<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
CAVION TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
COLORADO 514191 84-1472763
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification No.)
</TABLE>
6446 SOUTH KENTON STREET
ENGLEWOOD, COLORADO 80111
(720) 875-1900
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
DAVID J. SELINA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAVION TECHNOLOGIES, INC.
6446 SOUTH KENTON STREET
ENGLEWOOD, COLORADO 80111
(720) 875-1900
(Name, address, including zip code, and telephone number,
including area code, of agent of service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
S. LEE TERRY, JR., ESQ. MARLON F. STARR, ESQ.
Gorsuch Kirgis LLP Smith, Gambrell & Russell, LLP
Tower I, Suite 1000 Suite 3100, Promenade II
1515 Arapahoe Street 1230 Peachtree Street, N.E.
Denver, Colorado 80202 Atlanta, Georgia 30309
(303) 376-5010 (404) 815-3500
(303) 376-5001 (fax) (404) 815-3509 (fax)
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
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 THEN BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per share 2,645,000 $14.50 $38,352,500 $10,125
</TABLE>
(1) Includes 345,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
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<PAGE>
The information in this prospectus is not complete and may be changed. 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 is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
Subject to completion, dated April 14, 2000
PRELIMINARY PROSPECTUS
2,300,000 SHARES
[LOGO]
COMMON STOCK
------------------
We are offering for sale 1,800,000 shares of our common stock, and certain
of our shareholders are offering for sale an additional 500,000 shares of our
common stock. Our common stock currently is traded on the Nasdaq SmallCap Market
under the trading symbol "CAVN." We have applied to list our common stock on the
Nasdaq National Market upon completion of this offering. On April 13, 2000, the
last reported sale price of our common stock was $15.31 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to cavion.com...................................... $ $
Proceeds to the selling shareholders........................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 345,000
additional shares of common stock to cover over-allotments.
The underwriters are offering the shares on a firm commitment basis. The
underwriters expect to deliver the shares on or about , 2000.
------------------------
The Robinson-Humphrey Company
SunTrust Equitable Securities
This prospectus is dated , 2000
<PAGE>
[INSIDE COVER OF PROSPECTUS]
Inside front cover at the top of the page appears the text:
"CUINET-Registered Trademark-." Below this text is the cavion.com logo which is
shown as the center of a circle surrounded by icons representing various
products and services offered by the company including Internet banking, secure
Internet access services, online bill payment and online loan approval. In
addition, there is a graphical depiction of company's e-commerce products and
services shown with the name "Member Emporium-TM-".
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Price Range of Our Common Stock............................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Unaudited Pro Forma Financial Statements.................... 16
Selected Financial and Other Information.................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 25
Management.................................................. 39
Related Party Transactions.................................. 45
Principal and Selling Shareholders.......................... 47
Description of Capital Stock................................ 49
Shares Eligible for Future Sale............................. 52
Experts..................................................... 56
Legal Matters............................................... 56
Where You Can Find More Information......................... 56
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE>
SUMMARY
THIS SECTION SUMMARIZES INFORMATION CONTAINED IN OTHER PARTS OF THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
UNLESS WE STATE OTHERWISE, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.
cavion.com
OUR BUSINESS
We are a leading provider of secure private network connectivity and
Internet solutions that connect credit unions to their business partners and
members. Through CUINET-Registered Trademark- (Credit Union INTERACTIVE
Network), our secure private communications network, individual credit unions
can offer Internet banking products and e-commerce services to their members via
the Internet and they can engage in business-to-business communications and
e-commerce with other credit unions, credit union leagues, trade associations,
corporate credit unions and third party vendors. We also offer secure Internet
access for credit unions' personnel with multiple layers of security and
dedicated connections designed to satisfy credit unions' need for confidential
communications and secure transaction processing through one digital connection
to our private network. As of March 31, 2000, we had contractual arrangements to
connect 130 entities to CUINET-Registered Trademark-, 92 of which had been
connected.
Our Internet banking products provide a cost-effective, outsourced, secure
and scalable solution that enables credit unions to offer their members a wide
array of financial products and services over the Internet. Our product offering
includes account management, funds transfer, bill payment, online loan
application with access to third party approval products, and share draft
imaging services over a secure Internet connection. These products and services
are branded with the credit union's own name and logo and other distinctive
branding characteristics. This branded solution enables credit unions to provide
their members with the convenience of banking on the Internet without losing the
personal relationship and service associated with the credit union. In addition,
our Internet banking products make credit unions more accessible to their
members without the expense of building additional facilities.
Through our recently introduced e-commerce solution, Member Emporium-TM-, we
identify, develop and implement e-commerce relationships with third party
merchants and suppliers and, in turn, offer their products and services to
credit union members. Member Emporium-TM- is designed to enable a credit union
to provide its members with access to products and services such as mortgage
lending, insurance, online stock trading, tax preparation, retail Internet
access services and retail merchandise at a discount to regular retail or
Internet-based prices. Member Emporium-TM- is co-branded with each individual
credit union's own name and logo. We anticipate that creating such e-commerce
opportunities for credit union members will increase lending opportunities for
credit unions, generate significant transaction fees and commissions for us and
increase member retention for the credit union.
We currently earn the majority of our revenue from recurring flat monthly
fees for a connection to CUINET-Registered Trademark- and for our Internet
banking products and ancillary services. We also generate monthly recurring
revenue from third party vendors for providing them with a connection to
CUINET-Registered Trademark- and additional fees based upon the number of credit
unions to which such vendors provide services. We do not charge our credit union
customers software licensing, implementation or per user fees. In the future, we
expect to earn a substantial portion of our revenue from commissions and fees on
transactions conducted over Member Emporium-TM-.
HOW TO REACH US
Our legal name is Cavion Technologies, Inc. and we conduct business under
the registered trade name cavion.com. Our principal executive offices are
located at 6446 South Kenton Street, Englewood, Colorado 80111, and our
telephone number is (720) 875-1900. Our website is located at WWW.CAVION.COM.
Information on our website is not, however, part of this prospectus, and you
should rely only on the information contained in this prospectus in deciding
whether to invest in our common stock.
1
<PAGE>
THIS OFFERING
<TABLE>
<S> <C>
Common stock we are offering................. 1,800,000 shares
Common stock the selling shareholders are
offering................................... 500,000 shares
Common stock to be outstanding immediately
after this offering........................ 6,735,308 shares (1)
Use of proceeds.............................. Repayment of indebtedness, expansion of sales
and marketing efforts, product development
and general corporate purposes, including
working capital and potential acquisitions.
Nasdaq symbol................................ "CAVN"
</TABLE>
- ------------------------
(1) Excludes 1,183,000 shares issuable upon the exercise of outstanding options
and warrants.
2
<PAGE>
SUMMARY FINANCIAL AND OTHER INFORMATION
You should read the following summary financial and operating information in
conjunction with "Use of Proceeds," our financial statements and related notes
as well as those of LanXtra, Inc., our predecessor, and other financial
information which appear in this prospectus. Our company was incorporated on
August 18, 1998, to acquire the business of LanXtra. On February 1, 1999, we
purchased the LanXtra business. Prior to our purchase of the LanXtra business,
our operating results consisted entirely of administrative expenses with no
revenue. The purchase method of accounting was used to record our purchase of
the LanXtra business and the related assets acquired and liabilities assumed by
us. This accounting method reflects the assets acquired and the liabilities
assumed at their estimated fair market value, and resulted in the recording of
intangible assets, including goodwill. Goodwill represents the excess of
purchase price over the net fair market value of tangible and other assets
acquired. This goodwill will be amortized in future periods. The accompanying
historical financial information of LanXtra on and before January 31, 1999, is
not comparable in all material respects with our financial information
subsequent to February 1, 1999, since that financial information reports
financial position and results of operations on a different basis of accounting.
Historical earnings per share information for LanXtra has been omitted because
it is not meaningful given the significant differences in our capital structure
compared to LanXtra's capital structure.
The business that we purchased from LanXtra was started by LanXtra during
1997. In December 1997, LanXtra sold all operations that were not related to the
business later acquired by us, and the results of the operations that were sold
have been reported as discontinued operations. Accordingly, the accompanying
financial information of our predecessor for the years ended December 31, 1995
and 1996 do not include the results of operations of the LanXtra business that
we acquired.
The pro forma statement of operations for the year ended December 31, 1999
reflects the acquisition of LanXtra as if it had occurred on January 1, 1999.
Pro forma basic and diluted net income (loss) per share is calculated as if the
purchase was completed on January 1, 1999, and the related 1,029,218 shares of
common stock issued to acquire the LanXtra business were issued on that date.
The pro forma financial information for the year ended December 31, 1999 does
not represent what our results of operations would have been if the acquisition
had actually occurred on January 1, 1999, nor is it indicative of our future
results of operations.
3
<PAGE>
<TABLE>
PREDECESSOR CAVION.COM
--------------------------------------------------------------------- ------------
FROM
FOR THE INCEPTION
FOR THE YEAR ENDED DECEMBER 31, MONTH (AUGUST 18,
ENDED 1998) TO
----------------------------------------------------- JANUARY 31, DECEMBER 31,
1995 1996 1997 1998 1999 1998
--------- --------- --------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue....................... $ -- $ -- $ 24 $ 215 $ 38 $ --
Gross profit (loss)........... -- -- (27) (7) 6 --
Operating income (loss)....... -- -- (1,064) (1,125) (207) (7)
Net income (loss) from
continuing operations....... -- -- (1,835) (1,971) (271) (36)
Basic and diluted net income
(loss) per share............ $ (0.02)
=========
Weighted average common shares
outstanding................. 2,078,170
=========
Pro forma basic and diluted
net income (loss) per
share.......................
Pro forma weighted average
common shares outstanding...
Pro forma EBITDA(1)...........
OTHER OPERATING DATA
(at end of period):
Customers under contract...... 26
Customers connected........... 16
<S> <C> <C>
PRO FORMA
------------
------------ ------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1999
------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA:
Revenue....................... $ 618 $ 656
Gross profit (loss)........... 125 131
Operating income (loss)....... (4,268) (4,554)
Net income (loss) from
continuing operations....... (4,754) (5,051)
Basic and diluted net income
(loss) per share............ $ (1.56)
=========
Weighted average common shares
outstanding................. 3,081,156
=========
Pro forma basic and diluted
net income (loss) per
share....................... $ (1.64)
=========
Pro forma weighted average
common shares outstanding... 3,112,424
=========
Pro forma EBITDA(1)........... $ (3,566)
OTHER OPERATING DATA
(at end of period):
Customers under contract...... 100
Customers connected........... 56
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(2) ADJUSTED(3)
-------- -------------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $4,347 $6,573 $31,175
Working capital............................................. 2,542 4,768 29,840
Total assets................................................ 9,603 11,829 36,431
Long-term debt, net of current maturities................... 386 386 386
Putable common stock........................................ 201 -- --
Total shareholders' equity.................................. 6,972 9,399 34,471
</TABLE>
- ------------------------------
(1) Pro forma earnings before interest, taxes, depreciation and amortization, or
pro forma EBITDA, represents the sum of net loss before income taxes plus
net interest expense, depreciation and amortization. Pro forma EBITDA is
presented here to provide additional information about our ability to meet
our obligations. Pro forma EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative either to net loss as an indicator of our operating
performance, or to cash flow as a measure of our liquidity.
(2) As adjusted to reflect: (i) our receipt of net proceeds of approximately
$2.2 million from the sale of 205,000 shares of common stock in a February
2000 private placement; (ii) the recent conversion of all of the 28,648
issued and outstanding shares of Class B common stock into 28,648 shares of
common stock; and (iii) the exercise of options to purchase 4,334 shares of
common stock.
(3) As further adjusted to reflect the issuance and sale by cavion.com of
1,800,000 shares of common stock in this offering and application of the
estimated net proceeds.
4
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION
PRESENTED IN THIS PROSPECTUS, IN DECIDING WHETHER OR NOT TO INVEST IN OUR COMMON
STOCK. EACH OF THESE FACTORS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
COMMON STOCK, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
COULD RESULT IN A COMPLETE LOSS OF YOUR INVESTMENT.
BECAUSE WE HAVE A SHORT OPERATING HISTORY, YOU WILL HAVE LIMITED HISTORICAL
INFORMATION ABOUT US ON WHICH TO BASE YOUR INVESTMENT DECISION.
Our business plan was developed in January 1998. Our short operating history
makes it difficult to evaluate us and to predict our future financial results.
An investor in our common stock must consider the risks we will face as an early
stage company in the new and rapidly evolving Internet banking and e-commerce
markets. These risks include our potential inability to:
- attract credit unions to use CUINET-Registered Trademark-;
- gain acceptance of Member Emporium-TM- by credit unions and their members;
- develop, test, market and sell new and enhanced products and services;
- expand successfully our sales and marketing efforts;
- maintain our current, and develop new, strategic partners;
- promote acceptance of our Internet banking products and related services
to credit unions and their members;
- respond effectively to competitors providing alternative products to
credit unions and their members; and
- continue to develop and upgrade our technology.
We may not succeed in achieving all or any of these goals and challenges,
and current evaluations of us and our prospects may prove to be inaccurate.
WE HAVE A HISTORY OF LOSSES AND CANNOT GUARANTEE THAT WE WILL BECOME PROFITABLE.
Neither cavion.com nor its predecessor has ever earned a profit. As of
December 31, 1999, our accumulated deficit was $4.9 million. We expect to lose
money in fiscal 2000 and there can be no assurance that we will ever achieve
profitable operations. Even if we do become profitable, we may not be able to
continue to be profitable.
Today, we receive the majority of our revenue from the sale of products and
services to our credit union customers. We plan to increase our spending in
sales and marketing, research and development, and administrative areas for the
foreseeable future. If our revenue does not grow as rapidly as we anticipate or
if we are unable to control our expenses, our operating performance would be
adversely affected and we will be unable to achieve profitability.
WE ARE CURRENTLY EXPERIENCING A PERIOD OF SIGNIFICANT GROWTH THAT MAY PLACE A
STRAIN ON OUR RESOURCES.
We are experiencing and expect to continue to experience significant growth
in our operations. This expansion will place additional demands on our
management, operational capacity and financial resources. Our management, sales,
technical and accounting resources may not be adequate to support our recent
expansion and anticipated future growth. In order to manage our expected growth,
we will be required to hire additional personnel and devote significant
resources to improving or replacing existing operational, accounting and
informational systems, procedures and controls. Our future
5
<PAGE>
operating results will substantially depend on the ability of our management to
manage our growth effectively by, among other things:
- predicting accurately the growth in the demand for our Internet banking
products and related services by our customers;
- attracting, training, motivating, managing and retaining key employees;
- expanding and improving our operating and financial systems, procedures
and controls;
- acquiring and installing new equipment and facilities; and
- responding quickly and effectively to unanticipated changes in the
industry.
If we are unable to manage our growth effectively, our business may be adversely
affected.
WE CURRENTLY RELY ON CONVERGENT COMMUNICATIONS SERVICES, INC. TO ESTABLISH AND
MAINTAIN THE CONNECTION BETWEEN OUR CUSTOMERS AND CUINET-REGISTERED TRADEMARK-.
In order to provide our Internet-based products to our customers, we must
purchase a large quantity of telecommunications services from providers of these
services. We have entered into a non-exclusive agreement with Convergent
Communications Services, Inc. to establish and maintain connectivity between our
network and substantially all our customers. Our business depends upon the
ability of Convergent, or some other telecommunications service provider, to
establish and maintain connectivity with CUINET-Registered Trademark-. If
Convergent is unable to provide connectivity in a timely manner to our new
customers or experiences problems in delivering services to our existing
customers, our business could be adversely affected. If we are unable to
continue to obtain services from Convergent or some other provider on
economically favorable terms, our business and financial performance may be
adversely affected.
OUR BUSINESS AND PROSPECTS WILL SUFFER IF CREDIT UNIONS AND THEIR MEMBERS DO NOT
ACCEPT AND USE MEMBER EMPORIUM-TM-, OUR E-COMMERCE SOLUTION.
We expect to derive a substantial portion of our revenue in the future from
our e-commerce product, Member Emporium-TM-. This product is a network of
portals which is designed to aggregate credit union members and offer them a
variety of products and services from third party vendors, such as insurance
policies, home mortgages, Internet access, online brokerage, and consumer
merchandise, often at a discount to retail or Internet-based prices. The success
of Member Emporium-TM- is dependent on, among other things, our ability to:
- convince credit unions to allow us to link their websites to the Member
Emporium-TM- website and network of portals;
- persuade businesses to advertise their products and services on the Member
Emporium-TM- website and portal network, and to offer those products and
services at a meaningful discount;
- entice credit union members to visit the Member Emporium-TM- website and
portal network, and purchase the products and services advertised; and
- to earn commissions on these transactions.
If Member Emporium-TM- is unable to produce the revenue we presently expect,
there could be a material adverse effect on our business, financial condition
and results of operations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MARKET OUR PRODUCTS TO CREDIT UNIONS,
WHICH HISTORICALLY HAVE BEEN SLOW TO ADOPT NEW TECHNOLOGIES.
Our revenue depends upon information technology spending by credit unions.
We cannot be sure that this type of spending will increase or even continue at
today's levels. Credit unions tend to be
6
<PAGE>
cautious in making purchase decisions regarding new technologies for their
financial applications. As a result, we must provide a significant level of
education to prospective customers regarding the use and benefits of our
products and services prior to their purchase. Furthermore, credit unions are
frequently slow to approve capital expenditures, especially for new technologies
that affect key operations. All of this could have the effect of significantly
lengthening our sales cycle, thereby delaying revenue growth and adversely
affecting operating results.
OUR BUSINESS COULD SUFFER IF THE CREDIT UNION MEMBERSHIP ACCESS ACT OF 1998 IS
REPEALED OR LIMITED IN ITS SCOPE BY REGULATIONS IMPOSED BY THE NATIONAL CREDIT
UNION ADMINISTRATION.
Our primary customers are credit unions which are regulated by the National
Credit Union Administration (NCUA). In 1998, the U.S. Congress passed the Credit
Union Membership Access Act of 1998 which allows federally chartered credit
unions to solicit credit union members from more than one occupational group, as
well as make certain business loans to their members. The Credit Union
Membership Act has the potential to increase the activity of federal credit
unions in the financial marketplace as it presents new opportunities for federal
credit unions to expand their member base. A repeal of the Act would eliminate
the new opportunities allowed by the Act.
Title IV of the Act requires the U.S. Treasury Department to study the
regulatory, tax and other differences between credit unions and other federally
insured financial institutions, including a review of the potential effect of
applying federal tax laws to credit unions. The Treasury Department's study will
consider whether the competitive advantage produced by credit unions' tax
exemption may endanger the viability of smaller banks. The Treasury Department
may ultimately recommend imposing taxation on credit unions or enacting
legislative or administrative measures to cut taxes for smaller depository
institutions which compete with credit unions. Any such new laws or regulations
which subject credit unions to taxation or reduce the tax liability of competing
financial institutions could adversely affect credit unions and the size of our
potential market. Similarly, the adoption of amendments to the Act or the
issuance of NCUA regulations under the Act which impair credit unions' ability
to expand or serve their member base could hinder our growth and have a material
adverse effect on our business, financial condition and operating results.
OUR BUSINESS AND FINANCIAL CONDITION WILL BE ADVERSELY AFFECTED IF THERE IS A
DECLINE IN DEMAND FOR OUR PRODUCTS AND SERVICES OR IN THE USE OF THE INTERNET.
We expect to derive substantially all of our revenues from products and
services provided to credit unions, their members and other participants in the
financial services industry. Our future success depends significantly upon the
willingness of credit unions to utilize our services and offer technological
innovations such as Internet banking, bill payment and online shopping to their
members, and upon their members' demand for and acceptance of these
technological innovations. If credit unions and their members do not readily
accept these technological innovations, the demand for our products and services
will be materially and adversely affected.
There can be no assurance that we will continue to be successful in
marketing these products and services or other integrated products and services.
In addition, changes in economic conditions and unforeseen events, including
recession, inflation or other adverse occurrences, may result in a significant
decline in the utilization of credit union services or demand for our products
and services. Any event that results in decreased use of credit union services,
or increased pressure on credit unions toward the in-house development of
Internet banking systems, could have a material adverse effect on our business,
financial condition and results of operations.
Demand for our products and services by credit unions is driven by the
demand for Internet-based products and services by credit union members. Our
business would be adversely affected if Internet use does not continue to grow
or grows more slowly than expected. Internet usage may be inhibited for a number
of reasons, including inadequate network infrastructure, security concerns,
inconsistent
7
<PAGE>
quality of service, and unavailability of cost effective, high-speed access to
the Internet. If the market for Internet-based financial services fails to grow,
grows more slowly than anticipated, or becomes saturated with competitors, it is
likely that our business, financial condition and results of operations would be
materially and adversely affected.
WE CURRENTLY RELY ON A SINGLE DATA CENTER TO SUPPORT ALL OF OUR PRODUCTS AND
SERVICES.
Essential components of our communications and network equipment are
currently located at our corporate headquarters in Englewood, Colorado. A
natural disaster, such as fire, earthquake or flood, at or affecting our
facility could result in failures or interruptions in providing our network and
Internet banking services to our customers. In the event of a failure or
interruption in our systems, our reputation could be materially harmed and we
could lose many of our current and potential customers. We do not currently have
backup facilities for our network and Internet banking services. We are
currently constructing two additional data centers which will provide the
redundancy necessary to serve as backup facilities for our existing data center
and for each other, but they are not scheduled to be fully operational until the
third quarter of 2000. We also cannot be certain that these new data centers
will become operational as scheduled or that, when operational, they will
perform as expected. Even with the two new data centers, we could still
experience a failure or interruption in our systems, which could lead to delays,
loss of data or the inability to provide our services to our customers.
TECHNOLOGICAL CHANGES MAY RENDER OUR SOLUTIONS OBSOLETE.
The electronic banking and financial services industry is characterized by
rapidly changing technology and evolving industry standards. In addition, we
have several competitors who have been consistently introducing new products and
services, some of which compete with our products and services. Our future
success will depend on our ability to design, develop, sell and support new and
integrated products and services that will keep pace with technological
advances, industry standards and our competitors, as well as satisfy the
evolving needs of credit unions and their members. Our inability to develop and
introduce such products and services in a timely manner could limit the
marketability of our products and services which would adversely affect our
business. Furthermore, we cannot predict the time and costs involved in
developing new and integrated products and services. Actual development costs
could substantially exceed budgeted amounts and completion of such development
could be later than presently scheduled. In either case, our operating results
and business could be seriously harmed.
COMPETITION FROM THIRD PARTIES COULD REDUCE OR ELIMINATE DEMAND FOR OUR PRODUCTS
AND SERVICES.
The market for Internet banking services is highly competitive, and we
expect that competition will intensify in the future. We may not be able to
compete successfully against our current or future competitors and, accordingly,
we cannot be certain that we will be able to expand the number of our customers,
or retain our current customers or third-party service providers. A number of
public and private companies compete with one or more of the individual products
and services offered by cavion.com. 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 we presently offer. Many of
our current and potential competitors have longer operating histories and may be
in a better position to produce and market their services due to their greater
financial, technical, marketing and other resources, as well as their
significantly greater name recognition and larger installed bases of customers.
UNDETECTED DEFECTS MAY EXIST IN THE HARDWARE AND SOFTWARE THAT WE USE TO DELIVER
OUR PRODUCTS.
The hardware and software used by our systems in the delivery of our
products and services currently or in the future may contain undetected errors,
defects or bugs. Although we have not
8
<PAGE>
suffered significant harm from any errors or defects to date, we may discover
significant errors or defects in the future that we may or may not be able to
correct. Any such defects could result in a loss of sales and additional costs
as well as damage to our reputation and our relationships with our customers.
WE MAY EXPERIENCE CAPACITY CONSTRAINTS AS THE VOLUME OF TRAFFIC ON OUR SYSTEMS
INCREASES.
If the volume of traffic and transactions on our system increases
substantially, we could periodically experience temporary capacity constraints,
resulting in unanticipated system disruptions, slower response times and lower
levels of customer service. We may be unable to project accurately the rate or
timing of increases, if any, in the use of our services or to expand and upgrade
our systems and infrastructure to accommodate these increases in a timely
manner. Any inability to do so could harm our business.
IMPLEMENTATION OF OUR SOLUTION BY OUR CREDIT UNION CUSTOMERS MAY TAKE LONGER
THAN WE ANTICIPATE.
During the course of an initial implementation of our products and services,
we must integrate our Internet banking software with a credit union's core
processing software. This involves the installation of an interface to permit
communication between our products and services and the credit union's core
processing software, which typically takes an average of 60 to 90 days from the
date the credit union contracts with us. From time to time, we may experience
delays in the integration process, particularly if we do not already have an
established interface for a particular core processing software. We also rely on
Convergent and the customer's telecommunications provider to establish
connectivity between our systems and the customer. The process of connecting a
customer to CUINET-Registered Trademark- takes an average of 60 days from the
date the credit union contracts with us to implement by Convergent. A longer
implementation period for either the integration or connectivity process will
increase our costs associated with the implementation and delay our recognition
of revenues. Moreover, changes to the core software systems used by existing
customers, or custom implementations for new customers, may cause integration
delays. Significant delays of customer implementation, however caused, could
materially and adversely affect our operating results for subsequent periods.
BECAUSE OF THE IMPORTANCE TO US OF DAVID SELINA'S EXPERIENCE AND RELATIONSHIPS
IN THE CREDIT UNION INDUSTRY, AND JEFF MARSHALL'S TECHNICAL EXPERTISE, OUR
SUCCESS MAY BE DEPENDENT ON OUR ABILITY TO RETAIN THESE INDIVIDUALS.
We believe that the credit union and related management experience of David
J. Selina, our President, Chief Executive Officer and Chief Operating Officer,
is important to our future success. We also believe that the software
development ability of Jeff Marshall, Vice President of Software Development, is
important to our future success. We have employment contracts with
Messrs. Selina and Marshall, and we have purchased $1,000,000 of key man
insurance on each of them. The loss of the services of Messrs. Selina or
Marshall could have a significant adverse effect on our business.
OUR FUTURE SUCCESS WILL BE DEPENDENT ON OUR ABILITY TO ATTRACT AND RETAIN
QUALIFIED PERSONNEL.
Our growth plan will require us to hire more people in sales, customer
service, research and development and other areas during 2000 and the
foreseeable future. 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 depends on our ability to
attract, retain and motivate highly qualified personnel.
Our ability to expand our business will depend significantly on our ability
to expand our sales and marketing forces and our strategic partnerships. To
continue our growth we must cross-market products and services to existing
customers and enter into agreements with new customers. This requires us to
9
<PAGE>
locate and hire experienced sales and marketing personnel and to establish and
maintain key marketing relationships.
SECURITY BREACHES COULD DAMAGE OUR REPUTATION AND BUSINESS.
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. We transmit confidential information in providing our
services. Users of Internet banking and other e-commerce services are concerned
about the security of transmissions over public networks. Therefore, it is
critical that our facilities and infrastructure remain secure and are perceived
by the marketplace to be secure. A material security breach affecting us could
damage our reputation, deter credit unions from purchasing our products, deter
their members from using our products, or result in liability to us. Further,
any material security breach affecting our competitors could affect the
marketplace's perception of Internet banking in general and have the same
effects.
Concerns about security and privacy may inhibit the growth of the Internet
and other online services generally, especially as a means of conducting
commercial transactions. Any well-publicized compromise of security could deter
people from using the Internet or using it to conduct transactions that involve
the transmission of confidential information. We may need to expend significant
capital or other resources to protect against the threat of security breaches or
alleviate problems caused by breaches. Although we intend to continue to
implement state of the art security measures, it may nevertheless be possible to
circumvent any such measures. In addition, the process of eliminating computer
viruses and alleviating other security problems may result in interruptions,
delays or cessation of service to users accessing websites that deliver our
services, any of which could harm our business.
OUR GROWTH MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES THAT COULD ADD ADDITIONAL COSTS TO DOING BUSINESS ON THE INTERNET.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address such issues, including user privacy, pricing,
and the characteristics and quality of products and services offered. For
example, several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on those companies. Any such regulation could increase the
cost of transmitting data over the Internet.
Federal or state authorities may adopt regulations addressing the electronic
operations of financial institutions that could require us to modify our current
or future products and services. For example, the U.S. Congress is currently
considering financial services reform legislation that may include limitations
on the ability of financial institutions to disclose nonpublic consumer
financial information. The adoption of laws or regulations affecting our
customers' businesses could reduce our growth rate or otherwise have a material
adverse effect on our business, financial condition and operating results. See
"Business--Government Regulation."
TAXATION OF OUR INTERNET PRODUCTS AND SERVICES COULD AFFECT OUR PRICING POLICIES
AND REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES.
Any legislation that substantially impairs the growth of e-commerce could
have a material adverse effect on our business, financial condition and
operating results. The tax treatment of the Internet and e-commerce is currently
unsettled. A number of proposals at the federal, state and local levels in the
United States would, if enacted, impose taxes on the sale of goods and services
over the Internet. In October 1998, the U.S. Congress passed the Internet Tax
Freedom Act, which generally imposes a three year moratorium on new federal,
state and local taxation of online services. Taxation of Internet commerce could
have a material adverse affect on our business, financial condition and
operations.
10
<PAGE>
THE UNPREDICTABILITY OF FUTURE FINANCIAL RESULTS AND EVENTS BEYOND OUR CONTROL
MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
Our financial results and the price of our common stock may fluctuate
substantially in the future. These fluctuations may be caused by several
factors, including the price we are able to charge for our services,
competition, new product offerings from our competition and changes in
technology. Other factors which may cause your investment in our common stock to
be adversely affected or which may cause significant fluctuations in our stock
price include:
- our actual or anticipated operating results;
- changes in our actual or anticipated growth rates;
- changes in analysts' estimates;
- competitors' announcements;
- regulatory actions;
- industry conditions;
- general economic conditions; and
- a variety of other factors that we have discussed elsewhere in "Risk
Factors."
Furthermore, the market for Internet and technology companies has
experienced extreme price and volume volatility that have often been unrelated
or disproportionate to the operating performance of those companies. These broad
market and industry factors may materially and adversely affect our stock price.
The trading prices of the stocks of many Internet and technology companies are
at or near new historical highs and reflect relative valuation levels
substantially above historical levels. These trading prices and relative
valuation levels may not be sustained or may not prove to be applicable to our
common stock.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market following this offering, including sales by our officers and directors,
or the perception by the market that these sales may occur, could lower the
market price of our common stock. After this offering, 6,735,308 shares of our
common stock will be outstanding. Of these shares, 4,153,900 shares including
all 2,300,000 shares being sold in this offering, will be freely tradeable in
the market without restriction. The remaining 2,581,408 shares of common stock
outstanding after this offering will be restricted as a result of securities
laws or lock-up agreements signed by all of our officers, directors and
principal shareholders, and by certain shareholders who purchased our common
stock prior to our initial public offering. These restricted shares will be
available for sale in the public market as follows:
- none of the 1,881,297 restricted shares held by our officers, directors
and principal shareholders will be eligible for sale until 180 days after
the date of this prospectus, when their lock-up agreements with the
underwriters expire; and
- approximately 2,414,009 restricted shares will become eligible for sale at
various times upon the expiration of their respective holding periods and
if otherwise sold in accordance with the provisions of Rule 144 of the
Securities and Exchange Commission.
We have registered 750,000 shares reserved for issuance under our stock
option plan, which will be available for sale in the public market upon
issuance. Our Board has approved an increase in the number of shares issuable
under our stock option plan to 995,000, subject to shareholder approval. As of
March 31, 2000, we had options outstanding to purchase a total of 1,183,000
shares of common stock under this plan and other warrants and stock option
agreements. See "Shares Eligible for Future Sale."
11
<PAGE>
MANAGEMENT MAY NOT USE THE PROCEEDS OF THIS OFFERING EFFECTIVELY.
Our management will have broad discretion in how we use a significant
portion of the net proceeds of this offering. We currently intend to use a
portion of the net proceeds received by us to repay outstanding promissory notes
in the principal amount of $470,000, and the remaining net proceeds will be used
to expand our sales and marketing efforts, for product development, for
developing and marketing Member Emporium-TM- and for general corporate purposes,
including working capital and potential acquisitions. Investors will be relying
on the judgment of our management regarding the application of the proceeds from
this offering. If management is unable to apply these funds effectively, our
business will be materially and adversely affected.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE
NET TANGIBLE BOOK VALUE OF THEIR SHARES.
The estimated public offering price of $15.31 per share is substantially
higher than the pro forma net tangible book value per share of our outstanding
common stock immediately after this offering. Accordingly, purchasers of common
stock in this offering will experience immediate and substantial dilution in the
net tangible book value of their shares of approximately $10.77 in pro forma net
tangible book value per share, or approximately 70% of the assumed offering
price. Investors will incur additional dilution upon the exercise of outstanding
stock options and warrants.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend
the forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. We make forward-looking statements
regarding our expectations and projections for cavion.com. We use words such as
"anticipate," "believe," "expect," "future," "may," "will," "should," "plan,"
"projected," "intend" and similar expressions to identify forward-looking
statements. These statements are based on our beliefs and the assumptions we
made using information currently available to us. Because these statements
reflect our current views and assumptions concerning future events, these
statements involve substantial risks and uncertainties. Our actual results could
differ materially from the results discussed in the forward-looking statements.
Some, but not all, of the important factors that could cause actual results to
differ from our expectations are disclosed under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
"Business" and in other parts of this prospectus. You should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this prospectus.
12
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net cash proceeds of approximately $25.1
million, after deducting underwriting discounts and estimated offering expenses
(assuming a public offering price of $15.31 per share) from our sale of
1,800,000 shares in this offering. We will not receive any proceeds from the
sale of shares by the selling shareholders.
We currently intend to use a portion of the net proceeds received by us to
repay outstanding promissory notes in the principal amount of $470,000 and the
remaining net proceeds will be used to expand our sales and marketing efforts,
to develop and market Member Emporium-TM-, for product development, and for
general corporate purposes, including working capital and potential
acquisitions. The notes to be repaid were issued in a private placement in 1998
and 1999 that provided us with bridge financing prior to our initial public
offering. The notes bear interest at a rate of 15%, are secured by substantially
all of our assets and are due on October 19, 2000.
From time to time in the ordinary course of business, we evaluate the
acquisition of businesses and technologies that complement our business, so it
is possible we will elect to use a portion of the net proceeds from this
offering to fund these acquisitions. Currently, however, we do not have any
understandings, commitments or agreements with respect to any acquisitions, and
we may not be able to identify suitable acquisition candidates or complete any
acquisition.
The amount of funds that we actually use for these purposes, other than debt
repayment, will depend on many factors, including revisions to our business
plan, material changes in our revenues or expenses, and other factors described
under "Risk Factors." Accordingly, our management will have significant
discretion over the use and investment of the net proceeds from the offering.
Pending the uses described above, we will invest the net proceeds in
interest-bearing accounts or short-term, interest-bearing securities, or both.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We do not
intend to pay cash dividends on our common stock. We plan to retain our future
earnings, if any, to finance our operations and for 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.
PRICE RANGE OF OUR COMMON STOCK
Since October 29, 1999, our common stock has traded on the Nasdaq SmallCap
Market under the trading symbol "CAVN." Prior to this offering, we made
application for our common stock to trade on the Nasdaq National Market. The
following table gives the high and low bid prices for the common stock for the
quarters indicated. The prices reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not represent actual transactions.
The information presented has been provided by The Nasdaq Stock Market, Inc.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Fourth quarter (commencing October 29, 1999)............. $ 9.00 $ 5.13
YEAR ENDING DECEMBER 31, 2000
First quarter............................................ $ 37.63 $ 6.13
Second quarter (through April 13, 2000).................. $ 21.25 $12.88
</TABLE>
On April 13, 2000, the closing price of our common stock on the Nasdaq
SmallCap Market was $15.31 per share. As of April 13, 2000, there were
83 holders of record of our common stock and in excess of 1,000 beneficial
owners of our common stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
Our capitalization is presented:
- on an actual basis;
- on an unaudited as adjusted basis to reflect: (1) our receipt of net
proceeds of $2.2 million from the sale of 205,000 shares of common stock
in a February 2000 private placement; (2) the recent conversion of the
28,648 outstanding shares of Class B common stock into 28,648 shares of
common stock; and (3) the exercise of options to purchase 4,334 shares of
common stock by employees during March 2000; and
- on an unaudited as further adjusted basis to reflect: (1) the transactions
described above; (2) the issuance and sale by cavion.com of 1,800,000
shares of common stock in this offering, after deducting underwriting
discounts and estimated offering expenses (assuming a public offering
price of $15.31 per share); and (3) the repayment of $470,000 of debt from
the net proceeds of this offering, as if each of them had occurred as of
December 31, 1999.
The information in the table should be read in conjunction with the
financial statements and accompanying notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term portion of notes and capital
leases payable............................................ $ 608 $ 608 $ 138
------- ------- -------
Long-term portion of capital leases
payable................................................... 386 386 386
------- ------- -------
Putable Class B common stock, $.0001
par value; 30,000 shares authorized;
28,648, 0, and 0 shares outstanding
actual, as adjusted and as further
adjusted, respectively.................................... 201 -- --
------- ------- -------
Shareholders' equity:
Common stock, $.0001 par
value; 19,970,000 shares authorized;
4,697,326, 4,935,308 and 6,735,308
shares issued and outstanding actual,
as adjusted and as further adjusted, respectively....... 1 1 1
Warrants and options...................................... 507 638 638
Deferred compensation..................................... (108) (108) (108)
Additional paid-in-capital................................ 11,426 13,722 38,794
Accumulated deficit....................................... (4,854) (4,854) (4,854)
------- ------- -------
Total shareholders' equity.............................. 6,972 9,399 34,471
------- ------- -------
Total capitalization...................................... $ 8,167 $10,393 $34,995
======= ======= =======
</TABLE>
14
<PAGE>
DILUTION
The estimated public offering price of $15.31 per share exceeds the pro
forma net tangible book value per share of cavion.com. As of December 31, 1999,
our net tangible book value was approximately $3.1 million or $0.66 per share.
Pro forma net tangible book value was approximately $5.5 million or $1.12 per
share. Pro forma net tangible book value per share is determined by subtracting
our total liabilities from our total tangible assets as of December 31, 1999,
and dividing this difference by the number of shares of common stock issued and
outstanding, assuming that the following transactions had occurred as of
December 31, 1999:
- the conversion of the 28,648 outstanding shares of our Class B common
stock to common stock on March 31, 2000;
- the sale of 205,000 shares of common stock at $12.00 per share in February
2000; and
- the exercise of options to purchase 4,334 shares of common stock by
employees during March 2000.
The sale of 1,800,000 shares of common stock by us in this offering and the
application of the estimated net proceeds therefrom will result in an immediate
increase in pro forma net tangible book value to $30.6 million or $4.54 per
share to existing shareholders and an immediate dilution of $10.77 per share to
investors purchasing shares of common stock in this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $ 15.31
Net tangible book value at December 31, 1999................ $0.66
Increase per share attributable to pro forma adjustment..... $0.46
-----
Pro forma net tangible book value per share at December 31,
1999...................................................... $1.12
Increase per share attributable to this offering............ $3.42
-----
Pro forma net tangible book value per share after this
offering.................................................. $ 4.54
-------
Dilution per share purchased in this offering............... $ 10.77
=======
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 1999
the number of shares of common stock we will sell in this offering, the total
price to be paid for these shares, the number of shares of common stock
previously issued, the total consideration paid, and the average price per share
paid.
<TABLE>
<CAPTION>
SHARES SOLD BY
CAVION.COM TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PURCHASE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
--------- -------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. 4,935,308 73% $16,151,788 37% $ 3.27
New investors.......................... 1,800,000 27% $27,563,400 63% $ 15.31
--------- --- ----------- -----
Total................................ 6,735,308 100% $43,715,188 100%
========= === =========== =====
</TABLE>
The foregoing tables assume:
- no exercise of the underwriters' over-allotment option; and
- no exercise of any of the 1,183,000 outstanding options and warrants to
purchase common stock as of March 31, 2000.
Sales by the selling shareholders in this offering will reduce the number of
shares of common stock held by existing shareholders to 4,435,308 or 65.9% of
the total number of shares of common stock to be outstanding after this
offering, and will increase the number of shares to be held by new investors to
2,300,000, or 34.1% of the total number of shares to be outstanding after this
offering. If the underwriters exercise their over-allotment option in full, the
percentage of shares to be held by existing shareholders will decrease further
to 62.6% of the total shares to be outstanding after the exercise, and the
number of shares held by new investors will increase to 2,645,000 or 37.4% of
the total shares to be outstanding after the exercise. To the extent that any
options or warrants that are currently outstanding or will be issued in the
future are exercised, purchasers of the common stock in this offering would
incur further dilution.
15
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
In this section, we have provided you with our unaudited pro forma statement
of operations for the year ended December 31, 1999. This financial information
gives effect to our acquisition of the LanXtra business as if it occurred as of
January 1, 1999.
We based our unaudited pro forma statement of operations for the year ended
December 31, 1999, in part on our audited financial statements for the year
ended December 31, 1999 and LanXtra's audited financial statements for the month
ended January 31, 1999.
These financial statements do not project what our results of operations
will be as of any future date or for any future period. You should read this
financial information together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited financial
statements and accompanying notes located in other parts of the prospectus.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
CAVION.COM LANXTRA ADJUSTMENTS PRO FORMA
----------- --------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Network access and connectivity................... $ 448 $ 24 $ -- $ 472
Installation services and software licensing...... 170 14 -- 184
------- ----- ---- ---------
Total revenue................................... 618 38 -- 656
Cost of revenue:
Network access and connectivity................... 329 16 -- 345
Installation services and software licensing...... 164 16 -- 180
------- ----- ---- ---------
Total cost of revenue........................... 493 32 -- 525
------- ----- ---- ---------
Gross profit........................................ 125 6 -- 131
------- ----- ---- ---------
Operating expenses:
Selling, general and administrative............... 2,933 182 -- 3,115
Research and development.......................... 586 31 -- 617
Amortization of goodwill and other intangible
assets.......................................... 874 -- 79(a) 953
------- ----- ---- ---------
Total operating expenses........................ 4,393 213 79 4,685
------- ----- ---- ---------
Income (loss) from operations....................... (4,268) (207) (79) (4,554)
Other income (expense).............................. (486) (64) 53(b) (497)
------- ----- ---- ---------
Net income (loss)................................... (4,754) (271) (26) (5,051)
Dividends on preferred stock........................ (64) -- -- (64)
------- ----- ---- ---------
Net income (loss) applicable to common
shareholders...................................... $(4,818) $(271) $(26) $ (5,115)
======= ===== ==== =========
Basic and diluted net income (loss) per share
applicable to common shareholders................. $ (1.64)
=========
Weighted and average common shares outstanding...... 3,112,424
=========
</TABLE>
PRO FORMA ADJUSTMENTS:
(a) Amortization of goodwill recorded in the acquisition of the LanXtra business
for the month ended January 31, 1999.
(b) Reduction of interest expense to reflect the change in our capital
structure.
16
<PAGE>
SELECTED FINANCIAL AND OTHER INFORMATION
The following table sets forth selected historical and pro forma financial
and operating information for cavion.com. The selected historical financial
information presents our predecessor from 1995 through January 31, 1999,
cavion.com from inception (August 18, 1998) through December 31, 1999, and pro
forma results of operations for the year ended December 31, 1999. We acquired
LanXtra on February 1, 1999; however, the pro forma financial information is
presented as if the acquisition occurred on January 1, 1999. The purchase method
of accounting was used to record our purchase of the LanXtra business and the
related assets acquired and liabilities assumed by us. This accounting method
reflects the assets acquired and the liabilities assumed at their estimated fair
market value, and resulted in the recording of intangible assets, including
goodwill. Goodwill represents the excess of purchase price over the net fair
market value of tangible and other assets acquired. This goodwill will be
amortized in future periods. The accompanying historical financial information
of LanXtra on and before January 31, 1999, is not comparable in all material
respects with our financial information subsequent to February 1, 1999, since
that financial information reports financial position and results of operations
on a different basis of accounting. Historical earnings per share information
for LanXtra has been omitted because it is not meaningful given the significant
differences in our capital structure compared to LanXtra's capital structure.
The business that we purchased from LanXtra was started by LanXtra during
1997. In December 1997, LanXtra sold all operations that were not related to the
business later acquired by us, and the results of the operations that were sold
have been reported as discontinued operations. Accordingly, the accompanying
financial information of our predecessor for the years ended December 31, 1995
and 1996 do not include the results of operations of the LanXtra business that
we acquired.
The selected historical financial information as of December 31, 1997, 1998,
and 1999, for the years then ended and for the one-month period ended
January 31, 1999 have been derived from the financial statements of cavion.com
and LanXtra included in this prospectus, which have been audited by Arthur
Andersen LLP, independent public accountants. The selected historical financial
information as of and for the years ended December 31, 1995 and 1996 have been
derived from LanXtra's unaudited financial statements that are not included in
this prospectus. The selected historical and pro forma financial information is
qualified by reference to, and should be read in conjunction with, our financial
statements and the notes to the financial statements, as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The pro forma statement of operations for 1999 reflects the acquisition of
LanXtra as if it had occurred on January 1, 1999. Pro forma earnings per share
are calculated as if the purchase was completed on January 1, 1999 and the
related 1,029,218 shares of common stock issued to acquire the LanXtra business
were issued on that date. The pro forma financial information for 1999 does not
represent what our results of operations would have been if the acquisition had
actually occurred on January 1, 1999, nor is it indicative of our future results
of operations.
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR CAVION.COM
------------------------------------------------------- ---------------------------
FROM PRO FORMA
FOR THE INCEPTION ------------
FOR THE YEAR ENDED DECEMBER 31, MONTH (AUGUST 18, FOR THE FOR THE
ENDED 1998) TO YEAR ENDED YEAR ENDED
----------------------------------------- JANUARY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999 1998 1999 1999
-------- -------- -------- -------- ----------- ------------ ------------ ------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenue:
Network access and
connectivity........... $ -- $ -- $ 24 $ 148 $ 24 $ -- $ 448 $ 472
Installation services and
software licensing..... -- -- -- 67 14 -- 170 184
---- ----- ------- ------- ------- ---------- ---------- ----------
Total revenue.......... -- -- 24 215 38 -- 618 656
---- ----- ------- ------- ------- ---------- ---------- ----------
Cost of revenue:
Network access and
connectivity........... -- -- 51 137 16 -- 329 345
Installation services and
software licensing..... -- -- -- 85 16 -- 164 180
---- ----- ------- ------- ------- ---------- ---------- ----------
Total cost of
revenue.............. -- -- 51 222 32 -- 493 525
---- ----- ------- ------- ------- ---------- ---------- ----------
Gross profit (loss).... -- -- (27) (7) 6 -- 125 131
---- ----- ------- ------- ------- ---------- ---------- ----------
Operating expenses:
Selling, general and
administration......... -- -- 673 869 182 7 2,933 3,115
Research and
development............ -- -- 364 249 31 -- 586 617
Amortization of goodwill
and other intangible
assets................. -- -- -- -- -- -- 874 953
---- ----- ------- ------- ------- ---------- ---------- ----------
Total operating
expenses............. -- -- 1,037 1,118 213 7 4,393 4,685
---- ----- ------- ------- ------- ---------- ---------- ----------
Income (loss) from
operations............... -- -- (1,064) (1,125) (207) (7) (4,268) (4,554)
Interest income (expense),
net...................... -- -- (809) (998) (64) (29) (462) (473)
Other income (expense)..... -- -- 38 152 -- -- (24) (24)
---- ----- ------- ------- ------- ---------- ---------- ----------
Income (loss) from
continuing operations.... -- -- (1,835) (1,971) (271) (36) (4,754) (5,051)
Discontinued operations.... (57) (481) 1,072 -- -- -- -- --
---- ----- ------- ------- ------- ---------- ---------- ----------
Net income (loss).......... $(57) $(481) $ (763) $(1,971) $ (271) (36) (4,754) (5,051)
==== ===== ======= ======= =======
Dividends on preferred
stock(1)................. -- (64) (64)
---------- ---------- ----------
Net income (loss)
applicable to common
shareholders............. $ (36) $ (4,818) $ (5,115)
========== ========== ==========
Basic and diluted net
income (loss) per share
applicable to common
shareholders............. $ (0.02) $ (1.56) $ (1.64)
========== ========== ==========
Weighted average common
shares outstanding....... 2,078,170 3,081,156 3,112,424
========== ========== ==========
Pro forma EBITDA(2)........ $ (3,566)
OTHER OPERATING DATA (at
end of period):
Customers under
contract............... 26 100
Customers connected...... 16 56
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
----------------------------------------- JANUARY 31, ---------------------------
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ (8) $ 9 $ 350 $ 52 $ -- $ 20 $ 4,347
Working capital......... (31) (666) (578) (1,762) (2,014) (14) 2,542
Total assets............ 258 777 768 456 428 2,274 9,603
Long-term debt, net of
current maturities.... 80 -- 20 33 33 253 386
Putable common stock.... -- 261 838 1,650 1,700 -- 201
Total shareholders'
equity................ (78) (770) (1,133) (3,103) (3,375) 1,988 6,972
</TABLE>
- ------------------------------
(1) All preferred stock was converted to common stock effective October 29,
1999.
(2) Pro forma earnings before interest, taxes, depreciation and amortization, or
pro forma EBITDA, represents the sum of net loss before income taxes plus
net interest expense, depreciation and amortization. Pro forma EBITDA is
presented here to provide additional information about our ability to meet
our obligations. Pro forma EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative either to net loss as an indicator of our operating
performance, or to cash flow as a measure of our liquidity.
18
<PAGE>
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 RELATED TO SUCH MATTERS AS OUR
FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY AND FINANCING PLANS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS THAT
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DETAILED IN "RISK FACTORS" AND ELSEWHERE
IN THIS PROSPECTUS.
OVERVIEW
cavion.com offers a secure private network and Internet banking products and
services to credit unions that connect them to other credit unions, their
business partners and members. cavion.com builds and maintains a suite of
network products and services for the credit union industry that currently
includes:
- a secure private network, CUINET-Registered Trademark-, that connects
credit unions with their business partners, enabling business-to-business
movement of data and e-commerce;
- secure Internet banking products, bill payment and secure automated loan
application software with access to third party decision products;
- secure Internet access services for credit unions; and
- e-commerce services for credit union members.
The following discussion of our results of operations includes the results
of our predecessor, LanXtra, Inc., for periods prior to February 1, 1999.
LanXtra was incorporated in June 1992 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 all of its assets except its credit union
financial services business, which we acquired in February 1999. We were
originally incorporated under the name Network Acquisitions, Inc. in August 1998
for the purpose of acquiring the assets and business operations of LanXtra. This
acquisition was completed on February 1, 1999. At that time, we changed our name
to Cavion Technologies, Inc. and began to conduct some of our business under the
trade name cavion.com.
Prior to our acquisition of LanXtra, 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.
The following discussion relates to LanXtra's historical results of
operations since January 1, 1998, the date on which LanXtra began to focus
solely on the business later acquired by us. In the following discussion, "we"
refers both to the business we purchased from LanXtra on February 1, 1999, and
to cavion.com since its inception (referred to below as the combined results).
We have not included a comparison of 1998 operations to those conducted in 1997
since our current business was begun in January 1998 and therefore any such
comparison would not be meaningful.
Our revenues have been historically derived from recurring monthly
connectivity fees, installation services and software licensing fees associated
with our secure Internet access services and secure Internet financial products.
Beginning in January 2000, we changed our pricing policy and eliminated
implementation fees for access to CUINET-Registered Trademark- and our Internet
banking products. Currently, credit unions pay us a flat monthly fee based on
bandwidth requirements and the mix of products and services we provide to them.
In addition, we charge vendors connected to CUINET-Registered Trademark- a flat
monthly fee
19
<PAGE>
to be connected to CUINET-Registered Trademark- in addition to charges based
upon the number of credit unions to which such vendors provide services. We
market a connection to CUINET-Registered Trademark- and our Internet banking
products as a packaged solution to credit unions.
In addition, we offer bill payment services, secure forms servers, secure
Internet access and an online loan application, CUILOAN-TM-, with access to
third party approval products. Included in the monthly fee is the cost of
hardware, software installation, set up, maintenance, technical assistance for
our services, and any hardware or software upgrades. We do not charge end user
transaction fees or per user fees. Customers pay for a full year of services in
advance when they initially connect with us and on each anniversary date
thereafter. This payment is reflected on the balance sheet as an increase in
deferred revenue offset by an increase in cash. As revenues are deemed earned,
deferred revenues are amortized into revenue.
We have recently developed and are beginning to market our e-commerce
product, Member Emporium-TM-, which will allow credit unions to offer their
members products and services at discounted prices. In the future, we expect to
earn a substantial portion of our revenue from commissions and fees for
transactions conducted over Member Emporium-TM-.
As of March 31, 2000, we had 130 customers under contract to connect to
CUINET-Registered Trademark-, which included 119 credit unions and 11 business
critical vendors. Of the 119 credit unions that contracted to connect to
CUINET-Registered Trademark-, 57 had also subscribed to our Internet banking
products. We believe that our new pricing policy, combined with our new strategy
of marketing a CUINET-Registered Trademark- connection and Internet banking
products as a packaged solution will increase the percentage of our credit union
customers who also subscribe for Internet banking products. In the first quarter
of 2000, 66% of credit unions that contracted to connect to
CUINET-Registered Trademark- also subscribed to our Internet banking products,
as compared to 42% through December 31, 1999.
Our cost of revenue consists of network access and connectivity expenses and
installation services. Network access and connectivity expenses include our
monthly connection costs paid to Convergent and other telecommunications
providers, hardware costs, as well as the ongoing personnel and system
maintenance costs associated with our data center. Our installation services
expenses consist of the initial equipment and personnel costs required to
implement our secure private network and Internet banking products.
Our operating expenses consist of selling, general and administrative
expenses, research and development expenses, and amortization of goodwill and
other intangible assets. Selling, general and administrative expenses include
marketing expenses, sales commissions, employee compensation and benefits, and
occupancy and general office expenses incurred in the ordinary course of
business. Research and development expenses consist of programmers and engineers
allocated salaries applicable to the amount of time they devoted to development
activities. Amortization of goodwill and other intangible assets is related to
the purchase of LanXtra.
RESULTS OF OPERATIONS FOR CAVION.COM AND THE PREDECESSOR
The following table sets forth the results of operations of our predecessor
for the years ended December 31, 1997 and 1998 and for the one month ended
January 31, 1999, our results of operations for the period from inception
(August 18, 1998) to December 31, 1998 and for the year ended December 31, 1999.
Combined operating information for the years ended December 31, 1998 and 1999
has been presented to facilitate comparison between these periods.
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CAVION.COM
-----------------------
FOR THE
PREDECESSOR PERIOD COMBINED
------------------------------- FROM ---------------------
INCEPTION
FOR THE FOR THE (AUGUST FOR THE
YEAR ENDED MONTH 18, FOR THE YEAR ENDED
DECEMBER 31, ENDED 1998) TO YEAR ENDED DECEMBER 31,
------------------- JANUARY 31, DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1999 1998 1999 1998 1999
-------- -------- --------- ---------- ---------- ---------- --------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Network access and
connectivity............ $ 24 $ 148 $ 24 $ -- $ 448 $ 148 $ 472
Installation services and
software licensing...... -- 67 14 -- 170 67 184
------- ------- ----- ---- ------- ------ ------
Total revenue........... 24 215 38 -- 618 215 656
------- ------- ----- ---- ------- ------ ------
Cost of revenue:
Network access and
connectivity............ 51 137 16 -- 329 137 345
Installation services and
software licensing...... -- 85 16 -- 164 85 180
------- ------- ----- ---- ------- ------ ------
Total cost of revenue... 51 222 32 -- 493 222 525
------- ------- ----- ---- ------- ------ ------
Gross profit (loss)..... (27) (7) 6 -- 125 (7) 131
------- ------- ----- ---- ------- ------ ------
Operating expenses:
Selling, general and
administrative.......... 673 869 182 7 2,933 876 3,115
Research and
development............. 364 249 31 -- 586 249 617
Amortization of goodwill
and other intangible
assets.................. -- -- -- -- 874 -- 874
------- ------- ----- ---- ------- ------ ------
Total operating
expenses.............. 1,037 1,118 213 7 4,393 1,125 4,606
------- ------- ----- ---- ------- ------ ------
Income (loss) from
operations................ (1,064) (1,125) (207) (7) (4,268) $1,132 $4,475
====== ======
Interest income (expense),
net....................... (809) (998) (64) (29) (462)
Other income (expense)...... 38 152 -- -- (24)
------- ------- ----- ---- -------
Income (loss) from
continuing operations..... (1,835) (1,971) (271) (36) (4,754)
Discontinued operations..... 1,072 -- -- -- --
------- ------- ----- ---- -------
Net income (loss)........... $ (763) $(1,971) $(271) $(36) $(4,754)
======= ======= ===== ==== =======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 (COMBINED
CAVION.COM AND LANXTRA)
REVENUE
Total revenue increased approximately $441,000 or 205% from approximately
$215,000 for 1998 to approximately $656,000 for 1999. This increase consisted of
an increase of approximately $324,000 in network access and connectivity revenue
and an increase of approximately $117,000 for installation services and software
licensing revenue.
NETWORK ACCESS AND CONNECTIVITY. Network access and connectivity revenue
increased approximately $324,000 or 219% from approximately $148,000 for 1998 to
approximately $472,000 for 1999. This
21
<PAGE>
increase was due to the increase in the number of customers connected to
CUINET-Registered Trademark- from 16 as of December 31, 1998 to 56 as of
December 31, 1999.
INSTALLATION SERVICES AND SOFTWARE LICENSING. Installation services and
software licensing revenue increased approximately $117,000 or 175% from
approximately $67,000 for 1998 to approximately $184,000 for 1999. This increase
was due to the increase in the number of customers connected to
CUINET-Registered Trademark- from 16 as of December 31, 1998 to 56 as of
December 31, 1999. As a result of the change in the way we sell our products, we
expect this category of revenue to decrease significantly as a percentage of
total revenue.
COST OF REVENUE
Total costs of revenue increased approximately $303,000 or 136% from
approximately $222,000 for 1998 to approximately $525,000 for 1999. This
increase consisted of an increase of approximately $208,000 in costs related to
network access and connectivity revenue and an increase of approximately $95,000
for costs related to installation services and software licensing. Total cost of
revenue as a percentage of total revenue decreased from 103% in 1998 to 80% in
1999.
COST OF NETWORK ACCESS AND CONNECTIVITY. Costs related to network access
and connectivity revenue increased approximately $208,000 or 152% from
approximately $137,000 for 1998 to approximately $345,000 for 1999. This
increase was due to an increase in the number of customers connected to
CUINET-Registered Trademark-, and related increased telecommunications charges,
personnel and network maintenance and data center expenses. This increase was
somewhat offset by the reduction in prices we were charged for installation
services by telecommunications providers. Cost of network access and
connectivity as a percentage of related revenue decreased from 93% in 1998 to
73% in 1999.
COST OF INSTALLATION SERVICES AND SOFTWARE LICENSING. Costs related to
installation services revenue increased approximately $95,000 or 112% from
approximately $85,000 for 1998 to approximately $180,000 for 1999. This increase
was due to an increase in the number of customers connected to
CUINET-Registered Trademark-, and related increases in personnel and equipment
costs. Cost of installation services and software licensing as a percentage of
related revenue decreased from 127% in 1998 to 98% in 1999.
OPERATING EXPENSES
Total operating expenses increased approximately $3.5 million or 309% from
approximately $1.1 million for 1998 to approximately $4.6 million for 1999. This
increase consisted of an increase of approximately $2.2 million in selling,
general and administrative expenses, $368,000 in research and development
expenses, and $874,000 of amortization of goodwill and other intangible assets.
Total operating expenses as a percentage of total revenue increased from 523% in
1998 to 702% in 1999. This increase was primarily due to the amortization of
goodwill from the LanXtra acquisition, increased personnel and occupancy costs
to support our recent growth and increased commissions paid to sales personnel.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased approximately $2.2 million or 256% from $876,000 for 1998 to
$3.1 million for 1999. This increase was primarily due to increased personnel,
increased occupancy costs for additional sales offices, and increased
commissions paid to sales personnel. We anticipate that our salaries and
commissions will increase as we hire additional personnel to handle the expected
growth of our business. We also expect increased occupancy expenses and
corporate infrastructure costs as we grow. Selling, general and administrative
expenses increased as a percentage of total revenue from 407% in 1998 to 475% in
1999.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
approximately $368,000 or 148% from $249,000 for 1998 to $617,000 for 1999. This
increase was primarily due to increased personnel devoted to development
activities. We anticipate that our salaries and commissions will
22
<PAGE>
increase as we hire additional personnel to handle the expected growth of our
business. Research and development expenses decreased as a percentage of total
revenue from 116% in 1998 to 94% in 1999.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Amortization of
goodwill and other intangible assets increased approximately $874,000 from $0 in
1998 due to the February 1, 1999 acquisition of LanXtra, and the related
goodwill and other intangible assets.
INTEREST INCOME AND EXPENSE
cavion.com's interest expense totaled approximately $462,000 for 1999,
compared to approximately $29,000 for 1998. The increase is due to additional
borrowings during 1999 prior to our initial public offering and obligations
assumed from LanXtra, as well as to the recording of a full year of interest on
borrowings in 1998. We expect that interest expense related to borrowings will
decrease in 2000, as we have repaid substantial portions of our debt, however
interest expense related to capital leases will increase as we expand our
network infrastructure and customer base.
cavion.com's interest income was approximately $30,000 in 1999 and was
derived from interest earned on short-term cash investments.
DIVIDENDS ON PREFERRED STOCK
cavion.com's dividends on preferred stock totaled approximately $64,000 for
1999, reflecting dividends payable on cavion.com's Series A preferred stock,
which was converted to common stock on November 3, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily through cash flow from operations,
net proceeds from the public and private sale of equity and debt securities, and
through debt which has subsequently been repaid. On December 31, 1999, we had
approximately $4.3 million in cash and cash equivalents.
cavion.com's operating activities used cash of approximately $13,000 in 1998
and approximately $3.3 million in 1999. Cash used by operating activities in
each of these periods primarily resulted from our net losses, which were
partially offset by depreciation and amortization, accretion of debt discount
and putable stock, loss on disposal of assets, and by increases in accrued
liabilities and deferred revenue.
cavion.com's investing activities used cash of approximately $335,000 in
1998, and generated approximately $79,000 in 1999, which was the net effect of
approximately $207,000 for the purchase of new equipment and receiving
approximately $286,000 from the sale of network equipment to Convergent
Communications Services, Inc.
cavion.com's financing activities generated cash of approximately $368,000
and $7.6 million in 1998 and 1999, respectively. The cash generated by financing
activities during 1998 and 1999 resulted primarily from debt financing and the
sale of equity, which was offset somewhat in 1999 by the repayment of debt.
We received net proceeds of $470,000 from the private placement of 15%
secured notes that began in October 1998 and ended in February 1999. The notes
are due in October 2000 and are secured by substantially all of our assets. The
funds were used to provide bridge funding to LanXtra in anticipation of our
acquisition of LanXtra's assets, which occurred in February 1999. We intend to
repay these notes with a portion of the proceeds of this offering.
In March and April 1999, we received net proceeds of approximately $1.8
million from the private placement of 700,000 shares of our preferred stock.
These shares were converted into 700,000 shares of common stock on November 3,
1999.
23
<PAGE>
On August 31, 1999, we received net proceeds of $273,000 from the private
placement of 14% notes, which included warrants to purchase 30,000 shares of our
common stock at an exercise price of $6.50 per share. The notes were repaid on
November 5, 1999.
In November 1999, we received net proceeds of approximately $6.7 million in
our initial public offering of 1,290,500 shares of our common stock. The net
proceeds were used primarily to pay off debt, purchase equipment, for working
capital and to continue the expansion of our secure private network.
On February 17, 2000, we received net proceeds of $2.2 million through a
private placement to two investors of 205,000 shares of our common stock.
We currently lease all of the equipment in our data center. We have a lease
line from Data Sales Company which enable us to lease up to $500,000 of computer
hardware. Interest on the outstanding balance accrues at the rate of 10%
annually. As of March 31, 2000 a total of $164,283 was outstanding on this line.
In the future, 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.
Management expects that we will continue to operate at a loss as we 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 anticipated future growth in our
credit union customer base. 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 as a result of a variety of factors, some of which are
outside of our control. Because of that, we cannot assure you that we will
achieve profitable operations even with a significant increase in our credit
union customer base.
Management believes that we have sufficient capital to fund our operations
through the end of the year 2000. We plan to use most of the proceeds from this
offering to fund the substantial costs that will be incurred with our expansion,
including the development and promotion of Member Emporium-TM-, our e-commerce
solution.
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, 1999, nor do we expect that
inflation will have a material effect on the results of our future operations.
RECENT ACCOUNTING GUIDELINES
During December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101, "Revenue Recognition" ("SAB 101"), to establish
guidelines for revenue recognition and enhance revenue recognition disclosure
requirements. SAB 101 clarifies basic criteria for when revenues are taken into
account for purposes of a company's financial statements. SAB 101 is effective
for the quarter ended June 30, 2000. We are currently assessing the implications
of adopting SAB 101. In the period of adoption, the cumulative impact will be
reported as a change in accounting principle as dictated by SAB 101.
24
<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of secure private network connectivity and
Internet solutions that connect credit unions to their business partners and
members. Through CUINET-Registered Trademark- (Credit Union INTERACTIVE
Network), our secure private communications network, individual credit unions
can offer Internet banking products and e-commerce services to their members via
the Internet and they can engage in business-to-business communications and
e-commerce with other credit unions, credit union leagues, trade associations,
corporate credit unions and third party vendors. We also offer secure Internet
access for credit unions' personnel with multiple layers of security and
dedicated connections designed to satisfy credit unions' need for confidential
communications and secure transaction processing through one digital connection
to our private network. As of March 31, 2000, we had contractual arrangements to
connect 130 entities to CUINET-Registered Trademark-, 92 of which had been
connected.
Our Internet banking products provide a cost-effective, outsourced, secure
and scalable solution that enables credit unions to offer their members a wide
array of financial products and services over the Internet. Our product offering
includes account management, funds transfer, bill payment, online loan
application with access to third party approval products, and share draft
imaging services over a secure Internet connection. These products and services
are branded with the credit union's own name and logo and other distinctive
branding characteristics. This branded solution enables credit unions to provide
their members with the convenience of banking on the Internet without losing the
personal relationship and service associated with the credit union. In addition,
our Internet banking products make credit unions more accessible to their
members without the expense of building additional facilities.
Through our recently introduced e-commerce solution, Member Emporium-TM-, we
identify, develop and implement e-commerce relationships with third party
merchants and suppliers and, in turn, offer their products and services to
credit union members. Member Emporium-TM- is designed to enable a credit union
to provide its members with access to products and services such as mortgage
lending, insurance, online stock trading, tax preparation, retail Internet
access services and retail merchandise at a discount to regular retail or
Internet-based prices. Member Emporium-TM- is co-branded with each individual
credit union's own name and logo. We anticipate that creating such e-commerce
opportunities for credit union members will increase lending opportunities for
credit unions, generate significant transaction fees and commissions for us and
increase member retention for the credit union.
We currently earn the majority of our revenue from recurring flat monthly
fees for a connection to CUINET-Registered Trademark- and for our Internet
banking products and ancillary services. We also generate monthly recurring
revenue from third party vendors for providing them with a connection to
CUINET-Registered Trademark- and additional fees based upon the number of credit
unions to which such vendors provide services. We do not charge our credit union
customers software licensing, implementation or per user fees. In the future, we
expect to earn a substantial portion of our revenue from commissions and fees on
transactions conducted over Member Emporium-TM-.
Our system is supported by our data center, which provides a secure hosting
environment for our Internet products and deploys them to customers connected to
our secure network. We expect to open two additional data centers in the third
quarter of 2000 to provide redundancy and additional capacity. Through our
network design and our relationship with data processing vendors, we are able to
interface our products and services with a credit union's existing core
transaction and data processing systems. To date, we have successfully
interfaced our products and services with eight different core processing
systems and two bill payment systems. Additionally, we have the capability of
building additional interfaces as necessary.
25
<PAGE>
INDUSTRY OVERVIEW
THE INTERNET AND E-COMMERCE
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. For example, financial institutions are
rapidly adopting network communications to conduct electronic banking and
provide customers with access to their account information.
Due to these benefits, the Internet has emerged as the fastest growing
global communications and transactional medium in history. International Data
Corporation (IDC), a leading provider of research for the information technology
industry, estimates that the number of Internet users worldwide will increase
from approximately 230 million in 1999 to 602 million by 2003, a compound annual
growth rate of approximately 27%. In addition, Nielsen//Net Ratings estimates
that the number of people who had Internet access from home in the United States
in 1999 was 119 million, or approximately 50% of the U.S. population.
Both businesses and consumers are looking to the Internet to conduct
e-commerce. As a result, many companies have developed and are increasingly
developing websites that are interactive and transaction-enabled, allowing them
to provide a wide range of e-commerce capabilities. IDC estimates that revenue
from business-to-consumer e-commerce will increase from approximately
$40 billion in 1999 to more than $210 billion in 2003, a compound annual growth
rate of approximately 52%. IDC estimates that revenue from business-to-business
e-commerce will increase from approximately $97 billion in 1999 to more than
$1.4 trillion in 2003, a compound annual growth rate of approximately 96%.
THE CREDIT UNION INDUSTRY
A credit union is a non-profit, cooperative financial institution, owned and
controlled by its members, or customers, who use its services. Historically,
credit unions have been limited to serving specific populations. As such, credit
unions traditionally have not competed with each other but coexisted in a
cooperative spirit. For example, credit unions may engage in shared branching
whereby members of one credit union can conduct their business using another
credit union's facility.
Beginning in 1998, changes in applicable law resulting from the adoption of
the Credit Union Membership Access Act of 1998 have permitted federally
chartered credit unions to greatly expand the range of persons they can serve.
These changes also expanded the types of services federal credit unions can
provide to their members so that they are now generally the same as the retail
services offered by banks and savings and loans. As a result, credit unions can
now compete more effectively with banks and savings and loans.
According to information released by Callahan and Associates, a credit union
consulting firm, in December 1999, in the United States: (i) there are
approximately 10,800 credit unions with combined assets of over $418 billion;
and (ii) these 10,800 credit unions service approximately 77 million members.
Callahan's most recent database, released in December 1999, reports that
approximately 6,200 of these credit unions have assets of over $5 million. These
larger credit unions service approximately 73 million members and have combined
assets of approximately $409 billion.
According to the Credit Union National Association's 1998 National Member
Survey, a typical credit union member is 45 years old and has an average annual
household income of approximately $50,000. Approximately 72% of credit union
members are homeowners.
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The credit union industry includes credit union leagues, trade associations
and corporate credit unions. Credit union leagues and trade associations are
non-profit organizations made up of credit unions and are supported through the
payment of their members' dues. Credit union leagues and trade associations act
as a common voice for their members in legislative and other matters, and may
also provide services to credit unions, such as processing of share drafts
(checks drawn on credit union accounts). A corporate credit union, which is
essentially a credit union for credit unions, is a non-profit organization that
provides liquidity services, loans, deposit accounts and investment services to
credit unions. Corporate credit unions can also provide other services,
including share draft processing services and bill pay settlement services for
online bill payment products.
THE INTERNET, PRIVATE NETWORKS AND CREDIT UNIONS
We believe financial institutions' customers are increasingly demanding
Internet banking, bill payment and online loan application services. IDC
estimates that approximately 8.1 million people were banking over the Internet
at the end of 1998 and projects that number will increase to approximately 39.8
million by 2003. The number of financial institutions offering Internet banking
is expected to increase from 1,150 in 1998 to 15,845 by 2003, according to IDC.
These competitive pressures are driving credit unions to offer Internet banking
products and services to their members. The emergence of the Internet has
provided credit unions with a new platform to offer their traditional services
to their members and the flexibility to market non-traditional products and
services, such as brokerage services, insurance policies and retail Internet
access, to those members.
While the Internet has developed into a medium that facilitates credit
unions' ability to communicate with and offer services to their members, the
Internet lacks the network security that is desired by credit unions to transfer
their members' financial data. Private networks provide a secure communications
medium that is faster and more efficient than the public Internet. We believe
credit unions will increasingly demand a high speed, secure private network for
transferring funds, clearing share drafts, transferring data, accessing vendors
and trade associations, and transferring members' financial information.
Communications of this nature require a secure private network that does not
have the risks associated with transferring members' data over the public
Internet.
Due to their traditionally smaller size and nonprofit status, most credit
unions do not have the technological infrastructure and in-house support staff
to develop and maintain a secure private network and an Internet banking
solution. We believe credit unions need a cost-effective, integrated and
outsourced solution that offers access to a secure private network and Internet
banking products and services. We also believe that many credit unions demand a
single source provider of connectivity and Internet banking services that is
fast, secure and scalable. In addition, the solution must provide the
flexibility to allow for new products and services.
OUR SOLUTION
We provide secure private network connectivity and Internet banking products
and services and solutions to credit unions. Through
CUINET-Registered Trademark-, we connect individual credit unions to their
business partners and members and enable them to engage in business-to-business
communications and e-commerce. Our cost-effective, secure and scalable solution
enables credit unions to offer their members a wide array of financial products
and services over the Internet. Through our Member Emporium-TM- product, we also
will enable credit union members to access products and services at significant
discounts from regular retail or Internet-based prices.
Our solution provides our customers and their members with the following
advantages:
- AFFORDABLE PRICING MODEL. We charge a flat monthly fee to connect a credit
union to our secure private network and for the use of our Internet
banking products and services. The amount of this monthly fee is based on
the credit union's transmission capacity, or bandwidth, requirement
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and the mix of services provided. We do not charge our credit union
customers any implementation, transaction or end user fees.
- PRIVATE CONNECTIVITY NETWORK. CUINET-Registered Trademark- is a secure,
private network that enables business critical data transfers and
communication between credit unions, credit union leagues, trade
associations, corporate credit unions and vendors.
- INTERNET BANKING SERVICES. We provide credit unions with a robust and
secure Internet banking product that enables their members to access
account and loan information, transfer funds between accounts, make loan
payments, view share draft images and download information into personal
money management software programs, such as Microsoft
Money-Registered Trademark- and Quicken-Registered Trademark-. We also
offer online bill payment and a loan application and approval product
through CUILOAN-TM-.
- BUSINESS-TO-BUSINESS TRANSACTIONS THROUGH
CUINET-REGISTERED TRADEMARK-. Through CUINET-Registered Trademark-, we
provide credit unions with a digital connection to each other, to their
business partners and to vendors. These vendors provide credit unions with
business critical services such as credit bureau reports and loan
approval, data archiving and share draft clearing.
- MEMBER EMPORIUM-TM-. We have recently introduced Member Emporium-TM-, a
network of e-commerce portals for credit union members. This product
aggregates credit union members into a demographically attractive audience
to which merchants can offer products and services such as home mortgages,
online brokerage services, retail Internet access, insurance, online
brokerage services and consumer goods at a discount to regular retail or
Internet-based prices.
- SECURE INTERNET ACCESS FOR CREDIT UNIONS. Through
CUINET-Registered Trademark- we are able to provide credit union personnel
with secure Internet access. Our ISP service provides multiple layers of
security to ensure that credit unions have confidential communications and
secure transactional processing with one connection. In addition, our ISP
service provides credit unions with e-mail and website hosting.
- SINGLE TURNKEY CONNECTIVITY SOLUTIONS. We provide all of the proprietary
software and the hardware necessary to operate our Internet banking system
and to connect to CUINET-Registered Trademark-. Credit unions that use our
solution do not need to develop in-house software, purchase or maintain
expensive equipment, contact or deal with telecommunication companies, or
hire a technical staff. In addition, we provide all software upgrades
internally at our data center.
- COMPATIBILITY WITH EXISTING CORE PROCESSING SYSTEMS. Both our Internet
banking system and CUINET-Registered Trademark- are designed to interface
with multiple core processing providers and data processing services. At
present, we have successfully installed Internet banking products and
services that interface with eight different core processing software and
data processing systems. Furthermore, we believe that we have the ability
to interface with additional core processing systems.
OUR STRATEGY
We believe that by combining our secure private network with our Internet
banking products, ancillary services and Member Emporium-TM-, we can become the
leading single source provider of connectivity and e-commerce solutions for the
credit union industry. Credit unions can utilize our system to create
relationships with new members, to enhance relationships with their existing
members, to connect with business partners and to conduct business critical
operations. To accomplish these goals, we intend to:
- LEVERAGE OUR EXISTING NETWORK. We intend to leverage our current position
as a leading provider of network connectivity services to credit unions to
connect additional credit unions to CUINET-Registered Trademark-.
CUINET-Registered Trademark-'s integrated network allows credit unions to
benefit from the connection to additional credit unions and business
critical partners, such as credit union leagues, trade
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associations, corporate credit unions and vendors. We plan to increase the
number of credit unions connected to CUINET-Registered Trademark- by
increasing our direct sales force and developing strategic relationships
with third party vendors to market our connectivity solution.
- CROSS SELL ADDITIONAL PRODUCTS AND SERVICES THROUGH
CUINET-REGISTERED TRADEMARK-. We intend to market our Internet banking
products, secure Internet access services, secure forms server,
CUILOAN-TM-, and Member Emporium-TM- applications to our existing
CUINET-Registered Trademark- credit union customer base. In addition, we
have recently begun to market our Internet banking product as a blended
solution with a connection to our CUINET-Registered Trademark- network.
- INCREASE BUSINESS-TO-BUSINESS E-COMMERCE ON
CUINET-REGISTERED TRADEMARK-. We intend to expand
CUINET-Registered Trademark- by increasing the number of vendors and other
business partners connected to CUINET-Registered Trademark-. As of
March 31, 2000, we had 11 such entities under contract to connect to
CUINET-Registered Trademark-. With the addition of providers of business
critical services to credit unions on CUINET-Registered Trademark-, we
increase the service available to our credit union customers. Through this
expansion, we can increase the number of connections to, and
business-to-business transactions conducted on, our network.
- PROMOTE MEMBER EMPORIUM-TM-. Through CUINET-Registered Trademark-, we have
access to 119 credit unions with approximately 2.5 million members. We
intend to encourage credit union members to visit the Member Emporium-TM-
website through advertising on credit union websites, and through e-mail,
statement inserts, direct mail and in-branch advertising. We intend to
attract additional merchants to advertise and sell their products by
offering them direct access to this aggregated potential customer base.
- DEVELOP NEW SERVICE OFFERINGS. We have a research and development staff
that is focused on expanding and enhancing our current products and
services. We plan to offer new and improved services to attract new credit
unions to CUINET-Registered Trademark- as well as provide credit unions
with additional products and services to offer their members.
PRODUCTS AND SERVICES
We offer credit unions, their business partners and members a variety of
products and services, including secure network connectivity, Internet banking
products, business-to-business communication, secure Internet access and our
e-commerce solution, Member Emporium-TM-. Our products and services consist of
the following:
- Our secure private network, CUINET-Registered Trademark-, connects credit
unions, credit union leagues, trade associations, corporate credit unions
and vendors. CUINET-Registered Trademark- facilitates business-to-business
communications and e-commerce, and enables credit unions to offer products
and services to their members over the Internet. For example, we recently
entered into an agreement with Mission Critical Recovery, Inc. to offer
secure electronic storage of critical data files and data disaster
recovery services to credit unions. Data is transferred to Mission
Critical Recovery from credit unions on CUINET-Registered Trademark-.
- Our secure Internet banking products enable credit union members to view
their account and loan balances, obtain information on particular share
drafts, transfer funds between accounts, pay bills online and apply for
and obtain approval of loans over the Internet.
- Our recently introduced e-commerce product, Member Emporium-TM-, will
enable credit unions to offer products and services to their members, such
as mortgage loan services, insurance policies, retail Internet access,
co-branded portals, personal start pages, online shopping and on-line
brokerage services. Member Emporium-TM- also provides credit unions and
vendors with website promotion and traffic control tools, such as ad
serving, search engine placement, e-mail and visitor analysis.
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CUINET-REGISTERED TRADEMARK-
CUINET-Registered Trademark- is a fully-managed, private, frame relay
communications network that connects credit unions with other credit unions,
credit union leagues, trade associations, corporate credit unions and third
party vendors. These entities can use CUINET-Registered Trademark- to transfer
business critical data without the risks associated with transferring data over
the public Internet.
Through CUINET-Registered Trademark-, we provide secure ISP services to
credit union personnel. Our secure ISP access provides credit unions with
multiple layers of security features and dedicated connections to ensure
confidential communications and secure transactional processing with one
connection. We also provide web hosting and e-mail functionality for credit
union customers utilizing our secure ISP services.
Vendors use CUINET-Registered Trademark- to communicate and transact
business with credit unions. Among the services that are currently provided by
vendors on CUINET-Registered Trademark- are:
- SHARE DRAFT CLEARING SERVICES. Credit unions settle their share drafts
through corporate credit unions and credit union leagues.
- SHARED BRANCHING. Shared branching networks are groups of credit unions
that have agreed to allow their members to do business at each other's
locations and at shared locations.
- DATA ARCHIVING. Through Mission Critical Recovery, credit unions can
obtain secure electronic storage of critical data files and data disaster
recovery services.
- CREDIT BUREAU SERVICES. Through Factual Data Corporation, a vendor of
credit bureau reports, credit unions can obtain a credit bureau report on
a prospective borrower from any of the three major credit bureaus.
- WEBSITE DESIGN. Through CyberBranch Corporation, a credit union website
design firm, credit unions can outsource the development and deployment of
their websites.
In addition to the products we currently offer, we are targeting numerous
vendors, including statement processing and printing companies to connect to
CUINET-Registered Trademark-.
CUINET-Registered Trademark- uses frame relay phone lines to each credit
union and vendor connected to the network, limiting access to the network and
maintaining constant control of the information being transmitted. When a credit
union customer provides its members with Internet access to their personal
account information and financial services, the concern with security becomes
more acute. Accordingly, the Internet side of our network uses multiple security
safeguards--firewalls, data encryption, digital certificates and the
JAVA-Registered Trademark- programming language.
Firewalls act as the gatekeeper 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 specified addresses
from entering or exiting the network. Our network uses industry standard
firewall products.
Our network also uses data encryption whenever data is exchanged with the
Internet for Internet banking and bill payment services or for our share draft
repository system. Encryption is the process of coding data so that only
specified users can access the information. In this way, personal information
can be sent across public networks without compromising its confidentiality.
Digital certificates verify the identity of the web server being used and that
the owner of that server is authorized to allow encryption. We use digital
certificates provided by an independent certificate authority on all of our
secure web servers.
As an added layer of security for the user, we use the
JAVA-Registered Trademark- programming language to control Internet banking and
bill pay sessions. The JAVA-Registered Trademark- "applets" used in these
sessions run only 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 cannot 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.
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INTERNET BANKING PRODUCTS AND SERVICES
Our Internet banking products enable credit union members to access the
following services:
- ACCOUNT INFORMATION. Credit union members can view current account and
loan information as well as historical information.
- FUNDS TRANSFER. Credit union members can transfer funds among accounts and
make electronic loan payments.
- SHARE DRAFT SERVICES. Credit union members can obtain information about
the status of a particular share draft, view images of their share drafts,
request stop payment of a share draft and reorder share drafts online.
- COMPATIBILITY WITH PERSONAL MONEY MANAGEMENT PROGRAMS. Credit union
members can download account information for use with their personal money
management programs, such as Microsoft Money-Registered Trademark- and
Quicken-Registered Trademark-.
- BILL PAYMENT. Credit union members can pay their bills electronically 24
hours a day, seven days a week, can customize their payee list, make
recurring and non-recurring payments, obtain payment status and history
and provide for payments to be made in the future.
- LOAN APPLICATION AND APPROVAL DECISIONS. Through our proprietary software
CUILOAN-TM-, credit union members can apply for loans and obtain approval
decisions online through our third party vendor, Experian Credit Bureau.
- ACCESS VIA WEB-ENABLED CELLULAR DEVICES. Our Internet banking products and
services are accessible through the use of web-enabled cellular devices,
such as cell phones and personal digital assistants.
MEMBER EMPORIUM-TM-
We have developed and are beginning to offer our integrated network of
e-commerce portals called Member Emporium-TM-. Member Emporium-TM- is designed
to enable a credit union to provide its members with access to a variety of
products and services, typically at a discount from regular retail or
Internet-based prices. Through Member Emporium-TM-, demand from credit unions'
members can be aggregated to achieve higher discounts or rebates than individual
credit unions could achieve on their own. Through preferred merchants, Member
Emporium-TM- will offer financial and other services that are complementary to
those provided by credit unions, such as mortgage lending, insurance, online
brokerage and retail Internet access services. Member Emporium-TM- will also
offer consumer merchandise through shopping portals connected to over 130
merchants and vendors. Each credit union selects the merchants and portals that
link to or appear on the credit unions' website, Internet banking website and
co-branded personal start page portal. In addition, all lending opportunities
generated from the purchase of products and services are referred back to the
sponsoring credit union.
All portals are co-branded by the sponsoring credit union and Member
Emporium-TM- and contain no advertisements featuring products and services that
are competitive with those offered by credit unions. We anticipate that Member
Emporium-TM- will increase a credit union's presence on the Internet by
attracting its members to the products and services advertised on the credit
union's website using ad banners, e-mail, and search engine placements. Credit
union members can access Member Emporium-TM- through their credit union's
website, through their credit union co-branded personal start page, through the
Member Emporium-TM- preferred merchant websites, and through Member Emporium-TM-
vendor portals.
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Our Member Emporium-TM- solution includes the following features:
- PREFERRED MERCHANTS. Preferred merchants are vendors of Internet and
financial services that complement those offered by credit unions, such as
mortgage lending, insurance, online stock trading, online tax preparation
and retail Internet access. Preferred merchants' products and services
receive greater exposure through advertising on credit union websites and
on the co-branded personal start page portal of credit union members. We
receive advertising revenue as well as commissions and fees from these
merchants when their products and services are purchased by credit union
members. All advertising on the preferred merchant sites is controlled by
Member Emporium-TM-.
- SHOPPING PORTALS. Shopping portals will provide credit union members with
access to non-financial products and services offered by over 130
merchants. Through Member Emporium-TM-, demand from credit unions' members
can be aggregated to achieve higher discounts or rebates than individual
credit unions could achieve on their own. In addition, these shopping
portals will offer integrated ad serving and search engine capabilities
that will provide credit unions with increased advertising and promotional
opportunities. We will receive advertising revenue as well as commissions
and fees when credit union members purchase products and services through
the shopping portals.
- MEMBER EMPORIUM-TM- WEB TOOLS. Member Emporium-TM- provides tools designed
to provide credit unions and merchants with the ability to manage
advertising, e-mail, marketing and web promotions, and traffic on their
websites. We receive fees for providing these services. These capabilities
are available for use on the credit union's website and Internet banking
programs as well as on the Member Emporium-TM- portals.
SYSTEMS ARCHITECTURE
CUINET-REGISTERED TRADEMARK-
CUINET-Registered Trademark- is our secure private frame relay network used
to connect credit unions to each other and to their business partners. It is not
a virtual private network (VPN) transmitted over the Internet but a truly
private network which ensures reliable and high speed connectivity and enhanced
security for our customers' communications and data transmission. Credit unions
can use our private network to process shared branch activity, move share draft
information, interact with corporate credit unions, communicate with credit
bureaus, and engage in other business-to-business activity.
Our existing data center houses firewalls, web servers, Internet banking
servers, domain name servers, database servers, gateway servers, routers and a
variety of other interrelated telecommunications equipment to serve our private
network. We also co-locate servers for credit unions or credit union vendors in
our existing data center and will do the same in the two new data centers
planned to open in the third quarter of 2000. Once they are operational, these
two new data centers will house similar equipment which will load balance
network traffic and provide disaster recovery by virtue of their redundant
connections to both the Internet and CUINET-Registered Trademark-. Excess
bandwidth will be available to each data center to enable it to carry the
additional traffic when needed.
Each credit union has its own dedicated server or servers in our data center
based on processing demand. This arrangement allows a high degree of control
over the performance of an individual credit union's connection. One credit
union's processing demand is independent of all other credit unions and hardware
overloads or failures only impact the credit union being served. Another
advantage to having discrete hardware dedicated to individual credit unions is
that upgrades are done at the credit union level, and we do not have to upgrade
large and expensive computer systems to accommodate the growth of a few credit
unions.
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INTERNET BANKING
For our Internet banking products, which connect our credit union customers
with their members through an Internet connection, our computer systems utilize
a "thin client" architecture. Thin client architecture is a system in which
applications reside in an off-site server rather than in the user's computer.
The most significant advantage of thin client architecture is the added security
provided by isolating the sensitive data network from computer viruses and other
potential disruptions or intrusions. In a thin client environment, the security
on the host server governs and limits the thin client's access. After the online
connection is terminated, the applications are erased from the user's computer
memory.
Thin client architecture also reduces the risk of system interruptions and
other maintenance problems because there is less ability for thin client users
to affect system settings which are critical to the business or workflow
operation. Thin client architecture also enables us to maintain control over our
proprietary software since we do not provide permanent copies to our users, and
therefore can make upgrades of our software immediately and efficiently without
having to distribute individual copies. Thin client architecture also minimizes
our credit union customers' need to upgrade their hardware constantly 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.
Because our systems use the JAVA-Registered Trademark- programming language,
which is platform independent, it allows many kinds of systems to communicate
with each other and share applications. Our transactional banking products also
provide scalability, distributive and centralized implementation, and permit
access using Web-enabled cellular devices.
In our case, the credit union or credit union member logs onto our server,
and can then access and run the applications remotely to process data. Through
JAVA-Registered Trademark- applets, we enable the user's computer to remove
processing load from our server with regard to formatting numbers and graphical
presentation. Unlike conventional servers, which are burdened by numerous
processing cycles needed to format data, a distributed environment frees our
server to handle more requests.
STRATEGIC ALLIANCES
On October 22, 1999, we entered into a five-year, nonexclusive agreement
with Convergent Communications Services, Inc. (Nasdaq: CONV), to establish and
maintain connectivity between our network and our customers. When we sign a
contract with a new institution, Convergent establishes the circuit and
implements the institution's connectivity to CUINET-Registered Trademark-. As
noted above, our architecture is designed for load balancing, redundancy and
disaster recovery, allowing us, with Convergent's assistance and the cooperation
of the telecommunications provider, to pick up traffic temporarily from a
nonfunctional data center.
In connection with our business-to-business services, we entered into a
contract with CyberBranch Corporation, a credit union-owned content and design
firm and loan decision engine, under which CyberBranch will purchase and license
for resale our Internet banking products, bill payment, and kiosk enabling
software at a discount, which they will then offer to their credit union
customers. We refer our credit union clients and prospects to CyberBranch for
website design. CyberBranch will refer its credit union clients and future
prospects to us for connectivity and secure Internet products and services.
We recently entered into a non-exclusive five-year agreement with Mission
Critical Recovery, Inc. under which Mission Critical will use
CUINET-Registered Trademark- to offer secure electronic storage of critical data
files, called electronic vaulting, and data disaster recovery services. In
addition to paying us for connection to CUINET-Registered Trademark-, Mission
Critical agreed to provide us with electronic vaulting services. For credit
unions
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located outside Florida that want to connect to Mission Critical, Mission
Critical refers these credit unions to CUINET-Registered Trademark- for a cost
effective network connection.
DATA CENTERS
We maintain a data center in Englewood, Colorado that became fully
operational in January 2000. The data center presently consists of a server farm
comprised of one Sun Microsystems Ultra 5 server for each Internet banking
customer and other servers as needed for our other business needs. We utilize
Cisco Systems equipment for all network routing.
We have our own backup power supply for 15 hours of continuous operation in
the event of a power outage. We have two separate HVAC units for the data center
to maintain constant temperatures irrespective of outside conditions. We have a
wireless, microwave backup link that enables us to maintain connectivity in the
event that cable at our data center is mistakenly cut or otherwise interrupted.
We plan to add a power generator to our Denver facility during the third quarter
of 2000.
Our data centers in Livonia, Michigan and Memphis, Tennessee, are currently
under construction. These data centers will utilize substantially identical
equipment and will have the same capabilities as our existing center in
Colorado. The most important feature of the two new centers, however, will be
the establishment of redundancy for our overall network. This redundancy will
enable us to utilize each of the centers as backup systems for the others in the
event of a natural disaster or other unforeseen data center outage. Our
redundant connectivity will be provided by Sprint Corp., Global Crossing Ltd.
and Level 3 Communications. These communication companies are known as Tier 1
Internet Service Providers because of their national presence, redundant
infrastructure and connections to major Network Access Points. We expect both of
our new data centers to be fully operational by the third quarter of this year.
CUSTOMERS
Our target market consists of credit unions with assets greater than
$5 million, credit union leagues and trade associations, corporate credit unions
and vendors that provide products and services to credit unions and their
members. According to Callahan and Associates, as of December 30, 1999, there
were approximately 6,200 credit unions with assets in excess of $5 million in
the United States.
There are 50 credit union leagues and trade associations in the United
States, approximately one in each state, and most credit unions belong to the
organization in their state. As of March 31, 2000, we had four credit union
leagues and trade associations connected to CUINET-Registered Trademark-.
CUINET-Registered Trademark- enables credit union leagues and trade associations
to transfer financial data to and from their credit union members. Examples of
our relationships with credit union leagues include the Colorado Credit Union
League, with whom we have established an informal marketing/endorsement
arrangement, and the Missouri Credit Union System, which uses
CUINET-Registered Trademark- to transport its share draft clearing data using
our share draft software. We plan to feature these relationships in our sales
efforts with credit unions.
There are 38 corporate credit unions in the United States, two of which have
signed contracts with us. While membership is not mandatory, most credit unions
choose to be a member of a corporate credit union and may do business with more
than one. Our corporate credit union customers can use
CUINET-Registered Trademark- to transfer financial data to and from their
members. An example of our relationship with corporate credit unions is the
Volunteer Corporate Credit Union, located in Tennessee, that joined us for the
business-to-business opportunities available through
CUINET-Registered Trademark-.
As of March 31, 2000, our network included 119 credit unions and 11 credit
union leagues, trade associations, corporate credit unions, vendors and other
entities. The number of members of our credit union customers aggregates
approximately 2.5 million. None of these individual customers accounted for more
than 10% of our total revenues.
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SALES AND MARKETING
We intend to place a direct sales force in each of our 18 planned sales
territories. As of March 31, 2000, we had opened a sales office in 14 of these
territories. We intend to place sales professionals in the four remaining sales
territories over the next 12 months. Our sales team currently consists of 11
sales professionals, as well as Eastern and Western Regional Sales Managers and
our Vice President of Sales and Marketing.
We target to hire sales people with experience and established contacts in
the credit union industry. We use a face-to-face sales strategy in which our
sales people initially assess a prospective customer's web strategy over the
telephone, then visit the credit union in person. Our primary customer contact
for sales to credit unions is generally the chief executive officer, the chief
financial officer or the chief operating officer. A typical sales presentation
first focuses on our Internet banking and online bill pay products. We then
feature the benefits of our CUINET-Registered Trademark- network, such as its
secure nature, Internet access, and the ability of the credit union to reduce
personnel and administrative costs. Our sales people sell the connection to
CUINET-Registered Trademark- and Internet banking as a bundled product.
Our products and services are advertised in credit union statement stuffers
circulated to members, in credit union lobby displays and in credit union
newsletters. We frequently advertise in two weekly trade publications: THE
CREDIT UNION JOURNAL and THE CREDIT UNION TIMES. Furthermore, we attend regional
and national conventions and trade shows, and we currently plan to attend a
minimum of 34 of these events during 2000.
We charge the credit unions connected to our network a fixed monthly rate
based on the amount of bandwidth they anticipate using. A credit union must
increase its bandwidth as the number of transactions conducted through its
website exceeds certain levels. Our customers pay more for each incremental
increase in bandwidth. We have implemented an automated system to measure each
credit union's usage of the network. By monitoring each credit union's connect
usage, our sales people can advise customers of their need to increase
bandwidth.
Our sales strategy to increase business-to-business commerce over
CUINET-Registered Trademark- includes initiatives to connect additional credit
union leagues, trade associations, corporate credit unions and vendors. We have
sales personnel focused on selling directly to these entities. We believe this
strategy is effective since many of the credit union leagues and corporate
credit unions serve a single state or region. Our Vice President of Sales and
Marketing manages these state and regional sales and also takes the lead in
sales to national credit union organizations and vendors that serve credit
unions on a national basis. We plan to increase our sales efforts in the
business-to-business area.
In addition to connecting with CUINET-Registered Trademark-, some of our
non-credit union customers participate with us in marketing and sales referral
agreements. We believe these marketing efforts supplement our direct sales
activities.
Our sales force markets Member Emporium-TM- products and services to credit
unions in their assigned sales territories. Marketing materials specifically
presenting Member Emporium-TM- features and benefits have been developed and
include a direct mail advertising campaign, full-page advertisements in the two
primary credit union trade publications, and special websites for product and
service demonstrations. We have developed an outbound call center to contact
credit unions and promote Member Emporium-TM-. Sales efforts in the field are
backed by specialist account executives based at our offices in Englewood,
Colorado, who schedule and coordinate marketing programs for our credit union
customers' members. In the near future, we plan to have program managers
available to assist the sales force to effectively communicate the unique
functionality of Member Emporium-TM- services, as well as to provide customer
support. We believe that once we establish our initial relationship with our
customers, our sales force will have the opportunity to cross sell Member
Emporium-TM-.
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<PAGE>
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 progresses rapidly and market share can be gained or lost in
very short time periods.
A number of public and private companies compete with one or more of our
Internet banking products. These competitors include Concentrex, Inc., Corillian
Corporation, Database Management Services, Digital Insight Corporation, Fiserv
Correspondent Services, Inc., FundsXpress, Inc., Home Account Network, Inc.,
Marshall & Isely Corporation, Online Resources and Communications Corporation,
Phoenix International, S1 Corporation, Sanchez Computer Associates, Inc., Source
One Software, Inc., Symitar Systems, Inc., and Virtual Financial Services, Inc.
Member Emporium-TM- competes with a variety of websites that offer consumer
products and services over the Internet. These sites include CUShopper.com,
CU-Village.com, Good2CU.com and uMember.com. Although we are not aware of any
direct competitors that provide a secure private network to credit unions, such
competitors may emerge in the future.
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 we presently offer. Many of these companies have greater
financial, personnel and operational resources than we have. We think that, as
the Internet transaction and network services we sell are purchased by more of
our customers, other competitors will enter the market to compete aggressively
with us, including some larger, established companies. Competition may also
increase if there is a 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.
GOVERNMENT REGULATION
Credit unions are cooperative, non-profit financial institutions, owned and
controlled by the credit union members who use their services. Credit unions may
be state or federally chartered and are regulated and, in most cases, federally
insured by the National Credit Union Administration. A small number of credit
unions are insured by state-authorized deposit insurance organizations. While it
is the responsibility of our customers to ensure that their use and marketing of
our products and services to their customers is permitted by the NCUA's
regulatory requirements, we do not believe that any of our current products or
services are restricted by such requirements. Nevertheless, we do not make
representations to customers regarding applicable regulatory requirements but
leave it to them to determine whether their use of our system and the design of
their website conform to applicable legal requirements. It is not possible to
predict the impact that any of these evolving regulatory requirements could have
on our business in the future.
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 NCUA or the Federal
Reserve Board. Naturally, however, we are vitally concerned with laws and
regulations governing financial institutions, especially credit unions, and how
any changes to those laws and regulations affect the market for financial
services and, in turn, our ability to provide products and services to our
credit union customers.
On August 7, 1998, the Credit Union Membership Access Act of 1998 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 of such loans does not
exceed
36
<PAGE>
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 regulations by the NCUA, which the NCUA expects
to be complete by August 2000. In light of these new opportunities to expand
their customer base, the Act has the potential to increase the activity of
federal credit unions in the financial marketplace.
Title IV of the Act requires the U.S. Treasury Department to study the
regulatory, tax and other differences between credit unions and other federally
insured financial institutions, including a review of the potential effect of
applying federal tax laws to credit unions. The study will consider whether the
competitive advantage produced by credit unions' tax exemption may endanger the
viability of smaller banks. The Treasury Department may ultimately recommend
imposing taxation on credit unions or enacting legislative or administrative
measures to cut taxes for smaller depository institutions which compete with
credit unions. Any such new laws or regulations which subject credit unions to
taxation or reduce the tax liability of competing financial institutions could
adversely affect credit unions and the size of our potential market.
We also cannot be certain that federal or state governmental authorities
will not adopt new laws or regulations constricting the credit union industry
addressing electronic financial services or operations generally that could
require us to modify our current or future products and services. The adoption
of laws or regulations affecting our business or our credit union customers'
business could have a material adverse effect on our business, financial
condition and results of operations.
A number of proposals at the federal, state and local level would, if
enacted, expand the scope of regulation of Internet-based financial services and
could impose taxes on the sale of goods and services made over the Internet and
certain other Internet activities. Any development that substantially impairs
the growth of the Internet or its acceptance as a medium for commerce or
transaction processing could have a material adverse effect on our business,
financial condition and operating results.
INTELLECTUAL PROPERTY
Although we believe that our success depends more upon our technical
expertise than our proprietary rights, our future success and ability to compete
may still depend in part on our own proprietary technology and on the
proprietary technology we may license from others. None of our technology is
currently patented. Instead, we rely on a combination of contractual rights and
copyright, trademark and trade secret laws to establish and protect our
proprietary technology. We generally enter into confidentiality agreements with
our employees, consultants, strategic partners, customers and potential
customers. We also limit access to and distribution of our source code, and
further limit the disclosure and use of other proprietary information. We cannot
be certain that the steps taken by us in this regard will be adequate to prevent
misappropriation of our technology or technology we license from others or that
our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain or use our products or technology or that which we license from
others. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States.
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<PAGE>
PROPERTIES
We currently lease the following properties:
<TABLE>
<CAPTION>
LOCATION PRIMARY USE SQUARE FOOTAGE
- -------- ----------------------------------- --------------
<S> <C> <C>
Bloomington, MN............. Sales/Technical Support Center 1,098
Bradenton, FL............... Sales/Technical Support Center 1,077
Braintree, MA............... Sales/Technical Support Center 1,083
Chesterfield, MO............ Sales/Technical Support Center 1,111
Englewood, CO............... Corporate/Sales/Data Center 14,490
Livonia, MI................. Sales/Technical Support/Data Center 3,387
Memphis, TN................. Sales/Technical Support/Data Center 2,956
Newark, DE.................. Sales/Technical Support Center 1,047
Portland, OR................ Sales/Technical Support Center 982
Raleigh, NC................. Sales/Technical Support Center 879
Richardson, TX.............. Sales/Technical Support Center 1,211
Roseville, CA............... Sales/Technical Support Center 1,459
San Diego, CA............... Sales/Technical Support Center 1,162
Schaumberg, IL.............. Sales/Technical Support Center 1,291
</TABLE>
We are in the process of identifying additional facilities to accommodate
our growth. We believe we will be able to identify additional space for sales
and technical support offices in the future on commercially reasonable terms as
needed.
EMPLOYEES
As of March 31, 2000, we had a total of 58 full-time employees, including
eight in development, 22 in engineering, 20 in sales, and eight in general and
administrative, five of whom are in accounting. None of our employees are
represented by a labor union or a collective bargaining agreement. We have not
experienced any work stoppages and consider our relationships with our employees
to be good.
LEGAL PROCEEDINGS
A LanXtra shareholder holding 50,000 shares of LanXtra stock exercised his
right to dissent from the sale of LanXtra's assets to us and demanded payment of
the "fair value" of his shares. Fair value means the value immediately before
the corporate action to which the dissenter objects. We have assumed the
liability, if any, of LanXtra to the dissenting shareholder which he asserted to
be $250,000. The question of his "fair value" is now in litigation. LANXTRA,
INC. V. KIRK W. DENNIS, Case No. 99 CV 3583 in the District Court, City and
County of Denver, Colorado. We believe the value which would have been received
by the dissenting shareholder on account of his shares under the asset purchase
agreement, however, is greater than the maximum amount which he can now recover
under Colorado law. Therefore, we have not reserved any funds to cover payment
of the liability because management views the possibility of such payment as
remote.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about our directors and
executive officers as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
David J. Selina........................... 50 Chairman of the Board, President, Chief
Executive Officer and Chief Operating
Officer
Marshall E. Aster......................... 46 Vice President, Chief Financial Officer
and Secretary
Jeffrey W. Marshall....................... 34 Vice President of Software Development and
Director
Daniel W. Dudley.......................... 40 Vice President of E-Commerce
Marvin C. Umholtz......................... 48 Vice President of Sales and Marketing
John R. Evans............................. 45 Director
Stephen B. Friedman....................... 58 Director
David E. Maus............................. 49 Director
</TABLE>
DAVID J. SELINA has served as our President, Chief Operating Officer and a
Director since February 1, 1999, and has served as our Chief Executive Officer
and Chairman of the Board since March 19, 1999. Mr. Selina was the President and
Chief Operating Officer of our predecessor, LanXtra, Inc., from December 1997,
and a director from January 1998, until that company's dissolution in July 1999.
From June 1995 to June 1997, Mr. Selina was the President and Chief Executive
Officer 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 from November 1993 to June 1995. From March 1986 to
November 1993, Mr. Selina held various management positions, including President
and Chief Executive Officer, at World Computer, a provider of data processing
systems and services to credit unions throughout the U.S. and Canada.
Mr. Selina has over 26 years experience in the credit union industry.
MARSHALL E. ASTER became our Chief Financial Officer on March 8, 1999, our
Secretary on March 22, 1999, and a Vice President on March 22, 2000. 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 served in the positions of Director, Vice
President and Senior Vice President of Corporate Financial Planning at
Lorimar-Telepictures Corporation, an entertainment company, from March 1984 to
October 1989.
JEFFREY W. MARSHALL has served as our Vice President of Software Development
since February 1999, and as a Director since May 1999. He was the Vice President
of Software Development of our predecessor, LanXtra, Inc. from December 1997 and
a co-founder of our company. He was employed by LanXtra as a software engineer
from July 1996 until he was promoted to Vice President in December 1997.
Mr. Marshall was a programmer for Chemical Waste Management, a waste treatment
concern in Denver, Colorado, from September 1994 to July 1996. From October 1991
to September 1994, Mr. Marshall developed relational database software for
Williams Thatcher Rand/Milliman & Robertson, actuarial consultants in Denver,
Colorado.
39
<PAGE>
DANIEL W. DUDLEY has served as our Vice President of e-commerce since
June 1, 1999. From April 1997 to May 1999, Mr. Dudley was the Senior Vice
President and General Manager at SkyTeller, L.L.C., a financial services firm in
Denver, Colorado. From December 1991 to April 1997, he held various positions,
including Vice President of Data Products, at The Polk Company, a marketing firm
in Denver, Colorado.
MARVIN C. UMHOLTZ has served as our Vice President of Sales and Marketing
since September 1, 1999. He served as our Eastern Regional Sales Manager from
April 1, 1999 to September 1, 1999. From October 1997 to April 1999,
Mr. Umholtz was an independent consultant and strategic planner serving credit
unions, credit union service organizations and credit union vendors. From April
1990 to September 1997, he held various positions, including Senior Vice
President of the Government and Public Affairs Group and Executive Vice
President and Chief Operating Officer of Association Services, at the Michigan
Credit Union League and its subsidiary, CUcorp, in Lansing and Plymouth,
Michigan.
JOHN R. EVANS has served as a director of cavion.com since October 1999. He
was one of the founders of Convergent Communications, Inc. in Englewood,
Colorado, and has served as a board member of that company since 1995.
Mr. Evans served as Chief Executive Officer and Chairman of the Board of
Convergent from 1995 until March 2000. Prior to that time, he served as the
Chief Financial Officer and Executive Vice President of ICG Communications, Inc.
in Englewood, Colorado, from 1991 until December 1995. Before joining ICG,
Mr. Evans served as the Controller of Shaw Industries, an electrical products
company, for approximately three years.
STEPHEN B. FRIEDMAN has served as a director of cavion.com since April 1999.
He has been a business consultant to various companies since January 1997.
Mr. Friedman was the President of the Asia/Pacific division of American Express
Company 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.
DAVID E. MAUS has served as a director of cavion.com since March 2000. Since
1979, Mr. Maus has served as President and Chief Executive Officer of the Public
Service Credit Union, Denver, Colorado, which has over $300 million in assets
and a loan portfolio in excess of $250 million. Since 1999, Mr. Maus has also
served as Chairman of the Credit Union National Association, which represents
over 10,000 credit unions nationally. In addition, Mr. Maus has served as
Chairman of the Division of Financial Services Board, the regulatory agency in
Colorado which oversees state chartered credit unions and savings and loan
associations since 1993, and as Chairman of the Board of Directors of Members'
Insurance since 1985. For the past 17 years, Mr. Maus has served as a board
member of the Colorado Credit Union System, and he has served as a board member
of Credit Union Service Network, Shared Branching Network for Colorado credit
unions since 1992.
All members of the Board of Directors hold office until the next annual
meeting of shareholders and the election and qualification of their successors,
or until death, resignation or removal. Executive officers of cavion.com are
appointed annually by the Board of Directors and serve until their successors
are duly appointed and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee consists of Messrs. Friedman, Maus and Evans. The
Compensation Committee consists of Messrs. Friedman and Evans.
The Audit Committee reviews the scope and timing of our audit services, the
engagement of our independent auditors and their audit reports. The Audit
Committee also meets with the financial staff to review accounting procedures
and reports.
40
<PAGE>
The Compensation Committee evaluates our compensation and benefits policies
and makes recommendations to the board concerning them. The Compensation
Committee also administers our Equity Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
One of the members of our Compensation Committee, John R. Evans, is a
director of Convergent Communications Services, Inc. and served as Convergent's
Chief Executive Officer and Chairman of the Board until March 31, 2000. In
October 1999, we contracted with Convergent to provide connectivity between our
network and our customers for a monthly fee. Convergent also purchased our
existing host site equipment at the time for $286,000. Convergent owns 67,603
shares of our common stock.
DIRECTOR COMPENSATION
While we do not pay cash compensation to our directors, they are reimbursed
for the expenses they incur in attending meetings of the Board or committees of
the Board. Directors may also receive options to purchase common stock awarded
under our Equity Incentive Plan at the discretion of the Compensation Committee.
We have granted to each of our non-employee directors an option to purchase
27,500 shares of common stock, which vests in four equal quarterly installments
commencing within four months of its grant date. The Compensation Committee has
also granted stock options to the two other directors who are also employees.
See "Executive Compensation." The exercise price of each of these options was
equal to the fair market value of our common stock at the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us or our
predecessor, LanXtra, during each of the three most recently completed fiscal
years, to our Chief Executive Officer, a former Chief Executive Officer and the
two other most highly compensated executive officers during 1999 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
FISCAL ------------ UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY OPTIONS COMPENSATION
- ----------------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
David J. Selina................................. 1999 $120,083 150,000 --
CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER 1998 $105,402 -- --
AND 1997 $ 8,333(1) -- --
CHIEF OPERATING OFFICER
Jeffrey W. Marshall............................. 1999 $113,833 50,000 --
VICE PRESIDENT OF SOFTWARE DEVELOPMENT 1998 $ 76,333 -- --
1997 $ 56,426 -- --
Marshall E. Aster .............................. 1999 $ 87,047(2) 40,000 --
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
Craig E. Lassen(3) ............................. 1999 $ 37,369 -- $35,000(4)
FORMER CHAIRMAN OF THE BOARD AND 1998 $ 75,481 -- --
CHIEF EXECUTIVE OFFICER 1997 $ 68,747 -- --
</TABLE>
- ------------------------
(1) Mr. Selina joined LanXtra in December 1997.
(2) Mr. Aster joined cavion.com in March 1999.
41
<PAGE>
(3) Mr. Lassen resigned as Chief Executive Officer and a Director of cavion.com
in February 1999 and as an employee in April 1999.
(4) Consists of payments for consulting services.
OPTION GRANTS IN 1999
The following table provides information regarding options granted during
1999 to the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED PRICE APPRECIATION(1)
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME OPTIONS IN 1999 PRICE DATE 5% 10%
- ---- ---------- ---------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David J. Selina..................... 150,000(2) 30% $3.00 3/19/09 $283,500 $715,500
Jeffrey W. Marshall................. 50,000(2) 10% $3.00 3/19/09 $ 94,500 $238,500
Marshall E. Aster................... 40,000(3) 8% $3.00 3/19/09 $ 75,600 $190,800
Craig E. Lassen..................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The dollar amounts under these columns represent the potential realizable
value of each option grated assuming that the market price of the common
stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC, and are not intended to forecast possible
future appreciation of the price of the common stock.
(2) Options vest in three equal semi-annual installments commencing
September 19, 1999.
(3) Options vest in four equal quarterly installments commencing September 8,
1999.
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
No options were exercised by any of the Named Executive Officers during
1999. The following table provides information regarding the amount and value of
options held by the Named Executive Officers at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David J. Selina................................ 50,000 100,000 $237,500 $475,000
Jeffrey W. Marshall............................ 16,667 33,333 $ 79,168 $158,332
Marshall E. Aster.............................. 20,000 20,000 $ 95,000 $ 95,000
Craig E. Lassen................................ -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
Under an employment agreement dated February 1, 1999, David J. Selina agreed
to serve as our President and as Director. Under the agreement, Mr. Selina is
entitled to a minimum base salary of $125,000 per year, participation in a cash
bonus pool based upon our business goals and profitability as determined by
disinterested members of our Board of Directors, as well as other employee
benefits. Effective March 1, 2000, our Board increased Mr. Selina's salary to
$160,000 per year.
Under an employment agreement dated February 1, 1999, Jeffrey W. Marshall
agreed to serve as our Vice President of Software Development. The agreement
provides that Mr. Marshall is entitled to receive a minimum base salary of
$100,000 per year, to participate in the bonus pool described above,
42
<PAGE>
and to receive other employee benefits. Effective March 1, 2000, our Board
increased Mr. Marshall's salary to $131,000 per year.
Marshall E. Aster agreed to serve as our Chief Financial Officer under an
employment agreement effective March 8, 1999. Under the agreement, Mr. Aster is
entitled to a minimum base salary of $105,000, participation in the bonus pool
described above and other employee benefits. Effective March 1, 2000, our Board
increased Mr. Aster's salary to $120,000 per year.
Under each of these employment contracts, if the employment of the executive
is terminated for any reason other than the dissolution of cavion.com, the death
or disability of the executive, or for cause, or if the executive resigns for
good reason within three months after a change of control of cavion.com, 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 at the earlier of: the first anniversary of his employment if
cavion.com is profitable on an after-tax basis at that time or, if not
profitable at the first anniversary, on the second anniversary of employment, or
a change of control.
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 resigned as Chairman of the Board, Chief Executive Officer and a
director effective March 18, 1999. His resignation as an employee was effective
April 16, 1999. In June 1999, we entered into an agreement with Mr. Lassen under
which we will pay Mr. Lassen an aggregate of $75,000 for consulting services.
In addition, each of Messrs. Selina, Aster, Marshall and Lassen agreed under
his respective employment contract 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 generally survive
termination of employment for periods of one to three years.
EQUITY INCENTIVE PLAN
Our Board of Directors adopted the Equity Incentive Plan as of March 19,
1999 and it was approved by our shareholders on March 8, 2000. Under this Plan,
we may grant to our designated employees, officers, directors, advisors and
independent contractors incentive stock options, nonqualified stock options,
restricted stock and stock appreciation rights. By encouraging stock ownership,
we seek to motivate Plan participants by allowing them an opportunity to benefit
from any increased value of our company which their effort, initiative, and
skill help produce.
GENERAL. Up to 995,000 shares of common stock are authorized for issuance
under the terms of the Plan. No more than 250,000 shares 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. The Compensation Committee determines which
individuals will receive grants, the type, size and terms of the grants, the
time when the grants are made and the duration of any applicable exercise or
restriction period, including the criteria for vesting and the acceleration of
vesting, and the total number of shares of common stock available for grants.
ELIGIBILITY FOR PARTICIPATION. Grants may be made to employees, officers,
directors, advisors and independent contractors of cavion.com and its
subsidiaries, including any non-employee member of the
43
<PAGE>
board of directors. As of the date of this prospectus, options to purchase
837,500 shares of common stock 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 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 the fair market value of a share of common stock at the
time of grant; provided that:
- the exercise price of an incentive stock option must be equal to or
greater than the fair market value of a share of common stock on the date
of grant; and
- the exercise price of an incentive stock option granted to an employee who
owns more than 10% of the issued and outstanding 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 Compensation Committee determines the term of each option, which may not
exceed 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 determines the number of
shares of restricted stock granted to a participant and may subject any grant to
performance requirements, vesting provisions, transfer restrictions and 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 or stock, the amount of any
appreciation in the value of our common 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 as provided in Securities Exchange Act
Rule 16b-3 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.
44
<PAGE>
RELATED PARTY TRANSACTIONS
We believe that each of the following transactions was made on terms no less
favorable to us than could have been obtained from an unaffiliated third party
on an arm's length basis. The Company has adopted a policy under which any
future transactions with our shareholders, officers and directors, or their
affiliates, will be subject to the approval of a majority of the independent and
disinterested outside directors and will be conducted on terms no less favorable
to us than could be obtained from unaffiliated third parties on an arm's length
basis.
THE LANXTRA REORGANIZATION
We were incorporated in August 1998 for the purpose of acquiring the assets
and business operations of LanXtra, Inc. Prior to the acquisition, we and
certain of our current directors, executive officers and 5% shareholders
provided bridge funding (in the form of loans) to LanXtra in the principal
amounts of $335,000 and $115,000, respectively. On February 1, 1999, we
completed the acquisition of LanXtra's assets. In that acquisition, we issued to
LanXtra 376,299 shares of our common stock and 28,648 shares of our Class B
common stock and assumed LanXtra's liabilities. The loans made by our affiliates
were repaid in November 1999 in accordance with the terms of the notes executed
in connection with such loans.
The following table sets forth (i) the number of shares of our common stock
and Class B common stock received by our affiliates in connection with the
acquisition of LanXtra; (ii) the amount of funds loaned to LanXtra by our
affiliates; and (iii) the amount of principal and interest repaid to our
affiliates.
<TABLE>
<CAPTION>
SHARES OF SHARES OF CLASS B
COMMON STOCK COMMON STOCK AMOUNT LOANED AMOUNT REPAID
OFFICER, DIRECTOR OR 5% SHAREHOLDER RECEIVED RECEIVED(1) TO LANXTRA BY CAVION.COM
- ----------------------------------- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
David J. Selina...................... -- 3,306 $30,000 $40,500
Jeffrey W. Marshall.................. -- 5,509 $50,000 $67,500
Craig E. Lassen...................... 98,520 -- $45,000 $54,763
</TABLE>
- ------------------------
(1) Each issued and outstanding share of Class B common stock was converted to
one share of common stock on March 31, 2000. See "Description of Capital
Stock."
EQUITY TRANSACTIONS
In August 1998, our founding shareholders, Venture Funding, Ltd. and Boutine
Capital, LLC, (who are also selling shareholders in this offering), purchased
1,100,000, and 900,000 shares, respectively, of our common stock at a purchase
price of $.0001 per share. In December 1998, each of David Selina and
Jeff Marshall, members of our management, and Craig Lassen, a former executive
officer, purchased 208,452 shares of common stock at a purchase price of $.01
per share.
OTHER TRANSACTIONS
In connection with the private placements of our securities conducted in
February 1999, August 1999, and February 2000, we paid First Capital
Investments, Inc. an 8%, 9% and 8% placement agent commission, respectively,
which totaled approximately $251,600, and warrants to purchase 5,640 shares of
our common stock exercisable at $.01 per share, and 20,500 shares of our common
stock exercisable at $13.20 per share. Julie Graham, the sole shareholder of
First Capital, is the sole member of Boutine Capital, LLC, one of our principal
shareholders and a selling shareholder in this offering.
On August 18, 1999, we entered into an agreement with MoneyLine America, LLC
to provide online mortgage lending services for our credit unions and their
members, via CUINet-Registered Trademark-. Under this
45
<PAGE>
agreement, MoneyLine paid us an annual fee for the year 2000 of $300,000.
Boutine Capital owned 50% of MoneyLine America on August 18, 1999, the date of
the agreement, and currently owns 5% of MoneyLine.
In October 1999, we entered into a contract with Convergent Communications
Services, Inc., pursuant to which Convergent provides connectivity between our
network and our customers for a monthly fee, the amount of which fluctuates
based on the total number of connections maintained and the amount of bandwidth
provided. For the month ended March 31, 2000, the amount of this fee was
approximately $40,000. We also sold our host site equipment to Convergent for a
purchase price of $286,000 in October 1999, pursuant to the same contract. In
addition, in December 1997, our predecessor, LanXtra, purchased equipment from
Convergent for $78,673 in connection with a network upgrade performed by
LanXtra. Convergent also received 67,603 shares of our common stock in
connection with our purchase of the assets of LanXtra in February 1999. One of
our directors, John R. Evans, is a director of Convergent and served as its
Chief Executive Officer and Chairman until March 31, 2000.
46
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 31, 2000, and as adjusted to reflect
our sale of the common stock in this offering, by (i) each of our directors and
the Named Executive Officers; (ii) each shareholder known by us to be the
beneficial owner of more than 5% of our common stock; (iii) each selling
shareholder; and (iv) all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING NUMBER OF AFTER THE OFFERING
------------------------- SHARES -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Andrew Telsey(1)....................... 926,102 18.6% -- 776,102 11.5%
Venture Funding, Ltd.(2)............... 898,602 18.2% 150,000 748,602 11.1%
Boutine Capital, LLC(3)................ 738,370 15.0% 125,000 613,370 9.1%
David J. Selina(4)..................... 314,361 6.2% -- 314,361 4.7%
Craig E. Lassen(5)..................... 307,575 6.2% 74,219 213,356 3.2%
Jeffrey W. Marshall(6)................. 248,898 5.0% -- 248,898 3.7%
Marshall E. Aster(7)................... 30,000 * -- 30,000 *
David Maus............................. -- -- -- -- --
John R. Evans(8)....................... 29,130 * 10,000 19,130 *
Stephen B. Friedman(9)................. 27,500 * -- 27,500 *
Herman D. Axelrod...................... 98,520 2.0% 33,000 65,520 *
William M.B. Berger Living Trust....... 19,704 * 19,704 -- --
Fiscal Dynamics Corporation............ 13,000 * 13,000 -- --
Oyen Family Joint Trust................ 13,000 * 13,000 -- --
Fairway Realty Associates.............. 12,077 * 12,077 -- --
William F. Kilzer...................... 10,000 * 10,000 -- --
Gregory Werts.......................... 10,000 * 10,000 -- --
James F. Seifert....................... 7,500 * 2,500 5,000 *
Jeffrey Telsey......................... 7,500 * 7,500 -- --
Randal A. Alford....................... 5,000 * 5,000 -- --
Thomas R. Ashford...................... 5,000 * 5,000 -- --
Mariusz Witek.......................... 5,000 * 5,000 -- --
Robert L. Young and Anna M. Young...... 5,000 * 5,000 -- --
All directors and executive officers as 659,889 12.8% 10,000 649,889 8.8%
a group (8 persons)(10)..............
</TABLE>
- ------------------------
* Less than 1% of the outstanding common stock.
(1) Includes 898,602 shares owned by Venture Funding, Ltd. prior to the offering
and 748,602 owned by Venture Funding after the offering. Andrew Telsey, a
former director of cavion.com, is the sole shareholder of Venture Funding.
Also includes 27,500 shares underlying presently exercisable options held by
Mr. Telsey. Mr. Telsey's address is 12835 E. Arapahoe Road, Englewood, CO
80112.
(2) The address of Venture Funding, Ltd. is 12835 E. Arapahoe Road, Englewood,
CO 80112.
(3) The address of Boutine Capital, LLC is 5460 South Quebec Street, #220,
Englewood, Colorado 80111.
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<PAGE>
(4) Includes 100,000 shares underlying presently exercisable options.
(5) Mr. Lassen's address is 245 Poplar Street, Denver, Colorado 80220.
(6) Includes 33,333 shares subject to presently exercisable options.
(7) Represents 30,000 shares subject to presently exercisable options.
(8) Includes 13,750 shares subject to presently exercisable options. Excludes
67,603 shares owned by Convergent Communications Services, Inc., of which
Mr. Evans serves as a director.
(9) Represents 27,500 shares subject to presently exercisable options.
(10) Includes an aggregate of 224,584 shares subject to presently exercisable
options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is only a summary and is
subject to the provisions of our Articles of Incorporation and Bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and the provisions of applicable law.
Our authorized capital stock consists of 19,970,000 shares of common stock,
$.0001 par value per share, and 10,000,000 shares of preferred stock, $.0001 par
value per share. As of March 31, 2000, 4,935,308 shares of common stock were
outstanding, held by 83 holders of record, and no shares of preferred stock were
outstanding.
COMMON STOCK
Holders of our 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.
CLASS B COMMON STOCK
In connection with the purchase by cavion.com of the assets of LanXtra in
February 1999, 28,648 shares of putable Class B common stock were issued to
LanXtra. The Class B common stock was subject to a put option which entitled the
holder to sell any and all shares of the Class B common stock to us at a price
of $7.00 per share, which could be exercised at any time during the 60-day
period beginning 30 days after the date we connected our 100(th) customer to
CUINET-Registered Trademark-. This 60-day period ended on March 31, 2000, at
which time no holder of Class B common stock had exercised the put option. On
that date, pursuant to our Articles of Incorporation, (i) each share of Class B
common stock was automatically converted to one share of common stock, (ii) our
authority to issue Class B common stock terminated, and (iii) our only other
class of common stock, which had until that time been designated as Class A
common stock, was designated as common stock.
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 also may, without shareholder approval, determine the
dividend rates, redemption prices, preferences on liquidation or dissolution,
conversion rights, voting rights and any other preferences of such stock.
Holders of preferred stock may not have any voting rights except as provided by
Section 7-110-104 of the Colorado Business Corporation Act which requires 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. Nevertheless, 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 previously authorized the issuance of 770,000 shares of
Series A preferred stock in February 1999. 700,000 of those shares were issued
to accredited investors in March and April 1999 in a private placement, and the
other 70,000 shares were reserved for the exercise of preferred stock purchase
warrants issued to Neidiger, Tucker, Bruner, Inc. (NTB), the placement agent in
connection with the private placement. On November 3, 1999, the date of the
closing of our initial public offering, each issued and outstanding share of
Series A preferred
49
<PAGE>
stock was converted to one share of common stock, and the preferred stock
purchase warrants were cancelled at that time at the request of NTB.
COMMON STOCK WARRANTS
We have warrants outstanding for the purchase of 30,000 shares of our common
stock, which were issued in our August 1999 private placement of notes and
warrants. These warrants are exercisable at $6.50 per share until November 3,
2004.
We also have warrants outstanding for the purchase of 20,500 shares of our
common stock, which were issued to the placement agent in connection with our
February 2000 private placement of 205,000 shares of common stock. These
warrants are exercisable at $13.20 per share until February 16, 2005.
We issued to NTB, in connection with its acting as lead underwriter in our
initial public offering, warrants to purchase 120,000 shares of our common stock
at $8.125. These warrants are exercisable for a period of four years beginning
October 29, 2000, and permit the cashless exercise of the warrants utilizing the
value of the warrants being surrendered. We have agreed with certain of the
present holders of these warrants that 112,500 of these warrants will be
exercised without a cash payment on November 3, 2000, in return for the issuance
of 65,625 shares of common stock (representing an implied valuation of the
common stock of $19.50 per share). In connection with the negotiation of this
net exercise price, NTB forfeited its right of first refusal to act as our
investment banker for future private or public securities offerings. The
warrants issued to NTB and the underlying common shares are restricted from
sale, transfer, assignment or hypothecation until October 29, 2002, except to
officers of NTB, co-underwriters, selling group members, and their officers or
partners. On and after that date, the warrants and the underlying shares of
common stock will be transferable provided such transfer is in accordance with
the provisions of the Securities Act.
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 only if such action is authorized by
the unanimous written consent of all shareholders entitled to vote at a meeting
for such purposes. Since we have numerous shareholders, it is unlikely 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 our Board of Directors, 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 our 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
50
<PAGE>
cavion.com as provided in the foregoing provisions, we have been informed that,
in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and thus cannot be enforced.
Our Bylaws provide that we 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 cavion.com 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, we 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 each of 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 agreements provide 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 agreements and our obligations apply while the person
is our agent and continues 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:
- for any breach of the director's duty of loyalty;
- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
- for the payment of unlawful dividends and specified other acts prohibited
by Colorado corporate law; or
- for any transaction resulting in receipt by the director of an improper
personal benefit.
We have obtained 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 material pending litigation or proceeding, and we are not
aware of any material threatened litigation or proceeding, involving any
director, officer, employee or agent in which indemnification will be required
or permitted under our articles of incorporation, bylaws or any indemnification
agreement.
TRANSFER AGENT
The transfer agent for our common stock is American Securities Transfer &
Trust, Inc. in Lakewood, Colorado.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 6,735,308 shares
of common stock, assuming no exercise of the underwriter's over-allotment option
and no exercise of options or warrants after March 31, 2000. Of these shares,
the 2,300,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act; provided, however,
that if shares are purchased by "affiliates" as that term is defined in Rule 144
of the Securities Act, their sales of shares would be subject to certain
limitations and restrictions that are described below.
Prior to this offering, there were 4,935,308 shares of common stock
outstanding. Of these shares, 1,853,900 shares are freely tradable and 448,325
shares are freely tradable subject to lock up agreements imposed by Neidiger,
Tucker, Bruner, Inc. ("NTB"), the lead underwriter in our initial public
offering, which restricts shareholders from selling such shares for a period of
nine months, or in some cases 12 months, from October 29, 1999, the date of our
initial public offering, without the prior consent of NTB. NTB, however, may in
its sole discretion, at any time and without notice, release all or any portion
of the shares subject to its lock-up agreement. The remaining 2,633,083 shares
are "restricted" shares subject to restriction upon resale under Rule 144 of the
Securities Act of 1933, as amended, and are also subject to the lock up
arrangement described above.
As of March 31, 2000, we had 837,500 shares subject to outstanding stock
options issued under our Equity Incentive Plan, and 152,666 shares of common
stock available for future grants pursuant to such plan. Of these outstanding
options 771,000 are subject to lock-up agreements imposed by NTB, as described
above. We have registered 750,000 of the shares reserved to the plan, which will
be freely tradable upon issuance, subject to any lock-up agreements. We intend
to register all 995,000 shares reserved to the plan and this registration will
permit resale of shares by non-affiliates in the public market without
restriction, beginning on the expiration of any applicable lock up agreement.
We also have 345,500 shares of common stock underlying outstanding warrants
and options granted outside of our Equity Incentive Plan. Of these shares,
17,500 will be freely tradeable upon issuance and 153,000 will be freely
tradeable upon issuance, subject to lock up agreements that expire between July
and October 2000. Once issued, the remaining 175,000 shares will be eligible for
resale in the public market upon expiration of the holder's respective one-year
holding periods under Rule 144, which will begin upon the date of exercise or,
in the case of a net exercise, on the date of grant of the option or warrant.
Each of our officers, directors and 5% shareholders have agreed with The
Robinson-Humphrey Company, LLC not to sell or otherwise dispose of any of their
shares for a period of 180 days after the date of this prospectus without the
prior written consent of The Robinson-Humphrey Company, LLC. The
Robinson-Humphrey Company, LLC, however, may in its sole discretion, at any time
and without notice, release all or any portion of the shares subject to its
lock-up agreement.
In general, under Rule 144 as currently in effect, a person or persons whose
shares are aggregated, who has beneficially owned shares for at least one year
is entitled to sell within any three-month period commencing 90 days after the
date of this prospectus a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock (approximately 67,353
shares immediately after the offering), or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date upon which a Form 144 was filed with
respect to the sale.
Persons selling under Rule 144 must also comply with the requirements of
Rule 144 concerning the availability of specific public information about us,
the manner of sale and filing with the SEC of a notice of sale. However, a
person, or persons whose shares are aggregated, who is not deemed to have been
an affiliate of ours at any time during the three months immediately preceding
the sale and who has beneficially owned his or her shares for at least two years
is entitled to sell his or her shares under Rule 144(k) without regard to the
limitations described above. Persons deemed to be affiliates must always sell
under Rule 144 even after the one-year holding period has been satisfied.
52
<PAGE>
UNDERWRITING
The Robinson-Humphrey Company, LLC and SunTrust Equitable Securities
Corporation are acting as representatives of the underwriters named below.
Subject to the terms and conditions contained in the underwriting agreement
between us, the selling shareholders and the representatives of the
underwriters, each underwriter named below has severally agreed to purchase from
us and the selling shareholders the number of shares of common stock indicated
opposite the name of each underwriter, at the public offering price less the
underwriting discount set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
The Robinson-Humphrey Company, LLC..........................
SunTrust Equitable Securities Corporation...................
---------
Total................................................. 2,300,000
=========
</TABLE>
The underwriters are obligated to purchase all of the shares, other than
those covered by the over-allotment option described below, if they purchase any
of the shares. The offering is a firm underwritten offering. However, the
underwriting agreement generally contains standard terms found in an
underwriting agreement for an offering of this type that give the underwriters
the right to withdraw, cancel or modify the offering and to reject orders in
whole or in part. These rights would generally be exercised upon the occurrence
of a materially adverse change in our business, financial condition or results
of operations or upon the occurrence of a major downturn in the general economy.
The underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
part of the shares to dealers at that price less a concession not in excess of
$ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share on sales to other dealers. After
the offering, the representatives may change the public offering price and the
other selling terms.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 345,000 additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise the option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to each underwriter's initial purchase commitment.
We and the selling shareholders will pay the underwriters a commission of
% of the per share public offering price for each share of common stock that
the underwriters purchase in the offering. The following table shows the
underwriting fees that we and the selling shareholders will pay to the
underwriters in connection with the offering. These amounts are shown assuming
both no exercise and
53
<PAGE>
full exercise of the underwriters' over-allotment option to purchase additional
shares of our common stock.
<TABLE>
<CAPTION>
TO BE PAID BY
TO BE PAID BY SELLING
CAVION.COM SHAREHOLDERS
------------------- -------------------
NO FULL NO FULL
EXERCISE EXERCISE EXERCISE EXERCISE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per share.................................................. $ $ $ $
Total...................................................... $ $ $ $
</TABLE>
We estimate our expenses of this offering, exclusive of the underwriting
discount, will be approximately $700,000. Additionally, we and the selling
shareholders have agreed to indemnify the underwriters against specified
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make in respect
thereof.
The representatives have informed us that the underwriters do not expect to
make sales of common stock offered by this prospectus to accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
common stock offered by this prospectus.
All of our directors, executive officers and principal shareholders have
agreed that, during the 180-day period following the date of this prospectus,
they will not, without the prior written consent of The Robinson-Humphrey
Company, LLC:
- directly or indirectly make, agree to or cause any offer, sale (including
short sale), loan, pledge or other disposition of, or grant any options,
rights or warrants to purchase with respect to, or otherwise transfer or
reduce any risk of ownership of, directly or indirectly, any shares of our
common stock or any, securities convertible into or exchangeable or
exercisable for our common stock;
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of the common
stock; or
- make any demand for, or exercise any right with respect to, the
registration of shares of our common stock or any securities convertible
into or exchangeable or exercisable for our common stock.
In addition, during the 180-day period, we have also agreed not to issue, or
to file any registration statement with respect to the registration of, any
shares of our common stock or any securities convertible into or exercisable for
our common stock, except registration statements on Form S-8 under the
Securities Act to register shares of common stock issuable under or reserved for
issuance under our Equity Incentive Plan. This will permit holders of those
shares to sell them in the public market without compliance with any holding
period requirement and, except for officers and directors, without compliance
with Rule 144.
Prior to this offering, our common stock has traded on the Nasdaq SmallCap
Market under the symbol "CAVN." We have applied for listing on the Nasdaq
National Market.
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and specified selling group members to
bid for and purchase the common stock. As an exception to these rules, the
representatives of the underwriters are permitted to engage in specified
transactions that stabilize the price of the common stock. These transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock. If the underwriters create a short position in
the common stock in connection with this offering (that is, if they sell more
shares of common stock than are set forth on the cover page of this prospectus),
the representatives may reduce that short position by purchasing common stock in
the open market. The
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<PAGE>
representatives of the underwriters may also elect to reduce any short position
by exercising all or part of the over-allotment option described above. The
representatives of the underwriters may also impose a penalty bid on
underwriters and selling group members in some cases. This means that if the
representatives purchase shares of common stock in the open market to reduce the
underwriters' short position or to stabilize the price of the common stock, they
may reclaim the amount of the selling concession from the underwriters and
selling group members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of those purchases. The imposition of a penalty bid
might also have an effect on the price of a security if it discourages resale of
the security. None of cavion.com, the selling shareholders or any of the
underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the common stock. In addition, the underwriters are not required to
engage in these activities and may end any of these activities at any time. The
representatives intend to make a market in the common stock after the completion
of the offering.
From time to time in the future in the ordinary course of business, the
representatives may provide investment banking services to us.
There are restrictions on the offer and sale of the common stock in the
United Kingdom. All applicable provisions of the Financial Services Act 1986 and
the Public Offers of Securities Regulations 1995 with respect to anything done
by any person in relation to the common stock in, from or otherwise involving
the United Kingdom must be complied with.
Each underwriter has also agreed that it has:
- not offered or sold, and prior to the date six months after the date of
issue of the shares of common stock will not offer or sell, any shares of
common stock to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purpose of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;
- complied, and will comply with, all applicable provisions of the Financial
Services Act 1986 of Great Britain with respect to anything done by it in
relating to the shares of common stock in, from or otherwise involving the
United Kingdom; and
- only issued or passed on, and will only issue or pass on, in the United
Kingdom any document received by it in connection with the issuance of the
shares of common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) of Great Britain or
is a person to whom the document may otherwise lawfully be issued or
passed on.
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<PAGE>
EXPERTS
The financial statements of cavion.com and LanXtra included 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 Arthur
Andersen LLP as experts in accounting and auditing in giving said reports.
Reference is made to the report with regard to LanXtra, which includes an
explanatory paragraph with respect to the uncertainty regarding LanXtra's
ability to continue as a going concern as discussed in Note 1 to those financial
statements.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Gorsuch Kirgis LLP, Denver, Colorado. Smith, Gambrell & Russell,
LLP, Atlanta, Georgia, is representing the underwriters in this offering.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company under the Securities Exchange Act of 1934. We
file annual and quarterly reports, special reports, proxy statements, and other
information with the Securities and Exchange Commission. These filings and other
information can be read and copied at the SEC's Public Reference Room, 450 Fifth
Street N.W., Washington, D.C. 20549. You may obtain information on the operation
of Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
a website at (http://www.sec.gov.) that contains all information filed
electronically by us.
This prospectus constitutes a part of a registration statement on Form S-1,
together with amendments and exhibits, filed by us with the SEC under the
Securities Act of 1933, for the securities offered in this prospectus. This
prospectus does not contain all the information which is in the registration
statement, as allowed by the rules and regulations of the SEC. We refer you to
the registration statement and to the exhibits for further information with
respect to us and the securities offered in this prospectus. Copies of the
registration statement and the exhibits are on file at the offices of the SEC
and may be obtained upon payment of the prescribed fee. They may be examined
without charge at the SEC's Public Reference Room or through the SEC's website
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 SEC.
This prospectus includes statistical data regarding Internet usage and the
credit union industry which were obtained from industry publications, including
reports generated by Callahan and Associates, International Data Corporation,
Credit Union National Association, and Nielsen// NetRatings. 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.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with additional or different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information contained
in this prospectus is accurate as of any date other than the date on the front
of this prospectus.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Cavion Technologies, Inc.
Report of Independent Public Accountants.................. F-2
Balance Sheets at December 31, 1999 and 1998.............. F-3
Statements of Operations for the year ended December 31,
1999, and for the period from Inception (August 18,
1998) to December 31, 1998.............................. F-4
Statements of Stockholders' Equity for the year ended
December 31, 1999 and for the period from Inception
(August 18, 1998) to December 31, 1998.................. F-5
Statements of Cash Flows for the year ended December 31,
1999, and for the period from Inception (August 18,
1998) to December 31, 1998.............................. F-6
Notes to Financial Statements............................. F-8
LanXtra, Inc.
Report of Independent Public Accountants.................. F-27
Balance Sheets at January 31, 1999, December 31, 1998 and
1997.................................................... F-28
Statements of Operations for the one month period ended
January 31, 1999, for the years ended December 31, 1998
and 1997................................................ F-29
Statements of Stockholders' Deficit for the one month
ended January 31, 1999 and for the years ended
December 31, 1998 and 1997.............................. F-30
Statements of Cash Flows for the one-month period ended
January 31, 1999, for the years ended December 31, 1998
and 1997................................................ F-31
Notes to Financial Statements............................. F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
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 December 31, 1999 and 1998, and the
related statements of operations, stockholders' equity and cash flows for the
year ended December 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 December 31, 1999 and 1998, and the results of its operations and its cash
flows for the year ended December 31, 1999 and for the period from inception
(August 18, 1998) to December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 4, 2000, except with respect to
certain matters discussed in Note 10, as
to which the date is February 17, 2000.
F-2
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $4,346,699 $ 19,735
Accounts receivable....................................... 94,190 --
Prepaid assets............................................ 141,949 --
Other..................................................... 2,558 --
---------- ----------
Total current assets.................................... 4,585,396 19,735
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................... 164,357 --
Furniture and fixtures.................................... 16,851 --
Network equipment and licensed software................... 530,466 --
---------- ----------
711,674 --
Less--accumulated depreciation............................ (45,066) --
---------- ----------
Property and equipment, net............................. 666,608 --
---------- ----------
DEPOSIT FOR LETTER OF CREDIT................................ 300,000 --
DEFERRED LANXTRA ACQUISITION COSTS.......................... -- 2,204,814
GOODWILL, net of accumulated amortization of $873,632 and
$0, respectively.......................................... 3,891,636 --
OTHER ASSETS................................................ 159,637 49,412
---------- ----------
TOTAL ASSETS................................................ $9,603,277 $2,273,961
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 213,098 $ --
Accrued liabilities....................................... 375,524 31,185
Accrued interest.......................................... -- 2,116
Deferred revenue and deposits............................. 547,639 --
Deferred revenue--license agreements...................... 300,000 --
Current portion of capital lease obligations.............. 137,500 --
Notes payable............................................. 470,000 --
---------- ----------
Total current liabilities............................... 2,043,761 33,301
---------- ----------
LONG-TERM LIABILITIES:
Capital lease obligations................................. 386,494 --
Notes payable............................................. -- 252,833
---------- ----------
Total long-term liabilities............................. 386,494 252,833
---------- ----------
PUTABLE CLASS B COMMON STOCK: 30,000 shares authorized;
28,648, and 0 shares issued and outstanding, respectively
(stated at redemption value).............................. 200,537 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock; $.0001 par value, 19,970,000 shares
authorized; 4,697,326 and 2,625,356 issued and
outstanding, respectively............................... 470 263
Warrants and options...................................... 507,096 13,284
Deferred compensation..................................... (107,735) --
Additional paid-in capital................................ 11,426,314 2,010,224
Accumulated deficit....................................... (4,853,660) (35,944)
---------- ----------
Total stockholders' equity.............................. 6,972,485 1,987,827
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $9,603,277 $2,273,961
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
FROM INCEPTION (AUGUST 18, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
REVENUE:
Network access and connectivity fees...................... $ 447,756 $ --
Installation services..................................... 157,081 --
Software licensing fees................................... 13,668 --
----------- ----------
Total revenue........................................... 618,505 --
----------- ----------
COST OF REVENUE:
Network access and connectivity........................... 329,359 --
Installation services and software licensing fees......... 163,885 --
----------- ----------
Total cost of revenue................................... 493,244 --
----------- ----------
Gross profit............................................ 125,261 --
----------- ----------
OPERATING EXPENSES:
Selling and marketing..................................... 1,384,946 --
General and administrative................................ 1,547,941 6,877
Research and development.................................. 586,250 --
Amortization of goodwill and other intangible assets...... 873,632 --
----------- ----------
Total operating expenses................................ 4,392,769 6,877
----------- ----------
LOSS FROM OPERATIONS........................................ (4,267,508) (6,877)
INTEREST INCOME............................................. 30,627 --
INTEREST EXPENSE............................................ (492,306) (29,067)
LOSS ON SALE OF EQUIPMENT................................... (24,332) --
----------- ----------
NET LOSS.................................................... $(4,753,519) $ (35,944)
=========== ==========
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS:
Net loss.................................................. $(4,753,519) $ (35,944)
Dividends on preferred stock.............................. (64,197) --
----------- ----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.................. $(4,817,716) $ (35,944)
=========== ==========
BASIC AND DILUTED NET LOSS PER SHARE........................ $ (1.56) $ (0.02)
=========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING--BASIC AND
DILUTED................................................... 3,081,156 2,078,170
=========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
SERIES A PREFERRED CLASS A COMMON ADDITIONAL WARRANTS
---------------------- -------------------- PAID-IN AND DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL OPTIONS COMPENSATION
-------- ----------- --------- -------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, Inception (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 1,876,005 -- --
Fair value of warrants issued to
note holders................... -- -- -- -- -- 133,775 --
Repurchase of common stock....... -- -- (44,400) (4) -- -- --
Fair value of warrants issued to
Selling Agent.................. -- -- -- -- -- 13,284 --
Exercise of warrants by note
holders........................ -- -- 44,400 4 134,219 (133,775) --
Net loss......................... -- -- -- -- -- -- --
-------- ----------- --------- ---- ----------- -------- ---------
BALANCES, December 31, 1998........ -- -- 2,625,356 263 2,010,224 13,284 --
-------- ----------- --------- ---- ----------- -------- ---------
Issuance of common stock for
LanXtra business, recorded at
February 1, 1999, estimated
fair value of $3.00 per
share.......................... -- $ -- 375,214 $ 38 $ 1,125,604 $ -- $ --
Fair value of warrants issued to
note holders................... -- -- -- -- -- 35,885 --
Repurchase of common stock....... -- -- (311,884) (32) -- -- --
Fair value of warrants issued to
Selling Agent.................. -- -- -- -- -- 3,590 --
Exercise of warrants by note
holders and Selling Agent...... -- -- 17,640 2 52,937 (52,759) --
Issuance of Series A Preferred
Stock for $3.00 per share and
detachable warrants, net of
cash offering costs of
$252,000....................... 700,000 1,682,800 -- -- -- 165,200 --
Fair value of warrants issued in
connection with 1999 Bridge
Loan........................... -- -- -- -- -- 33,127 --
Warrants canceled................ -- 165,200 -- -- -- (165,200) --
Dividends on preferred stock,
paid in cash................... -- -- -- -- -- -- --
Shares issued upon initial public
offering, net of offering costs
of $1,512,395 and related fair
value of warrants issued to
underwriters................... -- $ -- 1,200,000 $120 $ 5,921,251 $366,234 $ --
Conversion of Class A Preferred
Stock to Common Stock.......... (700,000) (1,848,000) 700,000 70 1,847,930 -- --
Issuance of shares upon exercise
underwriters overallotment
option, net of offering costs
of $121,382.................... -- -- 90,500 9 466,868 -- --
Options issued to
non-employees.................. -- -- -- -- -- 107,735 (107,735)
Shares issued upon exercise of
options........................ -- -- 500 -- 1,500 -- --
Net loss......................... -- -- -- -- -- -- --
-------- ----------- --------- ---- ----------- -------- ---------
BALANCES, December 31, 1999........ -- $ -- 4,697,326 $470 $11,426,314 $507,096 $(107,735)
======== =========== ========= ==== =========== ======== =========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
BALANCES, Inception (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.......................... -- 1,876,068
Fair value of warrants issued to
note holders................... -- 133,775
Repurchase of common stock....... -- (4)
Fair value of warrants issued to
Selling Agent.................. -- 13,284
Exercise of warrants by note
holders........................ -- 448
Net loss......................... (35,944) (35,944)
----------- -----------
BALANCES, December 31, 1998........ (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.......................... $ -- $ 1,125,642
Fair value of warrants issued to
note holders................... -- 35,885
Repurchase of common stock....... -- (32)
Fair value of warrants issued to
Selling Agent.................. -- 3,590
Exercise of warrants by note
holders and Selling Agent...... -- 180
Issuance of Series A Preferred
Stock for $3.00 per share and
detachable warrants, net of
cash offering costs of
$252,000....................... -- 1,848,000
Fair value of warrants issued in
connection with 1999 Bridge
Loan........................... -- 33,127
Warrants canceled................ -- --
Dividends on preferred stock,
paid in cash................... (64,197) (64,197)
Shares issued upon initial public
offering, net of offering costs
of $1,512,395 and related fair
value of warrants issued to
underwriters................... $ -- $ 6,287,605
Conversion of Class A Preferred
Stock to Common Stock.......... -- --
Issuance of shares upon exercise
underwriters overallotment
option, net of offering costs
of $121,382.................... -- 466,877
Options issued to
non-employees.................. -- --
Shares issued upon exercise of
options........................ -- 1,500
Net loss......................... (4,753,519) (4,753,519)
----------- -----------
BALANCES, December 31, 1999........ $(4,853,660) $ 6,972,485
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
FROM INCEPTION (AUGUST 18, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(4,753,519) $ (35,944)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization......................... 989,295 --
Accretion of debt discount............................ 321,719 16,608
Accretion of putable stock............................ 33,340 4,232
Loss on disposal of assets............................ 24,332 --
Change in operating assets and liabilities--
Accounts receivable..................................... (77,732) --
Prepaids and inventories................................ (105,555) --
Other assets............................................ (137,822) --
Accounts payable........................................ (72,486) --
Accrued liabilities..................................... 75,881 2,116
Deferred revenue........................................ 632,927 --
Addition to certificate of deposit...................... (280,000) --
----------- ---------
Net cash used in operating activities............... (3,349,620) (12,988)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (207,209) --
Proceeds from sale leasehold.............................. 285,976 --
Acquisition of LanXtra.................................... -- (335,000)
----------- ---------
Net cash provided by (used in) investing
activities........................................ 78,767 (335,000)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................... 470,000 370,000
Repurchases of Common Stock............................... (32) --
Proceeds from issuance of Common Stock.................... 180 6,898
Proceeds from issuance of Series A Preferred Stock........ 2,100,000 --
Proceeds from initial public offering..................... 8,388,250 --
Proceeds from the exercise of employee options............ 1,500 --
Proceeds from issuance of warrants........................ 100 --
Series A Preferred Stock offering costs................... (252,000) --
Payment of debt issuance costs............................ (137,612) (9,175)
Payments on line of credit................................ (600,000) --
Payment of related party debt............................. (313,410) --
Payment on bridge loan.................................... (300,000) --
Principal payments on capital leases...................... (61,135) --
Common Stock offering costs............................... (1,633,777) --
Payment of dividends on Series A Preferred Stock.......... (64,197) --
----------- ---------
Net cash provided by financing activities........... 7,597,867 367,723
----------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD
FROM INCEPTION (AUGUST 18, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS................... $4,326,964 $ 19,735
CASH AND CASH EQUIVALENTS,
beginning of period....................................... 19,735 --
---------- ----------
CASH AND CASH EQUIVALENTS,
end of period............................................. $4,346,699 $ 19,735
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 229,480 $ 6,111
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Property acquired with capital leases................... $ 528,258 $ --
========== ==========
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.
F-7
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
1. DESCRIPTION OF BUSINESS:
ORGANIZATION
Cavion Technologies, Inc. (the "Company") offers products and services for
business to business communications, secure Internet financial products, such as
online banking and bill paying services, and secure Internet access and services
for its customers. The Company is also building and managing a secure private
communications network exclusively for the credit union industry. This network
acts as a communications platform for the delivery of services and information
to and from credit unions and related businesses.
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.
On October 29, 1999, the Company successfully completed an Initial Public
Offering ("IPO"). The number of shares offered and sold were 1,200,000, with an
underwriter's over allotment option for an additional 180,000 shares. Total
gross proceeds of $7,800,000 were raised in the offering, and the Company, after
offering expenses, netted proceeds of approximately $6,288,000. In November
1999, the Company sold 90,500 additional shares from the underwriters
overallotment option, raising additional gross proceeds of approximately
$588,000, and net proceeds of approximately $467,000. The total number of shares
outstanding after the offering was 4,696,826, reflecting the automatic
conversion of 700,000 shares of Convertible Preferred Stock into 700,000 shares
of common stock upon the closing of the offering. In addition, at the closing of
the IPO, the Company issued warrants to purchase 120,000 shares of the Company's
Common Stock to the Representative of the underwriter at a price of 125% equal
to the IPO price, or $8.125 per share.
Prior to the IPO, the Company financed its operations through a private
placement of its 15% notes, which were offered commencing on October 20, 1998
(the "Offering"), the sale of Series A Preferred Stock and funding through a
Bridge Loan. 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.
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 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.
F-8
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
1. DESCRIPTION OF BUSINESS: (CONTINUED)
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>
<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........................... 706,044
Property and equipment.................................... (331,020)
Borrowings assumed........................................ 924,417
Other assets.............................................. (41,815)
----------
Goodwill.................................................... $4,765,268
==========
</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 goodwill, and will be amortized over five years.
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.
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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
F-9
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATION RISKS
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. The
Company's cash balances are maintained in demand deposits at financial
institutions that the Company believes to be creditworthy.
Cavion purchases substantially all of its telecommunications services from
Convergent Communications Services, Inc. ("Convergent"). Cavion has entered into
a non-exclusive agreement with Convergent to establish and maintain connectivity
between Cavion's network and substantially all its customers. Cavion's business
depends upon the ability of Convergent, or some other telecommunications service
provider, to establish and maintain connectivity with
CUINET-Registered Trademark-. If Convergent is unable to provide connectivity in
a timely manner to new customers or experiences problems in delivering services
to existing customers, the business could be adversely affected. If Cavion is
unable to continue to obtain services from Convergent or some other provider on
economically favorable terms, the operations of the business and its financial
performance may be adversely affected.
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>
<S> <C>
Furniture and fixtures..................................... 7 years
Network equipment.......................................... 3-5 years
Licensed software.......................................... 3 years
Leasehold improvements..................................... Life of the lease
</TABLE>
The Company recorded depreciation expense of approximately $116,000 in 1999.
F-10
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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, which are continuously reviewed by the Company for
impairments.
OFFERING COSTS
The Company has incurred offering costs which total $1,885,777 for the year
ended December 31, 1999. Such costs represent legal and other professional fees
incurred related to the Company's IPO and issuance of Series A Preferred Stock.
Such costs were recorded as a reduction of IPO proceeds upon the consummation of
the IPO on October 29, 1999. In addition to cash offering costs, warrants were
issued to the selling agent and underwriter valued at $366,234, which excludes
$165,200 worth of warrants issued and later canceled.
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Accrued payroll and vacation........................ $ 53,938 $ --
Accrued professional fees........................... 67,854 --
Accrued Telecom and Telecom termination fees for
Convergent contract............................... 81,392 --
Other liabilities................................... 172,340 31,185
-------- -------
Total accrued liabilities....................... $375,524 $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
F-11
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 applicable to common stockholders 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 also 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 related to outstanding options
and warrants (without regard to the treasury stock method) at December 31, 1999
and 1998 were 511,000 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 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 and related interpretation.
REVENUE RECOGNITION
The Company generates revenue from three sources: (1) service revenue for
the installation of equipment for internet access and access to the Company's
secure financial network 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.
F-12
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs when a software product
is determined to be technologically feasible. 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.
ADVERTISING
The Company expenses advertising as incurred. Advertising expense was
$141,196 and $0 for the years ended December 31, 1999 and 1998, respectively.
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 December 31,
1999, there have been no differences between the Company's comprehensive loss
and its net loss.
SEGMENT INFORMATION
In accordance with the provisions of SFAS No. 131, the Company has
determined that it does not have separately reportable operating segments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), and in June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB 133" ("SFAS No 137"). SFAS No. 137 requires the Company to adopt
SFAS No. 133 for all quarters in the year ended December 31, 2001. 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.
During December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin 101, "Revenue Recognition" ("SAB 101"), to establish
guidelines for revenue recognition and enhance revenue recognition disclosure
requirements. SAB 101 clarifies basic criteria for when revenues are taken into
account for purposes of a company's financial statements. SAB 101 is effective
for the quarter ended June 30, 2000. The Company is currently assessing the
implications of adopting SAB 101. In the period of adoption, the cumulative
impact will be reported as a change in accounting principle as dictated by
SAB 101.
F-13
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
3. BORROWINGS:
The Company's borrowings at December 31, 1999 and 1998, consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
FACE UNAMORTIZED FACE UNAMORTIZED
VALUE DISCOUNT VALUE DISCOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Notes payable.................... $470,000 $ -- $370,000 $(117,167)
-------- ---- -------- ---------
$470,000 $ -- $370,000 $(117,167)
======== ==== ======== =========
</TABLE>
BRIDGE LOAN
In August 1999, the Company raised $300,000 through Neidiger, Tucker,
Bruner, Inc. and First Capital Investments, Inc. ("FCI" or the "Selling Agent").
The Bridge Loan bore interest at 14% and was to mature upon the earlier of the
closing of the Company's IPO or one year from the date of the note. The loan was
paid in full upon the closing of the IPO. FCI, is a related party through its
substantial ownership of the Company's common stock.
Upon their issuance, the proceeds of the Bridge loan were discounted to
reflect the estimated fair value of warrants issued to the holders of the bridge
loan debt. The discount was amortized as interest expense over the estimated
term of the notes. Debt issuance costs in the amount of $31,045 were paid in
conjunction with the issuance of these notes and were amortized as interest
expense over the term of the notes. The estimated fair value of the warrants was
$33,127 and was determined utilizing the Black-Scholes option pricing model,
assuming a volatility factor of .001%, a risk free rate of 6.22% and a fair
market value of the underlying stock of $6.75 per share. The warrants are still
outstanding at December 31, 1999.
NOTE PAYABLE
Beginning on October 20, 1998, the Company offered through its officers,
directors and FCI, 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, 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 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
F-14
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
3. BORROWINGS: (CONTINUED)
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 have been exercised.
REVOLVING LINE OF CREDIT
As part of the Purchase Agreement, a $600,000 Revolving Line of Credit was
assumed by the Company. The line of credit accrued interest at a rate equal to
the bank's reference rate plus 1.5% (9.25% at December 31, 1998). The Revolving
Line of Credit was collateralized by letters of credit issued by the Company and
certain LanXtra stockholders as well as by agreements among certain LanXtra
stockholders. The Revolving Line of Credit was paid in full and cancelled after
the IPO proceeds were received, at which point the corresponding collateralized
letters of credit were released.
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 the Company obtains 100 credit union customers (the "100 Credit
Union Date"). The 100 Credit Union Date was reached on December 31, 1999. In
addition, interest terms were amended such that no interest was to accrue for
the remaining term of the notes payable. At the acquisition date, the notes were
discounted to reflect their fair value. The discount was amortized as interest
expense over the remaining estimated term of the notes. The notes payable to
stockholders were repaid in full after the IPO proceeds were received.
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, through March 30, 2000, or can
convert these shares into equivalent shares of Class A Common Stock. If these
shares are not redeemed or converted at the request of the shareholder, they
will automatically be converted on March 31, 2000. As a result of this
transaction, the Class B shares were recorded at their estimated fair value of
$167,197. The difference between this amount and the put value of $200,537 was
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 would be
accrued for the remaining term of the loans and the maturity of these loans was
extended to the 100 Credit Union Date. The related party collateralized loans
were paid in full after the IPO proceeds were received and cancelled.
F-15
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
3. BORROWINGS: (CONTINUED)
MATURITIES OF BORROWINGS
The Company's borrowings as of December 31, 1999, totaling $470,000 mature
in year 2000.
4. RELATED PARTY TRANSACTIONS:
MONEYLINE AMERICA, LLC
In August 1999, the Company entered into an agreement with MoneyLine
America, LLC, (the "MoneyLine Agreement"), which provides that the Company will
receive payments under an agreement with MoneyLine to provide on line mortgage
lending services for credit unions and their members through the Company's
network. This agreement calls for a minimum payment of $300,000 in the first
year, beginning September 1999, escalating to $1,000,000 in years six through
ten, provided the Company has at least 1,500 credit unions, or 12% of the U.S.
credit unions on its network by the end of year three. The amounts received are
reflected as deferred revenue--license agreements in the accompanying balance
sheets. Fifty percent of MoneyLine America is owned by Boutine Capital, LLC, a
principal shareholder of the Company.
CONVERGENT COMMUNICATIONS
Effective October 22, 1999, the Company entered into a five-year agreement
with Convergent. This agreement includes a sale lease back of certain network
equipment. Equipment with a net book value of $265,394 was sold for $285,976. A
corresponding deferred gain of $20,582 was recorded and will be recognized over
the life of the leases. Under this agreement, Convergent will establish,
maintain and support network connectivity between the Company's network and its
customers, including providing, equipment, maintenance and related services for
the network. One of the Company's directors is the Chief Executive Officer and
chairman of the board of Convergent Communications, Inc. the parent company of
Convergent. In addition, Convergent owns 64,000 shares of the Company's stock at
December 31, 1999.
F-16
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
5. 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
year ended December 31, 1999. The capital leases have terms ranging from 24 to
60 months with interest rates ranging between 9% and 20.3%.
As of December 31, 1999, the present value of the future minimum lease
payments is as follows:
<TABLE>
<S> <C>
2000........................................................ $ 196,163
2001........................................................ 184,782
2002........................................................ 119,455
2003........................................................ 93,065
2004........................................................ 77,555
---------
671,020
Less: amounts representing interest......................... (147,026)
---------
523,994
Less: current portion....................................... (137,500)
---------
Long-term capital lease obligation.......................... $ 386,494
=========
</TABLE>
The net book value of assets under capital lease obligations as of
December 31, 1999 was approximately $530,779.
6. 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 December 31, 1999, 4,697,326 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.
F-17
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY: (CONTINUED)
CLASS B COMMON STOCK
As of December 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 on March 30, 2000. If these shares are not redeemed or converted at
the request of the shareholder, they will automatically be converted on
March 31, 2000. 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 700,000 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 was 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 was automatically convertible
into an equal number of Class A shares upon certain conditions, including an
IPO.
The Company sold 700,000 shares of Series A Preferred Stock at $3 per share,
raising proceeds of $2,100,000. All Series A preferred shares were converted to
Class A Common Stock on the closing date of the IPO. The Series A Preferred
Stock bore dividends a the rate of 5% per year, payable in cash or shares of the
Company's Class A common stock. During 1999, the Company paid $64,197 of
dividends.
WARRANTS
As part of the underwriter's compensation for the funds raised in the
Company's IPO, the Company agreed to sell, for $100, warrants to purchase
120,000 shares of the Class A Common Stock. The warrants are exercisable at any
time during a five-year term at an exercise price equal to 125% of the offering
price, or $8.125. The warrants outstanding were valued at a total of $366,234,
utilizing the Black-Scholes option pricing model assuming a volatility factor of
53%, a risk free interest rate of 6.22% and a fair market value of the
underlying shares of $6.50. The value of these warrants were recorded as a
reduction of additional paid in capital received from the initial public
offering.
In conjunction with the issuance of the August 1999 Bridge Loan, the Company
granted the Bridge Loan holders warrants to purchase 5,000 shares of the
Company's Class A common stock for every
F-18
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY: (CONTINUED)
$50,000 of notes purchased. The warrants are exercisable for a period of five
years beginning on the earlier to occur of (i) the closing of the IPO or
(ii) one year from the date of the warrant. These detachable warrants were
valued at a total of $33,127 utilizing the Black-Scholes option pricing model,
assuming a volatility factor of 70%, a risk free rate of 6.22% and a fair value
of the underlying common stock of $6.75 per share.
The Company issued warrants with the private placement of notes payable in
October 1998 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. Warrants for an
additional 12,000 shares of Class A Common Stock were issued and immediately
exercised during 1999.
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
year ended December 31, 1999 and 1998, respectively. The redeemed shares were
reissued in connection with the exercise of the warrants issued to note holders
and the Selling Agent.
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 September 30,
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 have been exercised.
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 December 31, 1999, options for 505,500
shares of Class A Common Stock have been issued under the Plan. The
F-19
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY: (CONTINUED)
outstanding stock options have an average exercise price of $4.19 per share,
with a range of $3.00 to $6.25, and vest over various terms with a maximum
vesting period of 18 months and expire after the contract period of ten years.
During the year ended December 31, 1999, the Company granted options for
20,000 shares of Class A Common Stock to non-employees in exchange for services.
The exercise price of these options range from $3.00 to $6.00 per share. The
fair value of these options on the date of grant was approximately $107,000.
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 6.22%, no
dividend yields, a life of five to ten years and volatility of 53%.
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 January 1, 1999........... -- $ -- -- $ --
Granted................................ 505,500 4.19 20,000 $4.50
Exercised.............................. (500) 3.00 -- --
Canceled............................... (14,000) 3.38 -- --
------- ----- ------ -----
Outstanding at December 31, 1999......... 491,000 4.41 20,000 $4.50
======= ===== ====== =====
Exercisable at December 31, 1999......... 157,124 $3.45 -- $ --
======= ===== ====== =====
Weighted average fair value of options
granted during the year................ $1.64 $2.67
===== =====
</TABLE>
F-20
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
6. STOCKHOLDERS' EQUITY: (CONTINUED)
Under the fair value approach of SFAS 123, the total fair value of options
granted under the Plan during 1999 was $829,509. 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>
YEAR ENDED
DECEMBER 31,
1999
-------------
<S> <C> <C>
Net loss: As reported.................... $(4,753,519)
===========
Pro forma...................... $(5,180,247)
===========
Per share data: As reported.................... $ (1.56)
===========
Pro forma...................... $ (1.71)
===========
</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% to 53%.
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
the Company 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 the Company 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.
The Company is exposed to legal claims arising in the ordinary course of
business. In management's opinion, none of the claims currently asserted will
result in a material liability or change to earnings.
F-21
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
8. INCOME TAXES:
The Company has had losses since its Inception, and therefore has not been
subject to federal or state income taxes. As of December 31, 1999, the Company
had an accumulated net operating loss ("NOL") carryforward for income tax
purposes of approximately $5,179,000. Approximately $1,800,000 of this NOL was
acquired through the purchaser of LanXtra. This acquired NOL is subject to
certain limitations and if utilized would be recorded as a reduction of
purchased goodwill. The carryforward is subject to examination by the tax
authorities and expires at various dates through the year 2014. The Tax Reform
Act of 1986 contains provisions that may limit the NOL carryforwards available
for use in any given year upon the occurrence of certain events, including
significant changes in ownership interest. A change of ownership of a company
greater than 50% within a three-year period results in an annual limitation on
the Company's ability to utilize its NOL carryforwards from tax periods prior to
the ownership change.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
Current deferred tax assets (liabilities):
Deferred revenue.................................... $ 70,637 $ --
Accrued compensation................................ 6,134 --
Other............................................... 15,086 --
----------- --------
91,857 --
Less valuation allowance.............................. (91,857) --
----------- --------
Total current deferred tax assets (liabilities)..... -- --
Non-current deferred assets (liabilities):
Net operating loss carryforwards.................... $ 1,968,155 $ 13,659
Depreciation differences............................ (12,129) --
Other............................................... 12,129 --
----------- --------
1,968,155 13,569
Less valuation allowance.............................. (1,968,155) (13,659)
----------- --------
Total non-current deferred tax assets (liabilities)... -- --
----------- --------
Net deferred taxes.................................... $ -- $ --
=========== ========
</TABLE>
Included in the Company's deferred tax assets is a benefit resulting from
the accumulated NOL and other previously unrecognized tax benefits. Recognition
of the NOL and these benefits requires future taxable income, the attainment of
which is uncertain, and therefore, a valuation allowance has been established
for the NOL benefit and for the deferred tax assets in excess of deferred tax
liabilities, and no benefit for income taxes has been recognized in the
accompanying statements of operations.
F-22
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
8. INCOME TAXES: (CONTINUED)
The Company recorded income tax expenses and benefits for the years ended
December 31 as follows:
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
Current tax benefit................................... $(1,275,298) $ (3,017)
Deferred tax benefit.................................. (61,444) (10,642)
Valuation provision................................... 1,336,742 13,659
----------- --------
$ -- $ --
=========== ========
</TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory rate to income taxes result from the following:
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
Income tax benefit using federal statutory rate....... $(1,616,196) $(12,221)
State income tax benefit, net......................... (190,141) (1,438)
Goodwill amortization................................. 331,981 --
Accretion of debt discount............................ 122,253 --
Meals, entertainment and other........................ 15,361 --
Change in valuation allowance......................... 1,336,742 13,659
----------- --------
$ -- $ --
=========== ========
</TABLE>
9. ACQUISITION OF LANXTRA BUSINESS (UNAUDITED):
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.
F-23
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
9. ACQUISITION OF LANXTRA BUSINESS (UNAUDITED): (CONTINUED)
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 profit............... (7,397) -- -- (7,397)
Operating expenses........... 1,117,892 6,877 914,146 (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...................... $ (.77)
===========
Weighted average shares
outstanding................ 3,029,218
===========
</TABLE>
The pro forma statement of operations for the year ended December 31, 1999
is as follows:
<TABLE>
<CAPTION>
PRO FORMA
LANXTRA CAVION ADJUSTMENTS PRO FORMA
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue..................... $ 37,850 $ 618,505 $ -- $ 656,355
Cost of revenue............. 31,898 493,244 -- 525,142
--------- ----------- -------- -----------
Gross profit.............. 5,952 125,261 -- 131,213
Operating expenses.......... 213,311 4,392,769 79,421 (1) 4,685,501
Interest expense and
other..................... 64,069 486,011 (52,932)(2) 497,148
--------- ----------- -------- -----------
Net loss.................. $(271,428) $(4,753,519) $(26,489) $(5,051,436)
========= =========== ======== ===========
Net loss per basic share.... $ (1.06) $ (1.56) $ (1.64)
========= =========== ===========
Weighted average shares
outstanding............... 3,112,424
===========
</TABLE>
- ------------------------
ADJUSTMENTS
(1) Amortization of goodwill
(2) Reduction of interest expense to reflect Cavion's capital structure
F-24
<PAGE>
CAVION TECHNOLOGIES, INC.
(FORMERLY NETWORK ACQUISITIONS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998)
TO DECEMBER 31, 1998
10. SUBSEQUENT EVENTS:
On February 14, 2000, the Company entered into an agreement for investor
relations consulting services with Strategic Growth International, Inc. ("SGI").
In connection with the agreement, the Company granted SGI options to purchase
175,000 shares of our class A common stock exercisable at $11.1875 for a period
of five years. The agreement has a term of one-year and requires monthly
payments of $8,000 to SGI for the services.
On February 17, 2000, the Company entered into an agreement to issue, for
$12.00 per share, the closing price on February 14, the date of the offering to
the investors, 205,000 shares of its Class A Common Stock in a private
transaction. Gross proceeds of $2,460,000 were raised, and the Company, after a
reduction of $196,800 for the selling agent's commission, netted proceeds of
$2,263,200. In conjunction with this private placement, warrants to purchase
20,500 shares of the Company's Class A Common Stock were issued to the selling
agent.
F-25
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION)
FINANCIAL STATEMENTS
AS OF JANUARY 31, 1999, DECEMBER 31, 1998,
AND DECEMBER 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-26
<PAGE>
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 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.
ARTHUR ANDERSEN LLP
Denver, Colorado,
May 18, 1999.
F-27
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JANUARY 31, -------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
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
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
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.
F-28
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ONE-MONTH
PERIOD ENDED YEARS ENDED DECEMBER 31,
JANUARY 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.
F-29
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION)
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE ONE MONTH ENDED JANUARY 31, 1999
AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
SHARES
(INCLUDING ADDITIONAL TOTAL
SHARES OF PUTABLE PAID-IN ACCUMULATED STOCKHOLDERS'
COMMON STOCK) AMOUNT CAPITAL DEFICIT DEFICIT
----------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1996....................... 230,000 $2,300 $ 11,250 $ (783,447) $ (783,447) $ (769,897)
Exercise of stock options
by an employee at an
exercise price of $.01 in
May 1997................. 5,000 50 -- -- -- 50
Issuance of common stock
for cash at $7.77 per
share in connection with
the sale of discontinued
operation................ 51,464 515 399,485 -- -- 400,000
Net loss................... -- -- -- (763,118) (763,118) (763,118)
------- ------ -------- ----------- ----------- -----------
BALANCES, December 31,
1997....................... 286,464 2,865 410,735 (1,546,565) (1,546,565) (1,132,965)
Issuance of putable common
stock.................... 28,648 286 -- -- -- 286
Net loss................... -- -- -- (1,970,502) (1,970,502) (1,970,502)
------- ------ -------- ----------- ----------- -----------
BALANCES, December 31,
1998....................... 315,112 3,151 $410,735 $(3,517,067) $(3,517,067) $(3,103,181)
Net loss................... -- -- -- (271,428) (271,428) (271,428)
------- ------ -------- ----------- ----------- -----------
BALANCES, January 31, 1999... 315,112 $3,151 $410,735 $(3,788,495) $(3,788,495) $(3,374,609)
======= ====== ======== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-30
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ONE-MONTH YEARS ENDED
PERIOD ENDED DECEMBER 31,
JANUARY 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 notes payable............................... -- -- --
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.
F-31
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR 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
F-32
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(1) DESCRIPTION OF BUSINESS (CONTINUED)
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 that 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.
F-33
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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>
JANUARY 31, 1999 AND 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............................... 1,700,236/1,650,236 175,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
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.
F-34
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
<TABLE>
<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 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>
DECEMBER 31,
JANUARY 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.
F-35
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
<TABLE>
<S> <C>
For the year ended December 31:
1998...................................................... 531,978
1997...................................................... 307,113
</TABLE>
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>
YEARS ENDED
MONTH ENDED DECEMBER 31,
JANUARY 31, -------------------
1999 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Weighted average shares outstanding........... 315,112 304,130 237,205
Less: Weighted average shares of putable
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.
F-36
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
F-37
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and December 31, 1998. 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.
F-38
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(3) DEBT (CONTINUED)
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%.
F-39
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(4) CAPITAL LEASE OBLIGATIONS (CONTINUED)
As of December 31, 1998, the present value of future minimum lease payments
are as follows:
<TABLE>
<S> <C>
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
========
</TABLE>
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 of 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
F-40
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(5) STOCKHOLDERS' DEFICIT (CONTINUED)
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>
F-41
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(5) STOCKHOLDERS' DEFICIT (CONTINUED)
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, 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:
<TABLE>
<S> <C>
Year Ended December 31,
1999...................................................... $60,049
2000...................................................... 2,298
-------
$62,347
=======
</TABLE>
F-42
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
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.
F-43
<PAGE>
LANXTRA, INC.
(FORMERLY CAVION TECHNOLOGIES, INC. AND SIGMACOM CORPORATION )
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD ENDED JANUARY 31, 1999
AND FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
(8) DISCONTINUED OPERATION (CONTINUED)
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) CONDENSED FINANCIAL STATEMENTS, AFTER CONSUMMATION OF PURCHASE AGREEMENT
(UNAUDITED)
The following unaudited balance sheet reflects the Company's balance sheet
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 warrants was zero.
<TABLE>
<S> <C>
Investment in Cavion common stock........................... $ --
Investment in Convergent warrants........................... --
----
$ --
====
Stockholders' equity (deficit).............................. $ --
====
</TABLE>
F-44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Unless otherwise defined, all capitalized terms contained in this Part II
shall have the meanings ascribed to them in the prospectus which forms a part of
this registration statement. cavion.com is sometimes referred to in this
Part II as the "registrant."
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses that we expect to incur
in connection with the sale and distribution of the securities we are
registering pursuant to this registration statement, other than underwriting
discounts. All amounts are estimated except the SEC registration fee, the
National Association of Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 10,125
National Association of Securities Dealers, Inc. filing
fee....................................................... 4,335
Nasdaq National Market listing fee.......................... 70,735
Blue Sky fees and expenses.................................. 5,000
Printing and mailing fees and costs......................... 135,000
Transfer Agent fees and costs............................... 300
Legal fees and costs........................................ 300,000
Accounting fees and costs................................... 90,000
Miscellaneous Expenses...................................... 89,865
--------
TOTAL..................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, bylaw, contract or arrangement under which any controlling
person, director or officer of cavion.com 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
cavion.com 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.
II-1
<PAGE>
(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 cavion.com 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.
II-2
<PAGE>
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
II-3
<PAGE>
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
II-4
<PAGE>
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
II-5
<PAGE>
(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
cavion.com 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
II-6
<PAGE>
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 later
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, cavion.com 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 cavion.com 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 cavion.com discovers the
facts or the date cavion.com should have discovered such facts by the exercise
of reasonable diligence. The term of the agreement and cavion.com's obligations
apply while the person is an agent of cavion.com and continues so long as the
person is subject to any claim by reason of the fact that he or she served as an
agent of cavion.com.
In addition, the Underwriting Agreement for our initial public offering
provides for indemnification by the representative of the underwriters for that
offering of cavion.com, 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
cavion.com as provided in the foregoing provisions, cavion.com 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 thus cannot be enforced.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
FOUNDERS SHARES. In August 1998, we issued 2,000,000 shares of $.0001
common stock to our two founding shareholders at $.0001 per share. These
issuances to the two accredited investors were effected without registration
under the Securities Act of 1933 in reliance upon the exemption from
registration contained in Section 4(2) of the Act. As founding shareholders,
they had access to complete information regarding our business at the time of
issuance.
1998-1999 PRIVATE PLACEMENT OF NOTES AND WARRANTS. Between October 20, 1998
and February 8, 1999, we issued $470,000 in 15% secured promissory notes due
October 19, 2000 and a total of 56,400 warrants to purchase shares of Class A
common stock at an exercise price of $.01 per share in a private placement. We
relied on the exemption from registration provided by Section 4(2) of the Act
and Rule 505 of Regulation D adopted under the Act, as well as exemptions under
various state securities laws. The securities were sold to 13 private investors.
One was an accredited investor and 12 were sophisticated investors. Investors
received a private placement memorandum as well as copies of the documents
relating to the sale of the assets of LanXtra to cavion.com which closed in
February 1999 and the loan from cavion.com to LanXtra which has since been
extinguished. 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's warrant to
purchase 5,640 shares of Class A common stock at $.01 per share, which was
exercised on February 8, 1999. In addition, First Capital received a total
offering commission of $37,600.
II-7
<PAGE>
MANAGEMENT SHARES. In December 1998, we issued 625,356 shares of Class A
common stock to our management shareholders at $.01 per share. These issuances
to the three sophisticated investors were effected without registration under
the Act in reliance upon the exemption from registration contained in
Section 4(2) of the Act, relating to the sale of securities by an issuer not
involving a public offering. As these individuals were part of management at the
time the shares were issued, they had access to complete information regarding
our business at the time of issuance.
LANXTRA ASSET PURCHASE. 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. This issuance was
effected without registration under the Act in reliance upon the exemption from
registration contained in Section 4(2) of the Act. Since cavion.com was formed
to purchase the assets and liabilities of LanXtra, the management and
shareholders of LanXtra had access to complete information regarding our
business at the time of issuance.
1999 PRIVATE PLACEMENT OF PREFERRED STOCK. In March and April 1999, we
issued 700,000 shares of convertible preferred stock, Series A, convertible into
Class A common 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 were
automatically converted into Class A common stock on November 3, 1999, when we
closed our initial public offering. The convertible preferred stock was sold in
reliance on the exemption from registration provided by Section 4(2) of the Act
and Rule 506 of Regulation D adopted thereunder, as well as exemptions under
various state securities laws. The offering was sold to accredited investors
only. Investors received a private placement memorandum including financial
statements. 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. Those warrants were subsequently
terminated at NTB's request. In addition, NTB received a commission of $210,000
and a non-accountable expense allowance of $42,000.
AUGUST 1999 PRIVATE PLACEMENT OF NOTES AND WARRANTS. In August 1999 we
raised $300,000 through the issuance of 14% promissory notes along with warrants
to purchase 30,000 shares of common stock. Each $50,000 note entitled the
subscriber to warrants to purchase 5,000 shares of Class A common stock. The
notes were due on the closing of our initial public offering or one year from
the date of their issuance. The notes were paid in full on November 5, 1999. The
warrants are exercisable for period of five years from November 3, 1999. The
warrant exercise price is $6.50, the price at which common stock was offered in
our initial public offering. The notes and warrants were sold to four accredited
investors. We relied on the exemption from registration provided by
Sections 4(2) and 4(6) of the Act and Rule 506 of Regulation D adopted under the
Act, as well as exemptions under various state securities laws.
FEBRUARY 2000 PRIVATE PLACEMENT. On February 17, 2000, we raised $2,460,000
through a private placement of 205,000 shares of Class A common stock at $12.00
per share, the closing price on February 14, the date of the offering to the
investors. The securities were sold in reliance on the exemption from
registration provided by Section 4(2) and 4(6) of the Act and Rule 506 of
Regulation D adopted under the Act, as well as exemptions under various state
securities laws. The offering was sold to two accredited investors who each
received a copy of our most recent registration statement on Form SB-2
(No. 333-93929) which was declared effective by the SEC on February 4, 2000. In
connection with the offering, First Capital Investments, Inc. acted as our
placement agent and received a commission of 8%, or $196,000, and a warrant to
purchase 20,500 shares of our Class A common stock, exercisable at 110% of the
offering price, $13.20, for a period of 5 years from February 17, 2000. We also
agreed to register the shares issued to the investors and the shares for which
the warrants are exercisable as soon as practicable.
II-8
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
2 Asset Purchase Agreement with Cavion Technologies, Inc.
dated December 31, 1998 (incorporated by reference from
Exhibit 2 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
3.1a Amended and Restated Articles of Incorporation as filed with
the Colorado Secretary of State on February 1, 1999
(incorporated by reference from Exhibit 3.1a of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
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
(incorporated by reference from Exhibit 3.1b of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
3.2 Amended and Restated Bylaws of the Company as adopted by its
Board of Directors on March 22, 1999 (incorporated by
reference from Exhibit 3.2 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
4.1 Specimen Certificate for $.0001 par value Class A common
stock of the Company (incorporated by reference from
Exhibit 4.1 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
4.2 Specimen Certificate for $.0001 par value Class B common
stock of the Company (incorporated by reference from
Exhibit 4.2 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
4.3 Specimen Certificate for $.0001 par value Series A preferred
stock of the Company (incorporated by reference from
Exhibit 4.3 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
4.4 Form of Subscription Agreement in the Offering of
convertible preferred stock of the Company (incorporated by
reference from Exhibit 4.4 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
4.5 Form of Preferred Stock Warrant issued to Neidiger, Tucker,
Bruner, Inc. (incorporated by reference from Exhibit 4.5 of
the Company's Registration Statement on Form SB-2
(No. 333-80421))
4.6 Form of Subscription Agreement in the 1999 offering of
Promissory Notes and Warrants (incorporated by reference
from Exhibit 4.6 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
4.7 Form of Warrant in the 1999 offering (incorporated by
reference from Exhibit 4.7 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
*5 Opinion of Gorsuch Kirgis LLP
10.1 Promissory Note to Herman D. Axelrod dated July 1, 1992
(incorporated by reference from Exhibit 10.1 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.2 Promissory Note to Craig E. Lassen dated August 1, 1992
(incorporated by reference from Exhibit 10.2 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.3 Factoring Agreements to Herman D. Axelrod dated
September 8, 1997 and September 15, 1997 (incorporated by
reference from Exhibit 10.3 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.4 Factoring Agreement to Craig E. Lassen dated October 15,
1997 (incorporated by reference from Exhibit 10.4 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
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 (incorporated by reference from Exhibit 10.5 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.6 Additional Bridge Loan Agreement, Promissory Notes and Put
Agreement with Jeff Marshall, David Selina and Randal Burtis
dated May 28, 1998 (incorporated by reference from
Exhibit 10.6 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
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 (incorporated by reference from
Exhibit 10.7 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
10.8 Engagement Letter with First Capital Investments, Inc. dated
September 20, 1998 (incorporated by reference from
Exhibit 10.8 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
10.9 Form of 15% Secured Promissory Notes due October 19, 2000
(incorporated by reference from Exhibit 10.9 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.10 Agreement for Post-Closing Adjustments by and among Venture
Funding, Ltd., Boutine Capital, LLC, Network
Acquisitions, Inc., Cavion Technologies, Inc., Craig E.
Lassen, David J. Selina and Jeff Marshall dated February 1,
1999 (incorporated by reference from Exhibit 10.10 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.11 Share Allocation Agreement by and among Venture
Funding Ltd., Boutine Capital, LLC, Cavion
Technologies, Inc., LanXtra, Inc., Craig E. Lassen,
David J. Selina and Jeff Marshall, dated April 16, 1999
(incorporated by reference from Exhibit 10.11 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.12 Office Lease Agreement with TTD Associates dated
December 4, 1996 for the corporate offices located at
7475 Dakin Street, Denver, Colorado (incorporated by
reference from Exhibit 10.12 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
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 (incorporated by
reference from Exhibit 10.13 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
10.14 Executive Employment Agreement with David J. Selina
effective February 1. 1999 (incorporated by reference from
Exhibit 10.14 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
10.15 Executive Employment Agreement with Marshall E. Aster
effective March 8, 1999 (incorporated by reference from
Exhibit 10.15 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
10.16 Executive Employment Agreement with Jeff Marshall effective
February 1, 1999 (incorporated by reference from
Exhibit 10.16 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.17 Executive Employment Agreement with Craig E. Lassen
effective February 1, 1999 (incorporated by reference from
Exhibit 10.17 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
10.18 Equity Incentive Plan dated March 19, 1999 (incorporated by
reference from Exhibit 10.18 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
10.19 Form of Indemnification Agreement with officers and
directors (incorporated by reference from Exhibit 10.19 of
the Company's Registration Statement on Form SB-2
(No. 333-80421))
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
(incorporated by reference from Exhibit 10.20 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.21 Form of Secure Network Services Agreement (incorporated by
reference from Exhibit 10.21 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
10.22 Forms of Lock-Up Agreements among the officers and directors
of the Company, 5% or more shareholders and the other
shareholders and the Representative (incorporated by
reference from Exhibit 10.22 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
10.23 Settlement Agreement and Mutual General Release with
Craig E. Lassen dated June 8, 1999 (incorporated by
reference from Exhibit 10.23 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
10.24 Form of Promissory Note in the 1999 offering (incorporated
by reference from Exhibit 10.24 of the Company's
Registration Statement on Form SB-2 (No. 333-80421))
10.25 License Agreement with MoneyLine America, LLC dated
August 18, 1999 (incorporated by reference from
Exhibit 10.25 of the Company's Registration Statement on
Form SB-2 (No. 333-80421))
10.26 Network Service Master Agreement with Convergent
Communications Services, Inc., dated October 22, 1999
(incorporated by reference from Exhibit 10.26 of the
Company's Registration Statement on Form SB-2
(No. 333-80421))
10.27 License and Referral Agreement with Cardinal Services
Corporation dated September 27, 1999 (incorporated by
reference from Exhibit 10.27 of the Company's Registration
Statement on Form SB-2 (No. 333-80421))
10.28 Office Lease with NY/BDP Flex I., LLC dated October 29, 1999
(incorporated by reference from Exhibit 10 of the Company's
Form 10-QSB for the quarter ended September 30, 1999)
10.29 Web Service Agreement with Planet Direct Corporation dated
November 12, 1999
10.30 Marketing Cooperation Agreement with Mission Critical
Recovery, Inc. dated December 8, 1999
10.31 Secure Network Services Agreement with Mission Critical
Recovery, Inc. dated December 8, 1999
10.32 Services Agreement with Engage Technologies, Inc. dated
January 9, 2000
10.33 Business and Trade Network of America, Inc. Agreement dated
February 24, 2000
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.34 Development and Promotion Agreement with
Stockwalk.com, Inc. dated March 9, 2000
10.35 Linking and Promotion Agreement with Colonial Direct
Financial Group, Inc. dated March 10, 2000
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Gorsuch Kirgis LLP contained in its opinion filed
as Exhibit 5
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing(s) specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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 registrant of expenses incurred
or paid by a director, officer or controlling person of cavion.com 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 registrant 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.
We undertake with respect to the securities being offered and sold in this
offering:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Act shall be deemed to be part of this registration statement as of the
time it was declared effective
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus as a new
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and this offering of such
securities at that time shall be deemed to be the initial bona fide thereof.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of Denver, State
of Colorado, on April 14, 2000.
<TABLE>
<S> <C> <C>
CAVION TECHNOLOGIES, INC.
By: /s/ DAVID J. SELINA
----------------------------------------
David J. Selina, PRESIDENT
</TABLE>
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:
<TABLE>
<S> <C>
/s/ DAVID J. SELINA
- -------------------------------------------
David J. Selina, Date: April 14,
DIRECTOR, PRESIDENT, CHIEF EXECUTIVE OFFICER, 2000
PRINCIPAL EXECUTIVE OFFICER AND CHIEF OPERATING
OFFICER
/s/ MARSHALL E. ASTER
- -------------------------------------------
Marshall E. Aster, Date: April 14,
CHIEF FINANCIAL OFFICER AND PRINCIPAL FINANCIAL AND 2000
ACCOUNTING OFFICER
/s/ STEPHEN B. FRIEDMAN
- ------------------------------------------- Date: April 14,
Stephen B. Friedman, DIRECTOR 2000
/s/ JEFFREY W. MARSHALL
- ------------------------------------------- Date: April 14,
Jeffrey W. Marshall, DIRECTOR 2000
/s/ DAVID MAUS
- ------------------------------------------- Date: April 14,
David Maus, DIRECTOR 2000
/s/ JOHN R. EVANS
- ------------------------------------------- Date: April 14,
John R. Evans, DIRECTOR 2000
</TABLE>
II-13
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
This Agreement is made between PLANET DIRECT CORPORATION ("PDC") with
offices at 100 Brickstone Square, Andover, Massachusetts 01810 and Cavion
Technologies, Inc. D/B/A cavion.com ("Cavion") with offices at 7475 Dakin
Street, Denver, Colorado 80221. This Agreement shall take effect on the date
last executed below ("Effective Date"). All capitalized terms have the meanings
set forth herein. In consideration of the agreements and representations
contained herein, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
1.1 "PD SERVICE" means PDC's entire present and future interactive
communication and information service consisting of existing and future software
products, services, and electronic and digital technologies and systems created
in any and all forms by PDC (and/or others and licensed or otherwise provided to
PDC) which are distributed, delivered or otherwise transmitted or made available
electronically to users to be used by such users, including, without limitation,
any and all documentation (all materials describing, the programming design and
use of any software included in the PD Service) accompanying such products,
services, technologies and systems, any revisions, upgrades, enhancements,
maintenance or new releases, new versions and/or add-ons to such products,
services, technologies and systems, and original equipment manufacturer (OEM)
versions of such products, services, technologies and systems. Unless otherwise
specified, references to the PD Service in this Agreement shall be deemed to
include the Co-Branded Service.
1.2 "ACTIVE PORTAL SERVICE" means certain HMTL extracted from the PD
Service, in the size and shape set forth by PDC, which contains features,
content, or other elements as generally described in the attached Exhibit B for
the Cavion Personal Start Page, which content areas are customized for Cavion
and/or Cavion Referred Partners, and where the first page viewed when the user
opens an Internet browser (the "front door") is served by Cavion, as provided
for herein.
1.3 "CO-BRANDED SERVICE" shall mean that version (or versions) of the PD
Service which are customized for Cavion and/or Cavion Referred Partners, and
served by PDC, as provided for herein.
1.4 "CAVION REFERRED PARTNER" shall mean any third party, which Cavion
refers to Planet Direct for the purpose of customizing a version of the
Co-Branded Service or Active Portal Service alone with Cavion. The Cavion
Referred Partners are described in the attached Exhibit A, which shall be
amended from time to time to reflect additional third parties referred by
Cavion.
1.5 "CAVION/PD URL" means either (1) the URL
http://Cavion.planetdirect.com, or (2) the URL in the form
http://xyzcreditunion.planetdirect.com identified to a Cavion Referred Partner
for the purpose of providing Co-Branded Service for said third party. PDC owns
all planetdirect.com URLs.
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
1.6 "CAVION PERSONAL START PAGE" means the front door that is served by
Cavion or its designee, which contains one or more Active Portal objects, Member
Emporium objects, and Cavion Referred Partner objects.
1.7 "MEMBER EMPORIUM" means the general marketing, and promotional brand
that Cavion will use to identify its products and services, or the products and
services of other providers with which Cavion has a business relationship, to
Users. In any case where Cavion elects not to use the Member Emporium brand, the
term "Member Emporium" in this Agreement will refer to any brand that Cavion
uses to identify such products and services to Users.
1.8 "MEMBER EMPORIUM UTRL" means either (1) the url http://www.member
emporium.com/, or (2) the URL in the form http://psp.memberemporium.com/ or
http:// memberemporium.com/xyzcreditunion identified to a Cavion Referred
Partner for the purpose of providing Active Portal Service for the Cavion
Referred Partner. Cavion owns all memberemporium.com URLs. Additional forms of
Member Emporium URLs may be specified from time to time by Cavion.
1.9 "PDC OFFSITE VIEWER" means the thin frame or navigation bar which PDC
serves on the top of certain pages which are linked to from the PD Service which
allows users to easily return to the PD Service.
1.10 "USERS" means end users who access the Co-Branded Service or Active
Portal Service through a Cavion/PD URL or a Member Emporium URL. A User includes
any visitor who is assigned a unique PDC Identifier "cookie" and can include
customers or members that register by also providing a zip code and/or E-mail
address.
2. RIGHTS GRANTED.
2.1 CO-BRANDED SERVICE. PDC will brand the PD Service with Member Emporium
and, where applicable, the Cavion Referred Partner, as follows:
(a) HOME PAGE OF THE CO-BRANDED SERVICE: The Home Page represented by
the Cavion/PD URL shall be Member Emporium branded (exclusive of the Cavion
Promotional Areas described below) and/or, where applicable, Cavion Referred
Partner branded, and such branding will be located in the upper left comer of
the page.
(b) TOPIC LEVEL PAGES AND INFO CENTER: All topic level pages (i.e.,
sports, food and drink, etc.) will be Member Emporium and/or, where applicable,
Cavion Referred Partner branded, and such branding will be located in the upper
left comer of all Topic Level Pages and the Info Center.
(c) OFFSITE VIEWER: The PDC Offsite Viewer will be Member Emporium
and/or, where applicable, Cavion Referred Partner branded.
2
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
(d) INCONTEXT BRICK: A rectangular section in the center of the PDC
topic level pages (400 x 110 pixels maximum) will be served by PDC on behalf of
Cavion so that Users can quickly access products, services, promotions, or
partnership programs.
Cavion will provide PDC with all necessary graphics, HTML, etc. which are
required to create Cavion's Co-Branded Service no later than two (2) weeks prior
to the scheduled launch date. The Co-Branding areas are available for branding
by Cavion and/or Cavion Referred Partners. The parties will use their
commercially reasonable efforts to launch the Co-Branded Service and the Active
Portal Service on or about November 1, 1999.
2.2 ACTIVE PORTAL SERVICE.
(a) PROVISION OF ACTIVE PORTALS: PDC will provide Cavion with the
capability to place PDC supplied Active Portals directly on the Cavion Personal
Start Page, and on the web sites of Cavion Referred Partners. The Active Portals
will include, but are not limited to, those described in Exhibit B. An "Active
Portal" is defined as certain HTML extracted from the PD Service, in the size
and shape set forth by PDC, which contains features, content, or other elements
from the PD Service as shall be determined by PDC. PDC shall keep Cavion
apprised of the availability of new Active Portal offerings to be available for
Cavion's use.
(b) USE OF ACTIVE PORTALS: Cavion or its designee will place Active
Portals on the Cavion Personal Start Page and/or the web sites of Cavion
Referred Partners, the content of which will link to the Co-Branded Service.
2.3 TRADEMARKS. PDC shall have a non-transferable, non-exclusive right and
license to use and publish in connection with the PD Service any present or
future trade name or trademark or service mark provided by Cavion for purposes
of co-branding, the PD Service (including the Active Portal Service) with
Cavion, provided that all marks are so indicated by appropriate symbol or
designation and attributed to Cavion or the appropriate Cavion Referred Partner.
PDC acknowledges this license will not create any ownership right, title or
interest in or to such marks and agrees not to modify such Marks without
Cavion's prior written consent. Use of the marks will inure to the benefit of
Cavion or the appropriate Cavion Referred Partner.
2.4 PROMOTIONAL LINKS/CUSTOMIZATION. There will be areas specified by PDC
on the Co-Branded Service which will contain links (graphic or text links) for
Cavion's use or that of Cavion Referred Partners in accordance with section
2.4(c) below ("Cavion Promotional Areas"), without charge. It is agreed that the
designated placement of the Cavion Promotional Areas are subject to change
during the term of the Agreement as the Co-Branded Service is redesigned. Cavion
will be notified in advance of any anticipated changes and the placement of
Cavion Promotional Areas shall be of equal prominence after such changes. All
Cavion Promotional Areas will be served by PDC and will be updated by PDC upon
the request of Cavion as provided below. Cavion and/or the Cavion Referred
Partner will provide
3
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
PDC with the HTML files necessary to make such updates to the Promotional Areas
at least one (1) week in advance of the time when Cavion would like said changes
to appear on the Co-Branded Service. PDC must review all such files and test all
links in same prior to placing same on the Co-Branded Service.
(a) HOME PAGE: Below are the Cavion Promotional Areas available on the
Home Page of the Co-Branded Service:
1. Banner space (top banner)(470X59 pixels] (reserved for
Cavion Referred Partners).
2. Messaging Area(center below the fold)
3. Partner brick (left margin) [120pixelsXstretches lengthwise]
(b) TOPIC LEVEL PAGES: PDC will make available on the Topic Level Pages
(i.e. the first page of the Food & Drink, Travel etc. areas of the PD Service),
Cavion Promotional Areas, the size and placement of which is specified in
sections 2.1(b) and 2.1(d).
(c) USE OF CAVION PROMOTIONAL AREAS: The Cavion Promotional Areas may
be used by Cavion to promote the services and products offered by Cavion or
Member Emporium, and/or to promote the products or services offered by any
Cavion Referred Partner on the Co-Branded Service containing branding for such
Cavion Referred Partner. It is expressly understood that Cavion will not be
permitted to place or sell Banner Advertisements or Sponsorships in the Cavion
Promotional Areas. This limitation is not meant to limit Cavion's ability to (a)
sell advertising, sponsorships, or display content on web pages which are linked
to from the Cavion Promotional Areas, or (b) provide links in the Cavion
Promotional Areas to web pages (hosted by Cavion, a Cavion Referred Partner, or
any third party vendor with which Cavion has a business relationship) promoting
the sale of products or services of third party vendors.
2.5 ADVERTISING BLOCKING. Cavion may designate certain commerce partners,
advertisers or advertising categories (collectively "Advertising") whose
creative and URL links Cavion does not want to appear on the Co-Branded Service
or the Active Portal Service. Cavion shall have sole discretion in deciding what
advertising it does not want displayed to its Users. Cavion will inform PDC from
time to time of the Advertising, or Advertising categories of products and
services to be blocked. If PDC inadvertently does promote or advertise any such
products or services on the Co-Branded Service or the Active Portal Service, PDC
will use best efforts to remove the Advertising within 24 hours of notice from
Cavion. If PDC does not cure the problem, or remove the Advertising, within
three business days it will be cause for immediate termination of this
Agreement. However, this right of blocking relates only to that Advertising
which is sold by PDC and served by PDC or PDC's designee. This right of blocking
does not relate to Advertising on any site not controlled by PDC. Cavion will
not have the right to block any content partners from the Co-Branded
4
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
Service or the Active Portal Service, except as stated in the following two
sentences. PDC will not place any Advertising or content on the Co-Branded
Service or Active Portal Service displaying or linking to adult content, Soldier
of Fortune, firearms, sexual, hate or other violent or sexually oriented web
sites. Moreover, PDC will not feature or link to advertisers or content partners
blacklisted or censured by the Federal Trade Commission, Direct Marketing
Association, Advertising Association or any other recognized authority for
filtering Internet content. The Advertising Blocking is described in the
attached Exhibit C, which shall be amended from time to time by Cavion.
3. DELIVERY/INFRASTRUCTURE. PDC will make the PD Service available for access by
the Users by way of the Internet. PDC will make commercially reasonable efforts
to ensure the PD Service maintains a 99.0% up time during the term of the
agreement. The PD Service will be served from computer servers operated and
maintained by PDC or its designee. PDC shall retain complete control over
presentation, updates and expansions of the entire PD Service, as well as the
placement of advertising within the PD Service, subject to the terms of this
Agreement. The PD Service shall be owned exclusively by PDC, and PDC shall own
all compilation copyrights with respect to the PD Service (to the extent not
copyrightable by Cavion or other third party) and other content created by or
for PDC as part of the PD Service.
4. MARKETING/PROMOTION. Cavion agrees, at its expense, to use commercially
reasonable efforts to maximize use of the Co-Branded Service and/or the Active
Portal Service by its Users. These efforts may include, but not be limited to,
promotional activities such as on-line advertising, print advertising, and
newsletters. The parties shall cooperate to develop a joint marketing plan on
terms to be agreed within 90 days of the effective date.
5. TECHNICAL AND ADMINISTRATIVE SUPPORT. PDC will provide training materials to
Cavion personnel on the Co-Branded and Active Portal Services which will enable
Cavion to provide ongoing assistance to Users with regard to technical,
administrative and service-oriented issues relating to (a) access to the
Co-Branded and Active Portal Services and (b) the utilization and/or maintenance
of the Co-Branded and Active Portal Services. PDC will provide "second level"
support to Cavion for customer support issues related to the Co-Branded and
Active Portal Services that Cavion personnel are unable to resolve.
6. PAYMENT FOR PAGE VIEWS.
6.1 PDC will pay Cavion for every 1,000 "Page Views" (a "CPM") served by
PDC to Users. For the purposes of this Agreement, a Page View shall mean one (1)
unique page of content delivered to the User's browser by PDC. A Page View shall
not include those pages which are not served by PDC or pages which are served
under the PDC Offsite Viewer, provided that PDC does not place Advertising on
the PDC Offsite Viewer.
6.2 Cavion will receive a quarterly payment based on the following "sliding
scale" schedule: from 0 to 10,000 daily Page Views, Cavion shall receive a $1.00
CPM; from 10,001
5
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
or greater daily Page Views, Cavion shall receive a $4.00 CPM. The quarterly
revenue share to be paid to Cavion shall be based on the number of daily Page
Views at the end of each quarter (e.g., if the Users provide 10,500 daily Page
Views at the end of the quarter, Cavion will receive a $4.00 CPM for all Page
Views). Cavion shall be entitled to payment under this section for so long as
Users obtained during the term of this Agreement continue to generate Page
Views. In consideration of PDC providing Advertising Blocking as described in
section 2.5, during the first nine (9) months of this agreement Cavion will
waive the Payment For Page Views revenue share. PDC will continue to report Page
Views eligible for revenue served by PDC to Users on a quarterly basis.
6.3 The provisions of this section will survive the termination of this
Agreement until all payments earned under this section have been made.
7. COMPENSATION.
7.1 CAVION TO PDC.
(a) SET UP FEE. Cavion agrees to pay PDC a one-time fee of $10,000 as
described in this section. This amount shall represent payment for the creation
of the Co-Branded Service and the Active Portal Service. This amount shall be
due and pavable on the first anniversary of the Effective Date, and will only be
due in the event that either (1) the total number of Users as of said date does
not exceed 5,000, or (2) Cavion terminates this Agreement without cause within
the first year after the Effective Date and the total number of Users as of the
termination date does not exceed 5,000.
(b) MAINTENANCE FEES. PDC shall maintain the entire Co-Branded Service
and the Active Portal Service for the benefit of Cavion for the term of this
Agreement. The annual maintenance fee for such services shall be waived if
Cavion is able to achieve in excess of 40,000 daily Page Views. If the total
number of daily Page Views is less than 40,000 by the end of each year during,
the term of the Agreement, then Cavion will pay a maintenance fee to PDC which
is adjusted as follows:
<TABLE>
<CAPTION>
DAILY PAGE VIEWS FEE PER USER
<S> <C>
0 to 15,000 $1.00
15,001 to 40,000 $.50
40,001 and greater $.00 (annual fee waived)
</TABLE>
PDC will invoice Cavion annually for said maintenance fees.
7.2 PDC TO CAVION. PDC will make payment relating to Page Views (as
described in Section 6) on a quarterly basis to Cavion. Any remuneration due
hereunder will be made within 45 days following each quarter ending July 31,
October 31, February 28, and April 30. All such payments will be accompanied by
a report demonstrating the means of calculating the amounts paid
6
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
7.3 The provisions of this section will survive the termination of this
Agreement until all payments earned during the term of this Agreement have been
made.
8. GENERAL WARRANTIES. The parties represent and warrant at all times and for
the benefit of each party that (a) each party has full power and authority to
enter into this Agreement and to convey the rights granted hereunder; (b) each
party will perform all of its obligations under this Agreement
9. INDEMNIFICATION. PDC and Cavion agree to indemnify, defend, and hold harmless
the other party, and its successors, officers, directors, employees, agents and
assigns, from and against any and all expenses and costs, including reasonable
attorney's fees, arising out of any causes of action, claims or demands in
connection with any claim which relates to the warranties, representations, and
covenants made by such party to the other party, as set forth herein. Further,
PDC agrees to defend and indemnify Cavion for any claim relating to the use of
content of the PD Service (excepting, any such claim which relates to the
content/trade marks provided by Cavion for display on the PD Service. If either
party requests indemnification pursuant to this section, it will (a) give prompt
written notice to the party from which indemnification is requested; (b) give
that party the opportunity to control the defense of the action or claim, as
well the opportunity to assign counsel in said defense; and (c) cooperate fully
in said defense (at the expense of the indemnifying party). 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.
10. LIMITATION OF DIRECT LIABILITY. SECTIONS 3, 8 AND 9 CONTAIN THE ONLY
WARRANTIES MADE BY CAVION AND PDC. ANY AND ALL OTHER WARRANTIES OF ANY KIND
WHATSOEVER ARE EXPRESSLY EXCLUDED AND DISCLAIMED. WITHOUT LIMITING THE
GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE, EACH PARTY DISCLAIMS ANY
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
WHETHER AS TO THE PD SERVICE OR THE TECHNOLOGY DEPLOYED IN CONNECTION THEREWITH.
TO THE EXTENT PERMITTED BY LAW, AND WITH THE EXCEPTION OF SECTION 9 ABOVE,
NEITHER PARTY IS LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, ECONOMIC OR
PUNITIVE DAMAGES INCURRED BY THE OTHER PARTY EVEN IF THE OTHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. The provisions of this section will
survive termination of this Agreement for a period equal to the statute of
limitations governing any claim subject to this section, and will continue to
apply to any claim filed within that period.
11. DURATION/TERMINATION. This Agreement will be in effect for one year
following the Effective Date, and will automatically renew for one year terms
thereafter unless earlier terminated by either party as provided for herein.
After the initial term, either party
7
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
may terminate this Agreement, with or without cause, by providing, the other
party with 90 days advance written notice. Notwithstanding the forgoing, the
parties agree to fully perform this Agreement after any termination for cause or
convenience to the extent necessary to fulfill contractual obligations to Cavion
Referred Partners exists at the time of termination.
12. CONFIDENTIALITY. Each party undertakes to retain in confidence (a) the terms
and conditions of this Agreement and (b) all non-public information and know-how
disclosed pursuant to this Agreement which is either designated as proprietary
and/or confidential or, by the nature of the circumstances surrounding
disclosure, ought in good faith to be treated as proprietary and/or confidential
(collectively, "Confidential Information"); provided that each party may
disclose the terms and conditions of this Agreement to its immediate legal and
financial consultants in the ordinary course of its business or, in confidence,
to its investors or potential investors. "Confidential Information" does not
include (a) public information (unless such information becomes public through
the receiving party's actions), or (b) information which the receiving party can
show was developed independently or was rightly disclosed to it by a source
other than the disclosing party. Each party agrees to use reasonable efforts to
protect Confidential Information, with precautions that are at least as great as
those taken to protect its own confidential information. A party's disclosure of
Confidential Information as required by law is not prohibited by this Agreement,
provided that the disclosing party gives the other party prompt notice of such
order and assists in the procurement of an appropriate order protecting the
information from public disclosure. Nothing contained herein limits either
party's right to develop products independently without the use of the other
party's Confidential Information. To the extent not inconsistent with this
section, any non-disclosure agreement(s) entered into between the parties prior
to this Agreement are deemed incorporated herein by this reference. The
disclosing party will be entitled, in addition to any remedies otherwise
available to it and without posting bond, to injunctive and other equitable
relief to enforce or prevent breach of this section. This section will survive
the termination of this Agreement for one year, or in the case of any trade
secret, for as long as such information remains a trade secret.
13. MISCELLANEOUS.
13.1 NO INADVERTENT WAIVER. No waiver of any breach of any provision of
this Agreement constitutes a waiver of any prior, concurrent or subsequent
breach of the same or any other provisions, and will not be effective unless
made in writing and signed by an authorized representative of the waiving party.
13.2 FORCE MAJEURE. Neither party is liable for, and will not be
considered in default or breach of this Agreement on account of, any delay or
failure to perform as required by this Agreement as a result of any causes or
conditions that are beyond such party's reasonable control, provided that the
party whose performance is affected gives prompt notice to the other of the
force majeure condition, and proceeds diligently to remedy such condition. No
party shall be required to settle any labor dispute except in its sole
discretion.
8
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
13.3 GOVERNING LAW. This Agreement is governed by the laws of Colorado.
13.4 ASSIGNMENT. Neither this Agreement nor any interest herein may be
assigned in whole or in part by either party, without the prior written consent
of the other party, which shall not be unreasonably withheld. Notwithstanding,
the forgoing, each party shall have the right to assign this Agreement to any
successor of such party by way of merger, consolidation, or acquisition of the
assigning party or substantially all of its assets (including Cavion's Member
Emporium business unit).
13.5 ENTIRE AGREEMENT. This Agreement, along with any Schedule attached
hereto, embodies the entire agreement between the parties and supersedes all
previous and contemporaneous agreements, understandings and arrangements with
respect to the subject matter hereof, whether oral or written, and may be
amended only by a written instrument duly signed by authorized representatives
of Cavion and PDC. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
13.6 SPECIFIC PERFORMANCE. In the event of any breach of this
Agreement, each party agrees that the non-defaulting party will not have an
adequate remedy at law and, in addition to any other available remedies, shall
be entitled to an injunction restricting the defaulting party from committing or
continuing any violation of this Agreement and requiring specific performance of
all terms and conditions hereof.
13.7 SEVERABILITY. In the event that any provision contained in this
Agreement should, for any reason, be held to be invalid or unenforceable in any
respect, such unenforceable provisions shall be reduced in scope or duration to
the extent necessary in order to make the same enforceable.
13.8 PUBLIC ANNOUNCEMENTS. Neither party will issue any press release,
advertising, or other public announcement concerning its relationship with the
other party without the written approval of the other party. Such approval will
not be unreasonably withheld or delayed. If there is no response in five (5)
business days, such approval shall be deemed as granted.
13.9 COMPLIANCE WITH EXPORT LAWS. Cavion understands that PDC is
subject to regulation by agencies of the United States Government which prohibit
export or diversion of certain products to certain countries, including Cuba,
Haiti, Iraq, Libya, Yugoslavia, North Korea, Iran, and Syria. Cavion agrees that
it will comply in all respects with the export and reexport restrictions
applicable to the PD Service licensed hereunder.
13.10 RELATIONSHIP OF PARTIES. Neither this Agreement, nor any terms
and conditions contained herein, may be construed as creating or constituting a
partnership, joint venture or agency relationship.
9
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
13.11 USE OF MEMBER LISTS. Neither Cavion nor PDC will make available
lists of members provided by the other party to other vendors or any outside
parties for purposes of solicitation or any other purpose. However, this section
does not limit Cavion, its affiliates or Cavion Referred Partners from using,
such lists for purposes of promoting their products or services, targeting ads,
or any other customer communications.
13.12 AUDITS. PDC agrees to maintain all appropriate records and all
proper entries therein relating directly to Users. Cavion may cause an audit to
be made of PDC's applicable records in order to verify information provided
hereunder. Any such audit shall be conducted during regular business hours,
following prior reasonable notice, and in such a manner as to minimize
interference with PDC's normal business activities. If the results of such audit
show that PDC has underpaid any amounts due Cavion, PDC shall pay the additional
amounts due within ten (10) days after receiving a copy of the audit report from
Cavion. Cavion shall pay the costs of any such audit (including auditors' fees),
except that if the audit shows that PDC has underpaid amounts due Cavion by 5%
or more in any twelve (12) month period, PDC shall pay the costs of the audit.
13.13 DISPUTE RESOLUTION. Except as otherwise agreed, any dispute
concerning this agreement will be resolved as follows. 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. 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 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 $100,000, 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. Except as specified in Section 12, 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 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.
10
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
PLANET DIRECT CORPORATION CAVION TECHNOLOGIES, INC.
By: By:
----------------------------------- ------------------------------------
David G. Luff, Vice President Daniel W.Dudley, Vice President
Date: Date:
--------------------------------- ----------------------------------
11
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
EXHIBIT A
TO THE WEB SERVICE AGREEMENT
BETWEEN PLANET DIRECT CORPORATION AND CAVION TECHNOLOGIES, INC.
CAVION REFERRED PARTNERS
(CAVION CONFIDENTIAL)
<TABLE>
<CAPTION>
CREDIT UNION CITY STATE EST. Members
<S> <C> <C> <C> <C>
1. Alliance CU Ogden UT 10,524
2. Arapahoe CU CO 11,365
3. Aurora FCU Aurora CO 4,850
4. Boise Employees CU International Falls, MN 5,611
5. Boulder Valley Boulder, CO 14,275
6. Bulldog FCU Hagerstown, MD 11,775
7. Carolina Mountains Brevard NC 3,709
8. Carolina Trust FCU Mvrtle Beach NC 24,163
9. Cheyenne Laramie County Employees FCU Cheyenne WY N/A
10. Citizens First CU Oshkosh WI 26,883
11. CO CU Arvada CO 1,450,000
12. College CU of Greeley Greeley CO 2,548
13. Columbine Greedwood Village CO N/A
14. Community Financial FCU Broomfield CO 17,371
15. Coors Golden CO 11,769
16. Decibel Pueblo CO 9,365
17. Denver Media CU Denver CO N/A
18. Denver Police Denver CO 7,231
19. Denver Postal CU Arvada CO 24,846
20. Denver Public Schools Denver CO 27,198
21. DuPont Fibers Richmond VA 16,407
22. Emory FCU Decatur GA 16,251
23. Ent Colo Springs CO 154,061
24. First American Santa Ana CA 4,260
25. First New England East Hartford CT 9,526
26. Fitzsimons FCU CO 15,723
27. Gates Community CU Denver CO 16,744
28. Glendale Area Glendale CA 9,921
29. Honeywell FCU Minneapolis MN N/A
30. Hoyt Lakes Community Hoyt Lakes MN 4,882
31. Internal Rev Employees FCU Greensboro NC N/A
32. Jeffco Schools Credit Lakewood CO 17,454
33. Jefferson City Hwy CU ? Jefferson City MO 5,779
12
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
34. Johns Manville Denver CO 5,826
35. Member One FCU Roanoke VA 43,184
36. Members Credit Union Winston-Salem NC 47,755
37. Metrum Community Littleton CO 2,869
38. Mountain Bell CU Colo. Springs CO 10,137
39. Multco CU Portland OR 8,690
40. Norbel Greeley CO 21,223
41. North Carolina CU League Greensboro NC 2,000,000
42. Northwest Famers Ins FCU Tigard OR 5,390
43. Peoples CU Springfield CO 2,860
44. Pinnacle CU Atlanta GA 12,736
45. Power CU Pueblo CO 15,209
46. Public Service CU Denver CO 48,690
47. Racine Municipal Racine WI 2,007
48. Red Rocks FCU Highlands Ranch CO 16,276
49. Rogue CU Medford OR 30,590
50. Safeway Nw Cntrl CU Portland OR 38,969
51. Santa Ana FCU Santa Ana CA 8,855
52. School District No 12 CU Northglenn CO 5,268
53. School District No 3 FCU Colorado Springs, CO 1,718
54. Sonoma Cnty Sch CU Santa Rosa CA 11,682
55. Sooper CU Denver CO 19,122
56. South Western FCU La Habra CA 17,673
57. Southland Civic FCU Downey CA 17,411
58. Southwestern Telco FCU Roanoke VA N/A
59. Space Age FCU Aurora CO 16,289
60. Spokane FCU Spokane WA 12,560
61. St. Vrain Valley CU Longmont CO 5,968
62. Sun West Educational CU Pueblo CO 9,591
63. SunCorp CU Arvada CO N/A
64. Sunwest FCU Phoenix AZ 28,703
65. TLC FCU Tillamook OR 15,690
66. U of CO FCU Boulder CO 56,433
67. United CU Mexico MO 12,007
68. US Consolidated FCU Denver CO N/A
69. WEPCO FCU Bloomington MD N/A
70. Westminster FCU Westminster CO 2,411
71. Wyhy FCU Cheyenne WY 15,130
</TABLE>
13
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
EXHIBIT B
TO THE WEB SERVICE AGREEMENT
BETWEEN PLANET DIRECT CORPORATION AND CAVION TECHNOLOGIES, INC.
ACTIVE PORTAL OBJECTS
- - Auctions
- - Breaking News
- - Calendar
- - Category Directories
- - Classifieds
- - Daily Essentials
- - Family Content
- - Favorite Links
- - Financial Calculators
- - Travel Center
- - Local Events/ Community News
- - Maps
- - Messaging Centers (from ME Partners to ISP/PSP Subscribers)
- - National/Global News
- - Portfolio Tracker
- - Real Time Quotes
- - Reminder
- - Saved Searches
- - Search Engine
- - Stocks Market
- - Weather
- - Yellow/White Page Directories
14
<PAGE>
PLANET DIRECT WEB SERVICE AGREEMENT
EXHIBIT C
TO THE WEB SERVICE AGREEMENT
BETWEEN PLANET DIRECT CORPORATION AND CAVION TECHNOLOGIES, INC.
ADVERTISING BLOCKING
Generally, the following Advertising is to be blocked. PDC reserves the
right to limit Advertising Blocking for only those Cavion Referred Partner sites
whose Co-Branded Service has the potential of delivering more than 5,000 Users
within a twelve-month period. Each Co-Branded Site may be different as not all
Cavion Referred Partners offer these services, and may allow the serving of
Advertising for one or more of the following:
CATEGORIES:
- Auto Loans
- Auto Buying
- Credit Cards
- Personal Insurance
- Personal Investments
- Mortgage
- Personal Loans
- Stock Brokerage
ADVERTISERS:
- CUShopper.com
- CUVillage.com
- Memberville.com
15
<PAGE>
MARKETING COOPERATION AGREEMENT
This Marketing Cooperation Agreement dated December 8, 1999, is between
Cavion Technologies, Inc. dba cavion.com ("Cavion"), and Mission Critical
Recovery, Inc. ("MCR"). MCR is a leading provider of electronic data vaulting
services for credit unions. Cavion is a leading provider of secure Internet
access, transactional banking and other network services, including a private
financial network (CuInet) to credit unions. MCR and Cavion desire to enter into
a marketing cooperation relationship for their mutual benefit.
It is agreed as follows:
1. MARKETING COOPERATION. MCR will promote the Cavion network services, on a
nonexclusive basis, to its credit union clients and prospects. Cavion will
refer its credit union clients and prospects to MCR, on a nonexclusive
basis, electronic data vaulting. The parties will engage in joint
advertising and product-oriented public relations, as mutually agreed from
time to time during the term of this agreement. Each party will at all
times give prompt, courteous and efficient service to clients, and will do
nothing which tends to injure the reputation or goodwill of the other
party.
2. WEB SITE LINKS. The parties will provide links to each other's web sites on
the terms described in this section. For purposes of this agreement, "link"
means a hypertext link to the home page of a web site that connects the
user to that web site, "host site" means a party's web site on which a link
to the other party's web site is displayed, and "target site" means the web
site to which a link connects.
2.1 Each party will provide a text file incorporating a link to that
party's target site (a "link file"). The link file, in a form mutually
agreed upon, will be incorporated into the HTML files of the other
party's host site. The link will be located on a page of the host site
chosen by the host site owner with input from the target site owner.
The party providing the link file may request updates to the link file
from time to time.
2.2 Each party hereby grants to the other, during the term of this
agreement and subject to the provisions of this agreement, a
nonexclusive nontransferable license to establish a link from the host
site to the target site, and to use the link file provided by the
target site owner for the purpose of establishing such link. This
license does not include rights to (a) use the link file for any other
purpose, (b) modify or create a derivative work based on the link
file, or (c) sublicense or transfer this license to any third party.
All rights not explicitly granted to the host site owner under this
section are reserved to the target site owner.
<PAGE>
3. NO FEES. Except as otherwise agreed, (a) each party will bear its own costs
of the activities contracted for under this Marketing Cooperation
Agreement.
4. WARRANTIES AND LIMIT OF LIABILITY. Each party represents and warrants to
the other that (a) it owns or has the right to use all material contained
in the link file and all materials at the target site, and (b) the use of
the link file as contemplated by this agreement does not violate any
criminal laws or infringe the patent, copyright, trademark or trade secret
rights of any third party. EACH PARTY DISCLAIMS ANY OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR
ANY PARTICULAR PURPOSE, TITLE, AUTHORITY OR NONINFRINGEMENT. In no event
will either party be liable for any incidental, consequential or exemplary
damages, even if the party is aware of the possibility of such damages.
5. CONFIDENTIALITY. Each party will maintain the confidentiality of all
confidential and proprietary information furnished to it by the other party
under this agreement, and will not use or disclose any such confidential or
proprietary information except as required to perform its obligations or
enforce its rights under this agreement, or as required by law or court
order to be disclosed. Neither party will have any rights to any
proprietary information or intellectual property of the other party by
virtue of this agreement. Any public announcement regarding this agreement
will require prior approval of both parties. The provisions of this section
will survive termination of this agreement for two years, or in the case of
any trade secret, as long as such information remains a trade secret.
6. 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 or related to the
indemnifying party's link file or any materials at its target site,
including 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 content or technology used
or supplied by that party for use with the link file or the target site. 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.
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.
2
<PAGE>
7. TERM AND TERMINATION. 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 terminated by either party by
notice at least 90 days prior to the renewal date. Either party may
terminate this agreement upon at least 90 days notice to the other. Either
party may terminate this agreement immediately upon notice to the other:
(a) if the other party materially breaches any of its obligations
under this agreement and the breach is not cured within 30 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 30 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.
8. GENERAL.
8.1 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. 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. Each party will set its
own prices for the services to which clients are referred under this
agreement.
8.2 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.
8.3 This agreement will be binding upon the assigns and successors in
interest of the parties. Neither party may assign this agreement
without the other party's written consent, which will not unreasonably
be withheld. 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 MCR and Cavion. This agreement 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.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Marketing
Cooperation Agreement as of the date first written above.
MISSION CRITICAL RECOVERY, INC. CAVION TECHNOLOGIES, INC.
By: By:
---------------------------- ------------------------------------
Title: Title:
------------------------- ---------------------------------
Address: Address:
----------------------- -------------------------------
Mission Critical Recovery, Inc. Cavion Technologies, Inc.
6195-4 Lake Gray Blvd. 7475 Dakin Street, Suite 607
Jacksonville, Florida 32244 Denver, Colorado 80221-6920
Attn: Attn: President
Fax: 904-771-7310 Fax: 303-657-8210
Voice: 904-771-9588 Voice: 303-657-8212
4
<PAGE>
CAVION.COM
SECURE NETWORK SERVICE AGREEMENT
(MISSION CRITICAL RECOVERY)
This secure Network Services Agreement is between Cavion Technologies,
Inc., a Colorado corporation doing business as cavion.com ("Cavion"), and
Mission Critical Recovery ("Client"), Cavion offers a variety of data
connectivity services ("Network services") through Cavion's CU/Net-Registered
Trademark- network. CU/Net 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 CU/Net 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 local telecommunications provider
to establish and maintain a connection from Client's data processing and
associated equipment ("Client's equipment) to CU/Net. Upon mutual agreement of
the parties, the Services Schedules may be added at any time to add or reduce
services or telecommunications bandwidth.
2. FEES. The fees for access to CU/Net 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,
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. 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 with 120
days notice to client. 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 monthly fees are described in the attached Equipment Schedule. This
equipment belongs to Cavion. All equipment associated with CU/Net and Client's
connection to CU/Net is owned or leased by Cavion, whether located at a Client
facility or a Cavion facility. Client is responsible for wiring at Client's
facility, with assistance from Cavion engineering staff.
4. NETWORK OPERATIONS.
4.1 Client is solely responsible for providing support to its clients regarding
their use of CU/Net 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 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. However, Client is responsible for maintaining as
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 CU/Net 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 CU/Net 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 CU/Net and the network services, and will
permit the use of CU/Net 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. Client will provide access to the network 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 CU/Net's web
server that are generally applicable to users of CU/Net or a network service.
Material breach of this section will cause for immediate suspension of service
or termination of this agreement.
6. SECURITY. Cavion will take commercially reasonable steps in ensure that
network services sessions accessed from the internet, and CU/Net 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 resigned to Client or Client's users.
In addition, while the private telecommunication circuits between Client
facility and CU/Net provide physical security for Client's unencrypted network
traffic, these circuits are owned and operated by
<PAGE>
telecommunications providers and Cavion does not guarantee their security.
7. LIMITED WARRANTIES.
7.1 Except as described in section 4.4, CU/Net 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 CU/Net 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 customers,
telecommunications circuits or the Internet. Client is responsible for
___________________ which of the telecommunications circuits offered by CU/Net
will be used, and for the adequacy of the telecommunications circuit to carry
Client's traffic over CU/Net.
7.2 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, promised for the affected period.
7.3 This section sets forth Cavion's exclusive warranties with respect to the
performance of CU/Net and the network services. Cavion DISCLAIMS ANY OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OR MERCHANTABILITY,
FITNESS FOR ANY PARTICULAR PURPOSE, TITLE, AUTHORITY OR NON-INFRINGEMENT. These
warranties are exclusively for the benefit of Client, and are not transferable
without Cavion's prior written consent.
8. LIMITATION OF LIABILITY. Client is exclusively responsible for all financial
risks associated with access to and use of CU/Net and the network services by
Client's customers, including validation of all transaction. In no event will
Cavion be liable for lost data, lost profits, or any other incidental,
consequential or exemplary 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, except in the case of
Cavion's gross negligence or willful misconduct.
9. OWNERSHIP AND LICENSE.
9.1 "Cavion Technology" means all inventions, designs, software and
intellectural property of any kind used in the operation of CU/Net and the
network services, including all portions and complete or partial copies thereof,
all ____________, modifications and enhancements thereof, and any documentation
associated therewith. "Cavion technology" does not include Client's lost data
processing software. Cavion owns or licenses from third parties all Cavion
technology.
9.2 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 ___________ 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.
9.3 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 CU/Net name and any materials concerning CU/Net provided by
Cavion, for the purpose of promoting the network and the network services.
10. CONFIDENTIALITY.
10.1 "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.
10.2 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 __________ 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.
10.3 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
proceeding 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 those copies, but will continue to treat
them as confidential information under this section as long as they are
retained.
10.4 Any breach of this section will cause the disclosing party irreparable harm
for which it cannot be adequately compensation 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 or 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.
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11. 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 _________
rights of any third party. For this purpose, "materials" of a party means any
technology or content supplied by that party 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 _________ 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.
12. TERMS AND TERMINATION.
12.1 The term of this agreement will be for five years from the date hereof.
Thereafter, this agreement will automatically renew for additional one 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
CU/Net and the network services.
12.2 During the first 90 days of the initial term, Client may terminate this
agreement upon notice to Cavion, if (a) Client is dissatisfied in any material
respect with the performance of CU/Net or the network services, and gives notice
to Cavion specifying the nature and circumstances of the dissatisfying
performance with as much detail as practical, and (b) Cavion (with Client's
cooperation) has not resolved the issue to Client's satisfaction within 60 days
after the notice of dissatisfaction.
12.3 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.
12.4 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.
13. DISPUTES. Except as otherwise agreed, any disputes concerning this agreement
will be resolved as follows:
13.1 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.
13.2 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 $30,000, 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
damages in excess of actual damages, but will be empowered (now required) to
require any party to pay the reasonable attorney fees, expert witness fees, and
other arbitration costs of any other party.
13.3 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.
14. 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 CU/Net 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 _____ other party
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or its agents, or to cause 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
resolved by certified mail, overnight courier 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 CU/Net, 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
provisions 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 it 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 effected
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.
MISSION CRITICAL RECOVERY [CLIENT] CAVION TECHNOLOGIES, INC.
By: By:
------------------------------------ -------------------------------------
Title: Title:
--------------------------------- ----------------------------------
Address: Address:
Mission Critical Recovery Cavion Technologies, Inc.
- ---------------------------------------
6195-4 Lake Gray Blvd 7475 Dakin Street, Suite 607
- ---------------------------------------
Jacksonville, FL 32244 Denver, Colorado 80221-6920
- ---------------------------------------
Attn: President/CEO Attn: President
- ---------------------------------------
Fax: 904-771-7310 Fax: 303-657-8210
- ---------------------------------------
Voice: 904-771-9588 Voice: 303-657-8212
- ---------------------------------------
Date:
----------------------------------
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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 (INCLUDES - WEB SITE HOSTING AND UNLIMITED EMAIL) This
service provides unlimited Internet access for Client and Client's
employees, at the bandwidth selected by Client. The service includes access
to CU/Net, 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.
X. CU/NET
With CU/NET, Client gains access to any credit union on the network. Access
is provided, using the credit union's existing connection to CU/NET.
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 services enables Client's members to retrieve account information and
perform a variety of interactive account transactions via the Internet.
Cavion's secure transactional banking service 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
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 service is firewall protected.
KIOSK SOFTWARE
This service allows Client to set upon 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.
SHARE DRAFT PROCESSING
This service allows Client to transmit share draft in-clearing data, via a
secured, dedicated 128K frame relay communications circuit, to cavion.com
for retrieval by credit unions or their processor.
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2. PRICING SUMMARY
Client agrees to pay the following fees in connection with the Secure Network
Services Agreement:
<TABLE>
<CAPTION>
ONE-TIME ANNUAL MONTHLY
<S> <C> <C> <C>
CU/NET@$12K
Installation, Set-up, Hardware
& CUINET Membership Fee: Waived
Monthly Access Charge for CU/NET $940.00*
Connection @512K: plus $50 per
CU accessed
Total One-Time Cost For $-0-
Mission Critical Recovery:
Total Annual Cost for $-0-
Mission Critical Recovery:
Total Monthly Cost for $940.00*
Mission Critical Recovery: (+ $50 per CU)
Total ___________________ and Waived
Fees: $15,550.00
Total Cost Due At Contract Signing $-0-
$12K:
Half of One-_______ and Annual
Charges
</TABLE>
*Monthly recurring charges will begin and be invoiced as services are
activated.
6
<PAGE>
ELECTRONIC DATA VAULTING
This agreement reflects discounted pricing for products/services being
provided by cavion.com to MCR. In exchange for this discount, MCR agrees
to provide Cavion with electronic data vaulting services, at no charge, so
long as the amount of online data files being archived does not exceed 20
Green Bay of compressed data. If Cavion's online data archiving
requirements exceed 20 GB will prepare a proposal, for Cavion's
consideration, specifying the cost of any needed data archiving capability
above the 20 GB provided at no charge under this agreement.
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<PAGE>
EQUIPMENT SCHEDULE TO
CAVION.COM
SECURE NETWORK SERVICES AGREEMENT
Client's set-up fees described in the Services Schedule include purchase
of the equipment described below:
CU/NET @ 512K:
Cisco 1601 Dual Ethernet/Serial Router
Cisco Power Cord, 110V
Cisco 1600 Series IOSIP Plus
Cisco 8MP to 10 MB DRAM Upgrade
V.35 Cable, DTE Male to Smart Serial, 10 Ft.
8
<PAGE>
Agreement No. __________ Effective Date: January 9, 2000
SERVICES AGREEMENT
BETWEEN:
Engage Technologies, Inc. And: Legal Company Name: Cavion Technologies, Inc.
100 Brickstone Square d/b/a cavion.com ("Customer")
Andover, MA 01810 Customer Contact: Dan Dudley
Title: VP Affinity Products and Services
("Engage") Address: 7475 Dakin Street, Denver CO 80221
Telephone: 303-412-3177
Sales Person: Fax: 303-857-8210
Gary Zucker Email: [email protected]
Customer contracts for and Engage agrees to provide, on the terms and
conditions set forth in this Services Agreement the Services identified
below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- -------------------- --------------------
SELECTIONS ONE-TIME FEE RECEIVING FEE
- ---------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
X AdBureau Service (Attachment A) See Fee Schedule
(next page)
- ---------------------------------------------------------------------------- -------------------- --------------------
X Set-up and Initial on site Training $5,400
- ---------------------------------------------------------------------------- -------------------- --------------------
X Support Services (Attachment B) As provided in
Attachment B
- ---------------------------------------------------------------------------- -------------------- --------------------
X AudienceNet (Attachment C) As provided in
Attachment C
- ---------------------------------------------------------------------------- -------------------- --------------------
X Global Behavior Profile Option* (Attachment D) As provided in
*Requires participation in ProfileNet or contribution of Visitor Data as Attachment D
per Attachment D
- ---------------------------------------------------------------------------- -------------------- --------------------
Geographic Use: United States
- ---------------------------------------------------------------------------- -------------------- --------------------
Domain Names: Customer shall provide Engage with advance written notice
of the Domain Names.
- ---------------------------------------------------------------------------- -------------------- --------------------
</TABLE>
Customer acknowledges that the Attachments marked with an "X" above (and
only those Attachments) are incorporated into and from part of this
Agreement, and that General Terms and Conditions apply to all Attachments
of this Agreement. This Agreement is not valid until accepted by Engage.
Engage: Customer:
------- -------
INITIALS INITIALS
<PAGE>
FEE SCHEDULE
BASE SERVICE:
<TABLE>
<CAPTION>
------------------------------------------------------
ADBUREAU
-------------------------------- ---------------------
AD INSERTIONS PER MONTH MONTHLY FEE
-------------------------------- ---------------------
<S> <C>
0-999,999 +$1.50 CPM*
-------------------------------- ---------------------
1,000,000 - 4,999,999 +$1.25 CPM
-------------------------------- ---------------------
5,000,000 - 9,999,999 +$1.00 CPM
-------------------------------- ---------------------
10,000,000 - 19,999,999 +$0.85 CPM
-------------------------------- ---------------------
20,000,000 - 29,999,999 +$0.55 CPM
-------------------------------- ---------------------
30,000,000 - 39,999,999 +$0.45 CPM
-------------------------------- ---------------------
40,000,000 - 49,999,999 +$0.30 CPM
-------------------------------- ---------------------
50,000,000 - and higher +$0.25 CPM
-------------------------------- ---------------------
</TABLE>
AdBureau Setup
- - Provides Oracle databases with daily hot (online) backup.
- - Minimum monthly fee is $800. Customer will pay the greater of the minimum
monthly fee or the ad insertions per month CPM net of the house ad
adjustments.
- - Setup fee is $2,400.
- - Onsite training for up to three people $3,000.
AdBureau prices assume an average individual ad size of 12 KB. If a customer's
average individual ad size, based upon a full calendar month exceeds 12 KB, (not
including any ads provided by Engage) the customer's monthly fee for such
calendar month shall be increased by a percentage equal to the percentage
increase of the average file size above 12KB.
For AdBureau, the monthly fee will be reduced by a percentage equal to the
percentage of total advertisements in a calendar month that are House Ads, as
specified in Attachment A, Section A-6; provided, however that the percentage
reduction shall not be greater than 20%.
* Note: All CPM pricing is based on an accumulated decreasing scale.
2
<PAGE>
GENERAL TERMS AND CONDITIONS
1. DEFINITIONS. Defined terms in this Agreement are capitalized and have the
meanings indicated in the Appendix attached hereto.
2. RIGHT TO USE SERVICES. Customer's right to use the Services is set forth in
the applicable Attachment(s).
3. RESTRICTIONS ON USE OF SOFTWARE AND SERVICES. Customers use of the Software
and Services is subject to the following restrictions. Except as expressly
permitted in this Agreement, Customer shall not, and shall not permit others to,
(a) use, modify, copy, or otherwise reproduce the Software or Services in whole
or in part; (b) reverse engineer, decompile, disassemble, or otherwise attempt
to derive the source code form or structure of the Software; or (c) distribute,
sublicense, assign, share, timeshare, sell, rent, lease, grant a security
interest in, use for Service Bureau purposes, or otherwise transfer the Software
or Services or Customers right to use the Software or Services. All rights not
expressly granted to Customer are reserved by Engage. There are no implied
rights.
4. CORE SERVICES.
(a) Engage shall provide the Services to Customer through Engage's Site.
(b) Engage shall create, administer and maintain at Engage's Site a
database consisting exclusively of Customer Data. Customer shall be
solely responsible for setting the criteria for all Ad Insertions.
Engage shall use commercially reasonable efforts to ensure Engage's
Site and the Data Repository is operational 24-hours per day, 365 days
per year. From time to time, however, and as may be necessary to
maintain the proper operation of Engage's Site and the Data
Repository, Engage may take its servers down for repairs, upgrades or
routine maintenance. Engage will use commercially reasonable efforts
to minimize the impact of such operations, provided that Engage shall
have no obligation during performance of such operations to mirror
Customer Data on any other server or to transfer Customer Data to any
other server. Engage shall have no obligation with respect to Downtime
except to restore service as soon as possible using commercially
reasonable efforts.
(c) Engage shall create back-ups of Customer Content in the course of
Engage's routine back up of the collective content of its servers.
Engage shall have no duty to individually catalog or back up Customer
Data. Engage reserves the right to retain only the most current
back-ups, and to erase or otherwise dispose of all other back-ups at
any time. Engage shall maintain back-ups in a secure location, other
than the location of Engage's Site, or in a fire-resistant safe.
5. TERM OF AGREEMENT, TERMINATION.
(a) This Agreement shall commence upon the Effective Date and, unless
terminated in accordance with subsection (b), (c), or (d) below, shall
continue in effect for an initial term of one year, and shall
automatically renew for successive one-year periods (each a "renewal
Term") unless notice of non-renewal is given by either party to the
other party at least thirty (30) days prior to the expiration of the
initial term or any renewal term provided that AudienceNet services
shall have the term stated in ATTACHMENT C.
(b) Customer nay terminate the relevant portion of this Agreement if the
AdBureau Service is being purchased hereunder and Customer enters into
a substitute agreement with Engage to license AdManager Customer may
also terminate this agreement upon 30 days prior written notice if
(c)
3
<PAGE>
(i) the Software or the Services are finally determined by a court to
infringe any copyright, patent, trademark, trade secret, or other
proprietary right; or
(ii) the Services experience a Downtime of greater than 48 consecutive
hours or 72 hours in any single calendar month;
(d) Either party may terminate this Agreement in the event of a material
breach of this Agreement by the other party that is not cured within
thirty (30) days of written notice thereof from the other party.
Without limitation, the following events shall constitute a material
breach: violation by Customer of the terms of the right or license
granted in any Attachment, failure by Customer to pay any amount when
due, and violation by either party of the confidentiality duties set
forth in Section 14 hereof.
(e) This Agreement shall automatically terminate if either party ceases
doing business, is the subject of a voluntary bankruptcy, insolvency
or similar proceeding, is the subject of an involuntary state or
federal bankruptcy, insolvency, or similar proceeding that is not
dismissed within sixty (60) days of filing, makes an assignment for
the benefit of creditors, or becomes unable to pay its debts when due,
6. EFFECT OF TERMINATION OR EXPIRATION.
(a) Each party shall immediately surrender all rights, licenses, and
privileges granted under this Agreement.
(b) Each party shall promptly pay to the other any amounts due and owing.
No termination of this Agreement shall release Customer from any
obligation to pay Engage any amount that has accrued prior to the date
of termination.
(c) Each party shall immediately cease using and return all property in
its possession belonging to the other party, including without
limitation all Software, Documentation, and tangible embodiments of
Confidential Information.
Customer shall not, in advertising or otherwise, use or display any of
Engage's trademarks or any name, mark, or logo that is the same as or
similar to Engage's trademarks, represent itself to be a licensee of
Engage, or in any way identify itself with Engage without the written
consent of Engage.
(d) Engage shall not, in advertising or otherwise, use or display any of
Customer's trademarks or any name, mark, or logo that is the same as
or similar to Customer's trademarks, represent itself to be a licensee
of Customer, or in any way identify itself with Customer without the
written consent of Customer.
(e) Customer shall not be entitled to a refund, in whole or in part, of
any amounts paid hereunder, other than in accordance with Section 10.
(f) Sections 3, 6, 8, 10, 11, 12(f), 13, 14, and 15 hereof, together with
Customer's obligation to pay outstanding amounts due Engage, will
survive termination or expiration of this Agreement.
7. PAYMENTS AND OTHER CHARGES.
(a) All fees shall be paid in U.S. dollars and shall be made to Engage at
the address set forth on the Cover Page.
4
<PAGE>
(b) Customer agrees to pay all invoices within 30 days after the invoice
date. Engage shall invoice Customer for all recurring fees listed on
the Cover Page on a monthly basis in arrears. Upon execution of the
Agreement, Engage shall invoice Customer for all one-time fees.
(c) A finance charge in an amount equal to one and one-half percent (1.5%)
per month or, if lower, the maximum rate allowed by law will be
assessed on payments not received by Engage on or prior to the due
date.
(d) Each Party agrees to pay when due all sales, use, property, excise,
and other similar taxes resulting from this Agreement, with respect to
such party.
(e) Except as expressly stated herein, the amount and structure of all
fees and rates may be adjusted for subsequent renewal Terms if Engage
notifies Customer at least sixty (60) days prior to beginning of such
the renewal Term.
8. PROPRIETARY RIGHTS.
(a) ENGAGES INTELLECTUAL PROPERTY. Engage and its licensors shall have
sole and exclusive ownership of all right, title, and interest in and
to the Software and Documentation, including all associated
intellectual property rights. Customer acknowledges that the Software,
including associated screen displays and menu features, constitutes
the valuable trade secrets of Engage or its licensors and are
copyrighted works owned by Engage or its licensors and protected by
federal and international copyright laws. Customer shall not permit
any personnel to remove any proprietary or other legends or
restrictive notices contained or included in any materials provided by
Engage.
(b) CUSTOMER DATA. Customer shall retain and exclusively own whatever
rights it has in any Customer Data, and shall have the exclusive right
to use and distribute such Customer Data, Customer hereby grants to
Engage the non-exclusive right to so use Customer data only (i) during
the term of this Agreement to the extent that Engage must use and
distribute Customer Data to discharge its duties under this Agreement,
(ii) as stated in Attachment C, Section C-2(c), if applicable.
(c) PUBLICITY. NEITHER PARTY SHALL MAKE ANY PUBLIC STATEMENTS OR
DISCLOSURES ABOUT THIS AGREEMENT OF THE TERMS OF THIS AGREEMENT
WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTY.
9. INITIAL SET-UP; TRAINING; SUPPORT; OTHER SERVICES. The Customer Contact and
other persons identified by Customer shall attend a scheduled class, during
which Engage shall train the Customer Contact and other persons identified by
Customer in the techniques necessary for Customer to operate the Services.
Promptly thereafter, Customer shall create a new DNS record for each Customer
Site that points to "AdBureau[name chosen by Customer].com," and Engage shall
perform any initial set-up required at the Customer Sites for operating the
Services. Ongoing support services shall be provided by Engage in accordance
with the terms set forth in ATTACHMENT B.
10. ENGAGE'S DUTY OF INDEMNIFICATION. Engage agrees to defend, indemnify and
hold Customer harmless against any and all damages, costs, liabilities, expenses
(including court costs and attorneys' reasonable fees) and settlement amounts
incurred in connection with any suit, claim, or action by any third party
alleging that (i) the Software or Service infringes any copyright, patent,
trademark, trade secret, or other proprietary right, or (ii) the Services or
Engage's use or disclosure of any Profile, Visitor Data, or other data relating
to the Services violate the law or other third party's rights (but excluding
claims for which Customer is obligated to defend Engage under Section 11)
provided that (a) Customer notifies Engage promptly in writing of the claim, (b)
Engage has sole control of the defense and all related settlement negotiations,
and (c) Customer provides Engage with all commercially reasonable assistance,
information and authority to perform the above at Engage's expense. In the
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event that Customer's use of the Software or Services is enjoined by a court of
competent authority, Engage shall, at its sole option and at its expense,
either: (i) procure for Customer the right to use the Software or Services or
(ii) modify the Software or Services to avoid infringement without material
impairment of its functionality or (iii) if neither of the foregoing remedies
can be obtained upon commercially reasonable terms, require Customer to cease
using the Software or Services, in which case Engage shall refund all amounts
paid by Customer hereunder the foregoing indemnity shall not apply if the
alleged infringement is attributable to the combination of the Software and/or
Services and products not provided by Engage, or if the Software or Services are
modified or altered by any person or entity other than Engage, or if the
Software or Services are used outside the scope of this Agreement. THIS SECTION
STATES ENGAGE'S SOLE LIABILITY HEREUNDER WITH RESPECT TO INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
11. CUSTOMER'S DUTY OF INDEMNIFICATION. Customer agrees to defend and/or settle,
indemnify and hold harmless Engage from and against any claim brought by a third
party against Engage and any liability, damage or expense (including court costs
and attorneys' reasonable fees) and settlement amounts incurred in connection
with any suit, claim, or action by any third party (i) alleging that Customers
use or disclosure of any Profile, Visitor Data, or other data relating to the
Services violate the law or other third party's rights or (ii) arising from
Customers Sites (but excluding claims for which Engage is obligated to defend
Customer under Section 10) and Customer shall pay all costs, expenses, damages
or settlement amounts to the extent based on such a third-party claim, provided
that (a) Engage notifies Customer promptly in writing of the claim, (b) Customer
has sole control of the defense and all related settlement negotiations, and (c)
Engage provides Customer with all commercially reasonable assistance,
information and authority to perform the above at Customer's expense.
12. REPRESENTATIONS; LIMITED WARRANTY.
(a) Engage represents and warrants to Customer that (i) Engage has full
power and authority to (A) enter into this Agreement, (B) perform the
Services (including the right to use the Software required to perform
the Services), and (C) grant the right and license provided for
herein, and (ii) this Agreement has been duly authorized and, executed
by Engage and constitutes a valid, binding and legally enforceable
agreement of Engage.
(b) Customer represents and warrants to Engage that (i) Customer has full
power and authority to enter into this Agreement and (ii) this
Agreement has been duly authorized, and executed by Customer and
constitutes a valid, binding and legally enforceable agreement of
Customer.
(c) Engage represents and warrants that the services provided by Engage in
connection with this Agreement will be rendered by qualified personnel
and consistent with commercial practices standard in the industry.
(d) Engage represents and warrants that it shall use best efforts to
ensure that the Software and Services will manage and manipulate data
involving dates in material conformity with the Documentation before,
during and after the year 2000. Engage disclaims responsibility for
the date-related and other performance of hardware, software,
telecommunications facilities and other materials not owned and
originally supplied by Engage.
(e) Engage represents and warrants that it will use commercially
reasonable efforts to resolve programming errors in the Software and
Services to make the Software and Services function in material
conformity with the Documentation. This Warranty does not apply if
Customer or any third party changes or modifies the Software or
Services without the authorization of Engage. Engage does not warrant
that the Software or Services will be error free or that all errors
can be remedied.
(f) THE EXPRESS WARRANTIES GRANTED UNDER THIS AGREEMENT ARE THE ONLY
WARRANTIES MADE BY ENGAGE WITH RESPECT TO THE SOFTWARE AND SERVICES,
EXPRESS OR IMPLIED, AND THEY ARE MADE IN LIEU OF ALL OTHER
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WARRANTIES OR REMEDIES. ENGAGE HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NON-INFRINGEMENT, AND WARRANTIES ARISING BY STATUTE OR OTHERWISE IN LAW OR
FROM A COURSE OF DEALING OR USE OF TRADE, AS TO ANY MATTER, INCLUDING BUT
NOT LIMITED TO, FEATURES OR CAPABILITIES OF THE SOFTWARE, SERVICES,
ENGAGE'S COMPUTERS AND SERVERS, INFORMATION, REPORTS, OR OTHER MATTERS
PRODUCED OR PROVIDED IN CONNECTION WITH THIS AGREEMENT. IN ADDITION TO AND
WITHOUT LIMITATION OF THE FOREGOING, ENGAGE SPECIFICALLY DOES NOT WARRANT,
GUARANTEE, OR MAKE ANY REPRESENTATIONS OTHER THAN AS SET FORTH IN SECTION
12(c)-(e) REGARDING THE USE, OR THE RESULTS OF THE USE, OF ANY SOFTWARE OR
SERVICE OR FEATURE OR CAPABILITY OF ANY SOFTWARE OR SERVICE, IN TERMS OF
CORRECTNESS, ACCURACY, RELIABILITY, CURRENTNESS, SECURITY, OR OTHERWISE.
ENGAGE EXPRESSLY DISCLAIMS ANY WARRANTY WITH RESPECT TO THE QUALITY OR
CONTINUITY OF THIRD-PARTY TELECOMMUNICATION OR INFORMATION SYSTEMS OR
SERVICES, SERVER CONNECTION SPEEDS, OR THE FUNCTIONALITY, OPERABILITY, OR
RELIABILITY OF ENGAGE'S OR ANY THIRD PARTY'S DATA SECURITY FEATURES OR
SYSTEMS. THIS DISCLAIMER OF WARRANTY CONSTITUTES AN ESSENTIAL PART OF THIS
AGREEMENT.
13. LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN THIS SECTION, CUSTOMER'S SOLE
REMEDY AND ENGAGE'S SOLE OBLIGATION WITH RESPECT TO ANY CLAIMS, WHETHER IN
CONTRACT, TORT (INCLUDING NEGLIGENCE AND PRODUCT LIABILITY) OR OTHERWISE,
ARISING OUT OF, CONNECTED WITH, OR RESULTING FROM THIS AGREEMENT SHALL BE
GOVERNED BY THIS AGREEMENT, AND IN ALL CASES CUSTOMER'S REMEDY SHALL BE LIMITED
TO MONEY DAMAGES NOT EXCEEDING THE FEES PAID TO ENGAGE BY CUSTOMER FOR THE
TWELVE-MONTH PERIOD IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO SUCH DAMAGES.
WITHOUT LIMITING THE FOREGOING, IT IS EXPRESSLY AGREED THAT IN NO EVENT SHALL
ENGAGE OR ITS SUPPLIERS OR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE PERFORMANCE
OF THIS AGREEMENT ON BEHALF OF ENGAGE, INCLUDING ITS EMPLOYEES, AGENTS,
PARTNERS, REPRESENTATIVES, OR SUBCONTRACTORS, BE LIABLE FOR ANY (A) DAMAGES
CAUSED BY CUSTOMER'S FAILURE TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT,
(B) INDIRECT, INCIDENTAL, SPECIAL, RELIANCE, EXEMPLARY, COVER OR CONSEQUENTIAL
DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR REVENUE, LOST BUSINESS
OPPORTUNITIES, LOST SAVINGS, LOST DATA, LOSSES CAUSED BY DELAY OR THE DOWNTIME
OF ENGAGE COMPUTERS OR SERVERS, OR LOSSES FROM INTERRUPTION, TERMINATION, OR
FAILED OPERATION OF THE INTERNET OR THIRD PARTY TELECOMMUNICATION SERVICES, EVEN
IF ENGAGE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, (C) CLAIMS
AGAINST CUSTOMER BY ANY THIRD PARTY EXCEPT AS PROVIDED IN SECTION 10, OR (D)
DAMAGES, INCLUDING PRODUCT LIABILITY DAMAGES, CAUSED BY ANY NONENGAGE PRODUCT.
THE FOREGOING LIMITATIONS SHALL NOT APPLY TO ENGAGE'S DUTY OF INDEMNIFICATION
UNDER SECTION 10. CUSTOMER RECOGNIZES THAT THE FEES HEREUNDER ARE BASED IN PART
ON THE LIMITED WARRANTY AND LIMITATION OF LIABILITY AND REMEDIES SET FORTH
HEREIN. THE FOREGOING LIMITATION SHALL NOT APPLY TO ACTS OR OMISSIONS
CHARACTERIZED BY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
14. (b) EXCEPT AS PROVIDED IN THIS SECTION, ENGAGE'S SOLE REMEDY AND CUSTOMER'S
SOLE OBLIGATION WITH RESPECT TO ANY CLAIMS, WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE AND PRODUCT LIABILITY) OR OTHERWISE, ARISING OUT OF, CONNECTED WITH,
OR RESULTING FROM THIS AGREEMENT SHALL BE GOVERNED BY THIS AGREEMENT, AND IN ALL
CASES ENGAGE'S REMEDY SHALL BE LIMITED TO MONEY DAMAGES NOT EXCEEDING THE FEES
PAID TO ENGAGE BY CUSTOMER FOR THE TWELVE-MONTH PERIOD
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IMMEDIATELY PRECEDING THE EVENT GIVING RISE TO SUCH DAMAGES. WITHOUT LIMITING
THE FOREGOING, IT IS EXPRESSLY AGREED THAT IN NO EVENT SHALL CUSTOMER,
CUSTOMER'S CLIENTS, OR THEIR SUPPLIERS OR ANYONE ELSE WHO HAS BEEN INVOLVED IN
THE PERFORMANCE OF THIS AGREEMENT ON BEHALF OF CUSTOMER, INCLUDING ITS
EMPLOYEES, AGENTS, PARTNERS, REPRESENTATIVES, OR SUBCONTRACTORS, BE LIABLE FOR
ANY DAMAGES, WHETHER DIRECT, INDIRECT, INCIDENTAL, SPECIAL, RELIANCE, EXEMPLARY,
COVER OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR
REVENUE, LOST BUSINESS OPPORTUNITIES, LOST SAVINGS, LOST DATA, LOSSES. THE
FOREGOING LIMITATIONS SHALL NOT APPLY TO CUSTOMER'S DUTY OF INDEMNIFICATION
UNDER SECTION 11. THE FOREGOING LIMITATION SHALL NOT APPLY TO ACTS OR OMISSIONS
CHARACTERIZED BY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
15. CONFIDENTIALITY. Each party acknowledges that by reason of its relationship
to the other party under this Agreement it may have access to Confidential
Information. Each party agrees to maintain in confidence and use only as
expressly permitted in this Agreement all Confidential Information received from
the other, both orally and in writing, provided that the parties' obligations of
non-disclosure under this Agreement shall not apply to Confidential Information
which the receiving party can demonstrate: (i) is or becomes a matter of public
knowledge through no fault of the receiving party; (ii) was rightfully in the
receiving party's possession prior to disclosure by the disclosing party; (iii)
subsequent to disclosure, is rightfully obtained by the receiving party from a
third party in lawful possession of such Confidential Information, (iv) is
independently developed by the receiving party without reference to Confidential
Information; or (v) is required to be disclosed by law. Each party may seek
equitable relief (as well as money damages) to protect its interests under this
Section.
16. AUDIT. Engage hereby grants to Customer the night to designate a certified
public accountant to inspect Engage's records relating solely to the Ad
Insertions, provided that such accounting firm will hold such records in
confidence except as necessary to report to both parties on the accuracy of the
calculation of the fees. Engage's determination of fees due under this Agreement
will be deemed conclusive unless, within 18 months after the date of payment
(including after the expiration or termination of this Agreement), Customer
objects in writing to such payment, such objection to be based only upon
documented evidence produced in the review by the accounting firm. If an
inspection shows that Engage's calculation of the fees has understated the
amount payable by Customer by more than 10% for any calendar year, Engage will
pay, in addition to the amount due, (i) the accounting firm's fees (provided
that such fees are reasonably incurred), and (ii) interest on the amount that
Customer should not have been required to pay at a rate of 12% per annum.
Customer agrees to give Engage at least fifteen days written notice of its
intention to have Engage's records audited and further agrees to limit the
number of audits to no more than one per year (commencing and based on the
Effective Date of this Agreement).
17. MISCELLANEOUS.
(a) ASSIGNMENT. Except as provided in this Section, Customer may not
sublicense, assign (by operation of law or otherwise) or otherwise
transfer this Agreement or any license or any right, duty or
obligation under this Agreement without Engage's prior written
consent, and any attempt to do so shall be null and void. Cavion in
its sole discretion may assign transfer this Agreement (i) to an
affiliate, (ii) a subsidiary, (iii) to its successor in connection
with a merger, acquisition or consolidation, or iv) the purchaser in
connection with the sale of all or substantially all of Customers
assets; provided that such affiliate, subsidiary, successor or
purchaser shall agree in writing to assume this Agreement. Subject to
the foregoing limitations, this Agreement will mutually benefit and be
binding upon the parties, their successors and assigns.
(b) EXPORT CONTROL. Customer acknowledges that the export of any Software
is or may be subject to export or import control and Customer agrees
that any Software or the direct or indirect product thereof will not
be exported (or re-exported from a country of installation) directly
or indirectly, unless Customer obtains all necessary licenses from the
U.S. Department of Commerce or other agency as required by law.
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(c) U.S. GOVERNMENT RESTRICTED RIGHTS. Use, duplication, or disclosure of
the Software or Services by the U.S. government is subject to the
restrictions set forth in subparagraph (C)(1)(ii) of the Rights in
Technical Data and Computer Software clause at DFARS 252.227-7013, and
subparagraphs (C)(1) and (2) of the Commercial Computer
Software-Restricted Rights at 48 CFR 52.227-19, as applicable.
(d) INDEPENDENT CONTRACTORS. Nothing in this Agreement shall be construed
to imply a joint venture, partnership or agency relationship between
the parties; Engage shall be considered an independent contractor when
performing any services in connection with this Agreement.
(e) NOTICES. Any notice required to be provided pursuant to this Agreement
shall be in writing and shall be deemed given (a) by hand delivery,
upon receipt thereof (b) if mailed, three (3) days after deposit in
the U.S. mails, postage prepaid, registered or certified mail, return
receipt requested; or (c) if sent via facsimile to the number provided
on the cover page upon completion of transmission, as verified by a
printout showing satisfactory transmission, except that should a
facsimile be sent on a non-business day, receipt shall be deemed to
occur on the next business day. All notices shall be addressed to the
parties at the respective addresses indicated herein. If Customer is
located in a country other than the U.S., all notices shall be sent by
facsimile. Each party shall promptly notify the other party of any
address change. Any message sent via email shall not constitute notice
under this agreement.
(f) WAIVER. A failure or delay by either party to enforce any right under
this Agreement shall not at any time constitute a waiver of such right
or any other right, and shall not modify the rights or obligations of
either party under this Agreement. Any waiver by either party of any
right under this Agreement shall not constitute a waiver of such right
in the future. All rights and remedies evidenced hereby are in
addition to and cumulative to rights and remedies available at law or
equity or otherwise available under any other contract.
(g) SEVERABILITY. If any provision or portion of this Agreement is held to
be unenforceable or invalid, the remaining provisions and portions
shall nevertheless be given full force and effect, and the parties
agree to negotiate, in good faith, a substitute valid provision which
most nearly effects the parties' intent in entering this Agreement.
(h) FORCE MAJEURE. Force Majeure. Failure of either party to perform, in
whole or in part, when due, if occasioned in whole or in part by any
act of God, act of governmental authority, fire, explosion, shortage
or failure of supply of materials or labor (including without
limitation the loss, illness, injury or incapacity of key employees),
or any other occurrence, act, course or thing beyond the reasonable
control of that party, shall excuse that party from its obligation to
perform when due and shall suspend its performance until such time as
its performance can reasonably be undertaken; provided however that
this subsection shall not apply to failure to make monetary payments
when due. The applicable party shall have no obligation or liability
in any amount arising out of or in connection with such failure.
(i) GOVERNING LAW Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Massachusetts, without
regard to principles of conflicts of laws. Application of the U.N.
Convention of Contracts for the International Sale of Goods is
expressly excluded.
(j) ENTIRE AGREEMENT. This Agreement, including the Appendix and all
Attachments, is the entire agreement of the parties, and supersedes
all prior agreements and communications, whether oral or in writing,
between the parties with respect to the subject matter of this
Agreement. Except as expressly provided herein, no amendment or
modification of this Agreement shall be effective unless made in
writing and signed by Engage and Customer. If there is any conflict
between the
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provisions of the General Terms and Conditions and any Attachment, the
provisions of the Attachment shall control.
(k)
(l) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute one instrument.
(i) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Massachusetts, without
regard to principles of conflicts of laws. Application of the
U.N. Convention of Contracts for the International Sale of Goods
is expressly excluded.
(ii) ENTIRE AGREEMENT. This Agreement, including the Appendix and
all Attachments, is the entire agreement of the parties, and
supersedes all prior agreements and communications, whether
oral or in writing, between the parties with respect to the
subject matter of this Agreement. Except as expressly
provided herein, no amendment or modification of this
Agreement shall be effective unless madei n writing and
signed by Engage and Customer, if there is any conflict
between the provisions of the General Terms and Conditions
and any Attachment, the provisions of the Attachment shall
control.
(iii) COUNTERPARTS This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all
of which together shall constitute on instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
ENGAGE TECHNOLOGIES, INC. COMPANY CAVION TECHNOLOGIES, INC.
By: By:
------------------------------------ -------------------------------
Signature Signature
------------------------------------ -------------------------------
Printed Name Printed Name
------------------------------------ -------------------------------
Title Title
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APPENDIX
DEFINITIONS
"ADBUREAU SERVICE" means (i) the service provided at Engage's Site, that allows
remote use of AdManager (with Global Behavior Profile option, if elected on the
cover page) by Customer and other customers of Engage as more fully described in
Attachment A and (ii) any related Documentation,
"ADBUREAU SITE" means the Web site server and collection of pages operated by or
under the control of Engage, through which AdManager is made accessible to
Customer and other customers of Engage.
"AD INSERTION" means the software-automated process performed by AdManager,
which results in the insertion of an advertising image into a page at a Customer
Site.
"ADMANAGER" means the current release of Engage's AdManager software.
"AGREEMENT" means this Services Agreement, together with the Appendix and all
Attachments designated on the Cover Page.
"CAMPAIGN ORDER" has the meaning defined in Section C-1.
"CLASSIFY SOFTWARE" means the release (in object code form) of Engage's Classify
software that is current as of the Effective Date, any Updates thereto, and
related Documentation.
"CONFIDENTIAL INFORMATION" means the Documentation, the terms of this Agreement,
Customer Data, and any other non-public information or materials that, if
disclosed in written form, is labeled "confidential" or, disclosed orally, is
identified as confidential prior to disclosure and submitted to the other party
within thirty (30) days in a writing labeled "confidential."
"CORE SERVICES" means the services set forth in Section 4.
"COVER PAGE" means the first two pages of this Agreement.
"CPM" means cost per thousand
[This term is not used] "CUSTOMER CONTACT" means the person specified on the
Cover Page and such other person(s) as Customer may designate from time to time
as the primary contact(s) available to Engage for coordinating the performance
of each party's duties under this Agreement.
"CUSTOMER CONTENT" means collectively all advertising images, advertising
campaigns, advertising reports, and any other material uploaded by Customer in
accordance with this Agreement and residing on the AdBureau Site.
"CUSTOMER DATA" means Customer Content and all data derived through Customer's
use of the Services (including Profiles and Visitor Data) pursuant to this
Agreement other than the data minimally required and retained by Engage for its
internal financial purposes such as billing, auditing, forecasting and
determining Engage's tax and other liabilities to its creditors, shareholders
and governmental authorities.
"CUSTOMER SITE(S)" means the collection of pages operated by or under the
control of Customer within the specified Domain Name(s). Customer Sites shall
only include user customized home pages and pages designated by Customer as
"Member Emporium TM," and shall not include any banking Web pages.
"DATA" means the past, present and future compilation of "clickstream" data
generated by user activity on the web, as well as such data itself, within the
Data Repository.
"DATA REPOSITORY" means the proprietary global repository of Data compiled and
maintained by Engage.
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"DOCUMENTATION" means end user materials, in any form or medium, provided by
Engage for use with the Software or Services.
"DOMAIN NAMES" means the addresses of URL's of particular sites on the Internet
or an intranet hosted and operated by Customer and identified on the Cover Page,
including but not limited to sites that are hosted by Customer for third
parties.
"DOWNTIME" means the interruption or failed initiation of services caused by the
operational failure of a computer, or of a system transmitting or receiving
information from a computer.
"DSSERVER" means the current release of Engage's DecisionSupportServer
software.
"EFFECTIVE DATE" means the effective date indicated on the Cover Page.
"ENGAGE'S SITE" means, as applicable, the AdBureau Site.
"GLOBAL BEHAVIOR PROFILE" means a unique record, resident in the Data Repository
that characterizes the behavior of a web browser on the worldwide web.
"HOUSE AD" means an advertising image that serves as a default image for
display in the event that the Ad Insertion process does not result in
selection and display of an advertising image with respect to which Customer
derives income or other economic benefit from a third-party advertiser. House
Ads may not be bartered ads from any other site.
"HTML TAG" means a character sequence in the hypertext markup language that a
web browser interprets as a specific instruction for the formatting of a web
page.
"INVENTORY" has the meaning defined in Section C-1.
(I have deleted this definition and replaced ft with the definition of Ads
Served. The charge should be for ads served, not HTML page views.)
"RENEWAL TERM" means each successive one-year term of this Agreement as provided
in Section 5(a).
"PERSONAL INFORMATION" means the name, personal identity, phone number, mailing
address, and social security number of a person.
"PROFILE" means a set of Data associated with a unique web browser, which Data
provides a demographic and interest description of such web browser.
"SERVICE BUREAU" means a person or entity that uses the Services to deliver a
data profile, report or other materials to a third party.
"SERVICES" means one or more of the following services, as specified on the
Cover Page, the AdBureau Service or the Engage KnoWedge Global Profile Service.
"SOFTWARE" means the Classify Software and one or more of the following software
products available for use through the Services: AdManager, OSServer, and
ProfileServer.
"VISITOR DATA" means "clickstream" data generated by a web browsers http
requests and posts, IP address information and referral URL information, as well
as demographic and/or other registration information voluntarily provided by a
visitor to a Customer Site. Engage does not collect and store Personal
Information.
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ATTACHMENT A
ADBUREAU SERVICE
A-1. GRANT OF RIGHTS SERVICE PROVIDED. Subject to the terms and conditions of
this Agreement. Engage grants Customer a non-exclusive, nontransferable right
(except as proved in Section 15(a) of the General Terms and Conditions) to use
the AdBureau Service (with the Global Behavior Profile option, if elected by
Customer on the Cover Page), solely for the purpose of Ad Insertions at the
Customer Sites. Customer shall be solely responsible for selecting the Customer
Content provided, however that Engage may provide advertisements through
AudienceNet as provided in Attachment C.
A-2. UPLOADING CUSTOMER CONTENT. Engage shall provide Customer with the
password-protected capability to upload Customer Content to, or delete Customer
Content from the AdBureau Site at any time. Customer shall crate web pages
including HTML Tags for its advertising images and advertising campaigns and
upload Customer Content to the AdBureau Site, except that in preparing the first
of Customer's advertising campaigns, Engage shall upload the Customer Content if
so requested by Customer.
A-3. LICENSE TO PUBLISH CUSTOMER CONTENT. Subject to the terms and conditions of
this Section A-3. Customer hereby grants to Engage a royalty-free non-exclusive
nontransferable license during the term of this Agreement to (i) make Customer
Content available to Customer only on the AdBureau Site and (ii) display
Customer Content solely for the purpose of Ad Insertions at Customer Sites only.
A-4. CUSTOMER'S RIGHTS TO USE CUSTOMER CONTENT. Customer warrant that it (i)
owns all right, title and interest in and to all Customer Content, or to the
extent that Customer does not have such ownership rights it has obtained all
legal rights an clearance necessary for the use of all Customer Content as
contemplated herein, (ii) shall manage the contractual relationship with all
third parties from whom such rights and clearances may be obtained, and (iii)
shall play all related costs or fees. The foregoing obligation includes, without
limitation, obtained the rights during the term of this Agreement to display any
third-party trade names, service marks, or trademarks, and to publish in
downloadable, online, electronic form the copyrightable works, such as product
descriptions, product images, and other sales and promotional information and
the like crated or supplied by Customer, Customer's advertising clients,
third-party vendors, manufacturers, trade associations, and others.
A-5. PROHIBITED CONTENT. Customer represents and warrants that all Customer
Content is, includes any and all proprietary notices of third parties and
contains no material that violated the rights of any third party, including,
without limitation, material that a court determines to constitute ?, slander,
defamation, violation of privacy, publicity, identify, or claims of infringement
of any trademark, service mark, trade name, copyright or other proprietary
right. Customer further represents and warrants that Customer's use of the
Domain Names does not violate the rights of any third party including, without
limitation, infringement of any trademark, service mark, trade name, or other
proprietary right. Engage shall have no duty to preview, verify, maintain, or
correct Customer Content. Notwithstanding the foregoing, Customer agrees that
Engage may, at its sole discretion, but shall have no affirmative obligation to
delete or refuse to include any information, statements, advertising images, or
any other Customer Content that Engage determines to be in violation of this
Section, Customer shall promptly correct any errors in the substance of Customer
Content that Customer may discover or that may be brought to Customer's
attention by Engage, and users or other third parties.
A-6. HOUSE ADS. In addition to advertising images to be targeted through the Ad
insertion process, Customer shall provide a reasonable number of house Ads to
serve as default images for display in the event that the Ad Insertion process
does not result in selection and display of a third-party advertising image.
House ads, shall not display an Advertising image with respect to which Customer
derives income from a third-party advertiser. All House Ads must be added to the
AdBureau Site under a single Advertiser name called "House Ads" for each site.
Ad Insertions resulting in display of House Ads shall be included in the
calculation of fees due pursuant to Exhibit A only to the extent that such Ad
Insertions exceed twenty percent (20%) of all Ad Insertions. Only Acts that are
included under the advertiser name "House Ads" shall be included in calculations
regarding House Ad discounts. If Customer classifies Credit Union awareness ads
as "House Ads" then ads will be included in the calculation of House Ads.
ACCEPTED BY: ACCEPTED BY:
Engage: Customer:
--------------------- -----------------------------
Initial Initial
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ATTACHMENT B
SUPPORT SERVICES
B-1. SUPPORT SERVICES. Engage will provide Customer with the support services
set forth in the table below ("Support Services"). The Support Services shall
apply only to the Services purchased by Customer as specified on the Cover Page;
Engage is not responsible for the configuration, maintenance or correction of
third-party software, hardware or communications facilities not included in such
Service(s). Engage shall not be obligated to provide Support Services if such
services are required as a result of (a) Customers neglect or misuse of the
Service or Software, (b) modification of Software by a person or entity than
other than Engage without the prior written consent of Engage, or (c) any other
cause beyond the reasonable control of Engage. Customer acknowledges that
telephone support is not a substitute for training and that Engage reserves the
right to refuse to answer questions covered in basic training materials. Engage
shall have no liability to any third party with respect to the Support Services.
B-2. ERROR CORRECTION. Customer may call to report an "Error" in the Service or
Software (i.e., a failure of the Service or Software to function in material
conformity with the Documentation) during the hours specified in the table below
and shall provide Engage all information reasonable available to Customer for
diagnosis of the Error. Engage shall verify receipt of such requests and assign
an appropriate "Severity Level" classification as more fully described in
Section B-4). Depending on the classification, Engage will use commercially
reasonable efforts to either: provide a solution or workaround; provide a
reasonable and commercially practical avoidance procedure; address the request
in the next revision/iteration of Software; or discuss with Customer possible
custom professional services to resolve Customer's request. Telephone support
during the hours specified in the table below is unlimited in any given month.
Engage shall respond to Customer's request in a reasonably timely manner.
B-3. TELEPHONE SUPPORT. If a support call is made outside the specified hours
and is not of Severity Level 1, Customer shall pay $125 for each such call for
the first hour (or any part of such hour) and each additional hour will be
billed at a rate of $125 per hour.
B-4. TERM. The term of the Support Service shall be conterminous with the
term of the Service.
<TABLE>
<CAPTION>
------------------------------- -------------------------------------------------
DELIVERABLE STANDARD LEVEL SUPPORT
------------------------------- -------------------------------------------------
<S> <C>
Availability Toll Free Telephone Support:
Monday through Friday
6 A.M. Eastern to 8 P.M. Eastern time
------------------------------- -------------------------------------------------
Staff Access to technical staff
------------------------------- -------------------------------------------------
Diagnostics Remote diagnostics available
------------------------------- -------------------------------------------------
Customer Feedback Quarterly Product Enhancement Ballot
------------------------------- -------------------------------------------------
Customer Communications Quarterly Newsletter
------------------------------- -------------------------------------------------
Web site Access to technical
support web site 24 x 7 for:
- Problem reporting via the web
- Web accessible knowledge base
- Patches and fixes available for download
- Web based books such as Release Notes,
Installation Guides, etc.
------------------------------- -------------------------------------------------
Proactive Support - Proactive Patch Reporting
- Notification of known problems and fixes
- Monthly "Wellness Check" and call review
- O/S upgrade impact planning
------------------------------- -------------------------------------------------
</TABLE>
14
<PAGE>
Severity Levels Defined:
<TABLE>
<S> <C>
Severity 1 - Critical Business Impact The Service or Software, regardless of the environment or
product usage, has complete loss of service functionality, or
resources for which no workaround exists and Customer's
work cannot reasonably continue.
Severity 2 - Serious Business Impact The Service or Software, regardless of the environment or
product usage is causing significant or degraded loss of
functionality or resources. A major product flaw with a
workaround, or a minor product flaw without a workaround.
Severity 3 - Minor Business Impact The Service or Software, regardless of the environment or
product usage, has minor loss of service functionality or
resources. A minor product flaw with a workaround.
Severity 4 - No Business Impact The Service is in full working mode; Customer's work is
not being impeded at this time. Information is requested or
reported. A minor irritant.
</TABLE>
ACCEPTED BY: ACCEPTED BY:
Engage: Customer:
------------ ------------
Initials Initials
15
<PAGE>
ATTACHMENT C
AUDIENCE NET PARTICIPANT AGREEMENT
C-1 PARTICIPATION IN AUDIENCENET; TERM. Customer shall participate as a
participant, through the Customer Site, in Engage's profile-driven advertising
service known as "AudienceNet." On the terms and conditions provided in this
Attachment C; provided however that the terms of this Attachment C and of
Customer's participation in AudienceNet shall not commence unless and until
Engage delivers to Customer an upgraded system for intelligent redirects with
the CPM rate and ad availability inventory determined by Customer's rules set in
the system(referred to by Engage as "phase II"). The initial term shall expire
on the same date as the expiration of the concurrent term of the Adbureau
Service; thereafter, the term shall renew automatically for successive one-year
periods unless either party notifies the other in writing of its election not to
renew at least 30 days prior to the expiration of an annual term.
C-2 CUSTOMER DUTIES.
a. Customer will provide Engage with the right to serve profile-driven ads
on Inventory by redirecting to Engage Inventory as stated in a Campaign Order:
provided, however, that Customer shall be entitled to (i) specify the number of
ads Engage may provide, (ii) reasonably review for objectionable content and
approve all ads provided by Engage, (iii) establish any other reasonable rules
regarding the ads provided by Engage and (iv) change any of its requirements or
approvals with respect to clauses (i) through (iii) at any time in its sole
discretion; provided further that Engage, at its sole discretion, may terminate
Customer's participation in AudienceNet and/or terminate the availability to
Customer of the Global Behavior Profile Option if Customer curtails or restricts
the availability of Visitor Information or inventory to Engage;
b. Customer will provide Engage from time to time with replacement and/or
house ads (which ads will not contain objectionable, infringing or illegal
content or promote alcohol, tobacco or fire arms) to serve as default ad images
no profile-driven ad is available from Engage;
c. Customer will ensure the delivery by the Software of Visitor Data from
Customer to Engage, and in connection there with, customer hereby grants to
Engage a royalty-free, nonexclusive, nontransferable perpetual, irrevocable
right to use the Visitor Data provided to Engage for all purposes associated
with the Engage Knowledge global database and related services. The AudienceNet
software module includes a classification table enabling Customer to map Visitor
Data to predefined categories. Customer will actively maintain and manage the
Classification File in cooperation with Engage so that the classification table
is accurate and comprehensive in its mapping of Visitor Data; and
d. Customer will post and maintain a written privacy policy on the Customer
Site that (i) discloses the fact that Visitor Data is being collected and
provided to a third party, Engage, for purposes of delivering relevant ads to
users, and (ii) includes a reference to the web address of the Engage Anonymous
Cookie Opt-out links or html (currently http://www. engage. com/privacy/) so
that a user can elect to "opt out" of participation in the Engage service.
Engage will notify Customer of any material changes to its "opt out" links 30
days prior to such changes. In the event that Engage materially changes or
modifies it's privacy policy such that it is no longer compatible with
Customers, then at the Customer discretion the AudienceNet portion of this
contract can be terminated with 30 days notice; and in the event of such
termination of the AudienceNet portion of this Agreement for such reason or for
any other reason, Engage may terminate the Global Behavior Profile Option
portion of this Agreement upon 30 days written notice.
C-3. ENGAGE DUTIES.
a. Engage will provide Customer with AudienceNet software module, install
such module at the Customer Sites and evaluate the commercial potential of
Visitor Data associated with the Customer Sites. Customers use of the module is
subject to the same terms of the Agreement that govern the Software.
16
<PAGE>
b. Engage may receive Ad Inventory and serve profile-based ads (which ads
will not contain objectionable, infringing or illegal content or promote
alcohol, tobacco or fire arms) or, if such ads are not available, either serve
at no additional charge replacement and/or house ads provided by Customer or
redirect the Inventory to Customer (provided that Engage reserves the right to
refuse to serve an ad the, ft deems in violation of Section C-2(b));
c. Engage will pay Customer at the CPM rate stated in a Campaign Order for
any Inventory actually used to deliver profile-driven ads. Engage will pay
Customer within 120 days of the completion of the applicable campaign or 15
business days after receiving payment from the advertiser/agency, whichever is
sooner;
d. Engage shall be granted the right from Customer to collect Visitor Data
from visitors to the Customer Sites only by setting cookies on ads served.
Engage will not (i) collect or store Personal Information, (ii) sell, report or
transfer unprocessed Visitor Data from Customer to any third party, or (iii)
aggregate or present Visitor Data from Customer in a form or manner that would
permit a third party to (a) identify any individual's Personal Information or
identify or (b) identify the data as originating from Customer.
ACCEPTED BY: ACCEPTED BY:
Engage: Customer:
------------ ------------
Initials Initials
17
<PAGE>
ATTACHMENT D
GLOBAL BEHAVIOR PROFILE OPTION
D-1 GRANT OF RIGHTS TO ACCESS DATA REPOSITORY. Subject to the terms and
conditions of this Agreement, Engage grants Customer a royalty-free,
nonexclusive, nontransferable, worldwide right to request and be served Profiles
from the Data Repository for use in conjunction with the Software on the
Permitted Engineers solely or the purpose of determining ad selection on the
Customer Sites.
D-2 RESTRICTIONS. Use of a Profile other than as expressly permitted in Section
D-1 is prohibited, and all rights in the Profiles, Data, and Data Repository
other than Visitor Data and those expressly granted to Customers are reserved by
Engage. Customer has no implied rights. Without limiting the generality for the
foregoing, Customer will not (i) retain a Profile or a copy of a Profile, in
whole or in part, (ii) use a Profile, through combination with other data or
otherwise to attempt to derive Personal Information or associate Personal
Information with a Profile, (iii) combine a Profile with other information and
store the results for later use, or (iv) resell or transfer a Profile to a third
party. Any violation of this Section D-2 will constitute a material breech of
this Agreement.
D-3 FEE SCHEDULE FOR PROFILESERVER GLOBAL BEHAVIOR PROFILE OPTION. Customer
shall pay Engage a _5 CPM for "Useful Profile" from the Data Repository. Engage
may change this rate when the contract is renewed with 30 days prior notice. As
used herein, the term useful Useful Profiles means a Profile actually used by
Customer to determine selection in the delivery of a targeted ad, promotion or
content to a Web browser. Within 10 days of the end of each calendar month.
Customer shall submit a written monthly report to Engage indicating the number
of Useful Profiles. Engage shall invoice Customer on a monthly basis for Useful
Profiles.
D-4 ENGAGE'S DUTIES. Engage shall make good faith, reasonable efforts to
maintain operation of the Data Repository on a 24 hours per day, 365 days per
year basis. From time to time, however, and as may be necessary to maintain the
proper operation of the Data Repository, Engage may take the Data Repository's
web server(s) down for repairs, upgrade or routine maintenance. Engage shall
have no obligation with respect to Downtime except to restore service as soon as
reasonably possible.
D-5 ACCESS TO DATA REPOSITORY. Customer access to the Data Repository shall be
through the Internet, at Customer's option and expense, through a dedicated
telecommunications line.
D-6 CONTRIBUTION OF VISITOR DATA. Access to the Data Repository requires that
Customer contribute Visitor Data to Engage. Accordingly, if Customer has not
separately elected to be a participant in ProfileNet. Customer will contribute
Visitor Data to Engage in accordance with Sections C-2(c)-(d) of ATTACHMENT C;
Engage's use of the Visitor Data is subject to the restrictions in Section
C-3(d) of ATTACHMENT C.
ACCEPTED BY: ACCEPTED BY:
Engage: Customer:
------------ ------------
Initials Initials
18
<PAGE>
BUSINESS AND TRADE NETWORK
OF
AMERICA, INC. AGREEMENT
FEBRUARY 24, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Scope of Work..................................................................1
2. Relationship and Duties........................................................2
3. Exclusivity....................................................................2
4. Confidential Information.......................................................4
5. Rights in "Intellectual Property" and "Software"...............................4
5.1 Cavion Intellectual Property..........................................4
5.2 BATNET Intellectual Property..........................................5
5.3 Jointly Owned Intellectual Property...................................6
6. Protection of Proprietary Rights...............................................6
7. Copyright and Proprietary Notices..............................................6
8. Term...........................................................................6
9. Representations and Warranties Made By BATNET..................................7
10. Representations and Warranties Made by Cavion..................................8
11. Security Standards.............................................................9
12. Indemnification................................................................9
13. Waiver.........................................................................9
14. Force Majeure.................................................................10
15. Notices.......................................................................10
16. Limitation of Agreement.......................................................10
17. Right to Audit................................................................10
18. Assignment....................................................................11
19. Arbitration...................................................................11
<PAGE>
20. Titles and Headings...........................................................12
21. Exhibits......................................................................12
22. Severability..................................................................12
23. Counterparts..................................................................12
24. Entire Agreement..............................................................12
</TABLE>
Exhibit A - BATNET Services
Exhibit B - CAVION Services
Exhibit C - Commissions/Fees--Revenue Split
Exhibit D - Marketing
Exhibit E - BATNET Business Associations
Exhibit F - Cavion Business Associations
Exhibit G - Examples of Cavion Third-Party Financial Service Providers
ii
<PAGE>
BUSINESS AND TRADE NETWORK OF
AMERICA, INC. AGREEMENT
This Agreement is made and entered into as of February 24, 2000,
("Effective Date") by and between BUSINESS & TRADE NETWORK OF AMERICA, INC.
("BATNET"), a Delaware corporation, with principal offices located at 33 Wood
Avenue South, Iselin, New Jersey, 08830, and CAVION TECHNOLOGIES, INC.
("Cavion"), a Colorado corporation, with principal offices located at 7475 Dakin
Street, Denver Co 80221 ("Agreement").
WHEREAS, BATNET is an Internet based e-commerce corporation which engages
in the business of developing, creating, and customizing versions of its
Internet based marketplace known as the BATNET affinity marketplace (hereinafter
"BAM") to business, trade and like groups;
WHEREAS, Cavion engages in the business of developing, creating,
customizing and hosting of Credit Union e-commerce, secure connectivity, and
Internet based transactional banking software.
WHEREAS, Cavion desires to obtain the services of BATNET as more fully
described below, and BATNET agrees to provide services to Cavion on the terms
set forth in this Agreement.
WHEREAS, BATNET shall develop, customize, maintain, and manage, in
accordance with Cavion's instructions and subject to Cavion's approval, a secure
site within BAM for the Credit Unions who are eligible to participate in BAM
(hereinafter "Cavion Credit Unions").
WHEREAS, the BAM web pages shall be called from within a frame or other
like technologies together with other frames that have been branded by Cavion or
Cavion Credit Unions.
NOW, THEREFORE in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. SCOPE OF WORK
Cavion agrees to engage BATNET to develop, customize, maintain, and manage
an Internet-based affinity marketing and member-benefits program known as the
BATNET Affinity Marketplace ("BAM") for Member Emporium or each Cavion Credit
Union that is eligible to participate in a BAM. Each BAM shall consist of an
<PAGE>
Internet based affinity marketing and member benefit program and other services,
as set forth in Exhibits A (BATNET Services), Exhibit B (Cavion Services),
Exhibit C (Commissions/Fees -- Revenue Split), and Exhibit D (Marketing) (the
"Services") to enable the membership of Cavion Credit Unions ("Members") to
register Online or otherwise, review product information, and purchase
product(s) and/or service(s) from various merchants over the Internet. BATNET
represents warrants that the performance of the Services shall be accomplished
in compliance with all applicable laws and regulations and in accordance with
any terms and conditions set forth in this Agreement.
2. RELATIONSHIP AND DUTIES
BATNET is retained by Cavion solely for the purposes set forth herein.
Neither party shall not have the power to bind the other nor shall either party
make any such representation. BATNET's relationship to Cavion shall be that of
an independent contractor solely responsible for the manner and means by which
the duties hereunder are carried out. Neither party shall not be construed for
any purpose to be (i) an employee subject to the control and direction of the
other or (ii) an agent or partner of the other.
3. EXCLUSIVITY
(a) Each party hereby acknowledges and agrees that it shall not be the
exclusive provider of the Services contemplated hereunder to the other,
"Associations" (as defined below) or Credit Unions. Each party shall be free to
market, provide and sell, and to contract and otherwise arrange to market,
provide, and sell its services to third parties; and, accordingly Cavion may
contract with or otherwise engage another business providing e-commerce
marketplaces to the Credit Unions concurrently with the term of this agreement,
and BATNET shall be free to market BAM or other e-commerce services to others,
including, without limitations, other Credit Unions. Notwithstanding the
foregoing, nothing in this paragraph shall be construed as to allow either party
hereto to contract directly with either party's business "Associations." For
purposes of this paragraph Associations shall mean, in the case of BATNET,
Associations as set forth on Exhibit E, and in the case of Cavion and Credit
Unions as set forth on Exhibit F and Exhibit G. Furthermore, BATNET and Cavion
hereby acknowledge that both parties hereto have a business understanding that
neither party shall actively seek or engage third parties providing the same or
similar services as either party to this agreement, during the initial term and
subsequent renewal term under this agreement.
(b) During the Initial Term, any Renewal Period, Cavion shall notify BATNET
of any offer, proposal or solicitation to Cavion by any entity wishing to
2
<PAGE>
provide Services to Cavion similar to that provided by BATNET under this
Agreement ("a BATNET Competing Entity"), and shall notify BATNET of such offer,
proposal or solicitation to allow BATNET to match the same. BATNET shall have an
absolute right to match any such offer, proposal or solicitation (the "Match
Contract Terms") and Cavion shall execute an agreement with BATNET to provide
services pursuant to the Match Contract Terms. If BATNET executes and performs
its obligations under the agreement for the Match Contract Terms, Cavion may not
enter into an agreement with the BATNET Competing Entity.
(c) During the Initial Term and any Renewal Period, BATNET shall notify
Cavion of any offer, proposal or solicitation to BATNET by any entity wishing to
obtain services from BATNET similar to that provided to Cavion under this
Agreement (a "Cavion Competing Entity"), and shall notify Cavion of such offer,
proposal or solicitation to allow Cavion to match the same. Cavion shall have an
absolute right to match any such offer, proposal or solicitation (the "Match
Contract Terms") and BATNET shall execute an agreement with BATNET to provide
services pursuant to the Match Contract Terms. If Cavion executes and performs
its obligations under the agreement for the Match Contract Terms, BATNET may not
enter into an agreement with the Cavion Competing Entity.
(d) BATNET acknowledges that CAVION has relationships with certain
third-party merchants ("Cavion Merchants") that provide services or products
related to financial services or Internet access or generate consumer loans,
including but not limited to credit unions, credit union leagues, credit union
associations, corporate credit unions, internet service providers, auto brokers
and buying, services, credit bureaus, mortgage brokers, other mortgage issuers,
insurance companies, stock brokerage and investment companies. Any such
compensation arrangement with Cavion Merchants is not considered part of this
Agreement. Examples of such relationships are described more fully and attached
hereto as Exhibit G.
(e) Cavion, by entering into this Agreement with BATNET, will use
reasonable commercial efforts to endorse and recommend the BAM services to the
credit unions. Nevertheless, and notwithstanding the foregoing, both Parties to
this Agreement expressly acknowledge, understand and accept that each credit
union connected to Cavion's Network must agree to permit BATNET to serve its
members through Cavion's Network. Any decision by any credit union not to permit
BATNET to provide any services to its members shall be deemed to be outside the
control of either BATNET or Cavion and shall not operate to the detriment of
either BATNET or Cavion under any term or provision of this Agreement, each of
which shall remain in full force and effect and shall be enforceable by either
Party hereto.
3
<PAGE>
4. CONFIDENTIAL INFORMATION
(a) BATNET and Cavion may, during the term of this Agreement, disclose
certain confidential information to each other. For the purposes of this
Agreement, "Confidential Information" shall mean any information of either party
hereto whether or not developed by the other, including but not limited to,
pre-existing or new information which relates to all ideas, designs, methods,
discoveries, improvements, products or other results of consulting services,
trade secrets, product data and specifications, proprietary rights, business
affairs, product developments, customer information, member information, or
employee information. Confidential Information does not include any information
that:
(i) either party can prove was known prior to the date of this Agreement
and any other agreement between the parties hereto, without an
obligation to keep it confidential;
(ii) either party can prove was lawfully obtained from a third party
without any obligation of confidentiality;
(iii) is or becomes part of the public domain through no act or violation
of any obligation of either party; or
(iv) is required to be disclosed by court order or operation of law.
(b) The parties shall keep all Confidential Information in confidence and
shall not, at any time during or after the term of this Agreement, without the
other's prior written consent, disclose or otherwise make available, directly or
indirectly, any item of Confidential Information to anyone. The parties shall
use the Confidential Information only in connection with this Agreement and for
no other purpose.
5. RIGHTS IN "INTELLECTUAL PROPERTY" AND "SOFTWARE"
5.1 CAVION INTELLECTUAL PROPERTY
5.1.1 Cavion hereby grants BATNET a royalty free, non-exclusive,
non-transferable, limited license to use Cavion's name and any and all
logos, trademarks, service marks, and all other such images Cavion now or
hereafter claims ownership during the term of this agreement ("Cavion
Intellectual Property"), in connection with BATNET's creation, development,
advertising, marketing, promotion, and administration of BAM. BATNET's use
of Cavion's name, logo, trademark, service mark or the like, owned by
CAVION, shall be limited to the purposes described in this Agreement.
BATNET agrees that ownership of such name, logo, and trademark shall remain
with Cavion. Cavion Intellectual Property also includes any marketing
materials relating to
4
<PAGE>
the services provided under this Agreement, and the development or creation
of any intellectual property paid for or developed solely by Cavion.
5.1.2 All right, title and interest in and to any computer code (both
source and object) including, but not limited to, all interfaces,
navigational devices, menus, menu structures or arrangements, help and
other operational instructions and the literal and non-literal expressions
of ideas that operate, cause, create, direct, manipulate, access or
otherwise affect the Cavion Web site and Cavion Intellectual Property
developed by Cavion or by a third party other than BATNET on behalf of
Cavion ("Cavion Software") including without limitation, any copyrights,
patents, trade secrets and other intellectual or industrial property rights
therein is and shall be owned exclusively by Cavion.
5.2 BATNET INTELLECTUAL PROPERTY
5.2.1 BATNET hereby grants Cavion a royalty free, non-exclusive,
non-transferable, limited license to use BATNET's name and any and all
logos, trademarks, service marks, and all other such images BATNET now or
hereafter claims ownership during the term of this agreement ("BATNET
Intellectual Property"), in connection with the services provided by BATNET
under this Agreement. Cavion's use of BATNET's name, logo, trademark,
service mark or the like, owned by BATNET, shall be limited to the purposes
described in this Agreement. Cavion agrees that ownership of such name,
logo, and trademark shall remain with BATNET. BATNET Intellectual Property
also includes any intellectual property paid for or developed by BATNET.
5.2.2 All right, title and interest in and to any computer code (both
source and object) including, but not limited to, all interfaces,
navigational devices, menus, menu structures or arrangements, help and
other operational instructions and the literal and non-literal expressions
of ideas that operate, cause, create, direct, manipulate, access or
otherwise affect the BATNET Services or the BATNET Intellectual Property
developed by BATNET (except jointly conceived or created intellectual
property, which shall be jointly owned as provided in Section 5.3) or by a
third party other than Cavion on behalf of BATNET ("BATNET Software")
including without limitation, any copyrights, patents, trade secrets and
other intellectual or industrial property rights therein is and shall be
owned exclusively by BATNET.
5
<PAGE>
5.3 JOINTLY OWNED INTELLECTUAL PROPERTY
Except as otherwise provided in this Agreement, any and all intellectual
property jointly conceived or created under the performance of this Agreement
shall be co-owned by both Cavion and BATNET.
6. PROTECTION OF PROPRIETARY RIGHTS
(a) Neither party shall assist or permit others to, de-compile, decrypt,
disassemble, or otherwise reverse engineer the Cavion Software or the BATNET
Software to create or derive the source code thereof from the object code
thereof or from any other information.
(b) Each party shall use its best efforts to ensure that its employees,
independent contractor agents, sales and distribution agents and other acting in
concert with it or on its behalf are prohibited from taking any action otherwise
prohibited to each party hereunder and to promptly notify the other party of the
circumstances surrounding any such use or possession of the other parties'
"Software" (as defined in Section 5) or any part thereof.
7. COPYRIGHT AND PROPRIETARY NOTICES
(a) BATNET shall place on all services and associated documentation (and
any parts thereof) the copyright notices, confidentiality legends, and other
labels (singularly or collective "Proprietary Rights Notice") in the exact
form(s) reasonably specified in written notice(s) and as requested by Cavion.
BATNET shall not remove or alter any copyright or other Proprietary Rights
Notice required by Cavion.
(b) If Cavion is contacted by a third party, excluding Cavion Associations
(as defined in Section 3(a) of the Agreement) and Cavion competitors, Cavion
shall verify that the BAM is "powered by" BATNET. At Cavion's sole discretion,
Cavion may place a propriety BATNET notice on the Cavion BAM.
(c) Neither party shall use the name or trademark of the other in
connection with any solicitation or promotion without prior written consent.
8. TERM
(a) This Agreement shall remain in effect for the period commencing with
the Effective Date and terminating with the date that is three (3) years after
the Effective Date (the "Initial Term"). Thereafter, this Agreement shall be
automatically renewed for a period of one (1) year (individually, a "Renewal
Period") without the requirement of further notice. Either party may terminate
this Agreement upon
6
<PAGE>
expiration of the Initial Term or any Renewal Term by delivering written notice
of such termination at least ninety (90) days prior to the expiration of the
Initial Term or the then-current Renewal Period, as the case may be, in which
event the Agreement shall automatically terminate at the end of the Initial Term
or such Renewal Period. In addition, either party may terminate this Agreement
upon a material breach of this Agreement by the other party that has not been
cured within 60 days of such breach. In the event that either party terminates
this Agreement, Cavion and BATNET shall be entitled to receive any and all
unpaid commissions and fees due up to the date of termination. In no event,
however, will BATNET be obligated to refund to Cavion any monies paid.
(b) Upon termination of this Agreement for any reason:
(i) If requested by BATNET, Cavion shall immediately return any and
all BATNET materials (including without limitation the designs,
scripts, storyboards, masters and any and all other materials
relating to the BATNET Software) delivered by BATNET hereunder
and all copies of the same, and certify by sworn statement of one
of its officers that all such materials and copies have been
delivered to BATNET; and
(ii) If requested by Cavion, BATNET shall immediately return any and
all Cavion materials (including without limitation the designs,
scripts, storyboards, masters and any and all other materials
relating to the Cavion Software) delivered by Cavion hereunder
and all copies of the same, and certify by sworn statement of one
of its officers that all such materials and copies have been
delivered to Cavion.
9. REPRESENTATIONS AND WARRANTIES MADE BY BATNET
(a) BATNET REPRESENTS AND WARRANTS TO CAVION THAT THE SERVICES PROVIDED
SHALL CONFORM TO EXHIBIT A. BATNET DOES NOT WARRANT AGAINST FAILURE OF
PERFORMANCE DUE TO FAILURE OR DISRUPTION OF THE INTERNET AND/OR CAVION's WEBSITE
SERVER OR CONNECTIVITY, FAILURE OF CAVION's COMPUTER HARDWARE OR SOFTWARE,
AND/OR THIRD PARTY SERVICES UNDER CAVION's CONTROL. THE FOREGOING WARRANTY IS
THE ONLY WARRANTY MADE WITH RESPECT TO SERVICES PROVIDED UNDER THIS AGREEMENT
AND IS A LIMITED WARRANTY. BATNET EXPRESSLY DISCLAIMS ANY AND ALL OTHER
WARRANTIES EXPRESS OR IMPLIED. THE LIABILITY OF BATNET FOR ANY REASON AND UPON
ANY CAUSE OF
7
<PAGE>
ACTION WHATSOEVER SHALL BE LIMITED TO THE AMOUNT ACTUALLY PAID, IN THE SIX (6)
MONTH PERIOD PRIOR TO THE CLAIM ARISING, TO BATNET UNDER THIS AGREEMENT. IN NO
EVENT SHALL BATNET BE LIABLE TO CAVION OR ANY THIRD PARTY FOR ANY DIRECT,
CONSEQUENTIAL, SPECIAL, PUNITIVE, OR INCIDENTAL DAMAGES INCLUDING, BUT NOT
LIMITED TO, LOST PROFITS OR OTHER ECONOMIC LOSS (WHETHER ARISING FROM BREACH OF
CONTRACT, TORT, STRICT LIABILITY) EVEN IF BATNET HAS BEEN APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES OCCURRING, LIMITATIONS OF LIABILITY REFLECTS THE
ALLOCATION OF RISK BETWEEN THE PARTIES. LIMITATIONS REFLECTED IN THIS SECTION
SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND APPLY EVEN IF ANY LIMITED
REMEDY SPECIFIED IN THIS AGREEMENT IS FOUND TO HAVE FAILED OF ITS ESSENTIAL
PURPOSE.
(b) BATNET represents and warrants to Cavion that:
(i) BATNET has the full power and authority to enter into and fulfill
the terms of this Agreement and to make the grant of rights to
Cavion contained herein;
(ii) BATNET is the owner or has rights to use and sublicense the
BATNET Intellectual Property and the BATNET Software;
(iii) to BATNET's knowledge, no element of the BATNET Software
provided by BATNET violates or infringes any copyright, patent,
trademark, or trade secret of any third party; and
(iv) BATNET has not previously assigned, pledged or otherwise
encumbered any rights in the BATNET Intellectual Property or the
BATNET Software in a manner that conflicts with the rights
granted herein, and BATNET shall not assume any obligations or
restrictions which would in any way interfere with or be
inconsistent with this Agreement.
10. REPRESENTATIONS AND WARRANTIES MADE BY CAVION
(a) Cavion represents and warrants that:
(i) Cavion has the full power and authority to enter into and fulfill
the terms of this Agreement and to make the grant of rights to
BATNET contained herein with respect to the INTELLECTUAL
PROPERTY;
8
<PAGE>
(ii) Cavion is the owner, or has rights to use and sublicense, the
Cavion Intellectual Property and the Cavion Software;
(iii) to Cavion's knowledge, no element of the Cavion Software
provided by Cavion violates or infringes any copyright, patent,
trademark, or trade secret of any third party; and
(iv) Cavion has not previously assigned, pledged or otherwise
encumbered any rights in the Cavion Intellectual Property or the
Cavion Software in a manner that conflicts with the rights
granted BATNET herein, and Cavion shall not assume any
obligations or restrictions which would in any way interfere with
or be inconsistent with this Agreement.
(v) Cavion has obtained or will obtain any and all rights, licenses,
clearances, releases or other permissions necessary from third
party credit unions to use their name, logo or any other
intellectual property in connection with the BAM or any other use
contemplated under this agreement. Cavion has obtained the right
to grant BATNET approval for inclusion of any third party credit
union in the BAM.
11. SECURITY STANDARDS
Cavion and BATNET shall require Cavion's Members using Cavion's BAM to
agree to follow certain security procedures including the use of passwords for
access to the Cavion's BAM site, which the parties agree to make available as a
link from the entry page of the Cavion's BAM. To the extent that either party
wishes to revise such security procedures during the term of this Agreement,
such revisions shall be agreed upon in writing by the parties.
12. INDEMNIFICATION
BATNET and Cavion shall indemnify, defend and hold harmless the other
party, its directors, officers, employees and agents with respect to any claim,
demand, cause of action, debt, or liability, including reasonable attorneys'
fees, to the extent that it is based upon a claim, that if true, would
constitute a breach of any of the indemnifying party's representations or
warranties hereunder.
13. WAIVER
The waiver by either party or any breach or failure to enforce any of the
terms or conditions of this Agreement at any time shall not in any way affect,
limit or waive
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either party's rights thereafter to enforce and compel strict compliance with
every term and condition of this Agreement.
14. FORCE MAJEURE
Neither party shall be liable for any loss or delay resulting from any
force majeure event, including acts of God, fire, natural disaster, labor
stoppage, war or military hostilities, disruption of the Internet, or inability
of carriers to make scheduled deliveries, and any payment or delivery date shall
be extended to the extent of any delay resulting from any force majeure event.
15. NOTICES
Any notice, request, demand, waiver, approval or other communication which
is required or permitted to be given hereunder shall be in writing and shall be
deemed if delivered personally or sent by telegram or telecopy (with
transmission confirmed) or by certified or registered mail, return receipts
required with postage prepaid, or by Federal Express or an equivalent overnight
delivery service, addressed to the parties at their respective addresses as
either party may designate in writing to the other. Such notice, request,
demand, waiver, consent, approval or other communication shall be deemed to have
been given as of the date so delivered, telegraphed, or telecopied, or on the
fifth day after deposit in the United States mail or on the second day after
deposit with Federal Express or an equivalent overnight delivery service.
16. LIMITATION OF AGREEMENT
The relationship of Cavion and BATNET hereunder is limited to the
respective rights and obligations of the parties specifically provided herein.
Notwithstanding any provision of this Agreement to the contrary, nothing herein
shall be construed to create a partnership between the parties, to authorize
either party to act as agent for the other, to permit either party to undertake
any agreement for the other, or to use the name or identifying mark of the
other, all except as it is specifically provided herein.
17. RIGHT TO AUDIT
During the Term and for three years thereafter, BATNET will keep and
maintain accurate accounts and records regarding the its services hereunder.
Upon Cavion's request, but no more than two (2) times per annum, BATNET shall
provide access to such records for examination, reproduction, and audit by
Cavion or its representatives. If any such audit discloses any understatement of
the Fees due, BATNET will immediately pay to Cavion any deficiency, plus
interest at the rate of one and one half percent (1.5%) per month or the maximum
rate as permitted under
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applicable usury law, whichever is less. If the deficiency for any audit period
is in excess of ten percent (10%) of the Fees actually paid for such audit
period, BATNET shall reimburse Cavion for all reasonable costs incurred to
conduct the audit.
18. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of BATNET and Cavion. Neither party shall assign any
rights nor obligations under this Agreement without the express written
authorization of the other party, except that (i) the sale of substantially all
of the assets of either, including but not limited to the private or public sale
of securities; the acquisition by or merger into another company of either; or
(ii) an assignment to an "Affiliate" or subsidiary shall not be deemed an
assignment which requires the other's consent, provided prompt notice of any
such sale, acquisition or merger shall be given. For purposes of this Section
18, an "Affiliate" means an entity that directly or indirectly, controls, is
controlled by, or is under common control with either BATNET or Cavion
(whichever is applicable).
19. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in the State of the party
against whom such claim is raised, by an arbitrator/mediator with specific
expertise in Internet and electronic communications matters, and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
then in effect, and judgment on the award rendered by the arbitrators) may be
entered in any court having jurisdiction thereof.
20. GOVERNING LAW
This agreement shall be governed by and construed in accordance with the
laws of the State in which the party against whom any claim, controversy or suit
is brought resides (the "Governing State"), without giving effect to its
principles or conflicts of laws to the extent such principles or rules would
require or permit the application of the laws of another jurisdiction. Amy
dispute arising out of or in connection with this agreement shall be subject to
the exclusive jurisdiction of the courts of the Governing State or of the United
States District Court of the same. Any process in any action or proceeding
arising out of or in connection with this agreement may, among other methods, be
served by delivering or mailing the same by registered or certified mail,
directed to the other party at the address first written above. Any such
delivery or mail service shall be deemed to have the same effect as personal
service within the State where the parties reside.
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21. TITLES AND HEADINGS
Titles and headings to articles, sections, or paragraphs in this Agreement
are inserted for convenience of reference only and are not intended to affect
the interpretation or construction of this Agreement.
22. EXHIBITS
The attached exhibits shall be construed as integral part of this
Agreement.
23. SEVERABILITY
The provisions of this Agreement shall be severable, and if any provision
of this Agreement is held to be invalid or unenforceable, it shall be construed
to have the broadest interpretation, which would render it valid and
enforceable.
24. COUNTERPARTS
This Agreement may be executed in one or more counterpart copies, each of
which shall be deemed an original and all of which shall together be deemed to
constitute one agreement.
25. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof and any and all prior or contemporaneous
agreements not expressly contained in this Agreement are superseded hereby. This
Agreement may be amended only by a written instrument executed by all of the
parties to it.
IN WITNESS WHEREOF
CAVION TECHNOLOGIES, INC., a Colorado corporation
By: /s/ David J. Selina
------------------------------------------
Name: David J. Selina
----------------------------------------
Title: President/CEO
---------------------------------------
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BUSINESS & TRADE NETWORK OF AMERICA, INC., a
Delaware corporation
By: /s/ Christopher B. Ferguson
------------------------------------------
Name: Christopher B. Ferguson
----------------------------------------
Title: President/CEO
---------------------------------------
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EXHIBIT A
BATNET SERVICES
BATNET shall provide the following services in accordance with its existing
policies and pursuant to the terms and conditions of this Agreement:
BATNET AFFINITY MARKETPLACE ("BAM"): BATNET will develop, customize,
maintain, and manage an Internet affinity and member-benefit program known as
the BATNET Affinity Marketplace ("BAM") to enable the membership of Cavion and
Cavion Credit Unions ("Members) to register, review product information, and
purchase product(s) and/or service(s) from merchants over the Internet. BATNET
shall create and brand said program under the name of Member Emporium and/or the
name of the specific Cavion Credit Unions as directed by Cavion. BATNET will
agree to develop a BAM for a specific credit union at prices mutually agreed to
by Cavion and BATNET.
BAM OPERATIONS: The BAM will be provided through a frame or other like
technology on Cavion's existing Web-site and the websites of the Cavion Credit
Unions providing Members with access to the BAM through this link. The product
and merchant information areas of BAM shall reside on web servers maintained by
BATNET. The registration areas shall reside on web servers maintained by Cavion,
unless otherwise mutually agreed to by both parties. Product purchasing shall be
accomplished on secure merchant Web sites that are linked to the BAM. Cavion
will provide all Member Emporium and Credit Union co-branding other than is
provided on the BAM.
CUSTOMIZATION OF BAM REGISTRATION AND PRODUCT INFORMATION AREAS: BATNET
will customize the BAM Registration and Product Information areas by adding the
logo(s) and color(s) used in Cavion's Web site, and will modify such
customization from time to time if requested by Cavion. If requested by Cavion,
BATNET will redesign the logo(s) and color(s) used in Cavion's and/or Cavion
Credit Unions' Web site. BATNET will include navigation buttons in these areas
to ensure that Cavion and/or Cavion Credit Union Members may easily return to
Cavion's and/or Cavion Credit Unions' Web site by clicking on the navigation
buttons unless otherwise mutually agreed to by both parties.
OTHER BAM SERVICES: If requested, BATNET will provide other services
including, but not limited to, private label stores, e-mail appending, bulletin
board or chat service, vendor rating, frequent buyer programs, enhanced e-mail
and classified
<PAGE>
advertising ("Other BAM Services"). Prior to providing Other BAM Services,
BATNET and Cavion shall agree to a fee schedule for the same. [We put the
following back into section 3, which deals with exclusivity.]
BAM MERCHANTS, CAVION MERCHANTS, AND OTHER MERCHANTS:
1. BAM MERCHANTS
Prior to linking BAM to Cavion's and the Cavion Credit Unions' existing
Websites, BATNET shall provide Cavion and/or the Credit Unions with a list
identifying the names of the service providers, retailers and/or merchants that
are participating in BAM ("BAM Merchants"). In addition, BATNET has the
exclusive right under this agreement, subject to the restrictions as set forth
in paragraph three (3)(d) of the within agreement, to negotiate and contract
with future merchants to be included in Cavion's and/or Cavion Credit Unions'
BAM excluding those described in Exhibit A Section 2, 3, Exhibits F and Exhibit
G . Should Cavion be approached by a merchant who wishes to be included in the
Cavion BAM, Cavion shall direct such merchant to BATNET for consideration;
Cavion shall not contract with any prospective merchants for inclusion in the
BAM without the express written consent of BATNET. Notwithstanding the
foregoing, no BAM Merchant will be placed in Cavion's and/or Cavion Credit
Unions' BAM without prior written approval by Cavion. Cavion and/or Cavion
Credit Unions' have the absolute right to reject any BAM Merchant for any
reason. Cavion shall accept or reject merchants presented to Cavion within ten
(10) days of such presentation. After Cavion has accepted a merchant Cavion may
later reject such merchant by giving BATNET written notice, and BATNET shall
remove such merchant from the Cavion's BAM or the Credit Unions' BAM within 15
days after receiving such written notice from Cavion.
2. CAVION MERCHANTS
BATNET acknowledges that CAVION has relationships or will develop
relationships with Cavion Merchants (as defined in Section 3(d) of the
Agreement), which may provide compensation to Cavion and/or Credit Unions. Any
such compensation arrangement with these Cavion Merchants is not considered part
of this Agreement and is not subject to the Fee structure set forth in Exhibit
C. All such relationships are described in Exhibit G. If BATNET is required to
spend more than two (2) hours of implementation planning and/or computer
programming time to make any Cavion Merchant's Web-site ready for inclusion in
Cavion's and/or Cavion Credit Unions' BAM ("Additional Prior Merchants Work"),
BATNET shall be compensated by Cavion for the additional Cavion Merchants Work
at the standard rate set forth in Exhibit C. Moreover, BATNET acknowledges and
agrees to prohibit all
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advertising, promotion, or links to all Cavion Merchants, other than those
authorized by CAVION.
3. OTHER MERCHANTS
BATNET shall include in the BAM each and any service provider, retailer
and/or merchant under contract with Cavion or any Cavion Credit Union that
Cavion requests to be included in the BAM. Other Merchants must have secure
electronic commerce sites and agree to link their sites to BAM in a manner that
is comparable with other merchants provided by BATNET. If BATNET is required to
spend more than two (2) hours of computer programming time to make any Other
Merchant's Web site ready for inclusion in Cavion's and/or Cavion Credit Unions'
BAM ("Additional Other Merchants Work"), BATNET shall be compensated by Cavion
for the Additional Other Merchants Work at the standard rate set forth in
Exhibit C. BATNET shall submit to Cavion an estimate of any Additional Other
Merchants Work that may be required, and shall receive from Cavion prior written
approval before undertaking any such Additional Other Merchants Work. Other
Merchants must agree to accept information from the BAM onto their Web sites
including, but not limited to, information to provide for the accounting of
commissions and discounts, if any. Any and all fees payable to BATNET for
inclusion of Other merchants in the BAM, shall be negotiated and agreed prior to
such merchant inclusion in the same.
4. AFFINITY COMMISSIONS AND DISCOUNTS
BATNET shall negotiate and contract with all BAM Merchants and Other
Merchants with a relationship with Cavion interested in participating in the
BAM. Contracts between BATNET and BAM Merchants shall disclose discounts or
other member benefits available to Cavion's and/or Cavion Credit Unions'
Members. BATNET shall disclose gross commissions, sponsorships placement fees,
advertising, or any other fees ("Revenue") to be paid to BATNET for any
product(s) and/or service(s) purchased by Cavion's and/or Cavion Credit Union
Members through Cavion's and/or Cavion Credit Unions' BAMS. BATNET and Cavion
shall divide Revenue as set forth in Exhibit C.
5. MEMBER SUPPORT/REPORTING/TRAINING
5.1 MEMBER SUPPORT
BATNET will develop appropriate support programs for Cavion and Cavion's
and/or Cavion Credit Unions' Members that register for the BAM, including
customer service online and telephone call-in functions as appropriate. BATNET
will use commercially reasonable efforts to provide a dedicated toll-free number
that will be
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identified as "Member Emporium" when answered by a BATNET customer service
representative. BATNET will keep accurate records on customer support incidents
and provide Cavion access to such, upon request. In addition, BATNET shall
provide 44 severity level customer support" 24x7 to Members, Cavion Employees or
their agents. Severity level customer support shall be considered necessary for
any failure of BAM to function properly for a period of more than 12 consecutive
hours.
5.2 REPORTING
BATNET will develop a private and secure Web-based administration area for
the BAM which shall allow Cavion to track its financial (e.g. commissions and/or
fees generated by Cavion's BAM) and non-financial (e.g. number of Cavion
registered BAM members, web trends, number of hits per vendor, login file) BAM
activities Access to such area shall be limited to Cavion and BATNET.
5.3 MEMBER INFORMATION
(a) BATNET and Cavion will mutually cooperate to transfer relevant
information in a secure manner to facilitate Member Registration,
Targeted Ad Serving, and Member Profiling.
(b) CAVION will provide BATNET access to any opt-out requests received
from members by sending BATNET a periodic file listing all requests or
upon request by BATNET. Any opt-out request directly or indirectly
received from a Member by BATNET will be promptly forward to Cavion
for inclusion in the Opt-out database.
5.4 TRAINING
If requested, BATNET will provide normal, reasonable start-up training,
assistance to Cavion's staff relating to the proper use and operation of
Cavion's BAM. BATNET shall be compensated at its standard rate set forth in
Exhibit C for any additional hours of staff training, exceeding two (2) hours
that may be requested by Cavion.
6. INTERNET AND MEMBER PRIVACY
(a) BATNET and Cavion shall adhere to The Direct Marketing Association's
Inc.'s Marketing Online Privacy Principles ("Marketing Online Principles"), and
any other privacy practices as required by operation of law, and shall post such
notices regarding the Marketing Online Principles in the appropriate area(s)
within Cavion's and/or Cavion Credit Unions' BAM. BATNET agrees to adhere to the
privacy polices set forth by Member Emporium, as posted to the Member
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Emporium Web Site available at http:www.memberemporium.com/privPolicy, and is
subject to change at Cavion's discretion on ten (10) days written notification
to BATNET.
(b) Without the written approval of Cavion, BATNET shall not disclose,
rent, sell, trade, provide or transfer to any third party, either in whole or in
part, the individual identity or any information relating to the individual
(e.g., name, address, phone number, credit card number, account number, email
address, etc.) of the Members who register or visit a BAM, nor a list of
product(s) and/or service(s) purchased, or other such information related to
Cavion, Member Emporium or Credit Union Members. Nothing in this provision shall
be construed as prohibiting BATNET from using any of the aforementioned
information for internal analysis in order to best effectuate marketing efforts
for Cavion Credit Union Members.
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EXHIBIT B
CAVION SERVICES
B.1. CREDIT UNION CO-BRANDING AD SERVING
Cavion will serve all credit union co-branding logos images, and other
images as required by the sponsoring credit unions, for each individual Credit
Union by serving the images using a frameset and ad serving capability, or
similar technology as determined by CAVION. In the event that BATNET will call
an ad tag of a page served by BATNET, CAVION will provide BATNET with the
requisite ad tags need to generate the image. All advertising and the placement
of all advertising on the BAM or other Websites controlled by Cavion must be
approved by Cavion.
B.2. BAM AD SERVING
Cavion will provide BATNET with an Ad Serving Service Bureau capability to
serve ad banners, or other images for credit unions and Member Emporium BAM
Merchants served on BAM paces and/or on the Cavion served co-branded framesets.
In the event that BATNET will call an ad tag on a pace served by BATNET, CAVION
will provide BATNET with the requisite ad tags need to generate the image. Ad
Serving prices assume an average individual ad size of 12 KB. If BATNET's
average individual ad size based upon a full calendar month exceeds 12 KB (not
including any ads provided by Engage), the BATNET's monthly fee for such
calendar month shall be increased by a percentage equal to the percentage
increase of the average file size above 12KB. In the event that either party
develops an alternative ad serving capability, both parties shall negotiate in
good faith regarding the use of the alternative ad service.
B.3. SEARCH ENGINE PLACEMENT SERVICE BUREAU
Should BATNET elect to use such service, (i) Cavion will provide BATNET
with a Search Engine Placement Service Bureau capability to manage search engine
submission campaigns for BAM merchants, and other BAM sponsor that are not
competitive with Member Emporium or Cavion, and (ii) BATNET shall have the right
of first refusal to market the Search Engine Placement Service Bureau capability
to BATNET merchants and Associations. The Search Engine Placement Service Bureau
is a server-based service that is a web-site traffic generation and control
technology that enables customers to control spider based search engine web site
indexing for web sites and related product databases. In the event that BATNET
should elect not to market such services, nothing would preclude Cavion from
marketing such services
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directly to BAM Merchants and Associations; provided, however that Cavion agrees
not to make any representations that the Search Engine Placement Service Bureau
is being promoted or marketed by BATNET.
B.4. CREDIT UNION SALES STAFF AND SUPPORT
Cavion will staff a sales force to recruit new BAM participating Credit
Unions. In addition, Cavion will staff an account management team to work with
individual credit unions to setup their relationship with Cavion which includes
but is not limited to: 1) training credit union staff, 2) schedule and
coordinate advertising and promotions to credit union members, 3) develop,
install and maintain the co-branded frameset for individual credit unions, 4)
coordinate the placement of BAM URLs, hyperlinks, and Member Emporium BAM logos
and/or Ad Banners on the Credit Union control websites and internet banking
applications, and 5) marketing activities as set forth herein.
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EXHIBIT C
COMMISSIONS/FEES--REVENUE SPLIt
C.1. PAYMENTS OF COMMISSIONS/FEES
C.1.1 BATNET will track purchases made by Cavion Credit Union BAM Members
on the BAM Merchant and/or Prior Merchant Web-sites and will collect any and all
Revenue due Cavion from BAM Merchants;
C.1.2 BATNET will also collect any and all "Advertising Revenue" which
shall include, but not be limited to, advertising fees, fees for leads
generated, position payments, exclusivity payments, sponsorships, and other
types of fees for Permitted Advertisers. For purposes of this Agreement,
"Permitted Advertising" includes any advertiser or categories of advertisers
that Cavion has previously approved in writing. BATNET will establish a rate
card for such Advertising Revenue for Cavion to use in the event it sells any
advertising. CAVION will make available to BATNET, access to CAVION's Engage Ad
Bureau service at cost. Such costs are subject to change per the Cavion's
agreement with Engage. All Ads will be served from Cavion using its Ad Bureau
Service. For the calculation below all fees shall be net of commissions, if any,
paid by BATNET to outside advertising agencies, other such firms, or BATNET for
the placement of advertising in Cavion's BAM. Should BATNET place such
advertising in Cavion's BAM, BATNET shall be entitled to receive an agency
commission in the amount of no less than fifteen percent (15%) of gross revenue
generated by and through any and all advertising programs during the first year.
Should Cavion place such advertising in Cavion's BAM, Cavion shall be entitled
to receive an agency commission in the amount of no less than fifteen percent
(15%) of Cross revenue generated by and through any and all advertising programs
during the first year. Commissions in subsequent years will be adjusted annually
as mutually agreed. All other revenue ("net revenue") derived from the
advertising programs, shall be split by and between BATNET and Cavion as set
forth below.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
ADVERTISING REVENUE SPLIT YEAR 1 YEAR 2 YEAR 3
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ad Serving Cost CPM See table below TBD TBD
-----------------------------------------------------------------------------------------------------------
Advertising Revenue Split 50/50 50/50 50/50
-----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
AD SERVING COST CPM (PAID TO CAVION)
-----------------------------------------------------------------------------
<S> <C>
0 - 999,999 + $1.50 CPM*
--------------------------------------------------------------- -------------
1,000,000 - 4,999,999 + $1.25 CPM
--------------------------------------------------------------- -------------
5,000,000 - 9,999,999 + $1.00 CPM
--------------------------------------------------------------- -------------
10,000,000 - 19,999,999 + $0.85 CPM
--------------------------------------------------------------- -------------
20,000,000 - 29,999,999 + $0.55 CPM
--------------------------------------------------------------- -------------
30,000,000 - 39,999,999 + $0.45 CPM
--------------------------------------------------------------- -------------
40,000,000 - 49,999,999 + $0.30 CPM
--------------------------------------------------------------- -------------
50,000,000 - and higher + $0.25 CPM
--------------------------------------------------------------- -------------
</TABLE>
C.1.3 BATNET shall be responsible for collecting any and all click fees,
commissions, fees for leads Generated, other affiliate fees paid by BAM
Merchants ("Commission Revenue") to be allocated amongst each party. For
"Discount Merchant" (which is defined as those merchants that permit the BAM to
pay a portion of the commission revenue back to the Member as a discount) sales
BATNET will use reasonable efforts to allocate 60% of the Commission Revenue as
a discount paid to the Credit Union Member. The remaining Commission Revenue
will be split as shown below in the following table for Discount Merchants. For
"Affiliate Merchant" (which is any merchant other than a Discount Merchant)
sales, BATNET will use reasonable efforts to allocate up to 60% of the
Commission Revenue as a marketing and administrative expense reimbursement paid
to Credit Union Participants and/or to fund a Frequent Buyer Program. The
remaining Commission Revenue earned will be split as shown below in the
following table for Affiliate Merchants. The parties hereto understand and agree
that the foregoing discount allocation may not be possible for some merchants
and, therefore, it is in Cavion's sole discretion whether or not to include such
merchants who cannot provide such discount in the Cavion BAM.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
AVERAGE COMMISSION
COMMISSION REVENUE PAID BY MERCHANTS 1 2 3
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount 5% Comm. 80% Batnet 60% Batnet 50/50
Merchants 10% Member 20% Cavion 40% Cavion
---------------------------------------------------------------------------------------------------------
2
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---------------------------------------------------------------------------------------------------------
Affiliate Merchant With No 10-15% 50/50 50/50 50/50
Payments to CU's or Comm.
Frequent Buyer Program
---------------------------------------------------------------------------------------------------------
Affiliate Merchant With 5% Comm. 80% Batnet 60% Batnet 50/50
Payments to CU or Frequent 10% CU 20% Cavion 40% Cavion
Buyer Program
---------------------------------------------------------------------------------------------------------
</TABLE>
C.1.4 BATNET will also collect any and all "Search Engine Promotion
Revenue" for Merchants or Associations sold by BATNET which shall include, but
not be limited to, click fees, fees for leads generated, exclusivity payments,
and other types of fees for Permitted Advertisers. CAVION will establish a rate
card for such Advertising Revenue for BATNET to use in the event it sells any
Search Engine Placements. CAVION will make available to BATNET, access to
CAVION's Search Engine Place Bureau service at cost. All Search Engine
Placements will be served from Cavion using its Search Engine Promotion Service
Bureau. For the calculation below all fees shall be net of commissions, if any,
paid by BATNET to outside advertising agencies or other such firms for the
placement of advertising in Cavion's BAM;
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
SEARCH ENGINE PLACEMENT
REVENUE SPLIT YEAR 1 YEAR 2 YEAR 3
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Search Engine Placement Cost TBD TBD TBD
(Paid to Cavion)
-----------------------------------------------------------------------------------------------------------
Revenue Split 50/50 50/50 50/50
-----------------------------------------------------------------------------------------------------------
</TABLE>
C.2. PAYMENT TERMS AND TIMING. BATNET shall make payment of all fees and
commissions under Section C.1 to Cavion within 15 days after receipt from
Merchant. Any amount not paid when due will be subject to finance charges at the
rate of one and one-half percent (1.5%) per month or the maximum rate permitted
by applicable usury law, whichever is less, determined and compounded on a daily
basis from the date due until the date paid.
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C.3 SUPPORT FEES
C.3.1 BATNET's standard rate for computer programming is $125 per hour,
which may be adjusted one year after the Effective Date of this Agreement to a
mutually agreed upon rate.
C.3.2 CAVION's standard rate for computer programming is $125 per hour,
which may be adjusted one year after the Effective Date of this Agreement to a
mutually agreed upon rate.
C.3.3 Payment of support fees shall be made within 30 days after receipt of
invoice. Any amount not paid when due will be subject to finance charges at the
rate of one and one-half percent (1.5%) per month or the maximum rate permitted
by applicable usury law, whichever is less, determined and compounded on a daily
basis from the date due until the date paid.
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EXHIBIT D
MARKETING
D.1. GENERAL
BATNET and Cavion agree to jointly develop, establish and administer the
marketing of Cavion BAM. BATNET may conduct marketing activities with respect to
a particular Credit Union only if BATNET has received prior written
authorization from either Cavion or the particular Credit Union.
D.2. ADVERTISING/PROMOTIONS/RESTRICTIONS
D.2.1 MERCHANT ADVERTISING
BATNET will use its reasonable best efforts to sell Permitted Advertising
onto the Web paces of Cavion's BAM and other Cavion controlled Web sites. No
advertiser shall be placed on such pages without the prior approval of Cavion,
which approval shall not be unreasonably withheld or delayed.
D.2.2 MEMBER ADVERTISING/PROMOTIONS
D.2.2.a. Cavion shall use reasonable commercial efforts to facilitate
and coordinate with participating Credit Unions the promotion of the BAM to
Credit Union Members and Employees using one or more methods, including but not
limited to statement messages, newsletters, statement inserts, email programs,
and in-lobby displays at participating Credit Unions.
D.2.2.b. BATNET shall use reasonable commercial efforts to provide
marketing materials and promotions to Cavion in order for Cavion to promote the
BAM to Credit Union Members. Such activities include and are not limited to
email, sweepstakes, statement suffers, and direct mail promotions. In addition,
BATNET will provide creative material for ad banners, icons, logos, Newsletter
articles, statement messages, in-lobby displays or other promotional material.
Any costs for materials will be paid for by BATNET, unless otherwise agreed to
in writing. Cavion must approve in writing all such marketing and promotional
actions by BATNET, which approval shall not be unreasonably withheld.
D.2.2.c. Cavion will use its reasonable commercial efforts promote
BAM through Credit Union's using one or more methods, including but not limited
to ad banners, URL links, and/or icons placed on participating Credit Union Web
Sites,
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Internet banking applications, and other Credit Union Control controlled
advertising space, which Cavion has obtained rights.
D.2.2.d. Cavion may use thirty percent (30%) of the BAM advertising
space for which Cavion may place Credit Union and Credit Union Prior Merchants
only advertising in its BAM for the promotion of Credit Union products and
services. Any unused inventory will be allocated to Cavion.
D.2.2.e. Cavion may use an additional twenty percent (20%) of the BAM
advertising space for which Cavion may place Cavion Merchant and/or Member
Emporium Ads-in its BAM for the promotion of products and services. Any unused
inventory will be allocated to BATNET, unless otherwise agreed.
D.2.2.f. BATNET may use the remaining fifty percent (50%) of the BAM
advertising space for which BATNET may place BAM Merchant. Ads (but only if it
is Permitted Advertising) in its BAM for the promotion of products and services.
Any unused inventory will be allocated to Cavion, unless other wise agreed.
D.2.2.g. BATNET may use twenty percent (20%) of the "Member Emporium
Personal Start Page" advertising space for which BATNET may place BAM Merchant
Ads only Permitted Advertising for the promotion BAM products and services. In
addition, BATNET may request to use up to an addition fifty percent (50%) for
the promotion BAM products and services. Such advertising is limited to
Permitted Advertising, and must be approved by Cavion.
D.2.2.h. BATNET may use a Shopping Content Area ("SCA") on the Member
Emporium Personal Start Page to feature sponsored merchants, special promotions,
or other merchant-oriented promotions for Permitted Advertisers. The SCA is 125
pixels by 300 pixels, and can be served as an html page from BATNET servers with
a frame served by Cavion, an ad tag from the Ad Server or other similar method
as mutually agreed.
D.2.2.i. Both parties acknowledge that the percentages referenced in
sections D.2.2.d through h, are rough guidelines to be achieved over any
twelve-month period. The actual inventory allocation may vary substantially on a
month-to-month basis. For example, BATNET allocations during peak buying periods
(i.e. November-December) may be substantially greater then as indicated by the
guidelines. In the event of a shortfall or overage for either party, such party
shall receive any alternative compensation.
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3. WEB SITE, SEARCH ENGINE, ADVERTISING DESIGN AND OTHER PROGRAMMING
If either party is required to provide design or programming services for
the other party's advertising, the providing party shall be compensated by the
other party at the respective standard rate set forth in Exhibit B. Cavion will
assist BATNET with developing copy, seminars, conferences, and other such
methods for promoting Cavion's BAM. Appropriate fees and expenses, if any, to be
paid by Cavion to BATNET for such assistance will be mutually agreed upon by the
parties.
4. PROMOTION
Cavion and BATNET will develop a promotional program designed to increase
visits and purchasing through Cavion's and/or Cavion Credit Unions' BAM. Such
programming may include sweepstakes, frequent shopper bonuses, e-mail based
promotions, and other promotional giveaways programs.
5. EMAIL MARKETING
Registered Member Emporium BAM Members will receive e-mail-based promotions
only if they have previously agreed to receive such promotions by checking the
appropriate boxes within the Member Emporium or BAM Registration area.
6. RESTRICTIONS
BATNET shall obtain the prior written approval of Cavion prior to
conducting any mailings, advertising or other promotional activities directed at
Cavion, Member Emporium, and/or Cavion Credit Union Members. BATNET shall submit
to Cavion all mailing, advertising and other promotional material prior to any
distribution thereof.
7. MARKETING MATERIALS
7.1 INITIAL AND ANNUAL MARKETING PLAN
Both parties shall agree to an initial marketing plan related to the launch
of Cavion's and/or Cavion Credit Unions' BAM. Such Marketing plan will be
reviewed and modified within 90 days subsequent to the launch of the first five
(5) credit unions. Thereafter, and prior to each calendar half-year, BATNET and
Cavion shall agree to an overall marketing plan for the Cavion and/or Cavion
Credit Union BAM for that year, which BATNET and Cavion shall implement through
the use of Marketing Materials. Marketing Materials may include, but not be
limited to, any
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brochure, pamphlet, statement stuffer, advertisement, telemarketing script or
talking points, sign, in-person promotion, convention exhibit, seminar, social
event, program sponsorship, or other promotions used in connection with Cavion's
and/or Cavion Credit Unions' BAM to encourage use of the same. Until such a new
plan is agreed upon the parties may continue marketing in the manner provided by
the plan then currently in effect.
7.2 MEMBER NAMES AND EMAIL ADDRESSES
In addition to the foregoing marketing materials, in order to effectuate an
effective marketing campaign, Cavion will use reasonable efforts to obtain from
Cavion Credit Unions for BATNET any and all member demographics, including, but
not limited to, names, addresses and e-mall addresses, the costs of which shall
be paid by BATNET. Notwithstanding the foregoing, Cavion will not obtain any
member information from member who have opted-out of any such program.
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EXHIBIT E
EXAMPLES OF BATNET ASSOCIATIONS
<PAGE>
EXHIBIT F
EXAMPLES OF CAVION ASSOCIATIONS
<PAGE>
EXHIBIT G
EXAMPLES OF CAVION MERCHANTS
<PAGE>
DEVELOPMENT AND PROMOTION AGREEMENT
THIS DEVELOPMENT AND PROMOTION AGREEMENT (this "Agreement"), dated as of
March 9, 2000 (the "Effective Date"), is made by and among Cavion Technologies,
Inc., a Colorado corporation, ("Company") and Stockwalk.com, Inc., a Nevada
corporation ("Stockwalk") (sometimes referred to collectively as the "Parties"
and individually as a "Party").
RECITALS
A. Stockwalk is a securities broker-dealer licensed to conduct securities
business pursuant to applicable federal and state laws; and,
B. Company is an on-line bank service provider that desires to make
available to members and customers of its correspondent credit unions and banks
("Institutions") via the Internet the broad range of Internet securities
services offered by Stockwalk within the limits of applicable statutory and
regulatory restrictions; and,
C. Stockwalk desires to provide Institution's members and customers various
Internet securities brokerage services by allowing Company to private label and
market Stockwalk's user interface to Institutions.
NOW, THEREFORE, in consideration of the mutual covenants hereafter set
forth and other valuable consideration, the receipt and efficacy of which hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. BACKGROUND
Stockwalk and Company have entered into this Agreement to permit Company's
Institutions and their members and customers ("Customers") to utilize the
on-line brokerage services of Stockwalk as more fully described below (the
"Stockwalk Services"). The purposes of this Agreement are:
a. to provide for the development of access to Stockwalk Services through
a Co-Branded Site,
b. to set forth the understandings and agreements of the Parties as to
promotion of the Stockwalk services by Company, and
c. to provide for payment to Company for its role in assisting in the
development of this relationship and in promoting the availability of
the Stockwalk Services to its client Institutions.
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Stockwalk's brokerage services will be offered as a co-branded site and
will be accessed by the Customers of participating Institutions through a
co-branded web site for participating Institutions ("Co-Branded Site"), which
Co-Branded Site will be hosted by Stockwalk. Customers will access the
Co-Branded Site via hyper-text links from each participating Institution's web
sites which are hosted by Company pursuant to a Company Master Services
Agreement by and between such Institution and Company.
In accordance with the terms of this Agreement, the Stockwalk Services will
be offered to Company's participating Institutions and made available only to
such Institutions who have agreed to be bound by the terms and conditions set
forth in the Networking/Affiliation Agreement by and between Stockwalk and
Institution. This Agreement is made in connection with the other agreements
among the Parties and Institutions as described on Schedule I (collectively, the
"Other Agreements").
SECTION 2. DEFINITIONS
Many terms used in this Agreement are defined in context in Section 1,
above. The following terms used in this Agreement have the respective meanings
set forth below.
2.1 "AFFILIATE" means, with respect to any Party, any individual or entity
that directly or indirectly controls, is controlled by or is under common
control with that Party. As used in this definition, "control" means either (a)
the ownership of greater than 50% of an entity's voting securities or (b) the
ability, through contract or otherwise, to determine an entity's operating
activities.
2.2 "CO-BRANDED SITE" means, the customized version of the Stockwalk Site,
privately labeled and displayed concurrently with Company's customized Exterior
Page Frame applicable to participating Institutions, that will be hosted and
operated by Stockwalk, as described herein. The Parties acknowledge and agree
that the Stockwalk site offered to participating Institutions will be
Stockwalk's generic "Grey Label" site, and that each participating Institution
requiring a customized site shall be required to enter into a "Level II"
Networking Affiliation Agreement containing Stockwalk's normal and customary
terms and conditions.
2.3 "COMMENCEMENT DATE" means the Launch Date of the Co-Branded Site which
shall be no later than 30 days after the date Company first makes available to
Stockwalk all Exterior Page Frames, links, advertisements and other promotional
placements described in SCHEDULE 2.3 to this Agreement. Notwithstanding the
foregoing, this Agreement will commence upon the Effective Date.
2.4 "COMPANY MARKS" means the trade names, trademarks, service names and
similar proprietary marks listed on Schedule 2.4 ATTACHED HERETO.
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2.5 "CUSTOMER" has the meaning set forth in Section 1.
2.6 "EXTERIOR PAGE FRAMES" means Company's standard exterior framing and a
navigational bar, as revised by Company from time to time. Each Exterior Page
Frame will be hosted by Company and shall reside in Company's servers for
display on the Co-Branded Site.
2.7 "LAUNCH DATE" means the first date on which the Stockwalk Services are
made publicly available to Customers via a Co-Branded Site that is linked to the
corresponding Institution's Site.
2.8 "SITE" means a commercial web site on the World Wide Web portion of the
Internet.
2.9 "STOCKWALK BANNERS" means any banner, button, text or similar ads
Stockwalk provides to Company in connection with this Agreement.
2.10 "STOCKWALK MARKS" means the trade names, trademarks, service names and
similar proprietary marks listed on SCHEDULE 2.6 ATTACHED HERETO.
2.11 "STOCKWALK SERVICES" means electronic and online brokerage services,
securities transactions and all related products available at the Stockwalk Site
during the term of this Agreement.
2.12 "STOCKWALK SITE" means the Site located at [http://@vww.stockwalk.com]
(or any replacement or successor address).
SECTION 3. PARTIES' OBLIGATIONS
3.1 COMPANY DEVELOPMENT. Company will design and develop linking
capabilities to provide access to the Co-Branded Site from the participating
Institution's Site, in accordance with the general specifications and timetable
set forth on SCHEDULE 2 as agreed upon by both Parties.
3.2 PRE-LAUNCH DELIVERABLES. On or before thirty days following the
commencement of this agreement, Company shall make available to Stockwalk the
Exterior Page Frames and the other materials specified in SCHEDULE 2 for the
Co-Branded Site. Company shall develop the Exterior Page Frames and other
materials 30 days prior to the anticipated Launch Date of the Co-Branded Site.
3.3 COMPANY MARKETING. Company will use reasonable efforts to promote and
market the availability of the Stockwalk Services to the Institutions as
specified on SCHEDULE 2.3 as mutually agreed. All promotional activity shall be
subject to the prior approval of both Parties, in advance and before first use,
which approval shall not be unreasonably withheld or
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delayed; provided that promotional materials, that are substantially identical
to those previously approved, need not be submitted for reapproval.
3.4 STOCKWALK SERVICES OPERATION. Stockwalk shall provide Stockwalk
Services through the Co-Branded Site which it will host and operate in
accordance with the "Performance Standards" set forth in Exhibit A.
3.5 STOCKWALK DEVELOPMENT.
3.5.1 DEVELOPMENT. Stockwalk shall develop a Co-Branded Site to be
displayed within a customized Exterior Page Frame in accordance with
Exhibit B and take all other steps required to co-brand the Stockwalk
Services. Each Institution that elects to purchase the Stockwalk Services
through Company shall execute a "Grey Label" version of Stockwalk's
Networking/Affiliation Agreement in substantially the form attached hereto
as Exhibit C. Other than disclosures required by law and as may be agreed
to by the Parties, no Stockwalk branding will be permitted on the
Co-Branded Site.
3.5.2 CONTROL AND REBRANDING. Stockwalk shall have sole control over
the content and design of the html pages provided by Stockwalk as part of
the Co-Branded Site. Subject to restrictions, regulations, or requirements
imposed by any regulatory agency on Stockwalk, Stockwalk shall use its best
efforts to construct and utilize the Exterior Page Frame requested by
Company and implement such changes to the Co-Branded Site as may be
reasonably requested by Company. Further, Stockwalk shall use its best
efforts to notify Company if Stockwalk proposes to change or add any
functionality of the Stockwalk Services as implemented on the Co-Branded
Site; provided, however, that nothing herein shall obligate Stockwalk to
provide such notice prior to effectuating, such change.
3.5.3 SERVICE OPERATION. Stockwalk shall host and operate the
Co-Branded Site and shall maintain and implement facilities and equipment
and programming, including data communication facilities and Internet
connections, collectively making up the host data center and the Co-Branded
Site accessible to the Customers. Stockwalk shall use reasonable commercial
efforts to ensure that the Co-Branded Site is operational on a "continuous"
basis in accordance with the Performance Standards provided in Exhibit A.
3.5.4 CO-BRANDED SITE CONTENT. During the term hereof and provided
there is no breach by Company hereunder, Stockwalk shall provide the
Stockwalk Services to Customers via the Co-Branded Site. Unless otherwise
directed by Company, the Co-Branded Site shall include substantially all of
the functionality and content available on the Stockwalk Site, and the
Stockwalk Services shall be updated to keep the Co-Branded Site in parity
with the Stockwalk Site in all material respects.
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3.5.5 NAVIGATION. Stockwalk shall not, in conjunction with the
Stockwalk Service, use any interstitials, pop-up windows, other
intermediate steps or any other technology or content which acts as a
barrier to the transition of a Customer from a participating Institution's
Site to the Co-Branded Site, or vice versa, nor shall Stockwalk otherwise
frame the Co-Branded Site with any frames other than Company's Exterior
Page Frames or use any other technology which materially interferes with or
affects the page layout of such pages. The Co-Branded Site shall link back
to corresponding Institution's Site.
3.6 DEVELOPMENTAL COSTS. Unless otherwise specified, each Party shall be
responsible for all development, hosting and other costs associated with the
Site residing on their servers.
3.7 CUSTOMER Relations. Stockwalk shall be responsible for providing all
customer support regarding the Stockwalk Services or the Co-Branded Site, and
Company or Institution shall redirect to Stockwalk any and all associated
customer support inquiries. Stockwalk shall have sole control over the Customer
agreement that governs the Stockwalk Service, and Stockwalk shall have the sole
responsibility for dealing with breaches of such Customer agreement. All
Customers shall be treated at least as favorable in all material respects
(including without limitation with respect to pricing, quality of service, and
customer support responsiveness) as Stockwalk treats users of the Stockwalk
Site.
3.8 CO-BRANDED STATEMENT. To the extent permissible by applicable
regulations, Stockwalk shall co-brand its monthly statements and other written
materials sent to Customers with the names of Company and the applicable
participating Institution provided that the inclusion of such items shall not
imply that Company or the Institution is providing any of the Stockwalk
Services.
3.9 CONFORMITY TO SPECIFICATIONS, CHANGES. The Parties acknowledge that
these creative processes are interactive and nonlinear, and that neither the
final work products nor the processes of creation will necessarily conform in
all particulars to the specifications on Schedule 2. Notwithstanding the
foregoing, the Parties agree that the final work products must perform the
functions contemplated by this Agreement in a manner, which complies with all
applicable rules and regulations and allows for reasonable commercial
exploration of the relationship among the Parties. Each Party shall pay for its
own expense of the joint development work, subject to Section 5.1.
SECTION 4. IMPLEMENTATION
4.1 Links. Company will assist Institutions to implement Stockwalk's normal
and customary promotional program through which Institution and Stockwalk will
encourage Customers to use the Stockwalk Services offered on the Co-Branded
Site, as accessed through a link from the participating Institution's Site. It
is the intent of the Parties that Company and
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Stockwalk will cooperate in the development of such promotional program, with
the goal of launching the program concurrently with the Commencement Date.
4.2 STOCKWALK BANNER LINKS. Stockwalk shall deliver to Company any
promotional materials (including Stockwalk Banners), which may be used as part
of the promotional program as provided in Section 4.1 above. Such banners shall
comply with Company's then current technical standards. The terms of any
insertion order or similar document regarding the Stockwalk Banners are
expressly rejected, except to the extent that they specify the location, timing
or duration of the display of the Stockwalk Banners and such terms are accepted
by Company. Unless mutually agreed otherwise, Stockwalk Banners shall link to
the applicable Co-Branded Site of the Institution on whose Site the Stockwalk
Banners are placed. Company may request that Stockwalk Banners be co-branded
with Company Marks, in which case the Parties shall work together to develop a
mutually acceptable implementation. Company may approve or reject any Stockwalk
Banner or its location on the Company Web pages or the Institution's Web pages
in its sole discretion; provided however that all banners shall comply with any
applicable laws, rules or regulations.
4.3 TESTING. Company will test the links with respect to the Co-Branded
Site, including through the Stockwalk Banner connection, required under the
Agreement at least one week prior to the Launch Date for the Co-Branded Site and
provide Stockwalk with the results of said testing as such testing occurs.
4.4 CONSENT TO LINKS. Company will not cause any link to the Co-Branded
Site to be added without the prior written consent of Stockwalk, which may not
be unreasonably withheld, or go live prior to the applicable date agreed to by
the Parties.
4.5 TIME OF ESSENCE. The Parties acknowledge that time is of the essence in
the design, development and commencement of the Co-Branded Site and the links
thereto. Accordingly, the Parties will devote commercially reasonable efforts to
launch the Co-Branded Site and the links thereto as soon as reasonably possible,
in accordance with a written development plan to be negotiated by the Parties in
good faith.
SECTION 5. COMPENSATION; ADVERTISING
5.1 MARKETING EXPENDITURES. During the one year period following the Launch
Date, Company agrees to expend up to $10,000 on marketing and promotion of the
Stockwalk Services; provided however, that the $10,000 required marketing amount
shall be reduced by $1 for each Customer that has registered to use the
Stockwalk Services as of one year following the Launch Date.
5.2 TRANSACTION FEES. During the term of this Agreement, including any
renewal term, Stockwalk will pay Institution a fee based on usage of the
Stockwalk Services by Customers ("Transaction Fee"). Such Transaction Fee shall
be equal to Four Dollars ($4) for
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each completed securities transaction through the Co-Branded Site. No
Transaction Fee shall be due with respect to a transaction if the transaction by
the Customer generates no revenue to Stockwalk. Stockwalk will pay the
Transaction Fee on a monthly basis, in arrears, within fifteen (15) days
following the end of each calendar month occurring subsequent to the
Commencement Date. Each monthly payment shall equal the number of completed
transactions in the immediately preceding calendar month multiplied by the
appropriate dollar amount. Stockwalk will deliver, together with each payment, a
report in an electronic form that is easily decoded in an automated manner for
import into a statistics database and that describes in reasonable detail
Stockwalk's calculation of the payment amount. All other fees as between
Institution and Company shall be the subject of the agreement between
Institution and Company; provided, however, that Stockwalk shall assist in any
payment arrangements reasonably requested by Institution for the convenience of
the Parties.
5.3 ADVERTISING. Company shall have sole control over all advertising and
promotion inventory on the Co-Branded Site. Stockwalk shall not introduce any
advertising spots or third party branding in conjunction with the Co-Branded
Site, e-mail, or the Stockwalk Services without Company's prior written
approval.
5.4 COMPLIANCE WITH LAWS. The consideration payable to Company and to
Institution pursuant to this Agreement and the Networking/Affiliation Agreements
shall be in compliance with all laws, rules, regulations, and other applicable
standards of conduct in regard to Institution activities and broker-dealer
activities (including, without limitation, the rules and regulations, and
interpretive guidance issued by the Securities and Exchange Commission, the
National Association of Securities Dealers, Inc., the Office of Thrift
Super-vision, the Federal Reserve Board, and the Office of Comptroller of
Currency).
SECTION 6. TRAFFIC DATA AND REPORTING
On the tenth (10th) day of each month during the term hereof, Company will
provide Stockwalk with data (the form and content mutually agreed to by both
Parties) concerning search and browsing behavior only to the extent that such
behavior reasonably could directly relate to the online promotion or usage of
the Stockwalk Services. Stockwalk will hold such data in confidence and will
treat such information as Confidential Information under Section 1.1.
SECTION 7. REPRESENTATIONS AND WARRANTIES; RESTRICTIONS
7.1 GENERAL. Company and Stockwalk each represents and warrants that (a) it
is an entity duly organized, validly existing, and in good standing under the
laws of the state of its organization, and (b) that the execution and delivery
of this Agreement and the Other Agreements (to the extent they are a party to
such agreements), and the performance of the transactions contemplated hereby
and the Other Agreements (to the extent they are a party to such agreements),
are within its powers, have been duly authorized by all necessary corporate
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and/or shareholder action, do not require any consent or other action by and in
respect of or filing with any third party or governmental body or agency and do
not contravene, violate or conflict with or constitute default under any
provision of applicable law, regulation, or published interpretive guidance or
ruling. Company and Stockwalk further represent and warrant that they shall
conduct the business contemplated by this Agreement and the Other Agreements (to
the extent they are a party to such agreements) only in compliance with all
applicable law, rules, regulations, industry standards and published
interpretive guidance and rulings.
7.2 SPECIAL ACKNOWLEDGEMENTS. The Parties acknowledge the following:
a. Stockwalk shall be responsible for advertising and sales materials
(such as brochures, pamphlets, statement stuffers, and advertisements,
marketing materials for sales forces) relative to the Stockwalk
Services that are published by Company or Institution pursuant to this
Agreement, except for any advertising included in the Exterior Page
Frames. Company shall pay any publishing costs associated with the
advertising and sales materials. Stockwalk represents and warrants
that the advertising and sales materials have been approved by
Stockwalk.
b. Company and Institution, and their Affiliates and employees, will not
describe the Stockwalk Services other than to distribute promotional
materials approved by Stockwalk.
c. All advertising or sales materials will clearly indicate that the user
of any of Stockwalk Services will be a brokerage customer of Stockwalk
and not of any of the Institution or Company with respect to
securities transactions.
d. Company and Institution, and their Affiliates and employees, will not
recommend or endorse specific securities.
e. Company and Institution, and their Affiliates and employees, will not
take part in the Stockwalk Services (other than for their own accounts
or other than by routing information and keeping records for
Customers).
f. All questions regarding a Customer brokerage account will be directed
to Stockwalk's customer support personnel and Company and Institution,
and their Affiliates and employees, will not answer questions or
engage in negotiations involving brokerage accounts or related
securities transactions.
g. All decisions regarding the selection of broker-dealer or market will
be made by Customers or by Stockwalk. Neither Company nor Institution
will accept
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orders, select among broker-dealers or route orders for Customers to
markets for executions.
h. Company and Institution will not handle Customer funds or securities
related to securities orders transmitted to Stockwalk or effect
clearance or settlement of Customer trades.
i. Neither Company nor Institution will extend credit to Customer for the
purpose of purchasing securities through or carrying securities with
Stockwalk.
j. The fees paid by Stockwalk to Institution will not vary depending upon
the number of shares or the value of the underlying securities.
k. Stockwalk represents and warrants that the Stockwalk Services will
perform substantially as Stockwalk has marketed and promoted to
Cavion.
SECTION 8. INDEMNIFICATION
8.1 STOCKWALK INDEMNIFICATION. Stockwalk will defend and indemnify Company,
Institutions, and their Affiliates (and their respective employees, directors
and representatives) against any claim or action brought by a third party
(including Customers), to the extent relating to (a) the operation of the
Stockwalk Services and the Co-Branded Site, (b) the violation of third-party
intellectual property rights by materials provided by Stockwalk to Company for
promotion and advertising pursuant to this Agreement and for display on the
Co-Branded Site and the Stockwalk Banners, or (c) breach by Stockwalk of any of
the terms of this Agreement or the Networking/Affiliation Agreement. Subject to
Company's compliance with the procedures described in Section 8.3, Stockwalk
will pay any award against Company or its Affiliates (or their respective
employees, directors or representatives) and any costs and attorneys' fees
reasonably incurred by Company and its Affiliates resulting from any such claim
or action.
8.2 COMPANYINDEMNIFICATION. Company will defend and indemnify Stockwalk and
its Affiliates (and their respective employees, directors and representatives)
against any claim or action brought by a third party, to the extent relating to
(a) the operation or design of Company Sites, (b) breach by Company of any of
the terms contained in this Agreement or its Agreements with Institutions or (c)
the violation of third-party intellectual property rights by any materials
provided by Company for display on the Co-Branded Site or promotion of the
Stockwalk Services. Subject to compliance by Stockwalk with the procedures
described in Section 8.3, Company will pay any award against Stockwalk and its
Affiliates (or their respective employees, directors or representatives) and any
costs and attorneys' fees reasonably incurred by Stockwalk and its Affiliates
resulting from any such claim or action.
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8.3 INDEMNIFICATION PROCEDURES. In connection with any claim or action
described in this Section, the Party seeking indemnification (a) will give the
indemnifying Party prompt written notice of the claim, (b) will cooperate with
the indemnifying Party (at the indemnifying Party's expense) in connection with
the defense and settlement of the claim, and (c) will permit the indemnifying
Party to control the defense and settlement of the claim, provided that the
indemnifying Party may not settle the claim without the indemnified Party's
prior written consent (which will not be unreasonably withheld). Further, the
indemnified Party (at its cost) may participate in the defense and settlement of
the claim.
SECTION 9. INTELLECTUAL PROPERTY RIGHTS
9.1 STOCKWALK'S GRANT OF LICENSE. Stockwalk hereby grants to Company,
during the term of this Agreement, non-exclusive, non-transferable licenses to
display it's Stockwalk Marks as reasonably necessary for Company to perform its
obligations under this Agreement; provided, however, that use of such Stockwalk
Marks or promoting Stockwalk Services shall be subject to the prior written
approval of Stockwalk, as provided in Section 3.3.
9.2 COMPANY'S GRANT OF LICENSE. Company hereby grants to Stockwalk, during
the term of this Agreement, a non-exclusive, non-transferable license to display
the Exterior Page Frames and the Company Marks as is reasonably necessary for
Stockwalk to perform its obligations under this Agreement and the
Networking/Affiliation Agreements; provided, however, that any promotional
materials containing Company's proprietary marks will be subject to Company's
prior written approval.
9.3 RESERVATION OF RIGHTS. Subject to the limited license granted to
Stockwalk under this Section, Company reserves all of its right, title and
interest in its intellectual property rights (e.g., patents, copyrights, trade
secrets, trademarks and other intellectual property rights). Subject to the
limited license granted to Company under this Section, Stockwalk reserves all of
its night title and interest in its intellectual property rights. No Party
grants to any other Party any right, title and interest in intellectual property
rights or any licenses except as specifically set forth in this Section.
9.4 NO DISPARAGEMENT. No Party will display another Party's proprietary
marks in a manner that disparages the other Party or its products or services,
or portrays the other Party or its products or services in a false,
competitively adverse or poor light. A Party will comply immediately with
another Party's requests as to the display of the other Party's proprietary
marks and will avoid any action that diminishes the value of such marks. Any
Party's unauthorized display of another Party's proprietary marks is strictly
prohibited.
9.5 STANDARDS. Stockwalk shall not knowingly provide Stockwalk Services or
operate the Co-Branded Site in a manner, and Company shall not knowingly provide
to Stockwalk any Exterior Page Frames, that: (a) infringe any third party's
intellectual property right or right of publicity or privacy; (b) violate any
law or regulation; (c) are defamatory,
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obscene, harmful to minors or pornographic in nature; or (d) are materially
false, inaccurate or misleading.
9.6 INJUNCTIVE RELIEF. Each Party agrees that any unauthorized use or
display of the other Party's Marks or the Institution's Marks may cause
immediate and irreparable harm for which money damages may not constitute an
adequate remedy. In that event, each Party agrees that injunctive relief may be
warranted in addition to any other remedies the affected Party may have.
SECTION 10. TERM AND TERMINATION
10.1 TERM. The term of this Agreement will begin on the date of this
Agreement and, unless terminated or renewed in accordance with Section 10.2 or
10.1 respectively, will end three (3) years from the Commencement Date.
Subsequently, this Agreement will automatically renew for additional one (1)
year terms upon each expiration, unless, (i) earlier terminated pursuant to
Section 10.2 or (ii) at least ninety (90) days prior to the beginning of any
renewal term, one Party gives the other Party written notice of its intent not
to renew the Agreement.
10.2 TERMINATION. Either Party may terminate this Agreement: (a) if the
other Party materially breaches this Agreement (other than as provided in
Section 14.6) and does not cure the breach within thirty (30) days following its
receipt of written notice from the non-breaching Party or fifteen (15) days in
the case of a breach of one of the Performance Standards in Exhibit A; (b) if a
Party ceases to carry on the portion of its business that relates to this
Agreement, (c) immediately as provided in Section 14.6, (d) immediately if the
other party voluntarily or involuntarily files for bankruptcy, (e) immediately
if Stockwalk materially changes the Stockwalk Services, (f) upon 120 days'
written notice, (g) immediately if the Launch Date does not occur on or before
six months following, the date of Agreement. The Parties agree that all Parties
shall be addressed on all correspondence and other notices relating to breach of
this Agreement. A non-breaching Party may, but is not required to, cure a
breach, in its sole discretion (if it is capable of effecting a cure), within
the requisite time period after receipt of notice, and in such event, notice of
termination shall be ineffective. Recovery by the curing Party from the
breaching Party shall be governed by the Dispute Resolution procedures set forth
in this Agreement.
10.3 EFFECTS OF TERMINATION. Upon expiration or termination, all licenses
granted hereunder shall terminate unless such licenses are expressly stated as
surviving. Stockwalk shall promptly remove all Company Marks and Exterior Page
Frames from its servers, and Company shall promptly remove all Stockwalk Marks,
Stockwalk Banners from its servers. Any obligation to pay any owed but unpaid
amounts, shall survive any expiration or termination.
11
<PAGE>
10.4 SURVIVAL. The obligations of Sections 8 (indemnification), 9.4 (Mark
disparagement), 9.6 and 11.5 (injunctions), I 1 (Confidential Information), 10.3
(effects of termination), 12 (dispute resolution), 13.2 (limitations of
liability), and this Section 10.4 shall survive the termination of this
Agreement.
SECTION 11. CONFIDENTIAL INFORMATION
11.1 The parties acknowledge and agree that the terms of this Agreement and
all information provided to or in connection with either Party's performance
under this Agreement shall be considered confidential and proprietary
information ("Confidential Information") and shall not be disclosed to any third
party without the prior written consent of the Party providing the Confidential
Information (the "Disclosing Party"). Confidential Information shall include,
without limitation: (1) names, addresses, and demographic, behavioral, credit
information, and any other information relating to Customers or potential
Customers; (ii) Stockwalk's communication materials and issuance strategies or
methods; (iii) each Party's trade secrets, including but not limited to,
financial business objectives, assets and properties, processes, formulas,
specifications, programs, instructions, source code, technical knowhow, methods
and procedures for operation, benchmark test results, information about
employees, customers, strategies, services, business or technical plans and
proposals in any form; and (iv) programming techniques and technical,
development, cost and processing information.
11.2 The Party receiving such Confidential Information (the "Receiving
Party") shall use Confidential Information only for the purpose of performing
the terms of this Agreement and shall not accumulate in any way or make use of
Confidential Information for any other purpose. The Receiving Party shall ensure
that only its employees, authorized agents, or subcontractors who need to know
Confidential Information to perform this Agreement will receive Confidential
Information and that such persons agree to be bound by the provisions of this
Paragraph and maintain the existence of this Agreement and the nature of their
obligations hereunder strictly confidential.
11.3 The obligations with respect to Confidential Information shall not
apply to information that: (1) either Party or its personnel already know at the
time it is disclosed as shown by their written records; (ii) is publicly known
without breach of this Agreement; (iii) either Party received from a third party
authorized to disclose it without restriction; or (iv) either Party, its agents
or subcontractors, developed independently without use of Confidential
Information.
11.4 It is not a breach of this Agreement to disclose Confidential
Information if such disclosure is required by law, regulation or valid court or
Governmental agency order or request to disclose, in which case the Party
receiving such an order or request, to the extent practicable, must give notice
to the other Party, allowing, them to seek a protective order.
12
<PAGE>
11.5 Each Party agrees that any unauthorized use or disclosure of
Confidential Information may cause immediate and irreparable harm to the
Disclosing Party for which money damages may not constitute an adequate remedy.
In that event, each Party agrees that injunctive. relief may be warranted in
addition to any other remedies the Disclosing, Party may have. In addition, the
Receiving Party agrees promptly to advise the Disclosing Party in writing of any
unauthorized misappropriation, disclosure or use by any person of the
Confidential Information which may come to its attention and to take all steps
at its own expense reasonably requested by the Disclosing Party to limit, stop
or otherwise remedy such misappropriation, disclosure or use.
11.6 Upon either Party's demand, or upon the termination of this Agreement,
the Parties shall comply with each other's reasonable instructions regarding the
dispositions of Confidential Information, which may include return of any and
all Confidential Information (including any copies or reproductions thereof.
Such compliance shall be certified in writing, including a statement that no
copies of confidential information have been kept.
11.7 Except as necessary for its performance under this Agreement, a Party
may not use the name of any other Party or its Affiliates in connection with any
representation, publication or advertisement, or make any public statement
relating to any other Party or its Affiliates without the prior full disclosure
of same to the named Party, and the prior written consent of the named Party.
11.8 Following the execution of this Agreement, the Parties will prepare
and distribute a joint press release (or coordinated press releases) announcing
the transaction. The contents and timing of the release (or releases) shall be
as mutually agreed by the Parties. Neither Party will issue any further press
releases or make any other disclosures regarding this Agreement or its terms
without the other Party's prior written consent, which consent shall not be
unreasonably withheld or delayed.
SECTION 12. DISPUTE RESOLUTION
12.1 In all discussions and activities relating to this Agreement, the
Parties will cooperate in good faith to accomplish the objectives specified in
this Agreement. If any dispute arises relating to either Party's rights or
obligations under this Agreement, and the Parties are unable to resolve the
dispute in the ordinary course of business, the Parties will use good-faith
efforts to resolve the matter by informal means, as set forth in Section 12.2
prior to commencing a formal dispute resolution proceeding or legal action in
accordance with this Section.
12.2 Any controversy or claim between or among the Parties, arising from or
in connection with this Agreement whether based on contract, tort, common law,
equity, statute, regulation, order or otherwise ("Dispute") shall be resolved as
follows:
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<PAGE>
a. Upon written request of any Party, a duly appointed representative(s)
of each Party will meet for the purpose of attempting to resolve such
Dispute. Should they be unable to resolve the Dispute, a senior
executive of each Party (the "Executives") will meet in an effort to
resolve the Dispute. Said meeting shall be in person or by telephone.
b. The Executives shall meet as often as the Parties agree to discuss the
problem in an effort to resolve the Dispute without the necessity of
any formal proceeding.
c. Formal proceedings for the resolution of a Dispute may not be
commenced until the earlier of.
(i) the Parties concluding in good faith that amicable resolution
through the
(ii) procedures set forth in subsections (a) (b) hereof does not
appear likely; or
(iii) the expiration of the fifteen (15) business day period
immediately following the initial request to negotiate the Dispute;
provided, however, that this Section 12.2 will not be construed to prevent a
Party from instituting formal proceedings earlier to avoid the expiration of any
applicable limitations period, to preserve a superior position with respect to
other creditors, or to seek temporary or preliminary injunctive relief.
12.3 ARBITRATION.
a. If the Parties are unable to resolve any Dispute as contemplated by
Section 12.2; such Dispute shall be submitted to mandatory and binding
arbitration at the election of any Party (the "Disputing Party").
Except as otherwise provided in this Section, the arbitration shall be
pursuant to the Commercial Arbitration Rules of the American
Arbitration Association ("AAA").
b. To initiate arbitration, the Disputing Party shall notify the other
Party in writing (the "Arbitration Demand"), which shall (i) describe
in reasonable detail the nature of the Dispute, (ii) state the amount
of the claim, and (iii) specify the requested relief. Within fifteen
(15) days after receipt of the Arbitration Demand by each other Party,
each other Party shall file, and serve on the Disputing Party, a
written statement (A) answering the claims set forth in the
Arbitration Demand and including any affirmative defenses of such
Party; (B) asserting any counterclaim, which shall (1) describe in
reasonable detail the nature of the counterclaim, (2) state the amount
of the counterclaim, and (3) specify the requested relief.
14
<PAGE>
c. If the net amount of the controversy set forth in each claim and each
counterclaim is less than $100,000, then the matter shall be resolved
by a single arbitrator selected pursuant to the rules of the AAA.
d. If the amount of the controversy set forth in either the claim or
counterclaim is equal to or exceeds $100,000, then the matter shall be
resolved by a panel of three arbitrators (the "Panel") selected
pursuant to the rules of the AAA. Decisions of a majority of the
members of the Panel shall be determinative.
e. The arbitration hearing shall be held in Minneapolis, Minnesota if
initiated by Company and in Denver, Colorado if initiated by
Stockwalk. The Panel is specifically authorized in proceedings
pursuant to subsection (d) to render partial or full summary judgment
as provided for in the Federal Rules of Civil Procedure. The Federal
Rules of Evidence shall apply to the arbitration hearing. The Party
bringing a particular claim or asserting an affirmative defense will
have the burden of proof with respect thereto. The arbitration
proceedings and all testimony, filings, documents and information
relating to or presented during the arbitration shall be deemed to be
information subject to the confidentiality provisions of this
Agreement. The Panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, (i) to relieve
the Parties from their agreement to arbitrate or (ii) to otherwise
amend or disregard any provision of this Agreement, including, without
limitation, the provisions of this Section.
f. Should an arbitrator refuse or be unable to proceed with arbitration
proceedings as called for by this Section, the arbitrator shall be
replaced pursuant to the rules of the AAA If an arbitrator is so
replaced after the arbitration hearing has commenced, then a rehearing
shall take place in accordance with this Section and the Commercial
Arbitration Rules of the AAA.
g. At the time of granting or denying a motion of summary judgment as
provided for in (e) and within fifteen (15)days after the closing of
the arbitration hearing, the arbitrator or Panel will prepare and
distribute to the Parties a writing setting forth the arbitrator's or
Panel's finding of facts and conclusions of law relating, to the
Dispute, including the reasons for the giving or denial of any award.
The findings and conclusions and the award, if any, shall be deemed to
be information subject to the confidentiality provisions of this
Agreement.
h. The arbitrator or Panel is instructed to schedule promptly all
discovery and other procedural steps and otherwise assume case
management initiative and control to effect an expeditious resolution
of the Dispute. The arbitrator or Panel is authorized to issue
monetary sanctions against any Party if, upon a showing of good cause,
such Party is unreasonably delaying the proceeding.
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<PAGE>
i. Any award rendered by the arbitrator or Panel will be final,
conclusive and binding upon the Parties and any Judgment thereon may
be entered and enforced in any court of competent jurisdiction.
j. Each Party will bear a pro rata share of all fees, costs and expenses
of the arbitrators, and notwithstanding any law to the contrary, each
Party will bear all the fees, costs and expenses of its own attorneys,
experts and witnesses except as provided in Section 14.5; provided,
however, that in connection with any judicial proceeding to compel
arbitration pursuant to this Agreement or to confirm, vacate or
enforce any award rendered by the arbitrator or Panel, the prevailing
Party in such a proceeding shall be entitled to recover reasonable
attorneys' fees and expenses incurred in connection with such
proceedings, in addition to any other relief to which it may be
entitled.
SECTION 13. DISCLAIMERS, LIMITATIONS AND RESERVATIONS,
13.1 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE PARTIES HERETO DO
NOT MAKE, AND HEREBY DISCLAIM, ANY REPRESENTATIONS OR WARRANTIES REGARDING THE
SERVICES TO BE PROVIDED PURSUANT HERETO OR ANY PORTION THEREOF, INCLUDING
(WITHOUT LIMITATION) IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
PARTIES HERETO SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY REGARDING
(A) THE AMOUNT OF REVENUE THAT THE OTHER PARTY HERETO MAY RECEIVE DURING THE
TERM, AND (B) ANY ECONOMIC OR OTHER BENEFIT THAT THE OTHER PARTY HERETO MIGHT
OBTAIN THROUGH ITS PARTICIPATION IN THIS AGREEMENT.
13.2 NO PARTY WILL BE LIABLE TO ANY OTHER PARTY FOR CONSEQUENTIAL, SPECIAL,
OR INCIDENTAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR LOST DATA)
ARISING OUT OF THIS AGREEMENT. IN NO EVENT WILL EITHER PARTY'S TOTAL LIABILITY
TO THE OTHER PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT EXCEED $1,000.
13.3 Stockwalk will be solely responsible for the operation of the
Stockwalk Services and subject to the specific terms of this Agreement, shall
retain sole right and control over the programming, content and conduct of
transactions occurring on the Co-Branded Site, except for the Exterior Page
Frames.
16
<PAGE>
SECTION 14. MISCELLANEOUS
14.1 RELATIONSHIP OF PARTIES. The Parties are entering this Agreement as
independent contractors, and this Agreement will not be construed to create a
partnership, joint venture, franchise or employment relationship between them.
Neither Party will represent itself to be an employee or agent of the other or
enter into any agreement on the other's behalf of or in the other's name.
14.2 COMPLIANCE WITH LAW. In its performance of this Agreement, each Party
will comply with all applicable laws, regulations, orders and other
requirements, now or hereafter in effect, of governmental authorities having
Jurisdiction. Without limiting the generality of the foregoing, each Party will
pay, collect and remit such taxes as may be imposed upon it with respect to any
compensation, royalties or transactions under this Agreement. At its own
expense, Stockwalk shall comply with all applicable laws and governmental and
Self Regulatory Organization (SRO) regulations regarding providing and operating
the Stockwalk Services. Without limiting, the foregoing, (a) Stockwalk shall use
its best efforts to obtain all governmental and SRO approval, permits and
licenses, and make all governmental and SRO filings and registrations, necessary
for the marketing and performance of the Stockwalk Services in every United
States jurisdiction and (b) each Party shall promptly resolve any assertions
that its services are illegal or violating a protected third party interest.
14.3 NOTICES. Notices deliverable under this Agreement shall be given in
writing, addressed to the Parties and shall be deemed to have been given either
one (1) day after being given to an express overnight carrier with a reliable
system for tracking delivery; or when sent by a confirmed facsimile with another
copy sent by any other means specified in this paragraph; or three (3) business
days after having been mailed postage prepaid by United States registered or
certified mail.
14.4 ATTORNEYS' FEES. If any litigation or arbitration is commenced to
enforce any provision of this Agreement or to seek a declaration of rights of
the Parties hereunder or as a result of any breach of any provisions of this
Agreement, the prevailing Party will be entitled to recover from the
non-prevailing Party all of its costs and expenses incurred in connection with
such litigation or arbitration, including without limitation reasonable
attorneys' fees.
14.5 RECORDS; AUDITS. Each Party shall keep detailed records of all
activities reasonably relating to its performance under this Agreement
("Records"). Either Party (the "Auditing Party"), upon thirty (30) days' prior
written notice to the other Party (the "Audited Party"), may conduct an audit of
the Audited Party's Records for the purpose of verifying the accuracy and
completeness of any report or other information provided by the Audited Party
under this Agreement. Any such audit will be conducted (a) in a manner that will
not unreasonably interfere with the Audited Party's operations, and (b) by an
independent certified public accounting firm that is reasonably acceptable to
the Audited Party and that has agreed in writing to protect the confidentiality
of the Audited Party's Records and other information. A
17
<PAGE>
Party may conduct an audit under this Section no more than once during any
12-month period. The costs of any such audit will be borne by the Auditing
Party; provided, however, that if any audit determines that the report or other
information subject to the audit is material and inaccurate or incomplete by
greater than ten percent (1O%) (as measured by an appropriate measure reasonably
determined by the auditor), the Audited Party will promptly reimburse the
Auditing Party for all reasonable expenses incurred to conduct the audit.
14.6 FORCE MAJEURE. No Party will be liable for, or will be considered to
be in breach of or default under this Agreement on account of, any delay or
failure to perform as required by this Agreement as a result of any causes or
conditions that are beyond such Party's reasonable control and that such Party
is unable to overcome through the exercise of commercially reasonable diligence.
If any force majeure event occurs, the affected Party will give prompt written
notice to the other Party and will use commercially reasonable efforts to
minimize the impact of the event. However, if a force majeure event
detrimentally affects a Party's performance of a material covenant set forth in
Section 3 and Exhibit A for ten (10) days or more, the other Party can terminate
this Agreement, as provided in Section 10.2 above.
14.7 ASSIGNMENT. This Agreement may not be assigned, in whole or in part,
by either Party or by operation of law unless the other Party consents to the
assignment, which consent shall not be unreasonably withheld or delayed. Subject
to the foregoing, this Agreement will be binding on and enforceable by the
Parties and their respective successors and permitted assigns. Notwithstanding
the foregoing, either Party hereto may assign this Agreement to (a) any entity
resulting from any merger, consolidation or other reorganization involving the
assigning Party, (b) any of its Affiliates, or (c) any individual or entity to
which the assigning Party may transfer substantially all of its assets; provided
that (i) the assignee agrees in writing to be bound by all the terms and
conditions of this Agreement, and (ii) the entity assigning this Agreement gives
prompt written notice to the other party.
14.8 NO WAIVER. The failure of either Party to enforce any provision of
this Agreement will not constitute a waiver of the Party's rights to
subsequently enforce the provision. The remedies specified in this Agreement are
in addition to any other remedies that may be available at law or in equity.
14.9 SEVERABILITY. If any provision of this Agreement is declared null,
void or otherwise unenforceable, such provision will be deemed to have been
severed from this Agreement to the minimal extent if necessary, which Agreement
will otherwise be and remain in full force and effect to its remaining
provisions.
14.10 INTEGRATION. This Agreement (a) represents the entire agreement
between the Parties with respect to the subject matter hereof and supersedes any
previous or contemporaneous oral or written agreements regarding such subject
matter and (b) may be amended or modified only by a written instrument signed by
a duly authorized agent of each Party.
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14.11 CHOICE OF LAW. This Agreement will be interpreted, construed and
enforced in all respects in accordance with the laws of the State of New York
without reference to its choice of law rules. If any provision of this Agreement
is held to be invalid, such invalidity will not effect the remaining provisions.
The Parties have executed this Agreement on the date first written above.
CAVION TECHNOLOGIES, INC., a Colorado
corporation
By David J. Selina:
---------------------
Its President and Chief Operating
Officer/CEO
7475 Dakin Street, Suite 607
------------
Denver, Colorado 80221
Facsimile: (303) 657-8210
STOCKWALK.COM.INC.
By Robert J. Vosburgh
-------------------
Its Chief Operating Officer
-------------
5500 Wayzata Blvd.
Suite 620
Minneapolis, MN 55416
Facsimile: (877) 482-0540
19
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Title Parties Date
----- ------- ----
<S> <C> <C>
Co-Marketing Agreement Company & each
Participation
Institution
Company Master Services Agreement Company & each
Participation
Institution
Networking/Affiliation Agreement Stockwalk & Institution
</TABLE>
<PAGE>
SCHEDULE 2
GENERAL SPECIFICATIONS AND TIMETABLE
<TABLE>
<CAPTION>
Stockwalk Project Task End Date
---------------------- --------
<S> <C>
Assign Relationship Manager Day 1
Apply for domain name Day 4
Initial press release Day 5
IT Due Diligence Day 14
Create site prototype Day 15
Site testing Day 45
Launch Day 60
Post-launch marketing Day 61
</TABLE>
<PAGE>
SCHEDULE 2.3
LINKS, ADVERTISEMENTS AND OTHER PROMOTIONAL PLACEMENTS
AND
COMPANY'S MARKETING EFFORTS
<PAGE>
SCHEDULE 2.4
COMPANY MARKS
<PAGE>
SCHEDULE 2.7
STOCKWALK MARKS
<PAGE>
EXHIBIT A
PERFORMANCE STANDARDS
The parties hereto agree that as of the Launch Date the following performance
standards shall be applicable to the Co-Branded Site:
A. SERVICE AVAILABILITY. The Stockwalk Services generally shall be publicly
available to Customers in an amount no less than is standard in the
industry, excluding "Maintenance." Maintenance is defined as scheduled
Stockwalk Services outages for Stockwalk Services maintenance or upgrades
of which Company is notified at least 24 hours in advance, so long as such
outages are scheduled for low-usage time periods and do not exceed a total
of 10 hours in any 30 day period.
B. RESPONSE TIME. Stockwalk shall use its best efforts to maintain a mean
response time for server response to access the Stockwalk Services not to
exceed a time period to be mutually agreed on by both Parties, but no
longer than industrystandard.
C. BANDWIDTH. Throughout the term, Stockwalk shall use its best efforts to
have an agreement in place with its Internet connectivity provider which
requires such provider to automatically increase bandwidth capacity if such
capacity exceeds 25% utilization.
D. SECURITY. Stockwalk shall prevent unauthorized access to restricted areas
of its servers and any databases or other sensitive material generated from
or used in conjunction with the Stockwalk Services. In addition, Stockwalk
shall immediately notify Company of any known security breaches or holes in
the Stockwalk Service or any Co-Branded Site.
E. ERROR CORRECTION. Stockwalk shall resolve any errors with the Stockwalk
Services under its control (including, without limitation any Javascripts
or ActiveX controls used in connection with such pages) that cause such
services not to be able to perform one or more major functions within 24
hours of the earlier of its discovery of the error or Company's notice of
the error. Stockwalk shall resolve all other errors with such services
within seven (7) days of the earlier of its discovery of the error or
Company's notice of the error.
F. BROWSER COMPATIBILITY. The Stockwalk Services shall initially be compatible
with Netscape Navigator 3.X, 4.X, and higher versions and Microsoft
Internet Explorer 3.X, 4.X, and higher versions. The Parties may add
additional browsers or versions that the Stockwalk Services must be
compatible with, provided that such additional browsers or versions are
used by more than 5% of the Customers. Customers shall not require any
plug-ins in order to access any Stockwalk Services functionality.
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G. VOLUME SCALABILITY. Stockwalk shall use best efforts to implement necessary
hardware, application and network architecture and configuration required
to manage scalability and capacity issues associated with increased
transaction volumes.
H. DATA AUTHENTICATION. Stockwalk shall use best efforts, no less than
industrystandard, to authenticate the origin of all information provided by
Company as having come from Company.
I. CUSTOMER SUPPORT. Stockwalk shall use best efforts to respond to all
customer and technical support inquiries within 10 minutes of the receipt
of inquiry. Stockwalk shall manually respond to all customer account
inquiries within 24 hours. Stockwalk shall resolve all such inquiries
within 72 hours or shall notify Company that it cannot do so, in which case
Company at its sole discretion may intervene to assist in resolving the
inquiry.
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<PAGE>
EXHIBIT B
COMPANY'S EXTERIOR PAGE FRAMES
<PAGE>
EXHIBIT C
FORM OF NETWORK/AFFILIATION AGREEMENT
<PAGE>
LINKING AND PROMOTION AGREEMENT
This Agreement ("Agreement") dated as of March 10, 2000 (the "Effective
Date") is made by and between Colonial Direct Financial Group, Inc., a Delaware
corporation ("CDFG"), and Cavion Technologies, Inc., a Colorado corporation
("Cavion") (collectively, the "Parties" and individually a "Party").
RECITALS
A. CDFG is a financial services firm that maintains the CDFG Web SITE, as
defined below, at which it provides a variety of financial information and
services, including the CDFG Programs, also defined below.
B. Cavion is a provider of various online banking and other services, which
offers its Clients and their Members, as defined below, these services for
inclusion on the Client Web Sites, also defined below.
C. CDFG and Cavion desire to make the CDFG Programs available to Clients
and Members by means of hyperlink to the CDFG Web Site and other means.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, the Par-ties hereto agree as follows:
1. DEFINITIONS
"AFFILIATE" means, with respect to either Party, any individual or entity
that, by virtue of a majority ownership interest, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with that Party.
"CDFG PROGRAMS" means, the financial service programs described on
Attachment I to this Agreement.
"CDFG WEB SITE" means, collectively, (i) the World Wide Web site identified
by the a URL mutually agree to by both parties, (ii) any prototypes or
demonstration versions of the CDFG Web Site, or any part thereof, (iii) any
successors, replacements, or other Web Sites that from time to time are
maintained by or for CDFG or any of its Affiliates provided that, both Parties
agree in writing that such successor, replacement, or other site will be
included as a "CDFG Web Site."
"CAVION WEB SITE" means, collectively, (i) the World Wide Web site
identified by the URL < www.cavion.com >, (ii) a Client Web Site hosted by
Cavion on behalf of any Client, (iii) any prototypes or demonstration
versions of the Cavion Web Site, or any part thereof, (iv)
<PAGE>
any successors, replacements, or other Web Sites that from time to time are
maintained by or for Cavion or any of its Affiliates provided that, both Parties
agree in writing that such successor, replacement, or other site will be
included as a "Cavion Web Site."
"CLIENT WEB SITE(S)" means, a Web site hosted by Cavion on behalf of a
Client.
"CLIENT" means, any credit union or related banking institution with which
Cavion has, or develops in the future, a relationship.
"CUSTOMER" means any Visitor or Member.
"CUSTOMER DATA" means all data derived through Customer's use of or access
to the CDFG Programs.
"INTELLECTUAL PROPERTY" means, any patent, copyright, trademark, trade
secret, trade dress, mask work, moral right, right of attribution or integrity
or other intellectual or industrial property rights or propriety rights arising
under the laws of any jurisdiction.
"MARK" means, a Party's trade name and any trademarks, service marks,
logos, designs or other indicia of origin used by a Party and/or its Affiliates.
"MEMBER(S)" means, any person or entity that belongs to, or is affiliated
with a Client.
"PROMOTIONAL MATERIALS" means, promotions and other information displayed
on the Cavion Web Site, interstitials registration pages, statement stuffers,
statement messages, ad banners, newsletter copy, in-lobby displays and posters,
search engine placement, and other means mutually agreed upon by the Parties.
"VISITOR(S)" means, any person or entity that is directed to the CDFG Web
Site(s) as a result of Cavion's efforts.
2. SOLICITATION AND ENROLLMENT
Beginning March 7, 2000, Cavion will market the CDFG Programs to Clients as
a service to be made available to Members on the Client Web Sites and on Search
Engine Portals at its sole cost and expense (except as provided in Section 3.
1), by means of the Promotional Materials.
3. CDFG' RESPONSIBILITIES
3.1 GENERAL. CDFG is responsible for all (i) costs associated with CDFG
Program development, customer service, administration, Promotional Materials
(except as provided in Section 4. 1), (ii) Client and/or Member billing/credits,
and (iii) all fulfillment.
2
<PAGE>
3.2 GRANT OF LICENSE. CDFG grants to Cavion a limited, nonexclusive license
to create on the Cavion Web Site and the Client Web Sites a hypertext link
directed to a page on the CDFG Web Site that allows Members to access the CDFG
Programs. In addition, CDFG grants to Cavion a limited, nonexclusive license to
create on various search engine portals a hypertext link directed to a page on
the CDFG Web Site that allows Visitors to access the CDFG Programs. CDFG grants
to Cavion a nonexclusive license to use CDFG' proprietary Marks for the purpose
of linking to the CDFG Web Site. CDFG further grants to Cavion the right to
"frame," and the right to sublicense clients to "frame" with Client's Marks, the
CDFG Web Site. CDFG shall have the right, but not the obligation, to approve
each frame utilized by the Clients.
3.3 PROMOTIONAL MATERIALS. CDFG shall provide Cavion, Clients, and/or
Members with Promotional Materials. After receiving Cavion's Promotional
Materials design (as provided in Section 4.1), CDFG shall use commercially
reasonable efforts to promptly prepare the Promotional Materials, but in no
event later than 30 days after receiving the Promotional Material design from
Cavion.
3.4 CUSTOMER SERVICE. CDFG shall provide customer service to Clients and
Members in relation to the CDFG Programs. During tax season the call center is
manned 7xl6, and during other times of the year as appropriate.
3.5 MEMBER LOAN ORIGINATION. CDFG agrees and covenants that it will not
consummate any loans or issue lines of credit to Members. Moreover, CDFG will
redirect Member loan request to the appropriate sponsoring Client.
3.6 AD SERVING. CDFG will not display any ad banners, sponsor links or
other promotional displays ("Advertising") on the CDFG web site that links to
Cavion Web Sites without the written permission of Cavion. In the event that
CDFG does want to display Advertising on the CDFG site, CDFG will use Cavion's
Ad Server at a price to be determined.
3.7 E-MAIL. CDFG will not send any e-mail to a Member that contains a
promotion or advertisement for a product or service that competes with the
products and services available at the Cavion Web Site, Client Web Sites, or the
Member Emporium.
3.8 COMPETITIVE ADVERTISING. CDFG shall not display any Advertising or any
other promotion of a service or product that competes with the products or
services available at the Cavion Web Site, Client Web Sites, or the Member
Emporium.
3.9 CUSTOMER PRIVACY. CDFG will post and adhere to a privacy policy that is
substantively similar to that of Member Emporium, which can be found at
http://info.memberemporium.com/empPolicy.html. CDFG is permitted to store and
house the data as needed for internal use.
3
<PAGE>
3.10 USAGE OF CUSTOMER Data. CDFG will not sell, rent, license otherwise
disseminate Customer Data to any third-party. CDFG will provide Cavion with
Customer Data in an electronic form as mutually agreed.
4. CAVION'S RESPONSIBILITIES
4.1 DESIGN OF PROMOTIONAL MATERIALS. Cavion, at its cost, shall develop the
design and wording that will appear in the Promotional Materials, subject to
CDFG's approval, which shall not unreasonably be withheld.
4.2 CURRENT PROMOTIONAL MATERIALS. Cavion shall use commercially reasonable
efforts to ensure that the Cavion Web Site contains current Promotional
Materials as submitted to Cavion by CDFG.
4.3 SECURITY. Cavion shall encrypt and send to CDFG all information that is
necessary and required to be transmitted from the Client Web Sites to the CDFG
Web Site for the operation of the CDFG Programs in a mutually agreed upon secure
file format.
5. PAYMENT TERMS
The payment terms are set forth in Attachment II.
6. REPRESENTATIONS AND WARRANTIES
6.1 Each Party represents and warrants that (i) the making of this
Agreement does not violate any law, regulation or agreement to which it is a
party and that it has the authority to enter into this Agreement and to perform
its obligations hereunder; (ii) it has the sole and exclusive right to grant the
rights and licenses contemplated by this Agreement, without the need for any
licenses, releases, consents, approvals or immunities not yet granted; (iii) the
representations and warranties herein shall survive the expiration and/or
termination of this Agreement.
6.2 CDFG represents and warrants that the CDFG Program does now or will in
the future infringe upon or violate any (i) Intellectual Property right or other
proprietary right of any third party or (ii) applicable law, regulation, or
nonproprietary third-party right.
7. TERM AND TERMINATION
7.1 TERM. This Agreement shall remain in effect for a period of twenty four
(24) months from the Effective Date (the "Initial Term"). Thereafter, this
Agreement will automatically renew for additional consecutive one (1) year terms
("Renewal Terms") unless written notice of intent to terminate is given to
either Party by the other Party 90 days prior to expiration of the then current
Term. The Term of this Agreement includes the Initial Term and any Renewal
Terms. Either party can terminate this agreement upon 180 days written notice.
4
<PAGE>
7.2 TERMINATION FOR CAUSE. Notwithstanding anything else to the contrary in
this Agreement, if at any time during the term of this Agreement, either Party
materially breaches its respective obligations or responsibilities to the other
pursuant to this Agreement, the non-breaching Party may deliver to the breaching
Party written notice of its intent to terminate this Agreement setting forth the
nature of the breach. Termination will be effective 30 days after acknowledged
delivery of such termination notice to the breaching Party unless the breach is
cured within such 30-day period.
7.3 CLIENT TERMINATION OF CDFG PROGRAM. CDFG understands and acknowledges
that a Client may terminate participation in the CDFG Programs at any time in
their sole discretion. If a Client terminates such participation, Cavion agrees
to work with such Client to ensure that they notify any Members who are
currently using the CDFG program regarding how such Member may continue using
the CDFG Program other than through the Client Web Site.
8. INDEMNIFICATION
8.1 INDEMNIFICATION BY CDFG. CDFG will hold harmless, defend and indemnify
Cavion and its Affiliates (and their respective employees, directors and
representatives) against any and all claims, actions, proceedings, suits,
liabilities, damages, settlements, penalties, fines, costs or expenses
(including, without limitation, reasonable attorneys' fees and other litigation
expenses) incurred by Cavion, arising out of or relating to the violation of
third party Intellectual Property rights, applicable law, regulation or
non-proprietary right by the CDFG Programs or the CDFG Web Site. The payment by
CDFG of any indemnified loss described herein is subject to Cavion's compliance
with the procedures described in Section 8.3.
8.2 INDEMNIFICATION BY CAVION. Cavion will hold harmless, defend and
indemnify CDFG and its Affiliates (and their respective employees, directors and
representatives) against any and all claims, actions, proceedings, suits,
liabilities, damages, settlements, penalties, fines, costs or expenses
(including, without limitation, reasonable attorneys' fees and other litigation
expenses) incurred by CDFG, arising out of or relating to the violation of third
party Intellectual Property rights, applicable law, regulation or
non-proprietary night by the CDFG Web Site. The payment by Cavion of any
indemnified loss described herein is subject to CDFG's compliance with the
procedures described in Section 8.3.
8.3 NOTICE AND PARTICIPATION. In connection with any claim or action
described in this Section 8.3, the party seeking indemnification (i) will give
the indemnifying party prompt written notice of the claim, (ii) will cooperate
with the indemnifying party (at the indemnifying party's expense) in connection
with the defense and settlement of the claim, and (iii) will permit the
indemnifying party to control the defense and settlement of the claim, provided
that the indemnifying party may not settle the claim without the indemnifying
party's prior written consent (which will not be unreasonably withheld).
Further, the indemnified party (at its cost) may participate in the defense and
settlement of the claim.
5
<PAGE>
8.4 LIMITATIONS. Neither party will indemnify the other for lost profits or
consequential damages arising out of or in any way connected with this
agreement. In addition, neither party is guaranteeing the other a minimum level
of business as a result of the relationship described by this Agreement.
9. INTELLECTUAL PROPERTY
9.1 USE. Except as provided in this Agreement, neither Party shall use any
of the other Party's Intellectual Property without the prior written consent of
the other Party. It is expressly understood by each Party that Intellectual
Property is proprietary to the owning Party and that nothing in this Agreement
constitutes the grant of a general license for one Party to use the Intellectual
Property of the other Party.
9.2 TERMINATION. Upon termination of this Agreement, any and all rights or
privileges of either Party to use the other Party's Intellectual Property shall
expire, and each Party shall discontinue the use of the other's Intellectual
Property in connection with any business conducted unless otherwise provided for
in writing and signed by authorized representatives of both parties.
10. TRANSFERABILITY
This Agreement may be not be assigned by either Party, in whole or in part
without the prior written consent of the other Party, unless to (i) an Affiliate
or (ii) a third party which acquires all or substantially all of such Party's
assets and has the capability to perform all of the obligations of the assigning
Party under the terms and conditions of this Agreement. A permitted assignment
by a Party hereunder will not relieve such Party from its obligations under the
terms of this Agreement.
11. LIMITATION OF LIABILITY
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY (OR TO ANY PERSON CLAIMING
RIGHTS DERIVED FROM THE OTHER PARTY'S RIGHTS) FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING
LOST PROFITS, LOSS OF BUSINESS, OR OTHER ECONOMIC DAMAGE, AS A RESULT OF BREACH
OF ANY WARRANTY OR OTHER TERM OF THIS AGREEMENT, REGARDLESS OF WHETHER THE PARTY
ALLEGEDLY LIABLE WAS ADVISED, HAD REASON TO KNOW, OR IN FACT KNEW OF THE
POSSIBILITY THEREOF.
12. ARBITRATION
Any dispute arising out of or relating to this Agreement, including any
issues relating to arbitrability or the scope of this arbitration clause, will
be finally settled by arbitration by a panel of 3 arbitrators in the accordance
with the rules of the American Arbitration Association
6
<PAGE>
and the United States Arbitration Act. Judgment upon the award rendered by the
arbitrators may be entered by any court with jurisdiction.
13. EXCLUSIVITY
13.1 CDFG GRANT. During the term of this Agreement or so long as CDFG is
receiving revenue as a result of the marketing of the CDFG Programs, neither
CDFG nor any of its Affiliates or subsidiaries shall create, purchase, market,
administer, or enter into an agreement with another party, written or unwritten,
permitting such other party to market, offer, sell, or otherwise make the CDFG
Programs available to credit unions, related financial institutions, or their
customers.
13.2 CAVION GRANT. During the term of this Agreement or so long as Cavion
is receiving revenue as a result of the marketing of the CDFG Programs, Cavion
shall not market or solicit any like service or program to any then existing
Client enrolled in the CDFG Program.
13.3 Under the terms of this Agreement, and pursuant to the Parties'
express intent, CDFG exclusivity with Cavion will be superseded in the event an
individual credit union has entered into, whether prior or subsequent to the
execution of this Agreement, any other services arrangement similar to CDFG
Programs.
(a) In such event, such a credit union or credit unions may elect to
feature CDFG services, in addition to any other services provider, but
Cavion is under no obligation to take any action on behalf of CDFG
respecting an individual credit union's decision whether or not to feature
CDFG's Programs in addition to the services of any other provider of
comparable services with whom the credit union has a relationship. In the
event a credit union elects not to feature the CDFG Programs, the
respective obligations of each of the Parties to this Agreement shall not
be altered but shall remain fully in place and enforceable by either Party.
Notwithstanding the foregoing, CDFG Programs may still be offered to the
credit union as an alternative source.
14. CONFIDENTIALITY
In performing its obligations pursuant to this Agreement, each Party hereto
(the "Disclosing Party") may disclose to the other Party ("Receiving Party")
information in connection with the performance of this Agreement, including
without limitation, the Disclosing Party's business, products, services,
formats, computer programs, policies, procedures, methods, technical
developments, trade secrets, financial results, formulas, marketing research and
development methods, marketing statistics, product development plans, membership
solicitation methods, strategies, research data and Customer Data. All such
information about the Disclosing Party shall be deemed "Confidential
Information." The parties shall use the Confidential Information of the other
Party solely to perform this Agreement, and all Confidential Information shall
remain the sole property of the Disclosing
7
<PAGE>
Party. Information shall not be deemed Confidential Information if it: (i) is
now or hereafter becomes, through no act or omission on the part of the
receiving Party, generally known or available within the industry, or is now or
later enters the public domain through no act or omission on the part of the
receiving Party; (ii) was acquired by the receiving Party before receiving such
information from the disclosing Party and without restriction as to use or
disclosure; (iii) is hereafter rightfully furnished to the receiving Party by a
third party, without restriction as to use or disclosure; (iv) is information
which the receiving Party can document was independently developed by the
receiving Party; (v) is required to be disclosed pursuant to law, provided the
receiving Party uses reasonable efforts to give the disclosing Party reasonable
notice of such required disclosure, and cooperates in any attempts by the
disclosing Party to obtain a protective order or other similar protection
against disclosure of the Confidential Information; or (vi) is disclosed with
the prior written consent of the disclosing Party. Each of the parties shall use
the same care as it uses to maintain the confidentiality of its most
confidential information, which in no event shall be less than reasonable care.
The parties acknowledge that the remedy at law for any breach or threatened
breach of the provisions of this Section shall be inadequate, and that the
non-breaching Party, in addition to any other remedy available to it, shall be
entitled to obtain injunctive relief without proof of irreparable injury without
posting bond.
15. GENERAL
15.1 ENTIRE AGREEMENT. This Agreement and Exhibits hereto constitutes the
entire agreement between the parties and may only be amended in a written
document signed by the parties.
15.2 WAIVERS. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance.
15.3 PRIVATE LABELING. Except as provided by this Agreement, nothing herein
shall be construed to be a grant of a right or license to Cavion to re-market or
private label any of the CDFG Programs to any third party.
15.4 SEVERABILITY. If any part of this Agreement shall be held to be
unenforceable, the remainder of this Agreement will nevertheless remain in full
force and effect.
15.5 FORCE MAJEURE. Neither Party shall be deemed in default or otherwise
liable for any delay in or failure of performance under this Agreement by reason
of any act of God, fire, natural disaster, accident, riot, act of government,
failure of transportation or communication or supplies of goods and services
which by the exercise of reasonable diligence, said Party is unable to prevent.
The happening of such "Force Majeure" shall extend the time of performance on
the part of the Party hereto affected thereby, to such extent as may be
necessary to enable it to complete performance after the cause or causes of
delay or failure
8
<PAGE>
have been removed, except that if performance cannot be resumed within 30 days,
either Party may terminate this Agreement.
15.6 HEADINGS. The headings in this Agreement are used for convenience of
reference and shall not be deemed to modify or affect the interpretation of this
Agreement.
15.7 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in
separate counterparts, each of which shall be deemed an original, and all of
which shall be deemed one and the same instrument. A facsimile transmission of
this signed Agreement bearing a signature on behalf of a Party hereto shall be
legal and binding on such Party.
15.8 PUBLIC ANNOUNCEMENT. No press release, public announcement,
confirmation or other information regarding this Agreement or the contents
hereof or thereof shall be made by any Party without the prior written consent
of the other Party, which consent shall not be unreasonably withheld. It is
agreed and understood that the parties shall work together to prepare any such
press release or public announcement. The foregoing notwithstanding, if a Party
is required pursuant to applicable securities laws to make such Party has
furnished the other Party with the text of such public announcement or press
release sufficiently in advance of such public announcement or press release as
to afford the Receiving Party a reasonable opportunity to review such public
announcement or press release and such Party, to the extent consistent with its
legal disclosure obligations, modifies such public announcement or press release
as reasonably requested by the other Party. Notwithstanding the foregoing,
nothing contained herein shall prevent CDFG from filing this document and/or
describing its contents in any document required to be filed with any federal or
state securities regulatory body in connection with any offering of its
securities to the public and/or any document required to be otherwise
disseminated or distributed in connection therewith.
15.9 GOVERNING LAW. This Agreement shall be subject to, governed by and
construed under the laws of the State of Colorado without giving effect to the
principles of conflict of laws.
15.10 NOTICES. All notices which are or maybe required to be given by
either Party to the other under this Agreement shall be in writing and shall be
deemed to be properly given (a) when delivered personally, or (b) three (3)
business days after being sent by certified mail, return receipt requested,
first class postage pre-paid, or one day after being sent by a nationally
recognized overnight delivery service, to the address at the end of this
Agreement.
15.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and inure
to the benefit of the parties and their respective successors and permitted
assigns.
15.12 ATTORNEYS' FEES. If any legal action is brought by either party
against the other regarding the subject matter of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees and expenses.
9
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15.13 COOPERATION. Whenever and wherever provided herein, the parties agree
to take such reasonable steps to amicably address and resolve all matters and
concerns to prevent a dispute or inadvertent breach of either the spirit or
intent of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
COLONIAL DIRECT FINANCIAL CAVION TECHNOLOGIES, INC.
SERVICES, INC.
By: By:
--------------------------------- ----------------------------------
Title: Title:
------------------------------ -------------------------------
Address: 1499 W. Palmetto Park Rd. Address:
Boca Raton, FL 33486 -----------------------------
Fax No.: Fax No.:
---------------------------- -----------------------------
Attention: Attention:
-------------------------- ---------------------------
10
<PAGE>
ATTACHMENT I
CDFG PROGRAMS
AS MUTUALLY AGREED
11
<PAGE>
ATTACHMENT II
PAYMENT TERMS
1. Colonial will price the retail product as needed to offer a competitive
product.
2. For each paid and collected tax return, Cavion will get l5% of the retail
price.
3. Payment will be made 30 days after billed to the client, or as otherwise
mutually agreed.
12
<PAGE>
EX. 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated February 4, 2000 and February 17, 2000 for Cavion
Technologies, Inc. and May 18, 1999 for LanXtra, Inc. included in this
Registration Statement.
Arthur Andersen LLP
Denver, Colorado
April 14, 2000
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<INVENTORY> 2,558
<CURRENT-ASSETS> 4,585,396
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