion and Client. Either party may assign this agreement
to an affiliate, or as collateral for financing purposes, and Cavion may
assign this agreement to a purchaser of CUiNet, without the consent of the
other party. Neither party may otherwise assign this agreement without
the other party's written consent, which will not unreasonably be
withheld.
15.5 This agreement is governed by the laws of the State of Colorado.
No provision of this agreement may be waived or modified except in writing
signed by Client and Cavion. This agreement (including the Services
Schedule as modified by the parties from time to time) is the entire
agreement between the parties as to its subject matter, and supersedes any
other communications between the parties. This agreement may be executed
in counterparts, each of which will constitute an original. If any
provision of this agreement is found to be invalid or unenforceable, such
provision will be modified (in the affected jurisdiction) to the minimum
extent required, and the remainder hereof will not be affected.
IN WITNESS WHEREOF, the parties have executed this Secure Network
Services Agreement as of the date written below.
- -----------------------[Client] CAVION TECHNOLOGIES, INC.
By:---------------------------- By:---------------------------
Title:------------------------- Title:------------------------
Address: Address:
- ------------------------------- Cavion Technologies, Inc.
- ------------------------------- 7475 Dakin Street, Suite 607
- ------------------------------- Denver, Colorado 80221-6920
- ------------------------------- Attn: President
- ------------------------------- Fax: 303-657-8210
- ------------------------------- Voice: 303-657-8212
Date: ------------------------
SERVICES SCHEDULE TO
CAVION.COM
SECURE NETWORK SERVICES AGREEMENT
1. Description of Services
Client subscribes for the network services indicated by checking the boxes
below:
- --- SECURE ISP SERVICES
This service provides unlimited Internet access for Client and
Client's employees, at the bandwidth selected by Client. The service
includes access to CUiNet, network address translation, unlimited e-
mail for Client's employees, and (if applicable) hosting of Client's
web site. Upon request, Cavion will register Client's domain name,
and will refer Client's web site design to a web site design
consultant.
- --- SECURE FORMS SERVER
This service enables Client's members to provide encrypted data (such
as loan or credit applications) using online forms in a secure area
of Client's web site. Cavion's secure forms server is firewall
protected.
- --- SECURE INTERNET TRANSACTIONAL BANKING SERVICES
This service enables Client's members to retrieve account information
and perform a variety of interactive account transactions via the
Internet. Cavion's secure transactional banking server is double
firewall protected.
- --- INTERNET BANKING "PULL" ADVERTISING
This service enables Client to target online advertising of specific
services to members not currently using those services, as part of
Client's Internet Transactional Banking user interface.
- --- SECURE INTERNET BILL PAYMENT SERVICES
This service enables Client's members to set up and modify online
bill payment through a third party settlement agent, via the
Internet. Cavion's secure Internet bill payment server is firewall
protected.
- --- KIOSK SOFTWARE
This service allows Client to set up remote kiosks (with hardware
provided by a third party vendor) to provide general service
information concerning Client, or to provide member account
information and enable interactive account transactions.
2. Pricing Summary
Client agrees to pay the following fees in connection with the Secure
Network Services Agreement:
[add from pricing information]
