-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SBzM5xwBTKDITihnMe2Shq41bAvGwU1i+oh8o9h8OQHbqal4uEs0zEFLta8kGoZc PrE5jfKfJYJRWlIuLZQH2g== 0000927356-00-001017.txt : 20000515 0000927356-00-001017.hdr.sgml : 20000515 ACCESSION NUMBER: 0000927356-00-001017 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBB INTERACTIVE SERVICES INC CENTRAL INDEX KEY: 0001011901 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 841293864 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-28462 FILM NUMBER: 627019 BUSINESS ADDRESS: STREET 1: 1800 GLENARM PLACE STREET 2: STE 700 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032969200 MAIL ADDRESS: STREET 1: 1800 GLENARM PL STREET 2: SUITE 800 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ONLINE SYSTEM SERVICES INC DATE OF NAME CHANGE: 19960410 10QSB 1 FORM 10QSB FORM 10-QSB - Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of l934. For the period ended March 31, 2000. --------------- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ___________________ to ____________________. Commission File Number 0-28462. ---------------- WEBB INTERACTIVE SERVICES, INC. - ------------------------------- (Exact name of registrant as specified in its charter) COLORADO 84-1293864 - ------------------------------------------------------------ (State or other jurisdiction I.R.S. Employer of incorporation or organization Identification No.) 1899 WYNKOOP, SUITE 600, DENVER, CO 80202 - ----------------------------------------------------- (Address of principal executive offices) (Zipcode) (303) 296-9200 - -------------- (Registrant's telephone number, including area code) 1800 GLENARM PLACE, SUITE 700, DENVER, CO 80202 - ----------------------------------------------------- Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] YES [ ] NO APPLICABLE ONLY TO CORPORATE ISSUERS: As of May 3, 2000, Registrant had 9,104,226 shares of common stock outstanding. - ----------------------- WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES Index -----
Page ------ Part I. Financial Information Item 1. Unaudited Financial Statements Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 3 Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 5-6 Notes to Consolidated Financial Statements 7-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-29 Part II. Other Information Item 1, 3 and 5. Not Applicable 30 Item 2. Changes in Securities and Use of Proceeds 30 Item 4. Submission of Matters to a Vote of Security Holders 30 Item 6. Exhibits and Reports on Form 8-K 31-32 Signatures 33
---------------------------- This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, and is subject to the safe harbors created by those sections. These forward-looking statements are subject to significant risks and uncertainties, including those identified in the section of this Form 10-QSB entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Future Operating Results," which may cause actual results to differ materially from those discussed in such forward-looking statements. The forward-looking statements within this Form 10- QSB are identified by words such as "believes," "anticipates," "expects," "intends," "may," "will" and other similar expressions. However, these words are not the exclusive means of identifying such statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-QSB with the Securities and Exchange Commission ("SEC"). Readers are urged to carefully review and consider the various disclosures made by the Company in this report and in the Company's other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect the Company's business. 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 17,595,899 $ 4,164,371 Accounts receivable, net of allowance of doubtful accounts of $4,000 623,736 107,132 Prepaid expenses 272,214 399,217 Short-term deposits 923,374 444,545 ------------ ------------ Total current assets 19,415,223 5,115,265 Property and equipment, net of accumulated depreciation of $1,635,800 and $1,402,158, respectively 2,763,600 2,352,489 Intangible assets, net of accumulated amortization of $4,560,606 and $2,523,351, respectively 20,480,277 12,503,047 Deferred financing costs 153,115 2,649,517 Other assets 4,216 4,216 ------------ ------------ Total assets $ 42,816,431 $ 22,624,534 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of capital leases payable $ 100,057 $ 108,525 Accounts payable and accrued liabilities 1,187,109 841,440 Accrued salaries and payroll taxes payable 836,032 1,059,338 Accrued interest payable 95,892 126,028 Customer deposits and deferred revenue 183,266 227,882 ------------ ------------ Total current liabilities 2,402,356 2,363,213 Capital leases payable 88,282 115,493 10% convertible note payable, net of discount of $444,039 and $947,710, respectively 2,055,961 4,052,290 Commitments and contingencies Stockholders' equity Preferred stock, no par value, 5,000,000 shares authorized: Series B convertible preferred stock, 12,500 and none shares issued and outstanding, respectively 12,500,000 - 10% redeemable, convertible preferred stock, 10% cumulative return; none and 85,000 shares issued and outstanding, respectively, including dividends payable of none and $170,295, respectively - 1,020,295 Common stock, no par value, 20,000,000 shares authorized, 9,058,539 and 7,830,028 shares issued and outstanding, respectively 73,722,923 49,513,769 Warrants and options 13,302,943 8,612,322 Deferred compensation (348,225) (412,707) Accumulated deficit (60,907,809) (42,640,141) ------------ ------------ Total stockholders' equity 38,269,832 16,093,538 ------------ ------------ Total liabilities and stockholders' equity $ 42,816,431 $ 22,624,534 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 3 WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, -------------------------------------- 2000 1999 ------------ ----------- Net revenues $ 1,009,822 $ 288,282 Cost of revenues 762,924 187,826 ------------ ----------- Gross margin 246,898 100,456 ------------ ----------- Operating expenses: Sales and marketing expenses 484,767 509,859 Product development expenses 1,144,579 598,840 General and administrative expenses 1,791,948 1,484,545 Depreciation and amortization 2,207,043 108,229 ------------ ----------- 5,628,337 2,701,473 ------------ ----------- Loss from operations (5,381,439) (2,601,017) Interest income 161,887 50,301 Equity loss in subsidiary - (21,949) Interest expense (174,990) (4,159) ------------ ----------- Net loss (5,394,542) (2,576,824) Preferred stock dividends (373,126) (46,013) Accretion of preferred stock to redemption value (12,500,000) (3,000,000) Accretion of preferred stock for guaranteed return in excess of redemption value - (1,158,563) ------------ ----------- Net loss available to common stockholders $(18,267,668) $(6,781,400) ============ =========== Loss per share, basic and diluted $(2.11) $(1.28) ============ =========== Weighted average shares outstanding, basic and diluted 8,667,640 5,313,368 ============ ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 4 WEBB INTERACTIVE SERVICES, Inc. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, ------------------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $(5,394,542) $(2,576,824) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,270,898 108,229 Accrued interest income on advances to DCI - (22,050) Reduction in note receivable for services received from DCI - 272,276 Stock and stock options issued for services 175,170 140,229 Equity loss in subsidiary - 21,949 Amortization of 10% convertible note payable discount 50,381 - Amortization of 10% convertible note payable financing costs 24,480 - Changes in operating assets and liabilities: Increase in accounts receivable (516,604) (38,638) Decrease in inventory - 25,933 Decrease in prepaid expenses 127,003 34,260 Increase in short-term deposits and other assets (478,829) (18,072) Increase (decrease) in accounts payable and accrued liabilities 280,669 (346,738) Decrease in accrued salaries and payroll taxes payable (223,306) (68,516) Decrease in accrued interest payable (30,136) - (Decrease) increase in customer deposits and deferred revenue (44,616) 264,400 ----------- ----------- Net cash used in operating activities (3,759,432) (2,203,562) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (598,822) (224,883) Cash advances to DCI - (349,579) Payment of acquisition costs - (1,031) Investment in subsidiary - (27,620) ----------- ----------- Net cash used in investing activities (598,822) (603,113) ----------- ----------- Cash flows from financing activities: Payments on capital leases (35,679) (8,543) Proceeds from exercise of stock options and warrants 6,165,461 1,012,633 Proceeds from issuance of series B preferred stock and warrants 12,500,000 - Proceeds from issuance of series C preferred stock - 3,000,000 Stock offering costs (840,000) (244,500) ----------- ----------- Net cash provided by financing activities 17,789,782 3,759,590 ----------- ----------- Net increase in cash and cash equivalents 13,431,528 952,915 Cash and cash equivalents, beginning of period 4,164,371 698,339 ----------- ----------- Cash and cash equivalents, end of period $17,595,899 $ 1,651,254 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 5 WEBB INTERACTIVE SERVICES, INC. CONSOLIDATED Statements of Cash Flows (Continued) (UNAUDITED)
Three Months Ended March 31, ------------------------------------- 2000 1999 ----------- ----------- Supplemental disclosure of cash flow information: Cash paid for interest $ 130,265 $ 4,519 Supplemental schedule of non-cash investing and financing activities: Common stock and warrants issued in business combinations $ 9,995,417 $ - Accretion of preferred stock to redemption value 12,500,000 3,000,000 Accretion of preferred stock for guaranteed return in excess of redemption value - 1,158,563 Preferred stock dividends paid or to be paid in common stock 373,126 469,013 Preferred stock and dividends converted to common stock 1,023,028 5,686,707 Common stock warrants issued for offering costs 2,311,475 10% note payable converted to common stock 1,886,263 - Capital leases for equipment - 35,000
The accompanying notes to consolidated financial statements are an integral part of these statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES MARCH 31, 2000 AND DECEMBER 31, 1999 (UNAUDITIED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements include the accounts of Webb Interactive Services, Inc. and its wholly-owned Subsidiaries (collectively "Webb" or the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared without audit pursuant to rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the accompanying financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. The interim financial statements should be read in connection with the financial statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999 filed with the Securities and Exchange Commission. NOTE 2 - REVENUE RECOGNITION The Company recognizes software license revenue in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), which requires the Company to recognize revenue on software transactions only when persuasive evidence of an agreement exists, delivery of the product has occurred, no significant Company obligations remain, the fee is fixed or determinable, and collectibility is probable. Revenue from software license fees is recognized upon delivery, provided that no future Company obligation exists. If obligations do exist, revenue is deferred until the obligation is satisfied, which may require the Company to recognize revenue from software licenses over the term of the contract. In instances where the Company charges monthly license fees, revenue is recognized in the month the license is provided. Guaranteed minimum revenue is recognized on a straight-line basis over the period the minimum applies. Revenue from professional services billed on a time and materials basis is recognized as performed. Revenue from fixed price long-term contracts is recognized on the percentage of completion method for individual contracts, commencing when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Revenues are recognized in the ratio that costs incurred bear to total estimated contract costs. The Company's use of the percentage of completion method of revenue recognition requires estimates of percentage of project completion. Changes in job performance, estimated profitability and final contract settlements may result in revisions to costs and income in the period in which the revisions are determined. Provisions for any estimated losses on uncompleted contracts are made in the period in which such losses are determinable. In instances when the work performed on fixed price agreements is of relatively short duration, the Company uses the completed contract method of accounting whereby revenue is recognized when the work is completed. Customer advances and billed amounts due from customers in excess of revenue recognized are recorded as deferred revenue. Revenue from service bureau fees is recognized in the month the service is provided. Revenue from maintenance and support agreements is recognized on a straight-line basis over the life of the related agreement. 7 The Company follows the interpretations of EITF 00-3, "Application of AICPA SOP 97-2, "Software Revenue Recognition," to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware," for hosting arrangements. Under the EITF consensus, if the customer has the contractual right to take possession of the software at anytime during the hosting period without significant penalty and it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software, then the software portion of the arrangement is accounted for under SOP 97-2. If the customer does not have this right, then the fee for the entire arrangement is recognized on a straight-line basis over the life of the related arrangement. In multiple element arrangements when vendor specific objective evidence does not exist for the individual elements, all revenue from the arrangement is deferred until the earlier of the point at which (a) such sufficient vendor- specific objective evidence does exist or (b) all elements of the arrangement have been delivered. In some instances, the Company recognizes all the revenue from the arrangement on a straight-line basis over the life of the related agreement. In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in financial statements. The accounting impact of SAB 101 is required to be determined no later than the Company's second fiscal quarter of 2000. If the Company determines that its revenue recognition policies must change to be in compliance with SAB 101, the implementation of SAB 101 will require the Company to restate its first quarter 2000 results to reflect a cumulative effect of a change in accounting principle as if SAB 101 had been implemented on January 1, 2000. The Company is currently reviewing SAB 101 to determine what impact, if any, the adoption of SAB 101 will have on its financial position and results of operations. The Company believes its current revenue recognition policies and practices are consistent with the provisions of SOP 97-2, as amended by SOP 98-4 and SOP 98-9, which were issued by the American Institute of Certified Public Accountants as well as other authoritative literature. Implementation guidelines for these standards, as well as potential new standards, including SAB 101, could lead to unanticipated changes in the Company's current revenue recognition policies. Such changes could affect the timing of the Company's future revenue and results of operations. Estimates of returns and allowances are recorded in the period of the sale based on the Company's historical experience and the terms of individual transactions. Net revenues are comprised of the following:
Three Months Ended March 31, ------------------------------ 2000 1999 ---------- -------- Net revenues: Licenses $ 681,727 $ 48,020 Service bureau application provider service fees 82,069 58,309 Services 246,026 64,444 Hardware and third party software - 117,509 ---------- -------- Total net revenues $1,009,822 $288,282 ========== ========
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - An amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 delays the effective date of SFAS 133 to financial quarters and financial years beginning after June 15, 2000. The Company does not typically enter into arrangements that would fall under the scope of Statement No. 133 and thus, management believes that SFAS 133 will not significantly affect the Company's financial condition and results of operations. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The Interpretation clarifies the application of APB No. 25 for certain issues related to equity based instruments issued to employees. FIN No. 44 is effective on July 1, 2000, 8 except for certain transactions, and will be applied on a prospective basis. Management believes that FIN No. 44 will not have a significant impact on its financial statements. NOTE 4 - BUSINESS ACQUISITION On January 7, 2000, the Company acquired assets of Update Systems, Inc. ("Update"), a developer and provider of e-communication solutions for businesses in the highly competitive world of Internet relationships, by issuing 278,411 shares of the Company's common stock. In addition, outstanding Update options to purchase common stock were exchanged into 49,704 options to purchase the Company's common stock. The acquisition of the assets was recorded using the purchase method of accounting whereby the consideration paid of $10,060,417 was allocated based on the fair values of the assets acquired with the excess consideration over the fair market value of tangible assets of $10,014,485 recorded as intangible assets. Total consideration for the merger is as follows: Value of common stock issued $ 8,630,741 Value of options issued 1,364,676 (a) Acquisition expenses 65,000 ----------- Total purchase price $10,060,417 ===========
(a) 49,704 options issued, valued using the Black-Scholes option pricing model using the following assumptions: Exercise prices $ 4.33 Fair market value of common stock on measurement date $29.50 Option lives 5 years Volatility rate 104% Risk-free rate of return 5.0% Dividend rate 0%
The purchase price was allocated to the assets acquired based on their fair market values as follows: Acquired property and equipment $ 45,932 Developed technologies, goodwill and other intangibles 10,014,485 ----------- Total assets acquired $10,060,417 ===========
The transaction with Update resulted in $10,014,485 of intangible assets (primarily developed technologies, workforce and goodwill). These intangible assets will be amortized over their estimated economic lives of three years. The purchase price allocation is subject to adjustment based on the final determination of the fair value of the assets acquired, which could take as long as one year from January 7, 2000. NOTE 5 - GOODWILL Goodwill is being amortized on a straight-line basis over three years. Subsequent to acquisitions which result in goodwill, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the undiscounted net income or cash flows, as appropriate, over the remaining life of the goodwill in measuring whether the goodwill is recoverable. The Company recorded $2,037,255 and none of goodwill amortization expense for the three months ended March 31, 2000 and 1999, respectively. As of March 31, 2000, $7,365,415 of the Company's intangible assets consisted of goodwill. None of the businesses acquired by the Company were profitable prior to their acquisition. Accordingly, and due to other risks and uncertainties discusses herein, it is possible that an analysis of these long-lived assets in future periods could result in a conclusion they are impaired, and the amount of impairment could be substantial. 9 NOTE 6 - NET LOSS PER SHARE Net loss per share is calculated in accordance with SFAS No. 128, "Earnings Per Share" ("SFAS 128"), and Securities and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic net loss per share is computed by dividing net loss available to common shareholders for the period by the weighted average number of common shares outstanding for the period. 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. As a result of the Company's net losses, all potentially dilutive securities, as indicated in the table below, would be anti-dilutive and are excluded from the computation of diluted loss per share.
March 31, ------------------------------ 2000 1999 --------- --------- Stock options 3,365,691 1,755,015 10% convertible note payable 248,262 - Warrants and underwriter options 785,682 1,190,612 Series B preferred stock 625,000 - 10% preferred stock - 95,596 Series C preferred stock - 40,651 --------- --------- Total 5,024,635 3,081,874 ========= =========
The number of shares excluded from the earning per share calculation because they are anti-dilutive, using the treasury stock method, were 3,899,383 and 1,817,248 for the three months ended March 31, 2000 and 1999, respectively. NOTE 7 - SERIES B PREFERRED STOCK On February 18, 2000, the Company completed a private placement which resulted in gross proceeds of $12,500,000. The placement was made pursuant to a securities purchase agreement entered into on December 31, 1999. The Company sold 12,500 shares of its series B convertible preferred stock (the "series B preferred stock"), including warrants to purchase 343,750 shares of the Company's common stock. Net proceeds to the Company were approximately $11,660,000 after deducting approximately $840,000 in offering costs. The series B preferred stock is convertible into shares of the Company's common stock, initially at $20.00. The conversion rate for the series B preferred stock is subject to a potential reset. The conversion price will be reset on November 11, 2000 at which time the conversion price is fixed at the lower of $20.00 or the average closing bid price of the Company's common stock for 10 days ending on November 10, 2000 or the closing bid price of the Company's common stock on November 10, 2000. The terms of the10% convertible note payable agreement, issued on August 25, 1999, were amended on December 18, 1999 whereby the Company issued the note holder a five-year warrant to purchase 136,519 shares of the Company's common stock at an exercise price of $18.51 per share in consideration for the note holder's agreement to exchange the note for an amended note with terms more favorable for the Company. As this transaction was consummated to facilitate the sale of the Company's series B preferred stock, the Company recorded the fair value of the warrant totalling $2,311,475 as offering costs related to the series B preferred stock. The Company also issued 343,750 common stock purchase warrants with the series B preferred stock, valued at $6,913,568 based on the relative fair value of the warrants using the Black-Scholes option pricing model compared to the net proceeds received by the Company, entitles the holder to purchase one share of the Company's common stock for a purchase price initially set at $20.20, equal to 101% of the initial conversion price of the preferred stock at any time during the five-year period commencing on February 18, 2000. The exercise price for the warrants is subject to being reset based upon future market prices for the Company's common stock every 90 days commencing May 15, 2000 until January 20, 2003. If the current exercise price is higher than the current market price (the lower of the average closing bid prices for the 10-day period ending on such date or the closing bid price on such date), the exercise price will be reset to the market price. 10 The warrant was valued utilizing the Black-Scholes option pricing model using the following assumptions: Exercise price $20.20 Fair market value of common stock on grant date $66.88 Option life 5 years Volatility rate 120% Risk-free rate of return 6.7% Discount rate 0%
Due to the conversion feature associated with the series B preferred stock, the Company accounted for a beneficial conversion feature (a "Guaranteed Return") as an additional preferred stock dividend. The computed value of the Guaranteed Return of $2,434,957 is limited to the relative fair value of the series B preferred stock, which totalled $2,434,957, and was initially recorded as a reduction of the series B preferred stock and an increase to additional paid-in capital. The Guaranteed Return reduction to the series B preferred stock was accreted on the date of issuance, as additional dividends, by recording a charge to income available to common stockholders from the date of issuance to the earliest date of conversion. The difference between the stated redemption value of $1,000 per share and the recorded value on February 18, 2000, totalling $12,500,000, was accreted as a charge to income available to common stockholders on the date of issuance (the date on which the series B preferred stock is first convertible) and was comprised of the following: Guaranteed return $ 2,434,957 Value of common stock warrants 6,913,568 Value of common stock warrant issued to holder of 10% note payable 2,311,475 Series B preferred stock offering costs 840,000 ----------- Total accretion recorded $12,500,000 ===========
NOTE 8. - CONVERSION OF 10% CONVERTIBLE NOTE PAYABLE On February 18, 2000, the holder converted $2,500,000 of the outstanding Note Payable into 248,262 shares of the Company's common stock at an exercise price of $10.07 per share. NOTE 9. - ISSUANCE OF COMMON STOCK On March 16, 2000, the Company executed a two-month consulting agreement with a financial consulting firm to enhance Company activities in corporate finance, mergers and acquisitions, and public and investor relations. In addition, if the consulting firm introduces the Company to a lender or equity purchaser, the Company is required to pay the consultant a cash fee at the time of closing. To date, the Company has not paid a cash fee for this service. In connection with the agreement, the Company issued 3,000 restricted shares of its common stock for services provided and recorded expense totalling $110,688 valued at the fair market value on the day the services were provided. The Company also issued an additional 12,000 restricted shares of its common stock during April 2000 related to this agreement (See Note 13 for services rendered subsequent to March 31, 2000). NOTE 10 - EXERCISE OF COMMON STOCK WARRANTS During the three months ended March 31, 2000, holders of warrants exercised their right to purchase 492,217 shares of the Company's common stock resulting in net proceeds to the Company totalling $5,374,416, after deducting $93,707 in commissions, as summarized in the following table: 11
Common Stock Exercise Common Proceeds Warrant Price Stock to the Warrant Exercised Exercised Per Share Issued Company - ------------------------------- ------------- --------------- -------------- --------------- 10% preferred stock warrants 35,000 $15.00 35,000 $ 525,000 IPO representative warrants 101,870 8.10 99,870 736,047 Warrants issued in connection with the DCI merger 111,828 6.61 to 10.16 110,166 944,049 Warrant issued in connection with 5% Preferred Stock 100,000 16.33 100,000 1,633,000 Warrant issued to customer 7,000 9.75 7,000 68,250 Warrant issued to 10% convertible note holder 136,519 11.44 136,519 1,468,070 ------------- -------------- --------------- 492,217 488,555 $5,374,416 ============= ============== ===============
Included in the common stock issued in connection with the exercise of the IPO representative warrants and the warrants issued in connection with the DCI merger are 9,000 and 6,865 shares, respectively, issued to the holders as a result of utilizing the cashless exercise provision of the Agreements for the exercise of 11,000 and 8,527 warrants, respectively. NOTE 11 - CONVERSION OF 10% PREFERRED STOCK During the three months ended March 31, 2000, 85,000 shares of the 10% preferred stock, including accrued dividends payable of $173,028, were converted into 102,302 shares of the Company's common stock at conversion prices of $10.00 as summarized in the following table:
Number of Shares -------------------------------------------- Common Stock 10% Preferred Common Conversion Conversion Date Stock Stock Price per Share - ---------------------- ------------------ ------------------- --------------------- January 11, 2000 80,000 96,240 $10.00 February 14, 2000 5,000 6,062 10.00 ------------------ ------------------- 85,000 102,302 ================== ===================
NOTE 12 - BUSINESS SEGMENT INFORMATION The Company supports products and services that simplify and support e- commerce transactions in local markets by providing an interactive framework of local commerce and community-based services comprised of publishing, content management, community-building and communications. In addition, the Company supports products and services for electronic banking applications, targeting credit unions, community banks, and savings and loan institutions with a full line of e-banking transaction processing and account management services. The Company has three reportable business segments: Local Commerce, e-Banking and Jabber.com. Local Commerce consists of XML based Internet application solutions which provide merchants options for reaching their target customers through simple tools that publicize their company, product and service offerings; buyers to quickly find rich information about merchants and their offerings; and buyers and sellers a more effective and efficient transaction. e-Banking consists of an online banking solution, marketed generally to financial institutions having less than $500 million in assets, using a service bureau approach to e-banking, which enables institutions to provide many of the capabilities and services available to the larger financial institutions without the cost associated with the development of institution-specific systems. 12 Jabber.com consists of XML based open source Internet application products which incorporates instant messaging as a key application for commerce-oriented dialogs between businesses and consumers. At March 31, 2000, the Company had not earned any revenues in connection with this business segment. Corporate Activities consists of general corporate expenses, including capitalized costs that are not allocated to specific business segments. Assets of corporate activities include unallocated cash, receivables, prepaid expenses, note receivable, deferred acquisition costs, deposits, intangible assets acquired in mergers, and corporate use of property and equipment.
March 31, 2000 December 31, 1999 ----------------- ----------------- Assets - -------------------------------------------------------------------- Local commerce $ 2,187,785 $ 1,651,481 e-Banking 743,301 714,216 Jabber.com 16,290 - Corporate activities 39,869,055 20,258,837 ------------------ ----------------- Total $42,816,431 $22,624,534 ================= ================= Property and Equipment, net - ------------------------------------------------------------------- Local commerce $1,646,759 $1,378,408 e-Banking 643,357 683,890 Jabber.com 16,289 - Corporate activities 457,195 290,191 ------------------ ----------------- Total $2,763,600 $2,352,489 ================== =================
Three Months Ended March 31, ------------------------------------------- 2000 1999 ----------------- ----------------- Net Revenues - -------------------------------------------------------------------- Local commerce $ 812,553 $215,835 e-Banking 197,269 72,447 ------------------ ----------------- Total net sales $1,009,822 $288,282 ================= ================= $(1,235,720) Net Loss - -------------------------------------------------------------------- Local commerce $(1,648,086) $(1,235,720) e-Banking (40,589) (107,645) Jabber.com (63,249) - Corporate activities (3,642,618) (1,233,459) ------------------ ------------------ Net loss $(5,394,542) $(2,576,824) ================= ================= Depreciation and Amortization - -------------------------------------------------------------------- Local commerce $ 62,259 $ 44,073 e-Banking 41,014 35,247 Jabber.com 276 - Corporate activities 2,103,494 28,909 ------------------ ------------------ Total $2,207,043 $108,229 ================= ==================
13
Three Months Ended March 31, ------------------------------------------- 2000 1999 ----------------- ----------------- Property and Equipment Additions - -------------------------------------------------------------------- Local commerce $346,343 $ 80,945 e-Banking - 114,754 Jabber.com 16,565 - Corporate activities 235,914 29,184 ------------------ ----------------- Total $598,822 $224,883 ================== =================
NOTE 13 - SUBSEQUENT EVENTS On April 17, 2000, the Company loaned an officer $100,000 and issued a demand promissory note with stated interest of 8% per annum. Monthly interest only payments commence July 1, 2000 until the note is paid in full. During April, 2000, the Company granted 12,000 restricted shares of its common stock to a financial consulting firm representing the remainder of its commencement bonus related to the two-month consulting agreement the Company entered into on March 16, 2000. The Company will record $136,203 of expense in April, 2000 for the issuance of the common stock, which was valued at the fair market value on the day the agreement was completed. 14 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Webb provides innovative advanced online commerce and communication solutions for small businesses, with a particular emphasis on local commerce interaction. Our AccelX product line of XML-based commerce and buyer-seller interaction services provide businesses with powerful web site development and communication tools to attract customers, generate leads, increase buyer-seller interaction and strengthen customer relationship management. The AccelX services are divided into two categories: Customer Relationship Management Services and Marketplace Services. We license our services on a private-label basis to high-volume distribution partners such as yellow page directory publishers, newspapers, city guides, vertical market portals and other aggregators of local businesses. Our products are designed to be delivered on an application service provider business model whereby we host the software on our servers and deliver and manage the service on behalf of our distribution partners. Generally, these services are provided on a revenue-share basis providing us with recurring revenues as our distribution partners sell these services to their small business customers. This distribution model is designed to provide us with a growing base of businesses using one or more of our services who are ideal customers for additional AccelX services. To date, we have generated revenues through the sale of design and consulting services for web site development and network engineering services, resale of software licenses, mark-ups on computer hardware and software sold to customers, maintenance fees charged to customers to maintain computer hardware and web sites, license fees based on a portion of revenues from our products and services, training course fees, and monthly fees paid by customers for Internet access which we have provided Prior to January 2000, we were organized around our primary market focus on local commerce services, with an additional business unit dedicated to e-banking services. In the local commerce segment, we target small and medium sized businesses with our AccelX application services supporting XML-based commerce and buyer-seller interaction. The electronic banking unit targets credit unions, community banks, and savings and loan institutions with a full line of e-banking transaction processing and account management services. In January 2000, we formed a new subsidiary in order to commercialize separately from our AccelX application services business, the Jabber.org instant messaging system. We intend to seek significant participation from external partners to help us maximize the value of the e-banking and instant messaging businesses. During the first quarter of 2000, we acquired the assets of privately held Update Systems, Inc. See Note 4 to Consolidated Financial Statements. On February 18, 2000, we completed a private placement of 12,500 shares of our series B preferred stock and two five-year warrants representing the right to acquire 343,750 cumulative shares of our common stock at an exercise price of $20.20 per share in consideration for which we received $12,500,000 in gross proceeds. The series B preferred stock is convertible at any time from the date of issuance at $20.00, subject to certain reset provisions. The conversion price will be reset on November 11, 2000 at which time the conversion price is fixed at the lower of $20.00 or the average closing bid price of the Company's common stock for 10 days ending on November 10, 2000 or the closing bid price of the Company's common stock on November 10, 2000. The common stock purchase warrants are exercisable initially at $20.20 per share and are also subject to reset provisions. The exercise price for the warrants is subject to being reset based upon future market prices for the Company's common stock every 90 days commencing May 15, 2000 until January 20, 2003. If the current exercise price is higher that the current market price (the lower of the average closing bid prices for the 10-day period ending on such date or the closing bid price on such date), the exercise price will be reset to the market price. We have incurred losses from operations since inception. At March 31, 2000, we had an accumulated deficit of approximately $60.9 million. The accumulated deficit at March 31, 2000, included approximately $35.1 million of non-cash expenses related to the issuance of preferred stock and warrants in financing transactions, stock and stock options issued for services, warrants issued to four customers, interest expense on the 10% convertible 15 note payable and amortization of assets acquired in consideration for the issuance of our securities. Based on applicable current accounting standards, we estimate that we will be required to record a non-operating expense of approximately $189,000 in the remainder of 2000, $251,000 in 2001 and $158,000 in 2002 in connection with the issuance of our 10% convertible note, unless it is converted to common stock prior to its maturity date. We also recorded additional non-cash charges of $12.5 million in the first quarter of 2000 in connection with the issuance of series B convertible preferred stock. While these charges do not affect our operating losses or working capital, they do result in a decrease in our net income available to common stockholders. Additionally, during the first quarter of 2000, we recorded a non-cash charge for preferred stock dividends of approximately $373,000 and non-cash interest expense of approximately $75,000 in connection with the sale of our 10% convertible note payable. Loss from operations, net loss, net loss available to common stockholders and loss per share, were overstated in our press release for the first quarter due to an overstatement by approximately $511,000 in our general and administrative expenses for the quarter. The preliminary results and the actual results for these items are as follows:
Preliminary Reported Numbers Actual ------------- ------------ Loss from operations $ (5,893,251) $ (5,381,439) Net loss (5,906,354) (5,394,542) Net loss available to common stock holders (18,779,480) (18,267,668) Loss per share, basic and diluted $ (2.17) $ (2.11)
In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides interpretive guidance on the recognition, presentation and disclosure of revenue in financial statements. The accounting impact of SAB 101 is required to be determined no later than the second fiscal quarter of 2000. If we determine that our revenue recognition policies must change to be in compliance with SAB 101, the implementation of SAB 101 will require us to restate our first quarter 2000 results to reflect a cumulative effect of a change in accounting principle as if SAB 101 had been implemented on January 1, 2000. We are currently reviewing SAB 101 to determine what impact, if any, the adoption of SAB 101 will have on our financial position and results of operations. 16 Results of Operations The following table sets forth for the periods indicated the percentage of net revenues by items contained in the Statements of Operations. All percentages are calculated as a percentage of total net revenues, with the exception of cost of revenues which are calculated based on the respective net revenue amounts.
For the Three Months Ended March 31, --------------------------------------------- 2000 1999 ------------------ ------------------ Net revenues: Licenses 67.5% 17.8% Service bureau fees 8.1% 20.2% Services 24.4% 21.2% Hardware and software sales - 40.8% Total net sales 100.0% 100.0% ------------------ ------------------ Cost of revenues: Cost of licenses 29.2% 115.9% Cost of service bureau revenues 54.3% 20.8% Cost of services 208.4% 40.1% Cost of hardware and software - 80.1% Total cost of revenues 75.6% 65.2% ------------------- ------------------- Gross margin 24.4% 34.8% ------------------- ------------------- Operating expenses: Sales and marketing expenses 48.0% 176.9% Product development expenses 113.3% 207.7% General and administrative expenses 177.5% 515.0% Depreciation and amortization expenses 218.6% 37.5% ------------------- ------------------- Total operating expenses 557.4% 937.1% Loss from operations (533.0)% (902.3)% ------------------- ------------------- Net loss (534.2)% (893.9)% Preferred stock dividends (37.0)% (16.0)% Accretion of preferred stock to redemption value (1237.8)% (1040.6)% Accretion of preferred stock for guaranteed return in excess of redemption value - (401.9)% ------------------- ------------------- Net loss available to common stockholders (1809.0)% (2352.3)% =================== ===================
17 REVENUES: Local Commerce: Components of net revenues and cost of revenues from Local Commerce are as follows:
For the Three Months Ended March 31, -------------------------- 2000 1999 -------- -------- Net revenues: Licenses $681,727 $ 48,020 Services 130,826 50,306 Hardware and third party software - 117,509 -------- -------- Total net revenues 812,553 215,835 -------- -------- Cost of revenues: Cost of licenses 199,226 55,664 Cost of services 446,586 13,326 Cost of hardware and third party software - 94,155 -------- -------- Total cost of revenues 645,812 163,145 -------- -------- Gross margin $166,741 $ 52,690 ======== ========
License revenues represent fees earned for granting customers licenses to use our AccelX software products and services which we began to sell in the second half of 1999. During the three months ended March 31, 2000 we recognized $438,900 from the sale of software licenses and $242,827 from recurring license fees. The software sale revenues were primarily from a sale to Vetconnect, Inc., a vertical portal that provides Internet services for veterinarians. While our basic distribution model is to provide services to aggregators of small business on a revenue share basis, thereby providing us with recurring revenues as our distribution partners sell our services to their small business customers, late in 1999 we began offering to sell perpetual software licenses to those business that desire to acquire our software for integration into the services they provide to their customers. Sales of software licenses may continue to represent a significant portion of license revenue for at least the next several quarters as these sales are generally for significantly larger fees than are the initial fees paid by those distribution partners who agree to pay us a portion of their future revenues. We estimate that it will take those distribution partners up to one year or more after they commence distribution of our services to develop a significant enough base of small businesses using our services for these recurring revenues to become significant. Recurring license revenues for the first quarter of 2000 are primarily a result of fees earned from Switchboard, Inc. in the form of quarterly guaranteed minimum payments required to maintain limited exclusivity for our Site Builder services in a segment of the United States market. Services revenues consist principally of revenue derived from professional services for the customization of our software to customer specifications, assisting our customers in configuring and integrating our software applications, hosting fees as well as fees for ongoing maintenance, which consists of unspecified product upgrades and enhancements on a when-and-if- available basis. Our net revenues from services were $130,826 for the three months ended March 31, 2000, which represents an increase of 160.1% when compared with the similar 1999 period. The increase is primarily due to software support and maintenance fees we earned in connection with the services being provided to Switchboard, Inc. and Remax International, Inc. Revenues from hardware and software include the resale of computer hardware and third party software to customers generally in connection with implementing our local directory products and services. During the three months ended March 31, 1999, we sold equipment totalling $117,509 to customers with whom we have existing contracts to provide equipment. We do not anticipate significant revenues from hardware and equipment sales in future periods. 18 As of March 31, 2000, we have revenue backlog from closed contracts totalling approximately $692,000 which we expect to recognize as revenue during 2000. E-Banking: Components of net revenues and cost of revenues from e-banking are as follows:
For the Three Months Ended March 31, -------------------------- 2000 1999 -------- ------- Net revenues: Service bureau and hosting fees $ 82,069 $58,309 Services 115,200 14,138 -------- ------- Total net revenues 197,269 72,447 -------- ------- Cost of revenues: Cost of service bureau and hosting fees 49,766 12,141 Cost of services 67,346 12,540 -------- ------- Total cost of revenues 117,112 24,681 -------- ------- Gross margin $ 80,157 $47,766 ======== =======
Service bureau and hosting revenues represent fees earned for providing online banking application services to our e-banking customers. The 40.7% increase in these fees in the first quarter of 2000 compared to the first quarter of 1999 is due to revenue from a new credit union customer that went online during the fourth quarter of 1999. Services revenues consist of revenue derived from professional services for the customization of our software to customer specifications. The 714.8% increase in these fees in the first quarter of 2000 compared to the first quarter of 1999 is primarily due to fees we earned from the CU Cooperative Systems, Inc. which we are recognizing on a percentage of completion basis. As of March 31, 2000, we have revenue backlog from closed contracts totalling approximately $488,000 which we expect to recognize as revenue during 2000. COST OF REVENUES: Local Commerce: Cost of revenues as a percentage of net revenues was 79.5% for the three months ended March 31, 2000 compared to 75.6% for the similar 1999 period. Cost of license revenues - Cost of license revenues consists of compensation costs associated with assisting our customers in delivering our services to end users, third party content software license fees, and third party transaction fees. Cost of license revenues were $199,226 or 29.2% of net license revenues for the three months ended March 31, 2000, as compared to $55,664 or 115.9% of 1999 net license revenues for the similar 1999 period. The absolute dollar increase was primarily attributable to the amortization of a one-year third party software license we purchased to integrate directory functionality into our products as well as costs associated with delivering software enhancements for which we earn monthly license fees. Cost of service revenues - Cost of service revenues consists of compensation costs and consulting fees associated with performing custom programming, installation and integration services for our customers and support services as well as costs for hosting services which consist 19 of costs to operate our network operating center. Cost of service revenues were $446,586 or 341.4% of net service revenues for the three months ended March 31, 2000, as compared to $13,326 or 26.5% of 1999 net service revenues for the similar 1999 period. The increase in costs was primarily due to costs incurred to operate our network operating center, which we began operating during the second quarter of 1999, and costs associated with delivering Internet access and content to the customers of our distribution partners. Our network operating center has been built to accommodate our current customer base and our contract backlog as well as our projected growth. Consequently, the current cost to operate the network operating center is high compared to current revenues and will remain relatively high for at least the next several quarters as we continue to build this business. Cost of Hardware and third party software revenues - Cost of hardware and software revenues consists of computer and third party software purchased for resale to cable operators. Due to the change in our business model whereby we offer services to our customers, equipment sales are not expected to be significant in future periods. E-Banking: Cost of revenues as a percentage of net revenues was 59.4% for the three months ended March 31, 2000 compared to 34.1% for the similar 1999 period. Cost of service bureau and hosting fees - Cost of service bureau fees consists of compensation costs for customer service, help desk fees, third party software support agreements and Internet connectivity costs. Cost of service bureau fees was $49,766 or 60.6% of net service bureau fees for the three months ended March 31, 2000, as compared to $12,141 or 20.8% of 1999 net license revenues for the similar 1999 period. The absolute dollar increase was primarily attributable to an increase in the number of credit union members using the services, including costs associated with a second credit union which began using our services during the fourth quarter of 1999. Cost of service revenues - Cost of service revenues consists of compensation costs associated with performing custom programming and design and integration services for our customers. Cost of service revenues was $67,346 or 58.5% of net service revenues for the three months ended March 31, 2000, as compared to $12,540 or 88.7% of 1999 net service revenues for the similar 1999 period. The increase in costs were primarily due to continued implementation of our e-banking solution for the CU Cooperative Systems, Inc. for which we earned slightly higher margins than for our professional services to customers already online. OPERATING EXPENSES: Sales and marketing expenses consist primarily of employee compensation, advertising, trade show expenses, and costs of marketing materials. Sales and marketing expenses were $484,767 or 48.0% of net revenues for the three months ended March 31, 2000, as compared to $509,859 or 176.9% of net revenues for the similar 1999 period. The decrease in absolute dollars was primarily attributable to (i) lower employee compensation costs in the 2000 period due to three fewer employees and higher compensation costs incurred during the 1999 period related to costs paid to Durand Communications, Inc. prior to the consummation of the merger; and (ii) decrease in travel and entertainment expenses as a result of incurring more travel in the 1999 period related to servicing our cable distribution partners. These decreases were partially offset by increased costs associated with marketing consultants and recruiting expenses. We expect sales and marketing expenses to increase on an absolute dollar basis in future periods but decrease as a percentage of net revenues as our revenues increase from current levels as we continue to market our products and services. Product development expenses consist primarily of employee compensation and programming fees relating to the development and enhancement of the features and functionality of our software products and services. Product 20 development expenses were $1,144,579 or 113.3% of net revenues for the three months ended March 31, 2000 as compared to $598,840 or 207.7% of net revenues for the similar 1999 period. During the 2000 and 1999 three-month periods, all product development costs have been expensed as incurred. The increase in absolute dollars was due primarily to (i) an increase in employee compensation costs as a result of head count increasing from 27 to 50 technology personnel and an increase in contract labor to support the continued development of our products; and (ii) an increase in recruiting costs. We believe that significant investments in product development are critical to attaining our strategic objectives and, as a result, we expect product development expenses to increase in future periods. General and administrative expenses consist primarily of employee compensation, consulting expenses, fees for professional services, and the non- cash expense of stock and warrants issued for services. General and administrative expenses were $1,791,948 or 177.5% of net revenues for the three months ended March 31, 2000, as compared to $1,484,545 or 515.0% of net revenues for the similar 1999 period. The increase in absolute dollars was primarily attributable to (i) an increase in employee compensation costs; (ii) increase in non-cash expense for stock and warrants issued for investor relation and consulting services; (iii) increases in regulatory filing fees and other costs associated with securities filings; and (iv) increases in investor relation expenses. In April, 2000, we entered into an agreement with Diamond Technology Partners Inc. to assist with the development of the business plan for our Jabber.com subsidiary. As a result, we expect to incur approximately $800,000 in fees for these services, to be paid in a combination of cash and capital stock in Jabber.com. We expect general and administrative expenses to decrease as a percentage of revenues as our revenues increase. Depreciation and amortization was $2,207,043 for the three months ended March 31, 2000, compared to $108,229 for the similar 1999 period. We recorded more depreciation expense in 2000 as a result of an increase in fixed assets primarily from construction of our network operating center and computer hardware and third party software to support the launch of our AccelX services, two new e-banking customers, and computer equipment to support our product development team. We also amortized the intangible assets and goodwill we acquired in the Durand Communications, NetIgnite, and Update Systems acquisitions and recorded $2,037,255 of amortization expense in the 2000 three- month period. As a result of these acquisitions, we expect to record approximately $6.1 million of such expenses in the remainder of 2000 and approximately $8.3 million of such expenses in 2001 and approximately $5.8 million in 2002. Because our business has never been profitable, and due to the other risk and uncertainties discussed herein, it is 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. OTHER INCOME AND EXPENSE: Interest income was $161,887 for the three months ended March 31, 2000, compared to $50,301 for the similar 1999 period. We earn interest by investing surplus cash in highly liquid investment funds or AAA or similarly rated commercial paper. Interest expense was $174,990 for the three months ended March 31, 2000, compared to $4,159 for the similar 1999 period. During the 2000 three- month period, we recorded $170,751 of interest expense related to the 10% convertible note payable we issued in August 1999, including $95,890 of cash interest expense and non-cash charges of $50,381 and $24,480 related to amortization of the discount recorded for the issuance of a common stock purchase warrant and the amortization of financing fees, respectively. 21 NET LOSSES ALLOCABLE TO COMMON STOCKHOLDERS: Net loss allocable to common stockholders was $18,267,668 for the three months ended March 31, 2000, compared to $6,781,400 for the similar 1999 period. We recorded non-cash expenses for the following items:
Three Months Ended March 31, ------------------------------------- 2000 1999 ----------- ---------- Amortization of intangible assets and goodwill $ 2,037,255 $ - Amortization of discount and placement fees to interest expense related to the 10% convertible note payable 74,861 - Stock and warrants issued for services 175,170 140,229 Preferred stock dividends 373,126 21,949 Accretion of preferred stock 12,500,000 4,158,563 ----------- ---------- Total $15,160,412 $4,320,741 =========== ==========
The increase in losses reflect expenses in sales and marketing, product development, and general and administrative areas that have increased at a faster rate than revenues. This is due to the time lag associated with product development and market introduction as well as the long sales cycle for most of our products and services. We expect to continue to experience increased operating expenses and investments during 2000, as we continue to develop new product offerings and the infrastructure required to support our anticipated growth. We expect to report operating and net losses for 2000 and for one or more years thereafter. LIQUIDITY AND CAPITAL RESOURCES: As of March 31, 2000, we had cash and cash equivalents of $17,595,899 and working capital of $17,012,867. We financed our operations and capital expenditures and other investing activities during 2000 primarily through the sale of securities (See Notes 7 and 9 of Notes to Consolidated Financial Statements for information regarding these sales of securities). We used $3,759,432 in cash to fund our operations for the three months ended March 31, 2000, compared to $2,203,562 for the similar 1999 period. The increase in net cash used resulted primarily from the following: (i) an increase in costs paid for continued development of our XML-based AccelX products and services and e-banking applications; (ii) higher compensation costs paid to employees; (iii) increased direct costs and support costs associated with increased head count; and (iv) payment of 1999 bonuses in the first quarter of 2000. We used an additional $598,822 in cash for capital expenditures during the three months ended March 31, 2000, compared to $603,113 during the similar 1999 period. We purchased $598,822 of property and equipment and plan to purchase an additional $1.7 million during the balance of 2000, including computer equipment, software and leasehold improvements for our new corporate offices. We received $17,789,782 in operating capital from financing activities for the three months ended March 31, 2000, compared to $3,759,590 for the similar 1999 period. During the first quarter of 2000, we received funds from the following financing transactions: . On February 18, 2000, we sold 12,500 shares of our series B preferred stock with stated value of $1,000 per share, which resulted in net proceeds of $11,660,000; and . We received $6,165,461 in cash from the issuance of our common stock as a result of the exercise of common stock options and warrants. We believe that based on our cash and cash equivalents and working capital at March 31, 2000 and anticipated revenues and expenses, we have sufficient working capital to fund operations throughout fiscal 2001. 22 Factors That May Affect Future Results Factors that may affect our future results include, but are not limited to, the following items as well as the information in "Item 1 - Financial Statements - - Notes to the Consolidated Financial Statements" and "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Our limited operating history could affect our business. We were founded in March 1994 and commenced sales in February 1995. Accordingly, we have a limited operating history upon which you may evaluate us. Our business is subject to the risks, expenses and difficulties frequently encountered by companies with a limited operating history including: . Limited ability to respond to competitive developments; . Exaggerated effect of unfavorable changes in general economic and market conditions; . Ability to attract qualified personnel; . Ability to develop and introduce new product and service offerings; and . Ability to adjust the business plan to address marketplace and technological changes. There is no assurance we will be successful in addressing these risks. If we are unable to successfully address these risks our business could be significantly affected. We have accumulated losses since inception and we anticipate that we will continue to accumulate losses for the foreseeable future. We have incurred net losses since inception totalling approximately $60.9 million through March 31, 2000. In addition, we expect to incur additional substantial operating and net losses in 2000 and for one or more years thereafter. We expect to incur these additional losses because: . We currently intend to increase our capital expenditures and operating expenses to expand the functionality and performance of our products and services; and . We recorded goodwill and other intangible assets totalling approximately $24 million in connection with the acquisitions of three businesses which will be amortized over their estimated useful lives of approximately three years. The accumulated deficit at March 31, 2000, included approximately $35.1 million of non-cash expenses related to the issuance of preferred stock and warrants in financing transactions, stock and stock options issued for services, warrants issued to four customers, interest expense on a 10% convertible note payable and amortization of assets acquired through the issuance of our securities. The current competitive business environment may result in our issuance of similar securities in future financing transactions or to other companies as an inducement for them to enter into a business relationship with us. While these transactions represent non-cash charges, they will increase our expenses and net loss and our net loss available to common shareholders. If we are unable to raise additional working capital funds, we may not be able to sustain our operations. We believe that our present cash and cash equivalents, working capital and commitments for additional equity investments will be adequate to sustain our current level of operations throughout fiscal 2001. However, we may discover that we have underestimated our working capital needs, and we may need to obtain additional funds prior to 2002. There is no assurance that we will be able to raise additional funds if required in amounts required or upon acceptable terms. If we cannot raise additional funds when needed, we may be required to curtail or scale back our operations. These actions could have a material adverse effect on our business, financial condition or results of operations. We may never become or remain profitable. Our ability to become profitable depends on the ability of our products and services to generate revenues. The success of our revenue model will depend upon many factors including: . The success of our distribution partners in marketing their products and services; and 23 . The extent to which consumers and businesses use our services and conduct e-commerce transactions and advertising utilizing our services. Because of the new and evolving nature of the Internet, we cannot predict whether our revenue model will prove to be viable, whether demand for our products and services will materialize at the prices we expect to charged, or whether current or future pricing levels will be sustainable. Additionally, our customer contracts may result in significant development revenue in one quarter, which will not recur in the next quarter for that customer. As a result, it is likely that components of our revenue will be volatile, which may cause our stock price to be volatile as well. Our business depends on the growth of the Internet. Our business plan assumes that the Internet will develop into a significant source of communication and communication interactivity. However, the Internet market is new and rapidly evolving and there is no assurance that the Internet will develop in this manner. If the Internet does not develop in this manner, our business, operating results and financial condition would be materially adversely affected. Numerous factors could prevent or inhibit the development of the Internet in this manner, including: . The failure of the Internet's infrastructure to support Internet usage or electronic commerce; . The failure of businesses developing and promoting Internet commerce to adequately secure the confidential information, such as credit card numbers, needed to carry out Internet commerce; and . Regulation of Internet activity. Use of many of our products and services will be dependent on distribution partners. Because we have elected to partner with other companies for the distribution of many of our products and services, many users of our products and services are expected to utilize our services through our distribution partners. As a result, our distribution partners, and not us, will substantially control the customer relationship with these users. If the business of the companies with whom we partner is adversely affected in any manner, our business, operating results and financial condition could be materially adversely affected. We may be unable to develop desirable products. Our products are subject to rapid obsolescence and our future success will depend upon our ability to develop new products and services that meet changing customer and marketplace requirements. There is no assurance that we will be able to successfully: . Identify new product and service opportunities; or . Develop and introduce new products and services to market in a timely manner. If we are unable to accomplish these items, our business, operating results and financial condition could be materially adversely affected. Our products and services may not be successful. Even if we are able to successfully identify, develop, and introduce new products and services there is no assurance that a market for these products and services will materialize to the size and extent that we anticipate. If a market does not materialize as we anticipate, our business, operating results, and financial condition could be materially adversely affected. The following factors could affect the success of our products and services: . The failure of our business plan to accurately predict the rate at which the market for Internet products and services will grow; . The failure of our business plan to accurately predict the types of products and services the future Internet marketplace will demand; . Our limited experience in marketing our products and services; . The failure of our business plan to accurately predict our future participation in the Internet marketplace; . The failure of our business plan to accurately predict the estimated sales cycle, price and acceptance of our products and services; 24 . The development by others of products and services that renders our products and services noncompetitive or obsolete; or . Our failure to keep pace with the rapidly changing technology, evolving industry standards and frequent new product and service introductions that characterize the Internet marketplace. The intense competition that is prevalent in the Internet market could have a material adverse effect on our business. Our current and prospective competitors include many companies whose financial, technical, marketing and other resources are substantially greater than ours. There is no assurance that we will have the financial resources, technical expertise or marketing, sales and support capabilities to compete successfully. The presence of these competitors in the Internet marketplace could have a material adverse effect on our business, operating results or financial condition by causing us to: . Reduce the average selling price of our products and services; or . Increase our spending on marketing, sales and product development. There is no assurance that we would be able to offset the effects of any such price reductions or increases in spending through an increase in the number of our customers, higher sales from premium services, cost reductions or otherwise. Further, our financial condition may put us at a competitive disadvantage relative to our competitors. If we fail to, or cannot, meet competitive challenges, our business, operating results and financial condition could be materially adversely affected. A limited number of our customers generate a significant portion of our revenues. We had three customers representing 72% of revenues for the three months ended March 31, 2000, and four customers representing 93% of revenues for the similar 1999 period. There is no assurance that we will be able to attract or retain major customers. The loss of, or reduction in demand for products or services from major customers could have a material adverse effect on our business, operating results, cashflow and financial condition. The sales cycle for our products and services is lengthy and unpredictable. While our sales cycle varies from customer to customer, it typically has ranged from one to six months. Our pursuit of sales leads typically involves an analysis of our prospective customer's needs, preparation of a written proposal, one or more presentations and contract negotiations. We often provide significant education to prospective customers regarding the use and benefits of our Internet technologies and services. Our sales cycle may also be affected by a prospective customer's budgetary constraints and internal acceptance reviews, over which we have little or no control. In order to quickly respond to, or anticipate, customer requirements, we may begin development work prior to having a signed contract, which exposes us to the risk that the development work will not be recovered from revenue from that customer. We may be unable to adjust our spending to account for potential fluctuations in our quarterly results. As a result of our limited operating history, we do not have historical financial data for a sufficient number of periods on which to base planned operating expenses. Therefore, our expense levels are based in part on our expectations as to future sales and to a large extent are fixed. We typically operate with little backlog and the sales cycles for our products and services may vary significantly. As a result, our quarterly sales and operating results generally depend on the volume and timing of and the ability to close customer contracts within the quarter, which are difficult to forecast. We may be unable to adjust spending in a timely manner to compensate for any unexpected sales shortfalls. If we were unable to so adjust, any significant shortfall of demand for our products and services in relation to our expectations would have an immediate adverse effect on our business, operating results and financial condition. Further, we currently intend to increase our capital expenditures and operating expenses to fund product development and increase sales and marketing efforts. To the extent that such expenses precede or are not subsequently followed by increased sales, our business, operating results and financial condition will be materially adversely affected. We may be unable to retain our key executives and research and development personnel. Our future success also depends in part on our ability to identify, hire and retain additional personnel, including key product 25 development, sales, marketing, financial and executive personnel. Competition for such personnel is intense and there is no assurance that we can identify or hire additional qualified personnel. Executives and research and development personnel who leave us may compete against us in the future. We generally enter into written nondisclosure and nonsolicitation agreements with our officers and employees which restrict the use and disclosure of proprietary information and the solicitation of customers for the purpose of selling competing products or services. However, we generally do not require our employees to enter into non-competition agreements. Thus, if any of these officers or key employees left, they could compete with us, so long as they did not solicit our customers. Any such competition could have a material adverse effect on our business. We may be unable to manage our expected growth. If we are able to implement our growth strategy, we will experience significant growth in the number of our employees, the scope of our operating and financial systems and the geographic area of our operations. There is no assurance that we will be able to implement in whole or in part our growth strategy or that our management or other resources will be able to successfully manage any future growth in our business. Any failure to do so could have a material adverse effect on our operating results and financial condition. We may be unable to protect our intellectual property rights. Intellectual property rights are important to our success and our competitive position. There is no assurance that the steps we take to protect our intellectual property rights will be adequate to prevent the imitation or unauthorized use of our intellectual property rights. Policing unauthorized use of proprietary systems and products is difficult and, while we are unable to determine the extent to which piracy of our software exists, we expect software piracy to be a persistent problem. In addition, the laws of some foreign countries do not protect software to the same extent as do the laws of the United States. Even if the steps we take to protect our proprietary rights prove to be adequate, our competitors may develop services or technologies that are both non-infringing and substantially equivalent or superior to our services or technologies. Computer viruses and similar disruptive problems could have a material adverse effect on our business. Our software and equipment may be vulnerable to computer viruses or similar disruptive problems caused by our customers or other Internet users. Our business, financial condition or operating results could be materially adversely affected by: . Losses caused by the presence of a computer virus that causes us or third parties with whom we do business to interrupt, delay or cease service to our customers; . Losses caused by the misappropriation of secured or confidential information by a third party who, in spite of our security measures, obtains illegal access to this information; . Costs associated with efforts to protect against and remedy security breaches; or . Lost potential revenue caused by the refusal of consumers to use our products and services due to concerns about the security of transactions and commerce that they conduct on the Internet. Future government regulation could materially adversely affect our business. There are currently few laws or regulations directly applicable to access to, communications on, or commerce on the Internet. Therefore, we are not currently subject to direct regulation of our business operations by any government agency, other than regulations applicable to businesses generally. Due to the increasing popularity and use of the Internet, however, federal, state, local, and foreign governmental organizations are currently considering a number of legislative and regulatory proposals related to the Internet. The adoption of any of these laws or regulations may decrease the growth in the use of the Internet, which could, in turn: . Decrease the demand for our products and services; . Increase our cost of doing business; or . Otherwise have a material adverse effect on our business, results of operations and financial condition. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, copyright, trademark, trade secret, obscenity, libel and personal privacy is uncertain and developing. Our business, 26 results of operations and financial condition could be materially adversely affected by the application or interpretation of these existing laws to the Internet. Our articles of incorporation and bylaws may discourage lawsuits and other claims against our directors. Our articles of incorporation provide, to the fullest extent permitted by Colorado law, that our directors shall have no personal liability for breaches of their fiduciary duties to us. In addition, our bylaws provide for mandatory indemnification of directors and officers to the fullest extent permitted by Colorado law. These provisions may reduce the likelihood of derivative litigation against directors and may discourage shareholders from bringing a lawsuit against directors for a breach of their duty. The price of our common stock has been highly volatile due to factors that will continue to affect the price of our stock. Our common stock closed as high as $67.75 per share and as low as $9.96 per share between January 1, 2000 and May 3, 2000. Historically, the over-the-counter markets for securities such as our common stock have experienced extreme price and volume fluctuations. Some of the factors leading to this volatility include: . Price and volume fluctuations in the stock market at large that do not relate to our operating performance; . Fluctuations in our quarterly revenue and operating results; . Announcements of product releases by us or our competitors; . Announcements of acquisitions and/or partnerships by us or our competitors; and . Increases in outstanding shares of common stock upon exercise or conversion of derivative securities. These factors may continue to affect the price of our common stock in the future. We have issued numerous options, warrants, and convertible securities to acquire our common stock that could have a dilutive effect on our shareholders. As of May 3, 2000, we had issued warrants and options to acquire 4,363,662 shares of our common stock, exercisable at prices ranging from $1.63 to $58.75 per share, with a weighted average exercise price of approximately $15.00 per share. In addition to these warrants and options, we have reserved 1,875,000 shares of common stock for issuance upon conversion of our 10% convertible note and series B convertible preferred stock. During the terms of these derivative securities, the holders will have the opportunity to profit from either an increase or, in the case of the preferred stock and note, decrease in the market price of our common stock with resulting dilution to the holders of shares who purchased shares for a price higher than the respective exercise or conversion price. In addition, the increase in the outstanding shares of our common stock as a result of the exercise or conversion of these derivative securities could result in a significant decrease in the percentage ownership of our common stock by the purchasers of our common stock. The potentially significant number of shares issuable upon conversion of our 10% convertible note and series B convertible preferred stock could make it difficult to obtain additional financing. Due to the significant number of shares of our common stock which could result from a conversion of our 10% convertible note and series B convertible preferred stock, new investors may either decline to make an investment in Webb due to the potential negative effect this additional dilution could have on their investment or require that their investment be on terms at least as favorable as the terms of the 10% convertible note or series B convertible preferred stock. If we are required to provide similar terms to obtain required financing in the future, the potential adverse effect of these existing financings could be perpetuated and significantly increased. Future sales of our common stock in the public market could adversely affect the price of our common stock. Sales of substantial amounts of common stock in the public market that is not currently freely tradable, or even the potential for such sales, could have an adverse affect on the market price for shares of our common stock and could impair the ability of purchasers of our common stock to recoup their investment or make a profit. As of May 3, 2000, these shares consist of: . Approximately 310,000 shares owned by our executive officers and directors of our outstanding common stock ("Affiliate Shares"); 27 . Up to 1,875,000 shares issuable upon conversion of the 10% convertible note and series B preferred stock; and . Approximately 4,363,662 shares issuable to warrant and option holders. Unless the Affiliate Shares are further registered under the securities laws, they may not be resold except in compliance with Rule 144 promulgated by the SEC, or some other exemption from registration. Rule 144 does not prohibit the sale of these shares but does place conditions on their resale which must be complied with before they can be resold. The common stock issuable upon conversion of our convertible note and preferred stock may increase as the price of our common stock decreases, which may adversely affect the price of our common stock. On May 3, 2000, we had issued and outstanding $2,500,000 principal amount of a 10% convertible note and 12,500 shares of series B convertible preferred stock. The number of shares of common stock that may ultimately be issued upon conversion of these securities is presently indeterminable and could fluctuate significantly. Purchasers of common stock could therefore experience substantial dilution upon conversion of the convertible note and preferred stock. In addition, the significant downward pressure on the market price of our common stock could develop as the holders convert and sell material amounts of common stock which could encourage short sales by the holders or others, placing further downward pressure on the market price of our common stock. To illustrate the potential dilution that may occur upon conversion of the convertible note and preferred stock, the following table sets forth the number of shares of common stock that would be issued upon conversion of the principal of the convertible note and the shares of preferred stock if the market price for our common stock on the dates that the conversion prices of these securities are subject to adjustment is $14.00, the closing sale price for our common stock on May 3, 2000, and at assumed market prices of 75% and 50% of the market price on May 3, 2000, assuming that the conversion price for the 10% note is adjusted after September 29, 2000. At May 3, 2000, the lowest potential conversion price was $8.00 per share.
Shares Issued Upon Conversion ----------------------------------------------- Total 10% Notes Series B Preferred Stock (Percentage of Market Price Conversion Price) (Conversion Price) Outstanding) - --------------------------------- ----------------- ------------------------ ----------------- $14.00 (actual price at 05/03/00) 248,262 ($10.07) 625,000 ($20.00) 873,262 (8.8%) $10.50 (75% of 05/03/00 price) 248,262 ($10.07) 1,190,476 ($10.50) 1,438,738 (13.6) $7.00 (50% of 05/03/00 price) 312,500 ($8.00) 1,562,500 ($8.00) 1,875,000 (17.1%)
Future sales of our common stock in the public market could limit our ability to raise capital. Sales of substantial amounts of our common stock in the public market pursuant to Rule 144, upon exercise or conversion of derivative securities or otherwise, or even the potential for such sales, could affect our ability to raise capital through the sale of equity securities. Provisions in our articles of incorporation allow us to issue shares of stock that could make a third party acquisition of us difficult. Our Articles of Incorporation authorize our Board of Directors to issue up to 60,000,000 shares of common stock and 5,000,000 shares of preferred stock in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by our shareholders. Preferred stock authorized by the Board of Directors may include voting rights, preferences as to dividends and liquidation, conversion and redemptive rights and sinking fund provisions. If the Board of Directors authorizes the issuance of preferred stock in the future, this authorization could affect the rights of the holders of common stock, thereby reducing the value of the common stock, and could make it more difficult for a third party to acquire us, even if a majority of the holders of our common stock approved of an acquisition. The issuance of our 10% convertible note payable and series B convertible preferred stock required us to record non-cash expenses which will, in turn, increase our net loss available to common shareholders. Based on current accounting standards, we recorded a non-cash expense of approximately $75,000 as additional interest expense and $12.5 million of accretion expense for the three months ended March 31, 2000, as a result of the 28 issuance of our 10% convertible note and the issuance of our series B preferred stock, respectively. We will record additional non-cash expenses of approximately $189,000 during the remainder of 2000 and $409,000 during the two years ending December 31, 2002 related to the issuance of the note unless it is converted to common stock prior to its maturity date, in which case it will be less. We do not anticipate paying dividends on our common stock for the foreseeable future. We have never paid dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future. Any decision by us to pay dividends on our common stock will depend upon our profitability at the time, cash available therefor, and other factors. We anticipate that we will devote profits, if any, to our future operations. 29 PART II OTHER INFORMATION Items 1, 3 and 5. Not Applicable Item 2. Changes in Securities and Use of Proceeds On February 18, 2000, we sold 12,500 shares of our series B preferred stock, $1,000 stated value, to two investors for $12.5 million. In connection with this investment, the investors were granted warrants to purchase 343,750 shares of our common stock at an initial exercise price of $20.20 per share. PaineWebber served as the placement agent for the offering and received a $750,000 commission. See Note 7 of the Notes to Consolidated Financial Statements for a description of the terms of the securities. The securities were registered under the Securities Act of 1933, as amended. Item 4. Submission of Matters to a Vote of Security Holders. The Company's 2000 Annual Meeting of Shareholders was held on April 27, 2000. At the meeting the following five persons were elected to serve as directors of the Company: Perry R. Evans; William R. Cullen; Robert J. Lewis; Richard C. Jennewine; and Lindley S. Branson Shareholders also approved the following items: (i) an increase from 25,000,000 to 65,000,000 in the number of authorized shares of capital stock and an increase from 20,000,000 to 60,000,000 shares of common stock, no par value-- 8,862,313 shares voting For such amendment, 107,005 shares voting Against and 13,528 shares Abstaining; (ii) approval of issuance of securities pursuant to the issuance of preferred stock and warrants--2,130,835 shares voting For, 103,904 shares voting Against and 18,553 shares Abstaining (a total of 6,729,554 shares represented at the meeting were not voted with respect to this item); (iii) an increase from 3,500,000 shares to 4,500,000 shares in the number of shares of common stock reserved for issuance pursuant to the Company's Stock Option Plan of 1995--2,088,811 shares voting For approval, 141,650 shares voting Against and 22,831 shares Abstaining (a total of 6,729,554 shares represented at the meeting were not voted with respect to this item); and (iv) the approval of Arthur Andersen LLP as the independent auditors of the Company for the fiscal year ending December 31, 2000--8,936,046 shares voting For, 37,340 voting Against and 9,460 shares Abstaining. 30 Item 6. Exhibits and Reports on Form 8-K (a) Listing of Exhibits: 3.1 Agreement and Plan of Merger dated March 19, 1998 among Webb, Durand Acquisition Corporation and Durand Communications, Inc. (1) 2.2 Asset Purchase Agreement, including exhibits thereto, dated December 27, 1999, between Webb Interactive Services, Inc., Update Systems, Inc. and Kevin Schaff. (2) 2.3 Agreement and Plan of Merger between Webb and NetIgnite, Inc., dated June 1, 1999 (3) 3.1 Articles of Incorporation, as amended, of Webb (4) 3.2 Bylaws of Webb (5) 4.1 Specimen form of Webb's Common Stock certificate (6) 4.2 Stock Option Plan of 1995 (5) 4.3 Form of Incentive Stock Option Agreement for Stock Option Plan of 1995 (5) 4.4 Form of Nonstatutory Stock Option Agreement for Stock Option Plan of 1995 (5) 4.5 Form of Warrant issued in 1996 to private investors (5) 4.6 Form of Warrant Agreement issued in 1997 and 1998 to private investors (1) 10.1 Form of Nondisclosure and Nonsolicitation Agreement between Webb and its employees (4) 10.2 Office Lease for Webb's principal offices commencing May 2000 (13) 10.3 Form of Change of Control Agreement between Webb and certain employees (7) 10.4 Employment Agreement dated March 10, 1999, among Webb, NetIgnite2, LLC and Perry Evans (7) 10.5 Electronic Banking Service Contract dated May 28, 1997 between Webb and Rockwell Federal Credit Union (7) 10.6 Online Banking Service Agreement dated February 10, 1999 between Webb and CU Cooperative Systems, Inc. (7) 10.7 Internet/Business Site Development & Host Agreement dated November 12, 1997, as amended January, 2000, between Webb and ReMax International, Inc. (13) 10.8 Securities Purchase Agreement dated August 25, 1999 between Webb and Castle Creek (8) 10.9 Promissory Note dated August 25, 1999 issued by Webb to Castle Creek (8) 10.10 Amendment dated December 18, 1999 to Securities Purchase Agreement dated August 25, 1999 between Webb and Castle Creek (9) 10.11 First Amendment dated December 18, 1999 to Promissory Note dated August 25, 1999 issued by Webb to Castle Creek (9) 10.12 Stock Purchase Warrant dated December 18, 1999 issued by Webb to Castle Creek (9) 10.13 Securities Purchase Agreement dated December 31, 1999, between Webb, Marshall Capital Management and Castle Creek. Included as exhibits to the Securities Purchase Agreement are the proposed form of Warrant and the Registration Rights Agreement (10) 10.14 Articles of Amendment setting forth the terms of the Series B Convertible Preferred Stock (11) 10.15 Development, Access and License Agreement, as amended, effective June 30, 1999 between Webb and Switchboard, Inc. (12) 10.16 Engineering Services Agreement, effective June 30, 1999, between Webb and Switchboard, Inc. (12) 10.17 Master Software License Agreement, Web Site Hosting Agreement, Maintenance and Support Agreement and Professional Services Agreement, effective March 31, 2000, between Webb and Vetconnect, Inc. * 10.18 Consulting Agreement, effective April 24, 2000, between Webb and Diamond Technology Partners, Inc. * 21 Subsidiaries of Webb Interactive Services, Inc. (13) 27 Financial Data Schedule * - ----------------------------- * Filed herewith. (1) Filed with the Form 10-KSB Annual Report for the year ended December 31, 1997, Commission File No. 0-28462. 31 (2) Filed with the Form 8-K Current Report, filed January 14, 2000, Commission File No. 0-28642. (3) Filed with the Form 10-QSB for the quarter ended June 30, 1999, Commission File No. 0-28642. (4) Filed with the Registration Statement on Form S-3, filed January 29, 1999, Commission File No. 333-71503. (5) Filed with the initial Registration Statement on Form SB-2, filed April 5, 1996, Commission File No. 333-3282-D. (6) Filed with the Registration Statement on Form S-3, filed September 24, 1999, Commission File No. 333-86465. (7) Filed with the Form 10-KSB Annual Report for the year ended December 31, 1998, Commission File No. 0-28462. (8) Filed with the Form 8-K Current Report, filed September 2, 1999, Commission File No. 0-28642. (9) Filed with Amendment No. 2 to Webb's Registration Statement on Form S-3, filed January 3, 2000, Commission File No. 333-87887 (10) Filed with the Form 8-K Current Report, filed January 5, 2000, Commission File No. 0-28642. (11) Filed with the Form 8-K Current Report, filed February 25, 2000, Commission File No. 0-28642. (12) Filed with the Registration Statement on Form S-3, filed September 2, 1999, Commission File No. 333-86465. (13) File with the Form 10-KSB Annual Report for the year ended December 31, 1999, Commission File No. 0-28462. (b) Reports on Form 8-K. The Company filed reports on Form 8-K during the quarter ended March 31, 2000 as follows: (i) filed under Item 5 of Form 8-K on January 5, 2000; (ii) filed under Item 2 of Form 8-K on January 14, 2000; and amended on March 28, 2000; (iii) filed under Item 5 of Form 8-k on February 25, 2000. 32 Signatures In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WEBB INTERACTIVE SERVICES, INC. Date: May 12, 2000 By /s/ William R. Cullen --------------------- Chief Financial Officer /s/ Stuart J. Lucko ------------------- Controller 33 EX-10.17 2 MASTER SOFTWARE LICENSE AGREEMENT EXHIBIT 10.17 WEBB INTERACTIVE SERVICES MASTER SOFTWARE LICENSE AGREEMENT THIS MASTER SOFTWARE LICENSE AGREEMENT ("Agreement"), together with the attached Schedules, Exhibits or Addenda which are incorporated and made part of the Agreement, is entered into by and between WEBB INTERACTIVE SERVICES ("Webb"), a Colorado corporation with its principal offices located at 1800 Glenarm Place, Denver Colorado, USA 80202 and the client(s) ("Client") whose name, principal business address, and jurisdiction of incorporation are set forth below. - -------------------------------------------------------------------------------- Client Name(s): VETCONNECT, INC. ----------------------------------------- Address: 85 Exchange Street ----------------------------------------- City: Portland ----------------------------------------- State/Zip or Province/Postal Code: ME 04101 ----------------------------------------- Country: USA ----------------------------------------- Jurisdiction of Incorporation: Delaware - -------------------------------------------------------------------------------- 1.0 License, Hosting Services and Payment. 1.1 Subject to the terms and conditions of this Agreement, Webb hereby grants to Client a perpetual and non-transferable (except as set forth in Section 15.0) license to (i) use, copy (for Client's internal business purposes only), and modify the Products provided that Client may use the Community Ware/XML only on the Number of Sites, as designated in Schedule A and (ii) use the Documentation. The license granted herein shall include the limited exclusive rights set forth in Schedule E. Client may use other third-party providers to host its services provided Client shall obtain prior consent of WEBB before allowing such third party providers access to the Products, which consent shall not be unreasonably denied. 1.2 Client shall pay Webb the License Fees as set forth in Exhibits attached hereto, subject to any discounts therein. All fees are exclusive of Taxes. If applicable laws require the withholding of Taxes under this Agreement, Client shall notify Webb, make the applicable withholding, and remit the required Tax to the proper governmental authority. 2.0 Delivery and Installation. 2.1 Upon receipt of an executed and completed contract and purchase order from Client, Webb shall deliver the Products to Client in a reasonably appropriate format , including one copy of the Documentation on reasonably appropriate media. 2.2 Except as set forth in this section or unless otherwise agreed by the Parties in a separate written agreement, Client shall, at its expense and as described in the Professional Services Agreement that is Schedule D, be responsible for installation of the Products, user training, data conversion, and other services necessary to installing and using the Products. 3.0 Definitions. 3.1 "Agreement" means this Agreement, Schedules, Exhibits and any addenda signed by the Parties. 3.2 "Confidential Information" means all rights, information, trade secrets, know-how, processes, software, methods, designs, documentation, customer lists, marketing plans and the like, in whatever form or medium, relating to the Products or the operation of Webb or specifically to Client's Internet site, or to any information included thereon, and which have not been previously disclosed to the general public. 3.3 "Customer" means a Client subscriber that has set up its own business web site through the use of functionality provided by the Products. 3.4 "Documentation" means all documentation delivered by Webb with the Products, whether in machine-readable or printed form, including any updates, revisions, new versions, and supplements to such documentation. 3.5 "Effective Date" means the date when the Parties have executed this Agreement as indicated at the end of this Agreement in the space marked "Date" below each Parties' signature to this Agreement. 3.6 "Intellectual Property Rights" means all copyrights, confidentiality rights, trade secret rights, trademark rights, patent rights and other intellectual property rights. 3.7 "License" means the license referred to in Section 1.1. 3.8 "License Fee" means the license fee payable for a Product as set forth in the Schedule A, Exhibit 1. 3.9 "Modifications or Enhancements" means any Upgrades, modifications, enhancements or derivative works to the Products developed by Webb which contain or use any object code or source code developed by Webb. 3.10 "Number of Seats" means the maximum number of Customers' websites which may have access to the functionality provided by the Products. 2 3.11 "Number of Sites" means the maximum number of locations or street addresses in the United States at which the server portion of the Products are installed. 3.12 "Parties" means Webb and Client. "Party" means either Webb or Client. 3.13 "Patent or Copyright" means the rights in any patent or copyright in the country in which the server portion of the Products is first installed in the United States. 3.14 "Platform Technology" means the current and future release levels of the hosting environment designated in Exhibit A and certified by Webb for use with the Products. Unless otherwise agreed upon in this Agreement, Webb shall not be obligated to provide Support for any portion of the Platform Technology. 3.15 "Products" means the software products owned by Webb including the functionality designated on the Schedule A to this Agreement. 3.16 "Product Warranty" means the warranty referred to in Section 4.0. 3.17 "Seat" means Customers' web sites which may have access to the functionality provided by the Products. 3.18 "Site" means a location or street addresses in the United States at which the server portion of the Products is installed. 3.19 "Taxes" means any sales, use, excise, value-added, withholding taxes or other taxes based upon this Agreement, including taxes, interest and penalties that are levied or assessed by a governmental authority, resulting from this Agreement, excluding taxes based on Webb's net income. 3.20 The singular and plural shall each include the other, and this Agreement shall be read accordingly when required by the facts. 3.21 "Upgrades" means new features, updates, upgrades, improvements, bug fixes, and error corrections that are provided to Webb customers or added to the Products and their respective functionality as they are made generally available by WEBB to its clients. 4.0 Warranties and Disclaimer of Warranty As long as Client is in compliance with all aspects of this Agreement: 4.1 Webb warrants that at the time of installation by VetConnect of the Products, the media containing the Products shall be free of material defects. Client's sole and exclusive remedy for breach of the Media Warranty is replacement of the defective media if any such defect is found within three (3) months after installation of the defective media. 4.2 Webb warrants that upon delivery, the Products shall materially or substantially perform in accordance with the Documentation provided by Webb and that the Products will function on the Platform Technology. 4.3 Webb hereby represents and warrants to Client that Webb has the full right, power, legal capacity and authority to enter into this Agreement and to carry out its terms. Webb hereby represents, warrants and covenants to Client that Webb is under no obligation or restriction, nor will it knowingly assume any such obligation or restriction that does or would in any way interfere or conflict with, or that does or would present a conflict of interest concerning this Agreement. 4.4 Webb hereby represents, warrants and covenants to Client that, except only as specifically provided otherwise in this Agreement, Webb has full right, title and interest in the Products and all creative materials incorporated therein. 4.5 Webb hereby represents, warrants and covenants to Client that the Products will be free from material reproducible programming errors and from defects in workmanship and materials and will operate in conformity with the specifications set forth in the Appendices hereto. If material programming errors are discovered within three (3) months after installation of the Products, Webb shall promptly remedy them at Webb's sole expense. 4.6 Webb hereby represents, warrants and covenants to Client that except as agreed to in writing by the Parties, no portion of the Products delivered hereunder will contain any protection feature designed to prevent its use. Webb further warrants that it will not impair the operation of any such Products in any way other than by order of a court of law. 4.7 Webb hereby represents, warrants and covenants to Client that there are and will be no liens, claims, encumbrances, and to Webb's knowledge, no legal proceedings, restrictions, agreements or understanding that might conflict or interfere with, limit, or be inconsistent with or otherwise affect any of the provisions of this Agreement or the enjoyment by Client of any rights in any of the Products or any elements thereof. 4.8 Webb hereby represents, warrants and covenants to Client that, to Webb's knowledge, the Products do not infringe on any patents, copyrights, trademarks, trade names, or other intellectual property rights (including trade secrets), privacy or similar rights of any person or entity, nor has any claim of such infringement been threatened or asserted, nor is such a claim pending against Webb (or to the best of Webb's knowledge, any entity from which Webb has obtained such rights). 3 4.9 Webb warrants to Client that the Products provided hereunder and under any Exhibits or Schedules attached hereto by Webb shall be performed by qualified personnel in a good and workmanlike manner and that, during the term of this Agreement, the Products shall be free from any operational defects that materially interfere with the Client's use of the Product in accordance with user documentation and the specifications set forth in Schedule A. The foregoing warranty is made only to the Client and shall not be construed as conferring any rights upon anyone not a Party to this Agreement. If, within three (3) months after installation of the Products, Client discovers a defect in the operation to the Products, it must promptly notify Webb in writing. Within a reasonable time after such notification, Webb will correct at Webb's expense such failure to conform to the user Documentation or to correct any defect in workmanship. Except as otherwise provided in this Agreement, the remedies set forth in this Section 4.9 are Client's exclusive remedies for breach of this warranty set forth in Section 4.4 and this Section 4.9. 4.10 Webb does not warrant any production components not developed or created by Webb, defects caused by disasters, unauthorized use or any other abuse or misuse by Client. Client shall be solely responsible for obtaining and maintaining, at its expense, all equipment and software at its location necessary to use the Products. Even if Webb makes recommendations to the Client regarding any such equipment or software, Webb shall have no responsibility or liability to Client for any loss, claim or damage resulting from or relating to Client's acquisition or use of such equipment or software. 4.11 THE EXPRESS LIMITED WARRANTIES IN THIS SECTION 4.0 ARE IN LIEU OF ALL OTHER WARRANTIES AND CONDITIONS EXPRESSED OR IMPLIED, CONTRACTUAL OR STATUTORY, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT, WEBB DOES NOT WARRANT THAT THE USE OF THE PRODUCTS SHALL BE UNINTERRUPTED OR ERROR FREE OR THAT ALL DEFICIENCIES OR ERRORS ARE CAPABLE OF BEING CORRECTED. 5.0 Intellectual Property Rights. 5.1 Client acknowledges and agrees that the Products, the ideas, methods of operation, processes, know-how, sub-systems and modules included in the Products are proprietary materials which contain valuable trade secrets and that all Intellectual Property Rights to the Products are owned exclusively by Webb, subject to the License. 5.2 Client acknowledges and agrees that Webb shall retain title to all Intellectual Property Rights related to the Products, copies of the Products, and Upgrades, Modifications or Enhancements. If Client makes any modifications or enhancements, Client shall assign to Webb all Intellectual Property Rights to the modifications or enhancements provided that Client shall retain a perpetual ------------- license to use, copy and modify any modifications for the sole purpose of benefiting its web site. Modifications or Enhancements may be used in conjunction with the Products only in compliance with this Agreement. 5.3 Client shall take reasonable precautions (including the precautions used for Client's own confidential information) to prevent the unauthorized use or disclosure of the Products, any source code provided to Client under this Agreement or other agreement between the Parties. Except as contemplated under the terms of this Agreement, Client shall not allow the Products to be made available to any third party (other than an Affiliate of VetConnect (as defined in Section 15 below) unless Webb approves such in writing and the third party enters into a non-disclosure and non-use agreement with Client on terms acceptable to Webb. Client shall not disassemble, decompile, decode or reverse engineer the Software, except as expressly permitted by applicable law. 5.4 Client shall use reasonable efforts to keep the Products free and clear of liens and security interests and may not sublicense the Products. 6.0 Inspection. Webb shall have the right to inspect, with reasonable notice, during normal business hours, no more than once per calendar year, any Site for the sole purpose of auditing use of the Products. 7.0 Number of Seats. Except as set forth in this Agreement, the number of Seats authorized to use any Product shall not exceed the Number of Seats without the prior approval of Webb. In the event that the Number of Seats is exceeded by the Client, Client shall pay to Webb an additional license fee as follows: (a) $20 for each additional Seat between 5001-10,000 Seats , (b) $15 for each additional Seat over between 10,000 and 20,000 Seats and (c) $10 for each additional Seat over 20,000. 8.0 Number of Sites. Except as set forth in this Agreement, the Number of Sites upon or at which the Product is installed shall not exceed the quantities specified in this Agreement as stated in the attached Schedule A. In the event that Client in its sole discretion desires to increase the Number of Sites, Client shall before such increase pay a fee to Webb the then current fee charged by Webb for additional site for customers reasonably similar to Client. 9.0 Upgrades All Upgrades, Enhancements and Modifications to the Products developed by Webb shall be provided by Webb to Client pursuant to the license granted in Section 1.1. 4 10.0 Copies of Products and Documentation. With Webb's prior permission only, Client may copy the Products, in object and source code format, only for backup, archival purposes or for Client's testing purposes. All copies of the Products must have all of the restrictive and proprietary notices as they appear on copies of the Products provided by Webb. 11.0 Source Code and Confidential Information. 11.1 The Products, in source code format, may be used only for diagnosing problems and developing modifications or enhancements permitted by this Agreement. Client shall ensure that only such authorized users have access to the Products. 11.2 Webb and Client and each of their representatives and agents shall maintain, and cause any third party involved in the delivery, installation or operation of the Products to maintain the Confidential Information of the other party in the strictest confidence and trust and shall take all reasonable measures to prevent the unauthorized use or disclosure of such Confidential Information except with the written consent of the owner of such Confidential Information in each instance, provided that either party may make disclosures required by a court of law or other governmental agency. Webb and Client and each of their representatives and agents agree to use the Confidential Information of the other party solely for the purpose of carrying out its obligations under this Agreement. 12.0 Infringement and Indemnity. 12.1 Webb shall, at its expense, defend any suit, claim or action brought against Client and shall indemnify and hold Client harmless against any and all claims, losses, damages, and liabilities whatsoever arising out of any action or claim asserted by a third party arising from any actual or asserted infringement of a Patent or Copyright or trade secret as a result of Client's use or a customer of Client's use of the Products, if Client: (a) promptly notifies Webb in writing of the suit or claim after Client receives notice; (b) gives Webb sole authority to defend or settle the suit or claim; (c) reasonably cooperates and assists Webb with defense of the suit or claim at Webb's expense. 12.2 If any Product becomes or in Webb's opinion is likely to become the subject of a suit or claim of infringement of a Patent or Copyright, Webb shall at its option and expense either (a) obtain the right for Client to use the Product; or (b) replace or modify the Product so that it becomes non-infringing. In the event that, after good faith best efforts by Webb, Webb is unable to obtain the right for Client to use the Product; or replace or modify the Product so that it becomes non-infringing, Webb may terminate the license solely for the infringing Product to the extent it relates to the infringing Product. If Webb terminates any portion of the license for the infringing Product under this Section 12.2, Client shall cease use of solely the infringing portion of the Product and shall return it to Webb and Webb shall pay Client, as Client's sole and exclusive remedy against Webb (other than indemnification by Webb under Section 12.1) an amount equal to the license fee paid under this Agreement for the infringing portion of the Product less any cumulative amortization or depreciation of that portion of the Product by Client on its financial statements as of the date when Webb terminates the license for the infringing portion of the Product. 12.3 Webb shall have no liability to Client under this Section 12.0 if any suit or claim of infringement is based upon the use of the Product: (a) in a modified state not authorized by Webb; or (b) in a manner other than for which it was designed, if infringement would have been avoided without such use of the Product. Webb shall not be liable to Client for any infringement claim outside the United States or Canada. 12.4 Client, at its expense, shall defend any suit, claim or action brought against Webb and shall indemnify and hold Webb harmless against any and all claims, losses, damages, and liabilities whatsoever arising out of any action or claim asserted by a third party arising from Client's use of the Products in a manner that is inconsistent with the terms of this Agreement, provided Webb (a) promptly notifies Clients in writing of the suit or claim after Webb receives notice; (b) gives Client sole authority to defend or settle the suit or claim; and (c) reasonably cooperates and assists Client with defense of the suit or claim at Webb's expense. 13.0 Term and Termination. 13.1 The term of this Agreement shall begin upon the Effective Date, and shall continue until terminated by either Party pursuant to the terms and conditions of this Agreement. 13.2 Webb may terminate this Agreement and the license granted to Client if Webb is in compliance with this Agreement and either (a) Client fails to pay Webb the one-time license fee set forth in Section 1.2 (and specifically excluding any fees due from Client to Webb pursuant to Exhibits B, C, and D) and such failure to pay has not been cured within thirty (30) days after Webb gives Client written notice describing the failure to pay, (b) Client is in material default of any other provision of this Agreement and such default has not been cured within thirty (30) days after Webb gives Client written notice describing the default. Upon termination in accordance with this Section 13.2, Webb may: (i) declare all amounts owed to Webb by Client to be immediately due and payable; (ii) require that Client cease any further use of the Products and immediately return the Products and any copies to Webb; and (iii) cease performance of all of Webb's obligations under this Agreement without liability to Client. 13.3 Client may terminate this Agreement if Client is in compliance with this Agreement and Webb is in material default of any provision of this Agreement and such default has not been cured within thirty (30) days after Client gives Webb written notice describing the default. Upon such termination: (i) Client shall pay Webb's outstanding invoices that do not pertain to Webb's default, but Client shall have no further payment 5 obligations to Webb under this Agreement; and (ii) Webb may require that Client cease any further use of the Products and immediately return the Products and any copies to Webb. 13.4 Upon termination of this Agreement by Webb or Client, Sections 3.0, 5.0, 6.0, 9.2, 12.0 through 25.0 of this Agreement shall survive. 14.0 Limitations of Liability. 14.1 CLIENT'S EXCLUSIVE REMEDIES FOR PRODUCT RELATED MATTERS SHALL BE AS DESCRIBED IN THIS AGREEMENT, SUBJECT TO THE LIMITATIONS OF SECTION 14.0. 14.2 WEBB SHALL NOT BE LIABLE FOR ANY EXPENSE OR DAMAGE ARISING OUT OF ANY ERASURE, DAMAGE OR DESTRUCTION OF FILES, DATA OR PROGRAMS. CLIENT SHALL BE RESPONSIBLE FOR MAKING BACKUP COPIES OF FILES, DATA, AND PROGRAMS. 14.3 IN NO EVENT SHALL WEBB OR ITS THIRD PARTIES BE LIABLE FOR SPECIAL, INDIRECT, THIRD PARTY, OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS. NEITHER PARTY SHALL SEEK, OR OTHERWISE APPLY FOR, ANY PUNITIVE OR EXEMPLARY DAMAGES. 14.4 EXCEPT ONLY FOR INDEMNIFICATION BY WEBB UNDER SECTION 12.1 ABOVE, WEBB'S MAXIMUM AGGREGATE LIABILITY FOR DAMAGES TO CLIENT OR OTHERS SHALL BE LIMITED TO ACTUAL DIRECT MONEY DAMAGES IN AN AMOUNT NOT TO EXCEED THE INITIAL LICENSE FEE PAID BY CLIENT TO WEBB FOR THE PRODUCT IF THE CLAIM AROSE WITHIN THREE YEARS AFTER THE EFFECTIVE DATE OF THIS AGREEMENT. 14.5 CLIENT ACKNOWLEDGES THAT THE LIMITATIONS ON LIABILITY IN THIS SECTION 14 ARE REASONABLE. THE REMEDIES PROVIDED IN THIS AGREEMENT ARE EXCLUSIVE. 15.0 Assignment. Webb may not assign or subcontract its rights or obligations under this Agreement, either in whole or in part, without the prior written consent of Client, which shall not be unreasonably withheld, except that, without the consent of Client, Webb may assign the entirety of its rights and obligations hereunder to an acquirer of substantially all of the business or assets of Webb. Client may not assign or subcontract its rights or obligations under this Agreement, either in whole or in part, without the prior written consent of the Webb, which shall not be unreasonably withheld, except that, without the consent of Webb, Client may assign the entirety of its rights and obligations hereunder to a) an acquirer of substantially all of the business and assets of Client or b) an Affiliate of Client. "Affiliate" means with respect to any Party, an individual or entity that, directly or indirectly, owns or controls, is owned or controlled by, or is under common ownership or control with such Party. 16.0 Waiver. No term or provision of this Agreement shall be deemed waived and no breach shall be deemed excused, unless such waiver is in writing and signed by the Party claimed to have waived or consented. A waiver by either of the parties of any of the covenants, conditions or agreements to be performed by the other hereunder shall not be construed to be a waiver of any succeeding breach thereof. 17.0 Export. Client shall not export the Products from the United States. If at anytime Client desires to deploy the Products at a location outside the United States, Client pay to Webb the then current published license fee for foreign deployment of the Products. If the foregoing does not reasonably apply to the then current situation at the time that Client desires to deploy the Products outside of the United States, the Parties shall negotiate in good faith until an acceptable license fee is mutually agreed upon by the Parties in writing. 18.0 Excusable Delay. Neither Webb nor Client shall be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Webb or Client, as the case may be. For purposes of this Agreement, such acts shall include, but not be limited to, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, or other such major events beyond Webb's or Client's reasonable control. This Section 18.0 shall not delay or excuse Client's payment obligations. 19.0 Governing Law and Dispute Resolution. This Agreement is governed by and construed in all respects in accordance with the laws of the State of Colorado, USA. (without regard to conflicts of laws principles), excluding the United Nations Convention on Contracts for the International Sale of Goods. 20.0 Relationship The relationship of Webb and Client under this Agreement will at all times remain independent. Neither Party is an agent, franchisee, partner or joint venturer of the other Party. Neither Party is authorized to enter into or execute any contract on behalf of or otherwise obligate the other Party in any matter. 6 21.0 Severance and Interpretation. If any provision of this Agreement is found to be unenforceable, such provision shall be deemed to be deleted or narrowly construed to such extent as is necessary to make it enforceable and this Agreement shall otherwise remain in full force and effect. If an ambiguity or question of intent arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of authorship of any of the provisions of this Agreement. 22.0 Notices. All notices required or permitted under this Agreement and all requests for approvals, consents, and waivers must be delivered in writing by a reasonably acceptable method providing for proof of delivery. Any notice or request shall be deemed to have been given on the date of delivery. Notices and requests must be delivered to the Parties at the addresses on the first page of this Agreement until a different address has been designated in writing by notice to the other Party. 23.0 Non-Solicitation of Employees. Neither Party shall directly solicit the services or employment of any employee or agent of the other Party for a period beginning at the Effective Date and ending twelve (12) months after the last date of initial delivery of any of the Products as set forth in the Exhibits (as of the Effective Date). 24.0 Entire Agreement. This Agreement and the Schedules and Exhibits listed below and referred to herein, together with any written addenda signed by the Parties (collectively, the "Agreement"), constitute the entire agreement between Webb and Client with respect to the Products Services, and other subject matter of this Agreement, and may only be modified by a written amendment or addendum signed by both Webb and Client. No employee, agent, or other representative of either Webb or Client has authority to bind the other with regard to any statement, representation, warranty, or other expression unless it is specifically included within the express terms of this Agreement or a written addendum signed by both Webb and Client. All purchase orders, prior agreements, representations, statements, proposals, negotiations, understandings, and undertakings with respect to the subject matter of this Agreement are superseded by this Agreement. 25.0 Publicity Except as may be required by law or in a legal or administrative proceedings, neither Party shall make any announcement regarding the existence of this Agreement and any Exhibits or Schedules attached hereto, the relationship between the parties or any terms of this Agreement to any third party or to the public in general without the express, written consent of the other party, such consent not be unreasonably withheld, provided that Client may withhold consent in its discretion prior to the first day that Client makes the Products functionality available to its subscribers. 26.0 Headings The headings in this Agreement are for reference purposes only and shall not be construed as a part of this Agreement. 27.0 Counterparts This Agreement may be executed, either through original copies or by facsimile, in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. An executed copy of this Agreement delivered by facsimile will constitute valid execution and delivery of this Agreement. For WEBB INTERACTIVE SERVICES, INC. For CLIENT (VETCONNECT) - -------------------------------------- -------------------------------------- (Authorized Signature) (Authorized Signature) - -------------------------------------- -------------------------------------- (Printed Name) (Printed Name) - -------------------------------------- -------------------------------------- (Title) (Title) - -------------------------------------- -------------------------------------- (Date) (Date) SCHEDULES and EXHIBITS : Attached - ---------------------- -------- 1. Schedule A Product Sites and Information Exhibit 1 License Fee and Other Charges 7 2. Schedule B Maintenance and Support Agreement Schedule C Web Site Hosting Agreement 8 Schedule A ---------- Product Information The following describes the Product suites, that Webb Interactive is licensing to VetConnect: Number of Seats: AccelX CRM = 5000; XML Publish = 5000 Number of Sites: CommunityWare/XML = 1 Location of Each Site: (1) ______http://www.vetconnect.com or such other site reasonably determined by Client pursuant to the terms hereof. (2) ______TBD____________________ Generally Available Product Functionality ----------------------------------------- AccelX CRM - ------------ The suite currently known as AcceIX CRM suite is designed for small businesses to enhance e-communications with online customers, and may be used by small businesses to receive requests for information from customers and to send outbound responses, promotional information or other e-marketing communication to customers. AcceIX uses communications templates that may be tailored to a variety of vertical industry needs. AcceIX is built to leverage a platform that enables data structures for capturing, storing and analyzing messages. Building and Formatting of Customer Information Templates --------------------------------------------------------- . Predefined notification templates, or business can create own . Page formatting and design . Subscriber uploading, downloading, and automated list maintenance . Demographic field modifications . Automated email responds message modifications for subscriber confirmation, profile change, and subscriber removal . Text modification including error messages Tracking Options ---------------- . Subscriber Interests . Email response rates . General Subscriber activity . Subscriber demographic and psychgraphic information Reporting Options ----------------- . Send updates to individuals . Send updates to whole interest group fields . Send updates to specific queried groups that you create . Set up auto-responders for confirmations of subscribing, unsubscribing, and profile editing . notifications can be delivered as text only email or HTML email and can include attachments Host Administration -------------------- Quick Administration of Global Values For Accounts -------------------------------------------------- . Predefine your pricing packages . Set up different pricing packages with different system limits . Set maximums for demographics and listings . Set maximum number of subscribers for an account . Set bandwidth limits 9 . Select email attachment options . Set pricing options Account Management ------------------ . Quickly add new accounts . Control account logins . Disable delinquent accounts . Update general information for individual accounts CommunityWare/XML (as currently known) - -------------------------------------- . CommunityWare/XML is a robust messaging engine based on integrated messaging technologies. Release 4.0 General Features . Messages . Post structured messages . Post a message with HTML in the contents . Spellchecking for posting messages . Profanity filter for posting messages . Messages marked as read/unread . Erase your own posted messages . Create a new topic (on or off--depending on moderator setup of discussion) . Sort topics by number, name, date of last post, number of unread posts . Hide topics from your view(e.g., not relevant to you) . Online help . Security . Seamless login authentication from customer's site to Webb discussions . User Permissions . Moderator access . Registered user access . Anonymous users who can only view discussions, topics, and messages--cannot post a message or add a topic Administration/Moderator-exclusive Features . Remote administration via a web browser . . Create, add, edit and delete public discussions . Create message templates for discussions and topics . Message templates are used to structure the content of message postings in a discussion or topic . Create, add, edit and delete moderated discussions . In moderated discussions, all posted messages must be pre-approved by the moderator before viewable in the discussion . Turn on/off profanity checking . Delete any messages . Archive discussions . Create, edit, delete FAQs associated with discussions 10 Jabber Instant Messaging - Applet Release 1.1 . Java Applet running within a browser . User registration and sign-in via browser . Create, edit and delete user profile information . Contact list: 4 default/fixed groups-all, friends, family and work . Send and reply to messages . Create, delete and search on Jabber and ICQ users via the browser . User searching on Jabber user profile information via browser XML Publish (as currently known) - -------------------------------- Release 2.0 . Simple online Web publishing editor that can be used via a Web browser and integrated with your call center for Web Site Creation and Editing . Web Site Creation and Editing includes customer information, site characteristics, site design and page types . Site preview: the site can be previewed at any point during the session . Online help . Multipage Ad Sites . Home page, About Us, Products, Services, Special Offers (specials and coupons) . Published information: store hours, product and service availability, type of payment accepted, etc. . Webb image libraries provide a selection of images to choose from in specific categories. . Company logos and images can be added to the Web site . Web site templates . Full range of templates to find the look consistent with the business image . XML architecture The following describes WEBB's hosting environment as it serves many customers. While WEBB cannot predict the capacity needs for VetConnect at the time that VetConnect hosts the Products, it is generally recommended that the Client have the following or similar components in their environment in order to host the Products: XML/Publish, CommunityWare/XML and AccelX CRMapplication servers BEA WebLogic 4.5.1 ProLiant 5500 Windows NT (We are moving to Solaris over the next few months) 4 Pentium II Xeon/450Mhz processors ~2 GB RAM ~8 GB hard drive space for SML/Publish server; ~18GB hard drive space for CommunityWare/XML and AccelX CRM servers 11 Oracle DB server Sun Enterprise 3500 4 SPARC Ultra 400Mhz processors 4 GB RAM 6 9GB hard drives Small business sites usually require (less than) 500K each; recommend about 10 GB storage space for the databases.. 12 EXHIBIT A-1: Business Terms ---------------------------- Software License - ---------------- CommunityWare/XML AccelX CRM XML Publish License fees = $400,000 Additional Terms ---------------- Product is to be used solely within the online animal health services industry under the name of VetConnect or the domain name reasonably determined by VetConnect. 13 Schedule B ---------- Maintenance and Support Agreement THIS MAINTENANCE AND SUPPORT AGREEMENT ("Agreement") between WEBB Interactive Services, Inc. ("WEBB"), a Colorado corporation with principal offices located at 1800 Glenarm Place, Denver, Colorado 80202 and VetConnect, Inc. ("Client") identified in the attached Master Software License Agreement (the "Master Agreement") dated as of ________, 2000 is effective as of ________ 2000 ("Effective Date"). WEBB and Client are referred to collectively as the "Parties". Background ---------- WHEREAS, Client has licensed the certain Products from WEBB and Client desires to have WEBB maintain and support the Products during the term of the Master Agreement. WHEREAS, WEBB is willing to offer maintenance and support for the Product during the term of the Master Agreement, subject to the terms of this Agreement. In consideration of the foregoing, the Parties agree as follows: 1. Definitions ----------- Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Master Agreement. 2. WEBB's Obligations ------------------ Subject to payment by Client of the Support Fee identified in Exhibit B-1, ----------- WEBB shall use reasonable commercial efforts to provide the following Maintenance and Support Services for the Products. (a) Problem reporting, tracking and monitoring and communications to Client by electronic mail via the Internet; (b) Maintenance of accessibility for WEBB hosted products for a minimum of 95.5% of a calendar year. (c) Telephone support on business days (excluding observed State or Federal holidays) for problem determination, verification and resolution on a call-back basis during the hours of 7:00 a.m. to 4:00 p.m. Mountain Time; and (d) Periodic Product Modifications and Upgrades or new releases publicly offered by WEBB. (e) Problem resolution in which Webb shall work diligently during normal business hours (subject to Section 2(c)) above) to promptly resolve defects and errors that have been replicated (except for Error Priority A specified below) by or for WEBB in the Products and Documentation in accordance with the following schedule, it being understood that the closure periods commence when the problem has been mutually verified: ERROR PRIORITY (1) RESPONSE (2) CLOSURE (3) Emergency (A) 24 hours 7 days Critical (B) 2 days 14 days Non-Critical (C) 30 days Next Update (1) Error Priority: -A- Catastrophic product or module failures that do not have a viable detour or work around available. Catastrophic failure shall be deemed to include failures which cause an interruption of service or seriously impair the functionality of the Products. -B- Problems that have been substantiated as a serious inconvenience to Client or its customers. This includes any priority A failure for which a reasonable and viable detour or work around is available to Client. -C- All other problems which Client or its customers can easily avoid or detour for which there is no urgency for a resolution. (2) Response: Response consists of providing, as appropriate, one of the following to Client: an existing correction; a new correction; a reasonable and viable detour or work around ; a reasonable request for more information to complete analysis of the problem, or a reasonable plan on how the problem will be corrected. 14 (3) Closure: Closure consists of providing a final correction or work around of the problem including Modifications of the Products and, to the extent reasonably possible, revised or new documentation as necessary, it being understood that documentation may, to the extent reasonable, be completed after the applicable closure date. (f) Shall furnish the maintenance and technical support described above, for the current release level of the Products and the previous release level thereof for a period up to 6 months past its date of discontinuation. (g) WEBB shall have the right to outsource its obligations under this Agreement to a third party, provided that WEBB shall remain responsible for its obligations under this Agreement that are performed by such third party. 3. Client Obligations ------------------ Client agrees: (a) that the Designated Contact person(s) identified in Exhibit B-1 (or ----------- such other replacement individual as Client may designate) shall be the sole contact for the coordination and receipt of the Maintenance and Support Services set forth in Section 2 of this Agreement, which person shall be knowledgeable --------- and trained in the Products; (b) to maintain for the term of this Agreement, an electronic mail link-up with WEBB via the Internet; (c) to provide reasonable supporting data to and aid in the identification of reported problems; (d) to treat all periodic software Modifications created or developed by Webb and delivered under this Agreement in accordance with the terms of the Master Agreement between WEBB and Client under which Client obtained rights to the Products. 4. Term and Termination -------------------- 4.1 For each Product covered by this Agreement, the Maintenance and Support Services will begin on the Effective Date and will apply to such Product for an initial term of twelve (12) months unless an alternative period is agreed to in writing. The initial term or any renewal term may be extended or renewed at Client's option for a one-year increment. Client shall give WEBB at least 60 days written notice if, during the initial term or any renewed period, Client decides not to renew Maintenance and Support. 4.2 If either party is in default of its obligations hereunder and such default continues for thirty (30) days following receipt of written notice from the other party, the non-breaching party, in addition to any other remedies it may have, may terminate this Agreement (but not the Master Agreement). 4.3 This Agreement shall automatically terminate upon the termination of the Master Agreement. If this Agreement is terminated pursuant to this Section 4.3, the Parties will be obligated to comply with all post-termination obligations under the Master Agreement and any outstanding Support Fees and other charges, if any, shall become immediately due and payable, provided that if Webb terminates this Agreement, Webb shall refund to Client a pro rata portion of the most current annual maintenance and support fees paid by Client to Webb under this Agreement. Client will not be entitled to any refund if Client terminates this Agreement. 5. Charges, Taxes and Payments --------------------------- 5.1 The Support Fee set forth on Exhibit B-1 is payable upon the execution ----------- of this Agreement or prior to the commencement of any additional one year extension term. 5.2 The charges specified in this Agreement are exclusive of all federal, state, local and foreign taxes, levies and assessments. Client agrees to bear and be responsible for the payment of all such taxes, levies and assessments imposed on Client or WEBB arising out of this Support Agreement excluding any income tax imposed on WEBB by a governmental entity of the United States. 5.3 Client agrees that WEBB will have the right to charge in accordance with WEBB then current policies for any services resulting from Client's modification of the Products or Client's failure to utilize the current release of the Products provided by WEBB. 6. Warranty, Limitation of Liability and Indemnification ----------------------------------------------------- 6.1 EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES RESPECTING THIS MAINTENANCE AND SUPPORT AGREEMENT OR THE SERVICES PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT MAY BE CONTAINED IN THE APPLICABLE SOFTWARE), INCLUDING 15 BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO SUCH SERVICES WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED. 6.2 WEBB WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMANCE DUE IN WHOLE OR IN PART TO ANY CAUSE BEYOND WEBB'S REASONABLE CONTROL. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR (A) ANY SPECIAL, INDIRECT, INCIDENT OR CONSEQUENTIAL DAMAGES, OR (B) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA OR PROFITS. 6.3 Client will hold WEBB and its directors, officers, employees, representatives and agents, (collectively, "Webb Representatives") harmless from, and defend and indemnify WEBB and Webb Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against WEBB or Webb Representatives to the extent that such third party claim is based solely on the negligence or willful misconduct of Client or its agents or representatives. 6.4 WEBB will hold Client and its directors, officers, employees, representatives and agents (collectively, "Client Representatives") harmless from, and defend and indemnify Client and Client Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against Client or Client Representatives to the extent that such third party claim is based on: (a) the negligence or willful misconduct of WEBB or its Webb Representatives or (b) claims of infringement of Intellectual Property Rights against Client or Client Representatives for the authorized use of the Products. 6.5 Any indemnification obligations set forth in this Agreement shall be subject to the following conditions: (i) the indemnified party shall notify the indemnifying party in writing promptly upon learning of any claim or suit for which indemnification is sought; (ii) the indemnifying party shall have control of the defense or settlement, provided that the indemnified party shall have the ------------- right to participate in such defense or settlement with counsel at its selection and at its sole expense; and (iii) the indemnified party shall reasonably cooperate with the defense, at the indemnifying party's expense. The indemnification obligations under Sections 6.3 and 6.4 are subject to and conditioned upon compliance with this Section 6.5 by the indemnified party. 7. General ------- 7.1 The waiver by either party of a breach of or a default under any provision of this Agreement by the other party shall not be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement nor shall any delay or omission on the part of either party to exercise or avail itself of any right or remedy it has or may have hereunder operate as a waiver of any right or remedy by such party. 7.2 This Agreement contains the full understanding of the parties with respect to the maintenance and support of the Products and supersedes all prior understandings and writings relating thereto. No waiver, consent modification, amendment or change of the terms of this Support Agreement shall be binding unless in writing and signed by WEBB and Client. If the terms and conditions of this Agreement are inconsistent with, or contrary to, the terms and conditions of the Client License Agreement, the terms and conditions of the License Agreement shall be controlling. 7.3 This Agreement shall be governed by the laws of the State of Colorado. 7.4 Any notice or other communication in connection with this Maintenance and Support Agreement shall be furnished in writing and shall be effective upon receipt. 7.5 Neither Client nor WEBB will be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Client or WEBB, as the case may be including, without limitation, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, telecommunication outages, equipment malfunctions or other such major events beyond Client's or WEBB's reasonable control. WEBB Interactive Services, Inc: Client:______________________________ By:__________________________________ By:__________________________________ Name:________________________________ Name:________________________________ Title:_______________________________ Title:_______________________________ Date:________________________________ Date:________________________________ 16 EXHIBIT B-1 MAINTENANCE AND SUPPORT ATTACHMENT Support Fee(s): The Client will pay WEBB the following Support Fee: - -------------- Annual Renewable Maintenance = $72,500 payable pursuant to Section 5.1. Commencement Date: _____________________. - ----------------- Client Designated Contacts: Primary Contact: Tim Brewer ---------- Phone number: 207-856-8054 ------------ E-Mail address: Tbrewer@Vetconnect.com ---------------------- Secondary Contact: Ted Robinson ------------ Phone number: 207-856-8114 ------------ E-Mail address: Ted.Robinson@idexx.com ---------------------- 17 Schedule C ---------- WEB SITE HOSTING AGREEMENT THIS WEB SITE HOSTING AGREEMENT ("Agreement") between WEBB Interactive Services, Inc. ("WEBB"), a Colorado corporation with principal offices located at 1800 Glenarm Place, Denver, Colorado 80202 and VetConnect, Inc. ("Client") identified in the attached Master Software License Agreement (the "Master Agreement") dated as of March 31, 2000, is effective as of March 31, 2000 ("Effective Date"). WEBB and Client are referred to collectively as the Parties." Background ---------- WHEREAS, Client has licensed the certain Products from WEBB and Client desires to have WEBB host a portion of Client's web site (the "Web Site") under the terms of this Agreement. WHEREAS, WEBB is willing to host the Web Site under the terms of this Agreement. In consideration of the foregoing, the Parties agree as follows: 1. Definitions Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Master Agreement. 2 Hosting Services 2.1 Hosting Term by WEBB. Commencing on a date specified by Client, which date -------------------- shall be no earlier than May 15, 2000, through November 14, 2000__(Initial Term), and subject to the terms of this Agreement and the Master Agreement, WEBB will host on WEBB servers, operate, and allow continuing access to the WEBB Hosting Platform (as defined in Section 2.7 below) and licensed Products by and for the benefit of Client and Client Customers until the earlier of (a) the expiration or termination of this Agreement or (b) the termination of the Master Agreement. WEBB may at any time after November 14, 2000 require Client to take over the hosting and operation of the Web Site, provided that WEBB gives Client at least 90 days advance written notice. 2.2 Third Party Costs. Client will be responsible for the costs paid to third ----------------- parties for third party content, technology and services that Client specifically requests be integrated into Client's Web Site. 2.3 Optional Hosting by Client. At any time after the Initial Term, Client may -------------------------- elect to take over the hosting of its Web Site. Promptly after making that election, WEBB will provide Client one copy of the Object Code to the Webb Hosing Platform to enable Client to commence and continue, at its expense, the hosting and operation of the Web Site for use in accordance with the License granted under the Master Agreement. 2.4 Maintenance and Support., Provided Client is in compliance with the terms ----------------------- of this and all other agreements with Webb, upon Client's request, WEBB may provide maintenance and support services to Client pursuant to the terms of the Maintenance and Support Agreement attached hereto as Exhibit B. VetConnect Post-Launch Support - ------------------------------ After the system is accepted and live, VetConnect and Webb should follow the following problem-reporting procedures. Functionality Issues -------------------- Issues and bugs should be reported to the Project Manager. C-18
- -------------------------------------------------------------------------------------------------------------- Escalation Response Level Time/1/ Contact Contact Number Notes - -------------------------------------------------------------------------------------------------------------- 1 2 hours Project Manager 303.296.9200 - -------------------------------------------------------------------------------------------------------------- 2 Manager of Project 303.296.9200 Services - --------------------------------------------------------------------------------------------------------------
System Issues ------------- Catastrophic failures or system outages (see Emergency Priority definition below) should be directed to the first escalation level in the table below. Business Hours - System Issue
- -------------------------------------------------------------------------------------------------------------- Escalation Response Level Time/1/ Contact Contact Number Notes - -------------------------------------------------------------------------------------------------------------- 1 20 minutes Webb Primary On-Call 303.296.9200 8:30am - Netops Contact/2/ 5:30 PM MT - -------------------------------------------------------------------------------------------------------------- 2 20 minutes Webb Secondary On-Call 303.296.9200 8:30am - Netops Contact/2/ 5:30 PM MT - -------------------------------------------------------------------------------------------------------------- 3 20 minutes Project Manager 303.296.9200 - -------------------------------------------------------------------------------------------------------------- 4 Manager of Project 303.296.9200 Services - --------------------------------------------------------------------------------------------------------------
After Hours - System Issue
- -------------------------------------------------------------------------------------------------------------- Escalation Response Level Time/1/ Contact Contact Number Notes - -------------------------------------------------------------------------------------------------------------- 1 20 minutes Webb Answering 303.231.6692 Primary On Service/3/ Call - -------------------------------------------------------------------------------------------------------------- 2 20 minutes Webb Answering 303.231.6692 Secondary On Service Call - -------------------------------------------------------------------------------------------------------------- 3 Webb Answering 303.231.6692 Ray Service Zupancic - --------------------------------------------------------------------------------------------------------------
Webb Response and Closure ------------------------- Functionality and system issues will be handled according to the following timeline: - ------------------------------ /1/ Refers to the time elapsed before escalating the issue to the next contact. /1/ Refers to the time elapsed before escalating the issue to the next contact. /2/ Escalation Levels 1 & 2 (Business Hours) can also be placed through the Answering Service (303.231.6692). /3/ In most cases, only one call needs to be placed to the Answering Service. If necessary, they will contact Escalation Levels 2 & 3. C-19
Issue Priority Initial Response Target Closure Plan Target Closure Emergency 1 hour 24 hours 0-7 days Critical 12 hours 2 days 0-14 days Non-Critical 3 days 15 days Next Update
Issue Priority . Emergency: Catastrophic product or module failures that do not have a viable detour or work around available. Catastrophic failures shall be deemed to include failures which cause an interruption of service or seriously impair the functionality. Includes severity 1 bugs/issues. . Critical: Problems that have been substantiated as a serious inconvenience to the client or the client's customers. Includes severity 2 bugs/issues. . Non-Critical: All other problems which the client or the client's customers can easily avoid or detour for which there is no urgency for a resolution. Includes severity 3 and 4 bugs/issues. Initial Response The initial response will consist of an acknowledgement of the problem and/or request for more information to complete analysis of the problem. Target Closure Plan The closure plan will consist of providing one of the following items to the client: A. An existing correction B. A new correction C. A viable detour or work around D. A plan on how the problem will be corrected. Target Closure All reasonable efforts will be made to resolve the reported problem within the designated time frame. This process will consist of providing a final correction or work around of the problem, including modifications of the software and, where appropriate and to the extent reasonably possible, revised or new documentation. 2.5 Hosting Fee. During the term of this Agreement, Client shall pay WEBB ------------ the hosting fees described in Exhibit C-1 attached hereto. Client shall be responsible for all fixed and cumulative charges. In addition to WEBB's other remedies, if Client fails to pay WEBB any amounts when due under this Agreement, Client will pay interest on that amount at the rate of 1.5 % per month or such lesser maximum rate of interest permitted under applicable law. C-20 2.6 Reference to "Powered by" WEBB. So long as either WEBB or Client or its ------------------------------ partner is hosting and operating the WEBB Hosting Platform for the benefit of Client or Client's Customers, (a) Client shall include a reference in the management interfaces for Client customers that the web site management tools are "powered by" WEBB or other mutually agreed WEBB branding; and (b) Client shall include a WEBB icon in the area of the Client site where Client business partners are listed. 3. Warranty and Disclaimer Except as set forth in this Agreement or the Documentation, WEBB provides no warranty regarding the bandwith or any information, services or products provided through, in connection with, or located on its server or computer systems. WEBB HEREBY DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING WITHOUT LIMITATION, (A) ANY WARRANTY AS TO BANDWITH, AVAILABILITY, ACCURACY OR CONTENT INFORMATION; AND (B) ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. . 4. Limited Liability Any liability of WEBB, including without limitation, any liability for damages caused or allegedly caused by failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, communication, theft or destruction of, or unauthorized access to, alteration or use of records, whether for breach of contract, tortuous behavior, negligence, or under any other cause of action, shall be limited to the amount paid by or on behalf of Client to WEBB. IN NO EVENT WILL WEBB BE LIABLE FOR INDIRECT DAMAGES, INCLUDING WITHOUT LIMITATION, CONSEQUENTIAL DAMAGES OR LOST PROFITS. 5. General 5.1 The waiver by either party of a breach of or a default under any provision of this Agreement by the other party shall not be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement nor shall any delay or omission on the part of either party to exercise or avail itself of any right or remedy it has or may have hereunder operate as a waiver of any right or remedy by such party. 5.2 This Agreement contains the full understanding of the parties with respect to the maintenance and support of the Products and supersedes all prior understandings and writings relating thereto. No waiver, consent modification, amendment or change of the terms of this Support Agreement shall be binding unless in writing and signed by WEBB and Client. If the terms and conditions of this Agreement are inconsistent with, or contrary to, the terms and conditions of the Client License Agreement, the terms and conditions of the License Agreement shall be controlling. 5.3 This Agreement shall be governed by the laws of the State of Colorado. 5.4 Any notice or other communication in connection with this Hosting Agreement shall be furnished in writing and shall be effective upon receipt. 5.5 Neither Client nor WEBB will be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Client or WEBB, as the case may be including, without limitation, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, telecommunication outages, equipment malfunctions or other such major events beyond Client's or WEBB's reasonable control. C-21 WEBB Interactive Services, Inc: Client:______________________________ By:__________________________________ By:__________________________________ Name:________________________________ Name:________________________________ Title:_______________________________ Title:_______________________________ Date:________________________________ Date:________________________________ C-22 EXHIBIT C-1 HOSTING FEES AND CHARGES Hosting - ------- Webb agrees to host the CommunityWare/XML, AccelX, XML Publish software and web sites created by Client for a period of six months (May 15, 2000 through November 14, 2000) at Webb's standard, six months hosting fee of $21,5000 ("Hosting Fee"). As a concession to Client under this Agreement, Webb has agreed to waive, and hereby waives, the Hosting Fee for Client. Client shall pay no fee for the hosting services to be performed by Webb during the six month period ending on November 14, 2000. If Client desires Webb to continue to host the CommunityWare/XML, AccelX, XML Publish software and web sites created by Client beyond the November 14, 2000 date, Webb and Client shall negotiate the terms under which Webb will continue to host the services in a separate agreement prior to that date. C-23 Schedule D ---------- Professional Services Agreement THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement") between WEBB Interactive Services, Inc. ("WEBB"), a Colorado corporation with principal offices located at 1800 Glenarm Place, Denver, Colorado 80202 and VetConnect ("Client") identified in the attached Master Software License Agreement (the "Master Agreement") dated as of March 31, 2000, is effective as of March 31, 2000 ("Effective Date"). WEBB and Client are referred to collectively as the "Parties." Background ---------- WHEREAS, Client has licensed certain Products from WEBB and Client desires to have WEBB provide professional services related to the Products during the term of the Master Agreement. WHEREAS, WEBB is willing to offer professional services related to the Products during the term of the Master Agreement, subject to the terms of this Agreement. Agreement --------- In consideration of the foregoing, the Parties agree as follows: 1. Definitions. Capitalized terms used but not defined in this Agreement ----------- shall have the meanings ascribed to them in the Master Agreement. 2. WEBB's Obligations ------------------ 2.1 WEBB shall perform for Client the professional services (the "Services") specified in Exhibit D-1, in the form of Statement of Work, as same may be revised in writing from time to time by mutual agreement of the Parties, each of which will be made a part of this Agreement. In the event of a conflict between any term of this Agreement and an Exhibit, the terms of the Exhibit shall prevail. 2.2 Changes within the scope of the Services shall be made only in a writing executed by authorized representatives of both parties. WEBB shall have no obligation to commence work in connection with any change until the fee and/or schedule impact of the change is agreed upon by the parties in writing. 2.3 WEBB reserves the right to determine which of its personnel shall be assigned to perform the Services, and to replace or reassign such personnel during the term hereof; provided, however, that it will, subject to scheduling and staffing considerations, use reasonable efforts to attempt to honor Client's request for specific individuals. 2.4 WEBB shall have the right to outsource its obligations under this Agreement to a third party, provided that WEBB shall remain responsible for its obligations under this Agreement that are performed by such third party. 3. Client Obligations ------------------ 3.1 In connection with WEBB's provision of the Services, Client shall perform all tasks and assume all responsibilities not expressly described as the Services and, in particular, shall perform those tasks and assume those responsibilities specified in the applicable Exhibit ("Client Responsibilities"). The Exhibit shall also contain any assumptions related to the Services. Client understands that WEBB's performance is dependent on Client's timely and effective satisfaction of Client Responsibilities hereunder and timely decisions and approvals by Client. WEBB shall be entitled to rely on all decisions and approvals of the Client in connection with the Services. Changes in decisions and approvals are subject to the provisions of Section 2.2, above. 3.2 In addition to any particular items which may be specified in the Exhibit, when required by WEBB, Client shall supply on-site WEBB personnel with reasonably suitable office space, desks, storage, furniture, and other normal office equipment support, including adequate telephone service, postage, copying, typing, and general office supplies which are necessary in connection with WEBB's performance of the Services. 4. Term and Termination -------------------- 4.1 Either party may at any time terminate this Agreement by giving thirty (30) days' written notice of termination to Webb. In the event of such termination, Client shall pay WEBB the lesser of 1) the amount specified in the applicable Exhibit or 2) the amount incurred by Webb for all Services rendered and expenses incurred by WEBB prior to the date of termination. C-24 4.2 If either party is in material default of its obligations hereunder and such material default continues for thirty (30) days following receipt of written notice from the other party, the non-breaching party may terminate this Agreement immediately, in addition to any other remedies it may have. In such case, the non-prevailing party will pay the prevailing party (as determined by a court or in arbitration) all costs and expenses including reasonable attorneys' fees incurred by the prevailing party in exercising any of its rights or remedies. 4.3 This Agreement shall automatically terminate upon the termination of the Master Agreement. If this Agreement is terminated pursuant to this Section 4.3, the Parties will be obligated to comply with all post-termination obligations under the Master Agreement and any outstanding fees and other charges, if any, shall become immediately due and payable. 5. Charges, Taxes and Payments --------------------------- 5.1 Client shall pay WEBB for the Services as defined in the applicable Exhibit at WEBB's then current rates for professional services, unless otherwise specified in the applicable Exhibit. 5.2 Unless the Parties agree otherwise in writing, Client shall pay the amounts payable to WEBB hereunder within thirty (30) days of receipt of invoices submitted by WEBB. Any invoice remaining unpaid for more than thirty (30) days from receipt shall accrue interest at a rate of the lesser of one and one-half (1.5%) percent per month or the highest rate allowed by law. 5.3 Unless provided otherwise in an Exhibit, WEBB shall be reimbursed by Client for all reasonable and necessary expenses incurred by WEBB in the performance of the Services, including, but not necessarily limited to, travel and lodging expenses, communications charges and supplies. 5.4 The charges specified in this Agreement are exclusive of all federal, state, local and foreign taxes, levies and assessments. Client agrees to bear and be responsible for the payment of all such taxes, levies and assessments imposed on Client or WEBB arising out of this Agreement excluding any income tax imposed on WEBB by a governmental entity of the United States. 6. Confidential Information. ------------------------ 6.1 "Confidential Information" means any trade secret or other information or data of a proprietary or confidential nature belonging to either party, including but not limited to: (a) technical or developmental information (including associated documentation); (b) marketing or pricing information; (c) business practices or relationships; (d) performance results or benchmark test results of all or any portion of the Products; (e) designs, ideas, concepts, inventions, technical know how, software programs, program flow charts, file layouts, and all record bearing media containing or disclosing such information. Confidential Information shall not include information of one party that: (i) is or becomes lawfully available to the public through no act or omission of the other party; (ii) is in the other party's lawful possession prior to the disclosure and was not obtained by the other party either directly or indirectly from the disclosing party; (iii) is lawfully disclosed to the other party by a third party without restriction on disclosure or (iv) is independently developed by the other party. 6.2 Neither party shall use or disclose to any person, either during the term or after the termination of this Agreement, any Confidential Information owned by the other party, except as expressly permitted pursuant to the terms of this Agreement or as required in response to a valid order or requirement of a court or other governmental body having competent jurisdiction provided, however, that the party proposing to so disclose first gives prior written notice of such proposed disclosure to the other party. 7. Non-Solicitation. ---------------- Neither party shall solicit for employment, whether directly or indirectly through an associated or affiliated company or subsidiary or otherwise, employ, engage or contract from the date of this Agreement or any Exhibit and for a period of two (2) years thereafter, any person who is employed or contracted by the other party during the duration of this Agreement. . 8. Proprietary Materials and Work Product. -------------------------------------- 8.1 Unless the parties agree otherwise in writing, the parties acknowledge and agree that all work product (the "Work") developed in providing the Services or resulting from providing the Services shall become and remain the exclusive property of WEBB. Other than the license granted to Client pursuant to the Master Agreement, no right, title or interest in all or any portion of the Work, is conveyed or assigned to Client either expressly or by implication by virtue of this Agreement including any patents, copyrights, trade secrets, trademarks, trade names or other intellectual property (collectively, the "Intellectual Property Rights"). Upon written request by WEBB, Client shall properly execute such assignments, bills of sale or other documents necessary to confirm, assign or transfer in favor of WEBB, any Intellectual Property Rights in the Work created, developed or discovered by Client, its employees or consultants in assisting WEBB in the provision of the Services, provided that the Client shall retain a perpetual license to use, copy and modify any such Intellectual Property Rights created, developed or discovered by Client subject to the terms and C-25 conditions of this Agreement. 8.2 Nothing in this Agreement shall preclude WEBB from developing for itself, or for others, materials which are competitive with those produced as a result of the Services provided hereunder, irrespective of their similarity to items which may be delivered to Client pursuant to this Agreement. 9. Warranty, Limitation of Liability and Indemnification ----------------------------------------------------- 9.1 EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED WARRANTIES RESPECTING THIS MAINTENANCE AND SUPPORT AGREEMENT OR THE SERVICES PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT MAY BE CONTAINED IN THE APPLICABLE SOFTWARE), INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO SUCH SERVICES WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED. 9.2 WEBB WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMANCE DUE IN WHOLE OR IN PART TO ANY CAUSE BEYOND WEBB'S REASONABLE CONTROL. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR (A) ANY SPECIAL, INDIRECT, INCIDENT OR CONSEQUENTIAL DAMAGES, OR (B) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA OR PROFITS, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY. 9.3 Client will hold WEBB and its directors, officers, employees, representatives and agents, (collectively, "Webb Representatives") harmless from, and defend and indemnify WEBB and Webb Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against WEBB or Webb Representatives to the extent that such third party claim is based on the negligence or willful misconduct of Client or its agents or representatives. 9.4 WEBB will hold Client and its directors, officers, employees, representatives and agents (collectively, "Client Representatives") harmless from, and defend and indemnify Client and Client Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys' fees, arising from a third party claim against Client or Client Representatives to the extent that such third party claim is based on: (a) the negligence or willful misconduct of WEBB or Webb Representatives or (b) claims of infringement of Intellectual Property Rights against Client or Client Representatives for the authorized use of the Products. 9.5 If a third party asserts a claim that is eligible for indemnification under Sections 9.3 or 9.4: (a) the indemnified party will promptly notify the indemnifying party of the suit or claim; (b) the indemnified party will give the indemnifying party sole authority to defend or settle the suit or claim, provided that the indemnifying party does not agree to a settlement of the suit or claim unless the settlement is reasonably acceptable to the indemnified party; (c) the indemnified party will provide to the indemnifying party all information in its control concerning the suit or claim; and (d) the indemnified party will reasonably cooperate with the defense of the suit or claim. The indemnification obligations under Sections 9.3 and 9.4 are subject to and conditioned upon compliance with this Section 9.5 by the indemnified party. 10. General ------- 10.1 In connection with this Agreement each party is an independent contractor and as such will not have any authority to bind or commit the other. Nothing herein shall be deemed or construed to create a joint venture, partnership or agency relationship between the parties for any purpose. 10.2 The waiver by either party of a breach of or a default under any provision of this Agreement by the other party shall not be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement nor shall any delay or omission on the part of either party to exercise or avail itself of any right or remedy it has or may have hereunder operate as a waiver of any right or remedy by such party. 10.3 This Agreement and any Exhibits attached hereto contains the full understanding of the parties with respect to the professional services related to the Products and supersedes all prior understandings and writings relating thereto. No waiver, consent modification, amendment or change of the terms of this Agreement shall be binding unless in writing and signed by WEBB and Client. If the terms and conditions of this Agreement are inconsistent with, or contrary to, the terms and conditions of the Master Agreement, the terms and conditions of the Master Agreement shall be controlling. 10.4 This Agreement shall be governed by the laws of the State of Colorado. 10.5 Any notice or other communication in connection with this Agreement shall be furnished in writing and shall be effective upon receipt. C-26 10.6 Except for Client's payment obligations for professional services already completed by WEBB, neither Client nor WEBB will be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Client or WEBB, as the case may be including, without limitation, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, telecommunication outages, equipment malfunctions or other such major events beyond Client's or WEBB's reasonable control. WEBB Interactive Services, Inc: Client:______________________________ By:__________________________________ By:__________________________________ Name:________________________________ Name:________________________________ Title:_______________________________ Title:_______________________________ Date:________________________________ Date:________________________________ C-27 EXHIBIT D-1 STATEMENT OF WORK The installation tasks are expected to be: a. VC & Webb: develop migration plan. (Process and plans for deployment, data migration, backup & disaster recovery, testing, and maintenance.) b. VC: order hardware and software licenses c. VC: install ordered hardware and software d. Webb & VC: create and load SiteBuilder database e. Webb & VC: install SB software f. Webb & VC: system administration training g. Webb & VC or VC: system testing (functionality & backups/disaster recovery) h. Webb & VC: data migration i. Webb & VC: launch Steps a, b, and c can be done before Webb makes a trip to VC's hosting location C-28 EXHIBIT D-2 FEES AND CHARGES Installation of software at the VetConnect location is expected to take 5 days effort at the rate of a Software Engineer for which Webb Interactive services will charge $1800/day. In the event installation requires additional time, Client will be billed at an additional hourly rate of $300 per hour. Reasonable travel related and other necessary out-of-pocket expenses will be paid by Client. C-29 Schedule E Terms of Limited Exclusive Rights to Products Webb Interactive Services grants to VetConnect the exclusive right to use the AccelX CRM Product solely within the online animal health services industry under the name of VetConnect or the domain name reasonably determined by VetConnect according to the terms of this Agreement for a period of six (6) months from the Effective Date. This exclusive right may be renewed for up to two additional consecutive terms for a fee of $50,000 per term. C-30 EX-10.18 3 DIAMOND PARTNERS LETTER EXHIBIT 10.18 April 20, 2000 Mr. Gwenael Hagan Vice President of Corporate Development Webb Interactive Services, Inc. 1800 Glenarm Place Suite 700 Denver, CO 80202 Dear Gwenael, Per our discussion on April 12, 2000, this letter documents our understanding of participation by Diamond Partners Incorporated d/b/a Diamond Technology Partners Incorporated ("Diamond") in Webb Interactive Services, Inc.'s (Webb) initial efforts to commercialize the Jabber.org Open Source solution and create Jabber.com, Inc. This project will focus on identifying the appropriate strategic path for Jabber.com, Inc. and ultimately converting that concept plan into a complete business plan. The plan will be created with the goal that it be used to help raise funds and create partnerships in order to move the company forward in its long-term goals. Those next steps will include prototyping multiple concepts and ultimately operationalizing the new business. In creating this Digital StrategySM, we will attempt to leverage Webb's and Diamond's relationships with the Open Source community, Webb's existing internal efforts on the Jabber platform, the Diamond Network of partners and Webb's understanding of the instant messaging environment. We are very excited to be an integral part of making the underlying promise of Jabber become a commercial reality. The race to dominate instant messaging has been ongoing in the consumer marketplace for a number of years. However, little has been successfully done to connect the various networks, to bring instant messaging into the business to business commerce world or to develop a vision for the future of what instant messaging can become by connecting to other technologies like XML and wireless communications. It is this opportunity that we hope to identify more clearly and communicate internally as well as externally so that Jabber.com, Inc. has a coherent vision for its future. If executed successfully, we believe that this opportunity will prove to be very valuable for Webb. The extent of that value will be determined as part of the overall project and will help in focusing in on the appropriate strategic path. Since this new opportunity extends beyond Webb's current business model, it Mr. Gwenael Hagan April 20, 2000 DRAFT is critical that Webb proceeds carefully, targeting specific milestones rather than instant profitability, without losing the element of speed. Existing players are already attacking this market, so Webb needs to prototype and implement rapidly in order to capture the opportunity while managing risk. Therefore, Diamond proposes to assist Webb in rapidly developing a detailed business plan, an economic model and a pitch presentation to gain the next round of funding for Jabber.com, Inc. Diamond has extensive experience helping large and small companies scope and plan for new e-business ventures like this one. Additionally, Diamond is uniquely positioned to assist Webb in this effort since we can leverage the work we have already done around the Open Source community and instant messaging to help develop the strategy and minimize the time it takes to get a team `up to speed' with the concept. The remainder of this letter presents our approach, deliverables, timeframe, staffing and fees that we propose for this engagement. Note: Diamond's typical time frame to develop a Digital StrategySM for a company is three months. The end result is an extraventure business plan that should be able to be financed by an external venture capital firm. Our initial discussions on this project with Webb have targeted an 8-week project, which compresses the time frame and will require some tradeoffs for the speed of the project. Approach & Deliverables Given the competitive nature of this marketplace and the opportunity we believe exists for Jabber, Diamond believes that it is critical that Webb develop (or ideate) potential `Killer App' concepts to commercialize very quickly. Once that is done with the help of the external advisors for Webb/Jabber and the broader Diamond Network, then we will take those concepts and form a complete business plan, an economic model and a pitch presentation. Diamond will expect to work collaboratively with the core Webb/Jabber team in developing these potential `Killer Apps' and the ensuing business plan to ensure that the detail knowledge of the opportunity remains with Jabber.com, Inc. going forward. As part of the business plan, we will work with Webb to develop a refined definition of the business concept, including specific products, services, and partners. We will also develop a high-level rollout plan that maps out Page 2 Mr. Gwenael Hagan April 20, 2000 DRAFT development of capabilities and service delivery from the prototype to end-state implementation. Next, we will define the value proposition for all key constituents, including Webb, partners, suppliers, and customers. Further, we will design a high-level marketing strategy including branding and a revenue/pricing model. Then, we will develop a financial model that projects "order-of-magnitude" revenue, operating costs, and capital requirement over the next 5 years, outline key management team requirements, and discuss risks and possible mitigants. To the extent that we develop multiple products or platforms, we will adjust the detail level of the financial model to fit the compressed time frame. All of these components will be integrated into a cohesive business plan that can be used to evaluate and measure the opportunity from an internal and external perspective. For the pitch presentation, we will use our Media Lab resources to work closely with the team to scope the requirements, define the flow of the presentation and create the appropriate graphics and text to support funding and partnership efforts. A summary of the key engagement components is outlined below:
Component Tasks/Activities Deliverables - ------------------------------------------------------------------------------------------------------ Establish project Establish goals and deliverables . Deliverable map objectives & Identify resources (internal and . Meeting schedule schedule external) Schedule resources Understand instant Understand Webb work-to-date on Jabber . High-level description of concepts messaging/Open Collect and review industry research . Competitive analysis Source environment . Instant messaging players/users . Open Source initiatives . Other relevant technologies Synthesize primary and secondary research Ideation process Establish ideation foundation . Framework for ideation process Internal hypotheses development . Next level hypothesis descriptions . Brainstorming sessions . Refine existing hypotheses Ideation sessions . Prioritized hypotheses . Ideation session #1 - focus on generating ideas to investigate . Ideation session #2 - focus on improving and filtering existing ideas
Page 3 Mr. Gwenael Hagan April 20, 2000 DRAFT Economic model Define and estimate revenue sources . Venture economic model development Prepare financial statements Create venture economic model Business plan Develop initial business models . Financial pro formas development . Integrate research . Management requirements . Review and refine models to support . Risk factors ideas from Ideation sessions . Comprehensive business plan Finalize business model . Define new venture business intent . Define new venture involvement with Open Source ecosystem . Develop partnership map . Develop organizational structure . Develop high-level cost, time and resources needed to evolve Jabber Pitch presentation/ . Investor quality pitch presentation demo Outline objectives Get appropriate resources lined up Outline the pitch/demo components Create the pitch/demo
Staffing For this engagement, we propose augmenting the existing Webb team in order to take maximum advantage of the experience and knowledge we have already gained in this business: Resource Primary Role Engagement Partner (part-time) Overall engagement responsibility Senior Principal - Strategy (full time) Day-to-day engagement management Senior Principal - Technology (full time) Ideation Process Associate (full time) Business Plan & Pitch Presentation Associate (full time) Economic Model Analyst (full time) Research Engagement Advisors: Mark Siefertson, Partner (technology) Diamond network members on an as needed basis Fees & Equity Page 4 Mr. Gwenael Hagan April 20, 2000 DRAFT The professional fees for this engagement are $800,000 at full rates. However, Diamond has agreed to accept equity in lieu of fees in the amount of $140,000 or 17.5% of total fees. This makes the professional fees due in cash to be $660,000. The equity arrangement is as follows: 1. For the $140,000 discussed in the previous paragraph, Diamond will be entitled to the number of shares of capital stock of Jabber.com, Inc. equal to $140,000 divided by the price per share of the stock sold at the first round of external financing, such shares to be issued at the time of and on the same terms and conditions (e.g., class of capital stock, price per share, voting rights, registration rights, preemptive rights, anti-dilution protection, etc.) as those sold to the participating investors in the first round of external financing for Jabber.com, Inc. 2. Diamond will also be entitled to purchase at the time of each financing round, on the same terms as other participants who participate in those financing rounds (at fair market value), up to 10% cumulatively (or such lesser amount as we may elect) of Jabber.com, Inc., with the proviso that the amounts invested by Diamond cannot exceed 30% of the total investment in Jabber.com, Inc. for each specific equity financing round up to Initial Public Offering. In addition, Diamond will receive their pro rata share of any friends and family allocation in connection with an IPO. This aforementioned right to purchase 10% cumulatively of Jabber.com, Inc. terminates upon an IPO, sale of substantially all of the assets of Jabber.com, Inc., or a merger of Jabber.com, Inc. with another company in which Jabber.com, Inc. shareholders do not constitute 50% of the combined companies' shareholders. 3. Diamond will also make available Mark Siefertson, a Diamond Partner, to become a member of Jabber.com, Inc.'s advisory board, under the terms and conditions contained within the separately approved Advisory Board Agreement in exchange for 37,500 common shares. 4. In exchange for the investment rights noted above and in addition to the appointment of a Diamond Partner to the advisory board, Diamond agrees on a good faith basis, as Diamond deems appropriate, to provide assistance relating to promotions, brand building, fundraising, revenue generation, partnership building, recruitment, and other key efforts related to building the company. It being understood that Diamond will continue to provide the aforementioned assistance subsequent to the conclusion of any Page 5 Mr. Gwenael Hagan April 20, 2000 DRAFT consulting arrangement. It also being understood that all of Diamond's rights mentioned in this arrangement letter will survive. 5. The foregoing equity arrangement shall apply to any successor-in-interest to the Jabber.com, Inc.'s business. *********************** Gwenael, we are looking forward to helping Webb take advantage of this exiting growth opportunity. I look forward to working with you over the course of the next few months. If you accept our proposal, please so confirm by signing where indicated below and returning this letter to us. Very truly yours, Andy Carlson Senior Principal Diamond Technology Partners Accepted and agreed on ________, 2000 By: ________________________________ By: ________________________________ Mike Connolly Gwenael Hagan Vice President Vice President Corp. Development Diamond Partners Incorporated Webb Interactive Services, Inc. d/b/a Diamond Technology Partners Incorporated Attachments Appendix A: Diamond Technology Partners Terms & Conditions of Services Appendix B: High-level milestone chart Appendix C: Detailed work plan (see spreadsheet attached) Page 6 Mr. Gwenael Hagan April 20, 2000 DRAFT Page 7 Mr. Gwenael Hagan April 20, 2000 DRAFT Appendix A DIAMOND'S TERMS AND CONDITIONS OF SERVICES - ------------------------------------------ CONFIDENTIALITY Diamond acknowledges that during the Project it may learn and use certain of Client's confidential information and thus will use reasonable efforts to prevent third parties from learning about such information. Likewise, Client will use reasonable efforts to prevent third parties from learning about Diamond's confidential and proprietary information, which includes without limitation Diamond's methodology, processes, programs and know-how. These obligations do not apply to information or materials that: 1) are or become generally known by third parties other than as a result of an act or omission by the receiving party; 2) were already independently known by the receiving party prior to receiving them from the disclosing party; 3) are developed independently by the receiving party; or 4) are required by law or a governmental agency to be disclosed, provided the receiving party promptly notifies the disclosing party of such requirement so that the disclosing party can seek to obtain a protective order or similar remedy. Diamond will act as an independent contractor on the Project, and, unless otherwise specifically agreed to by the parties, neither Diamond nor Client shall act as the agent or joint venturer of the other. PROPRIETARY RIGHTS Except for previously developed ideas, concepts, know-how, knowledge, techniques, tools, approaches, and methodologies proprietary to Diamond, as well as any open source coding or software, which may be reflected in the deliverables, Client shall have title to, ownership of, and all proprietary rights in the deliverables provided by Diamond in connection with the Project, including all work-in-progress; provided, however, that title to any such proprietary rights shall not pass until Client's payment to Diamond therefor. At Client's request, Diamond will execute such documents as may be necessary to protect Client's rights in any work. Page 8 Mr. Gwenael Hagan April 20, 2000 DRAFT Nothing contained herein shall be construed as limiting Diamond's rights to use or market in the conduct of Diamond's business, without obligation of any kind other than Diamond's obligations of confidentiality to Client, any such pre- existing materials or any general ideas, concepts, know-how, knowledge, techniques, tools, approaches and methodologies or other residual values possessed or known to Diamond or learned or developed during the provision of services. Client agrees Diamond may retain archival copies of any and all deliverables developed by Diamond for Client pursuant to the Project. LIMITATION ON LIABILITY Diamond warrants that the services described in this proposal will be provided in a professional manner. Other than this warranty, Diamond makes and Client receives no express or implied warranties, including without limitation any express or implied warranties of merchantability or fitness for a particular purpose. Client understands and agrees that any liability of Diamond regarding the Project shall be limited to the amount of fees actually received by Diamond in connection with the Project, and shall not include any special, incidental, consequential or punitive damages, any damages based on injury to person or property, or any lost sales or profits. DISPUTE RESOLUTION Diamond and you both agree that any dispute concerning the services that cannot be resolved first by Diamond's and Client's respective chief executive officers or other agreed-upon officers shall be arbitrated in accordance with the commercial rules of the American Arbitration Association, and any award shall be final and enforceable by a court. CANCELLATION Either Client or Diamond may terminate this Agreement by giving the other no less than thirty (30) days advance written notice of termination, in which case this Agreement shall terminate on the effective date specified in such notice (which date shall not be less than thirty (30) days from the date of notice). Either party may cancel this Agreement immediately, in whole or in part, for material default, material breach, insolvency, bankruptcy, inability to pay debts, or similar financial circumstances by the other. In the event of any such termination, Diamond shall invoice the Client for any amounts due and Page 9 Mr. Gwenael Hagan April 20, 2000 DRAFT payable for services rendered to Client prior to the effective date of termination and Client shall pay such invoice within thirty (30) days of Client's receipt thereof. Upon payment of such invoice, Diamond shall deliver to Client all work completed up to the effective date of such termination and neither party shall have any further obligation or liability to the other. OFFICE ACCOMODATIONS AND COOPERATION Diamond's regular workday is eight hours per day. Diamond personnel will generally work four days on-site and one day off-site and will not be required to work on Diamond holidays. In addition, from time to time, Diamond personnel will be required to participate in firm or region wide training sessions. When Diamond personnel perform services at Client's premises, Client will provide reasonable office accommodations and services, including without limitation office and storage space, reasonable use of computers, telephone facilities, documentation, and other related material and equipment as reasonably requested by Diamond. Client shall also furnish Diamond with all the data and information required by Diamond for the Project, as well as reasonable access to key personnel. NON-SOLICITATION During the term of this arrangement and for a period of one year thereafter, neither party will directly or indirectly solicit for employment, employ, consult with, or otherwise retain the services of any of the employees who are in any manner connected with the services as set forth in this proposal. USE OF CLIENT NAME Notwithstanding anything herein (or in any other agreement) to the contrary, Diamond shall have the right, upon Client's acceptance of the work hereunder, to reference Client and the general nature of the work on Diamond's web site and in presentations to prospects, clients or investors. Diamond shall also have the right, from time to time, to create case studies, presentations, articles, and the like related to the work ("Materials") and, upon Client's review and approval of the Material's content, to utilize the Materials in public speaking engagements, publications, and other similar uses. In no event will Diamond Page 10 Mr. Gwenael Hagan April 20, 2000 DRAFT utilize the Materials or these rights in any way which: 1) misrepresents Diamond's contribution; 2) damages or disadvantages Client's competitive position; or 3) violates Diamond's obligations of confidentiality to Client hereunder or in any other document. INVOICES Invoices for fees will be submitted at the beginning of each month and will be due and payable within ten days of receipt.. Client agrees to submit payments to Diamond for such invoices via electronic funds transfer to Diamond's Account Number 18074324 at American National Bank, ABA # 071000770. Expenses (as further described below) will be billed in arrears. For late payments, interest will be charged at the rate of two percentage points over the then-current prime rate of interest as announced at Bank One, calculated from the date when payment becomes overdue until payment is made. Upon 30 days prior written notice, but no more than once every three months, Diamond may increase its fee rates for services provided. EXPENSES, SEAT CHARGE AND TAXES Client will reimburse Diamond for all reasonable out-of-pocket expenses incurred by Diamond in connection with the provision of services and the evaluation of investment, including without limitation travel, living, meals, long-distance telephone, postage and express mail expenses. In addition, equipment and administrative costs for computer equipment, network communications, general research services, document production and administrative support will be invoiced monthly at a rate of 4.9% of professional fees. Page 11 Mr. Gwenael Hagan April 20, 2000 DRAFT In the event Client uses a Diamond Solutions Center to build and/or launch eBusiness solutions in connection with the Project, a seat charge for space, services, tolls and other facilities and support will be invoiced monthly at the rate of $2,000 per team member. Clients using such services on a part-time basis will be charged on a pro rata basis. Client and Diamond shall mutually agree on the number of Diamond Solutions Center team members needed for the Project. In addition to access to designated sections of the facilities, the infrastructure components of the seat charge also include network access, use of development servers for the creation of a demo/prototype, developer workstations for 60% of paid seats, access to approximately 100GB of disk space, nightly backup of up to two development servers per project, rack space for holding two development servers, security (setup of a single virtual private network), printers, fax machine and scanners and help desk access. The seat charge also includes use of software components, including project management tools, environment management/source control, testing (both functional and performance), database access for the creation of a demo/prototype, and access to experts in various eCommerce applications. The seat charge does not cover the following expenses, which expenses will be -------- charged separately: individual reception or administrative assistant, use of development servers or database access after the completion of the prototype, developer workstations for greater than 60% of seats, backup of more then two servers, more than one virtual private network. Client will be responsible for any local, state, federal or other taxes or assessments that might apply to the provision of services by Diamond. ENTIRE AGREEMENT The foregoing letter and these Terms and Conditions constitute the parties' entire agreement with respect to the subject matter contained herein, and supersede all other prior written or oral agreements and undertakings with respect to such subject matter. The scope of this arrangement may be changed only by mutual agreement. Page 12 Mr. Gwenael Hagan April 20, 2000 DRAFT Initials _________ (authorized client representative) Page 13 Mr. Gwenael Hagan April 20, 2000 DRAFT Appendix B [Jabber, Inc. - High level project milestone chart appears here] Page 14 EX-27 4 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 17,595,889 0 627,736 4,000 0 19,415,223 4,399,400 1,635,800 42,816,431 2,402,356 0 2,055,961 12,500,000 73,722,923 (47,953,091) 42,816,431 1,009,822 1,009,822 762,924 762,924 6,140,149 0 174,990 (5,906,354) 0 (5,906,354) 0 0 (12,873,126) (18,779,480) (2.17) (2.17)
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