-----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, AfrrbCsLMfNPdKLFDd0+NbqeeT1ayFdcEYrHiSxjeGonpRNVX1ZlDwof21s2C34t 1sucmoK95jp/Zh/SPaShMQ== 0000912057-01-508926.txt : 20010417 0000912057-01-508926.hdr.sgml : 20010417 ACCESSION NUMBER: 0000912057-01-508926 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPINROCKET COM INC CENTRAL INDEX KEY: 0001076682 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL- COMPUTER & PRERECORDED TAPE STORES [5735] IRS NUMBER: 061529524 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 333-70663 FILM NUMBER: 1603440 BUSINESS ADDRESS: STREET 1: 29 WEST 57TH STREET STREET 2: 9TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2036029994 MAIL ADDRESS: STREET 1: BEDFORD TOWERS STREET 2: 444 BEDFORD STREET SUITE 8 CITY: STAMFORD STATE: CT ZIP: 06901 FORMER COMPANY: FORMER CONFORMED NAME: CDBEAT COM INC DATE OF NAME CHANGE: 19990503 FORMER COMPANY: FORMER CONFORMED NAME: SMD GROUP INC DATE OF NAME CHANGE: 19990113 10KSB 1 a2045539z10ksb.txt FORM 10KSB ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 333-70663 ------------------------- CONNECTIVCORP (FORMERLY KNOWS AS SPINROCKET.COM, INC.) (Exact name of small business issuer as specified in its charter) DELAWARE 06-1529524 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 29 WEST 57TH STREET, 9TH FLOOR (212) 583-0300 10019 NEW YORK, NEW YORK (Address of Issuer's principal (Issuer's telephone number, (Zip Code) executive offices) including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK, $.001 PAR VALUE (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. / / The issuer's revenues for the year ended December 31, 2000 were $80,000. The aggregate market value of the registrant's voting common equity (I.E., the Common Stock) held by non-affiliates as of March 30, 2001 was $8,397,540, using the closing sale price of $.39 per share on such date, as reported by the Nasdaq OTC Bulletin Board. The number of outstanding shares of the registrant's Common Stock as of March 30, 2000 was 21,532,155. Transitional Small Business Disclosure Format. Yes / / No /X/ DOCUMENTS INCORPORATED BY REFERENCE None. A list of Exhibits to this Annual Report on Form 10-KSB begins on Page 27. ================================================================================ TABLE OF CONTENTS PART I PAGE Item 1. Description of Business..............................................1 Item 2. Description of Property..............................................9 Item 3. Legal Proceedings....................................................9 Item 4. Submission of Matters to a Vote of Security Holders..................9 PART II Item 5. Market for Common Equity and Related Stockholder Matters............10 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................................11 Item 7. Financial Statements................................................15 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure............................................15 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons.......16 Item 10. Executive Compensation.............................................21 Item 11. Security Ownership of Certain Beneficial Owners and Management.....24 Item 12. Certain Relationships and Related Transactions.....................26 Item 13. Exhibits and Reports on Form 8-K...................................26 ----------- The Company's principal executive offices are located at 29 West 57th Street, 9th Floor, New York, New York 10019, and the telephone number is (212) 583-0300. ----------- FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-KSB includes forward-looking statements, including statements regarding, among other things, the Company's: o anticipated growth strategies, and o its intention to introduce new products. The Company has based these forward-looking statements largely on its expectations. Forward-looking statements are subject to a number of risks and uncertainties, certain of which are beyond its control. Actual results could differ materially from those anticipated as a result of numerous factors, including among other things: (1) the enactment of new laws and regulations, and the amendment of existing laws and regulations which could affect the Company's business; (2) changes in the Company's business strategy or development plan; (3) the Company's ability to obtain financing on acceptable terms when needed; and (4) the Company's ability to identify appropriate acquisition candidates, complete such acquisitions and successfully integrate acquired businesses. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Because of the risks and uncertainties, the forward-looking events and circumstances discussed in this Annual Report on Form 10-KSB might not occur. ----------- -i- PART I ITEM 1. DESCRIPTION OF BUSINESS INTRODUCTION AND HISTORY ConnectivCorp (or the "Company") is a publicly owned and traded Delaware corporation whose mission is to facilitate the online connection between aggregated, targeted and profiled consumers, and marketers desiring to reach those consumers. Operating through its wholly owned subsidiary, ConnectivHealth, the Company functions as a deep content provider and marketing company that facilitates the online connection between healthcare-oriented consumers, patients and caregivers, and those healthcare companies desiring to serve their healthcare needs. ConnectivHealth Corp. ("ConnectivHealth" or "CHC"), a wholly owned subsidiary of ConnectivCorp, is a comprehensive deep-level, healthcare provider that facilitates various marketing opportunities for pharmaceutical and other healthcare oriented companies. ConnectivHealth does this by acting as a middleman between segmented, profiled, healthcare-oriented consumers, patients and caregivers, and those healthcare companies desiring to serve their healthcare needs. This enables these companies to reach their core audience on an individualized, targeted, profiled, fully opted-in basis. ConnectivCorp is a reporting company under the Securities Exchange Act of 1934, as amended, and its stock is traded on the OTC Bulletin Board under the symbol "COTV." ConnectivCorp's principal executive offices are located at 29 West 57th Street, 9th Floor, New York, New York 10019, and its telephone number is (212) 583-0300. HISTORY The Company was incorporated in Delaware on May 8, 1998 under the name "SMD Group, Inc." which was subsequently changed in January 1999 to "CDBeat.com, Inc." In April 2000, the Company changed its name to "Spinrocket.com, Inc." On September 11, 2000 Spinrocket.com, Inc. changed its name to "ConnectivCorp" because this new name better describes the Company's current strategic direction. 32 Records LLC ("32 LLC") a wholly owned subsidiary of the Company, formerly operated an independent record company called "32 Records" that specialized in the catalog, or reissue, segment of the record business. On March 30, 2000, the Company decided to exit the business conducted by 32 LLC by March 2001 and recharacterized 32 LLC as a discontinued operation for financial reporting purposes. During the second quarter of 2000, the Company wrote off the business of 32 LLC in its consolidated financial statements. On February 2, 2001, the assets of 32 LLC were transferred to its lender, Entertainment Finance International, Inc. ("EFI"), pursuant to court order. In November 1999, 32 LLC acquired substantially all of the assets and liabilities relating to the business of Cakewalk LLC ("Cakewalk") in exchange for 8,307,785 shares of the common stock of the Company, which number of shares equaled approximately 46% of the then issued and outstanding common stock of the Company (the "Cakewalk Transaction"). As a result of the Cakewalk Transaction, the business formerly operated by Cakewalk was then operated by 32 LLC. Cakewalk is wholly owned by 32 LLC, and, until February 2, 2001, owned all the assets of 32 Records. In 2000, Cakewalk defaulted under an Indenture dated June 29, 1999 (the "Indenture") with EFI and entered into negotiations with EFI regarding the same. EFI was the secured holder of $5,500,000 principal indebtedness issued by Cakewalk and maintained a security interest in all of Cakewalk's assets (the "Collateral") pursuant to the Indenture. Cakewalk consented to entry of a judgment of foreclosure ("Judgment") upon the Collateral in connection with the action filed by EFI against Cakewalk in the Supreme Court of the State of New York, County of New York, Index No. 604708/00 on or about October 30, 2000. On February 2, 2001, judgment was entered by the Court approving the foreclosure, thereby transferring all of Cakewalk's assets to EFI. On October 18, 2000, the Company and EFI entered into a consulting agreement under which the Company agreed to help EFI in the marketing and sale of Cakewalk and/or its assets in return for which the Company would be entitled to a cash payment upon sale under certain circumstances. In addition to the Cakewalk Transaction described above, a certain Stock Purchase Warrant held by Atlantis Equities, Inc. ("Atlantis"), dated as of September 23, 1999 (the "Atlantis Warrant"), was amended pursuant to a certain Warrant Amendment Agreement, dated as of November 16, 1999, among the Company, Atlantis and Dylan LLC, an affiliate of Atlantis ("Dylan") (the "Warrant Amendment Agreement"). The Atlantis Warrant gave Atlantis the right to purchase eighty (80%) percent of the then issued and outstanding Common Stock of the Company and options to purchase 762,064 shares of the Company's Common Stock. Pursuant to the Warrant Amendment Agreement, the Atlantis Warrant was split into two warrants, one of which was assigned to Dylan (the "Dylan Warrant"), and the other of which was retained by Atlantis (the "Revised Atlantis Warrant"). Concurrently with the closing of the Cakewalk Transaction, (i) Dylan exercised the Dylan Warrant and paid the Company $900,000 for 7,037,183 shares of Common Stock issuable upon exercise of such warrant (the "Dylan Stock"), and (ii) Atlantis exercised the Revised Atlantis Warrant and paid the Company $100,000 for 781,909 shares of Company Stock issuable upon exercise of the Revised Atlantis Warrant (the "Atlantis Stock") and received 762,064 options from the Company which were exercisable at $2.50 each until December 31, 2000 (the "Options")(collectively, the "Atlantis Transaction"). Together, the Dylan Stock and the Atlantis Stock equaled approximately 43% of the then issued and outstanding Common Stock of the Company (after giving effect to the Cakewalk Transaction and the Atlantis Transaction). In light of the transfer of approximately 89% of the issued and outstanding Common Stock of the Company, collectively, to Cakewalk, Dylan and Atlantis pursuant to the Cakewalk Transaction and the Atlantis Transaction, a change in control in the Company occurred. On November 27, 2000, Dylan made a pro rata distribution to all of its members of all shares of the Dylan Stock it received in connection with the transactions described above. CONNECTIVHEALTH'S BUSINESS MODEL ConnectivHealth's goal is to manage and facilitate the online connectivity between healthcare marketers and healthcare oriented consumers. To achieve this, ConnectivHealth seeks to forge strategic alliances with various online healthcare and other websites - referred to as `hosts' - which have already established large constituencies of consumers who share similar needs and interests. Through the establishment of a relationship, pursuant to which ConnectiveHealth trades its content for access to the host site's traffic, ConnectivHealth hopes to reach large numbers of consumers and patients without spending the large sums usually required to accomplish such acquisition. In return for the opportunity to utilize the hosts' already acquired consumer population, ConnectivHealth will provide specific, comprehensive healthcare content at no cost which will help the hosts maximize their offering to their constituencies, and augment their ability to fulfill their primary mission: providing services of significant value to their members. ConnectivHealth will seek to aggregate the consumer populations of its hosts into a segmentable data pool, enabling marketers to use ConnectivHealth as a single-source destination to reach large numbers of profiled and segmented healthcare-oriented consumers. Given the ability to quickly find and reach large numbers of patients with specifically identified needs and interests allows healthcare marketers to, among other things, facilitate brand advocacy, compliance and switch marketing and to recruit candidates for research and clinical trial programs in the most effective possible manner. 2 ConnectivHealth intends to sell access to its user base to its intended customers: pharmaceutical and other healthcare companies that have an interest in the areas of healthcare covered by ConnectivHealth, such access to be provided on a privacy protected, fully opted-in basis. CONNECTIVHEALTH INITIATIVES SEXHEALTH.COM WEBSITE On January 18, 2001, ConnectivHealth launched SexHealth.com (www.sexhealth.com), its comprehensive website that is intended to serve as both a destination website for consumers seeking specific sexual health information, and as a health portal venue where the online connection between consumers and marketers will be effected. Through SexHealth.com, ConnectivHealth seeks to offer comprehensive information in the area of sexual health. This overall area subsumes many topics of particular interest, such as sexual dysfunction, sexually transmitted diseases, and hormone replacement therapy. As a subset of the broader area of women's health, the Company believes that SexHealth.com appeals to one of the most coveted demographic groups, women aged 15-55. The Company believes that this has particular appeal to a wide variety of pharmaceutical and other healthcare companies. CONNECTIVHEALTH CONTENT ON HOST WEBSITES A key strategy of ConnectivHealth is to utilize already acquired consumer populations of its host partners, by providing content to its host partners in exchange for access to their constituency. Initially, ConnectivHealth will seek to establish SexHealth.com as an authoritative source in the area of sexual health. In the future, it is the Company's intention to offer other subject-specific content, thus expanding its online presence. Consumers coming to a website that is one of the Company's strategic host partners will see ConnectivHealth's content. There, they will be encouraged to explore that content, including the option to click through into SexHealth's website. CONNECTIVHEALTH DESKTOP HEALTH PORTAL APPLICATION The ConnectivHealth Desktop Health Portal is an application that the Company intends to employ that would lie resident on a consumer's computer and which would enable that consumer to access the information services of ConnectivHealth at any time, without having to be online. The Desktop Health Portal is intended to be a multi-function application that will include such features as: o Personalized information access and storage, by subject of the consumer's choosing o Instant live and background updating of information (via automatic link to the ConnectivHealth website) o Highly targeted and relevant permission-based advertising and messaging o Instant connectivity to ConnectivHealth website pages pertinent to each consumer The Company has no specific timetable for the proposed implementation of the Desktop Health Portal. 3 SEXUAL HEALTH MAGAZINE The Company has obtained the rights to publish Sexual Health Magazine which previously operated as an authoritative periodic magazine covering the area of sexual health. The Company is seeking a strategic partner in the magazine publishing field with which to joint venture in this endeavor. DISTRIBUTION DEALS To date, ConnectivHealth has entered into Content Agreements with three major hosts, drkoop, iWon and American Media, Inc., and has signed a letter of intent for a Content Agreement with WeMedia. Together, these deals have facilitated exposing ConnectivHealth's sexual health content, name and brand to over 30 million consumers and potential users. In each instance, the Content Agreement provides for the exchange of SexHealth's content for branding, links and/or advertising back to SexHealth.com. With more than 2 million registered users, drkoop.com is a leading internet health and wellness network dedicated to providing information and guidance to consumers worldwide. Launched in October 1999, iWon.com is the 5th most trafficked website on the Internet (Nielsen//NetRatings, September 2000), with approximately 9 million unique monthly users. Additionally, iWon ranks as the most loyal website on the Web, placing number one in repeat visitation (Media Metrix, September 2000). iWon has also been voted #1 in user website and feature satisfaction among the leading search engines and portal sites (NPD Search and Portal Tracking Study) and #1 in Advanced Search on the Internet (Search Engine Showdown, July 2000). American Media, Inc. is one of the largest media companies in the U.S. The company publishes 7 of the 15 best selling weekly magazines, including the #1 and #4 titles, the National Enquirer and Star Magazine, respectively. These magazines each have a readership in excess of 10 million consumers a week. WeMedia is one of the leading online portals for the disabled. WeMedia also publishes WE Magazine, the largest such publication for the disabled community. ConnectivHealth anticipates having an exclusive "channel" on WeMedia's home page, which will give ConnectivHealth access to WeMedia's online users. ConnectivHealth is in negotiation with several additional hosts and/or partners, which would increase the number of potential users of SexHealth.com, but can make no assurance that it will enter into any definitive Content Agreements with such parties. In addition, the Company has acquired advicecenter.com, a website featuring information on herpes and HPV, and anticipates incorporating this website into SexHealth.com. DATA COLLECTION As ConnectivHealth acquires users and establishes contact with new consumers, the Company will endeavor to collect specific data about that consumer, their disease or condition, history, interests, and other crucial data points. This will enable the Company to create an aggregated database of consumers, segmentable by many parameters of significant value to healthcare companies. This data pool will enable the Company to quickly find patients who fit very specific profiles of interest to healthcare companies for individualized marketing and communications programs, including for clinical trials recruitment. For example, consumers initially clicking through to SexHealth.com will be asked to provide basic identifying data, such as name, email address and areas of interest. With this level of information the Company will be able to identify the consumers who are interested in each particular subject area (e.g., 4 herpes). These consumers will then be presented with various connectivity options based upon this basic level of segmentation. At the next level of data collection, interested consumers may be asked to fill out a simple online questionnaire that more deeply profiles and captures their healthcare interests. The questionnaire may be 10-20 questions, and cover such areas as existing healthcare conditions, medications being taken, and others. In return for providing this deeper level of personal information, participating consumers will be provided with more tailored connectivity options and incentives. The third, and deepest, level of data collection will involve obtaining detailed, multi-level information from interested consumers through an extensive online questionnaire. This type and level of information would be necessary, for example, in order to facilitate referral into clinical trial programs - where many details of a patient's medical condition are required to be known. All information collected from consumers will be pursuant to voluntary opt-in procedures. PRIVACY ISSUES The Company has adopted a policy that seeks to afford maximum privacy protection to consumers due to its multi-level opt-in policy. This policy is readily accessible to the user on the website and describes how information is collected and used by the Company. SOURCES OF REVENUE GENERATION As noted above, the Company's business model contemplates aggregating millions of consumers through Content Agreements with online hosts and offline partners. The Company believes that by exposing its content to consumers in this manner, it will be able to convert a percentage of these consumers to users of SexHealth.com or will otherwise be able to aggregate these consumers into a database. Access to those converted users can then be "sold" to pharmaceutical companies and other healthcare providers, which will be able to reach these consumers on a segmented, profiled, fully opted-in, interactive basis. This will enable these healthcare providers to market their products on a very individualized basis. The Company's revenue model for SexHealth.com is based upon the assumption that it will be able to aggregate millions of healthcare-oriented consumers on both a general and individual basis. As a website through which the Company intends to migrate healthcare consumers, SexHealth.com presents the following revenue opportunities: 1. FOCUSED CONSUMER SURVEYS/QUESTIONNAIRES o Quick, efficient market research opportunities o CHC and customer generated subjects o Daily and/or periodic frequency o Ability to sell the data to multiple end users o CHC can design and implement the surveys 2. DISTRIBUTION OF PRODUCT INFORMATION TO PATIENTS/CONSUMERS/USERS o Follow-up service to content offerings, asking users if they want to receive additional information on a particular topic o CHC will email information provided by its healthcare customers directly to opt-in users 5 o Deeper information, coupons and/or over-the-counter products can also be emailed or forwarded to opt-in users 3. ADVERTISING TO GENERAL AND TARGETED AUDIENCES o General and targeted banner ads 4. CLINICAL TRIALS LISTING AND RECRUITMENT o Listing of applicable trials -Individual trials listed through recruitment period -All trials by a pharmaceutical company over a given time period o Inclusion and exclusion surveys o Listing of potential patients who fit the inclusion and exclusion criteria o Patient recruitment 5. UNRESTRICTED EDUCATIONAL GRANTS o Purpose: to educate consumers and/or physicians on a particular topic, disease, specialty, etc. o Used particularly for non-FDA approved (off-label) usage 6. DEEP DATA MINING o "Personal Advisor" service will solicit data from users in exchange for personalized options and referrals o All information will be privacy protected with appropriate legal disclaimers, policy statements, etc. o Opt-in users will be referred to appropriate healthcare providers for further information, etc. 7. FUTURE REVENUE STREAMS o CHC owns the publishing rights to Sexual Health Magazine o CHC ultimately intends to charge hosts and other third parties for its content o Ability to adapt CHC's model to other disease categories (e.g., arthritis, diabetes) The Company hopes to develop additional revenue streams from access to SexHealth.com's user community for pharmaceutical companies including the following services which SexHealth.com intends to offer: 1. PHARMACEUTICAL PAVILIONS: Opting-in users of SexHealth.com will be invited to click through to "pharmaceutical pavilions," both general and company specific, that will allow pharmaceutical companies to display or present complete information on their available products or medications. 2. REGISTRY PAVILIONS: Several of the major pharmaceutical companies maintain registries in connection with various diseases for which they have major medications or protocols available. SexHealth.com intends to provide "registry pavilions" for pharmaceutical companies where they can make information available to their registrants, on a 24/7 basis, at a substantially reduced cost and with appropriate privacy protections. 3. MEDICINAL PAVILIONS: SexHealth.com intends to offer medicine marts on the website related to particular topics within sexual health. SexHealth.com intends to license or maintain lists of medications 6 relevant to the website's content and then provide a means by which a consumer clicking on a specific medication would be taken to a section of the website where the pharmaceutical company manufacturing that medication can present complete information and allied marketing information. These sections will be organized by topic or by a specific medication. 4. FORUMS: SexHealth.com intends to offer live, interactive programs chaired by a renowned expert speaker (who would field questions after a presentation) suggested by a healthcare provider and sponsored by them. Programs would be edited down to several shorter segments after live taping and run 24/7 for the succeeding two week period. COMPETITION There are numerous websites on the Internet that offer health-related information. All of the major Internet portals, such as AOL, Yahoo and Excite, offer health-related content. Some of them (e.g., AOL's OnHealth) also contain information on sexual health topics. All of these major portals also have relationships with various third-party health sites. For example, AOL has relationships with Drkoop, Medscape and CBS Healthwatch, while Yahoo has a link to the Mayo Clinic. The Company believes that the two websites that are closest in orientation to SexHealth.com are Sexualhealth.com and goaskalice.com. INTELLECTUAL PROPERTY RIGHTS The Company currently does not have any patents issued to it. In December 1999, the Company filed a Provisional Patent Application with the United States Patent office, seeking protection for certain software developed by the Company. In December 2000, the Company filed a formal patent application with the patent office to the same effect. The Company cannot be certain that the current or any future patent applications will be granted, that any future patent will not be challenged, invalidated or circumvented, or that the rights granted under any patent that may be issued will provide competitive advantages to it. In addition, the Company intends to pursue the registration of certain of its trademarks and service marks in the U.S. and in certain other countries. REGULATION The Company is currently not subject to direct regulation by any governmental agency, other than laws and regulations generally applicable to businesses, although rules pertaining to the use of encryption may apply. Due to the increasing popularity and use of the Internet, it is likely that a number of laws and regulations may be adopted at the federal, state and local level, and abroad, with particular applicability to the Internet, covering issues such as user privacy, freedom of expression, pricing, characteristics and quality of products and services, taxation, advertising, intellectual property rights, information security, access fees and the convergence of traditional telecommunications services with Internet communications. In addition, laws and regulations may be adopted at the federal, state and local level, and abroad, with respect to the disclosure of individual health and medical information. The adoption of any of these laws or regulations could decrease the demand for the Company's services or increase the cost of doing business or in some manner harm the Company's business, results of operations or financial condition. In addition, applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity, and personal privacy is uncertain. These laws were adopted before the widespread use and commercialization of the Internet and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. 7 In addition, the Federal Trade Commission (the "FTC") has adopted regulations regarding the collection and use of personal identifying information obtained from children when accessing websites and is considering the adoption of other regulations regarding such collection and use with respect to specific groups of individuals as well as specific types of information. These regulations include a requirement that companies establish procedures to: give adequate notice to consumers regarding information collection and disclosure practices; provide consumers with the ability to have personal identifying information deleted from a company's database; clearly identify affiliations or a lack of affiliations with third parties which may collect information or sponsor activities on a company's website; and obtain express parental consent prior to collecting and using personal identifying information obtained from children under 13 years of age. While the Company intends to implement programs designed to comply with current regulations and to enhance the protection of the privacy of its customers, it cannot be certain that such programs will conform with any future regulation adopted by the FTC. Moreover, even in the absence of regulation, the FTC has begun investigations into the privacy practices of companies that collect information on the Internet. One investigation by the FTC has resulted in a consent decree in which the Internet company has agreed to establish programs to implement the four principles noted above. The Company may become subject to an investigation by the FTC, and the FTC's regulatory and enforcement efforts may adversely affect the Company's ability to collect demographic and personal information from members. In addition, at the international level, the European Union has adopted a directive that will impose restrictions on the collection and use of personal data. Such directive could affect U.S. companies that collect information over the Internet from individuals in European Union member countries, and impose restrictions that are more stringent than current Internet privacy standards in the United States. We cannot be certain that this directive will not adversely affect the activities of entities such as the Company that engage in data collection from users in European Union member countries. Due to the global nature of the Internet, it is possible that the governments of other states and foreign countries might attempt to regulate transmissions or prosecute for violations of their laws even though transmissions by the Company over the Internet currently originate primarily in Brossard, Quebec. Violations of local laws may be alleged or charged by state or foreign governments, and the Company may unintentionally violate local laws and local laws may be modified, or new laws enacted, in the future. Any of the foregoing developments could have a material adverse effect on the Company's business, results of operations and financial condition. EMPLOYEES As of March 15, 2001, the Company had three full-time employees, two of whom are engaged in executive management. The Company also employs approximately a dozen independent consultants, including the operating personnel for SexHealth.com., as well as Atlantis Equities, Inc. as its financial advisor. Robert Ellin of Atlantis is a Co-Chairman of the Company. From time to time, the Company may employ additional independent contractors to support its engineering, marketing, sales and support and administrative organizations. The Company believes its relations with its employees are generally good and it has no collective bargaining agreements with any labor unions. INTELLECTUAL PROPERTY The Company's success depends in part on its ability to protect its intellectual property. To protect the Company's rights, the Company intends to generally rely on patent, copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties, and license agreements with consultants, vendors and customers, although the Company has not signed such agreements in every case. 8 Third parties may copy or obtain and use the Company's technologies, ideas, know-how and other information without authorization or independently develop technologies similar or superior to the Company's technologies. Competitors may obtain patents or other rights that would prevent, or limit or interfere with the Company's ability to make, use or sell the Company's software or services. If the Company is found to infringe on the rights of others it may be required to incur substantial costs to defend any litigation, cease offering its products, obtain a license from the holder of the infringed intellectual property right or redesign its software and services. Legal standards relating to the validity, enforceability and scope of protection of certain rights in Internet-related businesses are uncertain and still evolving. The Company cannot assure the future viability or value of any of its rights or of similar rights of other companies within this market. The Company cannot be certain that the steps taken by it will prevent misappropriation or infringement of its information. Any litigation might result in substantial costs and diversion of resources and management attention and could have a material adverse effect on the Company's business, results of operations and financial condition. ITEM 2. DESCRIPTION OF PROPERTY The Company subleases approximately 1,875 square feet of office space for use as its corporate headquarters at 29 W. 57 St., 9th Floor, New York, N.Y. 10019. The sublease expires on November 29, 2003. Additional executive office space may be required as the Company`s business expands and the Company believes that it can obtain suitable space as needed. The Company will also likely require additional space for technical facilities, including servers. The Company does not own any real estate. ITEM 3. LEGAL PROCEEDINGS Cakewalk BRE LLC ("Cakewalk") is wholly owned by 32 Records LLC ("32 LLC"), and owns all the assets of 32 LLC. In 2000, Cakewalk defaulted under an Indenture dated June 29, 1999 (the "Indenture") with Entertainment Finance International, Inc. ("EFI"), and entered into negotiations with EFI regarding the same. EFI was the secured holder of $5,500,000 principal indebtedness issued by Cakewalk and maintained a security interest in all of Cakewalk's assets (the "Collateral") pursuant to the Indenture. Cakewalk consented to entry of a judgment of foreclosure ("Judgment") upon the Collateral in connection with the action filed by EFI against Cakewalk in the Supreme Court of the State of New York, County of New York, Index No. 604708/00 on or about October 30, 2000. On February 2, 2001, judgment was entered by the Court approving the foreclosure, thereby transferring all of Cakewalk's assets to EFI. On October 18, 2000, the Company and EFI entered into a consulting agreement under which the Company agreed to help EFI in the marketing and sale of Cakewalk and/or its assets in return for which the Company would be entitled to a cash payment upon sale under certain circumstances. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the fourth quarter of the year ended December 31, 2000, no matters were submitted by the Company to a vote of its stockholders. Stockholders representing approximately 58.32% of the total issued and outstanding shares of the Company's Common Stock as of March 1, 2000 took action by written consent to (i) increase the size of the Company's Board of Directors and elect new directors, (ii) increase the number of shares that the Company was authorized to issue from twenty million to fifty million, and (iii) authorize the Company for the period ending on April 19, 2001 to effect a reverse split of the Company's issued and outstanding Common Stock on up to a one-for-three basis. On or about March 30, 2000, the Company mailed on 9 Information Statement to the holders of record of the Company's Common Stock setting forth the foregoing. Stockholders representing approximately 51.1% of the total issued and outstanding shares of the Company's Common Stock as of August 1, 2000 took action by written consent to amend the Company's Amended and Restated Certificate of Incorporation in order to change the name of the Company from "Spinrocket.com, Inc." to "ConnectivCorp." On or about August 21, 2000, the Company mailed an Information Statement to the holders of record of the Company's Common Stock setting forth the foregoing. Stockholders representing approximately 53.2% of the total issued and outstanding shares of the Company's common stock as of March 12, 2001 took action by written consent to (i) authorize the Company to effect a reverse split of the Company's issued and outstanding common stock on up to a one-for-ten basis, and (ii) approve the adoption of a stock option plan for up to 5 million shares of common stock (which shall be reduced pro rata if the reverse split is effectuated). No information statement has yet been mailed to shareholders. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION. The Company's common stock is currently listed on the OTC Bulletin Board under the trading symbol "COTV." The Company first listed its common stock on the OTC Bulletin Board in August 1999. The following table sets forth the high and low bid prices of the Company's Common Stock as reported on the OTC Bulletin Board for each calendar quarter commencing in the third quarter of 1999 through March 30, 2001.
COMMON STOCK -------------------------------------------------- 2000 1999 -------------------------------------------------- HIGH BID LOW BID HIGH BID LOW BID -------- ------- -------- ------- First Quarter 4.375 2.438 NA NA Second Quarter 3.500 1.031 NA NA Third Quarter 2.313 1.125 3.125 1.2500 Fourth Quarter 2.313 .875 2.750 1.1875
As of March 30, 2001, the closing sale price of the Company's common stock on the OTC Bulletin Board was $0.39 per share. HOLDERS As of March 30, 2001, there were approximately 165 holders of record of the Company's common stock as determined from the Company's transfer agent's list. Such list does not include beneficial owners of securities whose shares are held in the names of various dealers and clearing agencies. DIVIDENDS The Company has never declared nor paid any cash dividends on its common stock and does not anticipate paying dividends in respect of its common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon, among other things, its earnings (if any), financial condition, cash flows, capital requirements and 10 other relevant considerations, including applicable contractual restrictions and governmental regulations with respect to the payment of dividends. RECENT SALES OF UNREGISTERED SECURITIES PRIVATE PLACEMENT On March 31, 2000, the Company raised approximately $3 million (net of placement agent fees) through the private placement of 2,661,352 shares of the Company's Series D Convertible Preferred Stock (the "Series D Preferred Stock") at a price of $1.28 per share (the "Private Placement"). On April 19, 2000, the Company converted the Series D Preferred Stock into shares of common stock at a ratio of one share of common stock for one share of Series D Preferred Stock and amended its charter to authorize the issuance of up to 40 million shares of common stock. At the second closing on April 28, 2000, the Company received approximately $.7 million (net of placement agent fees) and issued 648,128 shares of common stock. The Company also issued one warrant to purchase one share of common stock for each share of preferred or common stock issued in the private placement. The warrants have an exercise price of $5 per share and are exercisable at any time until April 19, 2002. The Company also granted to Matrix U.S.A., the placement agent, warrants to purchase 330,948 shares of the Company's common stock. The warrants have an exercise price of $1.28 per share and are exercisable at any time until April 28, 2005. The issuance of the securities in the transactions described above were deemed to be exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of Securities Act and Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT AS ITEM 7. THIS REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE COMPANY CAUTIONS THAT FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. The Company was incorporated in Delaware on May 8, 1998 under the name "SMD Group, Inc." In January 1999, the Company changed its name to "CDbeat.com, Inc." On April 19, 2000, the Company's name was changed to "Spinrocket.com, Inc." On September 11, 2000, the Company changed its name from Spinrocket.com, Inc. to "ConnectivCorp" because this new name better describes the Company's current strategic direction. The Company's business model is to facilitate the online connection between targeted, profiled consumers and marketers desiring to reach those consumers. As its initial focus, the Company formed a new wholly-owned subsidiary, ConnectivHealth, in order to facilitate its connectivity model in the healthcare field. MERGER On November 16, 1999, the Company, through its wholly-owned subsidiary, 32 Records LLC ("32 LLC") entered into a business combination transaction with Cakewalk LLC ("Cakewalk") in a transaction accounted for by the purchase method wherein Cakewalk LLC was deemed to be the acquiror and the Company the acquiree (the "Merger"). 11 As part of the Merger: (1) Cakewalk contributed and assigned to 32 LLC substantially all of the assets and liabilities relating to the business of Cakewalk in exchange for 8,307,785 shares of the Company's Common Stock, (2) Dylan LLC exercised a warrant and paid the Company $900,000 for 7,037,183 shares of Common Stock, (3) Atlantis Equities, Inc. exercised a warrant and paid the Company $100,000 for 781,909 shares of Common Stock, (4) 3,049,424 shares of Common Stock held by the then management of the Company were surrendered and (5) 50,000 shares of Class C Preferred Stock were converted into 500,000 shares of Common Stock. A portion of the purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of acquisition and the balance of $4,200,000 was recorded as cost of acquired software and is being amortized using the straight-line method over the estimated useful life of five years. The $4.2 million valuation is based upon an independent valuation analysis of the software obtained by the Company. UNCERTAINTY The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a limited operating history, and since it's inception in 1998 has incurred substantial losses. The Company's accumulated deficit as of December 31, 2000 is approximately $13 million. To date, the Company has not generated any revenue from its proposed business model, which contemplates selling pharmaceutical and other healthcare companies access to the Company's aggregated users. The Company incurred a loss from continuing operations of approximately $4.9 million and a net loss of approximately $6.4 million for the year ended December 31, 2000. Additionally, cash used in operations totaled approximately $2.3 million for the year ended December 31, 2000, while cash and cash equivalents at December 31, 2000 totaled approximately $1.8 million. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's continued existence is dependent upon several factors including the Company's ability to execute its business strategy and/or its ability to raise additionally equity. The Company's near term operating strategy focuses on the continued execution of its business plan. To date, the Company has successfully launched SexHealth.com, and entered into Content Agreements with several major hosts, thereby exposing the Company's content to millions of potential users, the Company has not yet been able to convert a meaningful number of these consumers to users of SexHealth.com, either directly or through the various host sites. Additionally, the Company has not yet signed any agreements with any pharmaceutical or offer healthcare company to use the Company's services. The Company has currently evaluated its current operating costs and has undertaken measures to reduce these costs, which include the reduction of salaries and payments to consultants. It is projected that these cuts will reduce the annual cash expenditures by approximately $449,000. The Company is also exploring its ability to raise additional equity through a private placement of the Company's preferred stock. The Company believes that it will be able to raise additionally equity capital, and that the capital raised will be sufficient to fund and execute its business plan when combined with the Company's current cash position. The Company's ability to operate as a going concern is dependent on its ability to execute its business plan and/or raise additionally equity. There can be no assurance that the Company will be able to achieve or sustain any level of profitability in the future. Future operating results will depend on a number of factors, including demand for, and market acceptance of, the Company's services and prevailing economic conditions. While the Company has reduced its operating expenses, no assurance can be given that the Company can sustain these operating levels. Moreover, the Company has not yet generated any meaningful revenues, and no assurance can be given that it will do so in the future. There can be no assurance that the Company will generate sufficient revenues to ever achieve profitability or otherwise sustain its profitability in the future. While the Company is exploring raising additional equity 12 capital, there can be no assurance that the additional equity infusion will be consummated. However, although no assurances can be given, the Company is confident that it will be able to continue operating as a going concern. RESULTS OF OPERATIONS As discussed in Liquidity and Capital Resources, 32 LLC's operations have been recorded as discontinued operations in the consolidated financial statements. YEAR ENDED DECEMBER 31, 2000 The Company reported the following results of operations for the years ended December 31, 2000 and 1999:
2000 1999 ---- ---- Loss from continuing operations $ (4,967,021) $(1,588,577) Loss from discontinued operations (1,412,700) (1,475,301) ------------- ----------- Net Loss $ (6,379,721) $(3,063,878) ============= =========== Basic and diluted loss per share: Loss from continuing operations $ (0.24) $ (0.28) Loss from discontinued operations (0.07) (0.26) ------------- ----------- Net loss per common share - basic and diluted $ (0.31) $ (0.54) ============= ===========
The Company reported a loss of approximately $5 million from continuing operations. The Company's operating income for the year ended December 31, 2000 consisted of consulting fee revenue of $80,000, and other income consisted of interest income of approximately $103,000 that was earned on invested funds. General and administrative expenses totaled approximately $5.3 million in 2000 versus $2.2 million in 1999. Included in general and administrative was approximately $1.8 million of deferred compensation expense related to options granted to consultants and employees; salaries of approximately $727,000; approximately $1.3 million for professional and consulting fees and software development and amortization expense of approximately $992,000 of acquired software and goodwill. YEAR ENDED DECEMBER 31, 1999 The Company had no revenues in 1999. General and administrative expenses include approximately $500,000 for professional and consulting fees and software development. Also included is compensation expense of $1.4 million associated with stock options granted to consultants, employees and directors. Depreciation and amortization expense includes approximately $130,000 amortization expense associated with the cost of software acquired in the business combination. CONNECTIVHEALTH'S BUSINESS MODEL ConnectivHealth Corp. ("ConnectivHealth" or "CHC"), a wholly owned subsidiary of ConnectivCorp, is a comprehensive deep-level, healthcare provider that facilitates various marketing opportunities for pharmaceutical and other healthcare oriented companies. ConnectivHealth does this by acting as a middleman between segmented, profiled, healthcare-oriented consumers, patients and caregivers, 13 and those healthcare companies desiring to serve their healthcare needs. This enables these companies to reach their core audience on an individualized, targeted, profiled, fully opted-in basis. To achieve this, ConnectivHealth seeks to forge strategic alliances with various online healthcare and other websites - referred to as `hosts' - which have already established large constituencies of consumers who share similar needs and interests. Through the establishment of a relationship, pursuant to which ConnectiveHealth trades its content for access to the host site's traffic, ConnectivHealth hopes to reach large numbers of consumers and patients without spending the large sums usually required to accomplish such acquisition. In return for the opportunity to utilize the hosts' already acquired consumer population, ConnectivHealth will provide specific, comprehensive healthcare content at no cost which will help the hosts maximize their offering to their constituencies, and augment their ability to fulfill their primary mission: providing services of significant value to their members. ConnectivHealth will seek to aggregate the consumer populations of its hosts into a segmentable data pool, enabling marketers to use ConnectivHealth as a single-source destination to reach large numbers of profiled and segmented healthcare-oriented consumers. Given the ability to quickly find and reach large numbers of patients with specifically identified needs and interests allows healthcare marketers to, among other things, facilitate brand advocacy, compliance and switch marketing and to recruit candidates for research and clinical trial programs in the most effective possible manner. ConnectivHealth intends to sell access to its user base to its intended customers: pharmaceutical and other healthcare companies that have an interest in the areas of healthcare covered by ConnectivHealth, such access to be provided on a privacy protected, fully opted-in basis. CONNECTIVHEALTH INITIATIVES SEXHEALTH.COM WEBSITE On January 18, 2001, ConnectivHealth launched SexHealth.com (www.sexhealth.com), its comprehensive website that is intended to serve as both a destination website for consumers seeking specific sexual health information, and as a health portal venue where the online connection between consumers and marketers will be effected. Through SexHealth.com, ConnectivHealth seeks to offer comprehensive information in the area of sexual health. This overall area subsumes many topics of particular interest, such as sexual dysfunction, sexually transmitted diseases, and hormone replacement therapy. As a subset of the broader area of women's health, the Company believes that SexHealth.com appeals to one of the most coveted demographic groups, women aged 15-55. The Company believes that this has particular appeal to a wide variety of pharmaceutical and other healthcare companies. LIQUIDITY AND CAPITAL RESOURCES PRIVATE PLACEMENT On March 31, 2000, the Company raised approximately $3 million (net of placement agent fees) through the private placement of 2,661,352 shares of the Company's Series D Convertible Preferred Stock (the "Series D Preferred Stock") at a price of $1.28 per share. On April 19, 2000, the Company converted the Series D Preferred Stock into shares of Common Stock at a ratio of one share of Common Stock for one share of Series D Preferred Stock and amended its charter to authorize the issuance of up to 40 million shares of common stock. At the second closing on April 28, 2000, the Company received approximately $.7 million (net of placement agent fees) and issued 648,128 shares of Common Stock. 14 The Company also issued one warrant to purchase one share of Common Stock for each share of Preferred or Common Stock issued in the Private Placement. The warrants have an exercise price of $5 per share and are exercisable at any time until April 19, 2002. The Company also granted Matrix U.S.A., LLC, the placement agent, warrants to purchase 330,948 shares of the Company's Common Stock. These warrants have an exercise price of $1.28 per share and are exercisable at any time until April 28, 2005. CHANGE IN MANAGEMENT, LOAN DEFAULT AND DISPOSITION OF SUBSIDIARY Cakewalk BRE LLC ("Cakewalk") is wholly owned by 32 Records LLC ("32 LLC"), and owns all the assets of 32 LLC. In 2000, Cakewalk defaulted under an Indenture dated June 29, 1999 (the "Indenture") with its lender, Entertainment Finance International, Inc. ("EFI"), and entered into negotiations with EFI regarding the same. EFI was the secured holder of $5,500,000 principal indebtedness issued by Cakewalk and maintained a security interest in all of Cakewalk's assets (the "Collateral") pursuant to the Indenture. Cakewalk consented to entry of a judgment of foreclosure ("Judgment") upon the Collateral in connection with the action filed by EFI against Cakewalk in the Supreme Court of the State of New York, County of New York, Index No. 604708/00 on or about October 30, 2000. On February 2, 2001, judgment was entered by the Court approving the foreclosure, thereby transferring all of Cakewalk's assets to EFI. On October 18, 2000, the Company and EFI entered into a consulting agreement under which the Company agreed to help EFI in the marketing and sale of Cakewalk and/or its assets in return for which the Company would be entitled to a cash payment upon sale under certain circumstances. ITEM 7. FINANCIAL STATEMENTS The Company's audited consolidated financial statements for the years ended December 31, 2000 and 1999, respectively, are set forth at the end of this Annual Report on Form 10-KSB and begin on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information, as of March 15, 2001, concerning the Company's directors and executive officers:
Name Age Position ---------------------------------------------------------------------- Elliot Goldman 65 President, Chief Executive Officer, Director Robert Ellin 35 Co-Chairman Robert Miller 49 Co-Chairman Ivan Berkowitz 55 Director David Goddard 45 Director Thomas Cyrana 52 Observer
The business experience of each of the persons listed above for at least the last five years is as follows: ELLIOT GOLDMAN (PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR). Mr. Goldman's executive and operational career spans three decades in the entertainment industry including his role as President and Chief Executive Officer of BMG Music and senior executive posts at Warner Communications Inc. (now Time Warner), CBS Records (now Sony Music) and Arista Records. In all of these instances he had primary responsibility for managing content companies and maximizing the net income generated. Most recently he has been President of his own consulting firm specializing in operational and deal assistance to major and independent music companies. At BMG Music, Mr. Goldman was President and CEO of worldwide music operations encompassing RCA Records, Arista Record, RCA Red Seal and the RCA Record Club. Before that, he was a Senior Vice President of Warner Communications (now Time Warner), with responsibility for the Warner Music Group's worldwide recorded music and music publishing activities. Prior to Time Warner, Mr. Goldman was Executive Vice President and General Manager of Arista Records, from it's founding, with direct responsibility for all areas of the company's business operations. Mr. Goldman began his career at CBS Records (now Sony Music) as Director of Business Affairs and rose to Administrative Vice President of that company. ROBERT ELLIN (CO-CHAIRMAN). Mr. Ellin is a principal of Atlantis Equities, Inc., Dylan LLC and Trinad Partners. Atlantis is a private merchant banking and advisory firm specializing in equity and debt finance, that primarily assists emerging growth companies under $100 million in sales. Through Atlantis, Mr. Ellin has spearheaded merger and acquisition and business development projects for private and public companies such as THQ, Inc. (OTC:THQI), Grand Toys (OTC: GRIN), and Forward Industries, Inc. (OTC: FORD). Trinad is a leveraged buyout firm which bought and sold S&S Industries, Inc., the largest manufacturer of apparel-related underwire. Dylan LLC was organized for the purpose of investing in the Company. ROBERT MILLER (CO-CHAIRMAN). Mr. Miller is a nationally recognized bankruptcy lawyer and distressed investor. As a lawyer, Mr. Miller played a leading role in many of the most prominent corporate restructurings of the 1980s through the mid-1990s, including Macy's, Trump Taj Mahal, Days 16 Inns of America, A.H. Robins and Continental Airlines. From 1995 to 1998, Mr. Miller was of counsel to Rosenman & Colin LLP. From its inception in 1996 until acquired by the Company in 1999, Mr. Miller was President and CEO of Cakewalk LLC, now 32 LLC. Since 1999, Mr. Miller has been of counsel to Baer Marks & Upham LLP and served as a consultant to Shenkman Capital Management, Inc. until December 31, 2000 IVAN BERKOWITZ (DIRECTOR). Since 1989, Mr. Berkowitz has been the President of Great Court Holdings Corporation and, since 1993, he has served as the Managing General Partner of Steib & Company. From 1995 to 1997, Mr. Berkowitz served as the Chief Executive Officer of PolyVision Corporation, where he continues to serve as a board member. Mr. Berkowitz is also a member of the Board of Directors of the following public companies: Migdalei Shekel (Tel Aviv), Propierre (Paris), HMG WorldWide and IAT Resources. Mr. Berkowitz is also the Chairman of the Advisory Board of THCG Inc. DAVID GODDARD (DIRECTOR). Mr. Goddard is a Senior Managing Director in the Equity Capital Markets Department of Bear Stearns & Co., Inc., an international investment banking firm. Mr. Goddard has been with Bear Stearns since November 1998. From 1996 to 1998, Mr. Goddard served as a Managing Director - Associate Director Private Capital Group at BancBoston Robertson Stephens, Inc. Prior to that, Mr. Goddard was Managing Director - Private Placement Group at Chase Securities, Inc. from 1994-1996. Mr. Goddard has extensive corporate finance and capital markets experience specializing in the placement of debt and equity securities in the private capital markets. THOMAS CYRANA (OBSERVER). Mr. Cyrana is a Managing Director of Rascoff/Zysblat Organization ("RZO"), a division of American Express Tax and Business Services. Mr. Cyrana has been with RZO since 1995. Mr. Cyrana also serves as a principal of the managing member of Entertainment Finance International LLC, a venture with The Structured Finance High Yield Fund, LLC, which is managed by Prudential Investments. All directors of the Company serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. All officers of the Company serve at the discretion of the Board of Directors, subject to rights, if any, under contracts of employment with the Company. See "Executive Compensation - Employment Agreements." There are no family relationships among the directors and executive officers. MANAGEMENT CHANGES As of March 20, 2000, Joel Arberman resigned as director and Internet Officer of the Company. As of August 3, 2000, Marty Marion has terminated as Chief Strategic Officer of the Company. As of November 7, 2000, Alan L. Schaffer resigned as Chief Financial Officer of the Company. As of January 2001, Peter Crawford resigned as Chief Technology Officer of the Company. CERTAIN CORPORATE ACTIONS Stockholders representing approximately 58.32% of the total issued and outstanding shares of the Company's Common Stock as of March 1, 2000 took action by written consent to (i) increase the size of the Company's Board of Directors and elect new directors, (ii) increase the number of shares that the Company was authorized to issue from twenty million to fifty million, and (iii) authorize the Company for the period ending on April 19, 2001 to effect a reverse split of the Company's issued and outstanding 17 Common Stock on up to a one-for-three basis. On or about March 30, 2000, the Company mailed on Information Statement to the holders of record of the Company's Common Stock setting forth the foregoing. Stockholders representing approximately 51.1% of the total issued and outstanding shares of the Company's Common Stock as of August 1, 2000 took action by written consent to amend the Company's Amended and Restated Certificate of Incorporation in order to change the name of the Company from "Spinrocket.com, Inc." to "ConnectivCorp." On or about August 21, 2000, the Company mailed an Information Statement to the holders of record of the Company's Common Stock setting forth the foregoing. Stockholders representing approximately 53.2% of the total issued and outstanding shares of the Company's common stock as of March 12, 2001 took action by written consent to (i) authorize the Company to effect a reverse split of the Company's issued and outstanding common stock on up to a one-for-ten basis, and (ii) approve the adoption of a stock option plan for up to 5 million shares of common stock (which should be reduced pro rata if the reverse split is effectuated). No information statement has yet been mailed to shareholders. ADVISORY BOARD The Company has formed an Advisory Board to the Board of Directors which consists of the following individuals: MICHAEL E. MEYERS Until October 2000, Mr. Meyers was a Director of Health Care Investment Banking at Merrill Lynch & Co. in New York. Mr. Meyers was responsible for covering the life sciences industry. Prior to joining Merrill Lynch, Mr. Meyers was a Vice President of Health Care Investment Banking and Head of the Pharmaceutical & Drug Delivery Focus Group, at Cowen & Company in New York. Prior to Cowen & Company Mr. Meyers was the Special Assistant to the Chief Executive Officer of a large health services organization in New York. Prior to this position, Mr. Meyers was a life sciences Research Associate at Hambrecht & Quist in New York. Mr. Meyers holds a M.P.H. in Health Policy & Management from Columbia University and an A.B. in Biology from Brandeis University. In October 2000, Mr. Meyers became a Managing Director and General Partner of Global Biomedical Partners, a private equity firm located in Zurich, Switzerland and New York. Global Biomedical Partners advises International Biomedicine Holdings in respect of life sciences investments. International Biomedicine Holdings has investments in 13 biotechnology companies with future investments in biotechnology, medical device and other health care companies. JOSHUA GRODE Mr. Grode is the President and Chief Operating Officer of Digital Boardwalk, a leading internet development firm and interactive agency. RALPH SORRENTINO Mr. Sorrentino is President and CEO of DC2 Corp., a wholly owned subsidiary of Arthur Treacher's Inc. Prior thereto, Mr. Sorrentino served as CFO of Liberty Digital and its predecessor, TCI Music. 18 The Company has also formed a Medical Advisory Board of ConnectivHealth, which consists of the following individuals: M. JOYCELYN ELDERS, MD - former U.S. Surgeon General from 1993 to 1994, earning a reputation for increasing prenatal care for poor women and in-home care for the terminally ill, and expanding mammography and HIV testing. Prior to her appointment by President Clinton, she was Head of the Arkansas Department of Health and President of the Association of State and Health Officers. One of eight children, Dr. Elders served as a physical therapist in the U.S. Army, and attended the University of Arkansas under the G.I. Bill. A pediatric endocrinologist with expertise in public health and adolescent medicine, Dr. Elders is currently a Professor Emeritus of Pediatrics at the University of Arkansas School of Medicine. PENELOPE HITCHCOCK, DVM, MS - heads the Sexually Transmitted Disease Branch at the National Institute of Allergy and Infectious Diseases, National Institutes of Health (NIH). In this capacity, she administers a research program combining biomedical, behavioral, clinical and epidemiological approaches to the prevention of STDs, including HIV. She has training in molecular biology and was associate professor at the University of Tennessee prior to joining NIH. KING HOLMES, MD, PH.D. - is a professor of medicine at the University of Washington Medical School. He directs the Center for AIDS and STD Research in Seattle and has served as chief of medicine at Harborview Medical Center and vice chairman of the Department of Medicine at the University of Washington. He is the recipient of many awards in his field and serves as an elected member of the National Academy of Science. ELI COLEMAN, PH.D. - directs the program in human sexuality at the University of Minnesota Medical School and serves on the executive committee of the International Academy of Sex Research. A past president of the Society for the Scientific Study of Sexuality, he is an expert on clinical issues in human sexuality, especially those involving homosexuality. JULIA HEIMAN, PH.D. - is Professor of Psychiatry and Behavioral Sciences at the University of Washington Medical Center. A well-known expert in the field of sexual health, she co-directs the Reproductive and Sexual Medicine Clinic of the University of Washington Psychiatry and Urology Departments, and is past president of The International Academy of Sex Research. DEBRA W. HAFFNER, MPH - the former head of SIECUS, the Sexuality Information and Education Council of the United States. Author of numerous articles and several books on sexual health topics. MICHAEL V. REITANO, MD - has forged a unique role as clinical expert and health educator, pursuing a special interest in women's healthcare and sexual health generally. As an outspoken advocate of a more informed dialogue about sexuality, Dr. Reitano was the Executive Publisher and Editor-in-Chief of SEXUAL HEALTH MAGAZINE. Dr. Reitano earned his medical degree at the New York University School of Medicine. He is a founder of the Herpes Advice Center, an educational outreach program covering a number of sexually transmitted infections. All members of the Company's Advisory Boards have received options to purchase Common Stock of the Company. 19 REVERSE SPLIT GENERAL As of March 12, 2001, stockholders representing 53.2% of the issued and outstanding shares of the Common Stock of the Company have approved an amendment to the Company's Amended and Restated Certificate of Incorporation to authorize the Company to effect a reverse split (the "Reverse Split") that will cause all issued and outstanding Common Stock to be split, on a reverse basis, up to one-for-ten. The Reverse Split, as and when it is implemented, will not affect the number of authorized shares of the Company's Common Stock. Any such Reverse Split will effectively increase the number of available authorized shares of Common Stock. As described below, the primary objective of the Board of Directors if it were to effect a Reverse Split would be to seek to increase the per share market price of the Common Stock. The Company intends to mail an Information Statement to the holders of record of the Company's Common Stock setting forth the foregoing in April 2001. EFFECTS OF REVERSE SPLIT EFFECT ON MARKET FOR COMMON STOCK. The Company has been attempting to increase the liquidity of its Common Stock, which currently is traded on the OTC Bulletin Board. Towards that end, the Company has filed an application to have its Common Stock listed on the American Stock Exchange ("AMEX"). The Company has received one letter of comment from the AMEX in addition to certain informal requests, and is pursuing its application. No assurance can be given, however, that the Company will be successful in obtaining an AMEX listing or that if such a listing is obtained, it will result in increased liquidity for the Company's Common Stock. On March 30, 2001, the last reported closing price of the Company's Common Stock on the OTC Bulletin Board was $0.39 per share. By effecting the Reverse Split and decreasing the number of shares of Common Stock otherwise outstanding without altering the aggregate economic interest in the Company represented by such shares, the Board of Directors believes that the trading price for the Common Stock will be increased. However, since there are numerous factors and contingencies that could affect the bid price of the Common Stock, there can be no assurance that such increase in the price will occur, or if it does occur that such higher price will be maintained. In addition, the Board of Directors believes that the Reverse Split should, although there can be no assurance, enhance the acceptability of the Company's Common Stock by the financial community and investing public. The reduction in the number of issued and outstanding shares of Common Stock caused by the Reverse Split is anticipated initially to increase proportionately the per share market value of the Company's Common Stock. The Board of Directors also believes that the Reverse Split may result in a broader market for the Company's Common Stock than that which currently exists. The expected increase price level may encourage interest and trading in the Common Stock and possibly promote greater liquidity for the Company's stockholders, although such liquidity could be adversely affected by the reduced number of shares of Common Stock outstanding after the effectiveness of the Reverse Split. In connection with the foregoing, the Company recently retained Madison & Wall Worldwide, Inc. as its investor relations firm and Eisenberg Communications as its public relations firm, in order to help the Company achieve a higher profile in the investment community. EFFECTS ON NUMBER OF SHARES AVAILABLE FOR ISSUANCE. A Reverse Split will decrease the number of outstanding shares of Common Stock. Assuming a Reverse Split on a one-for-ten basis, the 21,532,155 shares of Common Stock issued and outstanding as of the effective date of the Reverse Split would, together with the 10,289,552 shares of Common Stock issuable upon and, assuming the exercise of, all 20 outstanding warrants and options, be converted into approximately 3,182,170 shares of Common Stock. Because the number of shares of Common Stock authorized for issuance by the Certificate of Incorporation, as amended, following the Reverse Split would remain at 40,000,000 shares, the Reverse Split would result in approximately 28,639,537 additional (or post-split) shares of Common Stock available for issuance by the Company. In lieu of issuing any fractional shares as a result of the Reverse Split, the Company will round the number of shares each shareholder is entitled to receive as a result of the Reverse Split to the nearest whole number of shares. The Board of Directors believes that a Reverse Split can provide flexibility for the Company in meeting its possible needs by assisting the Company to raise additional capital through the issuance of Common Stock or securities convertible into or exercisable for Common Stock, to make additional stock awards under the Company's employee benefit plans and/or to employ Common Stock as a form of consideration for acquisitions. Other than in connection with the Company's stock option plan, the Company does not presently intend to issue any additional shares for any specific purpose. EFFECT ON THE COMPANY'S DERIVATIVE AND CONVERTIBLE SECURITIES. The total number of shares of Common Stock issuable upon the exercise of options and warrants to acquire such shares, and the exercise price thereof, shall be proportionally adjusted to reflect any Reverse Split. CHANGES IN STOCKHOLDERS' EQUITY. As an additional result of a Reverse Split, the Company's stated capital, which consists of the par value per share of the Common Stock and Preferred Stock multiplied, respectively, by the number of shares outstanding, would be reduced. Although the par value of the Common Stock will remain at $.001 per share following a Reverse Split, stated capital will be decreased because the number of shares outstanding will be reduced. Correspondingly, the Company's additional paid-in capital, which consists of the difference between the Company's stated capital and the aggregate amount paid to the Company upon the issuance by the Company of all then outstanding shares of Common Stock and Preferred Stock, would be increased. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers, directors and persons who own more than ten percent of a registered class of the Company's equity securities to file certain reports regarding ownership of, and transactions in, the Company's securities with the Securities and Exchange Commission (the "SEC"). These officers, directors and stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports that are filed with the SEC. Based solely on a review of copies of such forms received by the Company, and written representations received by the Company from certain reporting persons, the Company believes that for the year ended December 31, 2000 all Section 16(a) reports required to be filed by the Company's executive officers, directors and 10% stockholders were filed on a timely basis, except as hereinafter set forth. Messrs. Goddard and Berkowitz failed to timely file Form 3's upon becoming directors of the Company. BankBoston Ventures failed to timely file a Form 3 upon becoming a 10% stockholder of the Company. ITEM 10. EXECUTIVE COMPENSATION The following summary compensation table sets forth the aggregate compensation paid to, or earned by, the Chief Executive Officer and the other most highly compensated executive officer for the years ended December 31, 2000 and 1999 whose total annual salary and bonus exceeded $100,000 for 2000 and 1999 (collectively the "Named Executive Officers"). 21 SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------------------------------- --------------------- SECURITIES OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS/SARS(#) - --------------------------- ---- ---------- --------- ---------------- --------------- Robert Miller(1)..................... 2000 $200,000 -- -- -- Co-Chairman 1999 $34,615 -- -- -- Elliot Goldman(2).................... 2000 $146,154 -- -- -- President and 1999 -- -- -- -- Chief Executive Officer Alan L. Schaffer(3).................. 2000 $134,154 -- -- -- Chief Financial Officer 1999 $14,019 -- -- --
- ---------- (1) For the year 2000, Mr. Miller served as the President and Chief Executive Officer. In January 2001, Mr. Miller relinquished these positions and was appointed Co-Chairman. For the year 2000 he was paid an annual salary of $200,000, subject to such increases or bonuses as the Board of Directors shall authorize. As of March 1, 2001, Mr. Miller agreed to reduce his salary to $100,000. See "Executive Compensation - Employment Agreements." (2) For the year 2000 Mr. Goldman served as Chief Operating Officer. In January 2001 Mr. Goldman was promoted and appointed President and Chief Executive Officer. For the year 2000 he was paid an annual salary of $200,000, subject to such increases or bonuses as the Board of Directors shall authorize. From January through February 2001, Mr. Goldman's salary was increased to $250,000. As of March 1, 2001, Mr. Goldman agreed to reduce his salary to $150,000. See "Executive Compensation - Employment Agreements." (3) Mr. Schaffer was appointed Chief Financial Officer of the Company in November 1999 and left the employ of the Company in November 2000. He was being paid an annual salary of $135,000 plus a minimum annual bonus of $10,000. OPTION GRANTS IN 2000 The following table sets forth certain information concerning the grant of stock options in 2000 to each of the Named Executive Officers.
NUMBER OF SECURITIES PERCENTAGE TO TOTAL UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE NAME OPTIONS GRANTED EMPLOYEES IN 2000 ($/SHARE) EXPIRATION DATE - ---- --------------- ----------------- --------- --------------- Elliot Goldman.............. 500,000 100.00% (1) (1)
- ---------- (1) Pursuant to his employment agreement with the Company, the Company has granted Mr. Goldman an option to purchase all or any part of an aggregate of 500,000 shares of the Company's Common Stock at an exercise price of $1.28 per share, of which 125,000 shares are immediately exercisable, one-quarter will be exercisable after one year of service, one-quarter after two years of service and the final one-quarter will be exercisable after three years of service. Mr. Goldman's options shall terminate upon the later to occur of (a) the expiration of the term of Mr. Goldman's employment with the Company, or (b) November 10, 2006. Upon his appointment as President and Chief Executive Officer in January 2001, the Company granted Mr. Goldman an additional option to purchase all or any part of an aggregate of 500,000 shares of the Company's Common Stock at an exercise price of $1.50, of which 250,000 are immediately 22 exercisable and 250,000 shares will be exercisable when and if the Company achieves certain revenue levels. AGGREGATE OPTION EXERCISES IN 2000 AND 2000 YEAR-END OPTION VALUES The following table sets forth certain information concerning the Named Executive Officers with respect to the number of shares covered by exercisable and unexercisable stock options at December 31, 2000 and the aggregate value of exercisable and unexercisable "in-the-money" options at December 31, 2000. No options were exercised by the Named Executive Officers in 2000.
NAME NUMBER OF SECURITIES VALUE OF UNEXERCISED ---- UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1) -------------------------- --------------------- EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ------------------------- ------------------------- Robert Miller................... 1,303,833/651,917 $-0-/$-0- Elliot Goldman.................. 125,000/375,000 $-0-/$-0-
- ----------- (1) The value of unexercised "in-the-money" options is equal to the difference between the closing bid price of the common stock on the OTC Bulletin Board as of December 31, 2000 ($0.9375) and the option exercise price per share, multiplied by the number of shares subject to options. DIRECTOR COMPENSATION The Company's directors do not receive compensation for their services as directors, but are reimbursed for all reasonable out-of-pocket expenses incurred in connection with each Board of Directors meeting attended. On April 19, 2000, David Goddard and Ivan Berkowitz were granted options to acquire 100,000 shares each of the Company's common stock at an exercise price of $2.75. Fifty percent of the shares are immediately exercisable, twenty-five percent of the shares will be exercisable after one year of service and twenty-five percent of the shares will be exercisable after two years of service. The options will terminate on April 19, 2005. EMPLOYMENT AGREEMENTS The Company has entered into an employment contract, dated as of April 11, 2000, with Elliot Goldman for an initial term of three years. The Agreement was amended by Board vote in January 2001. The initial term shall automatically be extended by one additional year at the end of the Initial Term and each subsequent anniversary thereafter, unless, at least one hundred twenty (120) days prior to any such renewal date either Mr. Goldman or the Company shall deliver written notice to the other that the term will not be further extended. Pursuant to the Employment Agreement, as amended, Mr. Goldman serves as President, Chief Executive Officer and as a Director of the Company at an initial annual salary of $250,000, subject to such increases or bonuses as the Board of Directors of the Company shall authorize. The Company also entered into an option agreement with Mr. Goldman pursuant to which Mr. Goldman was granted an option to purchase all or any part of an aggregate of 500,000 shares of the Common Stock of the Company at an exercise price of $1.28 per share. One quarter of such option shares are currently vested, and an additional one quarter of such option shares shall vest on each subsequent anniversary of the agreement until all of such option shares are fully vested. All unvested shares shall vest automatically under certain circumstances. Unless terminated earlier in accordance with the terms and conditions of the option agreement, the option shall terminate on April 10, 2006. Upon his appointment as President and Chief Executive Officer in January 2001, the Company granted Mr. Goldman an additional option to purchase all or any part of an aggregate of 500,000 shares of the Company's Common Stock at an 23 exercise price of $1.50, of which 250,000 are immediately exercisable and 250,000 shares will be exercisable when and if the Company achieves certain revenue levels. The Company has entered into an employment contract, dated as of November 16, 1999 with Robert Miller for an initial term of three years. This agreement was also amended by Board vote in January 2001. The initial term shall automatically be extended by one additional year at the end of the initial term and each subsequent anniversary thereafter, unless, at least one hundred twenty (120) days prior to any such renewal date either Mr. Miller or the Company shall deliver written notice to the other that the term will not be further extended. Pursuant to the employment agreement, as amended, Mr. Miller serves as a Director and co-chairman of the Company at an initial annual salary of $200,000, subject to such increases or bonuses as the Board of Directors of the Company shall authorize. The Company also entered into an option agreement with Mr. Miller pursuant to which the Company granted to Mr. Miller an option to purchase all or any part of an aggregate of 1,955,750 shares of the Common Stock of the Company, at the following exercise prices: 50% of the Option Shares at $1.30 per share, 25% at $1.50 per share; and 25% at $1.70 per share. Two-thirds, or 1,303,899, Option Shares have vested, and the remaining one-third of the option shares vest on November 16, 2001. All unvested shares shall vest automatically under certain circumstances. Unless terminated earlier in accordance with the terms and conditions of the option agreement, the Option shall terminate upon the later to occur of (a) the expiration of the term of Mr. Miller's employment agreement with the Company, or (b) five years from the original date of grant of the Option. Both Messrs. Goldman and Miller have voluntarily reduced their annual cash compensation to $150,000 and $100,000, respectively, as of March 1, 2001. 1998 EMPLOYEE STOCK OPTION PLAN The Company's 1998 stock incentive plan (the "STOCK INCENTIVE PLAN") was originally adopted by the Board of Directors and approved by the stockholders on October 15, 1998. The Stock Incentive Plan provides for the grant of stock options for up to a total of 1,000,000 shares of the Company's Common Stock to the Company's employees, officers, directors, consultants and advisors. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of March 31, 2001, regarding the beneficial ownership of the Company's common stock (assuming the sale of the maximum number of Shares that are being offered hereby) by: (i) each person known by the Company to own beneficially more than 5% of the Company's common stock; (ii) each of the Company's directors; (iii) the Company's Chief Executive Officer and the other executive officers of the Company whose salary and bonus for the fiscal year ended December 31, 2000 exceeded $100,000, and (iv) all officers and directors of the Company as a group.
NAME AND ADDRESS OF PERCENTAGE BENEFICIAL OWNER(1) NUMBER OF SHARES(2) OF CLASS - ---------------------------- ---------------------- ------------ Atlantis Equities, Inc.(3) 750 Lexington Avenue New York, NY 10022 5,529,936 24.80% BankBoston Ventures, Inc. 100 Federal Street Boston, MA 02110 2,134,499 9.91%
24
NAME AND ADDRESS OF PERCENTAGE BENEFICIAL OWNER(1) NUMBER OF SHARES(2) OF CLASS - ------------------------------- ---------------------- ------------ Robert Miller(4) c/o ConnectivCorp. 29 West 57th Street, 9th Floor New York, NY 10019 3,092,391 13.54% Elliot Goldman(5) c/o ConnectivCorp. 29 West 57th Street, 9th Floor New York, NY 10019 375,000 * David Goddard(6) c/o ConnectivCorp. 29 West 57th Street, 9th Floor New York, NY 10019 50,000 * Ivan Berkowitz(7) c/o ConnectivCorp. 29 West 57th Street, 9th Floor New York, NY 10019 50,000 * Entertainment Finance International, LLC(8) 110 East 57th Street New York, NY 10019 1,466,080 6.37% Joel Arberman 8384 Roswell Road, Suite K Atlanta, GA 30350 1,142,550 5.30% All directors and executive officers as a group (5 persons)(9) 9,097,327 36.82%
*less than 2% - ---------- (1) Except as indicated in these notes and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. (2) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. As used in this table, a beneficial owner of a security includes any person who, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise has or shares (i) the power to vote, or direct the voting of, such security or (ii) investing power which includes the power to dispose, or to direct the disposition of, such security. In addition, a person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days of the date shown above (3) Includes 762,064 shares issuable upon exercise of options granted to Atlantis Equities, Inc. having an exercise price of $2.50 per share and expiring on December 31, 2002. Robert Ellin, the Co-Chairman of the Company, is a principal of Atlantis Equities, Inc. 25 (4) Includes 1,303,834 immediately exercisable options that have been granted to Mr. Miller pursuant to his employment agreement with the Company, but does not include 651,916 options that have been granted to Mr. Miller that are not yet exercisable. (5) Includes 375,000 immediately exercisable options that have been granted to Mr. Goldman pursuant to his employment agreement with the Company, but does not include 625,000 options that have been granted to Mr. Goldman that are not yet exercisable nor 500,000 additional options granted to Mr. Goldman in January 2001. (6) Includes 50,000 immediately exercisable options that have been granted to Mr. Goddard, but does not include 50,000 options that have been granted to Mr. Goddard that are not yet exercisable. (7) Includes 50,000 immediately exercisable options that have been granted to Mr. Berkowitz, but does not include 50,000 options that have been granted to Mr. Berkowitz that are not yet exercisable. (8) Consists of warrants issued to Entertainment Finance Ltd., a lender to Cakewalk BRE LLC, an indirect wholly owned subsidiary of the Company, having an exercise price of $.01 per share and expiring June 29, 2004. (9) Includes (i) 762,064 immediately exercisable options held by Atlantis Equities, Inc.; (ii) 1,303,834 immediately exercisable options that have been granted to Mr. Miller pursuant to his employment agreement with the Company, but does not include 651,916 options that have been granted to Mr. Miller that are not yet exercisable; (iii) 575,000 immediately exercisable options that have been granted to Mr. Goldman pursuant to his employment agreement with the Company, but does not include 625,000 options that have been granted to Mr. Goldman that are not yet exercisable nor 500,000 additional options granted to Mr. Goldman in January 2001; (iv) 50,000 immediately exercisable options that have been granted to Mr. Goddard, but does not include 50,000 options that have been granted to Mr. Goddard that are not yet exercisable; and (v) 50,000 immediately exercisable options that have been granted to Mr. Berkowitz, but does not include 50,000 options that have been granted to Mr. Berkowitz that are not yet exercisable. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CONSULTING AGREEMENT. The Company has retained the services of Atlantis Equities, Inc. ("Atlantis"), a private merchant banking and advisory firm that primarily assists emerging growth companies, to act as its financial advisor pursuant to an Engagement Letter dated October 29, 1999, as amended on January 1, 2001, (the "Engagement Letter"). Robert Ellin, the Co-Chairman of the Company, is a principal of Atlantis. In consideration for the services to be provided by Atlantis under the Engagement Letter, Atlantis is paid a monthly fee of $12,500 (plus reimbursement of reasonable and actual out-of-pocket expenses). The term of the Engagement Letter is three years, and shall automatically renew for successive one year terms (subject to the right of any party to terminate the engagement upon 90 days' written notice before the end of any such term). The Company has also granted Atlantis an option to acquire up to 762,064 shares of the Company's Common Stock at an exercise price of $2.50 per share which expires on December 31, 2002. Atlantis has voluntarily agreed to reduce its monthly cash compensation to $6,250 as of March 1, 2001. The Company is also a party to certain employment arrangements with its executive officers. See "Executive Compensation." ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Unless otherwise indicated, the following is a list of Exhibits filed as a part of this Annual Report on Form 10-KSB: 26
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------ ----------------------- 2.1 Contribution Agreement, dated as of October 29, 1999 between CDbeat.com, Inc. and Cakewalk LLC (C) Amendment Agreement, dated as of November 16, 1999 by and among Atlantis Equities, Inc., Dylan LLC, 2.2 CDbeat.com, Inc., Cakewalk LLC and 32 Records LLC (C) 3.1 Articles of Incorporation and By-laws (A) 10.1 Warrant Agreement, dated September 23, 1999 between the Company and Atlantis Equities, Inc. (B) 10.2 Employment Agreement, dated as of November 16, 1999 between CDBeat.com, Inc. and Robert Miller (C) 10.3 Stock Option Plan (A) 10.4 Engagement Letter, dated October 29, 1999 between Atlantis Equities, Inc. and the Company (F) Warrant Amendment Agreement, dated as of November 16, 1999 by and among Atlantis Equities, Inc. Dylan LLC 10.5 and the Company (F) 10.6 Employment Agreement, dated as of April 11, 2000 between CDbeat.com, Inc. and Elliot Goldman (F) 10.7 Stock Option Agreement, dated as of April 11, 2000 between CDbeat.com, Inc. and Elliot Goldman Indenture, dated as of June 29, 1999 by and among Cakewalk BRE LLC, Entertainment Finance International, LLC 10.8 and RZ0 Corporate Administration, Inc. (F) Servicing Agreement, dated as of June 29, 1999 by and among Cakewalk BRE, Entertainment Finance 10.9 International, LLC and RZ0 Corporate Administration, Inc. (F) 10.10 Management Agreement, dated as of June 29, 1999 by and among Cakewalk LLC, Cakewalk BRE LLC and Entertainment Finance International, LLC (F) 10.11 Capital Contribution Agreement, dated as of June 29, 1999 between Cakewalk LLC and Cakewalk BRE LLC (F) 10.12 Consulting Agreement, dated as of October 18, 2000 by and between ConnectivCorp and Entertainment Finance International LLC * 10.13 Content Agreement, dated as of November 27, 2000 between ConnectivCorp and iWon, Inc. * 10.14 License and Distribution Agreement, dated as of March 29, 2001 by and between ConnectivHealth and drkoop.com, Inc. * 21.1 Subsidiaries of the Company * (A) Incorporated by reference to the Company's Registration Statement on Form SB-2 (File No. 333-70663) (B) Incorporated by reference to the Company's Report on Form 8-K filed with the Commission on October 8, 1999 (C) Incorporated by reference to the Company's Report on Form 8-K filed with the Commission on December 1, 1999 (D) Incorporated by reference to the Company's Report on Form 8-K filed with the Commission on January 31, 2000 (E) Incorporated by reference to the Company's Report on Form 8-K/A filed with the Commission on January 31, 2000
27
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------ ----------------------- (F) Incorporated by reference to the Company's Annual Report on Form 10-K/SB filed with the Commission on April 14, 2000.
* Filed herewith. (b) The Company did not file any reports on Form 8-K during the fourth quarter of 2000. During the first quarter of 2001, the Company filed a Form 8-K on January 17, 2001. 28 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 16, 2001. CONNECTIVCORP. By: /s/ Elliot Goldman -------------------- Elliot Goldman President and Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated. SIGNATURE TITLE DATE /s/ Elliot Goldman President, Director and Chief April 16, 2001 - ------------------- Executive Officer Elliot Goldman (Principal Executive Officer) /s/ Robert Miller Co-chairman April 16, 2001 - ----------------- Robert Miller /s/ Robert Ellin Co-chairman April 16, 2001 - ---------------- Robert Ellin 29 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.12 Consulting Agreement, dated as of October 18, 2000 by and between ConnectivCorp and Entertainment Finance International LLC 10.13 Content Agreement, dated as of November 27, 2000 between ConnectivCorp and iWon, Inc. 10.14 License and Distribution Agreement, dated as of March 29, 2001 by and between ConnectivHealth and drkoop.com, Inc. 21.1 Subsidiaries of the Company
30 INDEX TO FINANCIAL STATEMENTS PAGE Report of Independent Public Accountants F-2 Consolidated Balance Sheet F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Shareholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Shareholders of ConnectivCorp: We have audited the accompanying consolidated balance sheet of ConnectivCorp and subsidiaries (a Delaware Corporation) as of December 31, 2000, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended December 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ConnectivCorp and subsidiaries as of December 31, 2000 and the results of its operations and its cash flows for the years ended December 31, 2000 and 1999, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has not generated revenues from its proposed business model that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Arthur Andersen LLP New York, New York March 21, 2001 F-2 CONNECTIVCORP CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,818,631 Prepaid expenses 42,781 ------------ Total Current Assets 1,861,412 ------------ EQUIPMENT: Equipment, net of accumulated depreciation of $2,921 8,785 ------------ OTHER ASSETS: Cost of acquired software, net of accumulated amortization of $980,000 3,220,000 Goodwill, net of accumulated amortization of $139,800 559,200 Cost of publications acquired, net of accumulated amortization of $2,375 92,625 Other assets 18,850 ------------ Total Other Assets 3,890,675 ------------ Total Assets $ 5,760,872 ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 314,411 ------------ Total Current Liabilities 314,411 ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred Stock, $.001 par value 10,000,000 shares authorized, Series D -- Common Stock, $.001 per value 40,000,000 shares authorized, 21,532,155 issued and outstanding 21,532 Paid in capital 19,595,726 Deferred compensation (855,609) Accumulated deficit (13,315,188) ------------ Total Shareholders' Equity 5,446,461 ------------ Total Liabilities and Shareholders' Equity $ 5,760,872 ============
The accompanying notes are an integral part of these consolidated statements F-3 CONNECTIVCORP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ------------ ------------ Revenue Consulting fees $ 80,000 $ -- General and administrative expenses 5,265,695 2,171,577 ------------ ------------ Operating loss (5,185,695) (2,171,577) Interest income 102,674 -- ------------ ------------ Loss from continuing operations before income tax benefit (5,083,021) (2,171,577) Income tax benefit 116,000 583,000 ------------ ------------ Loss from continuing operations (4,967,021) (1,588,577) Loss from discontinued operations, after income taxes ($0) (1,412,700) (1,475,301) ------------ ------------ Net loss $ (6,379,721) $ (3,063,878) ============ ============ Net loss per common share- basic and diluted: Loss from continuing operations $(0.24) $(0.28) Loss from discontinued operations (0.07) (0.26) ------------ ------------ Net loss per common share- basic and diluted $(0.31) $(0.54) ============ ============ Weighted average shares outstanding: basic and diluted 20,600,339 5,664,617 ============ ============
The accompanying notes are an integral part of these consolidated statements F-4 CONNECTIVCORP CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
CLASS A CLASS B WARRANT PREFERRED COMMON PAID IN UNITS UNITS VALUATIONS STOCK STOCK CAPITAL ----------------------------------------------------------------------------------- BALANCE, December 31, 1998 $ 2,609,678 $ 2,208,853 $ 67,925 $ -- $ -- $ -- Issuance of warrants in conjunction with long-term debt, at fair value -- -- 1,851,473 -- -- -- Conversion of Cakewalk LLC Capital Accounts (2,609,678) (2,208,853) (1,919,398) -- -- 6,737,929 Acquisition of CDBeat common stock -- -- -- -- 1,955 1,097,448 Acquisition of CDBeat accumulated deficit -- -- -- -- -- (1,148,428) Acquisition of CDBeat software -- -- -- -- 8,308 3,901,238 Issuance of options for consulting services -- -- -- -- -- 911,093 Recognition of deferred compensation -- -- -- -- -- 1,080,965 Amortization of deferred compensation 497,426 -- 497,426 Issuance of common stock to Atlantis Equities/Dylan Inc. -- -- -- -- 7,819 992,181 Net loss -- -- -- -- -- -- ----------------------------------------------------------------------------------- BALANCE, December 31, 1999 -- -- -- -- 18,082 13,572,426 Adjustment of cost of acquired software -- -- -- -- -- 290,454 Issuance of 121,494 shares with respect to 1999 business combination of ConnectivCorp and Cakewalk LLC as an adjustment to purchase price -- -- -- -- 121 (121) Placement fee paid with respect to 1999 business combination of ConnectivCorp and Cakewalk LLC -- -- -- -- -- (90,000) Issuance of 2,661,352 shares of Series D Preferred Stock in Private Placement -- -- -- 2,661 -- 2,995,076 Issuance of 648,128 shares of Common Stock in Private Placement -- -- -- -- 648 729,400 Conversion of shares of preferred stock to common stock -- -- -- (2,661) 2,661 -- Issuance of 19,531 shares in satisfaction of liability to shareholder -- -- -- -- 20 24,980 Issuance of stock options for consulting services -- -- -- -- -- 1,493,261 Issuance of stock options to an officer -- -- -- -- -- 580,250 Amortization of deferred compensation -- -- -- -- -- -- Net loss -- -- -- -- -- -- ----------------------------------------------------------------------------------- BALANCE, December 31, 2000 $ -- $ -- $ -- $ -- $ 21,532 $ 19,595,726 =================================================================================== TOTAL DEFERRED ACCUMULATED SHAREHOLDERS' COMPENSATION DEFICIT EQUITY ------------------------------------------ BALANCE, December 31, 1998 $ -- $ (3,871,589) $ 1,014,867 Issuance of warrants in conjunction with long-term debt, at fair value -- -- 1,851,473 Conversion of Cakewalk LLC Capital Accounts -- -- -- Acquisition of CDBeat common stock -- -- 1,099,403 Acquisition of CDBeat accumulated deficit -- -- (1,148,428) Acquisition of CDBeat software -- -- 3,909,546 Issuance of options for consulting services -- -- 911,093 Recognition of deferred compensation (1,080,965) -- -- Amortization of deferred compensation Issuance of common stock to Atlantis Equities/Dylan Inc. -- -- 1,000,000 Net loss -- (3,063,878) (3,063,878) ---------------------------------------- BALANCE, December 31, 1999 (583,539) (6,935,467) 6,071,502 Adjustment of cost of acquired software -- -- 290,454 Issuance of 121,494 shares with respect to 1999 business combination of ConnectivCorp and Cakewalk LLC as an adjustment to purchase price -- -- -- Placement fee paid with respect to 1999 business combination of ConnectivCorp and Cakewalk LLC -- -- (90,000) Issuance of 2,661,352 shares of Series D Preferred Stock in Private Placement -- -- 2,997,737 Issuance of 648,128 shares of Common Stock in Private Placement -- -- 730,048 Conversion of shares of preferred stock to common stock -- -- -- Issuance of 19,531 shares in satisfaction of liability to shareholder -- -- 25,000 Issuance of stock options for consulting services (1,493,261) -- -- Issuance of stock options to an officer (580,250) -- -- Amortization of deferred compensation 1,801,441 -- 1,801,441 Net loss -- (6,379,721) (6,379,721) ---------------------------------------- BALANCE, December 31, 2000 $ (855,609) $(13,315,188) $ 5,446,461 ========================================
The accompanying notes are an integral part of these consolidated statements F-5 CONNECTIVCORP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(6,379,721) $(3,063,878) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 995,458 130,772 Compensation cost associated with issuance of common stock -- 497,426 Consulting expenses associated with issuance of common stock -- 911,093 Loss on disposal of equipment 10,740 -- Non-cash compensation expense 1,801,441 -- Income tax benefit (116,000) -- Loss from discontinued operations 1,412,700 1,475,301 Changes in assets and liabilities: Prepaid expenses (19,270) -- Other assets (3,611) (38,750) Accounts payable and accrued expenses 22,364 (239,284) ----------- ----------- Net cash used in operating activities (2,275,899) (327,320) Net cash provided by discontinued operations -- 194,338 ----------- ----------- Net cash used in operations (2,275,899) (132,982) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of equipment (5,054) (12,102) Acquisitions of publications (95,000) -- Cash acquired through acquisition -- 23,834 ----------- ----------- Net cash (used in) provided by investing activities (100,054) 11,732 Net cash used in discontinued operations -- (2,888) ----------- ----------- Net cash (used in) provided by investing activities (100,054) 8,844 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock -- 1,000,000 Cash received from Private Placement (net of issuance costs) 3,637,785 -- ----------- ----------- Net cash provided by financing activities before discontinued operations 3,637,785 1,000,000 Net cash used in discontinued operations -- (319,063) ----------- ----------- Net cash provided by financing activities after discontinued operations 3,637,785 680,937 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,261,832 556,799 CASH AND CASH EQUIVALENTS, beginning of year 556,799 -- ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 1,818,631 $ 556,799 =========== =========== NON-CASH INVESTING AND FINANCING ACTIVITIES Conversion of Preferred to Common Stock $ 2,997,737 =========== Fair value of warrants to purchase Common Stock issued in conjunction with Private Placement 9,764,458 =========== Fair value of warrants issued to Placement Agent $ 1,146,880 =========== Increase in cost of acquired software $ 290,454 ===========
The accompanying notes are an integral part of these consolidated statements F-6 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION ConnectivCorp (the "Company") was incorporated on May 8, 1998 under the name SMD Group, Inc., which was subsequently changed to CDBeat.com, Inc. Following the Company's business combination with Cakewalk LLC, the name was changed to Spinrocket.com, Inc. On September 11, 2000, in order to better reflect and describe the Company's current strategic direction, the name was changed to ConnectivCorp. On November 16, 1999, the Company, through its wholly-owned subsidiary, 32 Records LLC ("32 LLC") merged with Cakewalk LLC ("Cakewalk") in a transaction accounted for by the purchase method wherein Cakewalk LLC was deemed to be the acquiror and ConnectivCorp the acquiree (the "Merger" or "Business Combination"). ConnectivCorp's mission is to facilitate the online connection between aggregated, targeted and profiled consumers, and marketers desiring to reach those consumers. Operating through its subsidiary, ConnectivHealth, the Company functions as a deep content provider and marketing company that facilitates the online connection between healthcare-oriented consumers, patients and caregivers, and those health care companies desiring to serve their healthcare needs. On March 30, 2000, the Company decided to exit the business conducted by 32 LLC by March 2001 and recharacterized 32 LLC as a discontinued operation for financial reporting purposes. Since March 30, 2000, 32 LLC has been operating the business and has sought to sell the business or assets. During the second quarter of 2000, the Company wrote off the business of 32 LLC in its consolidated financial statements. On February 2, 2001, the net assets of 32 LLC were surrendered to Entertainment Finance International, Inc. ("EFI") under a default of the loan agreement. There was no other business conducted related to the discontinued operation after the surrender. UNCERTAINTY The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a limited operating history, and since it's inception in 1998 has incurred substantial losses. The Company's accumulated deficit as of December 31, 2000 is approximately $13 million. To date, the Company has not generated any revenue from its proposed business model, which contemplates selling pharmaceutical and other healthcare companies access to the Company's aggregated users. The Company incurred a loss from continuing operations of approximately $4.9 million and a net loss of approximately $6.4 million for the year ended December 31, 2000. Additionally, cash used in operations totaled approximately $2.3 million for the year ended December 31, 2000, while cash and cash equivalents at December 31, 2000 totaled approximately $1.8 million. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's continued existence is dependent upon several factors including the Company's ability to execute its business strategy and/or its ability to raise additionally equity. F-7 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) UNCERTAINTY (CONTINUED) The Company's near term operating strategy focuses on the continued execution of its business plan. To date, the Company has successfully launched SexHealth.com, and entered into Content Agreements with several major hosts, thereby exposing the Company's content to millions of potential users, the Company has not yet been able to convert a meaningful number of these consumers to users of SexHealth.com, either directly or through the various host sites. Additionally, the Company has not yet signed any agreements with any pharmaceutical or offer healthcare company to use the Company's services. The Company has currently evaluated its current operating costs and has undertaken measures to reduce these costs, which include the reduction of salaries and payments to consultants. It is projected that these cuts will reduce the annual cash expenditures by approximately $449,000. The Company is also exploring its ability to raise additional equity through a private placement of the Company's preferred stock. The Company believes that it will be able to raise additionally equity capital, and that the capital raised will be sufficient to fund and execute its business plan when combined with the Company's current cash position. The Company's ability to operate as a going concern is dependent on its ability to execute its business plan and/or raise additionally equity. There can be no assurance that the Company will be able to achieve or sustain any level of profitability in the future. Future operating results will depend on a number of factors, including demand for, and market acceptance of, the Company's services and prevailing economic conditions. While the Company has reduced its operating expenses, no assurance can be given that the Company can sustain these operating levels. Moreover, the Company has not yet generated any meaningful revenues, and no assurance can be given that it will do so in the future. There can be no assurance that the Company will generate sufficient revenues to ever achieve profitability or otherwise sustain its profitability in the future. While the Company is exploring raising additional equity capital, there can be no assurance that the additional equity infusion will be consummated. However, although no assurances can be given, the Company is confident that it will be able to continue operating as a going concern. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated balance sheet includes the accounts of ConnectivCorp and its wholly-owned subsidiaries. The consolidated statements of operations, cash flows and changes in shareholders' equity includes the results of operations of Cakewalk for the years ended December 31, 2000 and 1999 and the results of operations of ConnectivCorp since the date of the Merger. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. F-8 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. EQUIPMENT AND ACCUMULATED DEPRECIATION Equipment is carried at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets, which approximates three years. SOFTWARE DEVELOPMENT COSTS Software development costs represent the estimated value of the software owned by the Company at the time of the Business Combination with 32 LLC. These costs are being amortized using the straight-line method over the estimated useful life of five years. The Company recorded $849,028 and $130,318 for amortization for the years ended December 31, 2000 and 1999, respectively. The software will be incorporated into the Company's business model facilitating the ability of visitors to the Company's website to directly access sponsor provided information. GOODWILL Goodwill represents costs in excess of fair values assigned to underlying net assets acquired in the Business Combination and is being amortized over five years. The Company recorded amortization expense of $139,800 in the year ended December 31, 2000. COSTS OF PUBLICATIONS ACQUIRED The Company purchased sexual health publications in 2000. The publications provide content for the Company's website. The publications are being amortized using the straight-line method over five years. The Company recorded amortization expense of $2,375 in the year ended December 31, 2000. LONG-LIVED INTANGIBLE ASSETS The Company's policy is to record long-lived assets at cost, amortizing these costs over the expected useful lives of the related assets. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," these assets are reviewed on a periodic basis for impairment whenever events or changes in circumstances indicate the carrying amounts of the assets may not be realizable. Furthermore, the assets are evaluated for continuing value and proper useful lives by comparison to expected future cash flows. For the years ended December 31, 2000 and 1999, there was no material impairment of the long-lived assets of the Company. F-9 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION The Company recognizes consulting revenues for technology services when the services are provided. It is anticipated that future revenues will be recognized as services are delivered under terms of future contracts. INCOME TAXES Until November 16, 1999, 32 LLC, as a limited liability company, was taxed as a partnership for federal and state income tax purposes, and, as a result, its earnings were taxable directly to its members. Since the Business Combination, the Company has been taxed as a corporation and recognized losses for both financial and tax reporting purposes. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's current financial instruments, including cash and cash equivalents, accounts payable and accrued expenses are carried at cost, which approximates their fair value due to the short-term maturity of these instruments. STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS No.123, "Accounting for Stock-Based Compensation." This statement establishes a fair market value based method of accounting for an employee stock option but allows companies to continue to measure compensation cost for those plans using the intrinsic value based method prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees." Companies electing to continue using the accounting under APB Opinion No. 25 must, however, make pro forma disclosure of net income and earnings per share as if the fair value based method of accounting in SFAS No. 123 had been applied. The Company has elected to continue to account for its stock-based compensation awards to employees and directors under the accounting prescribed by APB Opinion No. 25, and to provide the necessary pro forma disclosures as if the fair value method had been applied. F-10 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which deferred the effective date of SFAS No. 133 for one year to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133." The adoption of SFAS No. 133, as amended by SFAS No. 138, effective January 1, 2001did not have a material impact on the Company's financial statements. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 (FIN. 44), "Accounting for Certain transactions Involving Stock Compensation, and Interpretation of APB Opinion No. 25." FIN. 44 is intended to clarify certain problems that have arisen in practice since the issuance of APB No. 25, "Accounting for Stock Issued to Employees." The effective date of the interpretation was July 1, 2000. The provisions of the interpretation apply prospectively, but they will also cover certain events occurring after December 15, 1998 and after January 12, 2000. The adoption of FIN. 44 did not have a material adverse effect on the Company's current or historical consolidated financial statements, but may affect future accounting regarding stock option transactions. NOTE 2: LOSS PER COMMON SHARE Loss per share was calculated as follows:
2000 1999 ------------ ------------ Loss from continuing operations $ (4,967,021) $ (1,588,577) Loss from discontinued operations (1,412,700) (1,475,301) ------------ ------------ Net loss $ (6,379,721) $ (3,063,878) ============ ============ Weighted average shares outstanding 20,600,339 5,664,617 ============ ============ Basic and diluted loss per common share: Loss from continuing operations $ (.24) $ (.28) Loss from discontinued operations (.07) (.26) ------------ ------------ Net loss per common share $ (.31) $ (.54) ============ ============
F-11 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 3: EQUIPMENT Equipment as of December 31, 2000, is comprised of the following:
2000 ------- Equipment $11,706 Less- Accumulated depreciation 2,921 ------- Equipment, net $ 8,785 =======
For the year ended December 31, 2000, depreciation expense amounted to $2,921. NOTE 4: INCOME TAXES Until November 16, 1999, Cakewalk, a limited liability company, was taxed as a partnership for federal and state income tax purposes, and, as a result, its earnings were taxable directly to its members. Since the Business Combination, the Company has been taxed as a corporation and recognized losses for both financial and tax reporting purposes. The significant components of the deferred tax asset as of December 31, 2000, are as follows: Net operating loss $ 1,979,418 Intangibles 645,677 Non-cash compensation expense 1,283,984 Other 834,259 ----------- Total deferred tax asset 4,743,338 Liabilities (1,288,000) ----------- Net 3,455,338 Less valuation allowance (3,455,338) ----------- Total deferred income tax asset - net $ -- ===========
The Company established a valuation allowance to fully offset the deferred income tax asset as of December 31, 2000 due to the uncertainty of the Company's future realization of the tax assets. The $116,000 deferred tax benefit results from the timing difference on the revaluation of software costs acquired in 1999. Subsequent to the Merger in 1999, the Company utilized $583,000 of deferred tax asset to offset a pre-acquisition deferred tax liability. At December 31, 2000 the Company had a net operating loss carryforward of approximately $5 million for income tax purposes. The carryforwards expire through the year 2020 and are subject to limitations due to the ownership change. F-12 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 5: STOCK OPTIONS During 2000 and 1999, the Company granted options and warrants to purchase 5,737,435 and 5,010,828 shares of common stock which were outstanding as of December 31, 2000 and 1999, respectively. These options and warrants were granted to employees, consultants and others at exercise prices ranging from $.01 to $5.00, per share and are exercisable through 2010. As of December 31, 2000 and 1999, 8,589,297 and 3,497,125 options and warrants were exercisable at a weighted average exercise price of $2.67 and $.99 per share, respectively. In 2000 and 1999, respectively, the Company recorded compensation expense in the amount of $1,801,441 and $1,408,519 under the requirement of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for options issued to employees and directors lower than fair market value of the Company's stock on the date of issuance. Had compensation cost been determined in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation" the Company would have reported additional losses as follows:
YEAR ENDED DECEMBER 31, -------------------------------------------- 2000 1999 -------------------------------------------- Loss from continuing operations As reported $ (4,967,021) $(1,588,577) Pro forma (7,005,971) (2,696,690) Loss from discontinued operations As reported (1,412,700) (1,475,301) Pro forma (1,412,700) (1,475,301) Net loss As reported (6,379,721) (3,063,878) Pro forma (8,418,671) (4,171,991) Basic and diluted loss per share: From continuing operations As reported $ (0.24) $ (0.28) Pro forma (0.34) (0.48) Loss from discontinued operations As reported (0.07) (0.26) Pro forma (0.07) (0.26) Net loss As reported (0.31) (0.54) Pro forma (0.41) (0.74)
Under SFAS No. 123, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average share assumptions used for grants in 2000; (1) expected life of options 1.5 - 4 years; (2) No dividend yield; (3) expected volatility of 148%; (4) risk-free interest rate of 5%, and in 1999: (1) expected life of the option 5 years; (2) no dividend yield; (3) expected volatility 209%; (4) risk free interest rate of 6%. F-13 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 5: STOCK OPTIONS (CONTINUED) The following summarizes stock options activity:
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2000 1999 ------------------------------- ------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------------ ------------------ ------------ ------------------ Outstanding - beginning of year 2,782,683 $ 1.38 -- $ -- Granted 1,858,325 1.83 2,782,683 1.38 Exercised -- -- -- -- Forfeited (463,719) (1.62) -- -- ---------- -------- ---------- -------- Outstanding - end of year 4,177,289 $ 1.55 2,782,683 $ 1.38 ========== ======== ========== ======== Number of shares exercisable 2,482,043 $ 1.42 1,268,981 $ 1.22 ========== ======== ========== ======== Weighted average fair value of options granted during period $ 1.83 $ 1.90 ======== ========
NOTE 6 - SHARHEOLDERS' EQUITY On March 31, 2000, the Company raised approximately $3 million (net of Placement Agent fees) through the private placement of 2,661,352 shares of the Company's Series D Convertible Preferred Stock (the "Series D Preferred Stock") at a price of $1.28 per share (the "Private Placement"). On April 19, 2000, the Company converted the Series D Preferred Stock into shares of common stock at a ratio of one share of common stock for one share of Series D Preferred Stock after the amendment of its charter to authorize the issuance of up to 40 million shares of common stock. At the second closing on April 28, 2000, the Company received approximately $.7 million (net of placement agent fees) and issued 648,128 shares of common stock. The Company also issued one warrant to purchase one share of common stock for each share of preferred or common stock issued in the private placement. The warrants have an exercise price of $5 per share and are exercisable at any time until April 19, 2002. The warrants were assigned a fair value of $9.8 million, using the Black Scholes pricing model. The Company also granted to the Placement Agent warrants to purchase 330,948 shares of the Company's common stock. The warrants have an exercise price of $1.28 per share and are exercisable at any time until April 28, 2005. The warrants were assigned a fair value of $1.1 million, using the Black Scholes pricing model. F-14 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 7: DISPOSITION OF SUBSIDIARY In March 2000, the Label Manager and Creative Director of 32 LLC resigned their positions. The resignation of the Creative Director constituted a default under the Management Agreement among 32 Records LLC, Cakewalk BRE LLC ("BRE") and Entertainment Finance International, Inc. ("EFI"). As a result of these defaults EFI, as holder of $5,500,000 principal amount of indebtedness issued by BRE, accelerated the maturity date of such indebtedness and commenced foreclosure proceedings. At the time the loan was granted in June 1999, EFI required the establishment of a new subsidiary, BRE, into which all assets of 32 LLC were transferred as security for EFI. Accordingly, EFI does not have recourse to the Company's assets not included in the BRE. On March 30, 2000, the Company decided that it will exit the business conducted by 32 LLC by March 2001 and recharacterized 32 LLC as a discontinued operation for financial reporting purposes. Since March 30, 2000, 32 LLC has been operating the business and has sought to sell the business or assets. During the second quarter of 2000, the Company wrote off the business of 32 LLC in its consolidated financial statements. There was no other business conducted related to the discontinued operation after the surrender. On February 2, 2001, the net assets of 32 LLC were surrendered to Entertainment Finance International, Inc. ("EFI") under a default of the loan agreement. NOTE 8: BUSINESS COMBINATION UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE The Company's historical capital structure is not indicative of its prospective structure due to the conversion of the Class A Units and Class B Units (collectively, the "Cakewalk Units") of Cakewalk into common stock of the Company concurrent with the consummation of the Merger. Pro forma basic loss per share is computed by dividing the net loss available to common stockholders for the year by the pro forma basic weighted average number of shares outstanding during the year. Pro forma diluted loss per share is computed by dividing the net loss for the year by the pro forma diluted weighted average number of shares outstanding during the year, which includes the effect of dilutive common stock equivalents. The unaudited pro forma basic net loss per common share data presented on the consolidated statement of operations is computed using the weighted average number of shares outstanding assuming conversion of the Cakewalk Units into common stock as of the date of issuance of the Cakewalk Units. The unaudited pro forma diluted net loss per common share is the same as the unaudited pro forma basic net loss per common share, as the effect of all common stock equivalents is antidilutive. F-15 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 8: BUSINESS COMBINATION (CONTINUED) PRO FORMA FINANCIAL DATA As a result of the Merger, (1) Cakewalk contributed and assigned to 32 LLC substantially all of the assets and liabilities relating to the business of Cakewalk in exchange for 8,307,785 shares of the Company's Common Stock, (2) Dylan LLC exercised a warrant and paid the Company $900,000 for 7,037,183 shares of Common Stock, (3) Atlantis Equities, Inc. exercised a warrant and paid the Company $100,000 for 781,909 shares of Common Stock, (4) 3,049,424 shares of Common Stock held by management of the Company were surrendered and (5) 50,000 shares of Class C Preferred Stock were converted into 500,000 shares of Common Stock. A portion of the purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of acquisition and the balance of $4,200,000 was recorded as cost of acquired software and is being amortized over a five-year period on a straight-line basis. The $4.2 million valuation is based upon an independent valuation analysis of the software obtained by the Company. The table below reflects unaudited pro forma income statement data for the year ended December 31, 1999 as if the Merger had occurred at the beginning of the year. Loss from continuing operations $ (3,418,844) Loss from discontinued operations (1,475,301) ------------- Net loss $ (4,894,145) ============= Basic and diluted loss per share- from continuing operations $ (0.19) from discontinued operations (0.08) ------------- Net loss $ (0.27) =============
NOTE 9: RELATED PARTY TRANSACTION The Company has retained Atlantis Equities, Inc. ("Atlantis"), a private merchant banking and advisory firm that primarily assist emerging growth companies, to act as its financial advisor. Robert Ellin, the Co-chairman of the Company, is a principal of Atlantis. In consideration for services rendered during 2000, Atlantis was paid $150,000. The Company also granted Atlantis a warrant to acquire up to 762,064 shares of the Company's common stock at an exercise price of $2.50 per share which expires on December 31, 2002. The warrant was assigned a fair value of $1,522,909, using the Black Scholes pricing model. F-16 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 10: COMMITMENTS LEASE COMMITMENTS The Company leases office space under an operating lease which expires in 2003. Rental expense under the lease was $70,357 in 2000. The future minimum lease payments due under the non-cancelable lease at December 31, 2000 are: 2001 $ 75,000 2002 75,000 2003 68,750 -------- Total $218,750 ========
EMPLOYMENT AGREEMENTS The Company has entered into an employment contract, dated as of April 11, 2000, with Elliot Goldman for an initial term of three years. The Agreement was amended by Board vote in January 2001. The initial term shall automatically be extended by one additional year at the end of the Initial Term and each subsequent anniversary thereafter, unless, at least one hundred twenty (120) days prior to any such renewal date either Mr. Goldman or the Company shall deliver written notice to the other that the term will not be further extended. Pursuant to the Employment Agreement, as amended, Mr. Goldman serves as President, Chief Executive Officer and as a Director of the Company at an initial annual salary of $250,000, subject to such increases or bonuses as the Board of Directors of the Company shall authorize. The Company also entered into an option agreement with Mr. Goldman pursuant to which Mr. Goldman was granted an option to purchase all or any part of an aggregate of 500,000 shares of the Common Stock of the Company at an exercise price of $1.28 per share. One quarter of such option shares are currently vested, and an additional one quarter of such option shares shall vest on each subsequent anniversary of the agreement until all of such option shares are fully vested. All unvested shares shall vest automatically under certain circumstances. Unless terminated earlier in accordance with the terms and conditions of the option agreement, the option shall terminate on April 10, 2006. In January 2001, upon his appointment as President and Chief Executive Officer, the Company granted Mr. Goldman an additional option to purchase all or any part of an aggregate of 500,000 shares of the Company's Common Stock at an exercise price of $1.50, of which 250,000 are immediately exercisable and 250,000 shares will be exercisable when and if the Company achieves certain revenue levels. F-17 CONNECTIVCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE 10: COMMITMENTS (CONTINUED) EMPLOYMENT AGREEMENTS (CONTINUED) The Company has entered into an employment contract, dated as of November 16, 1999 with Robert Miller for an initial term of three years. This agreement was also amended by Board vote in January 2001. The initial term shall automatically be extended by one additional year at the end of the initial term and each subsequent anniversary thereafter, unless, at least one hundred twenty (120) days prior to any such renewal date either Mr. Miller or the Company shall deliver written notice to the other that the term will not be further extended. Pursuant to the employment agreement, as amended, Mr. Miller serves as a Director and co-chairman of the Company at an initial annual salary of $200,000, subject to such increases or bonuses as the Board of Directors of the Company shall authorize. The Company also entered into an option agreement with Mr. Miller pursuant to which the Company granted to Mr. Miller an option to purchase all or any part of an aggregate of 1,955,750 shares of the Common Stock of the Company, at the following exercise prices: 50% of the Option Shares at $1.30 per share, 25% at $1.50 per share; and 25% at $1.75 per share. Two-thirds, or 1,303,899, Option Shares have vested, and the remaining one-third of the option shares vest on November 16, 2001. All unvested shares shall vest automatically under certain circumstances. Unless terminated earlier in accordance with the terms and conditions of the option agreement, the Option shall terminate upon the later to occur of (a) the expiration of the term of Mr. Miller's employment agreement with the Company, or (b) five years from the original date of grant of the Option. Both Messrs. Goldman and Miller have voluntarily reduced their annual cash compensation to $150,000 and $100,000, respectively, as of March 1, 2001. CONSULTING AGREEMENT. The Company has retained the services of ATLANTIS, a private merchant banking and advisory firm that primarily assists emerging growth companies, to act as its financial advisor pursuant to an Engagement Letter dated October 29, 1999, as amended on January 1, 2001, (the "ENGAGEMENT LETTER"). Robert Ellin, the Co-Chairman of the Company, is a principal of Atlantis. In consideration for the services to be provided by Atlantis under the Engagement Letter, Atlantis is paid a monthly fee of $12,500 (plus reimbursement of reasonable and actual out-of-pocket expenses). The term of the Engagement Letter is three years, and shall automatically renew for successive one year terms (subject to the right of any party to terminate the engagement upon 90 days' written notice before the end of any such term). The Company has also granted Atlantis a warrant to acquire up to 762,064 shares of the Company's Common Stock at an exercise price of $2.50 per share which expires on December 31, 2002. Atlantis has voluntarily agreed to reduce its monthly cash compensation to $6,250 as of March 1, 2001. F-18 EX-10.12 2 a2045539zex-10_12.txt EXHIBIT 10.12 Exhibit 10.12 CONSULTING AGREEMENT This consulting agreement is dated as of October 18, 2000, by and among Entertainment Finance International, LLC, a Delaware limited liability company ("EFI"), EFI Music Holdings LLC, a Delaware limited liability company ("Seller") and ConnectivCorp., a Delaware corporation ("Connectiv"). NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Seller hereby retains Connectiv to provide assistance and consultation in connection with the sale to an unrelated third party (a "Purchaser") of the assets of Cakewalk BRE LLC ("BRE"), a New York limited liability company which includes the family of record labels known as 32 Records (the "BRE Assets"). Prior to any such sale, EFI intends to (i) acquire the BRE Assets pursuant to a foreclosure proceeding as permitted under the indenture between BRE, EFI and RZO Corporate Administration, Inc. (the "Indenture"), and (ii) transfer the BRE Assets to EFI Music as a contribution to the capital of EFI Music. 2. Connectiv shall assist Seller with all offers in connection with the sale of the BRE Assets and direct any interested Purchasers to Sellers, and assist them in connection with conducting due diligence and providing appropriate information to such prospective Purchasers. Connectiv will, at Seller's request, also assist in negotiating the terms of any sale of the BRE Assets and upon receiving any written and signed offers, convey such offers to Sellers. Upon acceptance by Seller of a bona fide offer in the form of a term sheet, the attorneys designated by Sellers will draft appropriate agreements and close thereon. All parties hereto shall bear their own costs and attorneys' fees. Connectiv shall keep Seller apprised of all outstanding expressions of interest by prospective Purchasers and on a periodic basis provide Seller with a status report on same. 3. Connectiv will receive a fee in connection with the sale of the BRE Assets to a Purchaser which Connectiv directed to the Seller and in respect of such Purchaser, performed the services in accordance with and as described in paragraph 2 above (the "Fee"). The Fee shall be paid in cash upon the closing of the sale (such date, the "Closing Date") and shall be calculated as 10% of the BRE Sales Value; provided, however, the Fee shall, in no event, exceed $500,000: "BRE Sales Value" shall be equal to the net value received by the Sellers from the Purchaser on the Closing Date in respect of the BRE Assets ((i) whether in cash, stock assumption or refinancing of any debt or other consideration or combination of the foregoing, (ii) exclusive of all amounts on deposit in the reserve account established and maintained pursuant to the Indenture, (iii) exclusive of consideration received from the Purchaser by the Sellers in respect of assets which are not BRE Assets, and (iv) taking into account the present fair market value of the consideration received by Sellers for the BRE Assets. It is agreed that the BRE Sales Value attributable to the draft letter of intent dated September 27, 2000 between Audio on Demand Corp., d/b/a Online Music.com ("Online") and EFI Music is $3,825,000. 4. Connectiv shall be responsible for fees of third parties retained by it, including fees to Marvin Katz in excess of the amount agreed to be paid by Online, which is currently $195,000, but not those of third parties retained by EFI or the Seller. Connectiv acknowledges that the current agreement of Online to pay a fee to Marvin Katz is not final and binding on Online and that neither Online nor EFI is currently bound by an agreement, either oral or written to either directly or indirectly, pay or bear the cost of any fee ultimately payable to Marvin Katz. EFI's sole obligation to pay a consulting fee to Connectiv in connection with the sale of the BRE Assets is set forth in paragraph 3 hereof. Connectiv will provide copies of applicable fee arrangements at such time as an offer is submitted to Seller for their approval. 5. Seller shall pay the Fee at the closing of a transaction for the sale of the BRE Assets, in whatever form such sale is effectuated. 6. EFI, the Seller or Connectiv may terminate this agreement upon five (5) days written notice to the other parties. Upon termination of this agreement, Connectiv's obligations hereunder shall immediately terminate; provided, however, if Seller or EFI should terminate this agreement, Connectiv shall nevertheless be entitled to the Fee as set forth in paragraph 3 above for any and all sales to Purchasers (including Online) who (a) had been directed to the Seller by Connectiv during the term of this agreement, (b) at such time, had provided the Seller with a bona fide offer in the form of a term sheet, and (c) within the 12 months following such date of termination, consummated such transaction with the Seller on terms substantially similar to those described in such term sheet. If Connectiv shall terminate this agreement, Connectiv shall not be entitled to any Fee (including if the Seller should sell the BRE Assets to Online). 7. It is acknowledged and agreed by EFI and the Seller that Connectiv shall have no obligation whatsoever regarding the financial, legal, operation or other obligations or functions concerning the BRE Assets, and Connectiv's sole function hereunder or otherwise shall be as a consultant and facilitator in connection with the sale of the BRE Assets. It is further acknowledged and agreed that Connectiv is not liable to EFI or the Seller for the indebtedness arising out of the Indenture or other loan documents among EFI, Cakewalk LLC, BRE, 32 Records LLC and RZO Corporate Administration, Inc; PROVIDED, HOWEVER, that the foregoing does not release Connectiv from any claims, costs or expenses (including legal fees and expenses) in excess of $100,000 that EFI and the Seller (in the aggregate) may incur as a result of any action or omission on the part of Connectiv which directly or indirectly caused a material breach (as determined by a court of competent jurisdiction and other than with respect to the transfer of the RYKO Agreement contemplated herein) of the separateness covenants contained in Section 6.1(i) of the Management Agreement and Section 11.12 of the Indenture. Notwithstanding the foregoing, nothing in this paragraph shall create or shall be deemed to create responsibility on the part of Connectiv for any damages suffered by EFI or the Seller as a result of EFI's or the Seller's own actions. 8. ConnectivCorp hereby releases and agrees to cause its affiliates to release EFI, its affiliates, their respective directors, officers and employees from any lender liability claims which may arise in connection with any actions taken by EFI, its affiliates, their respective directors, officers, and employees, on or before the date hereof in connection with the 2 Loan Documents; PROVIDED, HOWEVER, such release shall not release EFI from liability resulting from or arising out of EFI's former status as an observer on the board of directors of Cakewalk LLC and its current status as an observer on the board of directors of ConnectivCorp which status EFI shall retain so long as EFI shall hold 1,000,000 or more shares or warrants of Connectiv. 9. As partial consideration for the Seller entering into this Agreement, Connectiv shall on the date hereof, cause its wholly-owned subsidiary, 32 Records LLC to irrevocably assign and transfer to the Seller all of its rights under that certain distribution agreement, dated November 24, 1997, by and between REP Sales, Inc. and Cakewalk LLC (the predecessor-in-interest to 32 Records LLC) as amended (the "RYKO Agreement"). All notices from one party to the other party shall be sent to the other party's address by (i) delivery by a reputable courier service or by registered mail (return receipt requested) or (ii) by facsimile transmission (or the equivalent transmission providing written confirmation of receipt at the facsimile number of the addressee) with a copy sent in either manner described in clause (i), all charges prepaid. The date of receipt or refusal to accept shall be the effective date of any such notice. 10. NOTICES. All notices from one party to the other party shall be sent to the other party's address by (i) delivery by a reputable courier service or by registered mail (return receipt requested) or (ii) by facsimile transmission (or the equivalent transmission providing written confirmation of receipt at the facsimile number of the addressee) with a copy sent in either manner described in clause (i), all charges prepaid. The date of receipt or refusal to accept shall be the effective date of any such notice. If to: CONNECTIVCORP. 29 West 57th Street, 9th Floor New York, New York 10107 Attn: Robert Miller Telecopy: 212-527-2408 with a copy to: Baer Marks & Upham LLP 805 Third Avenue New York, New York 10022 Attn: Michael Blumenthal, Esq. Telecopy: 212-702-5941 If to: ENTERTAINMENT FINANCE EFI MUSIC HOLDINGS LLC INTERNATIONAL, LLC 110 West 57th Street 110 West 57th Street New York, New York 10019 3 New York, New York 10019 Attn.: Thomas Cyrana Attn: Thomas Cyrana Telecopy: 212-757-9821 Telecopy: 212-757-9821 in each case, with a copy to: THE PRUDENTIAL INSURANCE COMPANY -and- WILLKIE FARR & GALLAGHER OF AMERICA 787 Seventh Avenue One Gateway Center New York, New York 10019 Newark, New Jersey 07102-5311 Attn: Richard Rudder, Esq. Attn: Ms. Andrea Kutschner 11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding among the parties with reference to the transactions contemplated hereby and supersedes any and all other oral or written agreements heretofore made. 12. SEVERABILITY. If any provision of this Agreement or the application of any provision hereof to any person or in any circumstances is held invalid, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected unless the provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. 13. CONSENT TO JURISDICTION. (a) Each party hereto hereby irrevocably submits to the exclusive jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Agreement or any other Transaction Document, and hereby irrevocably agrees that all claims in respect to any such action or proceeding may be heard and determined in such New York State court, or, to the extent permitted by law, in such Federal court. Each party hereto hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. Each party hereto irrevocably consents to the service of any and all process in any suction action or proceeding by the mailing, or delivery, of copies of such process to such party at its address specified in Section 8. Each party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this Section 11 shall affect the right of any party hereto to serve legal process in any other manner permitted by law. 14. WAIVER OF JURY TRIAL. The parties hereto each waive their respective rights to a trial by jury of any claim or cause of action based upon or arising out of or related to this Agreement, or the transactions contemplated hereby, in any action, proceeding or other litigation of any type brought by any of the parties against any other party or parties, whether with respect to contract claims, tort claims, or otherwise. The parties hereto each agree that any such claim or cause of action shall be tried by a court trial with a jury. Without limiting the foregoing, the 4 parties further agree that their respective right to a trial by jury is waived by operation of this Section 12 as to any action, counterclaim or other proceeding which seeks, in whole or in part, to challenge the validity or enforceability of this Agreement or any provision hereof the waiver shall apply to any subsequent amendments, renewals, supplements or modifications to this Agreement. 15. CAPTIONS. Captions to Articles, Sections and subsections of this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or in any way affect the meaning or construction of any provision of this Agreement. 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. 17. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute one and the same instrument. 18. SURVIVAL. Notwithstanding any termination of this Agreement, the provisions of paragraphs 7 and 8 shall survive. 5 IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized signatories of the parties hereto all as of the day and year first above written. ENTERTAINMENT FINANCE INTERNATIONAL, LLC, as Lender By: BJT HOLDING, INC, its Managing Member By: -------------------------------- Name: Title: CONNECTIVCORP. By: --------------------------------------- Name: Title: EFI MUSIC HOLDINGS LLC By: Entertainment Finance International, LCC, its sole member By: BJT Holding, Inc., its Managing Member By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: 6 EX-10.13 3 a2045539zex-10_13.txt EXHIBIT 10.13 EXHIBIT 10.13 IWON CONTENT AGREEMENT This CONTENT AGREEMENT (THE "AGREEMENT") CONNECTIVCORP/SEXHEALTH.COM, whose address is 29 West 57th Street, 9th Floor, New York, New York 10019 ("Company") and iWon, Inc. ("iWon") whose address is One Bridge Street, Irvington, New York 10533 shall be effective as of November 27, 2000 (the "Effective Date"). In consideration of the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. LICENSES AND OWNERSHIP. 1.1 CONTENT LICENSE. Company hereby grants iWon, a royalty-free, non-exclusive, non-transferable worldwide license to exhibit, display, archive, transmit, e-mail, reproduce, reformat, modify, search and download all or any part of the content listed on Exhibit A to this Agreement (the "Content") in electronic form in connection with iWon-branded or co-branded media properties (the "Properties") developed by iWon or any entity in which iWon owns at least a twenty percent interest ("Affiliates") as such Properties may be distributed through any medium or means now known or hereafter developed and to allow users of the Properties to search, copy, transmit and download the Content. iWon shall have the right to sublicense the rights set forth herein to any Affiliate for inclusion in the Properties provided that the sublicensee comply with the terms and conditions of this Agreement. 1.2 LIMITATIONS. The rights granted in Paragraph 1.1 above shall be limited as follows: (a) iWon shall include all reasonable credits, copyright notices, trademarks, service marks, trade names and logos which are contained on the Content provided to iWon (the "Marks") and iWon shall in no event omit, vary or otherwise change any of the Marks including without limitation, the size, color or style of the Marks. (b) iWon's right to modify and reformat the Content shall be limited to modifying and reformatting the Content to (i) fit the iWon look and feel; (ii) fit the format of the applicable Property; and (iii) to creating snippets or teasers consisting of a selected line from any individual item of the Content (the "Company Article"). (c) iWon's right to send by e-mail (or similar technology) the Content shall be limited to e-mailing Company Articles on behalf of users of the Properties ("iWon Users") who have selected to have such Company Articles e-mailed to a third party for personal non-commercial use and the inclusion of Company Articles in e-mail communications sent by iWon to iWon Users. 1.3 LICENSE TO USE COMPANY TRADEMARKS. Subject to reasonable trademark guidelines (to the extent they are provided by Company to iWon from time to time), Company hereby grants to iWon a royalty-free, non-exclusive, non-transferable, worldwide license to use and display the Marks on the Properties and on marketing and promotional materials relating to this Agreement. 1.4 OWNERSHIP. 1.4.1 iWon hereby acknowledges and agrees that, as between Company and iWon, Company is the sole owner of all right, title and interest in and to (i) the Content, including all copyrights therein, and (ii) the Marks. iWon agrees not to do anything to contest or impair the trademark rights of the Company. All uses of the Marks shall inure to the benefit of Company. Upon any expiration or termination of this Agreement, iWon shall delete and discontinue use of the Marks. 1.4.2 Company hereby acknowledges and agrees that, as between Company and iWon, iWon is the sole owner of all right, title and interest in and to all content on the Properties, including but not limited to iWon copyrights, trademarks service marks, trade names and logos (excluding the Content and Marks). 1.4.3 iWon agrees to notify Company promptly of any unauthorized use of the Marks of which it has actual knowledge. Company shall have the sole right and discretion to bring proceedings alleging infringement of the Marks or unfair competition related thereto; provided however, that iWon agrees to provide Company with its reasonable cooperation and assistance, at Company's expense, with respect to any such infringement proceedings. 2 1.5 COMPANY ASSISTANCE. In addition to any responsibilities that may be set forth in Section 4 and Exhibit A, Company will provide on-going assistance to iWon with regard to technical, administrative, and service-oriented issues relating to the utilization, transmission, and maintenance of the Content, as iWon may reasonably request. Company will use its best efforts to ensure that the Content is accurate, comprehensive, and updated regularly. 1.6 USE OF CONTENT. In no event is iWon under any obligation to include all or a part of the Content on any of the Properties. 2. Fees. During the term of this Agreement, payment to iWon shall be made as set forth in Exhibit B to this Agreement. 3. CONTENT PAGES. iWon shall at its reasonable discretion place the content on the Sex & Relationships sub-channel or equivalent on the iWon Website. iWon shall create the links from a location on the Properties displaying the full text of a Company Article (the "Content Page") to the Company Website as further described in Exhibit A. In no event shall iWon place any links to the Company Website on portions of the Properties displaying only snippets, teasers, or portions of a Company Article. 4. DELIVERY. Company shall make available the Content to iWon on January 1st, 2001 thereafter all updates shall be provided by Company, in the method, format, manner and at the times set forth on Exhibit A. Company will be responsible for providing the Content at its expense. 5. ADVERTISING SALES AND EXCHANGE. iWon will have the sole and exclusive right to license or sell promotions, advertisements, links, pointers, sponsorships, or similar services or rights ("Advertisements") on the Properties, including the Content Pages. Upon thirty (30) days notice to Company, Company or iWon shall serve run of-site Advertisements (or targeted Advertisements if mutually agreed to between the parties) promoting iWon or a promotion in which iWon is involved ("iWon Advertisements") on the Company Website at any time during the term of this Agreement and upon request by Company and in compliance with iWon's then-current advertisement standards and guidelines, iWon shall serve the Advertisements promoting Company on the iWon Website in an amount equal to the value of iWon Advertisements served on Company Website. PRIOR TO THE EXECUTION OF THIS AGREEMENT, COMPANY SHALL EXECUTE THE IWON INSERTION ORDER FOR THE PURCHASE OF ONE HUNDRED THOUSAND DOLLARS ($100,000 IN ADVERTISING) 6. PAGE USAGE. iWon shall use reasonable efforts to provide Company, within thirty (30) days from the end of each month during the term of this Agreement, a report stating the number of times the Content Pages are displayed. 7. TERM AND TERMINATION: 7.1 Term. The term of this Agreement (the "Initial Term") shall commence on the Effective Date and will continue for two years from the date any Content is first displayed on any Property, as reasonably determined by iWon (the "Launch Date"). iWon shall have the right to terminate this Agreement on and any time twelve (12) months after the Launch Date with sixty (60) days prior written notice. After the expiration of the Initial Term, this Agreement will revert to a month-to-month contract, which either party can terminate with thirty (30) days written notice. 7.2 BREACH. In the event of any material breach of any term or provision under this Agreement by either party hereto, the non-breaching party may send a written notice explaining the nature of the breach to the breaching party. If any breach is not cured within thirty (30) days of receipt by the breaching party of such notice, the non-breaching party may terminate this Agreement immediately upon a second written notice to the breaching party. 7.3 FAILURE TO DELIVER. If Company fails to deliver the Content on the times specified in Exhibit A for a continuous period of forty-eight (48) hours, iWon may terminate this Agreement by giving a written termination notice, which termination shall become effective upon receipt. 7.4 BANKRUPTCY. In the event either party voluntarily files a petition in bankruptcy or has such a petition involuntarily filed against it (which petition is not discharged within thirty (30) days after filing) or is placed in a receivership or reorganization proceeding or is placed in a trusteeship involving an insolvency, or dissolves or ceases to do business or makes an assignment of all or substantially all of its assets for the benefit of creditors, the other party may terminate this 3 Agreement by giving a written termination notice, which termination shall become effective upon receipt. 7.5 MERGER: ACQUISITION. iWon may immediately terminate this Agreement, which termination will be effective upon receipt, if a competitor of iWon merges with, acquires in whole or in part, or purchases all or substantially all of Company's assets. 7.6 FORCE MAJEURE. Either party may terminate this Agreement in accordance with Section 11.3 hereof. 7.7 EFFECT OF TERMINATION: SURVIVAL. A party's right to terminate this Agreement pursuant to this Section 7 shall be in addition to any other right or remedy available to such party under this Agreement, in law or at equity. Upon expiration or termination of this Agreement for any reason: (a) all licenses granted hereunder shall terminate, and both parties shall immediately discontinue use, if any, of the other party's trademarks, Confidential Information, Content, and other intellectual property; and iWon shall eliminate all hyperlinks (and corresponding icons) or other connections designated on Exhibit A; (b) within fifteen (15) days of the termination or expiration of this Agreement, each party shall return to the other party their respective Confidential Information or destroy the same. In the event of such destruction, the destroying party shall provide written confirmation of such destruction to the other party within thirty (30) days of such destruction; and (c) the parties' obligations under Sections 7.7, 8, 9, 10 and 11 shall survive any expiration or termination of this Agreement. 8. PRESS RELEASES. Subject to approval by iWon Company shall have ability to issue press release. Neither party shall make any public statement, press release or other announcement relating to the subject matter of this Agreement without the prior written approval of the other party, such approval not to be unreasonably withheld or delayed. Following the initial public announcement of the business relationship between the parties in accordance with the approval and other requirements contained herein, either party's subsequent factual reference to the existence of a business relationship between the parties in press releases or other public announcements will not require the prior approval of the other party. 9. CONFIDENTIALITY: 9.1 CONFIDENTIAL INFORMATION. "Confidential Information" means (a) business or technical information of either party, including but not limited to information relating to either party's product plans, designs, costs, product prices and names, finances, marketing plans, business opportunities, personnel, research, development or know-how; (b) any information designated by either party as "confidential" or "proprietary;" and (c) the terms and conditions of this Agreement. 9.2 NON-DISCLOSURE. Each party agrees: (a) that it will not disclose to any third party or use the Confidential Information disclosed to it by the other party except as expressly permitted in this Agreement; and (b) that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the other party in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance. 9.3 EXCEPTIONS. "Confidential Information" will not include information that: (a) is in or enters the public domain without breach of this Agreement; (b) the receiving party lawfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation; (c) the receiving party knew prior to receiving such information from the disclosing party through no breach of confidentiality; or (d) the receiving party develops independently without use of the disclosing party's Confidential Information as evidenced by suitable written documentation. 10. WARRANTIES, REPRESENTATIONS AND INDEMNIFICATION: 10.1 REPRESENTATIONS AND WARRANTIES. 10.1.1 BV IWON. iWon represents and warrants that (a) iWon has full power and authority to enter into this Agreement, to cony out its obligations hereunder, and to grant the rights herein granted; and (b) the execution and delivery of this Agreement and the 4 transactions contemplated hereby do not and will not result in a breach, violation or default, of iWon's articles of incorporation or bylaws, or any agreement to which iWon may be bound. 10.1.2 BY COMPANY. Company represents and warrants that (a) the Content and all materials contained therein and any Links to other materials do not and will not infringe or violate the intellectual property rights, moral rights, publicity right, privacy right or personality right of any third party or otherwise result in any tort, injury, damage or harm to any third party, and Company's exercise of its rights under this Agreement will not constitute an infringement or violation of the intellectual property rights of any third party; (b) Company has sufficient rights to the Content to grant iWon the rights set forth in this Agreement, including any necessary consent, authorization, release, clearance or license of any third party ("Release"), including any Release related to any rights of privacy or publicity, as may be necessary for Company to enter into this Agreement; (c) Company has full power and authority to enter into this Agreement, to carry out its obligations hereunder, and to grant the rights herein granted; (d) the execution and delivery of this Agreement and the transactions contemplated hereby do not and will not result in a breach, violation or default of Company's articles of incorporation or bylaws, or any agreement to which Company may be bound; (e) the Content does not contain any material or information that is libelous, slanderous, defamatory or obscene; and (f) Company will not knowingly or as a result of its negligence deliver Content that contains material errors or omissions. 10.2 INDEMNIFICATION. 10.2.1 Subject to compliance with Section 10.2.2 hereof, each party (the "Indemnifying Party") will defend, indemnify and hold harmless the other party (the "Indemnified Party"), and the respective directors, officers, employees, agents and affiliates of the Indemnified Party, from and against any and all claims, costs, losses, damages, judgments and expenses (including reasonable attorneys' fees) arising out of, relating to, or incurred as a result of (a) any failure by the Indemnifying Party to perform its obligations under this Agreement; (b) the breach or inaccuracy of a representation or warranty made by, or breach of a covenant of, the Indemnifying Party hereunder; (c) the negligence or willful misconduct of the Indemnifying part in performance of its obligations under this Agreement; and (iv) any actual or alleged misconduct violation of applicable law in connection with Indemnifying Party's activities hereunder. 10.2.2 The Indemnified Party shall promptly notify the Indemnifying Party of any such claim of which it becomes aware and shall: (a) at the Indemnifying Party's expense, provide reasonable cooperation to the Indemnifying Party in connection with the defense or settlement of any such claim; and (b) at the Indemnified Party's expense, be entitled to participate in the defense of any such claim. 10.2.3 The Indemnified Party agrees that the Indemnifying Party shall have sole and exclusive control over the defense and settlement of any such third party claim. However, the Indemnifying Party shall not acquiesce to any judgment or enter into any settlement that adversely affects the Indemnified Party's rights or interests without prior written consent of the Indemnified Party. 10.3 DISCLAIMERS AND LIABILITY: 10.3.1 DISCLAIMER OF OTHER WARRANTIES. EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND THE PROPERTIES ARE PROVIDED "AS IS" AND "AS AVAILABLE". 10.3.2 LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN SECTION 10.2 AND FOR A BREACH OF SECTION 9, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST PROFITS, OR ANY FORM OF SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, REGARDLESS OF WHETHER SUCH DAMAGE WAS FORESEEABLE AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. 5 EACH PARTY'S LIABILITY (WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED), PRODUCT LIABILITY OR STRICT LIABILITY OF A PARTY) UNDER THIS AGREEMENT OR WITH REGARD TO ANY OF THE SERVICES RENDERED UNDER THIS AGREEMENT WILL IN NO EVENT EXCEED $1,000. 10.3.3 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY SCHEDULE HERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING OR STATEMENTS (WHETHER VERBAL OR WRITTEN) MADE BY THE PARTIES HEREIN. 11. MISCELLANEOUS: 11.1 NOTICES. Any notice required or permitted to be given under this Agreement shall be given in writing and shall be delivered by personal delivery, telegram, receipted facsimile transmission or by certified or registered mail, postage prepaid, return receipt requested, and shall be deemed given upon personal delivery, five (5) days after deposit in the mail or upon acknowledgment of receipt of electronic transmission. Notices shall be sent to the signatory of this Agreement at the address set forth at the beginning of this Agreement or such other address as either party may specify in writing. 11.2 WAIVER OR DELAY. Any waiver of any kind or character by either party of a breach of this Agreement must be in writing, shall be effective only to the extent set forth in such writing, and shall not operate or be construed as a waiver of any subsequent breach by the other party. No failure of either party to insist upon strict compliance by the other with any obligation or provision hereunder, and no custom or practice of the parties at variance with the terms hereof, shall constitute a waiver of either party's right to demand exact compliance with the terms of this Agreement. Nor shall either party's delay or omission in exercising any right, power or remedy upon a breach or default by the other party impair any such right, power or remedy. The exercise of any right or remedy provided in this Agreement shall be without prejudice to the right to exercise any other right or remedy provided by law or equity. 11.3 FORCE MAJEURE. If by reason of labor disputes, strikes, lockouts, action of the elements, governmental restrictions, appropriation or other similar causes beyond the control of a party hereto (a "Force Majeure Event"), such party is unable to perform in whole or in part its obligations as set forth in this Agreement, then such party shall be relieved of those obligations to the extent it is so unable to perform and such inability to perform shall not make such party liable to the other party (the "Non-Affected Party") and such party shall give notice to the Non-Affected Party. Neither party shall be liable for any loss, injury, delay or damages suffered or incurred by the other party due to the above causes. If a Force Majeure Event continues for a period of at least seventy-two (72) continuous hours, the Non-Affected Party may terminate this Agreement by giving a written termination notice, which termination shall become effective upon receipt. 11.4 SEVERABILITY. The provisions of this Agreement are severable and if any one or more of such provisions shall be determined to be invalid, illegal or unenforceable, in whole or in part, the validity, legality and enforceability of any of the remaining provisions or portions thereof shall not in any way be affected or impaired thereby and shall nevertheless be binding between the parties hereto. 11.5 GOVERNING LAW; DISPUTES. This Agreement will be governed by and construed in accordance with the laws of the State of New York without regard to its conflicts of laws principles. Any litigation under this Agreement will be brought in the federal or state courts in the State of New York and the parties hereby consent to the personal jurisdiction and venue therein. 11.6 ASSIGNMENT. Neither party shall directly or indirectly assign this Agreement without the prior written consent of the other party. Notwithstanding the foregoing and subject to Section 7.5 hereof, either party may, without the prior consent of the other party, assign or transfer this Agreement as part of a corporate reorganization, consolidation, merger or sale of all or substantially all of its assets to another entity provided said entity assumes all of such party's obligations hereunder. 6 11.7 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement shall be construed as creating any agency, partnership, or other form of joint enterprise between the parties. The relationship between the parties shall at all times be that of independent contractors. Neither party shall have authority to contract for or bind the other in any manner whatsoever. 11.8 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.9 ENTIRE AGREEMENT. This Agreement (together with the Exhibits hereto) constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes any and all other agreements, written or oral, that the parties heretofore may have had with respect to the subject matter herein. 11.10 THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or implied, is intended to confer upon any person or entity other than the parties and their respective successors and assigns, any rights, remedies, obligations or liabilities. 11.11 COMPLIANCE WITH LAWS. Each party shall comply with all applicable laws, regulations, rules, ordinances, and orders regarding its respective activities related to this Agreement. 11.12 HEADINGS. Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Effective Date by their duly authorized representatives: CONNECTIVCORP/SEXHEALTH.COM By: /s/ Elliot Goldman --------------------------- Name: Elliot Goldman ------------------------- Title: Chief Operating Officer ------------------------ IWON, INC. By: /s/ Dae Mellencamp --------------------------- Name: Dae Mellencamp ------------------------- Title: VP, Content ------------------------ EXHIBIT A SPECIFICATIONS 1. CONTENT -------
Description of Content Delivery Method Frequency - -------------------------------------------------------------------------------- A. 10 to 12_ Sexual By email to iWon 10 to 12_questions and Health Questions and answers a month for the term Answers of the Agreement - -------------------------------------------------------------------------------- B. 10 to 12_ Sexual By email to iWon 10 to 12 sexual health related Health related facts and facts and figures a month for figures the term of the Agreement, not to exceed one a day - -------------------------------------------------------------------------------- C. One article of each By email to iWon 10 to 12 sexual health related of the following: articles from the categories a) STDs; outlined in the description of b) Sex and content or other sexual health relationship; articles at discretion of c) Sex and Company a month for the term parenting; of the agreement d) Reproductive Health; and e) Menopause
- -------------------------------------------------------------------------------- 2. Link The following links shall appear on each Content Page: a) A "powered by" link on each Content Page with the sexhealth.com logo linked to Company website will be provided at the top of each content page provided by Sexhealth.com. b) A text link and Company slogan shall appear on the bottom of each Content Page linking to the Company Website. The text link to state "Visit Sexhealth.com for more information" and the slogan shall read "Your authoritative site for Expert Information on Sexual Health." EXHIBIT B PAYMENT TERMS iWon and Company shall split the monthly Advertising Revenues generated on the Content Page seventy percent (70%) to iWon and thirty percent (30%) to Company. "Advertising Revenues" means the aggregate amounts received by Company or iWon, as applicable arising from the license or sale of Advertisements less applicable Advertising Sales Commissions and sales tax. "Advertising Sales Commission" means (i) actual amounts paid as commission to a third party agency or agencies by either buyer or seller in connection with sale of advertisements or (ii) 25%, in the event that Company and/or iWon has sold the advertisement directly and will not be deducting any third party agency commissions. EX-10.14 4 a2045539zex-10_14.txt EXHIBIT 10.14 EXHIBIT 10.14 LICENSE AND DISTRIBUTION AGREEMENT This Sponsorship Agreement (this "AGREEMENT") is effective as of March 29, 2001 (the "EFFECTIVE DATE") by and between ConnectivHealth, a Delaware corporation d/b/a Sexhealth.com, with its principal place of business at 29 W. 57 St., 9th floor, New York, N.Y. 10019 ("SH"), and drkoop.com, Inc., a Delaware corporation with its principal place of business at 225 Arizona Avenue, Suite 250, Santa Monica, California 90401 ("DKC"). WITNESSETH WHEREAS, SH operates an Internet site with a home page located at the URL www.sexhealth.com (or any successor thereto) (the "SH SITE") which provides users access to certain sexual health information and the opportunity purchase sexual health products; WHEREAS, DKC develops, markets, provides and maintains an integrated network of Internet-enabled, consumer-oriented healthcare content, software applications and services for the purpose of educating consumers and healthcare professionals on wellness and disease management topics through the DKC Network (as defined below); and WHEREAS, SH and DKC desire to work together to develop a co-branded center on the DKC Network that will provide content, display sponsorships, advertisements and offer products for sale on the SH Site as further described herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and in consideration of the mutual covenants and conditions herein set forth, SH and DKC hereby agree as follows: 1. DEFINITIONS. 1.1 "CO-BRANDED CENTER" shall have meaning set forth in Section 2.2.1 herein. 1.2 "CONTENT" shall mean text, images, video, audio (including, without limitation, music used in time relation with text, images or video), and other data, products, services, advertisements, promotions, links, pointers, technology, functions, tools and software. 1.3 "DKC AFFILIATE" shall mean any current or future entity: (a) whose web site is affiliated with the DKC Site (including without limitation any customized, co-branded, mirrored, or private-label sites); (b) which is managed, maintained or owned by DKC or its employees or agents; (c) which is a community partner of DKC; or (d) to which DKC licenses DKC Content; and shall include but not be limited to the Internet, television and print media. 1.4 "DKC BRANDING" shall mean all trademarks, service marks, trade names, logos, links, navigation and other indicators of origin owned by DKC and used in the DKC Site. 1.5 "DKC CONTENT" shall mean the Content owned or licensed by DKC for use on the DKC Network. 1.6 "DKC NETWORK" shall mean the current and future: (a) DKC Site; (b) Internet sites of any DKC Affiliates; and (c) any other product or service (including but not limited to e-mail, electronic newsletter or similar distribution methods) owned, operated, distributed, or authorized to be distributed by or through DKC or any DKC Affiliates. 1.7 "DKC USER" means a person who is authorized to access the DKC Network. 1.8 "DKC SITE" shall mean the Internet sites with home pages located at the URL www.drkoop.com and www.drDrew.com and any replacement or successor thereto. 1.9 "SH BRANDING" means all trademarks, service marks, logos, links, navigation and other indicators of origin used by SH in the SH Site, including without limitation all trademarks, trade dress, service marks and logos of all entities whose products are marketed and sold through the SH Site, but not including the DKC Branding. 1.10 "SH CONTENT" shall mean the Content owned or licensed by SH for use on the SH Site. 2. LICENSE GRANTS; OBLIGATIONS AND DELIVERABLES 2.1 LICENSE GRANTS. 2.1.1 TO DKC. Subject to the terms and conditions of this Agreement, SH hereby grants to DKC, a worldwide, non-exclusive, non-transferable, fully paid right and license to (a) use, transmit, display and otherwise distribute the SH Branding, subject to SH's quality control measures which shall be consistent with the manner in which SH uses the SH Branding on the SH Site, solely (i) for the purposes of creating and maintaining the Co-Branded Center, (ii) promote and market the SH Content on the Co-Branded Center, and (iii) in conjunction with any additional services; and (b) use, integrate, exhibit, transmit, display, reproduce, redistribute, reformat, publicly and digitally display and publicly perform any SH Content (or any portion thereof) provided by SH to DKC solely on the Co-Branded Center. DKC shall not modify any of the SH Branding in any way, including, but not limited to graphics size, without the prior written consent of SH. 2.1.2 TO SH. Subject to the terms and conditions of this Agreement, DKC hereby grants to SH a worldwide, non-exclusive, non-transferable right and license to use the DKC Branding, subject to DKC's quality control measures which shall be consistent with the manner in which DKC uses the DKC Branding on the DKC Site, on the SH Site, as expressly permitted herein solely to provide links to the Co-Branded Center. 2 SH shall not modify any of the DKC Branding in any way, including, but not limited to graphics size, without the prior written consent of DKC. 2.2 DKC'S USE OF THE SH CONTENT. When displayed to a DKC User linking from the referring DKC Site, the SH Content shall be displayed on the Co-Branded Center in accordance with this Section 2.2. The parties agree that the SH Content used on the Co-Branded Center shall be oriented to the different demographics and user profile. SH shall update the SH Content to be displayed on the Co-Branded Center on a regular basis, but in no event shall such updates occur less frequently than on a monthly basis throughout the Term. Each article from the SH Content shall include a graphic logo built to DKC's specifications that will allow users of the Co-Branded Center to click on the logo and be transported to the SH Site. No DKC Content shall appear on the same pages of the Co-Branded Center as SH Content without the prior written consent of SH, which shall not be unreasonably withheld. 2.2.1 DESIGN OF THE CO-BRANDED CENTER. As used herein, "CO-BRANDED CENTER" shall mean the Internet site with a home page located at the URL www.drkoop.com/conditions/Sexual_Health (or any successor or replacement thereto), formatted in accordance with EXHIBIT A (subject to Section 2.9) consisting of web pages containing all of the reformatted sexual health-related SH Content available for a sexual health center (the "SEXUAL HEALTH CENTER") for the DKC Site. The Co-Branded Center shall be jointly developed by SH and DKC and shall (a) maintain the DKC "look and feel", and (b) include both DKC Branding and SH Branding. The parties provide that there shall be no links that divert user traffic away from the Co-Branded Center (other than links to the SH Site or the paid sponsor/advertiser sites). 2.2.2 CONSTRUCTION; MAINTENANCE; HOSTING. DKC (a) shall construct, maintain and operate the Co-Branded Center; and (b) host (i) the Co-Branded Center. All content provided by SH will be displayed on the Co-Branded Center as headlines, blurbs and graphics all linking to the SH site. 2.2.3 ADVERTISING. The Co-Branded Center may contain third party advertisements, at the sole discretion of DKC. Third party sponsorship placements will be mutually agreed upon by DKC and SH. 2.2.4 AVAILABILITY. DKC shall use commercially reasonable efforts to have the Co-Branded Center accessible at all times; PROVIDED, HOWEVER, that DKC shall not be responsible for downtime or other problems caused by any public or third party private network, including the Internet or any communications carrier network. 2.3 TO DKC BUTTON. All pages of the Co-Branded Center shall contain a button above the fold in the form of an 88 x 31 pixel DKC logo, as provided by DKC, which links to the home page of the referring DKC Site. 3 2.4 QUALITY STANDARDS AND MAINTENANCE. The parties acknowledge and agree that it is necessary for DKC to maintain uniform standards governing all facets of the DKC Site in order to provide users worldwide with high quality and consistent levels of service and to protect the reputation and goodwill associated with DKC and the DKC Site. Accordingly, SH agrees to maintain the level of quality of the portions of the SH Site which link to the Co-Branded Center at least at the level in place on the Effective Date. 2.5 ONLINE TERMS AND CONDITIONS. SH hereby acknowledges and agrees that access by SH Users to the Co-Branded Center is subject to the terms and conditions of the DKC Online Service Agreement (as revised from time to time). 2.6 USER REGISTRATION; USER DATA. 2.6.1 REGISTRATION. Individual users of the Co-Branded Center shall have the opportunity to become registered DKC Users. Users will be afforded the opportunity to register with SH only from the SH site. 2.6.2 COLLECTION AND USE OF USER DATA. DKC requests its users to provide personal information when they register for the DKC Site and/or sign up for certain services such as interactive tools, chat rooms and forums (the "USER Data"). To the extent SH has access to the User Data hereunder, SH agrees that it shall (a) only use the User Data in an ethical manner, and (b) treat the User Data (i) as Confidential Information (as hereinafter defined), and (ii) in a manner consistent with DKC's privacy policy (as revised from time to time). 2.7 DELIVERY OF SH BRANDING. Within ten (10) business days after the Effective Date, SH shall deliver to DKC the SH Branding, including the HTML form of the SH navigation and the SH logo. 2.8 ADDITIONAL SERVICES. Any additional services requested by SH shall be performed at DKC's sole discretion at DKC's then-current rates. 2.9 REFORMATTING OF THE DKC SITE. DKC shall have the right to redesign or modify the organization, navigation, structure or "look and feel" of the DKC Site at any time without prior notice. 3. FEES AND PAYMENTS 3.1 FEES AND PAYMENTS. In consideration of the Licenses granted hereunder, the parties agree as follows: (a) SH shall spend amounts up to Seventy-Five Thousand Dollars ($75,000) for the external marketing costs associated with the Co-Branded Center provided that DKC provides internal marketing activities for the Co-Branded Center with an equivalent value and further provided that DKC 4 provide documentation proving the marketing activities that it is engaged in and associated value; and (b) DKC will provide internal marketing efforts valued at up to $75,000 provided that SH expenses marketing activities with an equivalent value, and further provided that SH provide documentation proving the marketing activities that it is engaged in and associated value. DKC marketing efforts will include but, not be limited to, banner advertising on the DKC network, fixed link placement to the Sexual Health Center on the drkoop.com home page, drkoop.com newsletter placements and other opportunities as available to DKC. 3.2 REVENUE SHARING. SH and DKC shall share all sponsorship revenue, as sold by SH, derived from the Co-Branded Center at a share rate of 50/50. Any revenue derived by the SH Site, where such revenue is directly allocated to the referred DKC User, will be shared by SH and DKC at a rate of 75/25 respectively. SH and DKC shall share all sponsorship revenue, as sold by DKC, derived from the Co-Branded Center as a share rate of 25/75 respectively. 3.3 ADDITIONAL SERVICES. All amounts due for additional services shall be paid no later than thirty (30) days after receipt of invoice therefor. 3.4 LATE PAYMENTS. All amounts owed hereunder not paid when due and payable will bear interest from the date such amounts are due and payable at one and one-half percent (1.5%) per month. 4. CONFIDENTIAL INFORMATION 4.1 Either SH or DKC may disclose to the other (the "RECEIVING Party") certain technical or other business information that is not generally available to the public and that the disclosing party deems to be confidential and proprietary ("CONFIDENTIAL INFORMATION"). In the performance of this Section 4, each party shall use the standard of care it uses to protect its own Confidential Information, but in no event less than a reasonable standard of care. 4.2 The Receiving Party agrees to use Confidential Information solely in conjunction with its performance under this Agreement and not to disclose or otherwise use such information in any fashion. The Receiving Party, however, will not be required to keep confidential such Confidential Information to the extent that (i) becomes generally available without fault on its part; (ii) is already rightfully in the Receiving Party's possession without restriction prior to its receipt from the disclosing party; (iii) is independently developed by the Receiving Party; (iv) is disclosed by third parties without similar restrictions; (v) is rightfully obtained by the Receiving Party from third parties without restriction; or (vi) is otherwise required by law or judicial process. 4.3 Unless required by law or to assert its rights under this Agreement, and except for disclosure on a "need to know basis" to its own employees, and its legal, 5 investment and financial advisers and other professional advisers on a confidential basis, each party agrees not to disclose the terms of this Agreement or matters related thereto without the prior written consent of the other party. 4.4 This Section 4 shall survive for a period of three (3) years beyond any expiration or termination of this Agreement, PROVIDED that this Section 4 shall survive indefinitely with respect to Confidential Information consisting of User Data. 5. REPRESENTATIONS AND WARRANTIES 5.1 DKC. DKC represents and warrants that: (a) it is the owner of the DKC Branding and the DKC Content and/or has the right to grant the rights hereunder; (b) its entry into this Agreement does not violate any agreement with any other party, (c) its performance under this Agreement will conform to applicable U.S. laws and government rules and regulations; and (d) the use or display of the DKC Branding or the DKC Content as contemplated by this Agreement does not and will not (i) violate any applicable laws or (ii) infringe any rights of third parties, including, but not limited to, intellectual property, privacy or publicity rights. 5.2 SH. SH represents and warrants that: (a) it is the owner of the SH Branding and SH Content and/or has the right to grant the rights hereunder; (b) its entry into this Agreement does not violate any agreement with any other party; (c) its performance under this Agreement will conform to applicable U.S. laws and government rules and regulations; (d) the use or display of the SH Branding and SH Content as contemplated by this Agreement does not and will not (i) violate any applicable laws or (ii) infringe any rights of third parties, including but not limited to intellectual property, privacy or publicity rights; (e) it holds the necessary rights to sell the products, if any, available on the SH Site; and (f) that the sale of the products, if any, by SH on the SH Site will not (i) violate any laws or any rights of any third parties, including, but not limited to, such violations as infringement or misappropriation of any copyright, patent, trademark, trade dress, trade secret, music, image, or other proprietary or property right, false advertising, unfair competition, defamation, invasion of privacy or publicity rights, moral or otherwise, or rights of celebrity, violation of any antidiscrimination law or regulation, or any other right of any person or entity; or (ii) contain any material that is: unlawful, harmful, fraudulent, threatening, abusive, harassing, defamatory, vulgar, obscene, profane, hateful, racially, ethnically, or otherwise objectionable, including, without limitation, any material that supports, promotes or otherwise encourages wrongful conduct that would constitute a criminal offense, give rise to civil liability, or otherwise violate any applicable local, state or national laws. 6. OWNERSHIP OF INTELLECTUAL PROPERTY 6.1 DKC. The DKC Branding and all materials used by DKC in connection the DKC Site and the DKC Content are proprietary to DKC or its suppliers, and are protected by law, including but not limited to United States copyright, trade secret and trademark law. The DKC Content is copyright -c- 1998-2001 (or later year) 6 drkoop.com, Inc. and/or its suppliers. SH acknowledges and agrees that (a) DKC shall own all right, title and interest in and to the DKC "look and feel", (b) SH's use of the DKC Branding will not create in it, nor will it represent that it has, any right, title or interest in or to any DKC Branding or DKC Content other than the license expressly granted herein, and (c) SH will not contest or intentionally impair DKC's intellectual property rights. 6.2 SH. The SH Branding and the SH Content are proprietary to SH or its suppliers, and are protected by law, including but not limited to United States copyright, trade secret and trademark law. The SH Content is copyright -c- -2001 (or later year) SexHealth, Inc. and/or its suppliers. DKC acknowledges and agrees that (a) SH shall own all right, title and interest in and to the SH "look and feel", (b) DKC's use of the SH Branding will not create in it, nor will it represent that it has, any right, title or interest in or to any SH Branding or SH Content other than the license expressly granted herein, and (c) DKC will not contest or intentionally impair SH's intellectual property rights. 6.3 RESERVATION OF RIGHTS. All rights that are not specifically granted herein are reserved. 7. LIMITATION OF LIABILITY; DISCLAIMER 7.1 EXCEPT FOR EITHER PARTY'S LIABILITY FOR THIRD PARTY CLAIMS AS SPECIFIED IN SECTION 11 OR ANY PARTY'S BREACH OF SECTION 4, IN NO EVENT SHALL EITHER DKC OR SH BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY NATURE, EVEN IF SUCH PARTY SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING SHALL APPLY REGARDLESS OF THE NEGLIGENCE OR OTHER FAULT OF ANY PARTY AND REGARDLESS OF WHETHER SUCH LIABILITY SOUNDS IN CONTRACT, NEGLIGENCE, TORT, STRICT LIABILITY OR ANY OTHER THEORY OF LIABILITY. 7.2 EXCEPT AS SET FORTH IN SECTION 5, DKC AND SH MAKE NO, AND EACH PARTY ACKNOWLEDGES THAT EACH PARTY HAS NOT MADE ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 8. TERM AND TERMINATION 8.1 TERM. This Agreement shall be effective on the Effective Date, and continue in force for one (1) year after the Effective Date, unless earlier terminated as provided herein (the "TERM"). 8.2 TERMINATION FOR CAUSE. Either party will have the right to immediately terminate this Agreement if the other party is in breach of any material obligation herein, 7 and such breach is incapable of being cured (or, if such breach is capable of cure, such breach is not cured within thirty (30) days (or fourteen (14) days with respect to any default in any payment obligation)) after receipt of written notice of such breach from the non-breaching party or within such additional cure period as the non-breaching party may authorize. 8.3 TERMINATION FOR INSOLVENCY. Either party shall have the right to immediately terminate this Agreement upon written notice in the event that the other party (a) voluntarily or involuntarily becomes the subject of a petition in bankruptcy or of any proceeding relating to insolvency, receivership, liquidation or composition for the benefit of creditors or (b) admits in writing its inability to pay its debts as they become due. 8.4 TERMINATION FOR CONVENIENCE. DKC shall have the right to terminate this Agreement by providing thirty (30) days prior written notice to SH. 8.5 TERMINATION FOR TOBACCO AFFILIATION. SH shall promptly notify DKC prior to commencing any activities relating to a Tobacco Industry Affiliation (as defined below). After receiving such notice or learning of any such Tobacco Industry Affiliation, DKC may terminate this Agreement at any time upon written notice without liability of any kind; PROVIDED, HOWEVER, that in the event of any inadvertent breach of this provision by SH, SH shall have ten (10) business days to remedy any such breach. For purposes of this Agreement, "TOBACCO INDUSTRY AFFILIATION" shall mean being an entity, or being under the control of an entity, which engages in the manufacture or wholesale distribution of tobacco or tobacco products. 8.6 COMPLIANCE WITH LAWS. If at any point during the Term, either party's performance under this Agreement conflicts with any material law or regulation, the parties may suspend performance under this Agreement and negotiate in good faith to amend this Agreement so that each party's performance hereunder complies with the laws and regulations. If after thirty (30) days, the parties are unable to agree on a mutually acceptable amendment, either party may immediately terminate this Agreement upon written notice to the other party. 8.7 CONSEQUENCES OF TERMINATION/EXPIRATION. Upon the termination or expiration of this Agreement, (a) SH shall remove all DKC Branding from the SH Site and terminate all links from the SH Site to the Co-Branded Center, (b) DKC shall remove all SH Branding and SH Content from the Co-Branded Center, and (c) each party shall promptly return all Confidential Information, and other information, documents, manuals and other materials stored in any form or media (including but not limited to electronic copies) belonging to the other party, except as may be otherwise provided in this Agreement, and PROVIDED that each party may retain one (1) copy of the documents it received from the other party for archival purposes. 8 8.8 SURVIVAL. The rights, obligations and limitations under Sections 4, 6, 7, 8.6, 9, 10, 11 and 12, and any payment obligations accrued pursuant to Section 3 but not paid prior to expiration or termination shall survive expiration or termination of this Agreement. 9. FORCE MAJEURE Neither party will be liable for delay or default in the performance of its obligations under this Agreement (other than for non-payment) if such delay or default is caused by conditions beyond its reasonable control, including, but not limited to, fire, flood, accident, earthquakes, telecommunications line failures, storm, acts of war, riot, government interference, strikes and/or walk-outs. In the event of a force majeure event which lasts longer than thirty (30) days, the party not experiencing the force majeure event may terminate this Agreement upon prior written notice to the other party. 10. ADVERTISING AND PROMOTION; PUBLICITY 10.1 JOINT PROMOTION. Subject to Section 3.1 hereof, SH and DKC agree to promote and encourage DKC Users to visit the Co-Branded Center. DKC, at its sole discretion, may promote the Co-Branded Center by utilizing its resources, including but not limited to the following: e-mail distribution to DKC Users, advertisements on the DKC Site, Power Bar promotion, home page placement on the DKC Site and e-newsletter distribution. In addition, SH and DKC shall use external resources to be mutually agreed upon in writing by the parties, to promote and encourage DKC Users to visit the Co-Branded Center. SH, at its sole discretion, may promote and market the Co-Branded Center to the pharmaceutical and healthcare markets. 10.2 PRESS RELEASE. Except as provided for herein, neither party hereto shall issue or permit the issuance of any press release or other public statement regarding this Agreement or the parties' relationship without prior coordination with and approval from the other party. DKC and SH shall issue an initial press release following the signing hereof, such release to be prepared as agreed to in writing by the parties. 10.3 SH shall not have any right to use the name and/or likeness of Dr. C Everett Koop or Dr. Drew Pinsky or to make any statements, whether written or oral, which state or otherwise imply, directly or indirectly, any endorsement from or affiliation with Dr. Koop and Dr. Drew Pinsky in any manner whatsoever without the prior written consent of DKC which consent may be withheld in DKC's sole discretion. 11. INDEMNIFICATION 11.1 BY DKC. DKC agrees to defend, indemnify and hold SH and its officers, directors, agents and employees harmless from and against any and all third party claims, demands, liabilities, actions, judgments, and expenses, including reasonable attorneys' fees, arising out of or related to (a) any breach or alleged 9 breach of any of DKC's representations and warranties hereunder; or (b) any injury to any SH User caused by such User's use of or reliance on the DKC Content which is displayed on the Co-Branded Center; PROVIDED that (i) SH notifies DKC promptly in writing of any such claim, (ii) DKC has the sole control of the defense and all related settlement negotiations, and (iii) SH provides DKC with all reasonably necessary assistance, information and authority to perform the foregoing at DKC's expense. 11.2 BY SH. SH agrees to defend, indemnify and hold DKC and its officers, directors, agents and employees harmless from and against any and all third party claims, demands, liabilities, actions, judgments, and expenses, including reasonable attorneys' fees, arising out of or related to: (a) any breach or alleged breach of any of SH's representations and warranties hereunder; and (b) any injury to any DKC User or SH User caused by such User's use of or reliance on the SH Content and the products and/or services, if any, sold on the SH Site; PROVIDED that (i) DKC notifies SH promptly in writing of any such claim, (ii) SH has the sole control of the defense and all related settlement negotiations, and (iii) DKC provides SH with all reasonably necessary assistance, information and authority to perform the foregoing at SH's expense. 12. GENERAL TERMS AND CONDITIONS 12.1 INDEPENDENT CONTRACTORS. The parties to this Agreement are independent contractors. Neither party is an agent, representative or partner of the other party. Neither party shall have any right, power or authority to enter into any agreement for or on behalf of, or to incur any obligation or liability for, or to otherwise bind, the other party. This Agreement shall not be interpreted or construed to create an association, joint venture, co-ownership, co-authorship, or partnership between the parties or to impose any partnership obligation or liability upon either party. 12.2 ASSIGNMENT. Neither party shall assign, sublicense or otherwise transfer (voluntarily, by operation of law or otherwise) this Agreement or any right, interest or benefit under this Agreement, without the prior written consent of the other party; PROVIDED, HOWEVER, that either party may assign this Agreement to an entity acquiring such party in a "change of control" (as defined below), so long as the acquiring entity is not a competitor of the other party, or an affiliate of any such competitor. Any attempted assignment, sublicense or transfer by a party in derogation hereof shall be null and void and the non-assigning party shall have the right to immediately terminate this Agreement pursuant to Section 8.2. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. As used herein, "CHANGE OF CONTROL" shall include a sale of all or substantially all of the assets of either party or any event (including, without limitation, a merger, sale, liquidation, transfer, encumbrance or other disposition) which results in a change of the legal, beneficial or equitable ownership, directly or indirectly, of more than fifty (50%) of a class of voting equity of either party. 10 12.3 MODIFICATIONS. No change, amendment or modification of any provision of this Agreement or waiver of any of its terms will be valid unless set forth in writing and signed by DKC and SH. 12.4 GOVERNING LAW; JURISDICTION. This Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the State of California. Each party irrevocably consents to the exclusive jurisdiction of any state or federal court for or within Los Angeles County, California over any action or proceeding arising out of or related to this Agreement, and waives any objection to venue or inconvenience of the forum in any such court. 12.5 NO WAIVER. The failure of either party to insist upon or enforce strict performance by the other party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such party's right to assert or rely upon any such provision or right in that or any other instance; rather the same shall be and remain in full force and effect. 12.6 NOTICE. Any notice, approval, request, authorization, direction or other communication under this Agreement shall be given in writing, will reference this Agreement, and shall be deemed to have been delivered and given (a) when delivered personally; (b) three (3) business days after having been sent by registered or certified U.S. mail, return receipt requested, postage and charges prepaid; or (c) one (1) business day after deposit with a commercial overnight courier, with written verification of receipt. All communications will be sent to the addresses set forth below or to such other address as may be designated by a party by giving written notice to the other party pursuant to this Section 12.6. If to SH: If to DKC: -------- --------- 29 W. 57 St., 9th floor 225 Arizona Avenue, Suite 250 New York, N.Y. 10019 Santa Monica, California 90401 Attention: Chief Executive Attention: Chief Financial Officer Officer Facsimile: (212) 527-2408 Facsimile: (310) 395-3800 12.7 ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto and incorporated herein by reference constitute the entire agreement between the parties and supersede any and all prior agreements or understandings between the parties with respect to the subject matter hereof. Neither party shall be bound by, and each party specifically objects to, any term, condition or other provision or other condition which is different from or in addition to the provisions of this Agreement (whether or not it would materially alter this Agreement) and which is proffered by the other party in any purchase order, correspondence or other document, unless the party to be bound thereby specifically agrees to such provision in writing. 11 12.8 HEADINGS; SEVERABILITY. The headings used in this Agreement are for convenience only and are not to be construed to have legal significance. In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the parties to this Agreement, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the parties in accordance with applicable law, and the remainder of this Agreement shall remain in full force and effect. 12.9 NO SOLICITATION OR EMPLOYMENT. During the Term and for two (2) years after termination or expiration hereof, each of the parties agrees that it shall not solicit to employ or employ any then current employee of another party who was an employee of such other party at any time during the Term without the prior written consent of the employing party. 12.10 COUNTERPARTS. This Agreement may be executed in multiple counterparts, all of which, taken together, shall constitute one and the same instrument. [Signature Page Follows] 12 IN WITNESS HEREOF, the parties hereto have caused this Agreement to be executed by duly authorized officers or representatives as of the Effective Date. SH: CONNECTIVHEALTH D/B/A DKC: drkoop.com, Inc., a Delaware SEXHEALTH, INC., a Delaware corporation corporation By: By: ------------------------------------- --------------------------------- Name: Name: ----------------------------------- ------------------------------- Title: Title: ---------------------------------- ------------------------------ S-1 EXHIBIT A WRAP SPECIFICATIONS Anatomy of a Co-Branded Center Page: - --------------------------------- - --------------------------------- Top Banner - --------------------------------- Left side Navigation Main content area - ---------------------------------- Bottom Navigation - ---------------------------------- The following elements will not change in a wrap: o The Left Side Navigation o The Main Content Area The following elements can be changed via a wrap: o The Top Banner Section o The Bottom Navigation Section TOP BANNER DKC will replace the top banner section of pages of the Co-Branded Center with items that will reflect the SH Branding, including, but not limited to graphics, navigational elements and text. The top banner shall be no wider than 604 pixels and no higher than 150 pixels. A-1 BOTTOM NAVIGATION DKC will also replace the bottom navigation with graphical, navigation and text elements to further enhance the SH Branding. The bottom navigation shall be no wider than 604 pixels and this section should work well with our 604 pixel page width and no higher than 150 pixels in height. BASIC RULES All pages of the Co-Branded Center will be no wider than 604 pixels. All colors (both graphical and HTML) used must conform to the browser-safe color palette. All wraps must use HTML that will function in IE3+ and NS3+ browsers. DKC will test the wraps in said browsers to insure compatibility. JavaScripting, DHTML and CSS are not allowed. DOCUMENT WEIGHT The total document weight (graphics plus HTML) of the two wrap elements should not exceed 30K in size. A-2 EX-21.1 5 a2045539zex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY Name State of Organization ConnectivHealth Corp. Delaware 32 Records LLC Delaware -----END PRIVACY-ENHANCED MESSAGE-----