<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
NETRADIO CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 7374 41-1866047
---------------------------- -------------------------- ----------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
43 MAIN STREET SOUTHEAST
SUITE 149
MINNEAPOLIS, MN 55414
(612) 378-2211
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
EDWARD A. TOMECHKO
CHIEF EXECUTIVE OFFICER AND PRESIDENT
NETRADIO CORPORATION
RIVERPLACE EXPOSITION HALL
43 MAIN ST. SOUTHEAST, SUITE 149
MINNEAPOLIS, MN 55414
(612) 378-2211
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
THOMAS G. LOVETT, IV, ESQ. LAWRENCE D. LEVIN, ESQ
JONATHAN B. LEVY, ESQ. SCOTT E. LYONS, ESQ.
CHRISTINE K. HANSEN, ESQ. KATTEN MUCHIN & ZAVIS
LINDQUIST & VENNUM, P.L.L.P. 525 WEST MONROE STREET
4200 IDS CENTER CHICAGO, IL 60661
MINNEAPOLIS, MN 55402 (312) 902-5200
(612) 371-3211
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, no par value per share.............................................. $37,375,000 $10,391
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(o) under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 3, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT A SOLICITATION TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
NETRADIO CORPORATION
COMMON STOCK
------------------
This is the initial public offering of our common stock. We are offering
shares. We anticipate that the initial public offering price will be
between $ and $ . No public market currently exists for our common
stock. We have applied to list our common stock on the Nasdaq National Market
under the symbol "NETR."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ------------
<S> <C> <C>
Public Offering Price................................................ $ $
Underwriting Discount................................................ $ $
Proceeds to NetRadio Corporation..................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares to cover any over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EVEREN Securities, Inc. expects to deliver the shares to purchasers on
, 1999.
------------------------
EVEREN SECURITIES, INC.
, 1999
<PAGE>
[FRONT COVER]:
[Logo]
[The front cover will have a dark background and the text will be printed in
white.]
[INSIDE FRONT COVER]:
[Logo]
[A picture of a microphone will appear in the background. In the center of the
page the following four bullets will surround the words "LISTEN, CLICK, BUY!":
- NetRadio is a leading network broadcaster of original audio
content programming on the Web
- NetRadio broadcasts more than 120 channels of music, news, sports
and entertainment information 24 hours a day, seven days a week
- NetRadio's distinctive music channels keep our listeners on our
Web site for over 20 minutes
- NetRadio's content is segmented by Communities of Similar
Interest (COSIs) targeted to distinct listener demographics
[Underneath the text will be three small boxes containing images of a
microphone, a shopping cart and a mouse.]
[INSIDE SPREAD]
[Logo]
[A two page spread depicting five pages of our Web site.]
www.netradio.com
[Left Page]
NetRadio offers listeners original content programming and a wide variety of
music on more than 120 channels. Our diverse offerings appeal to a wide range
of listener demographics.
NETCOMPANION
A proprietary navigation and interface tool that appears on a listener's
computer screen and displays song title information, audio and text-based
advertising that link to our channels and other Web sites. Through
NetCompanion, users can stay connected to NetRadio and listen to their
favorite music as they browse the Web, work on other applications or click
through to an advertised Web site.
[Right Page]
CDPOINT [www.cdpoint.com] Our online retail store has an inventory of more
than 250,000 instantly accessible music titles.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary...................................................................................... 4
Risk Factors............................................................................................ 7
Use of Proceeds......................................................................................... 17
Dividend Policy......................................................................................... 17
Capitalization.......................................................................................... 17
Dilution................................................................................................ 18
Selected Financial Data................................................................................. 19
Management's Discussion and Analysis of Financial Condition and Results of Operations................... 20
Our Business............................................................................................ 24
Management.............................................................................................. 37
Certain Transactions.................................................................................... 42
Principal Shareholders.................................................................................. 45
Description of Capital Stock............................................................................ 46
Shares Eligible for Future Sale......................................................................... 47
Underwriting............................................................................................ 49
Legal Matters........................................................................................... 51
Experts................................................................................................. 51
Where You Can Get More Information...................................................................... 51
Financial Statements.................................................................................... F-1
</TABLE>
------------------------
Our executive offices are located at NetRadio Corporation, Riverplace
Exposition Hall, 43 Main Street Southeast, Suite 149, Minneapolis, Minnesota
55414. Our telephone number is (612) 378-2211.
------------------------
NOTES TO READERS OF THIS PROSPECTUS
You should keep in mind the following points as you read this prospectus:
- Except as otherwise noted, all information in this prospectus, including
share and per share information, gives effect to a -for- stock
split of our outstanding common stock to be effected prior to the closing
of this offering.
- N NET.RADIO NETWORK-Registered Trademark- and Design, NET.RADIO-Registered
Trademark-, CDPOINT-TM- and NETCOMPANION-TM- are trademarks of NetRadio
Corporation. All other trademarks and trade names referenced in this
prospectus are the property of their respective owners.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed.
Important factors that could cause our actual results to differ materially from
projections include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Our Business," as well as those discussed elsewhere in this
prospectus. We are not obligated to revise or update these forward-looking
statements to reflect new events or circumstances.
------------------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document. Information on our Web site is not a part of this
prospectus.
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
BECAUSE THIS IS A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY
BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING
THE RISK FACTORS AND FINANCIAL STATEMENTS, BEFORE YOU DECIDE WHETHER TO INVEST.
NETRADIO
We are a leading broadcaster of originally programmed audio entertainment
over the Internet through our Web site, www.netradio.com. We organize our music
and information content into highly targeted audio channels grouped as
communities of similar interest or "COSIs." We attract customers using audio
content, rather than relying solely upon a text-based site to extend the time
visitors spend at netradio.com, thereby creating a "sticky" Web site.
Nielsen/I-pro, an independent consultant that monitors Web site traffic, has
estimated that in December 1998 over 880,000 unique visitors listened to one or
more of our 120 music and news audio channels. Nielsen/I-pro has also estimated
that in December 1998 the average time a visitor spent listening to any of our
audio channels was approximately 21 minutes.
We use audio content to generate revenues from sales of audio merchandise
through our online music store, CDPoint, and from Internet advertising,
including advertisements placed within our audio broadcasts. Our interactive
display, NetCompanion, encourages impulse purchases by providing information
about the music being played, or the products being advertised, and by linking
the listener directly to CDPoint or to our advertisers' Web sites.
OUR MARKET
Broadcast audio over the Internet combines the passive listening attributes
of radio broadcasting with the interactive aspects of the Internet. According to
a study performed in January 1999 by The Arbitron Company, 27% of Internet users
have listened to Internet radio. As with traditional broadcast radio, our users
can listen to our programming while performing other tasks. Most other Web
sites, by contrast, require active, single-task "clicking" through pages. As
with traditional broadcast radio, we deliver advertising and purchasing
opportunities passively to our listeners. However, our audio broadcasts
encourage listeners to react impulsively to these opportunities.
The Internet improves commerce by substituting automated electronic sales
for traditional retail venues. The Internet can link consumers, while at home or
at work, directly to wholesale distribution channels and provide them with a
broad selection of products, convenience and optimal pricing. Forrester
Research, Inc. estimates that consumer sales over the Internet will account for
6% of the estimated $1.8 trillion of United States consumer retail spending in
2003. Forrester Research also estimates that music sales over the Internet will
grow at a rate of 68% from $187 million in 1998 to nearly $2.5 billion in 2003
and account for 20% of all estimated online retail spending in the United
States.
OUR SOLUTION
We use entertaining audio content to attract and retain listeners and to
generate revenues. To do this, we:
- PROGRAM AND BROADCAST AUDIO CONTENT TO ATTRACT AND RETAIN LISTENERS. We
attract and retain listeners by offering a wide variety of entertaining
audio content broadcast over 120 distinct music and news channels.
- BUILD VISITOR TRAFFIC COST-EFFECTIVELY. We believe our targeted content
will encourage repeat visits, and our low cost marketing campaigns will
efficiently increase traffic to our Web site.
4
<PAGE>
- CREATE STRONG COMMUNITIES OF SIMILAR INTERESTS TO ESTABLISH BRAND LOYALTY.
We aggregate communities of listeners attracted to distinct musical
genres. These communities promote brand loyalty and create targeted
marketing opportunities.
- PROGRAM CONTENT TO GENERATE COMMERCE AND ADVERTISING REVENUES. We use our
audio content to generate both e-commerce and advertising revenues. The
extended time listeners spend on our Web site exposes them to multiple
advertising opportunities. Our innovative advertising format combines
audio advertisements with links to our advertisers' Web sites, encouraging
an immediate consumer response.
- BUILD STRATEGIC ALLIANCES. We enter into strategic alliances to develop
our content, build our technology, generate traffic to our Web site and
fulfill our product distribution needs. We have alliances with major
record labels, RealNetworks and cable Internet service providers, as well
as product fulfillment agreements with Navarre Corporation, our majority
shareholder, and Valley Media, Inc., both leading music distributors.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by NetRadio shares
Corporation................................
Common stock outstanding after the shares
offering...................................
Use of proceeds.............................. Working capital and other corporate purposes,
including advertising and capital
expenditures. Please see "Use of Proceeds."
Proposed Nasdaq National Market symbol....... NETR
</TABLE>
This information is as of December 31, 1998. You should be aware that we are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. If and when
we issue these shares, the percentage of the common stock you own may be
diluted. The following is a summary of additional shares of common stock that we
have approved for issuance upon the exercise of options which share numbers do
not reflect a for stock split of our outstanding common stock, to be
effected prior to the closing of this offering:
- 1,475,000 shares reserved for issuance upon the exercise of options under
our stock option plan: consisting of (a) 939,500 options outstanding at a
weighted average exercise price of $2.27 per share, and (b) 535,500 shares
reserved for future issuance under the plan.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes certain financial information for NetRadio
and our predecessor, Net Radio Corporation, a Nevada corporation ("Net Radio
Nevada"). You should read this table in conjunction with our financial
statements and their notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NET RADIO NEVADA NETRADIO
--------------------------- --------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, MARCH 21,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, MARCH 20, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ------------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Product sales........................................ $ -- $ -- $ -- $ 50
Internet advertising................................. -- -- -- 205
Miscellaneous........................................ 321 168 163 --
------------ ----- ------------ ------------
Total net revenues................................. 321 168 163 255
Gross profit 321 168 146 190
Loss from operations................................... (2,261) (737) (1,955) (3,891)
Net loss............................................... $ (2,254) $ (754) $ (1,987) $(3,915)
Loss per share--basic and diluted...................... $ (.66 )
Weighted average shares outstanding(1)................. 5,899,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
--------- PRO FORMA(2) ---------------
-------------
(IN
THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 51 $ 551
Working capital (deficit)............................................... (176) 324
Total assets............................................................ 2,740 3,240
Long term obligations, less current portion............................. 5,363 129
Total shareholders' equity (deficit).................................... $ (3,830) $ 1,905
</TABLE>
- ------------------------
(1) Please see Note 1 of our financial statements for an explanation of the
determination of the number of shares of our common stock as of December 31,
1998.
(2) Pro forma to reflect the conversion of $5,234,840 in debt owed to Navarre
into equity and ValueVision's purchase of 550,000 shares of common stock for
$500,000, both occurring at the closing of this offering. Please see
"Certain Transactions."
(3) Pro forma as adjusted to reflect the sale of shares of common stock
offered by this prospectus after deducting the underwriting discount and
estimated offering expenses. Please see "Use of Proceeds" and
"Capitalization."
6
<PAGE>
RISK FACTORS
Investing in our common stock is very risky. You should be able to bear a
complete loss of your investment. In addition to the other information in this
prospectus, you should consider the following risks carefully in deciding
whether to invest in shares of our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE US
We have a limited operating history on which you may evaluate our business
and prospects. We began broadcasting live audio programming on the Internet in
November 1995 and began selling products over the Internet on a limited basis in
June 1998. We first recognized Internet advertising revenues in April 1998. Our
prospects must be considered in light of the risks, difficulties and
uncertainties frequently encountered by companies in an early stage of
development. This is particularly significant because we operate in a new and
rapidly evolving market.
WE ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE
To date we have not been profitable. We have recorded a net loss for each
year since our inception in 1995 and we had an accumulated deficit of
approximately $5.9 million during the period from March 21, 1997 to December 31,
1998. We have incurred losses in each fiscal quarter since our inception and we
anticipate that we will continue to incur losses for the foreseeable future as
we increase our operating expenses to expand our business.
WE EXPECT QUARTERLY OPERATING RESULTS TO FLUCTUATE
Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside of our control.
These factors include:
- availability of compelling content and costs of acquiring and distributing
it,
- demand for our products,
- demand for advertising on our Web site and on the Internet in general,
- seasonal trends in the traditional retail market and in advertising
placements, including expected declines in the summer months and expected
increases in the fourth quarter,
- amount and timing of capital expenditures and other costs relating to the
expansion of our operations,
- technical difficulties or system downtime,
- new products or services that we, or our competitors, offer, and
- general economic conditions and economic conditions specific to the
Internet or to the retail sales or advertising markets.
As a result of these factors, our operating results for any particular
quarter may not be indicative of future operating results and you should not
rely on them as indications of our future performance. It is also possible that
our operating results in one or more quarters will fail to meet the expectations
of securities market analysts or investors. In such an event, the price of our
common stock could decline.
OUR ADVERTISING REVENUES MAY FLUCTUATE
Advertising sales in television, radio and print media fluctuate
unpredictably and are typically lower in the first and third calendar quarters
of each year. Advertising expenditures also fluctuate
7
<PAGE>
significantly with economic cycles. A number of factors may contribute to our
ability to generate advertising revenues, including:
- acceptance and continued growth of the Internet as an advertising medium,
- continued consumer Internet use,
- traffic on our Web site,
- pricing of advertising on other Web sites,
- our ability to generate listener demographic characteristics that are
attractive to advertisers,
- developing and expanding our advertising sales force, and
- establishing and retaining desirable advertising sales agency
relationships.
ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN
The growth of Internet advertising requires validation of the Internet as an
effective advertising medium. This validation has yet to fully occur. Acceptance
of the Internet among advertisers will also depend on growth in the commercial
use of the Internet. If widespread commercial use of the Internet does not
develop, or if the Internet does not develop as an effective and measurable
medium for advertising, our business could be materially damaged.
No standards have been widely accepted to measure the effectiveness of
Internet advertising. If such standards do not develop, existing advertisers may
not continue their current levels of Internet advertising and advertisers who
are not currently advertising on the Internet may be reluctant to do so. Our
business could be materially damaged if the market for Internet advertising
fails to develop or develops slower than expected.
WE MUST EXPAND OUR USER BASE
Our success depends in part upon our ability to deploy broadcasting
technology that delivers streaming audio content to an ever-increasing number of
simultaneous users. In the past, we have had periods of time when we were not
able to accommodate all users visiting our Web site. This has resulted in
unanticipated system disruptions, slower response times, impaired quality and
speed of order fulfillment, impaired customer service and lost sales
opportunities. To be successful, we must increase our capacity to deliver
content to larger audiences. We must acquire, test and deploy additional network
equipment and bandwidth (transmission capacity) to successfully scale our
network infrastructure to serve mass audiences. There can be no assurance that
we will be successful in doing so. If we fail to scale our broadcasts to large
audiences of simultaneous users, our business could be materially damaged.
WE MUST ADAPT TO RAPID TECHNOLOGICAL CHANGE
The market for Internet audio is characterized by rapid technological
developments, frequent new product introductions, evolving industry standards,
and changes in transmission and content delivery mechanisms. It is possible that
an alternative technology will emerge that offers superior broadcasting
technology over the Internet. In the event that our technology is not
successfully deployed in a timely manner or such an alternative technology
emerges, we would likely be required to expend significant resources to deploy
such alternative technology. This could materially damage our business during
the period in which we attempted such deployment. One recent technological
development is MP3, which generally permits a user to store and replay, either
on a personal computer or specially-designed MP3 device, music selected by the
user. The acceptance of this technology could dramatically change the structure
and competitive dynamic of the market for sales of pre-recorded music over the
Internet
8
<PAGE>
because MP3 technology permits immediate downloading of music and would
eliminate product shipping and handling. There can be no assurance that we will
be able to respond quickly, cost effectively or sufficiently to this or other
technological developments. Failing to effectively respond to technological
developments could materially damage our business.
WE MUST CONTINUE TO DEVELOP OUR BRAND
We believe that our growth has been largely attributable to word-of-mouth.
Despite this historical organic growth, we believe that continuing to strengthen
our brand is critical to achieving widespread acceptance of NetRadio,
particularly in light of the competitive nature of our industry. Promoting and
positioning our brand will depend largely on the success of our marketing
efforts. Therefore, we expect to increase our marketing budget to create and
maintain brand loyalty among our listeners and other visitors to our Web site.
There can be no assurance that our brand promotion activities will yield
increased revenues or that any such revenues would offset the expenses that we
may incur to build our brand.
THE COST OF STREAMING INTERNET AUDIO MAY BECOME PROHIBITIVELY EXPENSIVE
Our success also depends upon our reliance on streaming media technology
provided to us by RealNetworks, Inc. In order to provide our advertising and
products, we depend upon our listeners' ability to download or have installed
RealNetworks' RealPlayer software. If RealNetworks substantially increases the
license fees it charges us for the use of its products, refuses to license its
products to us or requires listeners to pay for its software, our business could
be materially damaged.
GROWTH OF INTERNET USAGE COULD CAUSE CAPACITY CONSTRAINTS
If the Internet continues to experience an increase in the number of users
and frequency of use, there can be no assurance that the Internet as a whole, or
our infrastructure, will be able to deliver high-quality musical content.
Internet experiences are affected by, among other factors, access speed.
Insufficient availability of telecommunications services to support the Internet
could result in unacceptable response times and could adversely affect Internet
use generally and traffic to our Web site in particular. Our revenues depend
upon the number of listeners who access our audio broadcasts and buy products
offered on our Web site, as well as the amount of advertising spots that we can
sell. Any system interruptions that would result in our Web site being
inaccessible would reduce the volume of goods sold, advertising revenue and the
attractiveness of our products and services. We have experienced periodic system
interruptions, which may continue to occur from time to time. If Internet usage
does not support the growth that may occur, our business could be materially
damaged.
CORPORATE INTRANETS MAY NOT ACCEPT OUR PROGRAMMING
A significant portion of our audience is in the workplace. Because of
bandwidth constraints on corporate intranets or fears that computer networks and
other computer systems' security could be compromised, some information systems
managers may block reception of streaming media. Widespread adoption of
streaming media technology depends upon overcoming these obstacles, improving
audio and video quality and educating users in the use of streaming media
technology. If streaming media technology fails to achieve broad commercial
acceptance or such acceptance is delayed, our business could be materially
damaged.
WE RELY ON INTERNALLY DEVELOPED AND COMMERCIALLY AVAILABLE SOFTWARE
We use internally developed and commercially available software for our Web
site, audio channels, search engines and substantially all aspects of
transaction processing, including order management, cash and credit processing,
purchasing, inventory verification and shipping. If we are unable to modify our
9
<PAGE>
software as necessary to accommodate increased traffic to our Web site or
increased volume of transactions, our business could be materially damaged.
WE HAVE OUR ENTIRE OPERATION AT A SINGLE LOCATION AND HAVE NO REDUNDANT SYSTEMS
Our success largely depends on the efficient and uninterrupted operation of
computer and communications hardware systems. Our computer and communications
hardware and software are located at a single leased facility in Minneapolis,
Minnesota. Our systems and operations are vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, break-ins, tornadoes
and similar events. We do not presently have redundant systems or a formal
disaster recovery plan. We do not carry sufficient business interruption
insurance to compensate us for losses that may occur. Our servers are also
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions which could lead to interruptions, delays, or loss of data. The
occurrence of any of these events could prevent us from broadcasting our audio
programming, selling advertising or accepting and fulfilling customer orders.
WE MAY HAVE DIFFICULTY INTEGRATING NEW BUSINESSES
We may expand our operations by developing new Web sites, promoting new or
complementary products or sales formats, expanding the breadth of our products
and services or expanding our market presence through relationships with third
parties. In addition, we may acquire new or complementary businesses, products
or technologies, although we have no present commitments for such activities.
There can be no assurance that we will be able to expand operations
cost-effectively, or that any such efforts would increase market acceptance for
our products and services. Furthermore, any new business, Web site, or channel
that we launch that is not favorably received by consumers could damage our
reputation or brand. Any expansion would likely require significant additional
expenses and other operational resources. If the market does not react favorably
to our efforts, or if we are unable to generate satisfactory revenues from such
expanded services or products to offset our costs, our business could be
materially damaged.
WE DEPEND UPON STRATEGIC AND PRODUCT FULFILLMENT ALLIANCES
Our success depends in part upon our strategic alliances. We have a number
of agreements and relationships with third parties in certain key areas that are
essential to our business, including product fulfillment, traffic and content.
We purchase a substantial majority of our music products from two vendors,
Valley Media and Navarre. For the fiscal year ended December 31, 1998, we
purchased approximately 93% of our music products from Valley Media, and the
remainder from Navarre. Our agreement with Navarre expires in December 2003 and
our agreement with Valley Media expires on March 1, 2000. We rely upon these two
vendors for rapid product fulfillment because we carry no inventory and have no
order fulfillment operations of our own. We have no contracts that guarantee the
availability of merchandise, the continuation of particular payment terms or the
extension of credit. There can be no assurance that our current vendors will be
able to sell merchandise to us on terms as favorable as the current terms, or
that we will be able to establish new or extend current vendor relationships to
ensure acquisition of merchandise in a timely and efficient manner, and on
acceptable commercial terms. We also rely upon relationships with Web site
operators, computer manufacturers, software developers and Internet service
providers ("ISPs") to deliver traffic to our Web site and to promote our brand.
There can be no assurance that our relationships with ISPs and other providers
will be maintained or that traffic will continue to come from these entities. If
any of these alliances were terminated prematurely, or not extended, and we were
not able to obtain the products or services provided by that strategic partner,
our business could be materially damaged.
10
<PAGE>
OUR INTERCOMPANY AGREEMENTS WERE NOT NEGOTIATED AT ARMS-LENGTH
We have entered into certain intercompany agreements with Navarre that are
material to the conduct of our business. Because we are a majority-owned
subsidiary of Navarre, none of these agreements resulted from arm's-length
negotiations and, therefore, there is no assurance that the terms and conditions
of such agreements will be as favorable to us as those that we could obtain from
unaffiliated third parties. Please see "Certain Transactions." In addition, we
have certain indemnification obligations with respect to Navarre in connection
with our agreements. Please see "Certain Transactions--Separation Agreement."
OUR EXPANSION INTO INTERNATIONAL MARKETS MAY BE DIFFICULT
Expansion into international markets will require significant management
attention and resources. There can be no assurance that we will be successful in
expanding into international markets to generate revenues from foreign
operations. In addition, there are certain risks inherent in doing business in
international markets, including, among other things, regulatory requirements,
legal uncertainty regarding liability, tariffs and other trade barriers, longer
payment cycles, differing accounting practices, problems in collecting accounts
receivable, political instability and potentially adverse tax consequences. To
the extent that we expand international operations and additional portions of
our international revenues are denominated in foreign currencies, we could
become subject to increased risks relating to exchange rate fluctuations. One or
more of these factors could materially damage our business.
WE MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN EASILY IDENTIFIABLE WEB ADDRESSES OR
PREVENT THIRD PARTIES FROM ACQUIRING WEB ADDRESSES SIMILAR TO OURS
We currently hold various Internet domain names relating to our products and
services, including the "netradio.net" and "netradio.com" domain names. The
acquisition and maintenance of domain names generally are regulated by
governmental agencies and their designees. For example, in the United States,
the National Science Foundation has appointed Network Solutions, Inc. as the
exclusive registrar for the ".com," ".net" and ".org" generic top-level domains.
The regulation of domain names in the United States and in foreign countries is
subject to change. Governing bodies may establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. In November 1998, the United States Department of Commerce began a
joint research project with the Internet Corporation for Assigned Names and
Numbers which is intended to result in the complete privatization of the
technical management of the domain name system. As a result, there can be no
assurance that we will be able to acquire or maintain relevant domain names in
all countries in which we conduct business. Furthermore, the relationship
between regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. In the past, third parties have acquired
domain names that are similar to ours, and we have had to expend resources to
protect our proprietary rights in this area. There can be no assurance that in
the future we will be able to prevent other third parties from acquiring domain
names that are identical to, similar to, infringe upon or otherwise decrease the
value of our trademarks, domain names and other proprietary rights. If we are
unable to protect our domain names from third parties, our business could be
materially damaged.
WE MAY BE UNABLE TO PROTECT OUR TRADEMARKS AND PROPRIETARY RIGHTS
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as important to our success. We rely
upon trademark and copyright law, trade secret protection, confidentiality and
license agreements with employees, customers, partners and others to protect our
proprietary rights. We have registered certain of our trademarks and service
marks with applicable governmental authorities. Effective trademark, service
mark, copyright and trade secret
11
<PAGE>
protection may not be available in every country in which our products and
services are made available and we have not sought protection for our
intellectual property in every country where our broadcasts may be heard. In the
future, we may license certain of our proprietary rights, such as trademarks or
copyrighted material, to third parties. While we will try to ensure that the
quality of our brand is maintained by such licensees, it is possible that such
licensees could take actions that might materially adversely affect the value of
our proprietary rights or reputation. There can be no assurance that the steps
we take to protect our proprietary rights will be adequate or that third parties
will not infringe or otherwise violate our copyrights, trademarks, trade dress
or similar proprietary rights.
WE MAY INFRINGE UPON THE PROPRIETARY RIGHTS OF OTHERS
We believe that our broadcasts of prerecorded music over the Internet are
permitted under the copyright laws of the United States, as long as we obtain
appropriate permission and pay appropriate royalties. We have entered into
licensing agreements with each of the major performing rights organizations,
including the American Society of Composers, Authors and Publishers, Broadcast
Music, Inc. and the Society of European Stage, Authors and Composers, Inc. We
believe that these agreements grant us licenses to broadcast music and other
copyrighted materials over the Internet, and obligate us to pay royalties in
connection with such broadcasts. The royalties that we must pay, or the terms
and conditions of the license agreements, may change and such changes may
materially damage our business. There is also a risk that some music may not be
available for broadcast over the Internet. In addition, our license agreements
with performing rights organizations may not comply with the copyright laws of
jurisdictions outside the United States, and our broadcasts may violate the
copyright laws of such jurisdictions where our Internet broadcasts may be heard.
The Digital Performance Right in Sound Recordings Act of 1995 provides that
the owners of sound recordings have certain exclusive performance rights in such
recordings, and, if applicable to us, could require us to pay additional
licensing fees for our broadcasts. We believe, however, that our broadcasts are
exempt from such fees under this statute. No assurance, however, can be given
that our belief is correct, particularly because this law has not yet been
sufficiently interpreted. If this statute is interpreted in a manner adverse to
us, our business could be materially damaged.
We have been, and may continue to be, subject to claims and legal
proceedings, from time to time, in the ordinary course of our business. These
claims could include claims against us for alleged infringement of copyrights,
trademarks and other proprietary rights of third parties. Such claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources, which could materially damage our business.
WE DEPEND UPON CONTENT PROVIDERS
Our success depends in large part upon our ability to deliver compelling
audio content over the Internet. We do not create our own musical content.
Rather, we rely upon record labels, music publishers, performers and artists for
entertaining content. Our ability to maintain existing relationships with
content providers and build new relationships with additional content providers
is critical to the success of our business. Many of our agreements with third
party content providers are for limited terms or are not memorialized in a
formal written contract, and content providers may choose not to renew, or may
terminate, such agreements. Our inability to secure licenses from content
providers or performing rights societies, or the termination of a significant
number of content provider agreements, would decrease the availability of
content that we can offer our listeners. This may result in decreased traffic on
our Web site and decreased advertising and sales revenues, which could
materially damage our business.
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<PAGE>
OUR SUCCESS DEPENDS ON KEY PERSONNEL, MANY OF WHOM HAVE RECENTLY BEEN HIRED
We have rapidly and significantly expanded our operations and expect to
continue expanding to address potential market opportunities. This rapid growth
has placed, and is expected to continue to place, a significant strain on our
management. From June 30, 1998 to March 1, 1999, we expanded from 22 to 43
employees. Our new employees include a number of key employees who have not yet
been fully integrated into our management team, and we expect to add additional
personnel in the future. Increases in the number of employees have placed
significant demands on our management. We also will be required to expand our
accounting staff. Historically, we have been dependent upon Navarre for various
managerial, warehousing, distribution and working capital needs. Please see
"Certain Transactions." There can be no assurance that controls will be adequate
to support our future operations or that management will be able to hire and
retain required personnel. If we are unable to manage growth effectively, our
business could be materially damaged. Please see "Our Business-- Employees" and
"Management."
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED SO WE CANNOT PREDICT THE EXTENT
TO WHICH A TRADING MARKET WILL DEVELOP
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that an active trading market will develop
or be sustained following this offering. The initial public offering price for
the shares was determined through negotiations between us and the
representatives of the underwriters and may not be indicative of the market
price of our common stock after this offering. Investors may not be able to
resell their shares at or above the initial public offering price. Please see
"Underwriting."
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE
The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. These broad market
fluctuations, as well as general economic, market and political conditions, may
adversely affect the market price of our common stock. In the past, following
periods of volatility in the market price of a company's securities, securities
class action claims have been brought against such companies. This litigation
could result in substantial costs and a diversion of management's attention and
resources.
OUR CONTROLLING SHAREHOLDER MAY NOT CONTINUE TO FUND OUR FUTURE CAPITAL NEEDS
We operate as a majority-owned subsidiary of Navarre. Prior to this
offering, Navarre has met our financial needs with regard to working capital and
general corporate operations. Immediately following this offering, however,
Navarre will no longer be obligated to provide funds to finance our operations.
We intend to continue to invest in capital equipment, expansion and research and
development. We believe that the net proceeds from the sale of common stock in
this offering, together with existing cash balances, and cash flow from
operations will be sufficient to meet our liquidity and capital requirements for
at least the next 18 months. We may, however, seek additional equity or debt
financing to fund further expansion of our broadcasting capacity or to fund
other projects. The timing and amount of such capital requirements cannot be
precisely determined at this time and will depend upon a number of factors,
including demand for our products and services, product mix, changes in the
conditions of the Internet or music industries and other competitive factors.
There can be no assurance that such additional financing will be available when
needed or, if available, that such additional financing will be on satisfactory
terms or completed without dilution to our shareholders.
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<PAGE>
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT
We are subject to Chapters 302A.671 and 302A.673 of the Minnesota Business
Corporation Act, which may have the effect of limiting third parties from
acquiring significant amounts of our common stock without our approval. These
laws, among others, may have the effect of delaying, deferring or preventing a
third party from acquiring us or may serve as a barrier to shareholders seeking
to amend our Articles of Incorporation or Bylaws. Our Articles of Incorporation
also grant us the right to issue preferred stock which, under certain
circumstances, may be used to delay or block a third party from acquiring us.
AFTER THIS OFFERING NAVARRE AND VALUEVISION WILL CONTINUE TO CONTROL A MAJORITY
OF OUR COMMON STOCK
Navarre and ValueVision will beneficially own approximately % of our
outstanding common stock after this offering ( % if the over-allotment option
granted by us is exercised in full). As a result, Navarre and ValueVision
together will have the ability to control the vote on all matters submitted to
shareholders for approval (including, but not limited to, the election of all
directors, and any merger, consolidation or sale of all or substantially all of
our assets) and to control our management and affairs. Such concentration of
ownership may have the effect of delaying, deferring or preventing a third party
from acquiring us.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT SHAREHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE
After this offering, the shares of our common stock sold in this
offering will be freely tradeable. Beginning 180 days after the date of this
offering, approximately shares will become eligible for sale upon the
expiration of lock-up agreements between our securityholders and the
underwriters. Representatives of the underwriters may from time to time, in
their sole discretion, release any of the securities subject to the lock-up
agreements. Approximately shares will be eligible for sale in the
public market beginning after the expiration of one-year holding periods under
Rule 144 for certain shareholders. Of the shares that will first become eligible
for sale in the public market 180 days after this offering, approximately
5,922,500 shares will be subject to certain volume and other resale
restrictions. With respect to our stock option plan, outstanding options to
purchase shares will be vested 180 days following this offering. We
may also file a registration statement to register all of our common stock under
our stock option plan. After such registration statement is effective, shares
issued upon exercise of stock options will be eligible for resale in the public
market. The supply of substantial amounts of common stock in the public market
could lower the price of our common stock. Please see "Description of Capital
Stock" and "Shares Eligible for Future Sale."
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<PAGE>
RISKS RELATED TO OUR INDUSTRY
THERE IS INTENSE COMPETITION FOR THE PRODUCTS AND ADVERTISING WE SELL
The Internet commerce market is new, rapidly evolving and intensely
competitive. We expect competition to further intensify as existing technologies
expand and new technologies are introduced. Barriers to entry into the Internet
commerce market are minimal, and current and new competitors can launch new Web
sites at a relatively low cost. In addition, the retail music industry is highly
competitive. We compete with a variety of other companies for advertising and
market share, including the following:
- online music providers, such as Broadcast.com, Spinner.com and Imagine
Radio.com, who broadcast music and information;
- online retail competitors, such as Amazon.com, N2K, CDNow and K-Tel, who
provide compact discs, software, and entertainment-related products;
- traditional radio broadcasters; and
- traditional retail competitors, including large specialty music stores
with significant brand awareness, sales volume and customer bases, such as
MusicLand, Tower Records, Barnes & Noble and Best Buy.
We believe that the principal competitive factors in our markets are brand
recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of music, site
content and reliability and speed of product fulfillment. Many of our
competitors have significantly longer operating histories, larger customer
bases, greater brand recognition and greater financial, marketing and other
resources. In addition, online retailers may be acquired by, receive investments
from or enter into other commercial relationships with, larger, more
well-established and well-financed companies as use of the Internet and other
online services increases.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT WHICH COULD CAUSE OUR WEB SITE TO BE
UNAVAILABLE FOR A PERIOD OF TIME BEGINNING JANUARY 1, 2000.
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software,
telephone systems and other equipment used internally. If our present efforts to
address the Year 2000 compliance issues are not successful, or if distributors,
suppliers and other third parties with whom we conduct business do not
successfully address such issues, our business could be damaged.
In the event that our Web site is not Year 2000 compliant, we would not be
able to broadcast our programming and advertising or sell our products to our
customers. In the event that the technical support provided for our Web site is
not Year 2000 compliant, portions of our Web site may become unavailable. Please
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance" for a further discussion of Year 2000 risks.
WE MUST BE ABLE TO OVERCOME ONLINE COMMERCE SECURITY RISKS
A significant barrier to online commerce and communications is the secure
transmission of confidential information, such as customer credit card
information. We rely upon encryption and authentication technology licensed from
third parties to transmit and protect confidential information. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
developments may result in a compromise or breach of the systems that we use to
protect customer transaction data. If any such compromise were to occur, or if
our customers, or the Internet audience in general, believe that data
transmissions over the Internet are not secure, we would have to expend
significant capital
15
<PAGE>
and other resources to protect against security breaches or to alleviate
concerns or problems caused by security breaches. Concerns over the security and
privacy of transactions conducted on the Internet may inhibit the continued
growth of the Internet and accompanying growth of Internet commercial
transactions. In addition, security breaches in our or our third party
contractors' storage of customer proprietary information could damage our
reputation and expose us to loss or possible liability. Our security measures
may not prevent security breaches, and if they occur, our business could be
materially damaged.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTY
THE INTERNET IS NOT HIGHLY REGULATED
There currently are few laws and regulations directly applicable to the
Internet. However, new laws and regulations may be adopted in the United States
and elsewhere covering issues such as music licensing, broadcast license fees,
copyrights, privacy, pricing, sales taxes and characteristics and quality of
Internet services. Restrictive laws or regulations could slow Internet growth or
expose us to significant liabilities associated with content available on our
Web site. The application of existing laws and regulations governing Internet
issues, such as property ownership, libel and personal privacy, is subject to
substantial uncertainty. New laws and regulations (including laws and
regulations governing issues such as property ownership, content, taxation and
defamation) may expose us to significant liabilities, significantly slow
Internet growth or otherwise materially damage our business.
THE REGULATION OF INDECENT CONTENT OVER THE INTERNET IS UNCERTAIN
The Communications Decency Act of 1996 proposed to impose criminal penalties
on anyone distributing "indecent" material to minors over the Internet. Although
this provision of this statute was held to be unconstitutional by the United
States Supreme Court, there can be no assurance that similar laws will not be
proposed and adopted. Although we believe that we do not currently distribute
the types of materials that this statute may have deemed illegal, the nature of
such similar legislation and the manner in which it may be interpreted and
enforced cannot be fully determined, and legislation or state or local laws
similar to this law could subject us to potential liability. This in turn could
materially damage our business.
OUR OBLIGATIONS TO COLLECT TAXES IS UNCERTAIN
We only collect sales and other taxes in the states and countries where we
believe we are required by law to do so. One or more states or countries have
sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more states or countries that we should collect sales or other taxes on products
and services, or remit payment of sales or other taxes for prior periods, could
materially damage our business.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be $ , or
$ if the over-allotment option is exercised in full, based upon an
estimated initial public offering price of $ , and after deducting the
underwriting discount and estimated offering expenses.
We expect to use the net proceeds for working capital and other corporate
purposes, including advertising and capital expenditures. We have not yet
determined the amount of net proceeds to be used specifically for each of these
purposes. Accordingly, we will retain broad discretion in the allocation of
proceeds. We may also use a portion of the net proceeds for strategic alliances
or to acquire or invest in complementary businesses, technologies or product
lines. We have no current plans, agreements or commitments with respect to any
such alliances or acquisitions, and we are not currently engaged in negotiations
related to such alliances or acquisitions. Pending use of the net proceeds of
this offering, we intend to invest the net proceeds in short-term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently anticipate that we will retain all future earnings, if any, to fund
the continued development and growth of our business, and we do not anticipate
paying cash dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1998 on:
(1) an actual basis; (2) a pro forma basis to reflect the conversion of
$5,234,840 in debt owed to Navarre into equity and ValueVision's purchase of
550,000 shares of common stock for $500,000, both occuring at the closing of
this offering; and (3) a pro forma as adjusted basis to reflect the receipt of
the net proceeds from this offering at an estimated initial public offering
price of $ and after deducting the underwriting discount and estimated
offering expenses. The outstanding share information excludes 939,500 shares of
common stock reserved for issuance upon exercise of options outstanding on
December 31, 1998, with a weighted average exercise price of $2.27 per share,
and 535,500 shares of common stock reserved for future grants under our stock
option plan as of December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long term debt................................................................ $ 5,235 $ -- $ --
Capital lease obligations, less current portion............................... 129 129 129
Shareholders' equity:
Common stock, no par value; 20,000,000 shares authorized; 5,922,500 shares
issued and outstanding, actual; 6,472,500 shares issued and outstanding,
pro forma; shares issued and outstanding, pro forma as
adjusted.................................................................. 2,072 7,807
Accumulated deficit........................................................... (5,902) (5,902)
--------- ----------- -----------
Total shareholders' equity (deficit).......................................... (3,830) 1,905
--------- ----------- -----------
Total capitalization.......................................................... $ 1,534 $ 2,034 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
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DILUTION
Our net tangible book value as of December 31, 1998, after giving effect to
the conversion of $5,234,840 in debt owed to Navarre into equity and
ValueVision's purchase of 550,000 shares of common stock for $500,000, both
occurring at the closing of this offering, was $ or $ per share of
common stock. Net tangible book value per share represents the amount of our
total tangible assets, reduced by the amount of our total liabilities, divided
by the number of shares of common stock outstanding. After giving effect to the
issuance and sale of the shares of common stock in this offering (after
deducting the underwriting discount and estimated offering expenses), the pro
forma as adjusted net tangible book value as of December 31, 1998 would have
been $ or $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing
shareholders and an immediate dilution of $ per share to new
investors purchasing shares in this offering. The following table illustrates
the per share dilution to new investors:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Assumed initial public offering price................... $
Pro forma net tangible book value per share as of
December 31, 1998................................... $
Increase per share attributable to new investors...... $
---------
Pro forma as adjusted net tangible book value per share
after this offering................................... $
---------
Dilution per share to new investors..................... $
---------
---------
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
this offering, as of December 31, 1998, the differences between the existing
shareholders and new investors with respect to the number of shares purchased,
the total cash consideration paid and the average price paid per share. This
table and discussion assume no exercise of any stock options outstanding as of
December 31, 1998.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED
------------------------ ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................................... % % $
New investors(1)........................................... % % $
----- ----- ----- -----
Total...................................................... 100% 100%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
- ------------------------
(1) If the over-allotment option is exercised in full, the number of shares of
common stock held by new investors will increase to shares, or %
of the total shares of common stock outstanding after this offering.
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SELECTED FINANCIAL DATA
The following selected financial data are derived from our audited financial
statements. You should read the selected financial and operating data set forth
below in conjunction with our financial statements and their notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
NETRADIO
NET RADIO NEVADA --------------------------------
---------------------------------------------------- PERIOD FROM
PERIOD FROM MARCH 21, 1997
PERIOD FROM INCEPTION YEAR ENDED JANUARY 1, 1997 THROUGH YEAR ENDED
(NOVEMBER 1, 1995) TO DECEMBER 31, THROUGH MARCH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1995 1996 20, 1997 1997 1998
--------------------- ------------ --------------- -------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Product sales..................... $ -- $ -- $ -- $ -- $ 50
Internet advertising.............. -- -- -- -- 205
Miscellaneous..................... 22 321 168 163 --
--- ------------ ----- ------- -------
Total net revenues.............. 22 321 168 163 255
Cost of revenues.................... -- -- -- 17 65
--- ------------ ----- ------- -------
Gross profit........................ 22 321 168 146 190
Operating expenses:
Operations and technical
support......................... -- -- -- 672 686
Sales and marketing............... 12 427 53 161 670
General and administrative........ 82 2,154 852 1,268 2,725
--- ------------ ----- ------- -------
Total operating expenses........ 94 2,581 905 2,101 4,081
--- ------------ ----- ------- -------
Loss from operations................ (72) (2,260) (737) (1,955) (3,891)
Net loss............................ $ (74) $ (2,254) $ (754) $ (1,987) $ (3,915)
--- ------------ ----- ------- -------
--- ------------ ----- ------- -------
Loss per share--basic and diluted... $ (.66)
Weighted average shares
outstanding(1).................... 5,899,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ PRO FORMA
1995 1996 1997 1998 1998(2)
--------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................................... $ 66 $ 91 $ 4 $ 51 $ 551
Working capital (deficit)......................................... 57 (828) (930) (176) 324
Total assets...................................................... 206 223 2,395 2,740 3,240
Long term obligations, less current portion....................... 111 486 1,389 5,363 129
Total shareholders' equity (deficit).............................. 37 (537) 13 (3,830) 1,905
</TABLE>
- ------------------------
(1) Please see Note 1 of Notes to our Financial Statements for an explanation of
the determination of the number of shares outstanding as of December 31,
1998.
(2) Pro forma to reflect the conversion of $5,234,840 in debt owed to Navarre
into equity, and ValueVision's purchase of 550,000 shares of common stock
for $500,000, both occuring at the closing of this offering. Please see
"Certain Transactions."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT REFLECT OUR PLANS, ESTIMATES
AND BELIEFS. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS INCLUDING, BUT
NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We are a leading broadcaster of originally programmed audio entertainment
over the Internet. During the period from our inception through December 31,
1998, we had insignificant revenues and were primarily engaged in developing
infrastructure, assembling our management team and establishing our audio
channels. Our initial business model consisted of distributing coupons and other
promotional material on behalf of third parties. Substantially all of our
revenues prior to 1998 were derived from these activities. In January 1998, we
decided to add e-commerce to our operations and to discontinue distribution
activities.
Our current revenues are generated from sales of compact discs through our
online store, CDPoint, and from Internet advertising. Our Internet advertising
revenues consist of banner advertisements placed on our Web site, special
promotional advertisements and audio advertisements.
We recognize banner advertising revenues over the period in which the
advertisement is displayed on our Web site. We derive promotional advertising
revenues from product or artist related promotions which are recognized over the
term of the promotion. We derive audio advertising revenues from the sale of
advertising spots, which are recognized when the audio advertisement is
broadcast.
In May 1996, Navarre acquired fifty percent of the stock of our predecessor,
Net Radio Nevada. On March 21, 1997, Navarre acquired the remaining fifty
percent. This acquisition was accounted for as a purchase. As a result, the
accumulated deficit of Net Radio Nevada as of March 21, 1997 was eliminated and
goodwill of approximately $1.3 million was recognized by Navarre at the time of
the acquisition. The goodwill has been "pushed down" to NetRadio for financial
reporting purposes. As a result, our financial statements for the periods prior
to March 21, 1997 are reflected as predecessor financial statements and the
accumulated deficit at December 31, 1998 only reflects losses incurred since
March 21, 1997. We have incurred significant losses since our inception. The
accumulated deficit of approximately $5.9 million reflects the operating results
during the period from March 21, 1997 to December 31, 1998. In addition, we had
incurred an accumulated deficit of approximately $3.1 million prior to that
date.
In the following "Results of Operations" section, we have combined the two
separate periods in 1997 to make the year-to-year comparison easier.
We believe that our success will depend largely on our ability to program
and broadcast original audio content to attract and retain listeners and to
generate commerce and advertising revenues. Accordingly, we intend to invest
heavily to develop and maintain content, network infrastructure and to expand
e-commerce. We expect to continue to incur substantial operating losses for the
foreseeable future.
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenues and
operating results, including gross profit margin and operating expenses as a
percentage of total net revenues, are not necessarily meaningful and should not
be relied upon as indications of future performance.
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<PAGE>
RESULTS OF OPERATION FOR FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NET REVENUES
Net Revenues decreased to $255,062 in 1998, from $330,921 in 1997 and
$320,661 in 1996, and consisted of product sales, Internet advertising revenues
and miscellaneous revenues.
PRODUCT SALES. Product sales in 1998 consisted of $49,639 of sales of audio
merchandise, including shipping and handling costs, compared with no sales in
1997 and 1996. We began selling audio merchandise in June 1998 when we opened
our online store, CDPoint, which became fully operational in November 1998.
INTERNET ADVERTISING. Internet advertising revenues in 1998 were $205,423,
compared to no Internet advertising revenues in 1997 and 1996. The 1998 Internet
advertising revenues reflect audio and banner advertising sales as well as
promotional advertising revenues.
MISCELLANEOUS REVENUES. We had no miscellaneous revenues in 1998, compared
to $330,921 in 1997 and $320,661 in 1996. Miscellaneous revenues consisted
primarily of payments from third parties for distribution of coupons and other
promotional material. We do not expect future miscellaneous revenues to be
significant.
COST OF REVENUES
Cost of revenues increased to $64,825 in 1998, from $16,989 in 1997, and no
cost of revenues in 1996. Cost of revenues include the cost of compact discs
that we sell including fulfillment costs through third party vendors who ship
directly to our customers, and include costs incurred in connection with the
development of specific advertising or promotional campaigns. The increase in
cost of revenues from 1997 to 1998 was due primarily to the opening of our
online music store. The increase in cost of revenues from 1996 to 1997 was due
primarily to costs associated with the preparation of specific promotional
campaigns.
OPERATING EXPENSES
OPERATIONS AND TECHNICAL SUPPORT. Operations and technical support expenses
were $685,767 in 1998, and consisted primarily of data communications expenses,
personnel expenses associated with broadcasting, software and content license
fees, operating supplies and overhead. We incurred operations and technical
support expenses of $672,061 in 1997, reflecting the cost of outside consulting
services for Web site development. We incurred no operations and technical
support expenses in 1996. We expect operations and technical support expenses to
increase as we further develop our Web site.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel expenses associated with Internet advertising and the marketing of our
Web site. Sales and marketing expenses increased to $670,885 in 1998 from
$213,784 in 1997 and $426,884 in 1996. The increase in sales and marketing
expenses in 1998 compared to 1997 was due to growth in our sales force and
marketing staff and increased advertising expenses. The decrease in sales and
marketing expenses in 1997 compared to 1996 was primarily due to the scaling
back of our marketing efforts during 1997, while we reviewed our business
strategy.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of administrative personnel expenses, professional fees, depreciation
and amortization, and expenditures for facility costs. General and
administrative expenses were $2,724,878 in 1998, $2,119,567 in 1997 and
$2,154,455 in 1996. Goodwill amortization recognized from Navarre's acquisition
of Net Radio Nevada, amounted to $421,000 in 1998 and $316,000 in 1997. The
increase in general and administrative expenses in 1998 compared to 1997
reflects the costs associated with developing our business strategy, acquiring
personnel and building infrastructure. The decrease in general and
administrative expenses in
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<PAGE>
1997 compared to 1996 reflects a re-deployment of our resources to the
development of our Web site operations.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through private sales
of equity securities and advances from Navarre.
Net cash used in operating activities was $2,710,408 in 1998, $2,125,876 in
1997 and $1,289,352 in 1996. Net cash used in operating activities for all three
years was primarily composed of our net losses, offset in part by depreciation
and amortization.
Net cash used in investing activities was $906,249 in 1998, $11,403 in 1997
and $329,831 in 1996. Net cash used in investing activities in these periods was
primarily related to purchases of property and equipment.
We generated net cash from financing activities of $3,663,160 in 1998,
$2,049,616 in 1997 and $1,644,629 in 1996. Net cash from financing activities in
1998 was primarily generated from $4,022,529 in advances from Navarre while net
cash from financing activities in 1997 was generated from a $1,000,000 purchase
of equity securities by ValueVision and $1,212,311 in advances from Navarre. Net
cash from financing activities in 1996 resulted primarily from a $1,500,000
purchase of equity securities by Navarre.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next 18
months. In connection with this offering, we will convert $5,234,840 in debt
owed to Navarre into equity and ValueVision has agreed to purchase 550,000
additional shares of our common stock for $500,000, both occurring at the
closing of this offering. We may need to raise additional funds through public
or private financings, or other arrangements. There can be no assurance that
such additional financings, if needed, will be available on terms attractive to
us, if at all. Our failure to raise capital when needed could have a material
adverse effect on our business, results of operations and financial condition.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current shareholders would be reduced.
Furthermore, these equity securities might have rights, preferences or
privileges senior to those of our common stock.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1998, we had available net operating loss carryforwards
totaling approximately $5,000,000 which expire beginning in 2011. Please see
Note 7 of Notes to the Financial Statements included elsewhere herein. The Tax
Reform Act of 1986 imposes limitations on the use of net operating loss
carryforwards if certain stock ownership changes have occurred or could occur in
the future.
YEAR 2000 COMPLIANCE
STATE OF READINESS. Our information technology ("IT") systems (servers,
encoders, routers, etc.) and non-IT systems (desktop computers, printers, etc.)
consist of software developed either in-house or purchased from third parties,
and hardware purchased from vendors. Our systems and other business resources
rely upon IT systems and non-IT systems provided by service providers and,
therefore, may be vulnerable to those service providers' failure to remedy their
own presently unknown Year 2000 issues. Such service providers include those for
our network elements and e-mail services and the landlord for our leased office
spaces. We have contacted our principal vendors of hardware and software, who
have notified us that the hardware and software that they have supplied to us is
either presently Year 2000 compliant or will be compliant before the Year 2000.
However, we may nonetheless
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be affected by presently unknown Year 2000 issues related to non-compliant IT
systems or non-IT systems operated by us or by third parties. We currently have
underway a substantial assessment of our internal and external (third-party) IT
systems and non-IT systems. At this point in our assessment, we are not aware of
any Year 2000 problems relating to systems operated by us or by third parties
that would have a material adverse effect on our business, results of
operations, or financial conditions, without taking into account our efforts to
avoid such problems.
COST. Based on our assessment to date, we do not anticipate that costs
associated with remediating our non-compliant IT systems and non-IT systems will
be material.
RISKS. To the extent that our Year 2000 assessment is finalized without
identifying any additional material non-compliant IT systems operated by us or
third parties, the most reasonably likely worst case Year 2000 scenario is a
systems failure beyond our control, such as a prolonged telecommunications or
electrical failure. Such a failure could prevent us from operating our business
or prevent users from accessing our Web site. We believe that the primary
business risks, in the event of such failure, would include, but not be limited
to, lost advertising revenue, increased operating costs, loss of customers or
persons accessing our Web site, or other business interruption of a material
nature, as well as claims of mismanagement, misrepresentation, or breach of
contract.
CONTINGENCY PLAN. As discussed above, we are engaged in an ongoing Year
2000 assessment. We plan to conduct a full-scale Year 2000 simulation of our IT
systems. The results of this simulation and assessment will be taken into
account in determining the nature and extent of any contingency plans.
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OUR BUSINESS
OVERVIEW
NETRADIO
We are a leading broadcaster of originally programmed audio entertainment
over the Internet. Nielsen/I-pro, an independent consultant which monitors
Internet traffic, has estimated that over 880,000 unique visitors listened to
our 120 music and news channels in December 1998. Nielsen/I-pro has also
estimated that, during December 1998, the average time a visitor spent listening
to any of our channels was approximately 21 minutes. We believe that attracting
users through audio entertainment creates a "sticky" Web site by extending the
time visitors spend on our Web site.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET. International Data Corporation ("IDC"), an
independent Internet market research firm, expects the number of Internet users
to grow 36% per year from approximately 69 million worldwide in 1997 to 320
million by the end of 2002. In 1997, 78 million devices were used to access the
Internet. By the year 2002, IDC estimates that the number of Internet devices is
expected to increase to more than 515 million, a compound annual growth rate of
46%. A number of factors are expected to fuel the growth of the Internet,
including (1) the increasing number of computers installed in homes and offices,
(2) the decreasing cost of computers, (3) lower cost and more efficient Internet
access, (4) improving network infrastructure, (5) expanding Internet content,
and (6) increasing familiarity with and acceptance of the Internet as a resource
for businesses and consumers.
The vast amount of data available on the Internet requires users to find an
effective way to conduct efficient and organized searches for desired
information. The desire of many users to communicate and interact with others
having similar tastes and interests has spurred the growth of virtual Internet
communities. Communities serve an important function because they create a
virtual "town square" where users can meet and exchange ideas. Communities also
play a key role in the development of online commerce by providing advertisers
and businesses with a means to identify and target groups of users characterized
by distinguishing traits. Through its universal appeal, music entertains,
creates communities of people who have similar interests, and promotes sales of
music and other products.
GROWTH OF ELECTRONIC COMMERCE. The Internet has begun to transform much of
the economics of commerce by substituting electronic sales from a single
location for the large infrastructure of traditional retailers, including
management and sales staffs, numerous physical locations and relatively large
inventories. The Internet has the potential to replace certain categories of
retail stores and distribution methods by linking consumers directly to
wholesale distribution channels that provide complete selection, convenience and
competitive pricing. Online retailers typically offer products and services that
can be described, sampled and shipped easily and do not require the consumer's
physical presence. These products and services include compact discs, books,
video cassettes and computer software. The Internet offers the opportunity for a
retailer with a single location or Web site to inexpensively develop one-to-one
relationships with customers worldwide.
Forrester Research estimates that United States Internet sales to consumers
will increase at a compound annual growth rate of 69%, from an estimated $7.8
billion in 1998 to approximately $108 billion by 2003. Forrester Research also
predicts that by 2003, Internet sales will account for 6% of the estimated $1.8
trillion in annual United States consumer retail spending.
THE INTERNET AS A BROADCAST, AUDIO STREAMING MEDIUM. The Internet has
quickly evolved from a relatively simple mechanism for the delivery of
text-based Web pages and electronic mail to a multimedia platform, providing an
interactive world of information, entertainment and commerce. The resulting
convergence of every-day computer applications with communication, entertainment
and
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commerce platforms permits the Internet to deliver content such as music,
sports, games, hobbies and shopping opportunities. The development of streaming
audio media, a new technology that permits the simultaneous transmission and
playback of digitized audio and video streams, allows the Internet to broadcast
music, information, advertising and other content to hundreds of thousands of
simultaneous listeners worldwide.
The broadcast of streaming audio combines the Internet's interactivity with
traditional, more passive radio listening. Musical broadcasts can serve as a
unifying vehicle, drawing Internet listeners into communities of similar musical
tastes and allowing them to interact with one another. Communities segregated by
specific musical tastes or interests provide Internet businesses with a target
for direct marketing and advertising programs. According to a study performed in
January 1999 by The Arbitron Company, 27% of Internet users have listened to
Internet radio.
The development of the Internet as a broadcast medium suggests a comparison
to traditional radio. The following chart illustrates some of the differences,
in our view, between traditional radio broadcasting and Internet audio
broadcasting:
<TABLE>
<CAPTION>
TRADITIONAL RADIO BROADCASTING INTERNET AUDIO BROADCASTING
------------------------------------ ------------------------------------
- Generally limited by - Generally limited only by
DISTRIBUTION geographic region availability of Internet
AREA service
<S> <C> <C>
- Typically broadcasts to - Flexibility to reach wide or
AUDIENCE general audience narrow audiences
- Advertisers commonly target - Advertisers target immediate
future purchases purchases
PROGRAMMING - Programs typically designed - Programmed often for multiple,
CONTENT for broad audience appeal niche markets
- Programmed to single, licensed - Programmed to multiple,
frequency simultaneous channels
LISTENER - Estimates generally based on - More accurate measurement
TRAFFIC cross section sampling using server log files
MEASUREMENT
- Generally limited to estimates - Current audience measurements
of past listeners - Server logs record additional
listener information
- Audio Advertisements are aired - Links audio and banner
LISTENER between songs advertising with other Web
INTERACTIVITY sites
- Advertised products purchased - Advertisements presented in
elsewhere audio, graphic and text
formats
- Listeners interact via - Users can purchase products
telephone, facsimile or in simultaneously, online
person
- Listeners can interact via
e-mail and chat rooms
</TABLE>
DISTRIBUTION AREA. Traditional radio stations broadcast to listeners within
a defined geographical area. Atmospheric conditions and physical barriers can
interfere with radio transmissions. By contrast, Internet broadcasters transmit
music and information using audio streaming technology, which has certain
inherent advantages over traditional radio broadcasts, such as permitting the
continuous transmission of music to a virtually unlimited geographic region.
Because audio streams are transmitted in digitized form over telephone lines,
they are unaffected by atmospheric or structural barriers. They may, however, be
limited by Internet congestion and other factors unique to Internet traffic,
such as a user's or broadcaster's computer hardware or software, and, therefore,
Internet audio quality is
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<PAGE>
currently not as clear as traditional broadcast radio. However, as bandwidth
increases, Internet audio quality is expected to improve and become comparable
to, or even better than, the quality of traditional broadcast radio.
AUDIENCE MARKETS. Traditional broadcast radio generally targets advertising
at peak listener traffic. For example, "drive time" audiences, listeners who
tune-in to a particular station while driving to or from work, represent a large
captive audience and therefore a potentially lucrative market for traditional
radio advertisers. This specific peak market, however, occurs only during
commuting hours. Traditional radio broadcasts generally must appeal to a broad
spectrum of listeners to capture the widest possible market for its advertising.
Internet audio streaming, by contrast, can be delivered to a large number of
computer users who can listen to music from the broadcaster's Internet site
while working on other applications. Advertisers who buy time or space on
Internet audio broadcasts can typically expect a more targeted audience with the
potential for immediate, impulse purchases.
PROGRAMMING CONTENT. Traditional radio stations generally program for broad
audience appeal by providing content for the entire spectrum of their audience.
For instance, a traditional radio station that broadcasts jazz may be the only
commercially viable jazz station in a given geographic market. Consequently, the
station must design its programming from a number of different jazz styles to
broadly capture jazz listeners in such a market. Traditional radio stations must
consider broad audience appeal in their programming of music genre, news, talk,
ethnic or religious content. Internet broadcasters, by contrast, can globally
transmit a wide variety of specially designed programming at relatively low cost
while targeting specific markets of listeners to enhance sales. An Internet
broadcaster can deliver multiple channels of music and information programmed to
specific markets, and can therefore design programming to maximize revenue
opportunities for its advertisers. The number of transmitted audio streams is
limited only by available bandwidth.
LISTENER TRAFFIC MEASUREMENT. Most traditional broadcast radio stations
rely upon reports from companies, such as The Arbitron Company, that use
statistical sampling methods to determine the size and demographic profile of
the station's audience. These companies periodically capture information
regarding listening habits from a cross-section of the market and then estimate
the popularity of competing radio stations in the market. Web site audience
traffic measurements, by contrast, are not limited to statistical sampling and
can provide a more reliable measurement of listener traffic. Web sites or
servers communicate and respond to incoming requests from Internet users. These
servers can record listener and audience information on server log files and
provide current and exact measurements of the number of listeners and the length
of time listeners spend on a Web site.
LISTENER INTERACTIVITY. Traditional broadcast radio typically contains a
significant amount of advertising messages or commercials, often up to 12
minutes per hour. These commercials are designed to have the listener act on the
commercial impulse at a future time, possibly several days later. For example, a
commercial message for a soft drink product is typically acted upon during the
next trip to the super market. Similarly, the desire to buy a compact disc
triggered by listening to a song on the radio requires not only a trip to the
music store, but requires the listener to remember the compact disc or artist
information.
By contrast, Internet audio broadcasting offers listeners the ability to
react immediately to an audio advertisement by clicking on the graphics link
displayed while the audio advertisement is being played. This link can connect
the listener either to additional product information or directly to a purchase
option for the product itself. By displaying information about the song and
artist that is linked directly to a purchase option, the listener can react
immediately to a buying impulse for the actual compact disc.
OUR CHALLENGE
We believe that there are several challenges to achieving success as an
Internet broadcaster and retailer. To be successful, an Internet broadcaster
must target an audience, develop compelling content,
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<PAGE>
scale broadcasts from small to large audiences, deploy new transmission and
streaming technologies, provide multimedia advertisements and attract and retain
listeners. Broadcasters must also serve a large number of simultaneous users
around the clock, which requires complex network elements, extensive bandwidth,
streaming licenses, equipment and technical expertise. To be successful as a
retailer, the Internet broadcaster must integrate and use its content to convert
its listeners into revenue-generating opportunities. The online retailer must
provide online stores that feature broad selections of products and services,
and provide a high degree of customer service at competitive prices to compete
with Internet and non-Internet retailers.
OUR SOLUTION
Our solution is to provide entertaining audio content to attract and retain
large numbers of visitors that generate revenue through commerce and
advertising. The key elements of our strategy are:
PROGRAM AND BROADCAST AUDIO CONTENT TO ATTRACT AND RETAIN LISTENERS. An
important element of our strategy is to attract and retain listeners by offering
a wide variety of entertaining audio content. We have created over 100 distinct
musical channels and 22 information channels. Each channel is devoted to a
narrow format of music within a broader musical genre, such as jazz or classic
rock & roll. Within the jazz genre, for example, we have created 15 music
channels, each dedicated to a different type of jazz music. The jazz music
channels include Blues, Cafe Jazz, Quiet Storm, Jazz Rock, Smooth Jazz, Classic
Crooners, New Blues, Lounge, Horns, Big Band, Acid Jazz, Divas, Swing, Rockin'
Blues and Zydeco.
To program content, we have assembled a team of award-winning radio
professionals with considerable experience in radio programming. This team has
developed a significant inventory of songs from which they program our audio
channels. We believe that our programmed music and rotations: (1) attract and
retain a wide audience, (2) lengthen the time listeners spend listening, and (3)
increase product sales opportunities.
BUILD VISITOR TRAFFIC COST-EFFECTIVELY. Another element of our strategy is
to build Web site traffic. To do this, we focus on: (1) providing listeners with
entertaining and highly targeted audio content which we believe will encourage
repeat visits and (2) undertaking low-cost marketing campaigns. Additionally,
several of our channels are pre-sets on RealNetwork's audio player, which
significantly enhances our presence on the Internet, and increases the traffic
to our Web site.
We also build traffic through our affiliate program. In exchange for a
nominal fee, Web site operators contractually agree to display banners on their
Web sites that permit a visitor to click through to NetRadio. Since May 1997,
over 17,000 Web sites have joined our program.
CREATE STRONG COMMUNITIES OF SIMILAR INTERESTS TO ESTABLISH BRAND
LOYALTY. A vital component of our strategy is to establish strong brand loyalty
by creating listener communities through niche programming. We believe that
creating a community enhances a listener's Internet experience and extends the
length of time spent on our Web site. Our programming is divided by music genre
into 14 communities of similar interests ("COSIs"):
<TABLE>
<S> <C>
BroadbandPoint KidzRadio
Cafe Jazz Modern Rock
Christian Hits New Age
Classical News and Information
Country Pop Hits
Dance/Urban Vintage Rock
Electronica World Music
</TABLE>
Each COSI targets a wide audience with similar musical preferences. Within
each COSI we generally have between 7 and 20 music and information channels. For
example, the channels in the
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Country COSI comprise a community within NetRadio's audience that reflects
country music tastes and demographics. Our retail site and promotions are
designed to respond to these tastes and are fully integrated into each COSI. We
believe that communities play a key role in the development of online commerce
by providing advertisers and businesses with a means to identify and target
groups of users characterized by similar tastes. As we build communities of
listeners through COSIs, we are constantly developing and promoting the NetRadio
brand name.
PROGRAM CONTENT TO GENERATE COMMERCE AND ADVERTISING REVENUES. In addition
to broadcasting entertaining music and information, we program content to
generate revenues from commerce and advertising. We accomplish this through a
marketing strategy we call content enabled commerce or "C-Commerce." This
approach uses music and advertising messages to direct and link listeners to our
online retail store, CDPoint. C-Commerce encourages impulse purchases by
motivating and enabling listeners to simultaneously acquire the music being
played or promoted. We apply a similar concept to advertisers by directing and
linking listeners to advertisers' Web sites through audio and text messages.
These messages permit our listeners to link immediately to the Web site where
the product or service being advertised can be purchased.
Our comprehensive interactive display, NetCompanion, links our content with
revenue-generating opportunities. NetCompanion appears on a listener's computer
screen and displays song title information, graphic and text-based advertising
and includes links to our COSIs and CDPoint. While listening to music through
NetCompanion a visitor may:
- change music channels;
- purchase the music that NetRadio is playing or promoting, or purchase
another title;
- browse CDPoint for music or information; or
- read an advertiser's banner and click through to an advertised Web site.
Another significant aspect of our C-Commerce strategy is to
cross-merchandise products, music and artists. For example, while an artist's
song is playing, we may advertise books, apparel, videos, or other
entertainment-related products connected to that artist or title.
BUILD STRATEGIC ALLIANCES. We will continue to capitalize on our
relationships with record labels, Internet traffic and technology companies and
fulfillment partners, including:
- RECORD LABELS. Record labels partner with us for artist and title
promotions. These promotions allow the labels to specifically promote
individual artists in a targeted environment.
- INTERNET TRAFFIC AND TECHNOLOGY COMPANIES. We have an agreement with
RealNetworks, who licenses the use of its software to play our audio
streams, and whose audio player includes presets to several of our
channels. We also have agreements with leading cable ISPs such as @Home
and MediaOne, who carry our programing. We also have an agreement with
Packard Bell/NEC, whose computers come equipped with a link to our Web
site.
- FULFILLMENT PARTNERS. We have product fulfillment agreements with Navarre
and Valley Media, both major distributors of music, software and DVD
products.
We believe that these strategic alliances have helped, and will continue to
help, build content and traffic to our Web site, stimulate product and
advertising revenues and build brand awareness.
MUSIC AND PROGRAMMING
By focusing on our breadth of music and information content, we are seeking
to capture a wide audience across a variety of musical tastes. Our programming
has been developed by a team of experienced, award-winning content and
programming professionals. These music programmers bring specific musical
expertise and an average of more than 17 years of experience to us. Their awards
have included national awards and nominations from Billboard Magazine (Major
Market Country
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<PAGE>
Programmer of the Year--Nominee) and Gavin Magazine (Programmer of the
Year--multiple winner and nominee) as well as Minnesota Music awards (Club DJ of
the Year--Winner). As a result of our programmers' musical expertise, NetRadio
has received the 1998 RealNetwork Streamers Award for "The Best Real Audio
Net-Only Radio" Web site.
Our programming team has experience in traditional radio programming as well
as at club and concert venues. Members of our programming team have served as
music directors of leading "top 40," classic rock, jazz, country and alternative
radio stations in large and small markets throughout the United States. We
believe our expertise in music and radio programming distinguishes us from many
of our competitors.
Our music professionals use the same song rotation software used by
traditional broadcast radio stations to program songs into light, medium and
heavy rotation patterns. This software enables them to include COSI or channel
identifiers and artist endorsements within the channel and to easily insert
advertising messages into the music programming.
COSIS AND CHANNELS. The NetRadio Web site resembles a hub and spoke
configuration. Our home page acts as the "hub" for each of NetRadio's 14 COSIs.
Each COSI, whether music or news, reflects a distinctively branded name, look
and identity. Within a COSI, each music or information channel contains content
that can be targeted to specific audience segments and linked to potential
revenue opportunities. For example, if an artist announces a new world tour,
that information can be presented as a news segment in the appropriate COSI and
linked to products available in CDPoint.
The COSI structure provides a format to communicate with a loyal base of
listeners through:
- SPECIALIZED AUDIO CONTENT. Each COSI contains multiple specialized music
channels. For example, our Vintage Rock COSI includes Reggae, British
Invasion and Guitar Heroes. We believe these narrowly specialized channels
will appeal to our listeners' tastes and will encourage return visits and
brand loyalty.
- TEXT-BASED CONTENT. Each COSI contains text-based information through
which we communicate with our visitors. We offer articles written by music
professionals as well as information on new releases, concert tours,
ticket sales and other music-related products.
- ADVERTISING AND PROMOTIONAL CONTENT. Each COSI displays advertising
banners while channels within that COSI broadcast audio promotion messages
targeted to the COSI's demographics.
- MERCHANDISING CONTENT. Each COSI contains a link to CDPoint where products
specifically tied to the musical taste of the COSI listeners are available
for sale. The assortment of products offered includes compact discs and
audio cassettes tailored to the COSI's demographics.
The number of songs within each channel ranges from 150 to over 1,000. The
breadth of our selection is significant compared to traditional broadcast radio
station play lists that typically include only 40 to 80 songs. The order and
frequency of the music is designed by our programming staff to reflect current
trends in the music business and the tastes of our listeners. We update
information channels daily.
Except for the BroadbandPoint Channel COSI, all channels can be heard using
a 28.8kbps narrow bandwidth modem through a telephone line. The BroadbandPoint
Channel is a special "higher quality" 40kbps stereo audio stream channel
featuring music from NetRadio's most popular music channels, and requires a
high-speed connection.
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NetRadio's channels as of February 26, 1999, grouped by COSI, are listed
below.
BROADBANDPOINT
Includes selections such
as Country, Pop Hits,
Vintage Rock, Modern
Rock, Maestro, Cafe
Jazz, Blues and 60's
Country.
INFORMATION CHANNELS
NetRadio Network
Today
CDPoint Update
CAFE JAZZ & BLUES
MUSIC CHANNELS
Cafe Jazz
Quiet Storm
Blues
New Blues
Smooth Jazz
Classic Crooners
Lounge
Horns
Big Band
Acid Jazz
Jazz Rock
Divas
Swing
Rockin' Blues
Zydeco
INFORMATION CHANNELS
Jazz Notes
NetRadio Network Today
CDPoint Update
CHRISTIAN HITS
MUSIC CHANNELS
CN Hits
Gospel
Adult Contemporary
Praise & Worship
Christian Rock
INFORMATION CHANNELS
NetRadio Network Today
CDPoint Update
CLASSICAL
MUSIC CHANNELS
Maestro
Symphony
Quiet Classics
Opera
Chant
Baroque & Before
Chamber Music
Piano
INFORMATION CHANNELS
Classical Notes
NetRadio Network Today
CDPoint Update
COUNTRY
MUSIC CHANNELS
Route 1 Country
Bluegrass
Alt. Country
60's Country
Country Divas
INFORMATION CHANNELS
Country Music News
NetRadio Network Today
CDPoint Update
DANCE/URBAN
MUSIC CHANNELS
Acid Jazz
Ambient
Bhangra
Mixed Rhythms
Disco Dance
Drum & Bass
Experimental
Electronica
Funk
Hip Hop
House
House Hits
Industrial
Latin
Lounge
Rap
Ska
Techno
Trip Hop
Urban
INFORMATION CHANNELS
NetRadio Network Today
CDPoint Update
ELECTRONICA
MUSIC CHANNELS
Ambient
Bhangra
D J Mix
Drum & Bass
Dub Electric
Electronica
Electronic World
Industrial
Jungle Breaks
Musical Starstreams
New Age
Techno
Tech House
INFORMATION CHANNELS
NetRadio Network Today
CDPoint Update
KIDZRADIO
MUSIC CHANNELS
KidzHits
KidzNews
INFORMATION CHANNEL
NetRadio Network Today
CDPoint Today
MODERN ROCK
MUSIC CHANNELS
The 'X'
Industrial
New Wave
Punk
Ska
INFORMATION CHANNELS
NetRadio Network Today
CDPoint Update
NEW AGE
MUSIC CHANNELS
Acoustic
Ambient
Celtic
Electronic World
Folk
Musical Starstreams
Nature Sounds
New Age
Soundtracks
INFORMATION CHANNELS
NetRadio Network Today
CDPoint Update
NEWS & INFORMATION
NEWS CHANNELS
National News
World News
Infobahn News
Business News
NetRadio Network
KidzNews
National News
This Is True...Really
News
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C-COMMERCE, PRODUCT SALES AND FULFILLMENT
C-Commerce is our term for describing the link between our audio content and
e-commerce, either through our online store or an advertiser's online store. We
believe that our C-Commerce strategy is effective because of the nexus between
playing a song or viewing or listening to an advertising message, and providing
the listener the opportunity to immediately purchase the music, product or
service being promoted. Listeners do not need to be visually connected to
NetRadio's Web pages in order to receive audio content and promotional messages.
Listeners stay connected to audio content for extended periods of time while
NetRadio exposes them to commerce, advertising and promotional messages.
CDPOINT. CDPoint (www.cdpoint.com) is our online music store. CDPoint
currently offers over 225,000 stock keeping units, and includes every title that
we play on our channels. CDPoint's wide selection complements and reflects the
breadth of our channels and the diverse tastes of our audience.
Our objective is to make CDPoint informative and authoritative, allowing
customers to easily learn about, discover and purchase compact discs and other
entertainment-related products. CDPoint is designed to be intuitive and easy to
use. Our goal is to enable the purchasing process to be completed with minimal
customer effort and without interruption of the musical audio stream. We offer a
wide selection and competitive prices as well as a high degree of customer
service by, among other things, providing our customers with numerous e-mail
updates on the status of their orders, and other information about our products
and services. Customers can enter CDPoint through the NetRadio Web site,
NetRadio affiliates' Web sites, a favorite COSI or through NetCompanion.
Once in CDPoint, customers can search for music by artist or title, browse
categories or featured titles, read reviews, participate in promotions, respond
to advertising or check the status of their order. A search engine feature
remains visible on the user's screen and is always available to search for
artists or titles. To purchase music, a listener simply clicks on an item and a
virtual shopping basket displays the desired item and its purchase price.
Customers can add and remove products from their basket prior to completing
their purchase.
We accept Visa and MasterCard for payment. For convenience, we will soon
permit customers to store credit card information on secure servers to avoid the
need to re-input this information when making a repeat purchase. To maintain
security, we rely on recent releases of transaction enabling software. We
automatically confirm each order by e-mail within 24 hours of the order, and
subsequently confirm shipment of each order by e-mail. A customer's credit card
is charged when the product is shipped. We rely upon a third party to process
credit card billing.
SHIPPING, DISTRIBUTION AND FULFILLMENT. We maintain no product inventory.
Rather, the products we sell are owned and held by outside vendors who ship
directly to purchasers. We periodically update CDPoint with inventory
information that we receive from our fulfillment partners. When a customer's
purchases are completed, the order is electronically communicated to one of our
fulfillment partners. Music orders are electronically sent first to Navarre and
then, if not completely available in Navarre's inventory, to Valley Media. The
fulfillment partner ships products for delivery to the purchaser within 5 to 10
business days. UPS or the United States Postal Service handles delivery.
DATABASE DEVELOPMENT AND MAINTENANCE. To more efficiently generate commerce
opportunities, we are building revenues by developing a database reflecting our
customer preferences. We intend to use customer information for internal
purposes only, such as targeted marketing campaigns and other advertising
programs. We disclose to all visitors and consumers that we are collecting this
information. We also disclose our privacy policy.
Our servers record where visitors to our Web site originate, where they go,
what they listen to and what advertising they click upon. From CDPoint, we
accumulate product, order size, shipping destination and customer demographic
information. We use information about visitors and listeners to enhance our
content offerings, advertising strategies, marketing campaigns and our Web site
design and navigation elements. Product and demographic information helps us
conduct one-to-one marketing
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campaigns with customers. In addition, we use this information to project
purchase patterns and to ensure maximum product availability, selection and
shipping efficiencies.
ADVERTISING AND PROMOTION
We use our content to generate advertising revenues. Our advertising
includes banner advertising, audio advertising and promotional advertising. All
three formats are incorporated into the COSIs, which allow advertisements to be
tailored to particular audiences.
BANNER ADVERTISING. Visitors to our Web site are exposed to banner
advertising messages placed on our Web pages. Banner advertising allows a user
to travel immediately to the Web site displayed in the banner. These banners are
sold to advertisers primarily by our sales staff and through a third party
contractor, 24/7 Media, a nationally recognized advertising placement firm.
AUDIO ADVERTISING. We incorporate audio advertisements into our
programming. We believe that audio advertising is well-suited to advertisers
since it reaches listeners who are running multiple applications. Unlike banner
advertising, which requires the viewer to be visually connected to the Web site,
audio advertising allows the listener to hear streamed audio advertising while
he or she is working on other applications. Our innovative advertising format
combines audio advertisements with links to our advertisers' Web sites,
encouraging an immediate consumer response.
TARGETED PROMOTIONAL ADVERTISING. We have developed targeted promotions as
another means to generate revenues. In a targeted promotion, a record label pays
for a certain amount of space and audience exposure within our Web site. For
example, NetRadio might prominently feature a compact disc, artist or song on a
Web page. We believe that these special promotions are attractive to record
labels who are promoting particular artists or compact discs.
Our wide variety of music programming encourages targeted promotions for
niche music. For example, a Celtic record label may have difficulty reaching its
targeted audience due to limited exposure of Celtic music in the programming mix
of most commercial radio stations. NetRadio can offer a dedicated channel for
Celtic music. This has appealed to niche labels who do not want to pay for
traditional advertising in record stores, traditional broadcast radio or other
media.
NEW BUSINESS OPPORTUNITIES
We intend to generate additional revenues by selling other entertainment
products such as DVDs, videos and software. To capture what we believe will be
growing consumer demand for these products, we expect to launch an online retail
store called DVDPoint in mid-1999. We also plan to launch an online video store
called MoviePoint, and an online software store called SoftwarePoint.
STRATEGIC ALLIANCES
We have entered into certain strategic alliances in the areas of content and
programming, Internet traffic and technology and product fulfillment and
distribution.
CONTENT AND PROGRAMMING ALLIANCES. We have alliances with major record
labels and other content providers that help us continue to build and develop
our programming. Some of the record labels that have participated in featured
promotions include: Windham Hill, Arista, RCA, CDM, CMC, Warner Bros, Nonesuch,
Elektra, Atlantic, Rhino, Capitol, Virgin, Blue Note, EMI/Angel, Nettwork, EMD
Distribution, Polygram, Motown, Mercury, A&M, Moonshine, Relativity, MED, AWA,
MCA, Dreamworks, Decca, Interscope, GRP, RLM, Caroline, Beacon, Brentwood, DA
Music, Damian, Durkin Hayes, Forbidden, J Bird, Jellybean, Leviathan, Macola,
Mission, Public Music, Solid Disc, Un-D-Nyable, Unison, V-Wax, Van Richter and
Vesper Alley.
For example, we have worked closely with the American Gramaphone record
label, which records the artist Mannheim Steamroller, a successful performer of
holiday music. We developed custom programming for the Mannheim Steamroller
series of album releases, including a custom channel and a dedicated Web page
for Mannheim Steamroller products.
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INTERNET ALLIANCES. We have entered into traffic and technology alliances
that we expect will continue to attract customers, build brand loyalty, and
improve the quality of our broadcasts, such as:
- RealNetworks. RealNetworks licenses software that allows our listeners to
hear our audio streams. In addition to providing technology, we also
believe that RealNetworks is an important source of traffic to our Web
site. We have several channels as pre-sets on G2, a recent version of
RealNetworks' audio player. RealNetworks operates a popular audio Web site
called the Daily Briefing. We supply 7 information channels to the Daily
Briefing.
- MediaOne. We have created a co-branded Web site with MediaOne, the
broadband services arm of MediaOne Group. MediaOne is a leading provider
of cable modem (broadband), telephone and wireless communications
services. Some of the MediaOne Web sites contain links to NetRadio that
enable MediaOne subscribers to listen to our programming through a higher
quality connection than is normally available through a standard telephone
line.
- @Home Network. We offer two 80kbps channels to @Home Network, a division
of @Home Corporation. @Home provides high-speed, fully-integrated
multimedia Internet and online services using cable television technology.
@Home subscribers have the opportunity to listen to our programming
through a higher quality connection than is normally available through a
standard telephone line.
- Ark Interface II. Since August 1, 1997, we have had an Electronic
Advertising Agreement with Ark Interface II of Seattle, Washington. Ark
Interface II operates a Web site called MySpace Online, formerly known as
Planet Oasis. A radio tower branded "NetRadio" appears on the home page
cityview of MySpace Online. NetRadio also operates a custom,
commerce-enabled audio interface that appears on the MySpace Online Daily
page which provides access to 39 NetRadio music and information channels.
- Packard Bell NEC, Inc. Under the Ark Interface II agreement, all Packard
Bell and NEC Ready brand multimedia personal computers sold in the United
States since July 1998 with Windows 98 operating systems feature an audio
player interface called Net Media Player on the desktop. The Net Media
Player provides access to 35 NetRadio music and information channels.
FULFILLMENT ALLIANCES. We have entered into fulfillment alliances to sell
products and provide a high level of customer service. By integrating multiple
fulfillment sources, we increase product fill rates and enhance customer
service.
- Navarre. In December 1998, we entered into a five year product fulfillment
agreement with Navarre, our majority shareholder, for fulfillment of music
purchases. We look to Navarre first for order fulfillment and delivery. We
currently buy approximately 5-10% of our music products through Navarre.
Purchases through Navarre improve our margins because we pay lower
shipping and handling fees to Navarre than we pay to other product
fulfillment sources. We also pay a lower acquisition cost for purchases of
titles available exclusively through Navarre. Finally, through Navarre we
gain access to artists and independent and national record labels.
- Valley Media. In 1998, we entered into a distribution agreement with
Valley Media to provide an alternative fulfillment source for products
that are not available through Navarre. Valley Media is the leading online
fulfillment source for music and other entertainment software products.
Valley Media has approximately 250,000 stock keeping units in inventory,
and a wide selection of music, videos, DVDs, and music-related
merchandise.
TECHNOLOGY AND NETWORK INFRASTRUCTURE
Audio streaming is the one-way transmission of digitized audio data over the
Internet. The audio data begins in digitized form at the source or Internet
server. Upon transmission, the audio is divided into groups of data delivery
packets that are transmitted over the Internet to the receiving computer of the
listener. The receiving computer buffers the initial portion of the transmitted
audio data before sending it to the speakers. This buffering compensates for
momentary delays in packet delivery. Audio
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streaming technology permits the simultaneous transmission and playback of
continuous streams over the Internet.
Most transmissions over telephone lines occur at a rate of 28.8kbps.
Transmissions also occur at higher speeds using DSL, cable modem and broadband
technologies. Audio clarity can vary with speed of transmission. Audio streaming
differs from traditional radio broadcasting in its ability to be transmitted to
a worldwide audience. Real Networks pioneered the development of audio streaming
technology in 1995. This technology has transformed the Internet from a graphic
and text-based information platform into a multimedia audio/visual platform.
Our Web site is maintained on a UNIX operating system platform. Our audio
content is programmed and housed in an internal computer network. To provide
bandwidth infrastructure, we lease bandwidth from AT&T Corporation. NetRadio's
audio stream is encoded to the Real Audio format on Windows NT servers. These
servers are connected through a routing system provided by Cisco Systems to
multiple 45mbps T3 Internet connections.
We have developed proprietary software, together with commercially available
music scheduling products, to produce a traditional radio-style broadcast with
real-time stream information. Our Internet and database servers run industry
standard server software and are housed in our Minneapolis, Minnesota facility.
All mission critical equipment is supplied with back-up power and monitored for
24 hour operation.
We anticipate that we will stream all content by the end of the first
quarter of 1999 through RealNetwork's recent technology known as G2 (Generation
2). RealNetworks reports that G2 reduces buffering or delays in transmission and
offers more pre-set programming choices than its previous technology.
To listen to NetRadio, a listener must have a computer with a minimum 486-66
processor (Pentium preferred), or 68040 or PowerPC-based Macintosh or Macintosh
clone, an operating system of either Windows 95, 98 or NT or 0/S 7.5.3 or
better, a modem having 28.8kbps or better connection speed, and a soundcard.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
COPYRIGHTS AND TRADEMARKS. The trademarks N NETRADIO NETWORK and Design and
NET.RADIO have been registered with the United States Patent and Trademark
Office. We have filed applications for registration of the trademarks CDPOINT
and NETCOMPANION. We have also applied for a European Community Trademark
registration for N NETRADIO NETWORK and Design. Our success depends in part upon
developing, building and protecting our trademarks, trade secrets and similar
intellectual property. We rely upon trademark and copyright law, trade secret
protection and confidentiality and license agreements with employees, strategic
partners and others to protect proprietary rights. Notwithstanding such
precautions, there can be no assurance that the steps that we have taken or will
take will be adequate to prevent misappropriation, infringement or other
violations of our intellectual property. A third party could, without
authorization, copy or otherwise use our proprietary intellectual property.
There also can be no assurance that the United States intellectual property laws
and our agreements with employees, consultants and others who participate in
developing our proprietary rights will adequately protect such rights, or that
our trade secrets will not otherwise become known or independently developed by
competitors. Moreover, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective copyright, trademark and trade secret protection may not be available
in such jurisdictions, and we have not sought protection for our intellectual
property in every country where our broadcasts may be heard.
We have licensed in the past, and expect to license certain proprietary
rights, such as trademarks or copyrighted material, to third parties. We expect
that the quality of our brand will be maintained and protected by such
licensees. There can be no assurance that such licensees will not take actions
that might materially adversely affect the value of our proprietary rights or
reputation.
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LICENSES TO BROADCAST PRE-RECORDED MUSIC ON THE INTERNET. We believe our
broadcasts of pre-recorded music over the Internet are permitted under the
copyright laws of the United States as long as we have permission from
appropriate authorities and pay appropriate royalties. We have entered into
license agreements with the major performing rights organizations, including the
American Society of Composers, Authors and Publishers, Broadcast Music, Inc. and
the Society of European Stage, Authors and Composers, Inc. These agreements
license us to broadcast music and other copyrighted materials over the Internet
and obligate us to pay royalties in connection with such broadcasts. The amount
of royalties that we must pay, or the terms and conditions of the license
agreements, may change and such changes may be detrimental to us. In addition,
our license agreements with performing rights organizations may not comply with
the copyright laws of jurisdictions outside the United States, and our
broadcasts may violate the copyright laws of such jurisdictions where such
broadcasts may be heard.
We believe our use of third party material on our Web site is permitted
under current provisions of United States copyright law. However, legal rights
to certain aspects of Internet content and commerce are not clearly settled and
our ability to rely upon one or more exemptions or defenses under copyright law
is uncertain. We may be unable to continue to provide rights to information,
including downloadable music samples and artist, title and other information.
The law regarding linking to and framing of third party Web sites without
permission is uncertain. NetRadio believes that its linking and limited framing
activities are lawful, but there is a possibility that we may be required to pay
a license fee or cease linking or framing. If we are required to pay such fees,
or cease linking or framing, it could have a material adverse effect on us.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify and the number of competitors to
increase in the future. Barriers to entry on the Internet are minimal, and
current and new competitors can launch new Web sites at a relatively low cost.
In addition, the broader retail compact disc, software and DVD industries are
intensely competitive. NetRadio currently or potentially competes with a variety
of other companies. These competitors include: (1) online retail vendors of
music, computer software and DVDs, including CDNow, N2K, Amazon.com and
Barnes&Noble.com, (2) streaming media sites such as Broadcast.com and Spinner,
(3) other small online vendors, and (4) publishers and traditional retail
vendors of music and software, including large specialty music stores such as
MusicLand, Tower Records, and Best Buy, that have significant brand awareness,
sales volume and customer bases. Many of these traditional retailers also
support dedicated Web sites that compete directly with NetRadio.
We believe that the principal competitive factors in our online market are
brand name recognition, product quality, variety of value-added services, ease
of use, price, quality of customer service, availability of customer support,
reliability, technical expertise, quality of search tools, quality of site
content and speed of fulfillment. Many current and potential competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we have. In
addition, online retailers may be acquired by, receive investments from or enter
into other commercial relationships with larger, well-established and
well-financed companies as use of the Internet and other online services
increases. Certain competitors may be able to secure merchandise from vendors on
more favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to Internet sites and systems development
than we can.
In selling music and other consumer entertainment media products, we compete
generally with other content providers for the time and attention of users and
for advertising revenues. We also compete for advertising with online services,
other Web site operators and advertising networks, as well as traditional media
such as television, radio and print for a share of advertisers' total
advertising budgets. We must license and provide high quality, sufficiently
compelling and popular audio content,
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along with technology and value-added Internet services, to attract users,
support advertising intended to reach such users and attract businesses seeking
Internet broadcasting and distribution services.
We believe that the principal competitive factors for attracting advertisers
include the number of users accessing our Web site, the demographics of those
users, our ability to deliver focused advertising and interactivity through our
Web site and the overall cost-effectiveness and value of the advertising
offered. There is intense competition for the sale of advertising on
high-traffic Web sites. This has resulted in a wide range of rates quoted by
different vendors for a variety of advertising services and makes it difficult
to project levels of Internet advertising that will be realized generally or by
any specific company. Any competition for advertisers among present and future
Web sites, as well as competition with other traditional media for advertising
placements, could result in significant price competition. We believe that the
number of companies selling Internet-based advertising and the available
inventory of advertising space have recently increased substantially.
Accordingly, we may face increased pricing pressure for the sale of
advertisements.
We also compete for traditional media advertising sales with national radio
networks, as well as local radio stations. Local radio content providers and
national radio networks may have larger and more established sales organizations
than we have. These broadcasters may have greater name recognition and more
established relationships with advertisers and advertising agencies than we
have. They also may be able to undertake more extensive marketing campaigns,
obtain a more attractive inventory of ad spots, adopt more aggressive pricing
policies and devote substantially more resources to selling advertising
inventory.
EMPLOYEES
As of March 1, 1999, we had 34 full-time and 9 part-time employees. We also
employed 8 independent contractors and other temporary employees in connection
with our content, operations and administrative functions. None of our employees
are represented by a labor union and we consider our employee relations to be
good. Competition for qualified personnel in our industry is intense,
particularly among software development and other technical staff. We believe
that our future success will depend in part upon our continued ability to
attract, hire and retain qualified personnel.
FACILITIES
Our offices are located in one facility in Minneapolis, Minnesota. We lease
approximately 7,000 square feet of office space under three separate leases,
which includes space for our executive offices, technical center and content and
commerce area. Our administrative office lease expires in October 1999, and our
technical center lease expires in October 2000. Our content and commerce area
lease is month-to-month. If we grow as we expect, we may need to acquire more
space. There is no assurance that such space will be available.
LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business, including
claims for breach of contract and for alleged infringement of third-party
copyrights, trademarks and other intellectual property rights. Such claims, even
if not meritorious, could result in the expenditure of significant financial and
managerial resources. We are not aware of any legal proceedings or claims that
we believe will have, individually or in the aggregate, a material adverse
effect on our business, financial condition or results of operations.
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MANAGEMENT
The following table sets forth the name, age as of March 1, 1999 and a brief
account of the business experience of our executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
Edward A. Tomechko............ 50 Chief Executive Officer, Chief Financial Officer
(1) and Director
Eric H. Paulson............... 53 Chairman of the Board
Donavan W. Pederson........... 60 Chief Technology Officer, Secretary and Director
Jan K. Andersen............... 45 Senior Vice President for Global Sales and
Marketing
David R. Witzig............... 42 Vice President of Content and Programming
Nancy R. Kielty............... 42 Vice President of Commerce
James Caparro(2)(3)........... 47 Director
Charles E. Cheney(3).......... 55 Director
Marc H. Kalman(2)(3).......... 54 Director
Gene McCaffery(2)............. 53 Director
</TABLE>
- ------------------------
(1) Michael P. Wise has agreed to become our Chief Financial Officer effective
March 15, 1999.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
EDWARD A. TOMECHKO. Mr. Tomechko has served as our Chief Executive Officer
and a director since January 1999 and our Chief Financial Officer since August
1998. From April 1997 to April 1998, Mr. Tomechko served as Senior Vice
President and Chief Financial Officer of David's Bridal, Inc. From January 1996
to April 1997, Mr. Tomechko was Senior Vice President and Chief Financial
Officer of County Seat, and from 1990 to 1996, Mr. Tomechko served as Vice
President and Treasurer of County Seat. In October 1996, County Seat filed a
voluntary petition for reorganization under Chapter 11 of Title 11 of the United
States Code, in the United States Bankruptcy Court for the District of Delaware.
On October 29, 1997, the Plan of Reorganization was consummated.
ERIC H. PAULSON. Mr. Paulson has served as Chairman of the Board of
NetRadio since May 1996. Mr. Paulson also served as Chief Executive Officer of
NetRadio from April 1997 to January 1999. Mr. Paulson has served as Chairman of
the Board, Chief Executive Officer, and a director of Navarre Corporation since
1983.
DONAVAN W. PEDERSON. Mr. Pederson has served as Chief Technology Officer,
Secretary and a director of NetRadio since September 1997. From April 1994 to
April 1997, he was President of ComNet Research Corporation, a marketer and
integrator of fiber channel networks. From 1986 to 1994, Mr. Pederson served as
President of Donavan International, Inc., an international trade services
company.
JAN K. ANDERSEN. Mr. Andersen has served as Senior Vice President for
Global Sales and Marketing since November 1996. From 1992 to 1996 he was
President and founder of International Resource Group, an international business
consulting and marketing firm.
DAVID R. WITZIG. Mr. Witzig has served as Vice President of Content and
Programming since May 1996. From June 1989 to May 1994, Mr. Witzig was Branch
Manager, Chicago, of EMI Music Distribution, the distribution arm of EMI Music,
Inc. From May 1994 to May 1996, he served as
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Regional Director, Chicago, of EMI Music Distribution. Mr. Witzig has had more
than 17 years' experience in promotion, special accounts and sales capacities
with major record labels including Regional Director for EMI Music Distribution
and National Sales Director of Capitol Records.
NANCY R. KIELTY. Ms. Kielty has served as our Vice President of Commerce
since February 17, 1999. From December 1996 to August 1998, she served as
Divisional Merchandise Manager, Airport Store Division, for Wilsons The Leather
Experts, a Minneapolis retailer of leather outerwear. From January 1992 to
January 1996, Ms. Kielty was a Buyer for Fingerhut Companies, a Minneapolis
direct sales catalog retailer.
JAMES CAPARRO. Mr. Caparro has served as a director of NetRadio since
January 1999. He is Chairman and Chief Executive Officer of Island/Mercury/Def
Jam Music Group, a division of Universal/PolyGram Music Operations. From 1992 to
1998 he served as President and Chief Executive Officer of PolyGram Group
Distribution.
CHARLES E. CHENEY. Mr. Cheney has has served as a director of NetRadio
since May 1996. From March 1997 to September 1998, he also served as NetRadio's
Chief Financial Officer. Mr. Cheney has served as a director and Chief Financial
Officer of Navarre Corporation since 1985.
MARC H. KALMAN. Mr. Kalman has served as a director of NetRadio since
January 1999. Mr. Kalman is affiliated with Chancellor Media, Inc. and since
1992, he has served as Vice President and General Manager for KDWB-FM, KTCZ-FM
and WRQC-FM, three leading FM stations in the Minneapolis/Saint Paul, Minnesota
market. Since 1993, Mr. Kalman also has served as an Executive Board Member of
the Variety Childrens Association Board of Directors and as a director of the
Minnesota Broadcasters Board of Directors.
GENE MCCAFFERY. Mr. McCaffery has served as a director of NetRadio since
November 1998. He is Chief Executive Officer, Chairman of the Board and a
director of ValueVision. Prior to joining ValueVision in 1998, Mr. McCaffery
served as Chief Executive Officer and Managing Partner of Marketing Advocates, a
celebrity-driven product and marketing development company based in Los Angeles.
From 1982 to 1996, Mr. McCaffery was employed in several capacities with
Montgomery Ward & Co., Inc., serving most recently as Senior Executive Vice
President of the Company. From 1994 to 1996, Mr. McCaffery also served as Vice
Chairman of The Signature Group, one of the nation's largest direct marketing
companies. Montgomery Ward filed for Chapter 11 bankruptcy protection in 1997.
Mr. McCaffery also serves as a director of Metal Management, Inc.
BOARD OF DIRECTORS
Each director serves until the next regular meeting of shareholders after
election or appointment and until his or her successor is elected and is
qualified to serve.
ARRANGEMENTS FOR NOMINATION AS DIRECTOR
Under the terms of a March 1997 stock purchase agreement among Navarre,
NetRadio and ValueVision, as long as ValueVision holds any shares of our common
stock, it has the right to elect that number of directors to our Board equal to
the total number of directors of NetRadio multiplied by the percentage of
ValueVision's ownership of the issued and outstanding shares of common stock,
rounded up to the nearest whole number, and in no event less than one director.
Currently, ValueVision has the right to elect one director and Mr. McCaffery
serves in that role. Please see "Certain Transactions."
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Compensation
Committee. Both committees are currently composed entirely of directors who are
not officers or employees of NetRadio.
The Audit Committee generally has responsibility for recommending
independent auditors to the Board of Directors for selection, reviewing the plan
and scope of the annual audit, reviewing our audit and control functions and
reporting to the full Board of Directors regarding these matters. The members of
the Audit Committee are Messrs. Caparro, Cheney and Kalman.
The Compensation Committee generally has responsibility for recommending to
the Board of Directors guidelines and standards relating to the determination of
executive compensation, reviewing executive compensation policies and reporting
to the Board of Directors regarding these matters. The Compensation Committee
also has responsibility for administering our stock option plan, determining the
number of options to be granted to the executive officers and reporting to the
Board of Directors on such matters. The members of the Compensation Committee
are Messrs. Caparro, Kalman and McCaffery.
COMPENSATION OF DIRECTORS
Each non-employee director receives $500 and reimbursement of any expenses
incurred for each board meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Paulson is Chairman, President and Chief Executive Officer, and Mr.
Cheney is Chief Financial Officer of Navarre. Mr. McCaffery, who serves as a
member of the Compensation Committee, is also Chief Executive Officer of
ValueVision. Prior to this offering, after giving effect to the purchase of
550,000 shares of common stock by ValueVision, Navarre owned approximately 77%
of our common stock and ValueVision owned approximately 22% of our common stock.
Following this offering, Navarre will own approximately % and ValueVision will
own approximately % of our common stock, assuming the underwriter's
over-allotment option is not exercised.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
concerning the compensation paid during the fiscal year ended December 31, 1998
to Eric H. Paulson, who served as our Chief Executive Officer from April 24,
1997 to January 10, 1999. No other executive officers received salary and bonus
in excess of $100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- --------------------
OTHER SECURITIES
ANNUAL UNDERLINING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------------------------------- --------- ----------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Eric H. Paulson.................................... 1998 $ 0 $ 0 $ 0 90,000
</TABLE>
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OPTION GRANTS IN 1998
The following table sets forth certain information regarding stock options
granted during 1998 to Mr. Paulson.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE PER EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- --------------------------------- ------------- ------------- --------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eric H. Paulson.................. 90,000(2) 9.8% $ 1.64 5/31/05 $ 60,088 $ 140,031
</TABLE>
- ------------------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. Potential
realizable value is determined by multiplying the fair market value at the
time of grant as determined by our Board of Directors by the stated annual
appreciation rate compounded annually for the term of the option,
subtracting the exercise price or base price per share from the product, and
multiplying the remainder by the number of options granted. Actual gains, if
any, on stock option exercises and common stock holdings are dependent on
the future performance of our common stock and overall stock market
conditions. There can be no assurance that the amounts reflected in this
table will be achieved.
(2) The stock option is exercisable in annual increments of 18,000 shares
beginning in June 1998.
FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding Mr. Paulson's
unexercised stock options as of December 31, 1998. Mr. Paulson did not exercise
any options in 1998.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT
AT DECEMBER 31, 1998 DECEMBER 31, 1998(1)
---------------------- --------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---------------------------------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Eric H. Paulson......................... 18,000 72,000 $ 60,480 $ 241,920
</TABLE>
- ------------------------
(1) Based on the fair market value of our common stock at the end of the fiscal
year minus the exercise price, multiplied by the number of securities
underlying the option.
There were no options exercised in the last fiscal year.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL CONSIDERATIONS
We have entered into employment agreements with Edward A. Tomechko, Donavan
W. Pederson, Jan K. Andersen and David R. Witzig. The term of Mr. Tomechko's
agreement commenced on January 11, 1999 and ends on January 10, 2002. The
agreements between us and Mr. Pederson, Mr. Andersen and Mr. Witzig commenced on
August 1, 1998 and end on July 31, 2000. Mr. Tomechko's annual base salary is
$175,000, subject to an immediate increase to $200,000 upon the closing of this
offering. Mr. Pederson's annual base salary is $120,000, subject to an immediate
increase to $140,000 upon the closing of this offering. Each of Messrs.
Andersen's and Witzig's annual base salary is $100,000, subject to an immediate
increase to $130,000 upon the closing of this offering. Mr. Tomechko will
receive a one-time $20,000 bonus upon the closing of this offering, and Messrs.
Pederson, Andersen and Witzig will each receive a one-time $10,000 bonus upon
the closing of
40
<PAGE>
this offering. The employment agreements further provide that each executive is
eligible to receive an annual performance bonus of up to 60% for Mr. Tomechko,
and 40% for Messrs. Pederson, Andersen and Witzig, of their respective base
salaries, if we achieve certain operating objectives.
In August 1998, Mr. Tomechko received an option to purchase 75,000 shares of
common stock that vests in equal increments over three years beginning in August
1999. In January 1999, Mr. Tomechko received an option to purchase 125,000
shares of common stock that vests in equal increments over three years beginning
in January 2000. If Mr. Tomechko is terminated without cause before these
options are fully vested, these options will become exercisable in full upon
such termination. In June 1998, Mr. Pederson received an option to purchase
100,000 shares of common stock that vests in equal increments over three years
beginning in June 1998. In June 1998, Mr. Pederson also received an option to
purchase 75,000 shares of common stock that vests if we achieve certain
milestones, including the completion of an initial public offering but in any
event in 5 years. In June 1998, Mr. Andersen and Mr. Witzig each received an
option to purchase 75,000 shares of common stock that vests in equal annual
increments over three years beginning in June 1998. In June 1998, Mr. Andersen
and Mr. Witzig also each received an option to purchase 75,000 shares of common
stock that vests if we achieve certain milestones, including the completion of
an initial public offering but in any event in 5 years. If the employment of
Messrs. Pederson, Andersen or Witzig is not renewed at the end of the term of
his employment agreement, except for cause, the terminated executive's option to
purchase 75,000 shares of common stock will be immediately exercisable in full.
In February 1999, Ms. Kielty received an option to purchase 50,000 shares of
common stock that vests in equal increments over three years beginning in
February 2000.
BENEFIT PLANS
THE NETRADIO CORPORATION 1998 STOCK OPTION AND INCENTIVE PLAN. In June
1998, the Board of Directors adopted, and the shareholders approved, the
NetRadio Corporation 1998 Stock Option and Incentive Plan, pursuant to which
officers, employees, consultants, independent contractors and non-employee
directors are eligible to receive options to purchase shares of our common
stock, stock appreciation rights and awards of deferred or restricted stock. A
total of 2,000,000 shares of common stock may be issued under our stock option
plan. The stock option plan is administered by the Board of Directors, or a
committee of at least two directors, and such committee must have at least two
members who are "disinterested directors" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934. The Board of Directors, or the committee,
has the authority to interpret the stock option plan, to determine the eligible
recipients, terms and conditions of awards granted, to prescribe, amend and
rescind the rules and regulations of the stock option plan, to waive any
restriction on any award, and to make all other determinations necessary or
advisable for the administration of the stock option plan. If the Board of
Directors or committee makes an award to an eligible participant, the recipient
must enter into an agreement with NetRadio in such form as the Board of
Directors or the committee determines is consistent with the stock option plan.
Options granted generally must be exercised within three months of the
optionholder's termination of employment. All outstanding options become
immediately exercisable in full upon certain changes in control of NetRadio. In
the event of a change in control, the Board of Directors or the committee may,
in its discretion without consent of the recipient, determine to award cash
equal to the fair market value of some or all of a recipient's options.
41
<PAGE>
As of December 31, 1998, there were options to purchase an aggregate of
939,500 shares of common stock outstanding with exercise prices ranging from
$1.64 to $5.00 per share of common stock.
401(K) PLAN. At the present time, Navarre sponsors a savings and investment
plan (the "401(k) Plan") for our employees, which is intended to be qualified
under Section 401 of the Internal Revenue Code. Participating employees may make
pre-tax contributions, subject to certain limitations, of a percentage of their
total compensation. Navarre may make discretionary matching contributions on
behalf of our employees. We intend to create our own plan that will provide
benefits similar to the 401(k) plan currently administered by Navarre.
LIMITATIONS OF DIRECTORS' LIABILITY AND INDEMNIFICATION
We plan to enter into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our Bylaws. These
agreements, among other things, will indemnify our directors and executive
officers for certain expenses including attorneys' fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of NetRadio arising out of such person's
services as a director or executive officer of NetRadio, a subsidiary of
NetRadio or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements will be
necessary to attract and retain qualified persons as directors and executive
officers.
At the present time, there is no pending litigation or proceeding involving
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
CERTAIN TRANSACTIONS
On May 1, 1996, Navarre purchased fifty percent (50%) of the issued and
outstanding common stock of Net Radio Nevada, our predecessor, for $1,500,000.
In addition, Navarre entered into an option agreement with our then existing
shareholders under which Navarre issued 190,000 shares of its common stock to
such shareholders in exchange for the right to acquire up to an additional
twenty percent (20%) of the outstanding common stock of our predecessor owned by
these shareholders, pursuant to a formula based upon our future earnings.
On March 7, 1997, Navarre and our predecessor entered into an Agreement and
Plan of Reorganization under which Navarre agreed to acquire all of our
predecessor's remaining issued and outstanding common stock, and our predecessor
was merged into a subsidiary of Navarre. In connection with the transaction,
Navarre issued 125,000 shares of its common stock to our predecessor's
shareholders and certain affiliates, and agreed to issue an additional 2,075,000
shares of its common stock, contingent upon us achieving specified levels of
sales and profits in the two years following the merger. We have not achieved
the levels of sales or profits targeted in the agreement with Navarre, and no
additional shares of Navarre common stock have been issued as of the date of
this prospectus. As a result of the two transactions, Navarre acquired ownership
of all of our issued and outstanding shares of common stock and currently owns
5,000,000 shares.
Concurrent with Navarre's March 1997 acquisition of all of our issued and
outstanding common stock, ValueVision agreed to invest $3,000,000 in NetRadio,
consisting of $1,000,000 in cash, and an agreement to provide $2,000,000 worth
of television advertising time, in exchange for 882,500 shares of our common
stock. ValueVision is an integrated electronic and print media direct marketing
company that operates a television home shopping network. ValueVision has a
right of first refusal to distribute any products other than music and software
sold by us.
Under the terms of the stock purchase agreement by and among NetRadio,
ValueVision and Navarre, as long as ValueVision holds any shares of our common
stock, ValueVision has the right to
42
<PAGE>
elect that number of directors to our Board of Directors equal to the total
number of directors multiplied by the percentage of ValueVision's ownership of
the issued and outstanding shares of our common stock, rounded up to the nearest
whole number, and in no event less than one director. At the present time,
ValueVision has the right to elect one director.
ValueVision also has certain preemptive rights which entitle it to purchase
additional shares of our securities to maintain its current percentage ownership
if we issue additional equity securities. ValueVision has agreed to waive its
future preemptive rights, upon the closing of this offering.
ValueVision also has registration rights with respect to its shares of our
common stock, including the right to have 550,000 shares registered for resale
one year from the closing of this offering, and the right to have its remaining
shares registered two years from the closing of this offering. ValueVision also
has the right to have its shares included in other registration statements filed
by NetRadio. ValueVision has agreed to waive any registration rights it may have
in connection with this offering.
In addition, under the terms of the March 1997 stock purchase agreement, if
NetRadio has revenues other than from product sales of at least $3,000,000 in
any rolling consecutive four quarter period, NetRadio has a one-time option for
a 12 month period to require ValueVision to purchase 4.95% of the outstanding
shares of common stock of NetRadio for $500,000. ValueVision similarly has the
right during this period to purchase 4.95% of the outstanding common stock of
NetRadio for $500,000. In connection with this offering, NetRadio and
ValueVision have agreed to terminate this right in exchange for ValueVision's
purchase of 550,000 shares of common stock immediately prior to the closing of
this offering for $500,000.
The following are summaries of agreements that we have entered into with
Navarre. These summaries do not describe or contain every provision of such
agreements. These agreements are exhibits to the Registration Statement of which
this prospectus is a part, and you should review those exhibits if you would
like further information with respect to these agreements.
FULFILLMENT AGREEMENT. In December 1998, we entered into a 5 year
fulfillment agreement with Navarre under which we are required to fulfill our
customer purchase orders for certain products from Navarre before any other
fulfillment source may be utilized. The Fulfillment Agreement governs order
procedures, product returns, shipping procedures, payments and price lists. The
Fulfillment Agreement may be terminated by either party if, among other things,
we discontinue online sales of pre-recorded music or Navarre discontinues
fulfilment services to online customers.
SEPARATION AGREEMENT. In March 1999, NetRadio entered into a Separation
Agreement with Navarre to be effective upon the closing of this offering. Under
the Separation Agreement, Navarre and NetRadio will separate the accounting,
finance, human resources and other administrative functions of NetRadio and
Navarre in the 45-day period following the closing of this offering. NetRadio
has agreed to pay Navarre $7,500 for services provided during the transition
period. In addition, concurrent with the closing of this offering, Navarre will
contribute to the capital of NetRadio $5,234,840 of principal indebtedness owed
by Net Radio to Navarre. Navarre and NetRadio have also agreed that for a period
of 4 years from the date of the closing of this offering, Navarre will not
directly or indirectly engage in the Internet broadcasting of music and
information or online retail sales of entertainment-related products in
substantially the same manner and format as currently conducted by NetRadio.
NetRadio has certain indemnification obligations to Navarre and its affiliates
under the Separation Agreement, including for statements made in connection with
this offering. Except for the contractual obligations set forth in the
Separation Agreement or other intercompany agreements, Navarre and NetRadio have
agreed to discharge all claims they may have against each other existing before
the closing of this offering. In connection with the execution of the Separation
Agreement, NetRadio and Navarre are entering into a Multiple Advance Term Note.
Under the Note, NetRadio is agreeing to repay to Navarre all amounts advanced to
NetRadio beginning January 1, 1999. The Note
43
<PAGE>
bears interest at midwest prime plus one half percentage point. The total amount
of the Note is due on June 1, 2001.
SALES OF RESTRICTED STOCK TO CERTAIN INSIDERS
In September 1998, we sold an aggregate of 40,000 shares of common stock at
a price of $1.64 per share to Donavan W. Pederson, Jan K. Andersen, David R.
Witzig, and Karen W. Paulson, Eric Paulson's spouse.
GRANT OF CERTAIN OPTIONS TO NAVARRE AFFILIATES
In June 1998, we granted the following options to purchase common stock to
certain executives and affiliates of Navarre:
Eric H. Paulson, Chairman and Chief Executive Officer of Navarre and a
director of NetRadio, aggregate options to purchase 90,000 shares of common
stock at $1.64 per share, vesting annually in increments of 18,000 shares,
commencing June 1, 1998;
Charles E. Cheney, Chief Financial Officer and a director of Navarre, and a
director of NetRadio, aggregate options to purchase 60,000 shares of common
stock at $1.64 per share, vesting annually in increments of 12,000 shares,
commencing June 1, 1998; and
James G. Sippl, a director of Navarre and former consultant to NetRadio,
aggregate options to purchase 20,000 shares of common stock at $1.64 per share,
vesting annually in increments of 4,000 shares, commencing June 1, 1998.
44
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of our common stock as of March 1, 1999, as adjusted to reflect
ValueVision's purchase of 550,000 shares of common stock effective as of the
closing of this offering, and as adjusted to reflect the sale of shares of
common stock we are offering, for: (1) each person who owns beneficially 5% or
more of our common stock (2) each of our directors and (3) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
NUMBER OF SHARES OF ------------------------
COMMON STOCK BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING OFFERING(1)
- ---------------------------------------------------------------- ------------------------- ----------- -----------
<S> <C> <C> <C>
Eric H. Paulson (2)(4).......................................... 5,028,000 77.5%
Charles E. Cheney (2)(5)........................................ 5,012,000 77.3
Navarre Corporation (2)......................................... 5,000,000 77.3
ValueVision International, Inc. (3)............................. 1,432,500 22.1
Gene McCaffery (3)(6)........................................... 1,432,500 22.1
Donavan W. Pederson (7)......................................... 68,333 1.0
James Caparro................................................... -- -- --
Marc H. Kalman.................................................. -- -- --
Edward A. Tomechko.............................................. -- -- --
All executive officers and directors as a group (10
persons)(8)................................................... 6,660,833 100%
----------- ----- -----------
</TABLE>
- ------------------------
* Denotes beneficial ownership of less than 1% of our outstanding common
stock.
(1) Assumes the underwriters' over-allotment option is not exercised.
(2) The address of this shareholder is: Navarre Corporation, 7400 49(th) Avenue
North, New Hope, Minnesota 55428.
(3) The address of this shareholder is: ValueVision International, Inc., 6740
Shady Oak Road, Eden Prairie, Minnesota 55344.
(4) Includes 5,000,000 shares of common stock held by Navarre. Mr. Paulson is an
executive officer, director and a shareholder of Navarre. He disclaims
beneficial ownership of the shares held by Navarre except to the extent of
his proportionate interest therein. Also includes 10,000 shares of common
stock owned by Karen W. Paulson, Mr. Paulson's spouse. Also includes options
to purchase 18,000 shares of common stock exercisable within 60 days of
March 1, 1999.
(5) Includes 5,000,000 shares of common stock held by Navarre. Mr. Cheney is an
executive officer, director and a shareholder of Navarre. He disclaims
beneficial ownership of the shares held by Navarre except to the extent of
his proportionate interest therein. Also includes options to purchase 12,000
shares of common stock exercisable within 60 days of March 1, 1999.
(6) Includes 1,432,500 shares of common stock held by ValueVision. Mr. McCaffery
is an executive officer, director and a securityholder of ValueVision. He
disclaims beneficial ownership of the shares held by ValueVision except to
the extent of his proportionate interest therein.
(7) Includes options to purchase 58,333 shares of common stock exercisable
within 60 days of March 1, 1999.
(8) Includes options to purchase 188,333 shares of common stock exercisable
within 60 days of March 1, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of March 1, 1999, our authorized capital stock consisted of 50,000,000
shares of common stock, no par value, of which 5,922,500 shares were issued and
outstanding and held by six shareholders. In addition, ValueVision has agreed to
purchase 550,000 shares of common stock concurrent with the closing of this
offering. All share amounts in this prospectus reflect a 500-for-1 stock split
effective June 1, 1998. Our authorized capital stock also included 10,000,000
shares of preferred stock, no par value, of which no shares were issued and
outstanding as of March 1, 1999.
COMMON STOCK
All holders of shares of our common stock are entitled to one vote per share
on all matters to be voted upon by shareholders. Cumulative voting in the
election of directors is not permitted. Each share of common stock is equal to
all other shares of common stock in all respects. All of our issued and
outstanding shares of common stock are, and the shares to be sold pursuant to
the offering will be when issued, fully paid and nonassessable. The shares of
common stock in the offering have no preeemptive or conversion rights, no
redemption or sinking fund provisions, and are not liable for further call or
assessment. Subject to the rights of holders of any preferred stock that may be
outstanding, each share of common stock is entitled to share in any distribution
of capital assets remaining after payment of liabilities. Subject to the rights
of holders of any preferred stock that may be outstanding, holders of common
stock are entitled to receive dividends when and as declared by our Board of
Directors out of funds legally available therefor. Any such dividends may be
paid in cash, property or additional shares of common stock.
PREFERRED STOCK
Under our Articles of Incorporation, our Board of Directors may issue up to
10,000,000 shares of preferred stock in one or more series with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered, under
governing Minnesota law, our Articles of Incorporation and without further
shareholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights that may adversely affect the voting power or
other rights of the holders of our common stock. In the event of issuance, the
preferred stock could be utilized, under certain circumstances, to discourage,
delay or prevent an acquisition or change in control. We do not currently intend
to issue any shares of preferred stock.
OPTIONS
As of March 1, 1999, we had granted options to purchase 1,202,250 shares of
common stock, at exercise prices that range from $1.64 to $5.00 per share and we
have 797,750 shares of common stock reserved for future option grants. Previous
grants under our stock option plan have been exempt from registration, and
shares issued thereunder are subject to resale restrictions. We intend to file a
registration statement on Form S-8 registering shares to be issued in connection
with current and future option grants.
REGISTRATION RIGHTS
Navarre and ValueVision have certain rights with respect to the registration
of their common stock. Please see "Certain Transactions."
ANTI-TAKEOVER PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control (in excess
of 20%, 33 1/3% or 50%) by an existing
46
<PAGE>
shareholder or other person is approved by a majority of our disinterested
shareholders, the shares acquired above such new percentage level will have no
voting rights. We are required to hold a special shareholders' meeting to vote
on any such acquisition within 55 days after the delivery to us by the acquirer
of an information statement describing, among other things, the acquirer and any
plans of the acquirer to liquidate or dissolve us and copies of definitive
financing agreements for any financing of the acquisition not to be provided by
funds of the acquirer. If any acquirer does not submit an information statement
to us within ten days after acquiring shares representing a new threshold
percentage of voting control, or if the disinterested shareholders vote not to
approve such an acquisition, we may redeem the shares so acquired by the
acquirer at their fair market value. Section 302A.671 generally does not apply
to a cash offer to purchase all shares of voting stock of the issuing
corporation if such offer has been approved by a majority vote of disinterested
board members of the issuing corporation.
Section 302A.673 of the Minnesota Business Corporation Act restricts certain
transactions between us and a shareholder who becomes the beneficial holder of
10% or more of our outstanding voting stock (an "interested shareholder") unless
a majority of our disinterested directors have approved, prior to the date on
which the interested shareholder acquired a 10% interest, either the business
combination transaction suggested by such a shareholder or the acquisition of
shares that made such a shareholder a statutory interested shareholder. If such
prior approval is not obtained, the statute imposes a four-year prohibition on
mergers, sales of substantial assets, loans, substantial issuances of stock and
various other transactions involving NetRadio and the interested shareholder or
its affiliates.
These statutory provisions could have the effect in certain circumstances of
delaying or preventing a change in control of NetRadio.
TRANSFER AGENT AND REGISTRAR
Norwest Bank has been appointed as the transfer agent and registrar for our
common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our shares of
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect prevailing market prices. As described below, for
a period of 180 days after this offering, all shares of common stock other than
shares sold in this offering will be subject to certain contractual restrictions
regarding resale. Sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price and our ability to raise equity capital in the future.
Upon completion of this offering and assuming no exercise of outstanding
options, we will have shares of common stock outstanding. Of this amount,
the shares of common stock offered will be freely tradeable in the public
market without restriction under the Act unless purchased by our "affiliates" as
that term is defined in Rule 144 under the Securities Act.
The remaining 6,472,500 shares of common stock held by existing shareholders
will be "restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered under the Securities Act or if they qualify for
an exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which are summarized below. Sales of the Restricted Shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of our common stock.
The executive officers, directors and current shareholders, who in the
aggregate hold 6,472,500 shares of our common stock, and the holders of all
options to purchase shares of common stock under our stock option plan, have
entered into agreements ("lock-up agreements") agreeing not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to
47
<PAGE>
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock which may be
deemed to be beneficially owned by the shareholder in accordance with the rules
and regulations of the SEC, or enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of any common stock regardless of whether any of these transactions
will be settled by the delivery of common stock, cash or other securities,
without the prior written consent of EVEREN Securities, Inc. As a result of
these contractual restrictions, notwithstanding possible earlier eligibility for
sale under the provisions of Rule 701, shares subject to lock-up agreements will
not be saleable until such agreements expire. However, EVEREN may, in its sole
discretion, and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. Immediately following expiration of
the lock-up agreements, and subject to certain limitations on the volume of
sales, 5,922,500 shares of common stock will be eligible for immediate sale
pursuant to Rules 144 and 701 under the Securities Act. Additionally, following
expiration of the lock-up agreements, up to of the 1,202,250 shares underlying
options outstanding as of March 1, 1999, will be exercisable and eligible for
immediate sale pursuant to Rules 144 and 701, subject to certain limitations on
the volume of sales.
We intend to file a registration statement approximately 180 days after the
closing of this offering on Form S-8 under the Securities Act covering the
shares of common stock reserved for issuance under our stock option plan. Such
registration statement will automatically become effective upon filing.
Accordingly, shares of our common stock registered under such registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market, unless such shares are subject to our
vesting restrictions or the lock-up agreements described above.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are combined under the Rule) who has beneficially owned Restricted
Shares under the Rule for at least the holding period of any prior owner (except
an affiliate) would be entitled to sell within any 3-month period a number of
shares that does not exceed the greater of (1) one percent of the number of
shares of common stock then outstanding (approximately shares
immediately after this offering) or (2) the average weekly trading volume of the
common stock during the 4 calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about us. Under Rule 144(k), a person who is not deemed to
have been an affiliate of us at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least one
year (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom EVEREN and
are acting as representatives (collectively, the "Representatives"), have
severally agreed to purchase from us, and we have agreed to sell to the
Underwriters, the respective number of shares of common stock set forth opposite
each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------------------------------------------------------------- -----------
<S> <C>
EVEREN Securities, Inc.............................................
-----------
Total............................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all shares of
common stock if any are purchased.
The Underwriters propose to offer our shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus, and to certain securities dealers (who may include the Underwriters)
at such price, less a concession not in excess of $ per share of
common stock. The Underwriters may allow, and such selected dealers may reallow,
a concession not in excess of $ per share of common stock to
certain brokers and dealers. After this offering, the price to the public,
concession, allowance and reallowance may be changed by the Representatives. The
Representatives have informed us that the Underwriters do not intend to confirm
sales to any account over which they exercise discretionary authority.
We have granted the Underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to additional
shares of common stock at the initial public offering price solely to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares of common stock in approximately
the same proportions as set forth in the above table.
The offering of the common stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The Underwriters
reserve the right to reject any order for the purchase of common stock.
We have agreed to issue to EVEREN warrants (the "Warrants") to purchase up
to shares of common stock, at an exercise price per share equal to 120% of
the initial public offering price per share of common stock. We have agreed to
grant the Warrants for, among other things, investment banking services rendered
to us prior to this offering. The Warrants are exercisable for a period of 4
49
<PAGE>
years, commencing days from the effective date of the registration
statement of which this prospectus is a part and expire 5 years from the
effective date. The Warrants will not be sold, offered for sale, transferred,
assigned or hypothecated for a period of one year from the effective date other
than to officers, employees or partners of the Underwriters and members of the
selling group and their officers and partners. The holders of the Warrants will
have no voting, dividend or other shareholders' rights until the Warrants are
exercised. We have granted EVEREN certain demand and piggy-back registration
rights related to the Warrants, which are applicable during the period that the
Warrants are exercisable and expire 5 years from the effective date.
Subject to certain exceptions, we have agreed not to issue, and all our
officers, directors and shareholders have agreed not to offer, sell or otherwise
dispose of any shares of our common stock or our other equity securities for a
period of 180 days after the date of this prospectus (other than shares sold
pursuant to this prospectus) without the prior written consent of EVEREN.
We have agreed to indemnify the Underwriters against certain liabilities
under the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price was negotiated between us
and the Representatives. Among the factors considered in such negotiations were:
- prevailing market conditions;
- an assessment of our management;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
which we and the Representatives believe to be comparable to us; and
- estimates of our business potential.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market subsequent
to this offering at or above the initial public offering price. The initial
public offering price should not be considered an indication of the actual value
of our common stock. Such price is subject to change as a result of market
conditions and other factors. We cannot assure you that our common stock can be
resold at or above the initial public offering price.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of our common stock during and after the offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in our common
stock for their own account by selling more shares of common stock than have
been sold to them by us. The Underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market or by
exercising the over-allotment option. In addition, the Underwriters may
stabilize or maintain the price of our common stock by bidding for or purchasing
shares of common stock in the open market and may also engage in passive market
making transactions, including imposing penalty bids, under which selling
concessions allowed to syndicate members of other broker-dealers participating
in this offering are reclaimed if shares of common stock previously distributed
in the offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of our common
stock to the extent that it discourages resales thereof. No representation is
made as to the magnitude or effect of any such stabilization or other
transactions.
50
<PAGE>
Such transactions may be effected on the NASDAQ National Market or otherwise
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of our common stock offered
hereby will be passed upon for us by Lindquist & Vennum P.L.L.P. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1997 and 1998, and for the year ended December 31,
1996, the periods from January 1, 1997 through March 20, 1997 and March 21, 1997
through December 31, 1997 and the year ended December 31, 1998 as set forth in
their report. We've included our financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
Our fiscal year ends on December 31. We intend to furnish our shareholders
annual reports containing audited financial statements and other appropriate
reports. In addition, we intend to become a reporting company and file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any reports, statements or other information we file
at the SEC's Public Reference Room, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the SEC's Regional Offices at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents, upon payment of a duplicating fee, by writing the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
Public Reference Room. Our SEC filings are also available to the public on the
SEC Web site at http://www.sec.gov.
51
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
FINANCIAL STATEMENTS
Year ended December 31, 1996, the Periods from January 1, 1997 through
March 20, 1997 and March 21, 1997 through December 31, 1997 and
the Year ended December 31, 1998
<TABLE>
<S> <C>
CONTENTS
Report of Independent Auditors........................................................ F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statement of Shareholders' Equity..................................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
NETRADIO CORPORATION
We have audited the accompanying balance sheets of NetRadio Corporation as
of December 31, 1997 and 1998, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the year ended December 31,
1998 and for the period from March 21, 1997 through December 31, 1997 and the
statements of operations, shareholders' equity (deficit) and cash flows of the
Predecessor for the period from January 1, 1997 through March 20, 1997 and for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NetRadio Corporation at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the year ended December 31, 1998 and for the period from March 21, 1997
through December 31, 1997 and of the Predecessor for the period from January 1,
1997 through March 20, 1997 and for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
March 1, 1999
F-2
<PAGE>
NETRADIO CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1998
------------ ------------ PRO FORMA
SHAREHOLDERS'
EQUITY (DEFICIT)
AT
DECEMBER 31, 1998
-----------------
(NOTES 3 AND 10)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 4,253 $ 50,756
Accounts receivable, less allowance for doubtful accounts of
$5,000 at December 31, 1997 and 1998........................... 9,084 26,213
Prepaid advertising.............................................. 50,000 952,793
------------ ------------
Total current assets............................................... 63,337 1,029,762
Property and equipment, net........................................ 395,900 881,478
Prepaid advertising................................................ 950,000 --
Note receivable--officer........................................... -- 62,549
Deferred offering costs............................................ -- 239,643
Other assets....................................................... 38,902 --
Goodwill, net...................................................... 947,250 526,250
------------ ------------
Total assets....................................................... $ 2,395,389 $ 2,739,682
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 737,300 $ 1,022,639
Accrued expenses................................................. 60,901 86,649
Current maturities of capital lease obligations.................. 137,550 96,506
Current maturities of notes payable.............................. 57,855 --
------------ ------------
Total current liabilities.......................................... 993,606 1,205,794
Advances from Navarre.............................................. 1,212,311 5,234,840 $ --
Capital lease obligations, less current portion.................... 176,455 128,564 128,564
Commitments and contingencies...................................... -- --
Shareholders' equity (deficit):
Common Stock, no par value:
Authorized shares--20,000,000
Issued and outstanding shares--11,765 and 5,922,500 at December
31, 1997 and 1998, respectively.............................. 2,000,000 2,072,643 7,807,483
-----------------
Accumulated deficit.............................................. (1,986,983) (5,902,159) (5,902,159)
------------ ------------ -----------------
Total shareholders' equity (deficit)............................... 13,017 (3,829,516) $ 1,905,324
------------ ------------ -----------------
------------ ------------ -----------------
Total liabilities and shareholders' equity (deficit)............... $ 2,395,389 $ 2,739,682
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
PERIOD FROM PERIOD FROM
JANUARY 1, MARCH 21,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, MARCH 20, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- ------------ ------------- -------------
Net revenues:
Product sales....................................... $ -- $ -- $ -- $ 49,639
Internet advertising................................ -- -- -- 205,423
Miscellaneous....................................... 320,661 167,950 162,971 --
------------- ------------ ------------- -------------
Total net revenues.................................. 320,661 167,950 162,971 255,062
Cost of revenues...................................... -- -- 16,989 64,825
------------- ------------ ------------- -------------
Gross profit.......................................... 320,661 167,950 145,982 190,237
Operating expenses:
Operations and and technical support................ -- -- 672,061 685,767
Sales and marketing................................. 426,884 53,036 160,748 670,885
General and administrative.......................... 2,154,455 851,688 1,267,879 2,724,878
------------- ------------ ------------- -------------
Total operating expenses............................ 2,581,339 904,724 2,100,688 4,081,530
------------- ------------ ------------- -------------
Loss from operations.................................. (2,260,678) (736,774) (1,954,706) (3,891,293)
Other (income) expense:
Interest............................................ (6,650) 17,694 32,277 23,883
------------- ------------ ------------- -------------
Net loss before taxes................................. (2,254,028) (754,468) (1,986,983) (3,915,176)
Income tax expense.................................... -- -- -- --
------------- ------------ ------------- -------------
Net loss.............................................. $ (2,254,028) $ (754,468) $ (1,986,983) $ (3,915,176)
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Loss per share--basic and diluted..................... $ (.66)
-------------
-------------
Weighted average shares outstanding................... 5,899,167
-------------
-------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN RETAINED SUBSCRIPTION
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE TOTAL
----------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1995........... 1,666,664 $ 16,667 $ 94,333 $ (73,706) $ -- $ 37,294
Stock issued....................... 419,151 4,192 196,058 -- -- 200,250
Stock issued (Navarre)............. 2,085,815 20,858 1,458,946 -- -- 1,479,804
Stock subscriptions issued......... 1,082,430 10,824 647,941 -- (658,765) --
Net loss........................... -- -- -- (2,254,028) -- (2,254,028)
----------- ------------ ----------- ------------- ------------ -------------
Balance, December 31, 1996........... 5,254,060 52,541 2,397,278 (2,327,734) (658,765) (536,680)
Net loss........................... -- -- -- (754,468) -- (754,468)
----------- ------------ ----------- ------------- ------------ -------------
Balance, March 20, 1997.............. 5,254,060 52,541 2,397,278 (3,082,202) (658,765) (1,291,148)
THE COMPANY
Record effect of acquisition by
Navarre.......................... (5,244,060) (52,541) (2,397,278) 3,082,202 658,765 1,291,148
----------- ------------ ----------- ------------- ------------ -------------
Balance, March 21, 1997.............. 10,000 -- -- -- -- --
Stock issued for cash and
advertising rights............... 1,765 2,000,000 -- -- -- 2,000,000
Net loss........................... -- -- -- (1,986,983) -- (1,986,983)
----------- ------------ ----------- ------------- ------------ -------------
Balance, December 31, 1997........... 11,765 2,000,000 -- (1,986,983) -- 13,017
Stock split........................ 5,870,735 -- -- -- -- --
Stock issued....................... 40,000 52,143 -- -- -- 52,143
Stock option compensation.......... -- 20,500 -- -- -- 20,500
Net loss........................... -- -- -- (3,915,176) -- (3,915,176)
----------- ------------ ----------- ------------- ------------ -------------
Balance, December 31, 1998........... 5,922,500 $ 2,072,643 $ -- $ (5,902,159) $ -- $ (3,829,516)
----------- ------------ ----------- ------------- ------------ -------------
----------- ------------ ----------- ------------- ------------ -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
PERIOD FROM PERIOD FROM
JANUARY 1, MARCH 21,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, MARCH 20, DECEMBER 31 DECEMBER 31,
1996 1997 1997 1998
------------- ------------ ------------- -------------
OPERATING ACTIVITIES
Net loss.............................................. $ (2,254,028) $ (754,468) $ (1,986,983) $ (3,915,176)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization....................... 239,105 98,474 648,280 843,103
Stock option compensation........................... -- -- -- 20,500
Changes in operating assets and liabilities:
Accounts receivable............................... (3,500) (22,480) 16,896 (17,129)
Prepaid expenses.................................. 5,795 -- -- 47,207
Accounts payable.................................. 759,338 757,612 (780,100) 285,339
Accrued expenses.................................. 153,429 (97,864) (5,243) 25,748
Other assets...................................... (189,491) -- -- --
------------- ------------ ------------- -------------
Net cash used in operating activities................. (1,289,352) (18,726) (2,107,150) (2,710,408)
INVESTING ACTIVITIES
Notes receivable--officer............................. -- -- -- (62,549)
Purchases of property and equipment................... (329,831) 1,300 (12,703) (843,700)
------------- ------------ ------------- -------------
Net cash provided by (used in) investing activities... (329,831) 1,300 (12,703) (906,249)
FINANCING ACTIVITIES
Proceeds from notes payable........................... -- 36,879 -- --
Payments on notes payable............................. (15,702) -- (68,994) (9,836)
Payments on capital lease obligations................. (19,723) (42,848) (41,977) (162,033)
Deferred offering costs............................... -- -- -- (239,643)
Proceeds from stock issuances......................... 1,680,054 -- 1,000,000 52,143
Mandatory convertible equity.......................... -- (45,755) -- --
Advances from Navarre................................. -- -- 1,212,311 4,022,529
------------- ------------ ------------- -------------
Net cash provided by (used in) financing activities... 1,644,629 (51,724) 2,101,340 3,663,160
------------- ------------ ------------- -------------
Net increase (decrease) in cash and cash
equivalents......................................... 25,446 (69,150) (18,513) 46,503
Cash and cash equivalents at beginning of period...... 66,470 91,916 22,766 4,253
------------- ------------ ------------- -------------
Cash and cash equivalents at end of period............ $ 91,916 $ 22,766 $ 4,253 $ 50,756
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Supplemental cash flow information
Significant noncash investing and financing activity:
Stock issued for advertising rights............... $ -- $ -- $ 1,000,000 $ --
Fixed assets acquired under capital lease......... 405,766 -- -- 25,078
</TABLE>
See accompanying notes.
F-6
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
NetRadio conducts commerce on the Internet by providing a wide range of
music and information to attract visitors to its Web site. After attracting
traffic through its entertaining audio content, the Company leverages that
traffic into revenue from the sale of audio merchandise through its online
store, CDPoint, and Internet advertisements.
The Company's business is characterized by rapid technology change, new
product development and evolving industry standards. Inherent in the Company's
business are various risks and uncertainties, including its limited operating
history, unproven business model and the limited history of commerce on the
Internet. The Company's success may depend in part upon the emergence of the
Internet as a communication medium, prospective product development efforts and
the acceptance of the Company's solutions by the marketplace.
BASIS OF PRESENTATION
NetRadio Corporation, Minnesota ("NetRadio Corporation" or "NetRadio") is a
subsidiary of Navarre Corporation ("Navarre"). NetRadio Corporation, Minnesota
commenced operations on March 21, 1997 upon acquiring the former Net Radio
Corporation, Nevada ("Predecessor"). NetRadio Corporation, Minnesota
individually or collectively with the Predecessor is hereafter referred to as
the "Company."
On March 21, 1997, Navarre, which already held a 50% interest of the
Predecessor, acquired the remaining outstanding shares of the Predecessor by
merging it into NetRadio. In connection with the merger, all outstanding common
stock of the Predecessor was cancelled, leaving Navarre as the owner of all of
the 10,000 outstanding shares of NetRadio. In connection with the acquisition,
Navarre issued 125,000 shares of its common stock to shareholders and affiliates
of the Predecessor and agreed to issue an additional 2,075,000 shares contingent
upon NetRadio achieving specified levels of sales and profits in the two years
following the transaction. NetRadio has not achieved the levels of sales or
profits targeted in the agreement with Navarre and no additional shares have
been issued. The acquisition was accounted for as a purchase. Goodwill of
$1,263,000 recognized at the time of the acquisition by Navarre has been "pushed
down" to NetRadio for financial reporting purposes.
Financial information for the Predecessor at dates and for periods prior to
March 21, 1997 is included at the Predecessor's historical cost basis.
Accordingly, the period from January 1, 1997 to March 20, 1997 and for the year
ended December 31, 1996 are not comparable to the periods after March 20, 1997.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with a maturity of three
months or less when purchased to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.
F-7
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
generally ranging from three to five years. Equipment under capital leases is
stated at the present value of minimum lease payments and is amortized using the
straight-line method over the shorter of the lease term or the estimated useful
lives of the assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates to be
applied to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that the tax change occurs. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
Net Radio Corporation, Nevada, was an electing S corporation through May 1,
1996. As such, the taxable income or loss of the Company was includable in the
individual returns of its shareholders.
During the period March 21, 1997 through March 31, 1998, NetRadio
Corporation, Minnesota was included in the consolidated federal and state income
tax returns of its parent company, Navarre. The tax benefit of net operating
losses of NetRadio Corporation, Minnesota during that period have been retained
by Navarre and no benefit has been shown on NetRadio since it would not have
been able to recognize any benefit on a stand alone basis.
F-8
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company's revenues are derived from the sale of audio merchandise at its
online store and Web site banner and audio advertisements. Product sales,
including shipping and handling, are recognized in the period that the
merchandise is shipped to the customer. Advertising revenues are recognized in
the period in which the advertisement is displayed, provided that no significant
Company obligations remain and collection of the resulting receivable is
probable. Company obligations typically include the guarantee of a minimum
number of "impressions" or times that an advertisement appears in pages viewed
by the users of the Company's online properties.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred through outside contractors consisting
of costs to develop, test and upgrade the Company's Web site and systems are
capitalized and amortized over the estimated useful life of the software,
typically three years.
ADVERTISING EXPENSES
Advertising expenses are capitalized during the production phase of specific
commercials or campaigns and charged to operations at the time the campaign is
initially presented to the audience. Advertising expenses, including the
amortization of prepaid advertising charges, were $104,943, $10,966, $90,785 and
$262,820 in the year ended December 31, 1996, in the period January 1, 1997
through March 20, 1997, in the period March 21, 1997 through December 31, 1997
and in the year ended December 31, 1998, respectively, and are included in sales
and marketing costs in the accompanying statements of operations.
GOODWILL
Goodwill is being amortized on the straight-line method over the estimated
useful life of three years. Accumulated amortization at December 31, 1998 and
1997 was $737,000 and $316,000, respectively. The Company periodically reviews
goodwill for impairment in value.
NET LOSS PER COMMON SHARE
Basic earnings per share excludes any dilutive effects of options, warrants,
and convertible securities, while diluted earnings per share gives effect to
dilutive potential common shares. Net loss per share for fiscal 1998 has been
presented on the face of the statements of operations. Prior year amounts have
not been presented on the statement of operations due to the recapitalization of
the Company in 1997. All earnings per share amounts for all periods have been
presented in this footnote to conform to the Statement No. 128 requirements.
F-9
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except for per share data):
In June 1998, the Board of Directors declared a five hundred-for-one stock
split. All per share, weighted average share, and stock option information has
been adjusted to reflect the five hundred-for-one stock split.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
PERIOD FROM PERIOD FROM
JANUARY 1, MARCH 21,
YEAR ENDED 1997 THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, MARCH 20, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- ------------ ------------- -------------
Numerator:
Net loss............................................ $ (2,254,028) $ (754,468) $ (1,986,983) $ (3,915,176)
Denominator:
Denominator for basic loss per share
weighted-average shares........................... 3,304,254 5,254,060 5,882,500 5,899,167
Dilutive securities:
Employee stock options............................ -- -- -- --
------------- ------------ ------------- -------------
Denominator for diluted loss per share adjusted
weighted-average shares........................... 3,304,254 5,254,060 5,882,500 5,899,167
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Basic loss per share.................................. $ (.68) $ (.14) $ (.34) $ (.66)
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Diluted loss per share................................ $ (.68) $ (.14) $ (.34) $ (.66)
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</TABLE>
2. FINANCIAL CONDITION
Since March 1997, Navarre has provided advances to the Company for working
capital and fixed asset purchases. The Company is currently not generating
operating income or positive cash flows and remains dependent on the continuing
financial support of Navarre. It is Navarre's intention to continue to fund
these cash needs and will not require repayment of the advances in the
foreseeable future until the Company is self-sufficient from funds raised from
an anticipated initial public offering of common stock.
3. RELATED PARTY TRANSACTIONS
ADVERTISING SERVICES
The Company provided advertising services to Navarre. Total services
provided were $312,499, $51,188, $0 and $0, in the year ended December 31, 1996,
in the period January 1, 1997 through March 20, 1997, in the period March 21,
1997 through December 31, 1997, and in the year ended December 31, 1998
respectively.
F-10
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
3. RELATED PARTY TRANSACTIONS (CONTINUED)
FULFILLMENT AGREEMENT
Navarre and NetRadio have entered into a five year fulfillment agreement
(the "Fulfillment Agreement") under which NetRadio will seek to fulfill its
customer purchase orders for certain products from Navarre before any other
fulfillment source. The Fulfillment Agreement governs and describes order
procedures, product returns, shipping procedures, payments and price lists. The
Fulfillment Agreement may be terminated by either party if, among other things,
NetRadio discontinues online sales of pre-recorded music or Navarre discontinues
fulfillment services to online customers.
ADMINISTRATIVE SERVICES
Since March 1997, Navarre has supplied NetRadio with executive services,
certain administrative services such as human resources, marketing accounting,
payroll, legal, and employee benefits for a fee of $5,000 a month. The Company
believes amounts charged are representative of the level of expense that would
have been incurred on a stand alone basis.
MULTIPLE ADVANCE TERM NOTE
In February 1999, the Company executed a Multiple Advance Term Note ("Note")
pursuant to which NetRadio will repay Navarre all advances that Navarre has
provided to NetRadio to meet NetRadio's working capital needs and for NetRadio's
other general corporate purposes. The Note is due and payable June 1, 2001 and
bears interest at the prime rate plus one-half percent.
Upon the closing of an anticipated initial public offering of common stock,
Navarre, as part of its Separation Agreement with the Company, will convert
$5,234,840 of the Note to equity of NetRadio. No additional shares of NetRadio
common stock will be issued.
4. NOTE RECEIVABLE--OFFICER
The note receivable consists of an advance to an officer which is payable on
demand. The note bears interest at 7.75% per annum beginning December 1999.
Interest will accrue through December 2001, the duration of the note.
F-11
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
<S> <C> <C>
1997 1998
----------- ------------
Furniture and fixtures............................................. $ 129,534 $ 129,534
Computer equipment and software.................................... 699,432 1,541,700
Office equipment................................................... 11,503 11,503
----------- ------------
840,469 1,682,737
Accumulated depreciation........................................... (444,569) (801,259)
----------- ------------
$ 395,900 $ 881,478
----------- ------------
----------- ------------
</TABLE>
6. NOTES PAYABLE
The notes payable consist of advances from former shareholders repayable at
$4,561 per month. The notes bear interest at 10% and were due in 1998. The
remaining balance due of $48,050 was forgiven by the shareholders in 1998.
Interest paid was $3,563, $9,875, $29,627 and $23,442 for the year ended
December 31, 1996, for the period January 1, 1997 through March 20, 1997, for
the period March 21, 1997 through December 31, 1997 and for the year ended
December 31, 1998.
7. INCOME TAXES
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $5,000,000. These carryforwards are available to offset future
taxable income, expire beginning 2011, and are subject to the limitations of
Internal Revenue Code Section 382 resulting from changes in ownership.
Components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
1998 1997
------------- -----------
Gross deferred tax assets:
Net operating loss carryforwards................................ $ 1,400,000 $ 500,000
------------- -----------
Valuation allowance............................................. (1,400,000) (500,000)
------------- -----------
$ -- $ --
------------- -----------
------------- -----------
</TABLE>
F-12
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
8. CAPITAL STOCK
THE COMPANY
The Company is authorized by its Articles of Incorporation to issue 20
million shares of common stock, no par value, of which 5,922,500 shares were
outstanding and held of record by six shareholders on December 31, 1998.
Concurrent with Navarre's March 1997 acquisition of NetRadio, ValueVision
International, Inc. ("ValueVision") agreed to an investment in NetRadio,
consisting of $1 million in cash and an agreement to provide $2 million worth of
advertising time on television in exchange for 882,500 shares of NetRadio common
stock. ValueVision is an integrated electronic and print media direct marketing
company and operates a television home shopping network. For financial reporting
purposes, the advertising time was valued at $1 million at the time of the
transaction. Before NetRadio can offer merchandise not distributed by Navarre or
NetRadio prior to March 1997 (music and software), ValueVision has the right to
distribute such merchandise provided that ValueVision offers NetRadio similar
terms as those of another vendor.
ValueVision also had certain preemptive rights which entitled it to purchase
additional shares of NetRadio securities. If NetRadio achieves net revenues
(excluding revenues from product sales) equal to $3 million in any 12 month
period, NetRadio has the right to require ValueVision to purchase for $500,000,
additional shares of common stock equal to 4.95% of NetRadio's outstanding
common stock and ValueVision has a similar right to purchase 4.95% percent of
the outstanding common stock for $500,000. NetRadio and ValueVision have agreed
to cancel these rights in connection with the issuance of 550,000 shares of
NetRadio for $500,000 concurrent with the closing of an initial public offering
by NetRadio.
PREDECESSOR
In May 1996, Net Radio Corporation, Nevada issued 2,085,815 shares of common
stock to Navarre in exchange for $1,000,000 and a $500,000 note receivable
valued at $479,804.
9. STOCK OPTIONS AND GRANTS
All stock option plans prior to the 1998 plan were terminated at the time of
the acquisition by Navarre Corporation in March 1997. No options were granted
during fiscal 1997.
Pursuant to the 1996 and 1997 exercise of warrants and stock options, the
Company issued 1,082,430 shares of common stock to former shareholders under
non-recourse notes. The notes bore interest at 6% and extended for a term of 27
months upon execution of the note agreement. A subscription receivable of
$659,000 related to these shares was recorded at the time the notes were
executed in 1996. The note agreements were amended at the time of Navarre
Corporation's acquisition of the remaining 50% of the Company in March 1997,
whereby a certain pool of Navarre shares will be distributed upon payment of the
notes.
In June 1998, the Board of Directors adopted, and the shareholders approved
the NetRadio Corporation 1998 Stock Option and Incentive Plan (the "1998 Stock
Option Plan") pursuant to which
F-13
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
9. STOCK OPTIONS AND GRANTS (CONTINUED)
officers, employees, consultants, independent contractors and non-employee
directors are eligible to receive options to purchase shares of NetRadio common
stock, stock appreciation rights and awards of deferred or restricted stock. A
total of 1,475,000 shares of common stock may be issued under the 1998 Stock
Option Plan.
Option activity for 1998 is summarized as follows:
<TABLE>
<CAPTION>
PLAN OPTIONS WEIGHTED
AVAILABLE PLAN OPTIONS AVERAGE
FOR GRANT OUTSTANDING EXERCISE PRICE
------------ ------------ ---------------
<S> <C> <C> <C>
Balance on December 31, 1997...................... -- -- --
Shares reserved................................. 1,475,000 -- --
Granted......................................... (939,500) 939,500 $ 2.27
------------ ------------
Balance on December 31, 1998...................... 535,500 939,500 $ 2.27
------------ ------------
------------ ------------
</TABLE>
The weighted average fair value of options granted in 1998 was $1.37. The
exercise price of options outstanding at December 31, 1998 ranged from $1.64 to
$5.00 per share. The number of options exercisable at December 31, 1998 was
117,333 with a weighted average remaining contractual life of 6.5 years.
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of
Statement 123. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for 1998, risk-free interest rate of 4.7%, volatility factor
of the expected market price of the Company's Common Stock of .70 and a weighted
average expected life of the option of five years. The volatility used in the
model was based upon the volatility of other publicly traded companies in
similar industries.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value statement, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
F-14
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996, THE PERIODS FROM JANUARY 1, 1997 THROUGH
MARCH 20, 1997 AND MARCH 21, 1997 THROUGH DECEMBER 31, 1997 AND
THE YEAR ENDED DECEMBER 31, 1998
9. STOCK OPTIONS AND GRANTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
<S> <C>
Pro forma net loss............................................................. $ (4,062,330)
Pro forma basic and diluted loss per share..................................... $ (.69)
</TABLE>
The Company has granted 20,000 options to a non-employee. The fair value on
the date of grant of the option was treated as expense and was $20,500 in 1998.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with four executives. The
term of three of the agreements commenced on August 1, 1998 and ends on July 31,
2000. The term of the fourth agreement commenced on August 31, 1998 and ends on
August 30, 2001. One executive will receive a one-time $20,000 bonus upon
completion of an initial public offering, and three executives will receive a
one-time $10,000 bonus upon completion of an initial public offering. The
employment agreements further provide that each executive is eligible to receive
an annual performance bonus of up to 40 percent of his base salary if the
Company achieves certain operating objectives.
10. COMMITMENTS
The Company is obligated under operating and capital leases for office space
and office equipment. Future annual minimum lease payments under leases in
effect at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- ----------
<S> <C> <C>
1999.................................................................. $ 16,275 $ 120,084
2000.................................................................. -- 84,673
2001.................................................................. -- 58,107
2002.................................................................. -- --
----------- ----------
Total minimum lease payments.......................................... $ 16,275 262,864
-----------
-----------
Less amount representing interest..................................... (37,794)
----------
Present value of minimum capitalized lease payments................... $ 225,070
----------
----------
</TABLE>
Rent expense under the operating leases was $54,717, $32,605, $79,852 and
$134,491 in the year ended December 31, 1996, in the period January 1, 1997
through March 20, 1997, in the period March 21, 1997 through December 31, 1997
and in the year ended December 31, 1998, respectively.
F-15
<PAGE>
[INSIDE BACK COVER]
[Right Page]
[A picture of a radio tower will appear in the background with the lightning
bolt from the logo connecting to a picture of our Web site.]
C-COMMERCE
Content-enabled commerce (C-Commerce) is our online commerce strategy that
encourages impulse purchases by allowing NetRadio listeners to easily and
instantly "listen, click and buy" the music being played or promoted on the
audio channel they are listening to.
[BACK COVER]:
Whatever type of music you enjoy - from classical to country - you'll find it in
one of NetRadio's Communities of Similar Interest (COSIs).
www.netradio.com
[Logo]
[A list of our channels will appear in the background]
<PAGE>
NETRADIO CORPORATION
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by us in connection with the sale of common stock
being registered. All amounts are estimates except the SEC registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC registration fee.............................................................. $ 10,391
NASD filing fee................................................................... $ 4,238
Nasdaq National Market listing fee................................................ $ 66,875
Printing and engraving expenses................................................... *
Legal fees and expenses........................................................... *
Accounting fees and expenses...................................................... *
Blue Sky fees and expenses........................................................ *
Transfer agent and registrar fees................................................. *
Directors and officers insurance.................................................. *
Miscellaneous expenses............................................................ *
-----------
Total......................................................................... $ *
-----------
-----------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Business Corporation Act ("MBCA") provides
that, unless prohibited or limited by a corporation's articles of incorporation
or bylaws, a corporation must indemnify its current and former officers,
directors, employees and agents against reasonable expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement and
which were incurred in connection with actions, suits, or proceedings in which
such persons are parties by reason of the fact that they are or were an officer,
director, employee or agent of the corporation, if they (i) have not been
indemnified by another organization, (ii) acted in good faith, (iii) received no
improper personal benefit, (iv) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful, and (v) reasonably
believed that the conduct was in the best interests of the corporation. Section
302A.521 also permits a corporation to purchase and maintain insurance on behalf
of its officers, directors, employees and agents against any liability which may
be asserted against, or incurred by, such persons in their capacities as
officers, directors, employees and agents against any liability which may be
asserted against, or incurred by, such persons in their capacities as officers,
directors, employees or agents of the corporation, whether or not the
corporation would have been required to indemnify the person against the
liability under the provisions of such section.
Article VI of our Bylaws provides that we may indemnify each person who is
or was a director or officer to the full extent permitted by the MBCA. Article
VI also provides that we may, but we are not required to, indemnify employees
and agents (other than directors and officers) to the full extent and in the
manner permitted by the MBCA.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of us, our directors and executive officers and other persons for
certain liabilities, including liabilities arising under the Securities Act.
II-1
<PAGE>
We plan to enter into indemnification agreements with our directors and
officers to indemnify such persons against certain liabilities, including
liabilities under the securities laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, we have sold the following unregistered securities:
In 1996, our predecessor, Net Radio Corporation, a Nevada corporation, sold
a total of 419,151 shares of common stock to 6 individuals or entities and
received proceeds of $200,250. In 1996 and 1997, NetRadio Nevada also issued
1,082,430 shares of common stock to approximately 34 individuals under
non-recourse promissory notes.
In May 1996, our predecessor, Net Radio Corporation, a Nevada corporation,
sold 2,085,815 shares of common stock to Navarre in exchange for $1,500,000.
In March 1997, (pursuant to the terms of a merger and plan of
reorganization,) we entered into an Agreement and Plan of Reorganization
with Navarre, under which we became a wholly-owned subsidiary of Navarre. In
connection with the merger, we issued 10,000 shares of common stock to
Navarre, and Navarre issued 125,000 shares of its common stock to our former
securityholders.
In March 1997, we sold 1,765 shares of common stock to ValueVision,
International, in exchange for ValueVision's agreement to provide NetRadio
with total consideration of $3,000,000 million, of which $1,000,000 million
was paid in cash, and $2,000,000 million was paid in television
adverstising.
In June 1998, we adopted a plan of recapitalization, such that for every
share of common stock outstanding, each shareholder received 500 shares of
common stock. As a result, after June 1, 1998 Navarre held 5,000,000 shares
of common stock, and ValueVision held 882,500 shares of common stock.
In September 1998, we sold an aggregate of 40,000 shares of common stock for
consideration of $65,600 to three of our officers and the spouse of our
chairman.
Since June 1998, we have granted stock options to 35 employees, consultants
and directors under our stock option plan covering an aggregate of 1,202,250
shares of our common stock at exercise prices ranging from $1.64 to $5.00
per share.
Each of these sales were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, Regulation D,
Section 3(a)(9) or Rule 701 of the Securities Act, as transactions by an issuer
not involving a public offering, transactions involving an exchange of
securities by the issuer with its security holders where no commission or
remuneration is paid or given directly or indirectly for soliciting such
exchange, or transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to, or for sale in connection with, any distribution thereof,
and appropriate legends were affixed to share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
1.1* Underwriting Agreement
3.1 Articles of Incorporation of NetRadio, as amended
3.2 Bylaws of NetRadio, as amended
3.3* Amended and Restated Bylaws of NetRadio, to become effective upon the effective
date of this Offering
4.1* Form of Common Stock Certificate
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
5.1* Opinion of Lindquist & Vennum P.L.L.P.
10.1 Employment Agreement dated as of the 11th day of January 1999 between NetRadio and
Edward A. Tomechko
10.2 Employment Agreement dated as of the 1st day of August 1998 between NetRadio and
Donavan W. Pederson
10.3 Employment Agreement dated as of the 1st day of August 1998 between NetRadio and
Jan K. Andersen
10.4 Employment Agreement dated as of the 1st day of August 1998 between NetRadio and
David R. Witzig
10.5 Termination Agreement dated February 25, 1999 between NetRadio and Nancy R. Kielty
10.6 Agreement and Plan of Reorganization dated March 7, 1997, by and among Net Radio
Nevada, Navarre and NetRadio (incorporated by reference to Exhibit 10.14 to the
Form 10-K of Navarre for the fiscal year ended March 31, 1997, as filed with the
Commission on June 30, 1997 (the "Navarre 1997 Form 10- K"))
10.7 Stock Purchase Agreement dated as of March 7, 1997, by and among ValueVision,
NetRadio, Navarre and Net Radio Nevada (incorporated by reference to Exhibit
10.18 to the Navarre 1997 Form 10-K)
10.8 Conversion Agreement dated March 20, 1997, between ValueVision and Navarre
(incorporated by reference to Exhibit 10.19 to the Navarre 1997 Form 10-K)
10.9* Waiver of Certain Provisions of the Stock Purchase Agreement dated as of March 7,
1997, dated as of February 26, 1999 by and among ValueVision, Navarre and
NetRadio
10.10*,** Fulfillment Agreement entered into the first day of December 1998 by and between
Navarre and NetRadio
10.11** License Agreement dated September 3, 1998 between NetRadio and Real Networks, Inc.
10.12.1 Office Lease Agreement made the 31st day of May 1996 between Riverplace, Inc. and
NetRadio
10.12.2 Storage Lease Agreement made the 5th day of April 1996 between Riverplace, Inc. and
NetRadio
10.13* Multiple Advance Term Note dated March 1, 1999 of NetRadio to Navarre
10.14 NetRadio Corporation 1998 Stock Option and Incentive Plan
10.15 Form of NetRadio Stock Option Agreement under the 1998 Stock Option and Incentive
Plan
10.16* Separation Agreement dated as of March 2, 1999 by and between Navarre and NetRadio
10.17* Order Fulfillment Agreement dated as of March 2, 1999 by and between Valley Media
and NetRadio.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Lindquist & Vennum, P.L.L.P. (contained in Exhibit 5.1)
24.1 Power of Attorney (see Page II-4 of the Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be supplied by amendment.
** Information contained in such agreement has been omitted subject to
confidential treatment request, marked with brackets and the statement
"Confidential Treatment Requested" and filed separately with the Commission.
ITEM 17. UNDERTAKINGS
(a) We hereby undertake:
(1) To provide to the Underwriters at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to
the foregoing provisions or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such
II-3
<PAGE>
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by any of our directors, officers or controlling persons in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(3) For purposes of determining any liability under Securities Act, (1) the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective and (2) each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, duly authorized in the City of Minneapolis, State of Minnesota, on
this 2nd day of March, 1999.
<TABLE>
<S> <C> <C>
NETRADIO CORPORATION
By: /s/ EDWARD A. TOMECHKO
-----------------------------------------
Edward A. Tomechko
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CHIEF
FINANCIAL OFFICER (PRINCIPAL ACCOUNTING
OFFICER)
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Edward A. Tomechko and Donovan W. Pederson
and each of them acting individually, as his or her attorney-in-fact, each with
full power of substitution, for him or her in any and all capacities, to sign
any and all amendments to this Registration Statement, including post-effective
amendments and amendments pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendment to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities on March 2, 1999:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ ERIC H. PAULSON
- ------------------------------ Chairman
Eric H. Paulson
/s/ CHARLES E. CHENEY
- ------------------------------ Director
Charles E. Cheney
/s/ GENE MCCAFFERY
- ------------------------------ Director
Gene McCaffery
/s/ JAMES CAPARRO
- ------------------------------ Director
James Caparro
/s/ MARC H. KALMAN
- ------------------------------ Director
Marc H. Kalman
Director, President, Chief
/s/ EDWARD A. TOMECHKO Executive Officer and
- ------------------------------ Chief Financial Officer
Edward A. Tomechko (Principal Executive and
Accounting Officer)
/s/ DONAVAN W. PEDERSON
- ------------------------------ Director and Chief
Donavan W. Pederson Technical Officer
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- --------------------------------------------------------------------------------
<S> <C> <C>
1.1* Underwriting Agreement
3.1 Articles of Incorporation of NetRadio, as amended
3.2 Bylaws of NetRadio, as amended
3.3* Amended and Restated Bylaws of NetRadio, to become effective upon the effective
date of this Offering
4.1* Form of Common Stock Certificate
5.1* Opinion of Lindquist & Vennum P.L.L.P.
10.1 Employment Agreement dated as of the 11th day of January 1999 between NetRadio
and Edward A. Tomechko
10.2 Employment Agreement dated as of the 1st day of August 1998 between NetRadio and
Donavan W. Pederson
10.3 Employment Agreement dated as of the 1st day of August 1998 between NetRadio and
Jan K. Andersen
10.4 Employment Agreement dated as of the 1st day of August 1998 between NetRadio and
David R. Witzig
10.5 Termination Agreement dated February 25, 1999 between NetRadio and Nancy R.
Kielty
10.9* Waiver of Certain Provisions of the Stock Purchase Agreement dated as of March
7, 1997, dated as of February 26, 1999 by and among ValueVision, Navarre and
NetRadio
10.10*,** Fulfillment Agreement entered into the first day of December 1998 by and between
Navarre and NetRadio
10.11** License Agreement dated September 3, 1998 between NetRadio and Real Networks,
Inc.
10.12.1 Office Lease Agreement made the 31st day of May 1996 between Riverplace, Inc.
and NetRadio
10.12.2 Storage Lease Agreement made the 5th day of April 1996 between Riverplace, Inc.
and NetRadio
10.13* Multiple Advance Term Note dated March 1, 1999 of NetRadio to Navarre
10.14 NetRadio Corporation 1998 Stock Option and Incentive Plan
10.15 Form of NetRadio Stock Option Agreement under the 1998 Stock Option and
Incentive Plan
10.16* Separation Agreement dated as of March 2, 1999 by and between Navarre and
NetRadio
10.17* Order Fulfillment Agreement dated as of March 2, 1999 by and between Valley
Media and NetRadio.
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Lindquist & Vennum, P.L.L.P. (contained in Exhibit 5.1)
24.1 Power of Attorney (see Page II-4 of the Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be supplied by amendment.
** Information contained in such agreement has been omitted subject to
confidential treatment request, marked with brackets and the statement
"Confidential Treatment Requested" and filed separately with the Commission.
II-6
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
NETRADIO CORPORATION
THE UNDERSIGNED, for purposes of forming a corporation under Chapter 302A of the
Laws of the State of Minnesota, as amended, does hereby sign and acknowledge
these Articles of Incorporation.
ARTICLE I.
The name of the Corporation is NetRadio Corporation.
ARTICLE II.
The purpose of this Corporation is general business purposes.
ARTICLE III.
This Corporation shall possess all powers necessary to conduct any business in
which it is authorized to engage, including but not limited to all those powers
expressly conferred upon business corporations by Minnesota Statutes, together
with those powers necessarily implied therefrom.
ARTICLE IV.
This Corporation shall have perpetual duration.
ARTICLE V.
The location and post office address of the registered office of this
Corporation in Minnesota is 7400 49th Avenue North, New Hope, Minnesota 55428.
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ARTICLE VI.
(a) The corporation is authorized to issue two classes of stock, to be
designated, respectively, "Common Stock" and "Preferred Stock". The total
number of shares which the corporation is authorized to issue is 60,000,000
shares, of which 50,000,000 shall be Common Stock and 10,000,000 shall be
Preferred Stock. The Preferred Stock may be issued from time to time as shares
of one or more series. Subject to the provisions hereof and the limitations
prescribed by law, the Board of Directors is authorized, by adopting resolutions
providing for the issuance of Preferred Stock of any particular series, to
establish the number of shares of Preferred Stock to be included in each such
series, and to fix the designation, relative powers, preferences, rights,
qualifications, limitations and restrictions thereof, including without
limitation the right to create voting, dividend and liquidation preferences
greater than those of Common Stock. The common shares of the corporation shall
entitle the holder thereof to one vote per share upon all questions coming
before the shareholders of the corporation at any shareholder meeting."
(b) There shall be no cumulative voting by the Shareholders of the
Corporation. The Shareholders of the Corporation shall not have preemptive
rights to subscribe for or acquire security or rights to purchase securities of
any kind, class or series of the Corporation.
ARTICLE VII.
The name and post office address of the incorporator of this Corporation is:
Beth G. Timm
Winthrop & Weinstine, P.A.
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402-4430
ARTICLE VIII.
The names and addresses of the first directors, who shall serve as the directors
until the first annual meeting of shareholders or until their successors are
elected and qualified, are as follows:
Eric H. Paulson Charles E. Cheney
c/o Navarre Corporation c/o Navarre Corporation
7400 49th Avenue North 7400 49th Avenue North
New Hope, MN 55428 New Hope, MN 55428
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ARTICLE IX.
An action required or permitted to be taken at a meeting of the Board of
Directors of this Corporation may be taken by a written action signed, or
counterparts of a written action signed in the aggregate, by all of the
directors unless the action need not be approved by the shareholders of this
Corporation, in which case the action may be taken by a written action signed,
or counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
Board of Directors of this Corporation at which all of the directors were
present.
ARTICLE X.
The personal liability of the directors of this Corporation is hereby eliminated
to the fullest extent permitted by Minnesota Statutes, Section 302A.251, as the
same may be amended and supplemented.
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EXHIBIT 3.2
BYLAWS
OF
NET RADIO CORPORATION
ARTICLE I.
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of Net Radio
Corporation, a Minnesota corporation (the "Corporation") is as provided and
designated in the Articles of Incorporation. The Board of Directors of the
Corporation may, from time to time, change the location of the registered
office. On or before the day that such change is to become effective, a
certificate of such change and of the location and post office address of the
new registered office shall be filed with the Secretary of State of the State of
Minnesota.
SECTION 2. OTHER OFFICES. The Corporation may establish and maintain such
other offices, within or without the State of Minnesota, as are from time to
time authorized by the Board of Directors.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders of the
Corporation shall be held at the registered office of the Corporation in the
State of Minnesota or at such place within or without the state as may be fixed
from time to time by the Board of Directors or by written consent of all the
shareholders entitled to vote thereat.
SECTION 2. REGULAR MEETINGS. The regular meeting of the shareholders
shall be held on such date as the Board of Directors shall by resolution
establish. At the regular meeting, the
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shareholders shall designate the number of directors to constitute the Board
of Directors (subject to the authority of the Board of Directors thereafter
to increase or decrease the number of directors as permitted by law), shall
elect qualified successors for directors who serve for an indefinite term or
whose terms have expired or are due to expire within six months after the
date of the meeting, and shall transact such other business as may properly
come before them.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the President, Treasurer, any two or
more directors, or by a shareholder or shareholders holding ten percent (10%) or
more of the voting power of all shares entitled to vote.
SECTION 4. NOTICE OF MEETINGS. There shall be mailed to each shareholder,
shown by the books of the Corporation to be a holder of record of voting shares,
at his/her address as shown by the books of the Corporation, a notice setting
out the date, time and place of each regular meeting and each special meeting,
except where the meeting is an adjourned meeting and the date, time and place of
the meeting were announced at the time of adjournment, or except as otherwise
permitted by statute. This notice shall be mailed at least five (5) days prior
thereto and no earlier than sixty (60) days prior thereto. However, notice of a
meeting at which a plan or agreement of merger or exchange is to be considered
shall be mailed to all shareholders of record, whether or not entitled to vote
at the meeting, not less than fourteen (14) days nor more than sixty (60) days
prior thereto. Every notice of any special meeting called pursuant to this
Section shall state the purpose or purposes for which the meeting has been
called, and the business transacted at all special meetings shall be confined to
the purpose stated in the notice. In addition, the notice of a meeting at which
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a plan or agreement of merger or exchange is to be voted upon shall state that a
purpose of the meeting is to consider the proposed plan or agreement of merger
or exchange and a copy or a short description of the plan or agreement of merger
or exchange shall be included in or enclosed with the notice.
SECTION 5. WAIVER OF NOTICE. A shareholder may waive notice of a meeting
of shareholders. A waiver of notice by a shareholder entitled to notice is
effective whether given before, at, or after the meeting, and whether given in
writing, orally, or by attendance. Attendance by a shareholder at a meeting is
a waiver of notice of that meeting, except where the shareholder objects at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened, or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and does not
participate in the consideration of the item at that meeting.
SECTION 6. QUORUM, ADJOURNED MEETINGS. The holders of a majority of the
voting power of the shares entitled to vote shall constitute a quorum for the
transaction of business at any regular or special meeting. In case a quorum
shall not be present at a meeting, those present may adjourn to such day as they
shall, by majority vote, agree upon, and a notice of such adjournment shall be
mailed to each shareholder entitled to vote at least five (5) days before such
adjourned meeting. If a quorum is present, a meeting may be adjourned from time
to time without notice other than announcement at the meeting. At adjourned
meetings at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally noticed. If a quorum is
present when a duly called or held meeting is convened, the shareholders present
may
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continue to transact business until adjournment, even though the withdrawal
of a number of shareholders originally present leaves less than a quorum.
SECTION 7. VOTING. At each meeting of the shareholders, every shareholder
having the right to vote shall be entitled to vote either in person or by proxy,
but no proxy shall be valid after eleven (11) months unless a longer period is
expressly provided for in the appointment. Each shareholder, unless the
Articles of Incorporation or statute provide otherwise, shall have one vote for
each share having voting power registered in such shareholder's name on the
books of the Corporation. Jointly owned shares may be voted by any joint owner
unless the Corporation receives written notice from any one of them denying the
authority of that person to vote those shares. Upon the demand of any
shareholder, the vote upon any question before the meeting shall be by ballot.
All questions shall be decided by a majority vote of the voting power of the
shares present and entitled to vote and represented at the meeting at the time
of the vote except if otherwise required by statute, the Articles of
Incorporation, or these Bylaws.
SECTION 8. RECORD DATE. The Board of Directors may fix a date, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of,
and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the Corporation after any record date so fixed. If the Board of
Directors fails to fix a record date for determination of the shareholders
entitled to notice of, and to vote at, any meeting of shareholders, the record
date shall be the twentieth (20th) day preceding the date of such meeting.
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SECTION 9. ORGANIZATION OF MEETINGS. Unless a Chairman of the Board has
been elected, at all meetings of the shareholders the President shall act as
Chairman, and in his/her absence any person appointed by the President shall act
as Chairman, and the Secretary, or in his/her absence any person appointed by
the Chairman, shall act as Secretary.
SECTION 10. ACTION WITHOUT A MEETING. Any action which may lawfully be
taken at a shareholders' meeting may be taken without a meeting if authorized by
a writing or writings signed by all of the holders of shares who would be
entitled to a notice of a meeting for such purpose. Such action shall be
effective on the date on which the last signature is placed on such writing or
writings, or such earlier effective date as is set forth therein. If any action
so taken requires a certificate to be filed in the office of the Secretary of
State, the officer signing the same shall state therein that the action was
effected in the manner aforesaid.
SECTION 11. CONFERENCE COMMUNICATIONS. Any or all shareholders may
participate in and be present at any meeting of the shareholders by any means of
communication through which the shareholders may simultaneously hear each other
during such meeting. For the purposes of establishing a quorum and taking any
action at the meeting, such shareholders participating pursuant to this Section
11 shall be deemed present in person at the meeting, and the place of the
meeting shall be the place of origination of the conference communication.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under its Board of Directors, which may exercise all such
powers of the Corporation and do
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all such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws required to be exercised or done by the
shareholders.
SECTION 2. NUMBER, TERM AND QUALIFICATION. The Board of Directors
consists of not less than 3 nor more than 9 directors, as may be
designated by the Board of Directors from time to time. Each director
shall be elected by the shareholders to hold office for a term of one
year. Directors need not be shareholders. Each of the directors shall
hold office until the regular meeting of shareholders next held after
such director's election or appointment and until such director's
successor shall have been elected and shall qualify, or until the
earlier death, resignation, removal, or disqualification of such
director.
SECTION 3. BOARD MEETINGS. Meetings of the Board of Directors may be held
from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
SECTION 4. CALLING MEETINGS; NOTICE. Meetings of the Board of Directors
may be called by the President by giving at least forty-eight (48) hours'
notice, or by any director by giving at least five (5) days' notice, of the
date, time and place thereof to each director by mail, telephone, telegram or in
person.
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SECTION 5. WAIVER OF NOTICE. Notice of any meeting of the Board of
Directors may be waived by any director either before, at, or after such meeting
orally, in a writing signed by such director, or by attendance at the meeting.
A director, by his/her attendance at any meeting of the Board of Directors,
shall be deemed to have waived notice of such meeting, except where the director
objects at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened and does not participate
thereafter in the meeting.
SECTION 6. QUORUM. A majority of the directors holding office immediately
prior to a meeting of the Board of Directors shall constitute a quorum for the
transaction of business at such meeting. In the absence of a quorum, the
majority of the directors present adjourn a meeting from time to time until a
quorum is present. If a quorum is present when a duly called or held meeting is
convened, the directors present may continue to transact business until
adjournment, even though the withdrawal of a number of directors originally
present leaves less than a proportion or number otherwise required for a quorum.
SECTION 7. ABSENT DIRECTORS. A director may give advance written consent
or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
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SECTION 8. CONFERENCE COMMUNICATIONS. Any or all directors may
participate in and be present at any meeting of the Board of Directors, or of
any duly constituted committee thereof, by any means of communication through
which the directors may simultaneously hear each other during such meeting. For
the purposes of establishing a quorum and taking any action at the meeting, such
directors participating pursuant to this Section 8 shall be deemed present in
person at the meeting, and the place of the meeting shall be the place of
origination of the conference communication.
SECTION 9. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies in the Board
of Directors of this Corporation resulting from the death, resignation, removal
or disqualification of a director may be filled for the unexpired term by the
affirmative vote of a majority of the remaining directors of the Board, although
less than a quorum; newly created directorships resulting from an increase in
the authorized number of directors by action of the shareholders or by action of
the Board of Directors as permitted by Section 2 may be filled by a majority of
the directors serving at the time of such increase; and each director elected or
appointed pursuant to this Section 9 shall be a director until such director's
successor is elected by the shareholders at their next regular or special
meeting.
SECTION 10. REMOVAL. Any or all of the directors may be removed from
office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors except, as otherwise provided by Minnesota Statutes Section 302A.223,
as amended, when the shareholders have the right to cumulate their votes. A
director named by the Board of Directors to fill a vacancy may be removed from
office at any time,
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with or without cause, by the affirmative vote of a majority of the remaining
directors if the director was named by the Board to fill the vacancy and the
shareholders have not elected directors in the interim between the time of
the appointment to fill such vacancy and the time of the removal. In the
event that the entire Board or any one or more directors be so removed, new
directors shall be elected at the same meeting.
SECTION 11. COMMITTEES. A resolution approved by the affirmative vote of
a majority of the Board of Directors may establish committees having the
authority of the Board in the management of the business of the Corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees may include a special litigation committee
consisting of one or more independent directors or other independent persons to
consider legal rights or remedies of the Corporation and whether those rights
and remedies should be pursued. Committees other than special litigation
committees and committees formed pursuant to Section 302A.673, Subdivision 1(d),
are subject to the direction and control of, and vacancies in the membership
thereof shall be filled by, the Board of Directors.
A majority of the members of the committee present at a meeting is a quorum
for the transaction of business, unless a larger or smaller proportion or number
is provided in a resolution approved by the affirmative vote of a majority of
the directors present.
SECTION 12. WRITTEN ACTION. An action required or permitted to be taken
at a meeting of the Board of Directors may be taken by written action signed by
all of the directors unless the action need not be approved by the shareholders
and the Articles of Incorporation so provide, in which
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case the action may be taken by written action signed by the number of
directors that would be required to take the same action at a meeting of the
Board of Directors at which all directors were present. The written action
is effective when signed by the required number of directors, unless a
different effective time is provided in the written action. When written
action is permitted to be taken by less than all directors, all directors
shall be notified immediately of its text and effective date. Failure to
provide the notice does not invalidate the written action. A director who
does not sign or consent to the written action has no liability for the
action or actions taken thereby.
SECTION 13. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Secretary of the Corporation. Such
resignation shall take effect at the date of the receipt of such notice, or at
any later time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 14. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, each director may be paid his/her expenses, if any, of attendance at
each meeting of the Board of Directors, and may be paid a stated amount as
director or a fixed sum for attendance at each meeting of the Board of
Directors, or both. No such payment shall preclude a director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed, pursuant to resolution by the
Board of Directors, like compensation for attending committee meetings.
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ARTICLE IV.
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be chosen by the
Board of Directors and shall include a President and a Treasurer. The Board of
Directors may also choose a Secretary, one or more Vice Presidents, and one or
more Assistant Secretaries and Assistant Treasurers. Any number of offices may
be held by the same person. If a document must be signed by persons holding
different offices or functions and a person holds or exercises more than one of
these offices or functions, that person may sign the document in more than one
capacity, but only if the document indicates each capacity in which the person
signs.
SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Board of
Directors shall elect or appoint, by resolution approved by the affirmative vote
of a majority of the directors present, from within or without their number, the
President, Secretary and Treasurer and such other officers as may be deemed
advisable, each of whom shall have the powers, rights, duties, responsibilities,
and terms in office provided for in these Bylaws or a resolution of the Board of
Directors not inconsistent therewith. The President and all other officers who
may be directors shall continue to hold office until the election and
qualification of their successors, notwithstanding an earlier termination of
their directorship.
SECTION 3. REMOVAL AND VACANCIES. Any officer may be removed from his/her
office by the Board of Directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers
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of the Corporation by reason of death, resignation, removal,
disqualification, or otherwise, such vacancy shall be filled for the
unexpired term by the Board of Directors.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
SECTION 5. PRESIDENT. The President or Chief Executive Officer, as the
case may be, (hereafter the "President") shall be the chief executive officer of
the Corporation and shall have general active management of the business of the
Corporation. In the absence of the Chairman of the Board, or if no Chairman of
the Board is elected, the President shall preside at all meetings of the
shareholders and directors. He/She shall see that all orders and resolutions
of the Board of Directors are carried into effect. He/She shall execute and
deliver, in the name of the Corporation, any deeds, mortgages, bonds, contracts
or other instruments pertaining to the business of the Corporation unless the
authority to execute and deliver is required by law to be exercised by another
person or is expressly delegated by the Articles or Bylaws or by the Board of
Directors to some other officer or agent of the Corporation. He/She shall
maintain records of and, whenever necessary, certify all proceedings of the
Board of Directors and the shareholders, and shall perform all duties usually
incident to the office of the President. He/She shall have such other duties as
may, from time to time, be prescribed by the Board of Directors.
SECTION 6. VICE PRESIDENT. Each Vice President, if one or more are
elected, shall have such powers and shall perform such duties as may be
specified in the Bylaws or prescribed by the Board of Directors or by the
President. In the event of the absence or disability of the President, Vice
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Presidents shall succeed to his/her power and duties in the order designated by
the Board of Directors.
SECTION 7. SECRETARY. The Secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and Board of
Directors and shall record all proceedings of such meetings in the minute book
of the Corporation. He/She shall give proper notice of meetings of shareholders
and directors. He/She shall perform such other duties as may be prescribed from
time to time by the Board of Directors or by the President.
SECTION 8. ASSISTANT SECRETARY. The Assistant Secretary, if any, or if
there be more than one (1), the Assistant Secretaries in the order determined by
the Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
SECTION 9. TREASURER. The Treasurer or Chief Financial Officer, as the
case may be, (hereafter the "Treasurer") shall be the chief financial officer of
the Corporation and shall keep accurate financial records for the Corporation.
He/She shall deposit all moneys, drafts and checks in the name of, and to the
credit of, the Corporation in such banks and depositaries as the Board of
Directors shall designate from time to time. He/She shall have power to endorse
for deposit all notes, checks and drafts received by the Corporation and make
proper vouchers therefor. He/She shall disburse the funds of the Corporation,
as ordered by the Board of Directors, making proper vouchers therefor. He/She
shall render to the President and the directors, whenever requested, an account
of all his/her transactions as Treasurer and of the financial condition of the
Corporation,
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and shall perform such other duties as may be prescribed from time
to time by the Board of Directors or by the President.
SECTION 10. ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one (1), the Assistant Treasurers in the order determined by
the Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such powers as the Board of Directors may from time
to time prescribe.
SECTION 11. COMPENSATION. The officers of the Corporation shall receive
such compensation for their services as may be determined, from time to time, by
resolution of the Board of Directors.
ARTICLE V.
CERTIFICATES OF STOCK
SECTION 1. CERTIFICATES OF STOCK. All shares of the Corporation shall be
certificated shares. Every holder of stock in the Corporation shall be entitled
to have a certificate signed by or in the name of the Corporation by the
President or a Vice President, and the Secretary or an Assistant Secretary, of
the Corporation, certifying the number of shares owned by him/her in the
Corporation. The certificates of stock shall be numbered in the order of their
issue.
SECTION 2. ISSUANCE OF SHARES. The Board of Directors is authorized to
cause to be issued shares of the Corporation up to the full amount authorized by
the Articles of Incorporation in such amounts as may be determined by the Board
of Directors and as may be permitted by law. No shares shall be issued except
in consideration of cash or other property, tangible or intangible,
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received or to be received by the Corporation under a written agreement, or
services rendered or to be rendered to the Corporation under a written
agreement, as authorized by resolution(s) approved by the affirmative vote of
a majority of the directors present, or approved by the affirmative vote of
the holders of a majority of the voting power of the shares present, valuing
all non-monetary consideration and establishing a price in money or other
consideration, or a minimum price, or a general formula or method by which
the price will be determined.
SECTION 3. FACSIMILE SIGNATURES. Where a certificate is signed (1) by a
transfer agent or an assistant transfer agent, or (2) by a transfer clerk
acting on behalf of the Corporation and a registrar, the signature of any
such President, Vice President, Secretary or Assistant Secretary may be
facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on any such certificate or
certificates, shall cease to be such officer or officers of the Corporation
before such certificate or certificates have been delivered by the
Corporation, such certificate or certificates may nevertheless be used by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or
officers of the Corporation.
SECTION 4. LOST OR DESTROYED CERTIFICATES. Except as otherwise provided
by Minnesota Statutes, Section 302A.419, any shareholder claiming a certificate
for shares to be lost, stolen or destroyed shall make an affidavit of that
fact in such form as the Board of Directors shall require and shall, if the
Board of Directors so requires, give the Corporation a bond of indemnity in
form, in an amount, and with one or more sureties satisfactory to the Board
of Directors, to indemnify the
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Corporation against any claim which may be made against it on account of the
reissue of such certificate, whereupon a new certificate may be issued in the
same tenor and for the same number of shares as the one alleged to have been
lost, stolen or destroyed.
SECTION 5. TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Minnesota.
ARTICLE VI.
INDEMNIFICATION OF CERTAIN PERSONS
SECTION 1. The Corporation shall indemnify such persons, for such expenses
and liabilities, in such manner, under such circumstances, and to such extent as
permitted by Minnesota Statutes Section 302A.521, as now enacted or hereafter
amended, or any successor or supplementary law or statute.
ARTICLE VII.
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BOOKS AND RECORDS
SECTION 1. SHARE REGISTER. The Board of Directors of the Corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the Board:
(1) a share register not more than one year old, containing the names
and addresses of the shareholders and the number and classes of shares held by
each shareholder; and
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
SECTION 2. OTHER BOOKS AND RECORDS. The Board of Directors shall cause to
be kept at its principal executive office, or, if its principal executive office
is not in Minnesota, shall make available at its registered office within ten
days after receipt by an officer of the Corporation of a written demand for them
made by a shareholder or other person authorized by Minnesota Statutes Section
302A.461, originals or copies of:
(1) records of all proceedings of shareholders for the last three years;
(2) records of all proceedings of the Board for the last three years;
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(3) its Articles and all amendments currently in effect;
(4) its Bylaws and all amendments currently in effect;
(5) financial statements required by Minnesota Statutes, Section
302A.463, and the financial statement for the most recent interim
period prepared in the course of the operation of the Corporation
for distribution to the shareholders or to a governmental agency as
a matter of public record;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers; and
(8) any shareholder voting trust or control agreements of which the
Corporation is aware.
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ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
SECTION 1. The Corporation may lend money to, guarantee an obligation of,
become a surety for, or otherwise financially assist a person if the
transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present and:
(1) is in the usual and regular course of business of the
Corporation;
(2) is with, or for the benefit of, a related corporation, an
organization in which the Corporation has a financial interest, an
organization with which the Corporation has a business relationship, or
an organization to which the Corporation has the power to make donations;
(3) is with, or for the benefit of, an officer or other employee of
the Corporation or a subsidiary, including an officer or employee who is a
director of the Corporation or a subsidiary, and may reasonably be
expected, in the judgment of the Board, to benefit the Corporation; or
(4) has been approved by either (a) the affirmative vote of the
holders of two-thirds voting power of the shares entitled to vote which
are owned by persons other than the
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interested person or persons, or (b) the unanimous affirmative vote
of the holders of all outstanding shares, whether or not entitled to vote.
The loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured or may be secured in any manner,
including, without limitation, a pledge of or other security interest in shares
of the Corporation. Nothing in this Section shall be deemed to deny, limit, or
restrict the powers of guaranty or warranty of the Corporation at common law or
under a statute of the State of Minnesota.
ARTICLE IX.
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to provisions of applicable law and the
Articles of Incorporation, dividends upon the capital stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting, and
may be paid in cash, in property, or in shares of the capital stock.
SECTION 2. RECORD DATE. Subject to any provisions of the Articles of
Incorporation, the Board of Directors may fix a date not exceeding one hundred
twenty (120) days preceding the date fixed for the payment of any dividend as
the record date for the determination of the shareholders entitled to receive
payment of the dividend and, in such case, only shareholders of record on the
date so fixed shall be entitled to receive payment of such dividend
notwithstanding any transfer of shares on the books of the Corporation after the
record date.
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SECTION 3. ANNUAL STATEMENT. The Board of Directors shall present at any
regular or special meeting of the shareholders when called for by vote of the
shareholders, a full and clear statement of the business and condition of the
Corporation.
SECTION 4. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 5. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
or changed by resolution of the Board of Directors.
SECTION 6. SEAL. The Corporation shall have no corporate seal.
ARTICLE X.
AMENDMENTS
SECTION 1. Subject to the right of the shareholders of the Corporation to
adopt or amend these Bylaws as provided by Minnesota Statutes, Section 302A.181,
these Bylaws may be amended or altered by a vote of the majority of the whole
Board of Directors at any meeting provided that notice of such proposed
amendment shall have been given in the notice given to the directors of such
meeting. However, the Board of Directors shall not make or alter any Bylaws
fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies in the Board of Directors, or fixing the
number of directors or their classifications, qualifications, or terms of
office, except that the Board of Directors may adopt or amend any Bylaw to
increase their number.
ARTICLE XI.
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SECURITIES OF OTHER CORPORATIONS
SECTION 1. VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise
ordered by the Board of Directors, the President shall have full power and
authority on behalf of the Corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the Corporation, and
may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The Board of Directors may, from time
to time, confer like powers upon any other person or persons.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, (this "Agreement") is made and entered into as of this 11th day
of January, 1999, by and between NETRADIO CORPORATION, a Minnesota corporation
(the "Company"), and EDWARD A. TOMECHKO, a resident of the State of Minnesota
("Employee").
WITNESSETH
WHEREAS, Employee desires to become employed by the Company, and the Company
desires to employ the Employee pursuant to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants
and obligations of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions of this Agreement,
the Company hereby employs Employee and Employee hereby accepts employment
with the Company, as its President and Chief Executive Officer.
2. DUTIES. The services of Employee are exclusive to the Company. Employee
will devote substantially all of his business hours to, and make the best
use of his energy, knowledge and training in, performing his duties as
President and Chief Executive Officer of the Company within the general
guidelines established by the Board of Directors of the Company as the same
may, from time to time, be modified by the Company's Board of Directors.
Employee will report to the Board of Directors and have all the duties
normally subscribed to the President and Chief Executive Officer. Employee
will perform his duties in a competent and professional manner, consistent
with that expected of President and Chief Executive Officer of the Company.
3. TERM. Subject only to earlier termination in accordance with Section 5 of
this Agreement, Employee's term of employment shall commence on the date
hereof and continue until January 11, 2002 (the "Initial Term"). The
Initial Term and any subsequent renewal terms shall be referred to
collectively herein as the "Employment Period".
4. COMPENSATION. As compensation for all of Employee's services under this
Agreement, the Company agrees to pay Employee and Employee agrees to accept
the following:
(a) BASE SALARY. The base salary of $175,000 per annum (the "Base
Salary"), to be increased to $200,000 per annum effective with the
successful completion of an initial public offering of NetRadio,
payable in accordance with the Company's
<PAGE>
standard payroll practices. In addition, Employee will be paid a
one-time cash bonus of $20,000 at the time the initial public
offering is completed.
(b) PERFORMANCE BONUS. As additional compensation to Employee, Employee
shall be eligible to receive a bonus (the "Bonus") equal to 60% of
Employee's base salary. This bonus is based on the company achieving
its financial objectives and Employee achieving mutually agreed upon
personal goals. This bonus period runs from January 1 through
December 31 and shall be paid annually not later than 45 days after
the Company's annual audit is completed.
(c) BENEFITS.
(i) EXPENSES. The Company shall reimburse Employee for any and all
ordinary, necessary and reasonable business expenses that
Employee incurs in connection with the performance of his
duties under this Agreement, including entertainment,
telephone, travel and miscellaneous expenses, provided that
Employee provides the Company with documentation for such
expenses in a form sufficient to sustain the Company's
deduction for such expenses under Section 162 of the Internal
Revenue Code of 1986, as amended.
(ii) MEDICAL AND DISABILITY INSURANCE. Subject to Employee taking
and passing the physical examination, if required by the
Company's insurance carrier, the Company shall provide Employee
with full medical and disability insurance coverage provided to
other officers of the Company.
(iii) VACATION. Employee shall be entitled to a paid vacation period
of two weeks each year during the first five years; three weeks
paid vacation after five years, and four weeks paid vacation
after ten years of employment which may be taken at any time
subject to the Company's business needs.
(iv) STOCK OPTIONS. Employee will receive an additional grant of
pre-Initial Public Offering stock options for 125,000 shares of
NetRadio Common Stock which vests over a three year period
at 33 1/3% per year. This option price will be approximately
$5.00 per share and will vest 100% if employee is terminated
without cause.
(v) BENEFIT CHANGES. No reference in this Agreement to any policy
or any employee benefit plan established or maintained by the
Company or the Parent shall preclude the Company from changing
any such policies or amending or terminating any such benefit
plans if a substantially similar benefit is provided to
Employee by the Company.
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(vi) OTHER PLANS. Nothing contained herein is intended to or shall
be deemed to be granted to Employee in lieu of any rights or
privileges which Employee may be entitled to as an employee of
Company under any other policies or benefit plans that are
currently in effect or that may hereafter be adopted. Employee
shall be entitled to participate in any other employee benefit
plans of the Company generally applicable to officers of the
Company, its divisions or subsidiaries, occupying similar
positions as Employee, including, but not limited to, any
profit sharing, pension, stock option, stock appreciation
rights, stock ownership, health, medical, dental, vacation,
insurance or other employee benefit plans.
5. TERMINATION. This Agreement may not be terminated prior to the end of the
Employment Period except as follows:
(a) BY THE COMPANY FOR COMPANY CAUSE. The company may terminate this
Agreement for Company Cause upon Employee's material breach of this
Agreement. Except as to subparagraph (iii) below, the Company shall
give Employee thirty (30) days' advance written notice of such
termination, which notice shall be via registered mail, return
receipt requested, and which shall describe in detail the acts or
omissions which the Company believes constitute such breach. Acts or
omissions which constitute a material breach of this Agreement
constituting "Company Cause" shall be limited strictly to the
following:
(i) Any material breach by Employee of his obligations under this
Agreement;
(ii) Gross misconduct of the Employee, conduct by the Employee which
is manifestly injurious to the Company, or habitual failure or
inability of the Employee to perform his duties under this
Agreement; and
(iii) Any fraud, theft or embezzlement by Employee of the Company's
assets, or any other unlawful or criminal act which is
punishable as a felony.
(b) DEATH. This Agreement shall terminate upon Employee's death.
(c) DISABILITY. This Agreement shall terminate upon Employee's
Disability. As used herein, the term "Disability" shall have such
meaning as set forth in the Company's disability policy in effect at
the date hereof and shall include both permanent and temporary
disability, short term and long term disability, and total and partial
disability. If there is no policy in effect at the date of Employee's
potential disability, Disability shall mean Employee becoming
substantially incapable of performing his duties hereunder for a
period of 6 months or more.
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(d) BY EMPLOYEE FOR EMPLOYEE CAUSE. Employee may terminate this Agreement
upon thirty (30) days' written notice to the Company upon the
occurrence, without Employee's express written consent, of any one or
more of the following events, provided that Employee shall not have
the right to terminate this Agreement if the Company is able to cure
such event within thirty (30) days following delivery of such notice:
(i) The Company is in material breach of this Agreement;
(ii) A reduction by the Company of Employee's Base Salary as the
same may be increased time to time, or a change in the
eligibility requirements or performance criteria for any
benefit other than salary, which adversely effect Employee;
(iii) Any purported termination by the Company of this Agreement of
the employment of the Employee by the Company which is not
expressly authorized by this Agreement or any breach of this
Agreement by the Company which is not remedied by the Company
within thirty (30) days after the Company's receipt of notice
thereof from Employee.
(iv) The Company's requiring Employee to be based at a location more
than 35 miles from Minneapolis or relocating its headquarters
outside the Minneapolis metropolitan area.
6. PAYMENTS UPON TERMINATION.
(a) DEATH. In the event that this Agreement is terminated due to the
death of the Employee, the Employee shall be paid (i) his Base Salary
through the end of the month in which his death occurred, (ii) all
bonuses to which the Employee would have been entitled for the fiscal
year in which death occurred, prorated to the date of death, (iii)
benefits payable under any life insurance policies maintained by the
Company hereunder, to which the Employee would have been entitled for
the fiscal year in which his death occurred, (iv) his accrued but
unpaid vacation pay for the year in which his death occurred, pro
rated to the date of his death, and (v) any unpaid expense
reimbursement.
(b) DISABILITY. In the event that this Agreement is terminated due to
Employee's Disability, Employee shall be paid (i) his Base Salary for
a period of 90 days following the date of such Disability or until the
Employee begins receiving benefits under the Company's disability
benefits plan, whichever occurs first, (ii) all bonuses to which the
Employee would have been entitled for the fiscal year in which such
Disability occurred, prorated to the date of such Disability, (iii)
his accrued but unpaid vacation pay for the year in which such
Disability occurred,
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prorated to the date of such Disability, and (iv) any unpaid
expense reimbursement.
(c) TERMINATION BY COMPANY FOR COMPANY CAUSE OR BY THE EMPLOYEE WITHOUT
EMPLOYEE CAUSE. If Employee is terminated pursuant to Section 5(a)
hereof, or the Employee terminates this Agreement other than in
accordance with Section 5d hereof, the Company shall pay to Employee
(i) his Base Salary through the date of termination, and (ii) any
unpaid expense reimbursement.
(d) TERMINATION WITHOUT COMPANY CAUSE OR BY THE EMPLOYEE FOR EMPLOYEE
CAUSE. In addition to any other rights granted Employee hereunder, if
the Company should terminate this Agreement other than in accordance
with Section 5(a) hereof, or if the Employee should terminate this
Agreement pursuant to Section 5(d) hereof, the Company shall pay to
Employee (i) his Base Salary through the end of the term of this
Agreement; (ii) all Bonuses to which the Employee would have been
entitled to for the fiscal year in which the termination occurred pro
rated to the date of termination, (iii) a sum equivalent to any
accrued but unpaid vacation for the year in which he is terminated,
(iv) any unpaid expense reimbursement, and (v) vest all pre-I.P.O.
stock options outstanding immediately prior to Employee's termination
of employment and provide for the exercise of such options for at
least two years after Employee's termination of employment.
7. OWNERSHIP OF PROPERTIES; CONFIDENTIALITY; EXCLUSIVITY; INVESTMENTS.
(a) OWNERSHIP OF PROPERTIES. The Company, as employer, shall own, and
Employee hereby transfers and assigns to the Company, all rights in
and to any material and/or ideas written, suggested or submitted by
Employee during the Employment Period and all other results and
proceeds of his services under this Agreement (the "Properties").
Without limiting the generality of the foregoing, these rights shall
include all rights in and to the Properties, including the sole and
exclusive right to manufacture, publish, market, sell and/or
distribute the Properties and/or adaptations thereof, either publicly
or privately and for profit or otherwise. The Company and its
licensees and assigns shall have the right to adapt, change, revise,
delete from, add to and/or rearrange the Properties or any part
thereof written or submitted by Employee and to combine the same with
other works to any extent, and to change or substitute the title
thereof and in this connection Employee hereby waives any so-called
"moral rights" of authors. Employee agrees to execute and deliver to
the Company such releases, assignments or other instruments as the
Company may require from time to time to evidence its ownership of the
results and proceeds of Employee's services hereunder provided,
however, that nothing in this Section 7(a) shall be deemed in
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any manner to restrict or qualify the Employee's ownership or right to
exploit the Employee's memoirs.
The requirements of this Section 7(a) do not apply to Properties for
which no equipment, facility or confidential information of the
Company was used and which were developed entirely on Employee's own
time, and which (i) do not relate directly to the Company's business
or to the Company's actual research or development, or (ii) do not
result from any work Employee performed for the Company. Except as
previously disclosed to the Company in writing, Employee does not have
and will not assert any claims to or rights under any Properties as
having been made, conceived, authored or acquired by Employee prior to
his executions of this Agreement.
(b) CONFIDENTIALITY. Employee acknowledges that his services will,
throughout the Employment Period, bring Employee in close contact with
many confidential affairs of the Company and its affiliates, including
information about costs, profits, financial data, markets, trade
secrets, sales, products, computer programs, key personnel, pricing
policies, customer lists, development projects, operational methods,
technical processes, plans for future development, business affairs,
and methods and other information not readily available to the public.
Employee further acknowledges that the businesses of the Company and
its affiliates are international in scope, that their products are
marketed throughout the world, that the Company and its affiliates
compete in nearly all of their business activities with other
organizations which are or could be located in nearly any part of the
world and that the nature of Employee's services, position and
expertise are such that he is capable of competing with the Company
and it affiliates from nearly any location in the world. In
recognition of the foregoing Employee covenants and agrees:
(i) that Employee will keep secret all material confidential
matters of the Company and its affiliates which are not
otherwise in the public domain and will not disclose them to
anyone outside of the Company or its affiliates, either during
or after the Employment Period except with the Company's
written consent and except for such disclosure as is necessary
in the performance of Employee's duties during the Employment
Period; and
(ii) that Employee will deliver promptly to the Company on
termination of his employment with the Company or at any other
time the Company may so request, at the Company's expense, all
confidential memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's
and its affiliates' business, which Employee obtained while
employed by, or otherwise serving or acting on behalf of, the
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Company or which the employee may then possess or have under
his control.
(c) EXCLUSIVITY. The Employee agrees that during his employment with the
Company and/or a period of one year thereafter, he will not alone, or
in any capacity with another entity or person, (i) engage in any
commercial activity that competes with the Company's business, as it
is conducted during the Employment Period, within any state of the
United States, (ii) in any way interfere or attempt to interfere with
the Company's relationships with any of its current or potential
customers, or (iii) attempt to employ any of the Company's then
employees on behalf of any other entities competing with the Company.
Employee further acknowledges that all services of Employee shall be
exclusive to the Company, and that Employee's performance and services
hereunder are of a special, unique, unusual, extraordinary and
intellectual character which gives them peculiar value, the loss of
which cannot be reasonably or adequately compensated in an action at
law for damages and that a breach by Employee of the terms hereof
(including without limitation this Section 7) will cause the Company
irreparable injury. Employee agrees that the Company is entitled to
injunctive and other equitable relief to prevent a breach or
threatened breach of the Agreement, which shall be in addition to any
other rights or remedies to which the Company may be entitled. For
purposes of this Section 7(c), the term "Company" shall include the
Company, its successors, assigns and affiliates.
8. REMEDIES. The parties hereto recognize and agree that, because the
material breach of this Agreement or any part hereof would result in
damages difficult to ascertain, upon any allegations of material breach of
this Agreement, either party hereto shall be entitled:
(a) PROCEEDINGS. To institute proceedings in a court located in the State
of Minnesota to enjoin the breach, termination, or threatened
termination of this Agreement. Such injunctive remedy shall be in
addition to and not in lieu of any right to recover money for any such
breach.
(b) COSTS AND EXPENSES. The successful party in any action brought
concerning the breach or termination of this Agreement shall be
entitled to recover all costs and expenses, including attorney's fees
incurred or associated with the enforcement of any covenant of this
Agreement.
9. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Agreement is binding on and inures to
the benefit of the Company's successors and assigns, provided,
however, that is Agreement may not be assigned by any of the partied
hereto without the prior written consent of each of the parties
hereto. This Agreement shall be binding upon and inure to
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the benefit of any successor of the Company, and any such successor
shall absolutely and unconditionally assume all of the Company's
obligations hereunder. Upon the written request of Employee, the
Company shall seek to have any successor, by agreement in form and
substance satisfactory to Employee, assent to the fulfillment by the
Company of its obligations under this Agreement. Failure to attain
such assent at least thirty (30) business days prior to the time a
person or entity becomes a successor in interest to the Company shall
be considered Employee Cause for termination of this Agreement in
accordance with Section 5(d) hereof.
(b) OFFSETS. In no event shall any amount payable to Employee pursuant
to this Agreement be reduced for purposes of offsetting, either
directly or indirectly, any indebtedness or liability of Employee to
Company.
(c) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
(d) CONSTRUCTION. Wherever possible, each provision of this Agreement
will be interpreted so that it is valid under the applicable law. If
any provision of this Agreement is to any extent invalid under the
applicable law, that provision will still be effective to the extent
it remains valid. The remainder of this Agreement also will continue
to be valid, and the entire Agreement will continue to be valid in
other jurisdictions.
(e) WAIVERS. No failure or delay by either the Company or Employee in
exercising any right or remedy under this Agreement will waive any
provision of this Agreement, nor will any single or partial exercise
by either the Company or Employee of any right or remedy under this
Agreement preclude either of them from otherwise or further exercising
these right or remedies, or any other rights or remedies granted by
any law or any related document.
(f) CAPTIONS. The headings in this Agreement are for convenience of
reference only and do not affect the interpretation of this Agreement.
(g) MODIFICATION/ENTIRE AGREEMENT. This Agreement may not be altered,
modified or amended except by an instrument in writing signed by all
of the parties hereto. No person, whether or not an officer, agent,
employee or representative of any party, has made or has any authority
to make for or on behalf of that party any agreement, representation,
warranty, statement, promise, arrangement or understanding not
expressly set forth in this Agreement or in any other document
executed by the parties concurrently herewith ("Parol Agreements").
This Agreement and all other documents executed by the parties
concurrently herewith,
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constitute the entire agreement between the parties and supersede all
express or implied, prior or concurrent, Parol Agreements and prior
written agreements with respect to the subject matter hereof. The
parties acknowledge that in entering into this Agreement, they have
not relied and will not in any way rely upon any Parol Agreements.
(h) GOVERNING LAW. The laws of the State of Minnesota shall govern the
validity construction and performance of this Agreement. Any legal
proceeding related to this Agreement shall be brought in an
appropriate Minnesota court, and each of the parties hereto consents
to the exclusive jurisdiction of the courts of the State of Minnesota
for this purpose.
(i) NOTICES. All notices and other communications required to permitted
under this Agreement shall be in writing and sent by registered first
class mail, postage prepaid, and shall be deemed received five (5)
days after mailing to the addresses stated below:
If to the Company:
NetRadio Corporation
43 Main Street S.E., Suite 149
Minneapolis, MN 55414
Attention: Chairman of the Board of Directors
If to the Employee:
Edward A. Tomechko
4716 West Arm Road
Spring Park, MN 55384
(j) SURVIVAL. Notwithstanding the termination of this Agreement or
Employee's employment with the Company, the terms of this Agreement
concerning confidentiality rights and remedies of the parties shall
survive such termination and shall govern in perpetuity all rights,
disputes, claims, or causes of action arising out of or in any way
related to this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
THE COMPANY: EXECUTIVE:
NETRADIO CORPORATION
By: /s/ Eric H. Paulson /s/ Edward A. Tomechko
---------------------- ----------------------
Its Chairman EDWARD A. TOMECHKO
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, (this "Agreement") is made and entered into as of this 1st
day of August, 1998, by and between NET RADIO CORPORATION, a Minnesota
corporation (the "Company"), and DONAVAN W. PEDERSON, a resident of the State
of Minnesota ("Executive").
WITNESSETH
WHEREAS, Executive desires to become employed by the Company, and the Company
considers Executive to be a valuable employee and desires to employ Executive
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants
and obligations of this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions of this Agreement,
the Company hereby employs Executive and Executive hereby accepts
employment with the Company, as its Chief Operating Officer.
2. DUTIES. The services of Executive are exclusive to the Company.
Executive will make the best use of his energy, knowledge and training
in, performing his duties as Chief Operating Officer of the Company
within the general guidelines established by the Board of Directors of
the Company as the same may, from time to time, be modified by the
Company's Board of Directors. Executive will report to the CEO and have
all the duties normally subscribed to the Chief Operating Officer.
Executive will perform his duties in a competent and professional
manner, consistent with that expected of an Executive of the Company.
Notwithstanding anything in this Agreement to the contrary, the duties
of Executive under this Agreement do not require Executive to relocate
his principal office or residence from the Minneapolis/St. Paul,
Minnesota metropolitan area without prior written consent of Executive.
3. TERM. Subject only to earlier termination in accordance with Section 5
of this Agreement, Executive's term of employment shall commence on
August 1, 1998 and continue for a period of two years. (the "Term").
4. COMPENSATION. As compensation for all of Executive's services under this
Agreement, the Company agrees to pay Executive and Executive agrees to
accept the following:
(a) BASE SALARY. The base salary shall be $120,000 per annum (the "Base
Salary"), payable in accordance with the Company's standard payroll
practices. Concurrent
<PAGE>
with an initial public offering, base salary shall be $140,000 per
annum, payable in accordance with the company's standard payroll
practices.
(b) IPO BONUS. In addition, Employee will be paid a one-time cash bonus
of $10,000 at the time the initial public offering is completed.
(c) PERFORMANCE BONUS. As additional compensation to Executive,
Executive shall be eligible to receive an annual bonus of up to 40%
of his Base Salary if the Company achieves mutually agreed upon
management objectives of meeting or exceeding the revenue and
traffic goals outlined in the business plan. This bonus will be
paid no more that 45 days after the completion of the fiscal
year-end audit. (See attachment.)
(d) EMPLOYEE STOCK OPTION AGREEMENT. Employee has entered into a
NetRadio Performance Stock Option Agreement.
(e) BENEFITS.
(i) EXPENSES. The Company shall reimburse Executive for any and all
ordinary, necessary and reasonable business expenses that
Executive incurs in connection with the performance of his duties
under this Agreement, including entertainment, telephone, travel
and miscellaneous expenses, provided that Executive provides the
Company with documentation for such expenses in a form sufficient
to sustain the Company's deduction for such expenses under
Section 162 of the Internal Revenue Code of 1986, as amended.
(ii) MEDICAL AND DISABILITY INSURANCE. Subject to Executive taking
and passing the physical examination, if required by the
Company's insurance carrier, the Company shall provide Executive
with the same health insurance, short-term disability and
long-term disability insurance coverage provided to other
officers of the Company.
(iii) VACATION. Executive shall be entitled to vacation in
accordance with Company policy, which may be taken at any
time subject to the Company's business needs.
(iv) BENEFIT CHANGES. No reference in this Agreement to any policy or
any employee benefit plan established or maintained by the
Company shall preclude the Company from changing any such
policies or amending or terminating any such benefit plans if a
substantially similar benefit is provided to Executive by the
Company.
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(v) OTHER PLANS. Nothing contained herein is intended to or shall be
deemed to be granted to Executive in lieu of any rights or
privileges which executive may be entitled to as an employee of
Company under any other policies or benefit plans that are
currently in effect or that may hereafter be adopted. Executive
shall be entitled to participate in any other employee benefit
plans of the Company generally applicable to officers of the
Company occupying similar positions as Executive, including, but
not limited to, any profit sharing, pension, stock option, stock
appreciation rights, stock ownership, health, medical, dental,
vacation, insurance or other employee benefit plans.
5. TERMINATION. This Agreement may not be terminated prior to the end of the
Term except as follows:
(a) BY THE COMPANY FOR COMPANY CAUSE. The company may terminate this
Agreement for Company Cause upon Executive's material breach of
this Agreement. Except as to subparagraph (iv) below, the Company
shall give Executive thirty (30) days' advance written notice of
such termination, which notice shall be via registered mail, return
receipt requested, and which shall describe in detail the acts or
omissions which the Company believes constitute such breach and
Executive shall have the opportunity to cure such default within
said thirty (30) day period. Actions constituting "Company Cause"
shall be defined as:
(i) Any material breach by Executive of his obligations under this
Agreement;
(ii) Dereliction of his or her duties as an executive, misconduct
of Executive which is manifestly injurious to Company, or
habitual failure or inability of Executive to perform his
duties under this Agreement; and
(iii) Any fraud, theft or embezzlement by Executive of the Company's
assets, or any other unlawful or criminal act which is
punishable as a felony.
(b) DEATH. This Agreement shall terminate upon Executive's death.
(c) DISABILITY. This Agreement shall terminate upon Executive's
Disability. As used herein, the term "Disability" shall have such
meaning as set forth in the Company's disability policy in effect at
the date hereof and shall include both permanent and temporary
disability, short term and long term disability, and total and partial
disability. If there is no policy in effect at the date of
Executive's potential disability, Disability shall mean Executive
becoming substantially incapable of performing his duties hereunder
for a period of 3 months or more.
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(d) BY EXECUTIVE FOR EXECUTIVE CAUSE. Executive may terminate this
Agreement upon thirty (30) days' written notice to the Company upon
the occurrence, without Executive's express written consent, of any
one or more of the following events, provided that Executive shall
not have the right to terminate this Agreement if the Company is
able to cure such event within thirty (30) days following delivery
of such notice:
(i) The Company is in material breach of this Agreement;
(ii) Any attempted termination by the Company of this Agreement or
the employment of Executive by Company which is not expressly
authorized by this Agreement or any breach of this Agreement
by the Company which is not remedied by the Company within
thirty (30) days after the Company's receipt of notice thereof
from Executive;
(iii) The Company's requiring Executive to be based anywhere other
than the Minneapolis/St. Paul, Minnesota metropolitan
statistical area, except for required travel on the Company's
business to an extent substantially consistent with the
business travel obligations which Executive has typically
undertaken on behalf of the Company prior to the date of this
Agreement.
6. PAYMENTS UPON TERMINATION.
(a) DEATH. In the event that this Agreement is terminated due to
Executive's death, Executive shall be paid (i) his Base Salary
through the end of the month in which his death occurred, (ii) his
accrued but unpaid vacation pay for the year in which his death
occurred, pro rated to the date of his death, and (iii) any unpaid
expense reimbursement.
(b) DISABILITY. In the event that this Agreement is terminated due to
Executive's Disability, Executive shall be paid (i) his Base Salary
through the end of the month in which the Disability occurs (ii)
his accrued but unpaid vacation pay for the year in which such
Disability occurred, pro rated to the date of such Disability, and
(iii) any unpaid expense reimbursement.
(c) TERMINATION BY COMPANY FOR COMPANY CAUSE. If Executive is
terminated pursuant to Section 5(a) hereof, the Company shall pay
to Executive (i) his Base Salary through the date written notice is
properly mailed to Executive pursuant to Section 5(a) hereof and
(ii) any unpaid expense reimbursement.
(d) TERMINATION WITHOUT COMPANY CAUSE. In addition to any other rights
granted Executive hereunder, if the Company should terminate this
Agreement other than
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in accordance with Section 5(a), 5(b) or 5(c) hereof, or if the
Executive terminates this Agreement pursuant to Section 5(d) hereof,
the Company shall pay to Executive an additional amount equal to his
Base Salary for the remaining term of this Agreement. In addition,
the Company shall pay the Executive's health and disability insurance
premiums for the remaining term of this Agreement.
7. OWNERSHIP OF PROPERTIES; CONFIDENTIALITY; EXCLUSIVITY; INVESTMENTS.
(a) OWNERSHIP OF PROPERTIES. The Company, as employer, shall own, and
Executive hereby transfers and assigns to the Company, all rights in
and to any material and/or ideas written, suggested or submitted by
Executive during the Term and all other results and proceeds of his
services under this Agreement (the "Properties"). Without limiting
the generality of the foregoing, these rights shall include all radio,
musical, computer, software, copyright, patent, publication and/or
other rights in and to the Properties, including the sole and
exclusive right to duplicate, record, publish and/or market the same
with or without dialogue, music and other sounds synchronously
recorded, and to perform, exhibit, distribute, reproduce, transmit,
broadcast or otherwise communicate the same, or other versions or
adaptations thereof, and to manufacture, publish, or vend printed
and/or recorded versions or adaptations thereof, either publicly or
privately and for profit or otherwise. The Company and its licensees
and assigns shall have the right to adapt, change, revise, delete
from, add to and/or rearrange the Properties or any part thereof
written or submitted by Executive and to combine the same with other
works to any extent, and to change or substitute the title thereof and
in this connection Executive hereby waives any so-called "moral
rights" of authors. Executive agrees to execute and deliver to the
Company such releases, assignments or other instruments as the Company
may require from time to time to evidence its ownership of the results
and proceeds of Executive's services hereunder.
The requirements of this Section 7(a) do not apply to Properties for
which no equipment, facility or confidential information of the
Company was used and which were developed entirely on Executive's own
time, and which (i) do not relate directly to the Company's business
or to the Company's actual research or development, or (ii) do not
result from any work Executive performed for the Company. Except as
previously disclosed to the Company in writing, Executive does not
have and will not assert any claims to or rights under any Properties
as having been made, conceived, authored or acquired by Executive
prior to his executions of this Agreement.
(b) CONFIDENTIALITY. Executive acknowledges that his services will,
throughout the Term bring Executive in close contact with many
confidential affairs of the Company and its affiliates, including
information about costs, profits, financial
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data, markets, trade secrets, sales, products, computer programs,
key personnel, pricing policies, customer lists, development
projects, operational methods, technical processes, plans for
future development, business affairs, and methods and other
information not readily available to the public. Executive further
acknowledges that the businesses of the Company and its affiliates
are international in scope, that their products are marketed
throughout the world, that the Company and its affiliates compete
in nearly all of their business activities with other organizations
which are or could be located in nearly any part of the world and
that the nature of Executive's services, position and expertise are
such that he is capable of competing with the Company and it
affiliates from nearly any location in the world. In recognition
of the foregoing Executive covenants and agrees:
(i) that Executive will keep secret all material confidential
matters of the Company and its affiliates which are not
otherwise in the public domain and will not disclose them to
anyone outside of the Company or its affiliates, either during
or after the Term except with the Company's written consent
and except for such disclosure as is necessary in the
performance of Executive's duties during the Term; and
(ii) that Executive will deliver promptly to the Company on
termination of his employment with the Company or at any other
time the Company may so request, at the Company's expense, all
confidential memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's
and its affiliates' business, which Executive obtained while
employed by, or otherwise serving or acting on behalf of, the
Company or which the employee may then possess or have under
his control.
(c) INVESTMENTS. Notwithstanding anything contained herein to the
contrary, during the Term Executive may acquire and/or retain, solely
as an investment, and take customary actions to maintain and preserve
Executive's ownership of:
(i) securities of any corporation which are registered under
Sections 12(b) or 12(g) of the Securities Exchange Act of 1934
and which are publicly traded, so long as Executive is not
part of any control group of such corporation; and
(ii) any securities of a partnership, trust, corporation, limited
liability company or other entity so long as (i) Executive
remains a passive investor in that entity and does not become
part of any control group thereof (except in a passive
capacity) and (ii) such entity is not, directly or indirectly,
in
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competition with the Company or its affiliates, regardless
of whether Executive is a passive investor or part of any
control group thereof.
8. REMEDIES. The parties hereto recognize and agree that, because the
material breach of this Agreement or any part hereof would result in
damages difficult to ascertain, upon any allegations of material breach of
this Agreement, either party hereto shall be entitled:
(a) PROCEEDINGS. To institute proceedings in a court located in the State
of Minnesota to enjoin the breach, termination, or threatened
termination of this Agreement. Such injunctive remedy shall be in
addition to and not in lieu of any right to recover money for any such
breach.
(b) COSTS AND EXPENSES. The successful party in any action brought
concerning the breach or termination of this Agreement shall be
entitled to recover all costs and expenses, including attorney's fees
incurred or associated with the enforcement of any covenant of this
Agreement.
9. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Agreement is binding on and inures to
the benefit of the Company's successors and assigns. Executive may
not assign this Agreement for any purpose whatsoever.
(b) COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
(c) CONSTRUCTION. Wherever possible, each provision of this Agreement
will be interpreted so that it is valid under the applicable law. If
any provision of this Agreement is to any extent invalid under the
applicable law, that provision will still be effective to the extent
it remains valid. The remainder of this Agreement also will continue
to be valid, and the entire Agreement will continue to be valid in
other jurisdictions.
(d) WAIVERS. No failure or delay by either the Company or Executive in
exercising any right or remedy under this Agreement will waive any
provision of this Agreement, nor will any single or partial exercise
by either the Company or Executive of any right or remedy under this
Agreement preclude either of them from otherwise or further exercising
these right or remedies, or any other rights or remedies granted by
any law or any related document.
(e) CAPTIONS. The headings in this Agreement are for convenience of
reference only and do not affect the interpretation of this Agreement.
(f) MODIFICATION/ENTIRE AGREEMENT. Subject to Section 9(d) above, this
Agreement may not be altered, modified or amended except by an
instrument in writing
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signed by all of the parties hereto. No person, whether or not an
officer, agent, employee or representative of any party, has made
or has any authority to make for or on behalf of that party any
agreement, representation, warranty, statement, promise,
arrangement or understanding not expressly set forth in this
Agreement or in any other document executed by the parties
concurrently herewith ("Parol Agreements"). This Agreement and all
other documents executed by the parties concurrently herewith,
constitute the entire agreement between the parties and supersede
all express or implied, prior or concurrent, parol agreements and
prior written agreements with respect to the subject matter hereof.
The parties acknowledge that in entering into this Agreement, they
have not relied and will not in any way rely upon any parol
agreements.
(g) GOVERNING LAW. The laws of the State of Minnesota shall govern the
validity construction and performance of this Agreement. Any legal
proceeding related to this Agreement shall be brought in an
appropriate Minnesota court, and each of the parties hereto consents
to the exclusive jurisdiction of the courts of the State of Minnesota
for this purpose.
(h) NOTICES. All notices and other communications required to permitted
under this Agreement shall be in writing and sent by registered first
class mail, postage prepaid, and shall be deemed received five (5)
days after mailing to the addresses stated below:
If to the Company:
Net Radio Corporation
Riverplace Exposition Hall
Suite 149
43 Main Street S.E.
Minneapolis, MN 55414
Attention: Chairman of the Board of Directors
With a copy to:
Scott J. Dongoske, Esq.
Winthrop & Weinstine, P.A.
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402-4430
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If to Executive:
Donavan W. Pederson
1609 23rd Avenue NorthWest
New Brighton, MN 55112
With a copy to :
--------------------
--------------------
--------------------
(I) SURVIVAL. Notwithstanding the termination of this Agreement or
Executive's employment with the Company, the terms of this Agreement
concerning confidentiality rights and remedies of the parties shall
survive such termination and shall govern in perpetuity all rights,
disputes, claims, or causes of action arising out of or in any way
related to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
THE COMPANY: EXECUTIVE:
NET RADIO CORPORATION
By: /s/ Eric H. Paulson /s/ Donavan W. Pederson
--------------------------- ----------------------------
Its Chief Executive Officer DONAVAN W. PEDERSON
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, (this "Agreement") is made and entered into as of this 1st day
of August, 1998, by and between NETRADIO CORPORATION, a Minnesota corporation
(the "Company"), and JAN K. ANDERSEN, a resident of the State of Minnesota
("Executive").
WITNESSETH
WHEREAS, Executive desires to become employed by the Company, and the Company
considers Executive to be a valuable employee and desires to employ Executive
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants
and obligations of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions of this Agreement,
the Company hereby employs Executive and Executive hereby accepts
employment with the Company, as its Senior Vice President, Sales and
Marketing.
2. DUTIES. The services of Executive are exclusive to the Company. Executive
will make the best use of his energy, knowledge and training in, performing
his duties as Senior Vice President, Sales and Marketing of the Company
within the general guidelines established by the Board of Directors of the
Company as the same may, from time to time, be modified by the Company's
Board of Directors. Executive will report to the CEO and have all the
duties normally subscribed to the Executive Vice President, Sales and
Marketing. Executive will perform his duties in a competent and
professional manner, consistent with that expected of an Executive of the
Company. Notwithstanding anything in this Agreement to the contrary, the
duties of Executive under this Agreement do not require Executive to
relocate his principal office or residence from the Minneapolis/St. Paul,
Minnesota metropolitan area without prior written consent of Executive.
3. TERM. Subject only to earlier termination in accordance with Section 5 of
this Agreement, Executive's term of employment shall commence on August 1,
1998 and continue for a period of two years. (the "Term").
4. COMPENSATION. As compensation for all of Executive's services under this
Agreement, the Company agrees to pay Executive and Executive agrees to
accept the following:
(a) BASE SALARY. The base salary shall be $100,000 per annum (the "Base
Salary"), payable in accordance with the Company's standard payroll
practices. Concurrent with an initial public offering, base salary
shall be $130,000 per annum, payable in accordance with the company's
standard payroll practices.
<PAGE>
(b) BONUS. Upon receipt of outside financing, Executive shall receive a
one-time bonus of $10,000.
(c) PERFORMANCE BONUS. As additional compensation to Executive, Executive
shall be eligible to receive an annual bonus of up to 40% of his Base
Salary if the Company achieves mutually agreed upon management
objectives of meeting or exceeding the revenue and traffic goals
outlined in the business plan. This bonus will be paid no more than
45 days after the completion of the fiscal year-end audit. (See
attachment.)
(d) EMPLOYEE STOCK OPTION AGREEMENT. Employee has entered into a NetRadio
Performance Stock Option Agreement, the provisions of which are hereby
incorporated into this Employment Agreement.
(e) BENEFITS.
(i) EXPENSES. The Company shall reimburse Executive for any and all
ordinary, necessary and reasonable business expenses that
Executive incurs in connection with the performance of his duties
under this Agreement, including entertainment, telephone, travel
and miscellaneous expenses, provided that Executive provides the
Company with documentation for such expenses in a form sufficient
to sustain the Company's deduction for such expenses under
Section 162 of the Internal Revenue Code of 1986, as amended.
(ii) MEDICAL AND DISABILITY INSURANCE. Subject to Executive taking
and passing the physical examination, if required by the
Company's insurance carrier, the Company shall provide Executive
with the same health insurance, short-term disability and
long-term disability insurance coverage provided to other
officers of the Company.
(iii) VACATION. Executive shall be entitled to vacation in
accordance with Company policy, which may be taken at any time
subject to the Company's business needs.
(iv) BENEFIT CHANGES. No reference in this Agreement to any policy
or any employee benefit plan established or maintained by the
Company shall preclude the Company from changing any such
policies or amending or terminating any such benefit plans if
a substantially similar benefit is provided to Executive by
the Company.
(v) OTHER PLANS. Nothing contained herein is intended to or shall be
deemed to be granted to Executive in lieu of any rights or
privileges which executive may be entitled to as an employee of
Company under any other policies or benefit plans that are
currently in effect or that may hereafter be
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adopted. Executive shall be entitled to participate in any
other employee benefit plans of the Company generally
applicable to officers of the Company occupying similar
positions as Executive, including, but not limited to, any
profit sharing, pension, stock option, stock appreciation
rights, stock ownership, health, medical, dental, vacation,
insurance or other employee benefit plans.
5. TERMINATION. This Agreement may not be terminated prior to the end of the
Term except as follows:
(a) BY THE COMPANY FOR COMPANY CAUSE. The company may terminate this
Agreement for Company Cause upon Executive's material breach of this
Agreement. Except as to subparagraph (iv) below, the Company shall
give Executive thirty (30) days' advance written notice of such
termination, which notice shall be via registered mail, return receipt
requested, and which shall describe in detail the acts or omissions
which the Company believes constitute such breach and Executive shall
have the opportunity to cure such default within said thirty (30) day
period. Actions constituting "Company Cause" shall be defined as:
(i) Any material breach by Executive of his obligations under this
Agreement;
(ii) Dereliction of his or her duties as an executive, misconduct of
Executive which is manifestly injurious to Company, or habitual
failure or inability of Executive to perform his duties under
this Agreement; and
(iii) Any fraud, theft or embezzlement by Executive of the Company's
assets, or any other unlawful or criminal act which is
punishable as a felony.
(b) DEATH. This Agreement shall terminate upon Executive's death.
(c) DISABILITY. This Agreement shall terminate upon Executive's
Disability. As used herein, the term "Disability" shall have such
meaning as set forth in the Company's disability policy in effect at
the date hereof and shall include both permanent and temporary
disability, short term and long term disability, and total and partial
disability. If there is no policy in effect at the date of
Executive's potential disability, Disability shall mean Executive
becoming substantially incapable of performing his duties hereunder
for a period of 3 months or more.
(d) BY EXECUTIVE FOR EXECUTIVE CAUSE. Executive may terminate this
Agreement upon thirty (30) days' written notice to the Company upon
the occurrence, without Executive's express written consent, of any
one or more of the following events, provided that Executive shall not
have the right to terminate this Agreement if the Company is able to
cure such event within thirty (30) days following delivery of such
notice:
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(i) The Company is in material breach of this Agreement;
(ii) Any attempted termination by the Company of this Agreement or the
employment of Executive by Company which is not expressly
authorized by this Agreement or any breach of this Agreement by
the Company which is not remedied by the Company within thirty
(30) days after the Company's receipt of notice thereof from
Executive;
(iii) The Company's requiring Executive to be based anywhere other
than the Minneapolis/St. Paul, Minnesota metropolitan
statistical area, except for required travel on the Company's
business to an extent substantially consistent with the
business travel obligations which Executive has typically
undertaken on behalf of the Company prior to the date of this
Agreement.
6. PAYMENTS UPON TERMINATION.
(a) DEATH. In the event that this Agreement is terminated due to
Executive's death, Executive shall be paid (i) his Base Salary through
the end of the month in which his death occurred, (ii) his accrued but
unpaid vacation pay for the year in which his death occurred, pro
rated to the date of his death, and (iii) any unpaid expense
reimbursement.
(b) DISABILITY. In the event that this Agreement is terminated due to
Executives Disability, Executive shall be paid (i) his Base Salary
through the end of the month in which the Disability occurs (ii) his
accrued but unpaid vacation pay for the year in which such Disability
occurred, pro rated to the date of such Disability, and (iii) any
unpaid expense reimbursement.
(c) TERMINATION BY COMPANY FOR COMPANY CAUSE. If Executive is terminated
pursuant to Section 5(a) hereof, the Company shall pay to Executive
(i) his Base Salary through the date written notice is properly mailed
to Executive pursuant to Section 5(a) hereof and (ii) any unpaid
expense reimbursement.
(d) TERMINATION WITHOUT COMPANY CAUSE. In addition to any other rights
granted Executive hereunder, if the Company should terminate this
Agreement other than in accordance with Section 5(a), 5(b) or 5(c)
hereof, or if the Executive terminates this Agreement pursuant to
Section 5(d) hereof, the Company shall pay to Executive an additional
amount equal to his Base Salary for the remaining term of this
Agreement. In addition, the Company shall pay the Executive's health
and disability insurance premiums for the remaining term of this
Agreement.
7. OWNERSHIP OF PROPERTIES; CONFIDENTIALITY; EXCLUSIVITY; INVESTMENTS.
(a) OWNERSHIP OF PROPERTIES. The Company, as employer, shall own, and
Executive hereby transfers and assigns to the Company, all rights in
and to any material
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and/or ideas written, suggested or submitted by Executive during
the Term and all other results and proceeds of his services under
this Agreement (the "Properties"). Without limiting the generality
of the foregoing, these rights shall include all radio, musical,
computer, software, copyright, patent, publication and/or other
rights in and to the Properties, including the sole and exclusive
right to duplicate, record, publish and/or market the same with or
without dialogue, music and other sounds synchronously recorded,
and to perform, exhibit, distribute, reproduce, transmit, broadcast
or otherwise communicate the same, or other versions or adaptations
thereof, and to manufacture, publish, or vend printed and/or
recorded versions or adaptations thereof, either publicly or
privately and for profit or otherwise. The Company and its
licensees and assigns shall have the right to adapt, change,
revise, delete from, add to and/or rearrange the Properties or any
part thereof written or submitted by Executive and to combine the
same with other works to any extent, and to change or substitute
the title thereof and in this connection Executive hereby waives
any so-called "moral rights" of authors. Executive agrees to
execute and deliver to the Company such releases, assignments or
other instruments as the Company may require from time to time to
evidence its ownership of the results and proceeds of Executive's
services hereunder.
The requirements of this Section 7(a) do not apply to Properties for
which no equipment, facility or confidential information of the
Company was used and which were developed entirely on Executive's own
time, and which (i) do not relate directly to the Company's business
or to the Company's actual research or development, or (ii) do not
result from any work Executive performed for the Company. Except as
previously disclosed to the Company in writing, Executive does not
have and will not assert any claims to or rights under any Properties
as having been made, conceived, authored or acquired by Executive
prior to his executions of this Agreement.
(b) CONFIDENTIALITY. Executive acknowledges that his services will,
throughout the Term bring Executive in close contact with many
confidential affairs of the Company and its affiliates, including
information about costs, profits, financial data, markets, trade
secrets, sales, products, computer programs, key personnel, pricing
policies, customer lists, development projects, operational
methods, technical processes, plans for future development,
business affairs, and methods and other information not readily
available to the public. Executive further acknowledges that the
businesses of the Company and its affiliates are international in
scope, that their products are marketed throughout the world, that
the Company and its affiliates compete in nearly all of their
business activities with other organizations which are or could be
located in nearly any part of the world and that the nature of
Executive's services, position and expertise are such that he is
capable of competing with the Company and it affiliates from nearly
any location in the world. In recognition of the foregoing
Executive covenants and agrees:
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(i) that Executive will keep secret all material confidential
matters of the Company and its affiliates which are not
otherwise in the public domain and will not disclose them to
anyone outside of the Company or its affiliates, either during
or after the Term except with the Company's written consent
and except for such disclosure as is necessary in the
performance of Executive's duties during the Term; and
(ii) that Executive will deliver promptly to the Company on
termination of his employment with the Company or at any other
time the Company may so request, at the Company's expense, all
confidential memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's
and its affiliates' business, which Executive obtained while
employed by, or otherwise serving or acting on behalf of, the
Company or which the employee may then possess or have under
his control.
(c) INVESTMENTS. Notwithstanding anything contained herein to the
contrary, during the Term Executive may acquire and/or retain, solely
as an investment, and take customary actions to maintain and preserve
Executive's ownership of:
(i) securities of any corporation which are registered under
Sections 12(b) or 12(g) of the Securities Exchange Act of 1934
and which are publicly traded, so long as Executive is not
part of any control group of such corporation; and
(ii) any securities of a partnership, trust, corporation, limited
liability company or other entity so long as (i) Executive
remains a passive investor in that entity and does not become
part of any control group thereof (except in a passive
capacity) and (ii) such entity is not, directly or indirectly,
in competition with the Company or its affiliates, regardless
of whether Executive is a passive investor or part of any
control group thereof.
8. REMEDIES. The parties hereto recognize and agree that, because the
material breach of this Agreement or any part hereof would result in
damages difficult to ascertain, upon any allegations of material breach of
this Agreement, either party hereto shall be entitled:
(a) PROCEEDINGS. To institute proceedings in a court located in the State
of Minnesota to enjoin the breach, termination, or threatened
termination of this Agreement. Such injunctive remedy shall be in
addition to and not in lieu of any right to recover money for any such
breach.
(b) COSTS AND EXPENSES. The successful party in any action brought
concerning the breach or termination of this Agreement shall be
entitled to recover all costs and expenses, including attorney's fees
incurred or associated with the enforcement of any covenant of this
Agreement.
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9. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Agreement is binding on and inures to
the benefit of the Company's successors and assigns, provided,
however, that this Agreement may not be assigned by any of the partied
hereto without the prior written consent of each of the parties
hereto. This agreement shall be binding upon and inure to the benefit
of any successor of the Company, and any such successor shall
absolutely and unconditionally assume all of the Company's obligations
hereunder. Upon the written request of Executive, the Company shall
seek to have any successor, by agreement in form and substance
satisfactory to Executive, assent to the fulfillment by the Company of
its obligations under this Agreement. Failure to attain such assent
at least thirty 30) business days prior to the time a person or entity
becomes a successor in interest to the Company shall be considered
Employee Cause for termination of this Agreement in accordance with
Section 5(d) hereof. Executive may not assign this Agreement for any
purpose whatsoever.
(b) COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
(c) CONSTRUCTION. Wherever possible, each provision of this Agreement
will be interpreted so that it is valid under the applicable law. If
any provision of this Agreement is to any extent invalid under the
applicable law, that provision will still be effective to the extent
it remains valid. The remainder of this Agreement also will continue
to be valid, and the entire Agreement will continue to be valid in
other jurisdictions.
(d) WAIVERS. No failure or delay by either the Company or Executive in
exercising any right or remedy under this Agreement will waive any
provision of this Agreement, nor will any single or partial exercise
by either the Company or Executive of any right or remedy under this
Agreement preclude either of them from otherwise or further exercising
these right or remedies, or any other rights or remedies granted by
any law or any related document.
(e) CAPTIONS. The headings in this Agreement are for convenience of
reference only and do not affect the interpretation of this Agreement.
(f) MODIFICATION/ENTIRE AGREEMENT. Subject to Section 9(d) above, this
Agreement may not be altered, modified or amended except by an
instrument in writing signed by all of the parties hereto. No person,
whether or not an officer, agent, employee or representative of any
party, has made or has any authority to make for or on behalf of that
party any agreement, representation, warranty, statement, promise,
arrangement or understanding not expressly set forth in this Agreement
or in any other document executed by the parties concurrently herewith
("Parol Agreements"). This Agreement and all other documents executed
by the parties
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concurrently herewith, constitute the entire agreement between the
parties and supersede all express or implied, prior or concurrent,
parol agreements and prior written agreements with respect to the
subject matter hereof. The parties acknowledge that in entering
into this Agreement, they have not relied and will not in any way
rely upon any parol agreements.
(g) GOVERNING LAW. The laws of the State of Minnesota shall govern the
validity construction and performance of this Agreement. Any
legal proceeding related to this Agreement shall be brought in an
appropriate Minnesota court, and each of the parties hereto
consents to the exclusive jurisdiction of the courts of the State
of Minnesota for this purpose.
(h) NOTICES. All notices and other communications required to
permitted under this Agreement shall be in writing and sent by
registered first class mail, postage prepaid, and shall be deemed
received five (5) days after mailing to the addresses stated below:
If to the Company:
Net Radio Corporation
Riverplace Exposition Hall
Suite 149
43 Main Street S.E.
Minneapolis, MN 55414
Attention: Chairman of the Board of Directors
With a copy to:
Scott J. Dongoske, Esq.
Winthrop & Weinstine, P.A.
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402-4430
If to Executive:
Jan Andersen
4721 Timber Ridge Place
Minnetonka, MN 55345
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With a copy to:
--------------------
--------------------
--------------------
(I) SURVIVAL. Notwithstanding the termination of this Agreement or
Executive's employment with the Company, the terms of this Agreement
concerning confidentiality rights and remedies of the parties shall
survive such termination and shall govern in perpetuity all rights,
disputes, claims, or causes of action arising out of or in any way
related to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
THE COMPANY: EXECUTIVE:
NET RADIO CORPORATION
By: /s/ Eric H. Paulson /s/ Jan K. Andersen
---------------------------- -------------------------------
Its President JAN K. ANDERSEN
----------------------------
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, (this "Agreement") is made and entered into as of this 1st day
of August, 1998, by and between NETRADIO CORPORATION, a Minnesota corporation
(the "Company"), and DAVID R. WITZIG, a resident of the State of Minnesota
("Executive").
WITNESSETH
WHEREAS, Executive desires to become employed by the Company, and the Company
considers Executive to be a valuable employee and desires to employ Executive
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants
and obligations of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions of this Agreement,
the Company hereby employs Executive and Executive hereby accepts
employment with the Company, as its Vice President, E-Commerce and Content
Development.
2. DUTIES. The services of Executive are exclusive to the Company.
Executive will make the best use of his energy, knowledge and training in,
performing his duties as Vice President, E-Commerce and Content
Development of the Company within the general guidelines established by
the Board of Directors of the Company as the same may, from time to time,
be modified by the Company's Board of Directors. Executive will report to
the CEO and have all the duties normally subscribed to the Senior Vice
President, E-Commerce and Content Development. Executive will perform his
duties in a competent and professional manner, consistent with that
expected of an Executive of the Company. Notwithstanding anything in this
Agreement to the contrary, the duties of Executive under this Agreement do
not require Executive to relocate his principal office or residence from
the Minneapolis/St. Paul, Minnesota metropolitan area without prior
written consent of Executive.
3. TERM. Subject only to earlier termination in accordance with Section 5 of
this Agreement, Executive's term of employment shall commence on August 1,
1998 and continue for a period of two years. (the "Term").
4. COMPENSATION. As compensation for all of Executive's services under this
Agreement, the Company agrees to pay Executive and Executive agrees to
accept the following:
(a) BASE SALARY. The base salary shall be $100,000 per annum (the "Base
Salary"), payable in accordance with the Company's standard payroll
practices. Concurrent with an initial public offering, base salary
shall be $130,000 per annum, payable in accordance with the
company's standard payroll practices.
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(b) BONUS. Upon receipt of outside financing, Executive shall receive a
one-time bonus of $10,000.
(c) PERFORMANCE BONUS. As additional compensation to Executive,
Executive shall be eligible to receive an annual bonus of up to 40%
of his Base Salary if the Company achieves mutually agreed upon
management objectives of meeting or exceeding the revenue and
traffic goals outlined in the business plan. This bonus will be
paid no more that 45 days after the completion of the fiscal
year-end audit. (See attachment.)
(d) EMPLOYEE STOCK OPTION AGREEMENT. Employee has entered into a
NetRadio Performance Stock Option Agreement, the provisions of
which are hereby incorporated into this Employment Agreement.
(e) BENEFITS.
(i) EXPENSES. The Company shall reimburse Executive for any and
all ordinary, necessary and reasonable business expenses that
Executive incurs in connection with the performance of his
duties under this Agreement, including entertainment,
telephone, travel and miscellaneous expenses, provided that
Executive provides the Company with documentation for such
expenses in a form sufficient to sustain the Company's
deduction for such expenses under Section 162 of the Internal
Revenue Code of 1986, as amended.
(ii) MEDICAL AND DISABILITY INSURANCE. Subject to Executive taking
and passing the physical examination, if required by the
Company's insurance carrier, the Company shall provide
Executive with the same health insurance, short-term
disability and long-term disability insurance coverage
provided to other officers of the Company.
(iii) VACATION. Executive shall be entitled to vacation in
accordance with Company policy, which may be taken at any
time subject to the Company's business needs.
(iv) BENEFIT CHANGES. No reference in this Agreement to any policy
or any employee benefit plan established or maintained by the
Company shall preclude the Company from changing any such
policies or amending or terminating any such benefit plans if
a substantially similar benefit is provided to Executive by
the Company.
(v) OTHER PLANS. Nothing contained herein is intended to or shall
be deemed to be granted to Executive in lieu of any rights or
privileges which executive may be entitled to as an employee
of Company under any other policies or benefit plans that are
currently in effect or that may hereafter be
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adopted. Executive shall be entitled to participate in any
other employee benefit plans of the Company generally
applicable to officers of the Company occupying similar
positions as Executive, including, but not limited to, any
profit sharing, pension, stock option, stock appreciation
rights, stock ownership, health, medical, dental, vacation,
insurance or other employee benefit plans.
5. TERMINATION. This Agreement may not be terminated prior to the end of the
Term except as follows:
(a) BY THE COMPANY FOR COMPANY CAUSE. The company may terminate this
Agreement for Company Cause upon Executive's material breach of this
Agreement. Except as to subparagraph (iv) below, the Company shall
give Executive thirty (30) days' advance written notice of such
termination, which notice shall be via registered mail, return
receipt requested, and which shall describe in detail the acts or
omissions which the Company believes constitute such breach and
Executive shall have the opportunity to cure such default within
said thirty (30) day period. Actions constituting "Company
Cause"shall be defined as:
(i) Any material breach by Executive of his obligations under this
Agreement;
(ii) Dereliction of his or her duties as an executive, misconduct
of Executive which is manifestly injurious to Company, or
habitual failure or inability of Executive to perform his
duties under this Agreement; and
(iii) Any fraud, theft or embezzlement by Executive of the Company's
assets, or any other unlawful or criminal act which is
punishable as a felony.
(b) DEATH. This Agreement shall terminate upon Executive's death.
(c) DISABILITY. This Agreement shall terminate upon Executive's
Disability. As used herein, the term "Disability" shall have such
meaning as set forth in the Company's disability policy in effect at
the date hereof and shall include both permanent and temporary
disability, short term and long term disability, and total and
partial disability. If there is no policy in effect at the date of
Executive's potential disability, Disability shall mean Executive
becoming substantially incapable of performing his duties hereunder
for a period of 3 months or more.
(d) BY EXECUTIVE FOR EXECUTIVE CAUSE. Executive may terminate this
Agreement upon thirty (30) days' written notice to the Company upon
the occurrence, without Executive's express written consent, of any
one or more of the following events, provided that Executive shall
not have the right to terminate this Agreement if the Company is
able to cure such event within thirty (30) days following delivery
of such notice:
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(i) The Company is in material breach of this Agreement;
(ii) Any attempted termination by the Company of this Agreement or
the employment of Executive by Company which is not expressly
authorized by this Agreement or any breach of this Agreement
by the Company which is not remedied by the Company within
thirty (30) days after the Company's receipt of notice thereof
from Executive;
(iii) The Company's requiring Executive to be based anywhere other
than the Minneapolis/St. Paul, Minnesota metropolitan
statistical area, except for required travel on the Company's
business to an extent substantially consistent with the
business travel obligations which Executive has typically
undertaken on behalf of the Company prior to the date of this
Agreement.
6. PAYMENTS UPON TERMINATION.
(a) DEATH. In the event that this Agreement is terminated due to
Executive's death, Executive shall be paid (i) his Base Salary
through the end of the month in which his death occurred, (ii) his
accrued but unpaid vacation pay for the year in which his death
occurred, pro rated to the date of his death, and (iii) any unpaid
expense reimbursement.
(b) DISABILITY. In the event that this Agreement is terminated due to
Executive's Disability, Executive shall be paid (i) his Base Salary
through the end of the month in which the Disability occurs (ii) his
accrued but unpaid vacation pay for the year in which such
Disability occurred, pro rated to the date of such Disability, and
(iii) any unpaid expense reimbursement.
(c) TERMINATION BY COMPANY FOR COMPANY CAUSE. If Executive is
terminated pursuant to Section 5(a) hereof, the Company shall pay to
Executive (i) his Base Salary through the date written notice is
properly mailed to Executive pursuant to Section 5(a) hereof and
(ii) any unpaid expense reimbursement.
(d) TERMINATION WITHOUT COMPANY CAUSE. In addition to any other rights
granted Executive hereunder, if the Company should terminate this
Agreement other than in accordance with Section 5(a), 5(b) or 5(c)
hereof, or if the Executive terminates this Agreement pursuant to
Section 5(d) hereof, the Company shall pay to Executive an
additional amount equal to his Base Salary for the remaining term of
this Agreement. In addition, the Company shall pay the Executive's
health and disability insurance premiums for the remaining term of
this Agreement.
7. OWNERSHIP OF PROPERTIES; CONFIDENTIALITY; EXCLUSIVITY; INVESTMENTS.
(a) OWNERSHIP OF PROPERTIES. The Company, as employer, shall own, and
Executive hereby transfers and assigns to the Company, all rights in
and to any material
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and/or ideas written, suggested or submitted by Executive during
the Term and all other results and proceeds of his services
under this Agreement (the "Properties"). Without limiting the
generality of the foregoing, these rights shall include all
radio, musical, computer, software, copyright, patent, publication
and/or other rights in and to the Properties, including the sole and
exclusive right to duplicate, record, publish and/or market the same
with or without dialogue, music and other sounds synchronously
recorded, and to perform, exhibit, distribute, reproduce,
transmit, broadcast or otherwise communicate the same, or other
versions or adaptations thereof, and to manufacture, publish, or
vend printed and/or recorded versions or adaptations thereof, either
publicly or privately and for profit or otherwise. The Company and
its licensees and assigns shall have the right to adapt, change,
revise, delete from, add to and/or rearrange the Properties or any
part thereof written or submitted by Executive and to combine the
same with other works to any extent, and to change or substitute the
title thereof and in this connection Executive hereby waives any
so-called "moral rights" of authors. Executive agrees to execute
and deliver to the Company such releases, assignments or other
instruments as the Company may require from time to time to evidence
its ownership of the results and proceeds of Executive's services
hereunder.
The requirements of this Section 7(a) do not apply to Properties for
which no equipment, facility or confidential information of the
Company was used and which were developed entirely on Executive's
own time, and which (i) do not relate directly to the Company's
business or to the Company's actual research or development, or (ii)
do not result from any work Executive performed for the Company.
Except as previously disclosed to the Company in writing, Executive
does not have and will not assert any claims to or rights under any
Properties as having been made, conceived, authored or acquired by
Executive prior to his executions of this Agreement.
(b) CONFIDENTIALITY. Executive acknowledges that his services will,
throughout the Term bring Executive in close contact with many
confidential affairs of the Company and its affiliates, including
information about costs, profits, financial data, markets, trade
secrets, sales, products, computer programs, key personnel, pricing
policies, customer lists, development projects, operational methods,
technical processes, plans for future development, business affairs,
and methods and other information not readily available to the
public. Executive further acknowledges that the businesses of the
Company and its affiliates are international in scope, that their
products are marketed throughout the world, that the Company and its
affiliates compete in nearly all of their business activities with
other organizations which are or could be located in nearly any part
of the world and that the nature of Executive's services, position
and expertise are such that he is capable of competing with the
Company and it affiliates from nearly any location in the world. In
recognition of the foregoing Executive covenants and agrees:
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(i) that Executive will keep secret all material confidential
matters of the Company and its affiliates which are not
otherwise in the public domain and will not disclose them to
anyone outside of the Company or its affiliates, either during
or after the Term except with the Company's written consent
and except for such disclosure as is necessary in the
performance of Executive's duties during the Term; and
(ii) that Executive will deliver promptly to the Company on
termination of his employment with the Company or at any other
time the Company may so request, at the Company's expense, all
confidential memoranda, notes, records, reports and other
documents (and all copies thereof) relating to the Company's
and its affiliates' business, which Executive obtained while
employed by, or otherwise serving or acting on behalf of, the
Company or which the employee may then possess or have under
his control.
(c) INVESTMENTS. Notwithstanding anything contained herein to the
contrary, during the Term Executive may acquire and/or retain,
solely as an investment, and take customary actions to maintain and
preserve Executive's ownership of:
(i) securities of any corporation which are registered under
Sections 12(b) or 12(g) of the Securities Exchange Act of 1934
and which are publicly traded, so long as Executive is not
part of any control group of such corporation; and
(ii) any securities of a partnership, trust, corporation, limited
liability company or other entity so long as (i) Executive
remains a passive investor in that entity and does not become
part of any control group thereof (except in a passive
capacity) and (ii) such entity is not, directly or indirectly,
in competition with the Company or its affiliates, regardless
of whether Executive is a passive investor or part of any
control group thereof.
8. REMEDIES. The parties hereto recognize and agree that, because the
material breach of This Agreement or any part hereof would result in
damages difficult to ascertain, upon any allegations of material breach of
this Agreement, either party hereto shall be entitled:
(a) PROCEEDINGS. To institute proceedings in a court located in the
State of Minnesota to enjoin the breach, termination, or threatened
termination of this Agreement. Such injunctive remedy shall be in
addition to and not in lieu of any right to recover money for any
such breach.
(b) COSTS AND EXPENSES. The successful party in any action brought
concerning the breach or termination of this Agreement shall be
entitled to recover all costs and expenses, including attorney's
fees incurred or associated with the enforcement of any covenant of
this Agreement.
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9. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Agreement is binding on and inures to
the benefit of the Company's successors and assigns, provided,
however, that this Agreement may not be assigned by any of the
partied hereto without the prior written consent of each of the
parties hereto. This agreement shall be binding upon and inure to
the benefit of any successor of the Company, and any such successor
shall absolutely and unconditionally assume all of the Company's
obligations hereunder. Upon the written request of Executive, the
Company shall seek to have any successor, by agreement in form and
substance satisfactory to Executive, assent to the fulfillment by
the Company of its obligations under this Agreement. Failure to
attain such assent at least thirty (30) business days prior to the
time a person or entity becomes a successor in interest to the
Company shall be considered Employee Cause for termination of this
Agreement in accordance with Section 5(d) hereof. Executive may not
assign this Agreement for any purpose whatsoever.
(b) COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed to be an original but
all of which together shall constitute one and the same
instrument.
(c) CONSTRUCTION. Wherever possible, each provision of this Agreement
will be interpreted so that it is valid under the applicable law.
If any provision of this Agreement is to any extent invalid under
the applicable law, that provision will still be effective to the
extent it remains valid. The remainder of this Agreement also will
continue to be valid, and the entire Agreement will continue to be
valid in other jurisdictions.
(d) WAIVERS. No failure or delay by either the Company or Executive in
exercising any right or remedy under this Agreement will waive any
provision of this Agreement, nor will any single or partial exercise
by either the Company or Executive of any right or remedy under this
Agreement preclude either of them from otherwise or further
exercising these right or remedies, or any other rights or remedies
granted by any law or any related document.
(e) CAPTIONS. The headings in this Agreement are for convenience of
reference only and do not affect the interpretation of this
Agreement.
(f) MODIFICATION/ENTIRE AGREEMENT. Subject to Section 9(d) above, this
Agreement may not be altered, modified or amended except by an
instrument in writing signed by all of the parties hereto. No
person, whether or not an officer, agent, employee or representative
of any party, has made or has any authority to make for or on behalf
of that party any agreement, representation, warranty, statement,
promise, arrangement or understanding not expressly set forth in
this Agreement or in any other document executed by the parties
concurrently herewith ("Parol Agreements"). This Agreement and all
other documents executed by the parties
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concurrently herewith, constitute the entire agreement between the
parties and supersede all express or implied, prior or concurrent,
parol agreements and prior written agreements with respect to the
subject matter hereof. The parties acknowledge that in entering
into this Agreement, they have not relied and will not in any way
rely upon any parol agreements.
(g) GOVERNING LAW. The laws of the State of Minnesota shall govern the
validity construction and performance of this Agreement. Any legal
proceeding related to this Agreement shall be brought in an
appropriate Minnesota court, and each of the parties hereto consents
to the exclusive jurisdiction of the courts of the State of
Minnesota for this purpose.
(h) NOTICES. All notices and other communications required to permitted
under this Agreement shall be in writing and sent by registered
first class mail, postage prepaid, and shall be deemed received five
(5) days after mailing to the addresses stated below:
If to the Company:
Net Radio Corporation
Riverplace Exposition Hall
Suite 149
43 Main Street S.E.
Minneapolis, MN 55414
Attention: Chairman of the Board of Directors
With a copy to:
Scott J. Dongoske, Esq.
Winthrop & Weinstine, P.A.
3000 Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, MN 55402-4430
If to Executive:
David R. Witzig
10147 Gristmill Ridge
Eden Prairie, MN 55347
With a copy to :
____________________
____________________
____________________
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(I) SURVIVAL. Notwithstanding the termination of this Agreement or
Executive's employment with the Company, the terms of this Agreement
concerning confidentiality rights and remedies of the parties shall
survive such termination and shall govern in perpetuity all rights,
disputes, claims, or causes of action arising out of or in any way
related to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
THE COMPANY: EXECUTIVE:
NET RADIO CORPORATION
By: /s/ Eric H. Paulson /s/ David R. Witzig
--------------------- ----------------------
Its President DAVID R. WITZIG
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EXHIBIT 10.5
TERMINATION AGREEMENT
THIS AGREEMENT is made and entered into this 25th day of February, 1999, by and
between NETRADIO NETWORK, a Minnesota corporation (the "Company"), and
NANCY R. KIELTY, the Company's Vice President-Consumer Marketing (the
"Executive").
WHEREAS, the Company is engaged in the business of developing, marketing,
and selling products on the internet; and
WHEREAS, the Company and Executive mutually desire to enter into a
Termination Agreement outlining specific terms and conditions in the case that
certain events trigger either the Executive's termination or diminishment in
position;
NOW THEREFORE, in consideration of the above recitals and the mutual
promises herein contained, the parties hereto agree as follows:
1. TERMINATION. This Agreement and the obligation to pay the Executive under
paragraph 2 of this Agreement will only be triggered if (i) there is Change
in Control (as defined below) and (ii) within one (1) year after such
Change in Control any one of the following events occurs:
(a) Executive's employment with the company is terminated by the Company;
or
(b) There is any adverse change in Executive's status or position as an
executive officer of the Company, including without limitation, any
adverse change in Executive's status or position as a result of a
material diminution in Executive's duties, responsibilities, or
authority immediately prior to the Change in Control or the assignment
to Executive of any duties or responsibilities which, in Executive's
reasonable judgment, are inconsistent with the Executive's status or
position; or
(c) The Company substantially reduces the Executive's base salary that
was in effect immediately before the Change in Control or otherwise
changes the eligibility requirements or performance criteria for any
benefit other than salary, which adversely effects Executive.
2. PAYMENTS DUE. If any of the events described in paragraph 1 above is
triggered, the Company shall pay Executive a cash bonus ("Severance
Payment") in an amount equal to six months of the the Executive's salary,
provided, however, that in no event shall the amount due and payable
hereunder constitute a "Parachute Payment" within the meaninig of the
Section 280G(b)(2) of the Internal Revenue Code of 1986, as
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amended. In the event that any portion of the Severance Payment would
be deemed a Parachute Payment, the amount of the Severance Payment shall
be reduced only to the extent necessary to eliminate any such treatment
or characterization.
3. DEFINITIONS. For purposes of this Agreement the following definitions
apply:
(a) "AVERAGE ANNUAL COMPENSATION" shall mean the average of all taxable
compensation and fringe benefits paid to or on behalf of the Executive
by Company, based on the two (2) most recent calendar years.
(b) "CHANGE IN CONTROL" shall mean:
(i) the sale of all or substantially all of the assets of the
Company,
(ii) the acquisition by any means of more than fifty percent (50%)
of the issued and outstanding voting stock of the Company by any
entity, person, or group of persons acting in concert; provided,
however, this subparagraph (ii) does not apply to any offering by
the Company to the public that has been approved by the Company's
Board of Directors,
(iv) the commencement by an entity, person or group (other than the
Company or a subsidiary of the Company) of a tender offer or an
exchange offer for fifty percent (50%) or more of the outstanding
voting stock of the Company; or
(v) the election to the Board of Directors of the Company without
the recommendation or approval of the incumbent Board of Directors
of the Company the lesser of (i) three director or (ii) directors
constituting a majority of the number of directors of the Company
then in office.
4. MODIFICATIONS - WAIVER. No termination or modification of any provision
of this Termination Agreement or waiver of any right provided in it
shall be effective for any purpose unless specifically set forth in a
writing signed by the party to be bound thereby. No waiver of any right
or remedy in respect of any occurrence or event on one occasion shall be
deemed a waiver of such right or remedy in respect of such occurrence or
event on any other occasion.
5. ENTIRE AGREEMENT. This Termination Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all other agreements, oral or written, with respect to the
subject matter contained in this Agreement.
6. CONTROLLING LAW. All questions concerning the validity and operation of
this Termination Agreement and the performance of the obligations imposed
upon the parties hereunder shall be governed by the laws of the State of
Minnesota.
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IN WITNESS WHEREOF, the parties have executed this Termination Agreement
as of the date first set forth above.
NETRADIO NETWORK,
a Minnesota corporation
BY: /s/ Edward A. Tomechko
-----------------------------------
Its: CEO
-----------------------------
/s/ Nancy R. Kielty
---------------------------------------
Nancy R. Kielty, Vice President-
Consumer Marketing
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EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
September 3, 1998
BY FACSIMILE
Jan Andersen
Sr. VP of Global Sales and Marketing
NetRadio Networks
43 Main Street, S.E.
Suite 149
Minneapolis, MN 55414
Navarre Corporation
7400 49th Ave. North
New Hope, MN 55428
Re: LICENSE OF REALNETWORKS SOFTWARE
Dear Mr. Andersen:
1. LICENSE. NetRadio currently holds a license to RealNetworks' RealServer
Version 5.0, with the capability to stream 2,250 streams of
RealAudio/RealVideo-encoded content (the "Software"). NetRadio agrees to
purchase a license to upgrade the Software to [Confidential Treatment
Requested], and one year of Upgrades and Support therefor. NetRadio
acknowledges and agrees that its use of the Software shall be governed by
RN's standard RealSystem Server license agreement (the "License
Agreement"), attached hereto and incorporated herein by this reference,
as may be revised from time to time with each Upgrade of the Software.
RN shall initially deliver the Software to NetRadio in the form of a
30-day time-out license key. The Software will cease functioning at
the end of the 30-day period.
2. CONSIDERATION. In consideration for the licenses granted to NetRadio
hereunder, NetRadio shall pay to RN [Confidential Treatment Requested],
payable in full within thirty (30) days of the date hereof. Immediately
upon receipt thereof, RN shall replace the time-out license key, with a
perpetual license key, and shall provide NetRadio an additional
[Confidential Treatment Requested] at no charge. This offer is good
through September 9, 1998.
3. OPTION. For one year from the date hereof, NetRadio will have an option
to license additional RealAudio/RealVideo streams in minimum lots of
1,000 streams at [Confidential Treatment Requested], which shall include
Upgrades and Support therefor.
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
Upgrades do not include new media or data types other than RealAudio and
RealVideo. The license therefor will be perpetual. As per the License
Agreement, NetRadio may not sublicense any streams hereunder to third
parties. NetRadio shall have the option to receive RN's standard
Upgradesand Support for the Software for three additional years at a
cost of [Confidential Treatment Requested].
4. [Confidential Treatment Requested].
5. ADDITIONAL RN OBLIGATIONS.
a. RN shall provide NetRadio with the highest level of technical
support offered to similarly situated customers, with a dedicated
prime technical contact, for one year from the date hereof.
b. RN will participate with NetRadio in extensive public relations
and marketing programs to build brand name awareness for NetRadio,
as agreed upon by the parties.
6. GUARANTY. Navarre Corporation, the parent company of NetRadio,
unconditionally guarantees payment for all Software licensed and
delivered hereunder, according to the terms of this letter agreement.
If you agree with the terms of this letter agreement, please sign below and
return to my attention. This agreement shall not be deemed effective until
signed by all three parties below.
Sincerely,
REALNETWORKS, INC.
By: Jeff Mandelbaum
V.P. North American Sales
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
REALNETWORKS LICENSE AGREEMENT AND WARRANTY DISCLAIMER
REDISTRIBUTION OF SOFTWARE NOT PERMITTED
______________________________________
COMMERCIAL NETWORK OPERATORS LICENSE FOR USE WITH REALNETWORKS INTERNET SERVER
VERSION 5.0.
IMPORTANT -- READ CAREFULLY: THIS REALNETWORKS LICENSE AGREEMENT ("LICENSE
AGREEMENT") IS A LEGAL AGREEMENT BETWEEN YOU (EITHER AN INDIVIDUAL OR AN ENTITY)
AND REALNETWORKS, INC. AND ITS SUPPLIERS AND LICENSORS (COLLECTIVELY "RN") FOR
THE RN SERVER SOFTWARE PRODUCT LISTED ABOVE, WHICH INCLUDES COMPUTER SOFTWARE
AND ASSOCIATED MEDIA AND PRINTED MATERIALS, WHETHER PROVIDED IN PHYSICAL FORM OR
RECEIVED ON-LINE IN ELECTRONIC FORM ("SOFTWARE").
ANY THIRD PARTY SOFTWARE, INCLUDING ANY NON-RN PLUG-IN, THAT MAY BE PROVIDED
WITH THE SOFTWARE IS INCLUDED FOR USE AT YOUR OPTION. IF YOU CHOOSE TO USE SUCH
SOFTWARE, THEN SUCH USE SHALL BE GOVERNED BY SUCH THIRD PARTY'S LICENSE
AGREEMENT, AN ELECTRONIC COPY OF WHICH WILL BE INSTALLED IN THE "LICENSES"
FOLDER ON YOUR COMPUTER, UPON INSTALLATION OF THE SOFTWARE.
1. SOFTWARE OWNERSHIP. This is a license agreement and NOT an agreement for
sale. RN continues to own the Software, and other content provided or
transmitted to you by RN. Your rights to use the Software are specified in this
License Agreement, and RN retains all rights not expressly granted to you in
this License Agreement. Nothing in this License Agreement constitutes a waiver
of RN's rights under U.S. or international copyright law or any other federal or
state law.
2. GRANT OF LICENSE. Subject to the provisions contained in this License
Agreement, RN hereby grants you a non-exclusive, non-transferable, perpetual,
worldwide license to the version of the Software specified by your Software
License Key for installation of the Software, according to the following terms
and conditions:
(a) INSTALLATION. This License permits you to install one copy of the
Software with the same (or a lower) version number as the Software version
number listed above on a single computer containing one or more central
processing units ("CPU's") (the computer running the Software shall be referred
to as the "Host Computer"). A license fee is required for each Host Computer,
and if you would like to add Host Computers in a clustering configuration, you
must purchase from RN a multiple Server Software License Agreement (or licenses)
and pay the applicable license fees.
(b) USE RIGHTS. You may use your installed copy of the Software to deliver
up to 50 simultaneous User-Streams of RN media-compatible data (e.g., audio,
video or other media only as specifically enabled by the license key which
accompanies the Software) as set forth on the applicable Order Form or signed
agreement between the parties. A "User-Stream" is defined as the stream of
digitally-encoded data that delivers the media type associated with the Software
you have licensed to a single end-user client computer. You may only serve
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
the media types(s), e.g., audio and/or video, that are authorized by
your Server License Key. The number of User-Streams being delivered by a
given Host Computer is measured by counting the number of end-users
simultaneously served by streams originating at that Host Computer. If you
wish to deliver additional User-Streams, you must purchase a Software License
Key upgrade from RN.
(c) HOSTING RIGHTS. You may only rent, sell or sublicense User-Streams under
this License Agreement to third parties to whom you are providing web hosting
services (referred to as "Hosted Customer"), subject to the following terms:
(i) You will only deliver User-Streams to Hosted Customer with whom
you have entered into a formal agreement to host the Hosted Customer's website
or a significant portion thereof for an uninterrupted period of no less than (1)
month and only as a part of a Bundled Hosting Solution which must include, at a
minimum, bandwidth usage, network environment, server hardware, power supply,
operations center staff and engineers. Under no circumstances may you
sublicense or deliver User-Streams on a stand-alone basis.
(ii) You must allocate a specific number of User-Streams to each of
your Hosted Customers for the duration of the term of your agreement to provide
RN-media datatype hosting services ("RN Media Hosting") as part of your hosting
agreement, which must be at least one continuous and uninterrupted month.
Allocated User-Streams must be dedicated to the Hosted Customer, and cannot be
offered to, sublicensed to or accessed by any other party including you for your
own use regardless of whether the Hosted Customer to whom the User-Streams were
allocated is utilizing all, part or none of the allocated streams. The total
number of User-Streams allocated may not exceed the total number of User-Streams
represented by your Server License Key, and cannot be overallocated, oversold or
overcommitted. Upon the expiration or termination of the RN Media Hosting or
one (1) month, whichever is later, you may resume usage of the User-Streams (for
your own purposes or for other Hosted Customers or Sub-Licensees).
(iii) Prior to entering into RN User-Stream Agreements, you shall
notify Hosted Customers in writing that they are using User-Streams subject
to, and agree to be bound by, RN's User-Stream License Agreement (the
"User-Stream License"), a copy of which is attached hereto as Attachment 1.
You shall distribute a copy of the User-Stream License to each Hosted
Customer. The User-Stream License shall be between RN and the Hosted
Customer. You may refer any questions the Hosted Customers may have about
the User-Stream License directly to RN. You shall notify RN of any violation
of the User-Stream License by any of the Hosted Customers as soon as you
becomes aware of such violations, and, if RN is unable to obtain such Hosted
Customer's compliance with the User-Stream License after reasonable effort to
do so, RN will provide three (3) days' written notice to you and, upon
expiration of the notice period, you agree to cease distributing the
User-Streams to such Hosted Customer.
(d) LIVE EVENTS. Subject to the requirements of Sections 1 and 2 of this
Agreement, you may use the Software to host or serve live broadcast events
which do not exceed 24 hours ("Events"), provided that you may use only the
number of User-Streams, if any, which have not been allocated to your Hosted
Customers or Sub-licensees or to other Events. If you desire to obtain
additional User-Streams to host occasional Events which require capacity in
excess of your unallocated User-Streams, please see RN's website at
http://www.real.com
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
for information, pricing and licensing options for obtaining Event Licenses,
or for purchasing or sublicensing access to the Real Broadcast Network, RN's
live broadcast events network.
(e) ATTRIBUTION. You must indicate which publicly available files are in a
proprietary RN format (e.g., RealAudio (.ra) or RealVideo (.rm)). RN hereby
grants you a non-exclusive, limited license to use, and you agree that you shall
always use, RN's trademarks in accordance with RN's Trademark and Logo Usage
Policy at http://www.real.com/corporate/logos/policy.html., and for the sole
purpose of informing web page visitors that RealAudio or RealVideo content is
available at your web page. You agree that shall not use any RN trademark in a
way which may imply that you are an agency or branch of RN. You agree that you
shall not use any RN trademark in a way which may imply that RN endorses, is
affiliated with, or sponsors you or your products without RN's express written
permission. You also agree that you may not link directly to any media file or
.ram file made available from the RN website. You agree that the rights set
forth in this paragraph may be immediately terminated by RN in the event of any
violation of RN's rights in its trademarks or for a violation of RN's Trademark
and Logo Usage Policy.
3. LIMITATIONS. NOTICE TO USERS. You agree to inform all users of the
terms of this License Agreement. INTRANET USE. YOU MAY NOT USE THE SOFTWARE TO
SERVE YOUR CORPORATE INTRANET. PLEASE SEE RN'S WEBSITE AT
HTTP://WWW.REAL.COM/PRODUCTS/SERVER/INTRANET/INDEX.HTML FOR INFORMATION, PRICING
AND LICENSING OPTIONS FOR INTRANET SYSTEMS AND LICENSED SEATS. DUAL-MEDIA
SOFTWARE. You may receive the Software in more than one medium (e.g., by
electronic distribution and on CD-ROM). You may not use or install the other
medium on another computer. You may not loan, rent, lease, grant a security
interest in, or otherwise transfer the other medium to another user. NO RESALE
OF USER-STREAMS ON STAND-ALONE BASIS. YOU MAY NOT, UNDER ANY CIRCUMSTANCES,
TRANSFER, RESELL, SUBLICENSE OR DELIVER USER-STREAMS ON A STAND-ALONE BASIS TO
ANY THIRD-PARTY. NO COPYING. You may not copy the Software or Documentation,
except that you may make a single copy of the software for archival purposes
only, provided such copy must contain all of the original Software's proprietary
notices. NO MODIFICATIONS OR REVERSE ENGINEERING. You may not modify,
translate, reverse engineer, decompile or disassemble (except to the extent that
this restriction is expressly prohibited by applicable law), or create
derivative works based on the Software. RENTAL/TRANSFER. You may not rent,
lease, sell or transfer the Software or documentation without RN's express
written consent, which RN may withhold in its discretion. AUDIT RIGHTS. You
shall permit RN to audit your and your Sub-Licensee's compliance with this
License Agreement, as RN deems reasonably necessary. RESERVATION OF RIGHTS.
All rights not expressly granted to you are reserved to RN.
4. SOFTWARE UPGRADES. RN may develop or issue upgraded versions of the
Software from time to time. For a period of one (1) year from the effective
date of this License Agreement (and with respect to any future licenses of
Software, from one (1) year from the date of such license), RN shall make
Software maintenance and upgrades available to you for no charge in accordance
with RN's standard upgrade and support policy. Thereafter, at its sole option,
and for a fee to be determined, RN may make such upgrades available to you. If
the Software you have is labeled as an upgrade, you must be properly licensed to
use a product identified by RN as being eligible for the upgrade in order to use
the Software. Software labeled as an upgrade replaces and/or supplements the
product that formed the basis for your eligibility for the upgrade, and
following the upgrade you may use the resulting Software only in accordance with
the terms of this License Agreement.
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
If the Software is an upgrade of a component of a package of software
programs that you licensed as a single product, the Software may be used and
transferred only as part of that single product package and may not be
separated for use on more than one computer.
5. LIMITED WARRANTY. RN warrants for your benefit alone that for a period
of ninety (90) days from the date of delivery (a) the Software, if operated as
directed on a computer for which it was designed, will perform substantially in
accordance with the accompanying written materials; and (b) under normal use,
the media containing the Software, if provided by RN, will be free from defects
in material and workmanship. Any implied warranties on the Software and media
are limited to ninety (90) days. All other programs and accompanying materials
are provided "AS IS" without warranty of any kind, either express or implied.
The complete risk as to the quality and performance of any non-warranted program
is with you. Should the program prove defective, you assume the entire cost of
all necessary repair or correction. RN shall not be responsible for any defect
that results from your abuse, misuse or other conduct or conditions outside the
control of RN. RN makes no representation or warranty that the information or
functions contained in the Software will meet your requirements or that the
operation of the Software will be uninterrupted, error-free or secure, or that
any Software defects are correctable or will be corrected. In addition, any
security mechanisms implemented by the Software have inherent limitations, and
you must determine that the Software sufficiently meets your requirements.
THIS IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY MADE BY RN OR ITS
SUPPLIERS. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, RN AND ITS
SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH REGARD TO THE SOFTWARE, THE ACCOMPANYING WRITTEN
MATERIALS, AND ANY ACCOMPANYING HARDWARE. RN MAKES NO WARRANTY Of
NONINFRINGEMENT OF THIRD PARTIES' RIGHTS. THIS LIMITED WARRANTY GIVES RECIPIENT
SPECIFIC LEGAL RIGHTS. RECIPIENT MAY HAVE OTHERS, WHICH VARY FROM
STATE/JURISDICTION TO STATE/JURISDICTION. If you make any modifications to the
Software during the warranty period; if the media is subjected to abuse,
accident or improper use; or if you violate the terms of this License Agreement,
this warranty shall immediately be terminated.
6. REMEDIES. RN's and its suppliers' entire liability and your exclusive
remedy for any breach of warranty shall be, at RN's option: (i) to repair or
replace the Software or media that does not meet RN's Limited Warranty and which
is returned to RN with a copy of your receipt or other proof of purchase;
(ii) to advise you how to achieve substantially the same functionality with the
Software as described in the accompanying written materials through a procedure
different from that set forth in the documentation; or (iii) if RN deems the
above remedies impracticable, to refund the license fee you paid for the
Software. Repaired, corrected or replaced Software and media shall be covered
by this limited warranty for the remainder of the original warranty period or
for thirty (30) days, whichever is longer. Only if you inform RN of the problem
with the Software during the applicable warranty period and provides evidence of
the date you acquired the Software will RN be obligated to honor this warranty.
Outside of the United States, neither these remedies nor any product support
services offered by RN are available without proof of purchase from a non-U.S.
source.
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
7. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL
THEORY, WHETHER IN TORT, CONTRACT OR OTHERWISE, SHALL RN OR ITS SUPPLIERS OR
RESELLERS BE LIABLE TO YOU OR ANY OTHER PERSON FOR ANY DIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER ARISING OUT OF THE USE OF
OR INABILITY TO USE THE SOFTWARE, THE DOCUMENTATION OR ANY OTHER ACCOMPANYING
MATERIALS, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK
STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL OTHER COMMERCIAL
DAMAGES OR LOSSES, ARISING OUT OF THE USE OF OR INABILITY TO USE THE SOFTWARE,
EVEN IF RN HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY
CLAIM BY ANY OTHER PARTY. FURTHER, IN NO EVENT SHALL RN'S LIABILITY UNDER ANY
PROVISION OF THIS LICENSE AGREEMENT EXCEED THE LICENSE FEE PAID TO RN FOR THE
SOFTWARE. BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE
LIMITATION MAY NOT APPLY TO YOU.
8. INDEMNIFICATION. You agree to hold harmless, indemnify and defend RN,
its officers, directors and employees, from and against any losses, damages,
fines and expenses (including attorneys' fees and costs) arising out of or
relating to any claims that you have encoded, copied or transmitted any
materials in connection with the Software in violation of another party's rights
or of any law. If you are importing the Software from the United States, you
shall indemnify and hold RN harmless from and against any import and export
duties or other claims arising from such importation.
9. TERMINATION. This License Agreement will terminate immediately if you
fail to comply with any term hereof within three (3) days of receiving notice
from RN. You may terminate this License Agreement at any time by notifying RN
in writing of termination. Upon any termination of this License Agreement, you
shall immediately discontinue use of the Software and shall within three (3)
days return to RN, or certify destruction of, all full or partial copies of the
Software, documentation and related materials provided by RN, except that Hosted
Customers and Sub-licensees may continue to use allocated User-Streams for no
more than thirty (30) days from the date of termination. Your obligation to pay
accrued charges and fees shall survive any termination of this License
Agreement.
10. MISCELLANEOUS. This License Agreement shall constitute the complete and
exclusive agreement between us, notwithstanding any variance with any purchase
order or other written instrument submitted by you, whether formally rejected by
RN or not. The acceptance of any purchase order you place is expressly
conditioned on your consent to the terms set forth herein. A separate written
agreement with respect to the subject matter hereof shall supersede this License
Agreement to the extent indicated in such separate agreement. This License
Agreement may not be modified except in a writing duly signed by an authorized
representative of RN and you. If any provision of this License Agreement is
held to be unenforceable for any reason, such provision shall be reformed only
to the extent necessary to make it enforceable, and such decision shall not
affect the enforceability of such provision under other circumstances, or of the
remaining provisions hereof under all circumstances. This License Agreement
shall be governed by the laws of the State of Washington
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
without regard to conflicts of law provisions and you consent to the
exclusive jurisdiction of the state and federal courts sitting in the State
of Washington. This License Agreement will not be governed by the United
Nations Convention of Contracts for the International Sale of Goods, the
application of which is hereby expressly excluded.
11. U.S. GOVERNMENT RESTRICTED RIGHTS. This Software and documentation are
provided with RESTRICTED RIGHTS. Use, duplication or disclosure by the
Government is subject to restrictions set forth in subparagraphs (a) through (d)
of the Commercial Computer Software--Restricted Rights at FAR 52.227-19 when
applicable, or in subparagraph (c)(1)(ii) of the Rights in Technical Data and
Computer Software clause at DFARS 252.227-7013, and in similar clauses in the
NASA FAR supplement, as applicable. Manufacturer is RealNetworks, Inc./1111
Third Avenue, Suite 2900/Seattle, Washington, 98101. You acknowledge that none
of the Software or underlying information or technology may be downloaded or
otherwise exported or re-exported (i) into (or to a national or resident of)
Cuba, Iraq, Libya, Sudan, North Korea, Iran, Syria or any other country to which
the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury
Department's list of Specially Designated Nationals or the U.S. Commerce
Department's Table of Denial Orders. By using the Software you are agreeing to
the foregoing and are representing and warranting that you are not located in or
under the control of a national or resident of any such country or on any such
list.
INTENDING TO BE LEGALLY BOUND, the parties have executed this License Agreement
by their duly authorized representatives, to be effective as of the date first
written above.
<TABLE>
<S> <C>
REALNETWORKS, INC. ________________________ ("Licensee").
By______________________________ By_________________________________
Its_______________________________ Its__________________________________
</TABLE>
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
ATTACHMENT 1
USER-STREAM LICENSE AGREEMENT
YOUR INTERNET SERVICE PROVIDER OR OTHER COMMERCIAL NETWORK OPERATOR, FROM
WHOM YOU RECEIVE INTERNET ACCESS, IS GIVING YOU THE RIGHT TO USE MULTIMEDIA
USER-STREAMS OF DIGITALLY-ENCODED DATA THAT WILL ENABLE YOU TO DELIVER
MULTIMEDIA TO END-USER CLIENT COMPUTERS ("USER STREAMS"). YOUR USE OF THE
USER STREAMS IS SUBJECT TO THIS LICENSE AGREEMENT.
IMPORTANT - READ CAREFULLY: THIS REALNETWORKS USER-STREAM LICENSE AGREEMENT
("LICENSE AGREEMENT") IS A LEGAL AGREEMENT BETWEEN YOU (EITHER AN INDIVIDUAL
OR AN ENTITY) AND REALNETWORKS, INC., ITS LICENSORS AND SUPPLIERS
(COLLECTIVELY. ("RN") FOR THE USER STREAMS PROVIDED TO YOU BY YOUR INTERNET
SERVICE PROVIDER OR OTHER COMMERCIAL NETWORK OPERATOR. BY, ACCEPTING,
COPYING OR OTHERWISE USING THE USER STREAMS, YOU AGREE TO BE BOUND BY THE
TERMS OF THIS LICENSE AGREEMENT. IF YOU DO NOT AGREE TO THE TERMS OF THIS
LICENSE AGREEMENT, NOTIFY YOUR INTERNET SERVICE PROVIDER OR OTHER COMMERCIAL
NETWORK OPERATOR ("PROVIDER") FROM WHOM YOU RECEIVED THE USER-STREAMS THAT
YOU DO NOT DESIRE TO USE THE USER STREAMS.
1. OWNERSHIP. This is a license agreement and NOT an agreement for sale.
RN continues to own the User Streams, and other content provided or
transmitted to you by RN. Your rights to use the User Streams are specified
in this License Agreement, and RN retains all rights not expressly granted to
you in this License Agreement. Nothing in this License Agreement constitutes
a waiver of RN's rights under U.S. or international copyright law or any
other federal or state law.
2. GRANT OF LICENSE. Subject to the provisions contained in this License
Agreement, RN hereby grants you a non-exclusive, non-transferable, perpetual,
worldwide license to the version of the User Streams specified by your User
Streams License Key for installation of the User Streams, according to the
following terms and conditions:
(a) RIGHTS. You may use your User Streams to deliver up to the number of
User-Streams of RN media-compatible data (e.g., audio, video or other media
only as specifically enabled by the license key which accompanies the User
Streams) authorized by your Internet Service Provider ("ISP"). A
"User-Stream" is defined as the stream of digitally-encoded data that
delivers the media type you have licensed from your ISP. You may only serve
the media types(s), e.g., audio and/or video, that are authorized by your ISP.
(b) RESTRICTIONS.
(i) NO INTRANET USE. YOU MAY NOT USE THE USER STREAMS TO SERVE
USER-STREAMS PRIMARILY TO END-USERS OF YOUR INTERNAL NETWORK OR INTRANET
SYSTEM. IF YOU WISH TO DO SO, PLEASE CONTACT RN OR VISIT THE RN WEBSITE
AT HTTP://WWW.REAL.COM TO OBTAIN THE APPROPRIATE INTRANET SYSTEMS
LICENSE.
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
(ii) NO RESALE. YOU MAY NOT, UNDER ANY CIRCUMSTANCES, TRANSFER,
RESELL, SUBLICENSE OR DELIVER THE USER STREAMS TO ANY THIRD-PARTY.
(iii) NO HOSTING. YOU MAY NOT RENT, SELL OR SUBLICENSE USER-STREAMS
UNDER THIS LICENSE AGREEMENT TO ANY THIRD PARTY FOR WHOM YOU ARE HOSTING
A WEBSITE OR ANY EVENT THAT IS BEING BROADCAST OR OTHERWISE TRANSMITTED
OVER THE INTERNET. If you wish to do so, please contact RN or visit the
RN website at http://www.real.com for information on how to obtain the
appropriate Commercial Network Operator License.
3. ATTRIBUTION. You must indicate which publicly available files are in a
proprietary RN format (e.g., RealAudio (.ra) or RealVideo (.rm)). RN hereby
grants you a non-exclusive, limited license to use, and you agree that you shall
always use, RN's trademarks in accordance with RN's Trademark and Logo Usage
Policy at http://www.real.com/corporate/logos/policy.html., and for the sole
purpose of informing web page visitors that RealAudio or RealVideo content is
available at your web page. You agree that shall not use any RN trademark in a
way which may imply that you are an agency or branch of RN. You agree that you
shall not use any RN trademark in a way which may imply that RN endorses, is
affiliated with, or sponsors you or your products without RN's express written
permission. You also agree that you may not link directly to any media file or
.ram file made available from the RN website. You agree that the rights set
forth in this paragraph may be immediately terminated by RN in the event of any
violation of RN's rights in its trademarks or for a violation of RN's Trademark
and Logo Usage Policy.
4. OTHER RIGHTS AND LIMITATIONS. NOTICE TO USERS. You agree to inform all
users of the User Streams, other than end-users receiving User-Streams, of the
terms of this License Agreement. NO MODIFICATIONS OR REVERSE ENGINEERING. You
may not modify, translate, reverse engineer, decompile or disassemble (except to
the extent that this restriction is expressly prohibited by applicable law) the
User Streams. AUDIT RIGHTS. You shall permit RN to audit your compliance with
this License Agreement, as RN deems reasonable necessary. RESERVATION OF
RIGHTS. All rights not expressly granted to you are reserved to RN.
5. LIMITED WARRANTY. If any RN software ("Software") has been provided to
you by RN or your ISP, RN warrants for your benefit alone that for a period of
ninety (90) days from the date of delivery (a) the Software, if operated as
directed on a computer for which it was designed, will perform substantially in
accordance with the accompanying written materials; and (b) under normal use,
the media containing the Software, if provided by RN, will be free from defects
in material and workmanship. Any implied warranties on the Software and media
are limited to ninety (90) days. All other programs and accompanying materials
are provided "AS IS" without warranty of any kind, either express or implied.
The complete risk as to the quality and performance of any non-warranted program
is with you. Should the program prove defective, you assume the entire cost of
all necessary repair or correction. RN shall not be responsible for any defect
that results from your abuse, misuse or other conduct or conditions outside the
control of RN. RN makes no representation or warranty that the information or
functions contained in the Software will meet your requirements or that the
operation of the Software will be uninterrupted, error-free or secure, or that
any Software defects are correctable
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
or will be corrected. In addition, any security mechanisms implemented by
the Software have inherent limitations, and you must determine that the
Software sufficiently meets your requirements.
THIS IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY MADE BY RN OR ITS
SUPPLIERS. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, RN AND ITS
SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH REGARD TO THE USER STREAMS AND SOFTWARE, THE
ACCOMPANYING WRITTEN MATERIALS, AND ANY ACCOMPANYING HARDWARE. RN MAKES NO
WARRANTY OF NONINFRINGEMENT OF THIRD PARTIES' RIGHTS. THIS LIMITED WARRANTY
GIVES RECIPIENT SPECIFIC LEGAL RIGHTS. RECIPIENT MAY HAVE OTHERS, WHICH VARY
FROM STATE/JURISDICTION TO STATE/JURISDICTION. If you make any modifications to
the Software during the warranty period; if the media is subjected to abuse,
accident or improper use; or if you violate the terms of this Agreement, this
warranty shall immediately be terminated.
6. REMEDIES. RN's and its suppliers' entire liability and your exclusive
remedy for any breach of warranty shall be, at RN's option: (i) to repair or
replace the Software or media that does not meet RN's Limited Warranty and which
is returned to RN with a copy of your receipt or other proof of purchase; (ii)
to advise you how to achieve substantially the same functionality with the
Software as described in the accompanying written materials through a procedure
different from that set forth in the documentation; or (iii) if RN deems the
above remedies impracticable, to refund the license fee you paid for the
Software, if Software has been provided to you. Repaired, corrected or replaced
Software and media shall be covered by this limited warranty for the remainder
of the original warranty period or for thirty (30) days, whichever is longer.
Only if you inform RN of the problem with the Software during the applicable
warranty period and provide evidence of the date you acquired the Software will
RN be obligated to honor this warranty. Outside of the United States, neither
these remedies nor any product support services offered by RN are available
without proof of purchase from a non-U.S. source.
6. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL
THEORY, WHETHER IN TORT, CONTRACT OR OTHERWISE, SHALL RN OR ITS SUPPLIERS OR
RESELLERS BE LIABLE TO YOU OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER ARISING OUT OF THE USE OF
OR INABILITY TO USE THE USER STREAMS, THE DOCUMENTATION OR ANY OTHER
ACCOMPANYING MATERIALS, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF
GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL OTHER
COMMERCIAL DAMAGES OR LOSSES, ARISING OUT OF THE USE OF OR INABILITY TO USE THE
USER STREAMS, EVEN IF RN HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES,
OR FOR ANY CLAIM BY ANY OTHER PARTY. FURTHER, IN NO EVENT SHALL RN'S LIABILITY
UNDER ANY PROVISION OF THIS AGREEMENT EXCEED THE LICENSE FEE PAID TO RN FOR THE
USER STREAMS. BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE
LIMITATION MAY NOT APPLY TO YOU.
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
7. INDEMNIFICATION. You agree to transmit only those materials for which
you have the necessary copyright permissions, licenses, and/or clearances.
You agree to hold harmless, indemnify and defend RN, its officers, directors
and employees, from and against any losses, damages, fines and expenses
(including attorneys' fees and costs) arising out of or relating to any
claims that you have encoded, copied or transmitted any materials (other than
materials provided by RN) in connection with the User Streams in violation of
another party's rights or in violation of any law. If you are importing the
User Streams from the United States, you shall indemnify and hold RN harmless
from and against any import and export duties or other claims arising from
such importation.
8. TERMINATION. This License Agreement will automatically terminate if you
fail to comply with any term hereof. No notice shall be required from RN to
effect such termination. You may also terminate this License Agreement at any
time by notifying RN in writing of termination. Upon any termination of this
License Agreement, you shall immediately discontinue use of the User Streams and
shall within three (3) days return to RN, or certify destruction of, all full or
partial copies of the User Streams, documentation and related materials provided
by RN. Your obligation to pay accrued charges and fees shall survive any
termination of this License Agreement.
9. MISCELLANEOUS. This License Agreement and any accompanying order form
for the User Streams accepted by RN shall constitute the complete and exclusive
agreement between us, notwithstanding any variance with any purchase order or
other written instrument submitted by you, whether formally rejected by RN or
not. The acceptance of any purchase order you place is expressly made
conditional on your consent to the terms set forth herein. A separate written
agreement with respect to the subject matter hereof shall supersede this
instrument to the extent indicated in such separate agreement. This License
Agreement may not be modified except in a writing duly signed by an authorized
representative of RN and you. If any provision of this License Agreement is
held to be unenforceable for any reason, such provision shall be reformed only
to the extent necessary to make it enforceable, and such decision shall not
affect the enforceability of such provision under other circumstances, or of the
remaining provisions hereof under all circumstances. This License Agreement
shall be governed by the laws of the State of Washington without regard to
conflicts of law provisions and you consent to the exclusive jurisdiction of the
state and federal courts sitting in the State of Washington. This License
Agreement will not be governed by the United Nations Convention of Contracts for
the International Sale of Goods, the application of which is hereby expressly
excluded.
10. U.S. GOVERNMENT RESTRICTED RIGHTS. This User Streams and documentation
are provided with RESTRICTED RIGHTS. Use, duplication or disclosure by the
Government is subject to restrictions set forth in subparagraphs (a) through (d)
of the Commercial Computer User Streams - Restricted Rights at FAR 52.227-19
when applicable, or in subparagraph (c)(1)(ii) of the Rights in Technical Data
and Computer User Streams clause at DFARS 252.227-7013, and in similar clauses
in the NASA FAR supplement, as applicable. Manufacturer is RealNetworks,
Inc./1111 Third Avenue, Suite 2900/ Seattle, Washington, 98101. You acknowledge
that none of the User Streams or underlying information or technology may be
accessed, downloaded or otherwise exported or re-exported (i) into (or to a
national or resident of) Cuba, Iraq, Libya, Sudan, North Korea, Iran, Syria or
any other country to which the U.S. has embargoed goods; or (ii) to anyone on
the U.S. Treasury Department's list of Specially Designated Nationals or the
U.S. Commerce Department's
<PAGE>
EXHIBIT 10.11
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 24b-2
Table of Denial Orders. By using the User Streams you are agreeing to the
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EXHIBIT 10.12.1
RIVERPLACE
OFFICE LEASE AGREEMENT
This Lease Agreement ("Lease"), made this 31st day of May, 1996, between
Riverplace Inc., a Minnesota corporation ("Lessor"), and Net Radio Corporation,
a Minnesota Corporation ("Tenant");
WITNESSETH, THAT
1. DEMISED PREMISES. Lessor, subject to the terms and conditions hereof,
hereby leases to Tenant the premises ("Demised Premises") shown crosshatched on
the floor plan attached hereto as Exhibit A, comprising 3,368 square feet of net
rentable area on the first floor, known as Suite 140, located in the building
known as Exposition Hall ("Building") at Riverplace, Minneapolis, Minnesota
55414, situated on the parcel or parcels of real property ("Land") described on
Exhibit B attached hereto and identified thereon in connection with the
Building. The term "Building" shall include the structure situated on the Land
and all areas servicing the same, such as skyways, lobby areas, access areas or
other public areas, whether now or hereafter constructed.
2. TERM. Tenant takes the Demised Pemises from Lessor, upon the terms
and conditions herein contained, to have and to hold the same for a term ("Lease
Term") commencing on the 1st day of July, 1996, and continuing thereafter to and
including the 31st day of October, 1999, unless sooner terminated as provided in
this Lease.
3. BASE RENT. Tenant agrees to pay to Lessor during the Lease Term a
monthly base rent ("Base Rent") in dollars according to the schedule in the
attached Exhibit D, payable to Lessor on or before the fist day of each month in
advance, without deduction or setoff of any kind, and delivered to Riverplace
Inc., 43 Main Street S.E., Suite 400, Minneapolis, Minnesota 55414, or to such
other place as may from time to time be designated by Lessor.
4. USE. Tenant shall use the Demised Premises only as business offices
for Tenant's business of internet only radio broadcasting and shall not use the
Demised Premises for any other use or purpose without the prior written consent
of Lessor. Tenant will not commit or permit any act or omission which results
in the violation of any law, governmental regulation, or insurance policy of
Lessor relating to the Building or the Project, or which will increase Lessor's
insurance rates on the Building or the Project. Tenant will not permit any
conduct or condition which may unduly disturb or endanger other occupants of the
Building or the Project.
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5. OPERATING COSTS. Tenant shall, for the entire Lease Term, pay to
Lessor as additional rent, without any setoff or deduction therefrom, its
Proportionate Share of any and all costs and expenses which Lessor or Lessor's
manager may incur because of or in connection with the ownership, maintenance,
management and operation of the Land and/or the Building ("Operating Costs").
"Proportionate Share" is defined as the portion of Operating Costs equivalent to
a fraction of the total thereof, the numerator of which is the number of net
rentable square feet comprising the Demised Premises and the denominator of
which is the greater of (i) the number of net rentable square feet actually
leased within the Building, or (ii) 95% of the number of net rentable square
feet contained within the Building. "Operating Costs" are defined to include
all expenses and costs (but not specific costs which are separately billed to
and paid by individual tenants) of every kind and nature which Lessor or
Lessor's manager shall pay or become obligated to pay because of or in
connection with the ownership, maintenance, management and operation of the
Land, the Building and supporting facilities of the Building, including but not
limited to all real estate taxes and annual installments of special or other
assessments payable with respect thereto, and all other taxes, service payments
in lieu of taxes, exercises, levies, fees, or charges, general and special,
ordinary and extraordinary, of any kind, which are assessed, levied, charged,
confirmed or imposed by any public authority upon the Land and/or the Building,
its operations or the rent provided for in this Lease; the cost of protesting
any such taxes; management fees; insurance premiums; utility costs; janitorial
costs; Building security costs; costs of wages and maintenance costs relating to
the Building (including but not limited to sidewalks, skyways, landscaping and
service areas); services; service contracts; equipment and supplies; and all
other costs of any nature whatsoever which for federal tax purposes may be
expensed rather than capitalized, but exclusive only of leasing commissions,
depreciation, costs of tenant improvements and payments of principal and
interest on any mortgages, deeds of trusts, or other security devices covering
the Building. Operating Costs shall also include the yearly amortized portion
of capital costs incurred by Lessor for improvements or structural repairs to
the Building required to comply with any change in the laws, rules or
regulations of any governmental authority having jurisdiction, or for purposes
of reducing Operating Costs, which costs shall be amortized over the useful life
of such improvements or repairs, as reasonably estimated by Lessor or by
Lessor's property manager.
As soon as reasonably practicable prior to the commencement of the Lease
Term and prior to the commencement of each ensuing calendar year during the
Lease Term, Lessor shall furnish to Tenant an estimate of Operating Costs for
the first calendar year included in whole or in part in the Lese Term and
each ensuing calendar year. Tenant shall pay, as additional rent hereunder,
together with each installment of Base Rent, one-twelfth (1/12th) of its
estimated annual Proportionate Share of Operating Costs. As soon as
reasonably practicable after the end of each calendar year included in whole
or in part in the Lease Term, Lessor shall furnish to Tenant a statement of
the actual Operating Costs for the previous calendar year, including Tenant's
Proportionate Share of Operating Costs, and within thirty (30) days
thereafter Tenant shall pay to Lessor, or Lessor shall credit to the next
rent payments due Lessor from Tenant, as the case may be, any difference
between the actual Operating Costs payable by Tenant hereunder and the
estimated Operating Costs paid by Tenant. Tenant's Proportionate Share of
Operating
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Costs for the years in which this Lease commences and terminates shall be
prorated based upon the dates of commencement and termination of the Lease
Term. Notwithstanding any other provision herein to the contrary, it is
agreed that in the event that the Building is not fully occupied at any time
during the Lease Term, an adjustment shall be made in computing the Operating
Costs for such year so that the Operating Costs shall be computed for such
year as though the Building had been fully occupied during such year
(including, for real estate tax purposes, as if fully occupied and assessed
as a completed Building during such year).
Notwithstanding any provision herein that may be construed to the contrary,
Lessor shall have the right, in its reasonable discretion, to determine, from
time to time, the method of computing Operating Costs, the allocation of
Operating Costs to various types of space within the Building and/or the
Project, the extent of the appurtenances to the Building and/or the Project, and
the rentable area of the Demised Premises, the Building and the Project, and
Tenant shall be bound thereby.
6. ADDITIONAL TAXES. Tenant shall pay as additional rent to Lessor,
together with each installment of Base Rent, the amount of any gross receipts
tax, sales tax or similar tax, excise, charge, levy, fee, assessment, and any
tax imposed in lieu of real property taxes (but excluding therefrom any income
tax), which is payable, or which will be payable, by Lessor by reason of the
receipt of the Base Rent and adjustments thereof, or by reason of renting any
part of the Project to Tenant or Tenant's occupancy of any part thereof. Tenant
shall pay any taxes or other charges by any governmental authority on Tenant's
property or trade fixtures in the Demised Premises or relating to Tenant's use
of the Demised Premises.
7. OBLIGATIONS OF LESSOR. So long as Tenant shall perform each and every
covenant to be performed by Tenant hereunder, Lessor agrees that Tenant shall
quietly enjoy the Demised Premises in accord with the provisions hereof and that
Lessor shall:
A. Furnish heat and air conditioning daily from 8:00 A.M. to 5:00 P.M.
(Saturdays, Sundays and holidays excepted), in accordance with any applicable
regulations and sufficient, in Lessor's sole judgment, for the occupancy of the
Demised Premises for ordinary office operations. If heat generating machines or
equipment are used in the Demised Premises which affect the temperature
otherwise maintained by the air conditioning system, Lessor, at the request of
Tenant, shall install supplementary air conditioning equipment in the Demised
Premises, if such installation is deemed practical in the sole judgment of
Lessor, and the cost of any such equipment, together with the cost of
installation, operation and maintenance thereof (including all utility costs
incurred in connection therewith) shall be paid by Tenant to Lessor as
additional rent, together with each installment of Base Rent, at such rates as
are determined by Lessor. Any such equipment will be owned by Lessor. In the
event that Tenant requests, and that Lessor
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agrees, in its sole discretion, to provide, heating or air conditioning beyond
the hours specified above or otherwise in excess of the heating and air
conditioning services that Lessor is required hereunder to furnish to Tenant or
any other Lessor service beyond that required hereunder, Tenant shall pay,
within ten (10) days following demand therefor, the entire cost of all such
services at rates reasonably determined by Lessor.
B. Provide passenger elevator service in common with others at all times.
Further, to provide freight elevator service in common with others daily from
8:00 A.M. to 4:00 P.M. (Saturdays, Sundays and holidays excepted).
C. Provide such janitorial service in the Demised Premises (Saturdays,
Sundays and holidays excepted) and such maintenance of the common areas of the
Building as may be reasonably necessary, in Lessor's sole judgment, in
connection with the use of the Demised Premises for ordinary office purposes.
D. Keep the foundations, the four exterior walls, the roof, downspouts
and gutters of the Building in good repair, as determined by Lessor in Lessor's
sole judgment (ordinary wear and tear excepted) provided, however, if the need
for such repairs is directly or indirectly attributable to or results from any
activity being conducted within the Demised Premises, Tenant agrees to reimburse
Lessor for all costs and expenses incurred by Lessor with respect to such
repairs. Lessor's obligations hereunder shall be subject to the provisions of
Sections 9 and 10.
E. Provide water for drinking, lavatory and toilet purposes drawn through
fixtures installed by Lessor at such points of supply provided for general use
of other tenants in the Building.
F. Provide electricity to the Demised Premises for normal lighting and
small business office equipment (but not equipment using amounts of power
disproportionate to that used by other tenants in the Building). A service
charge will be assessed for electricity and any other utilities furnished for
heat generating machines, data processing equipment and similar types of
machines and equipment. Tenant shall use its best efforts to conserve
electricity.
G. Tenant, at its own expense, and with Lessor's prior written consent,
may install drapes or other window coverings to the inside of any blinds on any
outside windows (and if installed shall maintain them in an attractive and safe
condition); provided, however, in the sole discretion of Lessor, they are in
harmony with the exterior and interior appearance of the Building and create no
safety or fire hazard.
H. Furnish Tenant with two (2) keys for each corridor door entering the
Demised Premises, and additional keys at a charge by Lessor on an order signed
by Tenant. All such keys shall remain the property of Lessor. No additional
locks shall be allowed on any door of the Demised Premises without Lessor's
written consent, and Tenant shall not make or permit to be made any duplicate
keys, except those furnished by Lessor. Upon termination of this Lease,
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Tenant shall surrender to Lessor all keys to the Demised Premises, and give
to Lessor the combination of all locks for safes, safe cabinets and vault
doors, if any, in the Demised Premises.
I. Make and install, or cause to be made or installed, those leasehold
improvements, if any, expressly identified as obligations of Lessor in the plans
and specifications, terms and conditions set forth and identified on Exhibit C.
It is understood that Lessor does not warrant that any of the services and
utilities referred to above will be free from interruption from causes beyond
the reasonable control of Lessor. Interruption of service or utilities shall
never be deemed an eviction or disturbance of Tenant's use, possession or
enjoyment of the Demised Premises or any part thereof or render Lessor liable to
Tenant for damages by abatement of rent or otherwise, nor shall any such
interruption relieve Tenant from performance of Tenant's obligations under this
Lease.
8. COVENANTS OF TENANT. Tenant agrees that it shall:
A. Promptly comply, at Tenant's expense, with all laws, ordinances,
rules, orders, regulations and other requirements of governmental authorities
now or hereafter pertaining to the Demised Premises, and observe the rules and
regulations set forth on Exhibit E attached hereto and such other rules and
regulations as may from time to time be adopted by Lessor, or Lessor's managing
agent, including, without limitation, rules and regulations regarding standards
for Building signage and graphics, use of the atrium and other areas of the
project (as that term is defined in Section 34 hereof) and security measures.
B. Give Lessor and Lessor's agents, contractors and mortgagees access to
the Demised Premises at any time during emergencies and at all reasonable times,
without charge or diminution of rent, to enable Lessor to examine the same and
to make such inspections, repairs, additions and alterations as Lessor may be
required to make hereunder or which Lessor in Lessor's sole judgment, deems
necessary, and to enable Lessor to exhibit the Demised Premises to prospective
tenants, purchasers or others, and for such other reasonable purposes as Lessor
may deem necessary or desirable. Notwithstanding such right of entry, Lessor
will have no obligations to make repairs, alterations, or improvements except as
expressly provided in this Lease.
C. At Tenant's expense, keep and maintain the Demised Premises and the
fixtures and equipment therein in good order, repair and condition (ordinary
wear and tear excepted), and replace all broken glass with glass of the same
quality, save only glass broken by fire and extended coverage risks, and commit
no waste on the Demised Premises.
D. Pay for all electric lamps and ballasts used in the Demised Premise.
E. Upon the termination of this Lease in any manner whatsoever, remove
all property of Tenant and all property of any other person claiming under
Tenant, and quit and
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deliver up the Demised Premises to Lessor peaceably and quietly in as good
order and condition as the same are in at the commencement of the Lease Term
or thereafter were put in by Lessor or Tenant, reasonable use and wear
excepted. Any property not removed by Tenant at the termination of this
Lease, however terminated, shall automatically become the property of Lessor,
and Lessor may dispose of the same as it deems expedient, at Tenant's
expense. Tenant shall be responsible, at Tenant's expense, for any
restoration of the Demised Premises needed by virtue of the removal of any
such property left in the Demised Premises, whether removed by Tenant or
Lessor.
F. Not assign this Lease or sublet all or any part of the Demised
Premises voluntarily, involuntarily or by operation of law, without requesting
in writing and obtaining the prior written consent of Lessor thereto, which
consent shall not be unreasonably withheld. In the event that Tenant is a
corporation or a partnership, transfer of effective control of Tenant shall
constitute an assignment under this Section 8(F). Upon each request made by
Tenant to Lessor for Lessor's consent hereunder, Tenant shall pay to Lessor a
processing fee not to exceed, in each instance, $500.00, and Tenant shall also
reimburse Lessor for all out-of-pocket costs and expenses incurred by Lessor in
connection with such request, including but not limited to attorneys' fees.
If Tenant receives a bona fide offer for an assignment of Tenant's interest
under this Lease or to sublease all or part of the Demised Premises and submits
to Lessor the written request for Lessor's consent required hereunder, such
request shall be accompanied by a copy of the offer. In the case of a proposed
assignment or sublease of all of the Demised Premises, Lessor may, in Lessor's
sole discretion, elect to terminate this Lease, either conditioned on execution
of a new lease between Lessor and the party making the offer on the same terms
as the offer to Tenant or without that condition. In the case of a proposed
sublease for less than all of the Demised Premises, Lessor may, in Lessor' sole
discretion, elect to amend this Lease to exclude the portion of the Demised
Premises to be subleased, either conditioned on execution of a new lease between
Lessor and the party making the offer on the same terms as in the offer to
Tenant or without that condition. If Lessor desires, in Lessor's sole
discretion, to terminate or amend this Lease pursuant to the terms of this
second paragraph of this Section 8(F), Lessor will so notify Tenant in writing
within 20 days after receiving the written request for consent and a copy of the
offer to Tenant.
The provisions of this Section 8(F) shall be binding on Tenant and any
assignee or subtenant of Tenant shall apply to all portions of the Demised
Premises remaining subject to this Lease and to each request by Tenant, or its
assignee or subtenant, for Lessor's consent to a further or subsequent
assignment or subletting. Notwithstanding any permitted assignment or
subletting, Tenant shall at all times remain fully liable for all of the
obligations of the Tenant under this Lease.
G. Not place signs on or about the Demised Premises, the Building or the
Project without first obtaining Lessor's written consent thereto.
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H. Not overload, damage or deface the Demised Premises, the Building or
the Project or do any act which may make void or voidable any insurance on the
Demised Premises, the Building or the Project, or which may render an increased
or extra premium payable for insurance.
I. Not make any alterations, additions or improvements to the Demised
Premises without the prior written consent of the Lessor. All alterations,
additions or improvements (including carpeting or other floor covering) which
may be made by either of the parties hereto upon the Demised Premises, except
movable office furniture and equipment, shall be the property of Lessor, and
shall remain upon and be surrendered with the Demised Premises, as a part
thereof, at the termination of this Lease. All alterations by Tenant shall be
performed with new materials and in a good and worker like manner, shall comply
with all applicable laws, ordinances, rules, orders, regulations and other
requirements of governmental authorities, shall be performed by a contractor
approved in writing in advance by Lessor, and shall be performed in accordance
with plans and specifications approved in writing in advance by Lessor.
Lessor's approval of any plans and specifications submitted to Lessor for
Tenant's alterations shall create no responsibility or liability whatsoever on
the part of Lessor with respect to the finished product, design or construction,
or with respect to the compliance thereof with applicable laws, rules,
regulations or other governmental requirements.
J. Keep the Demised Premises and the Project free from any mechanics',
materialmen's, contractors' or other liens arising from, or any claims for
damages growing out of, any work performed, materials furnished or obligations
incurred by or on behalf of Tenant. If any such lien shall at any time be
filed, Tenant shall cause the same to be released of record with fifteen (15)
days following notice thereof; provided, however, that Tenant may contest the
same in good faith, provided that within fifteen (15) days after the filing
thereof, Tenant shall have deposited with Owner cash equal to 150% of the amount
of the lien or such other security as Owner may deem appropriate to insure
payment of such lien. Tenant shall indemnify and hold harmless Lessor from and
against any such lien, or claim or action thereon, and reimburse Lessor promptly
upon demand therefor by Lessor for costs of suit, reasonable attorneys' fees and
other costs and expenses incurred by Lessor in connection with any such lien,
claim or action. In the event that Tenant fails to release of record any such
lien, or to contest the same in accordance herewith, within the aforesaid
period, Owner may remove said lien by paying the full amount thereof or by
bonding or in any other manner Owner deems appropriate, without investigating
the validity thereof, and irrespective of the fact that Tenant may contest the
propriety or the amount thereof, and Tenant, upon demand, shall pay Owner the
amount so paid out by Owner in connection with the discharge of said lien,
together with reasonable expenses incurred in connection therewith, including
reasonable attorneys' fees. Nothing contained in this Lease shall be construed
as a consent on the part of Owner to subject Owner's estate in the Demised
Premises to any lien or liability under the lien laws of the State of Minnesota.
K. Maintain at its expense at all times during the Lease Term (i) a
policy or policies of public liability insurance with respect to the Demised
Premises and the business of Tenant,
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with limits of not less than $1,000,000 combined single limit; and (ii) a
policy or policies of fire and extended coverage insurance in broad form
insuring against all risks all leasehold improvements, Tenant's trade
fixtures and all other personal property of Tenant in the Demised Premises
for the full insurable value thereof. All such insurance policies shall be
placed with companies qualified to do business in the State of Minnesota,
provide for at least thirty (30) days prior written notice to Lessor before
cancellation or amendment, and name Lessor as an additional insured thereon.
Such policy or policies, or duly executed certificates evidencing the same,
shall be deposited with Lessor prior to the commencement of the Lease Term,
and renewals or replacements thereof shall be delivered to Lessor not less
than thirty (30) days prior to the expiration of the term of such coverage.
L. Not file or otherwise initiate or join any protest of real estate
taxes with respect to the Project or any part thereof.
Tenant's obligations under this Section 8 to do or not to do a specified
act shall extend to and include Tenant's obligation for all conduct of Tenant's
employees, agents and invitees.
9. CASUALTY LOSS. In case of damage to or destruction of the Demised
Premises by fire or other casualty, Tenant will give prompt notice thereof to
Lessor. If the Demised Premises or the Project are damaged by fire or other
casualty, Lessor shall have the right to elect, in Lessor' sole judgment, either
(1) to terminate this Lease as hereinafter provided, or (2) to cause the damage
to be repaired with reasonable speed, at the expense of Lessor, subject to
delays which may arise by reason of adjustment of loss under insurance policies
and to delays beyond the reasonable control of Lessor; provided, however, that
Lessor shall have no obligation to restore, repair or replace any property owned
by Tenant and shall only be required to spend such funds as are actually
received by Lessor from insurance proceeds for those items the obligation for
which to insure was the Tenant's. To the extent that the Demised Premises are
rendered untenantable by any such casualty damage, the rent hereunder shall
proportionately abate, except in the event such damage resulted from or was
contributed to by the act, fault or neglect of Tenant, Tenant's employees,
invitees or agents, in which event there shall be no abatement of rent. If the
damage shall be so extensive that Lessor shall decide not to repair or rebuild,
this Lease shall, at the option of Lessor, be terminated as of the date of such
damage by written notice from Lessor to Tenant, and the rent shall be adjusted
to the date of such damage and Tenant shall thereupon promptly vacate the
Demised Premises.
10. CONDEMNATION. If the entire Demised Premises are taken under power of
eminent domain (which shall include the exercise of any similar governmental
power or any purchase or other acquisition in lieu thereof), this Lease shall
automatically terminate as of the date of taking, which shall be the date Tenant
is required to yield possession thereof to the condemning authority. If a
portion of the Demised Premises is taken under power of eminent domain, Lessor
shall have the right to terminate this Lease as of the date of taking by giving
written notice thereof to Tenant on or before the date of taking. If Lessor
does not elect to terminate this Lease, it shall, at its expense, restore or
cause to be restored the Demised Premises, exclusive of any
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improvements or other changes made therein by Tenant, to as near the
condition which existed immediately prior to the date of taking as reasonably
possible, and to the extent that the Demised Premises are rendered
untenantable, the rent shall proportionately abate. All damages awarded for
a taking under the power of eminent domain shall belong to and be the
exclusive property of Lessor, whether such damages be awarded as compensation
for diminution in value of the leasehold estate hereby created or to the fee
of the Demised Premises; provided, however, that Lessor shall not be entitled
to any separate award made to Tenant for the value and cost of removal of its
personal property and fixtures.
11. POSSESSION. If Lessor is unable to tender possession of the Demised
Premises on the date specified in Section 2 above as the commencement date of
the Lease Term, Lessor shall not be liable for any damage caused thereby , nor
shall this Lease be void or voidable by Tenant, but in such event, the Lease
Term shall be for the same length of time specified in Section 2, but shall
commence upon the date that Lessor tenders possession of the Demised Premises to
Tenant; provided, however, that if the delay in the tender of possession results
from failure of Tenant to provide plans or from other actions or omissions by
Tenant, the commencement date of the Lease Term shall not be so delayed. In the
event that the commencement date of the Lease Term is delayed pursuant to the
terms of this Section 11, Lessor and Tenant shall, at the request of either
party, execute and deliver to the other an amendment to this Lease specifying
the commencement and expiration dates of the Lease Term. Occupancy of the
Demised Premises by Tenant will constitute Tenant's acceptance of the Demised
Premises. No representations as to the repair of the Demised Premises, and no
promises to alter, remodel or improve the Demised Premises, have been made by
Lessor, except to the extent expressly provided in this Lease.
12. LIABILITY AND INDEMNITY. Lessor shall not be responsible or liable to
Tenant for any loss or damage that may be occasioned by or through the acts or
omissions of persons occupying adjoining premises or any part of the premises
adjacent to or connected with the Demised Premises or any part of the Project or
any persons transacting any business in the Project or present in the project
for any other purpose or for any loss or damage resulting to Tenant, its
property or the Demised Premises from burst, stopping or leaking water, sewer,
sprinkler or steam pipes or plumbing fixtures or from any failure of or defect
in any electric line, circuit or facility. Tenant shall indemnify and hold
Lessor harmless from and against all liabilities, damages, claims, costs,
charges, judgments and expenses, including, but not limited to, reasonable
attorneys' fees, which may be imposed upon or incurred or paid by or asserted
against Lessor, the Demised Premises, the Building or the Project, or any
interest therein, by reason of or in connection with any use, non-use,
possession or operation of the Demised Premises or any part thereof during the
Lease Term, any act on the part of Tenant or any of its agents, contractors,
servants, employees, licensees or invitees, any accident, injury, death,
disability, illness or damage to any person or property occurring in, on or
about the Demised Premises or any part thereof during the Lease Term, and any
failure on the part of Tenant to perform any of the terms or conditions of this
Lease; provided, however, that nothing contained in this paragraph shall be
deemed to require Tenant to indemnify Lessor with respect to any gross
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negligence or intentional misconduct committed by Lessor. The obligations of
Tenant under this Section 12 shall survive the expiration or termination of this
Lease.
13. DEFAULT. If: (a) Tenant fails to pay rent or any other sum to be paid
by Tenant under this Lease or under the terms of any other agreement between
Lessor and Tenant as and when the same becomes payable, or (b) Tenant defaults
in the full and prompt performance of any other obligations of Tenant under this
Lease and such default continues for 20 days after written notice to Tenant (or,
if such default involves a hazardous condition, such default is not cured by
Tenant immediately upon written notice to Tenant), or (c) the interest of Tenant
in this Lease is levied on under execution or other legal process, or (d) any
petition is filed by or against Tenant to declare Tenant a bankrupt or to delay,
reduce or modify Tenant's debts or obligations, or (e) any petition is filed or
other action taken to reorganize or modify Tenant's capital structure, if Tenant
be a corporation or other entity, or (f) Tenant is declared insolvent according
to law or if any assignment of Tenant's property is made for the benefit of
creditors, or (g) a receiver or trustee is appointed for Tenant or its property,
or (h) Tenant abandons or vacates the Demised Premises during the term of this
Lease, or (i) Tenant defaults in the payment of rent twice in any 12-month
period, then Lessor may treat the occurrence of any one or more of the foregoing
events as a breach of this Lease, and may, without notice or demand of any kind
to Tenant or any other person, have any one or more of the following described
remedies in addition to any and all other rights and remedies provided at law or
in equity:
A. Lessor may reenter and repossess the Demised Premises without demand
or notice of any kind to Tenant and without terminating this Lease, in which
event Lessor may, but shall be under no obligation to, relet the same for the
account of Tenant for such rent and upon such terms as Lessor shall elect in its
sole discretion. For purposes of any such reletting, Lessor is authorized in
Lessor's sole discretion to make any repairs, changes, alterations, decorations,
improvements, or additions in or to the Demised Premises that Lessor may deem
necessary or convenient. If Lessor shall fail to refuse to relet the Demised
Premises, or if the same are relet and the amount realized from such reletting,
less the Recoverable Costs (as that term is hereinafter defined), is less than
the total amount of rent, Operating Costs and all other sums that would have
become payable under this Lease for the balance of the term hereof, then, at the
election of Lessor, in Lessor's sole discretion, either:
(i) Tenant shall pay to Lessor upon demand from time to time, as damages,
a sum equal to the amount of the rent and other sums payable under this
Lease for the full term of this Lease, without acceleration (or, if the
Demised Premises have been relet, Tenant shall pay to Lessor upon demand
from time to time the amount of any such deficiency), together with the
amount of any and all other Recoverable Costs and other sums of money and
damages owed by Tenant to Lessor. Tenant agrees that Lessor may file suit
to recover any sums falling due under the terms of this Section 13(A)(i)
from time to time, on one or more occasions, without being obligated to
wait until expiration of the term of this Lease, and that no delivery or
recovery of any portion of the sums due Lessor, and no such reletting of
all of any part of the Demised Premises, shall be
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construed as an action on the part of Lessor to terminate this Lease or
waive any provision hereof unless a written notice of termination or
waiver is given to Tenant by Lessor; or
(ii) Lessor may elect to accelerate payment of all amounts payable under
the Lease, which amounts shall become immediately due and payable, together
with the amount of any and all other Recoverable Costs and other sums of
money and damages owed by Tenant to Lessor. If Lessor elects this remedy,
the Base Rent will be reduced to present worth using a discount factor
equal to the discount rate of the Federal Reserve Bank in Minneapolis,
Minnesota at the time of Lessor's election.
The term "Recoverable Costs," as used herein, shall mean the unpaid rent
and other sums due hereunder but unpaid at the time of any reletting, plus
interest thereon at the rate of eighteen percent (18%) per annum or the maximum
rate permitted by law, whichever is less; the costs and expenses of recovering
possession of the Demised Premises and enforcing the terms of this Lease
(including but not limited to reasonable attorneys' fees, costs and
disbursements); the costs and expenses of any and all repairs, changes,
alterations, improvements, decorations and additions performed by or at the
direction of Lessor in connection with any reletting of the Demised Premises;
all other costs and expenses incurred in connection with such reletting,
including but not limited to brokers' fees; and any and all other damages
sustained by Lessor as a result of Tenant's default. Notwithstanding any
reletting without termination, Lessor may at any time thereafter elect to
terminate this Lease for such previous breach.
B. Terminate this Lease and forthwith repossess the Demised Premises and
remove all persons or property therefrom, and be entitled to recover forthwith
as damages a sum of money equal to the total of (i) the Recoverable Costs; (ii)
the balance of the rent and other sums that would have become payable under this
Lease for the remainder of the term hereof, less the rental value of the Demised
Premises for said period, as estimated by Lessor; and (iii) any other sum of
money and damages owed by Tenant to Lessor.
C. If Lessor reenters and repossesses the Demised Premises or if this
Lease is terminated, in addition to all other rights of Lessor, Tenant will
indemnify Lessor against all loss of rents and other damage which Lessor may
incur by reason of such re-entry or termination, including, but not limited to,
costs of repairing the Demised Premises and putting the same in rentable
condition, costs of renting the Demised Premises to another tenant, loss or
diminution of rents and other damage which Lessor may incur by reason of such
termination or re-entry, and all reasonable attorneys' fees and expenses
incurred in connection therewith.
D. No right or remedy will preclude any other right or remedy, no right
or remedy will be exclusive of or dependent upon any other right or remedy, and
each right or remedy may be exercised independently or in combination with any
other.
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14. NOTICES. All bills, statements, notices or communications which
Lessor may desire or be required to give to Tenant shall be deemed sufficiently
given or rendered if in writing and either delivered personally to the Demised
Premises or sent by registered or certified mail, return receipt requested,
addressed to Tenant at the Demised Premises, and the time of rendition thereof
or the giving of such notice or communication shall be deemed to be the time
when the same is personally delivered or deposited in the mail as herein
provided. And notice by Tenant to Lessor must be served by registered or
certified mail, return receipt requested, addressed to Lessor at the address
where the last previous rental hereunder was payable, or in the case of
subsequent change, upon notice given, to the latest address furnished.
15. HOLDING OVER. Tenant covenants that it will vacate the Demised
Premises immediately upon the expiration or sooner termination of this Lease.
If tenant retains possession of the Demised Premises or any part thereof after
the termination of the Lease Term, Tenant shall pay to Lessor rent ("Holdover
Rent") at a rate per month equal to 200% of the monthly rate of Base Rent in
effect under this Lease immediately prior to such holding over, plus 200% of the
estimated Proportionate Share of Operating Costs payment payable under this
Lease for the month immediately preceding the commencement of such holding over,
for the time that Tenant thus remains in possession and, in addition thereto,
shall pay Lessor for all damages, consequential as well as direct, sustained by
reason of Tenant's retention of possession. The provisions of consequential as
well as direct, sustained by reason of Tenant's retention of possession. The
provisions of this Section shall not limit Lessor's rights of re-entry or any
other right hereunder, including without limitation, the right to refuse
Holdover Rent and instead to remove Tenant through summary proceedings for
holding over beyond the expiration of the Lease Term. The acceptance of any
rent after the end of the term shall not establish any tenancy longer than
month-to-month unless otherwise agreed to in writing by Lessor and Tenant.
16. SUBORDINATION. At the request of any mortgagee or ground lessor, the
rights of Tenant under this Lease shall be subject and subordinate to any
mortgage or ground lease that may now or hereafter encumber the Building or the
Project, and Tenant shall execute, acknowledge and deliver such instruments as
may be requested by Lessor to evidence such subordination. Such subordination
is on the condition that Tenant's right of possession of the Demised Premises
pursuant to the terms of this Lease will not be disturbed by the mortgagee or
ground lessor so long as Tenant is not in default under this Lease. If the
interest of Lessor is transferred to any party by reason of foreclosure of a
mortgage or cancellation of a ground lease, or by delivery of a deed in lieu of
foreclosure or cancellation. Tenant will immediately and automatically attorn
to such party. Tenant agrees that upon notification by Lessor or any mortgagee
or ground lessor of the election of a mortgagee or ground lessor to subordinate
its interest in the Demised Premises to this Lease, this Lease will become prior
to the mortgage or ground lease.
17. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to time,
within ten (10) days after written request by Lessor, execute, acknowledge and
deliver to Lessor and any other parties designated by Lessor a certificate in
such form as may from time to time be
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provided, ratifying this Lease and: (a) stating that this Lease is in full
force and effect and has not been assigned, modified or amended in any way
(or, if there has been any assignment, modification or amendment, identifying
the same); (b) stating the dates of commencement and expiration of the Lease
Term, the date to which the Base Rent and additional rent payable hereunder
have been paid in advance, if any; (c) stating that there are, to Tenant's
knowledge, no uncured defaults on the part of Lessor or any defenses or
offsets against the enforcement of this Lease by Lessor (or specifying each
default, defense or offset if any are claimed); and (d) containing such other
information as may reasonably requested. Any such statement may be furnished
to and relied upon by any prospective purchaser, lessee or encumbrancer of
all or any portion of the Project.
18. BINDING EFFECT. The word "Tenant", wherever used in the Lease, shall
be construed to mean tenants in all cases where there is more than one tenant,
and the necessary grammatical changes required to make the provisions hereof
apply to corporations, partnerships or individuals, men or women, shall in all
cases be assumed as though in each case fully expressed. Each provision hereof
shall extend to and shall , as the case may require, bind and inure to the
benefit of Lessor and Tenant and their respective heirs, legal representatives,
successors and assigns, provided that his Lease shall not inure to the benefit
of any assignee, heir, legal representative, transferee or successor of Tenant
except upon the express written consent or election of Lessor.
19. TRANSFER OF LESSOR'S INTEREST. In the event of any transfer or
transfers of Lessor's interest in the Demised Premises, the building or the
Project, other than a transfer for security purposes only, the transferor shall
be automatically relieved of any and all obligations and liabilities on the part
of Lessor accruing from and after the date of such transfer, including, without
limitation, the obligation of Lessor under Section 27 hereof to return the
security deposit as provided therein following assignment or transfer thereof to
such assignee of Lessor's interest.
20. INTEREST. Any amount due from Tenant to Lessor which is not paid when
due shall bear interest at the lesser of the highest legal rate or eighteen
percent (18%) per annum from the date due until paid; provided, however, the
payment of such interest shall not excuse or cure the default upon which such
interest accrued.
21. EXPENSE OF ENFORCEMENT. In the event that Lessor places the
enforcement of this Lease, or any part hereof, or the collection of any rent due
or to become due hereunder, or recovery of the possession of the Demised
Premises, or any other matter relating to or arising from this Lease or Tenant's
occupancy of the Demised Premises, in the hands of an attorney, or files suit
upon the same, then Tenant shall pay Lessor's reasonable attorney's fees and
court costs if Lessor prevails in such action.
22. ACCESS: CHANGES IN BUILDING FACILITIES; NAME. All portions of the
Building and the Project except the inside surfaces of all walls, windows and
doors bounding the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes,
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conduits, fan rooms, ducts, electric or other utilities, sinks or other
Building or Project facilities, and the use thereof, as well as access
thereto through the Demised Premises for the purposes of operation,
maintenance, decoration and repair, are reserved to Lessor and Lessor's
agents and designees. Lessor reserves the right, at any time, without
incurring any liability to Tenant therefor, to make such changes in or to the
Building, the Project and the fixtures and equipment thereof, as well as in
or to the street entrances, halls, passages, concourse, elevators,
escalators, stairways and other improvements thereof, as it may deem
necessary or desirable. Lessor may adopt any name for the Building and/or the
Project and Lessor reserves the right to change the name and/or address of
the Building and/or the Project at any time.
23. RIGHT OF LESSOR TO PERFORM. If Tenant shall fail to pay any sum of
money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, Lessor may, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any ligations of Tenant, make such payment or perform any such other act on
Tenant's part to be made or performed hereunder. Tenant shall, promptly and
upon demand therefore by Lessor, reimburse Lessor for all sums so paid by Lessor
and all necessary incidental costs, together with interest thereon at the rate
specified in Section 20 hereof from the date of such payment by Lessor, and
Lessor shall have the same rights and remedies in the event of the failure by
Tenant to pay such amounts as Lessor would have in the event of a default by
Tenant in the payment of rent.
24. BROKERS. Unless otherwise agreed in writing, if Tenant has dealt with
any person or real estate broker in respect to leasing or renting space in the
Building, excepting the exclusive leasing agent for the Building, Tenant shall
be solely responsible for the payment of any fee due said person or firm and
Tenant shall hold Lessor free and harmless from and against any liability in
respect thereto.
25. MODIFICATIONS FOR LENDER. If, in connection with obtaining financing
for the Building, the Project or any property of which the Demised Premises are
a part, any lender shall request modifications in this Lease as a condition to
such financing. Tenant shall promptly execute any instrument submitted to
Tenant by Lessor containing such modifications; provided, however, that such
modifications do not increase the obligations of Tenant hereunder or materially
adversely affect the leasehold interest hereby created.
26. SECURITY DEPOSIT. Tenant has deposited with Lessor the sum of Three
Thousand Dollars ($3,000.00) as security for the full and faithful performance
of every provision of this Lease to be performed by Tenant. If Tenant defaults
with respect to any provision of this Lease, including, without limitation, the
provisions relating to the payment of rent, the repair of damage to the Demised
Premises and/or cleaning the Demised Premises upon termination of this Lease,
Lessor may use, apply or retain all or any party of this security deposit for
the payment of any rent or other sum in default and any amounts which Lessor may
spend or becomes obligated to spend by reason of Tenant's default to the full
extent permitted by law. If any portion of said deposit is so used, applied or
retained, Tenant shall, within ten (10) days deposit to an amount
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equal to the Base Rent, plus the monthly amount of estimated Operating Costs
and other charges payable hereunder by Tenant, multiplied by the number of
months worth of Base Rent represented by the initial security deposit, and
Tenant's failure to do so shall be a material default and breach of this
Lease. Lessor shall not be required to keep any security deposit separate
from its general funds, and Tenant shall not be entitled to interest on any
such deposit. If Tenant shall fully and faithfully perform every provision
of this Lease to be performed by it, the security deposit or any balance
thereof shall be returned to Tenant or to the last assignee of Tenant's
interest hereunder at the expiration of the Lease Term.
27. LIMITATION OF LIABILITY. In the event that Lessor is ever adjudged by
any court to be liable to Tenant in damages, Tenant specifically agrees to look
solely to Lessor's interest in the Project for the recovery of any judgment from
Lessor; it being agreed that Lessor, or if Lessor is a partnership, its partners
whether general or limited, or if Lessor is a corporation, its directors,
officers, or shareholders, shall never be personally liable for any such
judgment. The provision contained in the foregoing sentence is not intended to,
and shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Lessor or Lessor's successor in interest, or to
maintain any other action not involving the personal liability of Lessor (or if
Lessor is a corporation, any other action not requiring its directors, officers
of shareholder to respond in monetary damages from assets other than Lessor's
interest in the Project), or to maintain any suit or action in connection with
enforcement of collection of amounts which may become owing or payable under or
on account of insurance maintained by Lessor.
28. Substitute Premises. At any time after the execution of this Lease,
Lessor may substitute for the Demised Premises other premises in the Building
(the "New Premises"), in which event the New Premises shall be deemed to be the
Demised Premises for all purposes hereunder; provided, however, that:
A. The net rentable area of the Demised Premises is less than five
thousand (5,000) square feet;
B. The New Premises shall be similar in area and in appropriateness for
Tenant's purposes;
C. Any such substitution is effected for the purpose of accommodating a
tenant that will occupy a portion of the net rentable area of the floor on which
the Demised Premises are located; and
D. If Tenant is occupying the Demised Premises at the time of any such
substitution, Lessor shall pay the expense of moving Tenant, its property and
equipment to the New Premises, and the expenses of improving the New Premises
with improvements substantially similar to those located in the Demised
Premises.
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29. WAIVER OF CLAIMS; ASSUMPTION OF RISK. Each of Lessor and Tenant
hereby releases the other from any and all liability or responsibility to the
other or anyone claiming through or under it by way of subrogation or otherwise
for any loss or damage that may occur to the Demised Premises or any
improvements thereto, or the Building or any improvements thereto, or the
Project or any improvements thereto, or any property of such party therein, by
reason of fire or any other cause which could be insured against under the terms
of standard dire and extended coverage (all-risk) insurance policies, regardless
of cause or origin, including fault or negligence of the other party hereto, or
anyone for whom such party may be responsible. Each party shall cause each
insurance policy obtained by it to provide that the insurer waives all right of
recovery by way of subrogation against either party hereto in connection with
damage covered by insurance. Tenant assumes all risk of loss or damage of
Tenant's property or leasehold improvements within the Demised Premises and the
Project, including any loss or damage caused by water leakage, fire, windstorm,
explosion, theft, act of any other tenant, or other cause. Lessor will not be
liable to Tenant, or its employees, for loss of or damage to any property in or
at the Demised Premises or the Project.
30. ADDITIONAL RENT AMOUNTS. Any amounts in addition to Base Rent payable
to Lessor by Tenant hereunder, including without limitation, amounts payable
pursuant to Sections 5, 6, 7A, 7D, 7F, 8D, 8J, 12, 13, 20, 21, 27 and Exhibit C
and/or Exhibit D hereof, shall be deemed additional rent due and payable upon
demand.
31. INCORPORATION OF EXHIBITS. The following exhibits to this Lease are
hereby incorporated by reference for all purposes as fully as if set forth at
length herein:
Exhibit A Floor Plan of Demised Premises
Exhibit B Legal Description of Land and Project Land
Exhibit C Leasehold Improvement Schedule
Exhibit D Additional Terms and Conditions
Exhibit E Rules and Regulations
Exhibit F Construction Plan
32. FORCE MAJEURE. All of the obligations of Lessor and of Tenant under
this Lease are subject to and shall be postponed for a period equal to any delay
or suspension resulting from fires, strikes, acts of God, and other causes
beyond the control of the party delayed on its performance hereunder, this Lease
ermaining in all other respects in full force and effect and the Lease Term not
thereby extended: provided however, that the unavailability of funds for payment
or performance of Tenant's obligations hereunder shall not give rise to any
postponement or delay in such payment or performance of Tenant's obligations
hereunder.
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33. PROJECT DEFINITION. The terms "Project", as used in this Lease, means
the premises legally described on Exhibit B and any and all buildings,
structures or improvements thereon from time to time and any skyways, tunnels,
concourses or connections attached to or serving said buildings, structures or
improvements, including without limitation any lands, buildings, structures,
skyways, tunnels, concourses or connections not owned by Lessor and any
additions, reductions, deletions, alterations, substitutions or improvements
made thereon or thereto from time to time.
34. GENERAL
A. The submission of this Lease for examination does not constitute the
reservation of or an option for the Demised Premises, and this Lease becomes
effective only upon execution and delivery hereof by Lessor and Tenant.
B. This Lease does not create the relationship of principal and agent or
of partnership, joint venture or any association between Lessor and Tenant, the
sole relationship between Lessor and Tenant being that of lessor and lessee.
C. No waiver of any default of Tenant hereunder shall be implied from any
omission by Lessor to take any action on account of such default. The receipt
by Lessor of any payment or partial payment hereunder with knowledge of a
default in any of the terms, provisions, covenants or conditions of this Lease
to be kept or performed by Tenant shall not be deemed a waiver of such default
or any other default. Lessor shall not be deemed to have waived any provision
of this Lease unless such waiver is expressly set forth in writing in a specific
notice of waiver given by Lessor to Tenant in accordance with the terms of
Section 14 above, and no express waiver shall affect any default other than the
default specified in the express waiver and that only for the time and to the
extent therein stated.
D. No payment by Tenant or receipt by Lessor of a lesser amount than the
monthly rent and other charges herein reserved shall be deemed to be other than
on account of the earliest stipulated rent or other charges, and acceptance of
any partial payment shall not limit Lessor's rights under Section 13 above. No
endorsement or statement on any check or on any letter accompanying any check be
deemed an accord and satisfaction or a modification of any of Tenant's
obligations under this Lease.
E. Each term and each provision of this Lease performable by Tenant shall
be construed to be both a covenant and condition.
F. The topical headings of the several sections and clauses herein are
for convenience only and do not define, limit or construe the contents of such
sections or clauses.
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G. This Lease is the complete agreement between the parties concerning
the leasing of the Demised Premises. There are no oral agreements,
understandings, promises or representations between Lessor and Tenant affecting
this Lease. All negotiations, considerations, representations and
understandings between Lessor and Tenant are merged into and incorporated in
this Lease. Tenant has not been induced to enter this Lease by any
representations or warranties not expressly set forth herein.
H. Without limiting the generality of the foregoing Section 35(G). Owner
has not made any representation, warranty or agreement that any retail tenant,
restaurant tenant or any other tenant will occupy or continue to occupy the
Project or any part thereof, or that the Project or any part thereof will be
used for any particular purpose.
I. This Lease can only be modified or amended by an agreement in writing
signed by the parties hereto. No surrender of the Demised Premises or of the
remainder of the Lease Term shall be valid unless accepted by Lessor in writing
in a specific notice of acceptance of surrender given by Lessor to Tenant in
accordance with the terms of Section 14 above.
J. All provisions hereof shall be binding upon the heirs, successors and
permitted assigns of each party hereto, except as otherwise herein expressly
provided and except that no person or entity holding under or through Tenant in
violation of any provision of this Lease will have any right or interest in this
Lease or the Demised Premises.
K. This Lease will be construed under and governed by the laws of
Minnesota.
L. If any provision of this Lease is illegal or unenforceable, it will be
severable and all other provisions will remain in force as though the severable
provision had never been included.
M. Lessor shall in no event be considered to be in default of Lessor's
obligations under this Lease until the expiration of a reasonable period of time
following receipt by Lessor of written notice from Tenant specifying such
default and given in accordance with the terms of Section 14 above.
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N. The parties hereby waive trial by jury in any action, proceeding or
counterclaim brought by either party against the other on any matter arising
out of or in any way connected with this Lease, the relationship of Lessor
and Tenant or Tenant's use and occupancy of the Demised Premises. Tenant
agrees that any action brought in connection with this Lease shall be
maintained in any court of competent jurisdiction in Hennepin County,
Minnesota.
IN WITNESS WHEREOF, the respective parties hereto have caused this Lease to be
executed as of the day and year first above written.
<TABLE>
<S> <C>
LESSOR: TENANT:
RIVERPLACE INC. NET RADIO CORPORATION
By: /S/ TAKASHI ITO By: /s/ Terrence K. Mahoney
- ---------------------------------- ---------------------------------
Takashi Ito
Its Executive Vice President Its Chief Financial Officer
</TABLE>
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EXHIBIT B
LEGAL DESCRIPTION OF THE REAL PROPERTY CONSTITUTING THE PROJECT
PARCEL A:
That part of Main Street Southeast, vacated, including any portion thereof
platted as Lots 8 and 9, Block 1, Subdivision of Grounds between Pine, Bay, Main
and Second Street, in St. Anthony Falls as Resurveyed by R. and F. Cook (Dec.
1857), according to the plat thereof on file and of record in the office of the
County Recorder in and for Hennepin County, Minnesota, described as follows:
Commencing at the most Southerly corner of said Lot 9; thence on an assumed
bearing of North 47 degrees 53 minutes 19 seconds East, along the Southeasterly
line of said Lot 9, a distance of 8.00 feet to the actual point of beginning of
the tract of land to be described; thence North 47 degrees 06 minutes 41 seconds
West, a distance of 60.10 feet; thence North 47 degrees 53 minutes 19 seconds
East, a distance of 16.17 feet, more or less, to its intersection with a line
drawn from the Southwest corner of Lot 12, said Block 1 to the Southwest corner
of Lot 3, said Block 1, hereinafter referred to as Line A; thence Southeasterly
along said Line A a distance of 61.19 feet, more or less, to its intersection
with said Southeasterly line of Lot 9; thence South 47 degrees 53 minutes 19
seconds West along said Southeasterly line of Lot 9, a distance of 4.64 feet,
more or less, to the actual point of beginning.
PARCEL B:
That part of Main Street Southeast, vacated, including any portion thereof
platted as Lots 8 and 9, Block 1, Subdivision of Grounds between Pine, Bay, Main
and Second Street, in St. Anthony Falls as Resurveyed by R. and F. Cook (Dec.
1857), according to the plat thereof on file and of record in the office of the
County Recorder in and for Hennepin County, Minnesota, described as follows:
Beginning at the most Southerly corner of said Lot 9; thence on an assumed
bearing of North 47 degrees 53 minutes 19 seconds East, along the Southeasterly
line of said Lot 9, a distance of 8.00 feet; thence North 42 degrees 06 minutes
41 seconds West, a distance of 60.10 feet; thence south 25 degrees 17 minutes 23
seconds East, a distance of 62.18 feet, more or less, to an intersection with a
line drawn parallel with and 10.00 feet Southwesterly of, as measured at a right
angle to, the Southwesterly line of Lots 10, 11 and 12, said Block 1; thence
Southeasterly along said parallel line to its intersection with the
Southwesterly extension of the Northwesterly line of Lot 11, said Block 1;
thence Northeasterly along said last described extension a distance of 10.00
feet, more or less, to the Westerly corner of said Lot 11; thence Northwesterly
along the Southwesterly line of said Lot 10, to the point of beginning.
<PAGE>
PARCEL C-4 (ADJOINING EXPOSITION HALL ADDITION):
That part of Main Street Southeast, vacated, lying Southwesterly of the
following described Line B; lying Northeasterly of a line drawn parallel with
and 10.00 feet Southwesterly of, as measured at a right angle to, said Line B;
lying Southeasterly of the following described Line C; and lying Northwesterly
of the following described Line D and its southwesterly extension:
Line B:
Beginning at the most Westerly corner of Lot 11, Block 1, Subdivision of Grounds
between Pine, Bay, Main and Second Street, in St. Anthony Falls as Resurveyed by
R. and F. Cook (Dec. 1857); thence Southeasterly along the Southwesterly line of
Lots 11 through 18 inclusive, said Block 1; thence continuing Southeasterly to
the most Westerly corner of Auditor's Subdivision Number Sixty-seven (67),
Hennepin County, Minnesota; thence Southeasterly along the Southwesterly line of
said Auditor's Subdivision Number Sixty-seven (67), Hennepin County, Minnesota,
to the most Southerly corner of said Auditor's Subdivision Number Sixty-seven
(67), Hennepin County, Minnesota, and there terminating; according to the plats
thereof on file and of record in the office of the County Recorder in and for
Hennepin County, Minnesota.
Line C:
The Southwesterly extension across said 10 foot strip of the center line of
vacated Bank Street.
Line D:
Commencing at the point of intersection of the Southwesterly line of Prince
Street and the Northwesterly line of vacated Bank Street; thence Southeasterly
along said Southwestern line of Prince Street and its Southeasterly extension, a
distance of 182.00 feet to the actual point of beginning said Line D; thence
deflecting 72 degrees 12 minutes 30 seconds to the right and running
Southwesterly to an intersection with the Northeasterly line of said Main Street
Southeast (also being the Southwesterly line of said Auditor's Subdivision
Number Sixty-seven (67), Hennepin County, Minnesota), and there terminating.
PARCEL D(ONE MAIN BUILDING):
That part of Lots 1, 2, 3 and 4, Block 1, Subdivision of Grounds between Pine,
Bay Main and Second Street, in St. Anthony Falls
as Resurveyed by R. and F. Cook (Dec. 1857), according to the plat thereof on
file and of record in the office of the County Recorder in and for Hennepin
County, Minnesota, described as follows:
<PAGE>
Beginning at the most Westerly corner of said Lot 1; thence Northeasterly along
the Northwesterly line of said Lot 1 to the Northeasterly corner of said Lot 1,
thence Southeasterly along the Northeasterly line of said Block 1 a distance of
107.00 feet; thence Southwesterly at a right angle a distance of 62.00 feet;
thence Northwesterly at a right angle a distance of 9.02 feet, more or less, to
the dividing line between said Lots 3 and 4; thence Southwesterly along said
dividing line a distance of 65.33 feet, more or less, to the Southwesterly line
of said Block 1; thence Northwesterly along said Southwesterly line of Block 1
to the actual point of beginning.
PARCEL E(INCLUDES EXPOSITION HALL):
Lots 11 to 26 inclusive, Block 1, and that part of the Northwesterly Half of
vacated Bank Street lying between the extensions across it of the Northeasterly
line of Block 1 and the Southwesterly line of Lot 18, Block 1, Subdivision of
Grounds between Pine, Bay, Main and Second Street, in St. Anthony Falls as
Resurveyed by R. and F. Cook (Dec. 1857), according to the plat thereof on file
and of record in the office of the County Recorder in and for said County.
PARCEL F-1:
Lot 3; that part of Lots 4 to 9 inclusive, lying Northeasterly of a line running
from the Southwest corner of Lot 12 to the Southwest corner of said Lot 3, Block
1; and Lot 27, Block 1, Subdivision of Grounds between Pine, Bay, Main and
Second Street, in St. Anthony Falls as Resurveyed by R. and F. Cook (Dec. 1857),
according to the plat thereof on file and of record in the office of the County
Recorder in and for said County.
Except that part of said Lots 3 and 4 lying Northwesterly and Northerly of the
following described line: Beginning at the most Westerly corner of Lot 1, said
Block 1; thence Northeasterly along the Northwesterly line of said Lot 1 to the
Northeasterly corner of said Lot 1; thence southeasterly along the Northeasterly
line of said Block 1 a distance of 107.00 feet to the point of beginning of the
line to be described; thence Southwesterly at a right angle a distance of 62.00
feet; thence Northwesterly at a right angle a distance of 9.02 feet, more or
less, to the dividing line between said Lots 3 and 4, thence Southwesterly along
said dividing line a distance of 65.33 feet, more or less, to the Southwesterly
line of said Block 1, and there terminating.
Also, Lot 10, Block 1, Subdivision of Grounds between Pine, Bay, Main and Second
Street, in St. Anthony Falls as Resurveyed by R. and F. Cook (Dec. 1857),
according to the plat thereof on file and of record in the office of the County
Recorder in and for Hennepin County, Minnesota.
PARCEL F-2 (PART OF EXPOSITION HALL):
That part of vacated Main Street Southeast lying Northeasterly of a line drawn
parallel with and 10 feet Southwesterly of the Southwesterly line of Lots 11 to
18, inclusive, Block 1, and its Southeasterly extension and lying between the
extensions across it of the Northwesterly line of said Lot 11 and the center
line of vacated Bank Street.
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PARCEL F-3:
That part of vacated Prince Street lying Southwesterly of a line drawn parallel
with and 10 feet Northeasterly of the Northeasterly line of Block 1 and between
the extension across it of the Southeasterly line of Lot 25, said Block 1, and
the extension across it of a line drawn Northeasterly, at a right angle to the
Northeasterly line of said Block 1, from a point on said Northeasterly line
distant 107 feet Southeasterly from the Northeasterly corner of said Block 1.
PARCEL G:
Lot 1, Block 1, EXPOSITION HALL ADDITION, according to the plat thereof on file
and of record in the office of the County Recorder in and for Hennepin County,
Minnesota, except, however, that part thereof included within Condominium No.
545, La Rive, a Condominium, Hennepin County, Minnesota.
PARCEL K:
The Southeasterly 1/2 of vacated Bank Street adjoining Auditor's Subdivision
Number Sixty-seven (67) and lying between the extensions across it of the
Southwesterly line of Prince Street and the Northeasterly line of Main Street,
according to the plat thereof on file and of record in the office of the County
Recorder in and for Hennepin County, Minnesota.
PARCEL C (RIVERPLACE ADDITION):
PARCEL C-1 and PARCEL C-2 (INCLUDES EAST BRIDGE BUILDING PARKING AREA):
Tracts A, B, C and D, Registered Land Survey No. 1612, Files of the Registrar of
Titles, Hennepin County, Minnesota; and that part of Lots 1 and 2, Block 1,
Riverplace, lying below a plane surface elevation of 823.35 feet, N.G.V.D. -
1929 Datum, according to the plat thereof on file or of record in the office of
the Registrar of Titles in and for Hennepin County, Minnesota.
PARCEL C-3 (EAST BRIDGE BUILDING):
Lot 3, Block 1, RIVERPLACE, according to the plat thereof on file and of record
in the office of the Registrar of Titles in and for Hennepin County, Minnesota;
together with Tracts A and B, Registered Land Survey No. 1612.
<PAGE>
EXHIBIT C
LEASEHOLD IMPROVEMENT SCHEDULE
1. LEASEHOLD IMPROVEMENTS. Lessor shall at its sole cost and expense cause to
be constructed upon the demised premises leasehold improvements based on the
attached plan contained in Exhibit F. If the total cost of construction exceeds
twenty five thousand dollars ($25,000.00), Tenant shall pay the difference to
Lessor upon demand as additional rent hereunder, with a 6% annual interest rate
charged on the construction costs over $25,000.00.
<PAGE>
EXHIBIT D
ADDITIONAL TERMS AND CONDITIONS
PREPAID RENT. Tenant shall pay the first and last months' base rent
and estimated operating expenses upon lease execution.
BASE RENT. The Base Rent during the Term of this lease shall be as
follows:
<TABLE>
<S> <C>
07/01/96 to 10/31/96 $6.12 per rentable square foot per year
11/01/96 to 10/31/97 $6.62 per rentable square foot per year
11/01/97 to 10/31/99 $7.12 per rentable square foot per year
</TABLE>
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
1. The sidewalk, entry passages, elevators, fire escapes and common
stairways of the Building shall not be obstructed by the TENANT OR USED BY THE
tenant for any other purpose other than for ingress and egress to and from the
Leased Premises. TENANT shall not place or allow to be placed in the Building
corridors or public stairways any waste paper, dust, garbage, refuse or anything
whatever that would tend to make them unclean or tidy.
2. The skylights, atrium walls and windows of the Building shall not be
covered or obstructed by the TENANT, and no awnings shall be put up, without the
prior written consent of LESSOR.
3. The water closets and other water apparatus shall not be used for any
purpose other than those for which they were constructed, and no sweepings,
rubbish, rags, ashes or other substances shall be thrown therein. Any damage
resulting by such misuse by the TENANT or TENANT'S agents, servants, or
employees shall be borne by the TENANT. TENANT shall not let the water run
unless in actual use, nor shall TENANT deface any part of the Building.
4. TENANT shall not do or permit anything to be done in the Leased
Premises or bring to keep anything therein which will in any way increase the
risk of fire, or obstruct or interfere with the rights of other tenants, or
violate or act at variance with the laws relating to fires or with the
regulations of the Fire Department or the Board of Health.
5. TENANTS, its employees, agents or servants, shall not make or commit
any improper noises in the Building, lounge about doors or corridors or
interfere in any way with other tenants or those having business with them.
6. Nothing shall be thrown by the TENANT, its employees, agents or
servants, out of windows or doors, or down the passages, elevator shifts or
skylights of the Building.
7. No birds or animals shall be kept in or about the Leased Premises nor
shall the TENANT operate or permit to be operated any musical or sound producing
instrument or device inside or outside the Leased Premises which may be heard
outside the Leased Premises.
8. TENANT shall not use the Leased Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or articles other
than required for business purposes.
<PAGE>
9. LESSOR shall have the right:
(a) To require all persons entering or leaving the Building during such
hours as LESSOR may reasonably determine, to identify themselves to a watchman
by registration or otherwise to establish their right to enter or leave; and
(b) To exclude or expel any peddler or beggar at any time from the Leased
Premises or the Building; and
(c) To institute, at LESSOR'S option, a system whereby access to the
Building, during such hours as LESSOR may reasonably determine, is only
available by means of an identity card which may contain a photograph of the
bearer, and if LESSOR institutes such system LESSOR shall make such cards
available and the TENANT shall pay LESSOR the cost of such cards and
photographs.
10. TENANT shall observe strict care not to allow its windows to remain
open so as to admit rain or snow, or so as to interfere with the heating of the
Building. Any injury or damage caused to the Building or its appointments,
furnishings, heating and other appliances or to any other tenant or to the
premises occupied by any other tenant, by reason of windows being left open so
as to admit rain or snow or by interference with or neglect of the heating
appliances or by reason of any other misconduct or neglect upon the part of the
TENANT or any other person or servant subject to it, shall be made good by the
TENANT.
11. It shall be the duty of the TENANT to assist and cooperate with Lessor
in preventing injury to the Leased Premises.
12. No inflammable oils or other inflammable, dangerous or explosive
materials shall be kept or permitted to be kept in the Leased Premises. Nothing
shall be placed on the outside of window sills or projections.
13. Furniture, effects and supplies shall not be taken into or removed
from the Building, except as such time and in such manner as may be previously
approved by LESSOR, which approval shall include permission to use entrances,
doorways and elevators at certain times for such purposes, and upon such terms
(including payment of any usual charges for the use of elevators) as LESSOR
shall impose.
14. No bicycles or other vehicles shall be brought within the building
except in the parking garage, and then only in compliance with the rules and
regulations as established and enforced from time to time for the use of said
parking garage.
<PAGE>
15. Business machines, filing cabinets, heavy merchandise or other
articles liable to overload, injure or destroy any party of the Building shall
not be taken into it without the prior written consent of LESSOR and LESSOR
shall in all cases retain the right to prescribe the weight and proper position
of all such articles and the times and routes for moving them into or out of the
building; the cost of repairing any damage done to the Building by such moving
or by keeping any such articles on the Leased Premises shall be paid by the
TENANT.
16. The TENANT shall not change any locks nor place any additional lock
upon any door of the Leased Premises without the prior written consent of the
LESSOR. The TENANT shall be responsible for all locks and all keys to such
locks and shall return all keys to LESSOR upon termination of the Lease.
17. The TENANT shall give LESSOR prompt notice of any accident to or any
defect in the plumbing, heating, air conditioning, mechanical or electrical
apparatus or any other part of the Building.
18. The parking of vehicles in the parking garage in the Building shall be
subject to the usual charges and reasonable regulations of LESSOR.
19. The TENANT shall not mark, paint, drill into or in any way deface the
walls, ceilings, partitions, floors or other parts of the Leased Premises or the
Building except with the prior written consent of LESSOR and as it may direct.
20. LESSOR may regulate, and the TENANT agrees to comply with LESSOR'S
instructions and regulations from time to time, with respect to whether or not
and at what times the windows, drapes and blinds shall be open or closed.
21. The TENANT shall at the end of each business day leave the Leased
Premises in a reasonable tidy condition for the purpose of allowing the
performance of LESSOR'S cleaning services.
22. If TENANT, elects to have contract parking, LESSOR will not guarantee
the availability of unreserved parking spaces after normal working hours.
23. LESSOR shall have the right to make such other and further reasonable
rules and regulations as in its judgment may from time to time be needed for the
safety, care, cleanliness and appearance of the Leased Premises or the Building,
and for the preservation of good order therein, and the same shall be kept and
observed by the TENANT, its employees, agents and servants.
24. The TENANT agrees to abide by the foregoing RULES AND REGULATIONS,
which are hereby made a part of this Lease.
<PAGE>
EXHIBIT 10.12.2
STORAGE LEASE AGREEMENT
THIS AGREEMENT, made this 5th day of April, 1996, by and between Riverplace
Inc., hereinafter designed as Owner, and Net Radio Corporation, hereinafter
designed as Tenant.
In consideration of the covenants and agreements herein contained, the
parties hereto mutually agree as follows:
1. LEASED PREMISES. Owner does hereby lease to Tenant and Tenant hereby
takes and leases from Owner, upon terms and conditions set forth herein, Storage
Space number AA-10, (hereinafter called the "Storage Area") in the basement of
the ALLEE ALINE Building, (hereinafter called the "Building") in the City of
Minneapolis, State of Minnesota, for storage purposes and for no other purpose
whatsoever.
TO HAVE AND TO HOLD the premises unto Tenant for and during the full term
hereof.
2. TERM. The term of this Lease shall commence on April 15, 1996, and
shall continue thereafter to and including October 31, 1998, unless earlier
terminated as hereinafter provided.
3. RENTAL. Tenant shall pay Owner as rent the sum of $86.67 per month on
or before the first day of each month during the term of this Lease to
Riverplace Inc., 43 Main Street S.E., #400, Minneapolis, MN 55414, or at such
other place or places or to such other party or parties as Owner from time to
time elects.
All rent and other sums payable hereunder by Tenant to Owner that are not
paid within ten (10) days after the date due pursuant to the terms of this Lease
shall bear interest on the arrearages from the date due to the date paid at a
rate of interest, per annum, equal to the lessor of (i) the highest lawful rate
of interest that may be charged Tenant under the laws of the State of (ii)
eighteen percent (18%) , and such interest shall be paid to Owners upon demand
of Owner.
4. LIMITATIONS ON USE. Tenant shall not commit, create, maintain or
permit any nuisance in the Storage Area and the Tenant shall not cause or permit
to be caused or produced upon the Storage Area, to permeate the same or to
emanate therefrom, any unusual, noxious or objectionable smokes, gases, vapors,
odors or noises.
Tenant shall not overload any floor, roadway, passageway, pavement or other
surface, or any wall, partition or supporting member or any elevator, in the
Storage Area or in or at the Building and without limiting any other provision
of this lease, Tenant shall repair, replace or rebuild any such damage caused
by, due to, or resulting from, overloading.
Tenant shall not do, or permit to be done, any act or thing in the Storage
Area, or in or at the Building, which will invalidate or conflict with any
insurance policies covering the Building or
<PAGE>
which, in the opinion of the Owner, may constitute an extra-hazardous
condition. Tenant shall promptly observe and comply with all laws,
ordinances, rules and regulations of any governmental authority, insurance
company, national fire protection association or insurance rating bureau.
Tenant shall pay as additional rental any increase in premiums for insurance
resulting from any act or thing done, or permitted to be done, by Tenant in
the Storage Area, or in or at the Building.
5. ASSIGNMENT AND SUBLETTING. Tenant shall not assign or in any manner
encumber this Lease, or sublet the whole or any part of the Storage Area, nor
permit any other person either jointly with the Tenant or otherwise, to use the
Storage Area or any part thereof, without first obtaining on each occasion, the
written consent of Owner.
6. RUBBISH AND DEBRIS. No rubbish, dirt or dumpings shall be put in the
halls, passageways, toilet rooms or elevators in the Building by the Tenant, or
by any employees, customers or invitees of the Tenant, but the same shall be
removed from the Storage Area and the Building by the Tenant without cost to the
Owner.
7. NEAT AND CLEAN CONDITION. Tenant shall, without expense to the Owner,
keep the Storage Area in a neat, clean and orderly condition having special
reference to fire hazard, and shall permit no rubbish of any kind to accumulate
in the Storage Area.
8. RULES, REGULATIONS, LAWS AND ORDINANCES. Tenant shall use the Storage
Area and the halls, passageways and elevators in the Building in accordance with
such rules and regulations as may from time to time be made by the Owner for the
general safety, comfort and convenience of the Owners, occupants and Tenants of
the Building, and shall cause Tenant's customers, employees and invitees to
abide by such rules and regulations.
9. ALTERATIONS. Tenant shall make no alteration, addition or change in
the Storage Area without the advance written consent of the Owner.
10. TENANT TO SURRENDER PREMISES IN GOOD CONDITION. Upon the expiration
or termination of the term of this Lease, Tenant shall remove the Tenant's goods
and effects and those of all persons claiming under the Tenant and shall quit
and deliver up the Storage Area, and all thereof, to the Owner, peaceable and
quietly, in as good order and condition as the same were in on the date the term
of this Lease commenced or were thereafter placed in by the Owner, reasonable
wear and tear excepted. Any property left in the Storage Area after the
expiration or termination of the term of this Lease shall be deemed to have been
abandoned and a property of the Owner to dispose of as the Owner deems
expedient.
11. WAIVER OF COVENANTS. The failure of the Owner to insist, in any one
or more instances, upon a strict performance of any of the terms, covenants and
conditions of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver, or a relinquishment for the future, of such term,
covenant, condition or option, but the same shall continue and remain in full
force and effect. The receipt by the Owner of rent with knowledge of a breach
in any of the terms,
2
<PAGE>
covenants or conditions of this Lease to be kept or performed by the Tenant
shall not be deemed to have waived any provision of this Lease unless
expressed in writing and signed by the Owner.
12. REPAIRS. Owner shall not be obliged to make repairs, replacements or
improvements of any kind upon the Storage Area, which shall at all times be kept
in good order, condition and repair by Tenant, and in a clean, sanitary and safe
condition and in accordance with all applicable laws, ordinances and regulations
of any governmental authority having jurisdiction. Tenant shall permit no
waste, damage or injury to the Storage Area.
13. INDEMNITY. Tenant shall indemnify and save Owner harmless against any
and all claims, demands, damages, costs and expenses, including reasonable
attorneys' fees, for the defense thereof, arising from any breach or default on
the part of Tenant in the performance of any covenant or agreement on the part
of Tenant to be performed pursuant to the terms of this Lease, or from any act
or negligence of Tenant, its agents, contractors, servants or employees. Owner
shall not be liable and Tenant waives and releases all claims for damage, death
or injury to person or property sustained by Tenant or Tenant's employees,
agents, servants or invitees resulting from the Building or any equipment or
appurtenances hereunto appertaining becoming out of repair, or resulting from
any accident in or about the Storage Area or the Building, or resulting directly
or indirectly from any act or neglect of any other Tenant in the Building, or
resulting from any other cause whatsoever. This shall apply especially, but not
exclusively, to the flooding of the Storage Area, and to damage caused by
sprinkling devices, air conditioning apparatus, water, snow, frost, steam,
excessive heat or cold, falling plaster, broken glass, sewage, gas odors, or
noise, or the bursting or leaking pipes or plumbing fixtures. All property
belonging to Tenant shall be in the Storage Area at the risk of Tenant, and
Owner shall not be liable for damage thereto or theft or misappropriation
thereof.
14. CANCELLATION. This Lease will be terminated automatically upon
destruction of the Building by fire or other catastrophe. Owner and Tenant
shall have the right to terminate this Lease at any time by giving at least
thirty (30) days advance written notice of such termination.
15. RELATIONSHIP. Neither the Lease nor the storage of any property in
the Storage Area shall constitute a bailment or create, or be deemed or
construed to create, the relationship of bailor and bailee between the parties
hereto.
16. DEFAULT. If the Tenant shall default in the payment of any
installment of rent, or in the observance or performance of any of the Tenant's
other covenants, agreements or obligations hereunder, then, in any such event,
the Owner may, without process, re-enter immediately into the Storage Area and
remove all property therefrom, and at its option, annul and cancel this Lease as
to all future rights of the Tenant and have, regain possession and enjoy the
Storage Area as in the first instance, anything herein to the contrary
notwithstanding, and the Tenant hereby expressly waives the service of any
notice in writing of intention to re-enter as aforesaid, and also all right of
restoration to possession of the Storage Area after re-entry or after judgment
for possession thereof. In case of any such termination, the Tenant will
indemnify the Owner against all loss of rents and other damage which it may
incur by reason of such termination during the residue of the term of this
Lease, and also against all attorneys' fees and expenses incurred in enforcing
any of the terms of this Lease. If Tenant defaults in any obligation under this
Lease to be kept or performed by Tenant, Tenant shall promptly reimburse Owner
for all costs including, without limitation, attorneys' fees, incurred by Owner
in enforcing the performance of such obligations, whether or not this Lease is
3
<PAGE>
terminated and whether or not suit is brought.
17. WAIVERS. No assent or consent to changes in, or waiver of, provisions
of this Lease in spirit or letter shall be deemed or taken to have occurred
unless the same be done in writing and executed with the same formality as this
Lease. The Owner's janitors, superintendents and/or agents (unless such agents
are expressly authorized in writing by Owner) are not authorized to amend this
Lease, and any alterations, amendments or qualifications made by the Owner's
janitors, superintendents and/or agents (unless such agents are so authorized)
shall be null and void.
18. MISCELLANEOUS. There are no understandings or agreements not
incorporated in this Lease. This is a Minnesota contract and shall be construed
according to the laws of Minnesota. The captions in this Lease are for
convenience and are not a part of this Lease. The covenants and agreements
hereof shall as fully and completely bind the heirs, executors, administrators,
legal representatives, successors and assigns of the parties hereto as if they
had been specifically mentioned in each of said covenants and agreements.
IN WITNESS WHEREOF, the Owner and Tenant have duly signed and sealed these
present the day and year first above written.
RIVERPLACE, INC.
By: /s/ Takashi Ito
-----------------------------
Takashi Ito
Its: Executive Vice President
Net Radio Corporation
-----------------------------
Tenant
By: /s/ Terrence K. Mahoney
-----------------------------
Its: Chief Financial Officer
4
<PAGE>
EXHIBIT 10.14
NET RADIO CORPORATION
1998 STOCK OPTION AND INCENTIVE PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSE
Net Radio Corporation (the "Company") hereby establishes the Net Radio
Corporation 1998 Stock Option and Incentive Plan (the "Plan"). The purpose of
the Plan is to enable the Company and its Affiliates to retain and attract
employees, directors and consultants who contribute to the Company's success by
their ability, ingenuity and industry, and to enable such individuals to
participate in the long-term success and growth of the Company by giving them a
proprietary interest in the Company.
ARTICLE 2
DEFINITIONS
For the purposes of the Plan, the following terms shall be defined as set
forth below:
2.1 "Affiliate" means any Parent or Subsidiary.
2.2. "Award" means an Option, Deferred Stock award, Restricted Stock award, or
Stock Appreciation Right granted pursuant to the terms of the Plan.
2.3. "Board" means the Board of Directors of the Company.
2.4. "Broker Exercise Notice" means the written notice described in Section
6.6 of the Plan.
2.5. "Cause" means a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a particular Participant's
willful misconduct or dishonesty, any of which is directly and materially
harmful to the business or reputation of the Company.
2.6. "Change in Control" means an event described in Section 12.1 of the Plan.
2.7. "Code" means the Internal Revenue Code of 1986, as amended.
2.8. "Committee" means a committee of the Board as may be designated by the
Board, from time to time, for the purpose of administering this Plan as
contemplated by Section 3.1 hereof. If at any time no Committee shall be in
office, then the functions of the Committee specified in the Plan shall be
exercised by the Board.
2.9. "Common Stock" means the common stock of the Company, no par value, or
the number and kind of shares of stock or other securities into which such
Common Stock may be changed in accordance with Section 4.3 of the Plan.
2.10. "Deferred Stock" means an award made pursuant to Article 9 below of the
right to receive Stock at the end of a specified period.
1
<PAGE>
2.11. "Disability" means the disability of the Participant as defined in the
long-term disability plan of the Company then covering the Participant or, if no
such plan exists, the permanent and total disability of the Participant within
the meaning of Section 22(e)(3) of the Code.
2.12. "Eligible Recipient" means all employees (including, without limitation,
officers and directors who are also employees), nonemployee directors,
consultants and independent contractors of the Company and any Affiliate.
2.13. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.14. "Fair Market Value" means, with respect to the Common Stock, the
following:
(a) If the Common Stock is traded publicly, the Fair Market Value of a
share of Common Stock on any date shall be the average of the
representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq (its
automated system for reporting quotes), for the date in question or, if
the Common Stock is quoted on The Nasdaq National Market or is listed on
a national stock exchange, the officially quoted closing price on The
Nasdaq National Market or such exchange, as the case may be, on the date
in question.
(b) If the Common Stock is not traded publicly, the Fair Market Value
of a share of Common Stock on any date shall be determined, in good
faith, by the Board or the Committee after such consultation with outside
legal, accounting and other experts as the Board or the Committee may
deem advisable, and the Board or the Committee shall maintain a written
record of its method of determining such value.
2.15. "Incentive Stock Option" means a right to purchase Common Stock granted
to an Eligible Recipient pursuant to Article 6 of the Plan that is intended to
be, designated as, and qualifies as an "incentive stock option" within the
meaning of Section 422 of the Code.
2.16. "Non-Employee Director" means a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) under the Exchange Act or any successor rule.
2.17. "Non-Qualified Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Article 6 of the Plan that does not
qualify as an Incentive Stock Option.
2.18. "Option" means an Incentive Stock Option or a Non-Qualified Stock Option.
2.19. "Outside Director" means a director who (a) is not a current employee of
the Company or any member of an affiliated group which includes the Company; (b)
is not a former employee of the Company who receives compensation for prior
service (other than benefits under a tax-qualified retirement plan) during the
taxable year; (c) has not been an officer of the Company; and (d) does not
receive remuneration from the Company, either directly or indirectly, in any
capacity other than as a director, except as otherwise permitted under Code
Section 162(m) and regulations thereunder. For this purpose, remuneration
includes any payment in exchange for goods or services. This definition shall
be further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.
2.20 "Parent" means any parent corporation of the Company within the meaning
of Section 424(e) of the Code.
2
<PAGE>
2.21. "Participant" means an Eligible Recipient who receives one or more Awards
under the Plan.
2.22. "Person" means any individual, corporation, partnership, group,
association or other "person" (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan sponsored by the Company or a wholly owned
subsidiary of the Company.
2.23. "Previously Acquired Shares" means shares of Common Stock that are
already owned by the Participant and shares of Common Stock that are to be
acquired by the Participant pursuant to the exercise of an Option, the
termination of restrictions of a Restricted Stock Award, or the termination of a
period of deferral of a Deferred Stock award.
2.24. "Restricted Stock" means an award of shares of Common Stock that are
subject to restrictions under Article 8 below.
2.25. "Retirement" means the retirement of a Participant pursuant to and in
accordance with the regular or, if approved by the Board for purposes of the
Plan, early retirement/pension plan or practice of the Company or Affiliate then
covering the Participant.
2.26. "Securities Act" means the Securities Act of 1933, as amended.
2.27. "Stock Appreciation Right" means the right pursuant to an award granted
under Article 7 below to surrender to the Company all or a portion of an Option
in exchange for an amount equal to the difference between (i) the Fair Market
Value, as of the date such Option or such portion thereof is surrendered, of the
shares of Common Stock covered by such Option or such portion thereof, and (ii)
the aggregate exercise price of such Option or such portion thereof.
2.28. "Subsidiary" means any subsidiary corporation of the Company within the
meaning of Section 424(f) of the Code.
2.29. "Tax Date" means the date any withholding tax obligation arises under the
Code for a Participant with respect to an Award.
ARTICLE 3
PLAN ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Board or a
Committee of at least two directors, all of whom shall be Outside Directors and
Non-Employee Directors. The Committee may be a subcommittee of the Compensation
Committee of the Board. Members of such a Committee, if established, shall be
appointed from time to time by the Board, shall serve at the pleasure of the
Board and may resign at any time upon written notice to the Board. A majority
of the members of such a Committee shall constitute a quorum. Such a Committee
shall act by majority approval of the members, shall keep minutes of its
meetings and shall provide copies of such minutes to the Board. Action of such
a Committee may be taken without a meeting if unanimous written consent is
given. Copies of minutes of such a Committee's meetings and of its actions by
written consent shall be provided to the Board and kept with the corporate
records of the Company. As used in this Plan, the term "Committee" will refer
to the Board or to such a Committee, if established.
3.2 AUTHORITY OF THE COMMITTEE.
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(a) The Committee shall have the power and authority to grant to
Eligible Recipients, pursuant to the terms of the Plan: (i) Options, (ii)
Stock Appreciation Rights, (iii) Restricted Stock awards, or (iv)
Deferred Stock awards. In particular, the Committee shall have the
authority:
(i) to select the Eligible Recipients to whom Options, Stock
Appreciation Rights, Restricted Stock awards and/or Deferred Stock
awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock awards or Deferred Stock awards, or a combination
of the foregoing, are to be granted hereunder;
(iii) to determine the number of shares to be covered by each
Award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award (including, but not
limited to, any restriction on any Option or other Award and/or
the shares of Common Stock relating thereto) and, with the consent
of the Participant affected thereby, to amend such terms and
conditions (including, but not limited to, any amendment which
accelerates the vesting of any award); and
(v) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect
to an Award shall be deferred either automatically or at the
election of the Participant.
(b) The Committee shall have the authority, subject to the provisions
of the Plan, to establish, adopt and revise such rules and regulations
relating to the Plan as it may deem necessary or advisable for the
administration of the Plan. The Committee's decisions and determinations
under the Plan need not be uniform and may be made selectively among
Participants, whether or not such Participants are similarly situated.
Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive and
binding for all purposes and on all persons, including, without
limitation, the Company and its Affiliates, the shareholders of the
Company, the Committee and each of its members, the directors, officers,
employees of and consultants to the Company and its Affiliates, and the
Participants and their respective successors in interest. No member of
the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Award.
ARTICLE 4
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
below, the maximum number of shares of Common Stock that shall be authorized and
reserved for issuance under the Plan shall be 1,475,000 shares of Common Stock.
The maximum number of shares authorized may also be increased from time to time
by approval of the Board and, if required pursuant to Rule 16b-3
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under the Exchange Act, Section 422 of the Code, or the applicable rules of
any securities exchange or the NASD, the shareholders of the Company.
4.2 SHARES AVAILABLE FOR USE. Shares of Common Stock that may be issued upon
exercise of Options, or as Deferred Stock awards or Restricted Stock awards
shall be applied to reduce the maximum number of shares of Common Stock
available for use under the Plan. Any shares of Common Stock that are subject
to an Option or a Deferred Stock award or Restricted Stock award (or any portion
thereof) that lapses, expires or for any reason is terminated unexercised shall
automatically again become available for use under the Plan.
4.3 ADJUSTMENTS TO SHARES. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in the corporate
structure or shares of the Company, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation) shall make appropriate adjustment (which determination
shall be conclusive) as to the number and kind of securities subject to and
reserved under the Plan and, in order to prevent dilution or enlargement of the
rights of Participants, the number, kind and exercise price of securities
subject to outstanding Options, Deferred Stock awards and Restricted Stock
awards (subject to Section 8.3(e)). The adjusted Option price shall also be
used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right associated with any Option. Without limiting the
generality of the foregoing, in the event that any of such transactions are
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets, including cash, with respect to or in exchange for
such Common Stock, all Participants holding outstanding Options, Deferred Stock
awards or Restricted Stock awards shall upon the exercise of such Options, upon
the termination of restrictions of such Restricted Stock award, or upon the
termination of the deferral period of such Deferred Stock award shall receive,
in lieu of any shares of Common Stock they may be entitled to receive, such
stock, securities or other assets, including cash, as would have been issued to
such Participants if their Options had been exercised or the deferral period or
restrictions of a Deferred Stock award or Restricted Stock award had lapsed or
terminated and such Participants had received Common Stock prior to such
transaction.
ARTICLE 5
PARTICIPATION
5.1 PARTICIPANTS. Participants in the Plan shall be those Eligible
Participants who have performed, are performing, or will perform services in the
management, operation and development of the Company or any Affiliate, and
significantly contributed, are significantly contributing or are expected to
significantly contribute to the achievement of corporate objectives. Eligible
Recipients may be granted from time to time one or more Awards, as may be
determined by the Committee in its discretion. The number, type, terms and
conditions of Awards need not be uniform, consistent or in accordance with any
program, regardless of whether such Eligible Recipients are similarly situated.
5.2 AGREEMENTS. Upon determination by the Committee that an Incentive Stock
Option is to be granted to an Eligible Recipient, written notice shall be given
to such person, specifying the terms, conditions, rights and duties related
thereto. Each Eligible Recipient to whom an Option, Deferred
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Stock award, Restricted Stock award, or Stock Appreciation Right is to be
granted shall, if requested by the Committee, enter into an agreement with
the Company, in such form as the Committee shall determine and which is
consistent with the provisions of the Plan, specifying such terms,
conditions, rights and duties. Awards shall be deemed to be granted as of the
date specified in the grant resolution of the Committee, which date shall be
the date of the related agreement with the Participant.
ARTICLE 6
STOCK OPTIONS
6.1 GRANT. An Eligible Recipient may be granted one or more Options under
the Plan, and such Options shall be subject to such terms and conditions,
consistent with the other provisions of the Plan, as shall be determined by the
Committee in its discretion. The Committee shall designate whether an Option is
to be considered an Incentive Stock Option or a Non-Qualified Stock Option;
provided, however, that an Incentive Stock Option shall be granted only to an
Eligible Employee who is an employee of the Company or an Affiliate. The terms
of the agreement relating to a Qualified or Non-Qualified Stock Option shall
expressly provide that such Option shall be treated as an Incentive Stock Option
or Non-Qualified Stock Option, as the case may be.
6.2 EXERCISE. An Option shall become exercisable at such times and in such
installments (which may be cumulative) as shall be determined by the Committee,
in its discretion, at the time the Option is granted. Upon the completion of
its exercise period, an Option, to the extent not then exercised, shall expire.
Notwithstanding the foregoing and subject to the discretionary acceleration
rights of the Committee, an Option granted to a director, officer or 10%
shareholder of the Company shall not be exercisable for a period of six (6)
months unless the Option has been approved by the Board, the Committee or the
shareholders of the Company.
6.3 EXERCISE PRICE.
(a) INCENTIVE STOCK OPTIONS. The per share price to be paid by the
Participant at the time an Incentive Stock Option is exercised shall be
determined by the Committee, in its discretion, at the time the Option is
granted; provided, however, that such price shall not be less than (i)
100% of the Fair Market Value of one share of Common Stock on the date
the Option is granted, or (ii) 110% of the Fair Market Value of one share
of Common Stock on the date the Option is granted if, at the time the
Option is granted, the Participant owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code), more than 10% of the
total combined voting power of all classes of stock of the Company or any
Affiliate.
(b) NON-QUALIFIED STOCK OPTIONS. The per share price to be paid by
the Participant at the time a Non-Qualified Stock Option is exercised
shall be determined by the Committee, in its discretion, at the time the
Option granted.
6.4 DURATION.
(a) INCENTIVE STOCK OPTIONS. The period during which an Incentive
Stock Option may be exercised shall be fixed by the Committee, in its
discretion, at the time the Option is granted; provided, however, that in
no event shall such period exceed 10 years from its date of grant or, in
the case of a Participant who owns, directly or indirectly, (as
determined
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pursuant to Section 424(d) of the Code), more than 10% of the total
combined voting power of all classes of stock of the Company or any
Affiliate, five years from its date of grant.
(b) NON-QUALIFIED STOCK OPTIONS. The period during which a
Non-Qualified Stock Option may be exercised shall be fixed by the
Committee, in its discretion, at the time the Option is granted.
(c) EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
Notwithstanding this Section 6.4, except as provided in Articles 11 and
12 of the Plan, all Options granted to a Participant shall terminate and
may no longer be exercised if the Participant's employment or other
service with the Company and all Affiliates ceases.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in whole
or in part from time to time, subject to the conditions contained therein and in
the agreement evidencing such Option, by delivery, in person or through
certified or registered mail, of written notice of exercise to the Company at
its principal executive office in Minneapolis, Minnesota (Attention: President),
and by paying in full the total Option exercise price for the shares of Common
Stock purchased. Such notice shall be in a form satisfactory to the Committee
and shall specify the particular Option (or portion thereof) that is being
exercised and the number of shares with respect to which the Option is being
exercised. Subject to compliance with Section 15.1 of the Plan, the exercise of
the Option shall be deemed effective upon receipt of such notice and payment
complying with the terms of the Plan and the agreement evidencing such Option.
As soon as practicable after the effective exercise of the Option, the
Participant shall be recorded on the stock transfer books of the Company as the
owner of the shares purchased, and the Company shall deliver to the Participant
one or more duly issued stock certificates evidencing such ownership. If a
Participant exercises any Option with respect to some, but not all, of the
shares of Common Stock subject to such Option, the right to exercise such Option
with respect to the remaining shares shall continue until it expires or
terminates in accordance with its terms. An Option shall only be exercisable
with respect to whole shares.
6.6 PAYMENT OF PURCHASE PRICE.
(a) The total purchase price of the shares to be purchased upon
exercise of an Option shall be paid entirely either by certified check or
bank check, or by any other form of legal consideration deemed sufficient
by the Committee and consistent with the Plan's purpose and applicable
law, including promissory notes, Previously Acquired Shares, or a Broker
Exercise Notice, or any combination thereof. As determined by the
Committee, it its sole discretion, in the case of a Non-Qualified Stock
Option, payment in full or in part may also be made in the form of
Restricted Stock or Deferred Stock subject to an award under the Plan
(based in each case on the fair market value of the Common Stock on the
date the option is exercised, as determined by the Committee); provided
that in the event payment is made in the form of shares of Restricted
Stock or Deferred Stock, the Participant will receive a portion of the
Option shares in the form of, and in an amount equal to, the Restricted
Stock award or Deferred Stock award tendered as payment by the
Participant. In the case of an Incentive Stock Option, the right to make
a payment in the form of Previously Acquired Shares may be authorized
only at the time the option is granted. If the terms of an Option so
permit, a Participant may elect to pay all or part of the option exercise
price by having the Company withhold from the shares of Common Stock that
would otherwise be issued upon exercise that number of shares of Common
Stock having a Fair Market Value equal to the
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aggregate option exercise price for the shares with respect to which
such election is made. In determining whether or upon what terms and
conditions a Participant will be permitted to pay the purchase price
of an Option in a form other than cash, the Company may consider all
relevant facts and circumstances, including, without limitation, the
tax and securities law consequences to the Participant and the
Company and the financial accounting consequences to the Company.
No shares of Common Stock shall be issued until full payment therefor
has been made.
(b) For purposes of this Section 6.6, a "Broker Exercise Notice" shall
mean a written notice from a Participant to the Company at its principal
executive office in Minneapolis, Minnesota (Attention: President), made
on a form and in such manner as the Committee may from time to time
determine, pursuant to which the Participant irrevocably elects to
exercise all or any portion of an Option and irrevocably directs the
Company to deliver the stock certificates to be issued to such
Participant under such Option exercise directly to a broker or dealer. A
Broker Exercise Notice must be accompanied by or contain irrevocable
instructions to the broker or dealer (i) to promptly sell a sufficient
number of shares of such Common Stock or to loan the Participant a
sufficient amount of money to pay the exercise price for the Options and,
if not otherwise satisfied by the Participant, to fund any related
employment and withholding tax obligations due upon such exercise, and
(ii) to promptly remit such to the Company upon the broker's or dealer's
receipt of the stock certificates.
6.7 RIGHTS AS A SHAREHOLDER. The Participant shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Participant shall have become the holder of record of such shares, and
no adjustments shall be made for dividends or other distributions or other
rights as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determined pursuant to Section 4.3 of the Plan.
6.8 DISPOSITION OF COMMON STOCK ACQUIRED PURSUANT TO THE EXERCISE OF
INCENTIVE STOCK OPTIONS. Prior to making a disposition (as defined in Section
424(c) of the Code) of any shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option granted under the Plan before the
expiration of two years after its date of grant or before the expiration of one
year after its date of exercise and the date on which such shares of Common
Stock were transferred to the Participant pursuant to the exercise of the
Option, the Participant shall send written notice to the Company of the proposed
date of such disposition, the number of shares to be disposed of, the amount of
the proceeds to be received from such disposition and any other information
relating to such disposition that the Company may reasonably request. The right
of a Participant to make any such disposition shall be conditioned on the
receipt by the Company of all amounts necessary to satisfy any federal, state or
local withholding and employment-related tax requirements attributable to such
disposition. The Committee shall have the right, in its discretion, to endorse
the certificates representing such shares with a legend restricting transfer and
to cause a stop transfer order to be entered with the Company's transfer agent
until such time as the Company receives the amounts necessary to satisfy such
withholding and employment-related tax requirements or until the later of the
expiration of two years from its date of grant or one year from its date of
exercise and the date on which such shares were transferred to the Participant
pursuant to the exercise of the Option.
6.9 AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS. To
the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the
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shares of Common Stock with respect to which incentive stock options (within
the meaning of Section 422 of the Code) are exercisable for the first time by
a Participant during any calendar year (under the Plan and any other
incentive stock option plans of the Company or any Affiliate) exceeds
$100,000 (or such other amounts as may be prescribed by the Code from time to
time), such excess Options shall be treated as Non-Qualified Options. The
determination shall be made by taking Incentive Stock Options into account in
the order in which they were granted. If such excess only applies to a
portion of an Incentive Stock Option, the Committee, in its discretion, shall
designate which shares shall be treated as shares to be acquired upon
exercise of an Incentive Stock Option.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 GRANT. Stock Appreciation Rights may be granted in conjunction with all
or part of any Option granted under the Plan. In the case of a Non-Qualified
Stock Option, such rights may be granted either at or after the time of the
grant of such Option. In the case of an Incentive Stock Option, such rights may
be granted only at the time of the grant of the Option. A Stock Appreciation
Right or applicable portion thereof granted with respect to a given Option shall
terminate and no longer be exercisable upon the termination or exercise of the
related Option, except that a Stock Appreciation Right granted with respect to
less than the full number of shares covered by a related Option shall not be
reduced until the exercise or termination of the related Option exceeds the
number of shares not covered by the Stock Appreciation Right.
7.2 EXERCISE. A Stock Appreciation Right may be exercised by a Participant,
in accordance with Section 7.3 below by surrendering the applicable portion of
the related Option. Upon such exercise and surrender, the Participant shall be
entitled to receive an amount determined in the manner prescribed in Section
7.3. Options which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the related Stock Appreciation Rights have
been exercised.
7.3 TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
applicable regulations relating to the exercise of Stock Appreciation Rights by
Participants subject to reporting responsibilities under Section 16 of the
Exchange Act, and to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:
(a) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Options to which they relate shall be
exercisable in accordance with the provisions of Article 6 and this
Article 7 of the Plan.
(b) Upon the exercise of a Stock Appreciation Right, a Participant
shall be entitled to receive up to, but not more than, an amount in cash
or shares of Common Stock equal in value to the excess of the Fair Market
Value of one share of Common Stock over the option exercise price per
share specified in the related Option multiplied by the number of shares
in respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment.
(c) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Option would be transferable under Section
14.2 of the Plan.
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(d) Upon the exercise of a Stock Appreciation Right, the Option or
part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 4.1 of the Plan on the number of shares of Common Stock to be
issued under the Plan, but only to the extent of the number of shares
issued or issuable under the Option at the time of exercise based on the
value of the Stock Appreciation Right at such time.
(e) A Stock Appreciation Right granted in connection with an Incentive
Stock Option may be exercised only if and when the market price of the
Common Stock subject to the Incentive Stock Option exceeds the exercise
price of such Option.
ARTICLE 8
RESTRICTED STOCK AWARDS
8.1 ADMINISTRATION. Shares of Restricted Stock may be issued either alone or
in addition to other Awards. The Committee shall determine the Eligible
Participants to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the time or times within which
such awards may be subject to forfeiture, and all other conditions of the
awards. The Committee may also condition the grant of Restricted Stock upon the
attainment of specified performance goals. The provisions of Restricted Stock
Awards need not be the same with respect to each recipient.
8.2 AWARDS AND CERTIFICATES. The prospective recipient of an award of shares
of Restricted Stock shall not have any rights with respect to such award, unless
and until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the then applicable terms and conditions.
(a) Each Participant who has received a Restricted Stock Award shall
be issued a stock certificate in respect of shares of Restricted Stock
awarded under the Plan. Such certificate shall be registered in the name
of the Participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such award,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the Net Radio Corporation 1998 Stock
Option and Incentive Plan and an agreement entered into between
the registered owner and Net Radio Corporation. Copies of such
Plan and Agreement are on file in the offices of Net Radio
Corporation, Riverplace - Exposition Hall, 43 Main Street SE;
Suite 149, Minneapolis, Minnesota 55414."
(b) The Committee shall require that the stock certificates evidencing
such shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted
Stock award, the Participant shall have delivered a stock power, endorsed
in blank, relating to the Common Stock covered by such award.
8.3. RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
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(a) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such
award (the "Restriction Period"), the Participant shall not be permitted
to sell, transfer, pledge or assign shares of Restricted Stock awarded
under the Plan. Within these limits, the Committee may provide for the
lapse of such restrictions in installments where deemed appropriate.
(b) Except as provided in Section 8.3(a), the Participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
shareholder of the Company, including the right to vote the shares and
the right to receive any cash dividends. The Committee, it its sole
discretion, may permit or require the payment of cash dividends to be
deferred and, if the Committee so determines, reinvested in additional
shares of Restricted Stock (but only to the extent shares are available
under Article 4). Certificates for shares of unrestricted Common Stock
shall be delivered to the Participant promptly after, and only after, the
period of forfeiture shall have expired without forfeiture of such shares
of Restricted Stock.
(c) Subject to the provisions of the award agreement and of Section
8.3(d) below, upon termination of employment for any reason during the
Restriction Period, all shares still subject to restriction shall be
forfeited by the Participant.
(d) In the event of special hardship circumstances of a Participant
whose employment is terminated (other than for Cause), including death,
Disability or Retirement, or in the event of an unforeseeable emergency
of a Participant still in service, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interest of
the Company, waive in whole or in part any or all of the remaining
restrictions with respect to such Participant's shares of Restricted
Stock.
(e) Notwithstanding the foregoing, in the event of the sale by the
Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, exchange,
consolidation or liquidation of the Company, the Board shall, in its sole
discretion, in connection with the Board's adoption of the plan for sale,
merger, exchange, consolidation or liquidation, provide for one or more
of the following with respect to Restricted Stock awards that are, on
such date, still subject to a Restriction Period: (i) the removal of the
restrictions on any or all outstanding Restricted Stock awards; (ii) the
complete termination of this Plan and forfeiture of outstanding
Restricted Stock awards prior to a date specified by the Board; and (iii)
the continuance of the Plan with respect to the Restricted Stock awards
which were outstanding as of the date of adoption by the Board of such
plan for sale, merger, exchange, consolidation or liquidation and provide
to Participants holding Restricted Stock awards the right to an
equivalent number of restricted shares of stock of the corporation
succeeding the Company by reason of such sale, merger, exchange,
consolidation or liquidation. The grant of a Restricted Stock award
pursuant to the Plan shall not limit in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or
changes to its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part
of its business or assets.
(f) Subject to Article 13 below, recipients of Restricted Stock awards
under the Plan are not required to make any payment or provide
consideration other than the rendering of services.
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ARTICLE 9
DEFERRED STOCK AWARDS
9.1 ADMINISTRATION. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the Eligible Recipients to whom and the time or times at which Deferred Stock
shall be awarded, the number of shares of Deferred Stock to be awarded to any
Participant or group of Participants, the duration of the period (the "Deferral
Period") during which, and the conditions under which, receipt of the Common
Stock will be deferred, and the terms and conditions of the award in addition to
those contained in Section 9.2. The Committee may also condition the grant of
Deferred Stock upon the attainment of specified performance goals. The
provisions of Deferred Stock awards need not be the same with respect to each
recipient.
9.2 TERMS AND CONDITIONS.
(a) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. At the expiration of
the Deferral Period (or Elective Deferral Period, where applicable),
share certificates shall be delivered to the Participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award.
(b) Amounts equal to any dividends declared during the Deferral Period
with respect to the number of shares covered by a Deferred Stock award
will be paid to the Participant currently or deferred and deemed to be
reinvested in additional Deferred Stock or otherwise reinvested, all as
determined at the time of the award by the Committee, in its sole
discretion.
(c) Subject to the provisions of the award agreement and Section
9.2(d) below, upon termination of employment for any reason during the
Deferral Period for a given award, the Deferred Stock in question shall
be forfeited by the Participant.
(d) In the event of special hardship circumstances of a Participant
whose employment is terminated (other than for Cause) including death,
Disability or Retirement, or in the event of an unforeseeable emergency
of a Participant still in service, the Committee may, in its sole
discretion, when it finds that waiver would be in the best interest of
the Company, waive in whole or in part any or all of the remaining
deferral limitations imposed hereunder with respect to any or all of the
Participant's Deferred Stock.
(e) A Participant may elect to further defer receipt of the award for
a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee, all in its sole discretion.
Subject to any exceptions adopted by the Committee, such election must
generally be made prior to completion of one half of the Deferral Period
for a Deferred Stock award (or for an installment of such an award).
(f) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock agreement executed by the Company and the Participant.
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ARTICLE 10
CASH BONUSES
In connection with any grant of Options, Restricted Stock awards or
Deferred Stock Awards, or at any time thereafter, the Committee may, in its
discretion, grant a cash bonus to a Participant in connection with the grant or
vesting or exercise of an Award. The determination of whether to grant such a
cash bonus, the nature and amount of any such cash bonus and the terms and
conditions of such cash bonus shall be within the discretion of the Committee.
ARTICLE 11
TERMINATION OF EMPLOYMENT OR SERVICE
11.1 TERMINATION OF EMPLOYMENT OR OTHER SERVICE DUE TO DEATH, DISABILITY OR
RETIREMENT. Except as otherwise provided in Article 12 of the Plan, in the
event a Participant's employment or other service with the Company and all
Affiliates is terminated by reason of such Participant's death, Disability or
Retirement, all outstanding Options then held by the Participant shall remain
exercisable to the extent exercisable as of such termination for a period of
three months after such termination in the event of the Participant's death or
Retirement, or for a period of one year after such termination in the event of
the Participant's Disability (but in no event after the expiration date of any
such Option).
11.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE FOR REASONS OTHER THAN DEATH,
DISABILITY OR RETIREMENT. Except as otherwise provided in Article 12 of the
Plan, in the event a Participant's employment or other service with the Company
and all Affiliates is terminated for any reason other than death, Disability or
Retirement, all rights of the Participant under the Plan shall immediately
terminate within notice of any kind, and no Options then held by the Participant
shall thereafter be exercisable.
11.3 MODIFICATION OF EFFECT OF TERMINATION. Notwithstanding the provisions of
this Article 11, upon a Participant's termination of employment or other service
with the Company and all Affiliates, other than for Cause, the Committee may, in
its discretion (which may be exercised before or following such termination),
cause Options, or any portions thereof, then held by such Participant to become
exercisable and remain exercisable following such termination in the manner
determined by the Committee; provided, however, that no Option shall be
exercisable after the expiration date thereof and any Incentive Stock Option
that remains unexercised more than three months following employment termination
by reason of Retirement or more than one year following employment termination
by reason of Disability shall thereafter be deemed to be a Non-Qualified Stock
Option.
11.4 DATE OF TERMINATION. Unless the Committee shall otherwise determine in
its discretion, a Participant's employment or other service shall, for purpose
of the Plan, be deemed to have terminated on the date such Participant ceases to
perform services for the Company and all Affiliates, as determined in good faith
by the Committee.
11.5 TRANSFER, LEAVE OF ABSENCE, ETC.. For purposes of the Plan, the
following events shall not be deemed a termination of employment:
(a) a transfer of an employee from the Company to an Affiliate, from
an Affiliate to the Company, or from one Affiliate to another;
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(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the
Company if the period of such leave does not exceed ninety (90) days (or
such longer period as the Committee may approve, in its sole discretion);
and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to
reemployment is guaranteed either by a statute or by contract, and
provided that, in the case of any leave of absence, the employee returns
to work within 30 days after the end of such leave.
ARTICLE 12
CHANGE OF CONTROL
12.1 CHANGE IN CONTROL. For purposes of this Article 12, a "Change in
Control" of the Company shall mean (a) the sale, lease, exchange or other
transfer of all or substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a corporation that is not
controlled by the Company, (b) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or dissolution of the Company, or
(c) a change in control of the Company of a nature that would be required to be
reported (assuming such event has not been "previously reported") in response to
Item 1(a) of the Current Report on Form 8-K, as in effect on the effective date
of the Plan, pursuant to Section 13 or 15(d) of the Exchange Act, whether or not
the Company is then subject to such reporting requirement; provided, however,
that, without limitation, such a Change in Control shall be deemed to have
occurred at such time as (x) any Person becomes after the effective date of the
Plan the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% or more of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at election
of directors or (y) individuals who constitute the board of directors of the
Company on the effective date of the Plan cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the effective date of the Plan whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors comprising the board of directors of the Company on
the effective date of the Plan (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for the purposes of
this clause (y), considered as though such person were a member of the board of
directors of the Company on the effective date of this Plan.
12.2 ACCELERATION OF VESTING. If a Change in Control of the Company shall
occur, then, without any action by the Committee or the Board, all outstanding
Options shall become immediately exercisable in full and shall remain
exercisable during the remaining term thereof, regardless of whether the
Participants to whom such Options have been granted remain in the employ or
service of the Company or any Affiliate.
12.3 CASH PAYMENT. If a Change in Control of the Company shall occur, then
the Committee, in its discretion, and without the consent of any Participant
affected thereby, may determine that some or all Participants holding
outstanding Options shall receive, with respect to some or all of the shares of
Common Stock subject to such Options, as of the effective date of any such
Change in Control of the Company, cash in an amount equal to the excess of the
Fair Market Value of such shares
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immediately prior to the effective date of such Change in Control of the
Company over the exercise price per share of such Options.
12.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything in
Section 12.2 or 12.3 above to the contrary, if, with respect to a Participant,
the acceleration of the exercisability of an Option as provided in Section 12.2
or the payment of cash in exchange for all or part of an Option as provided in
Section 12.3 above (which acceleration or payment could be deemed a "payment"
within the meaning of Section 280G(b)(2) of the Code), together with any other
payments which such Participant has the right to receive from the Company or any
corporation which as member of an "affiliated group" (as defined in Section
1504(a) of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), then the payments to such Participant pursuant
to Section 12.2 or 12.3 above shall be reduced to the largest amount as will
result in no portion of such payments being subject to the excise tax imposed by
Section 4999 of the Code.
ARTICLE 13
RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES
13.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct from
future wages of the Participant (or from other amounts which may be due and
owing to the Participant from the Company), or make other arrangements for the
collection of, all legally required amounts necessary to satisfy any and all
federal, state and local withholding and employment-related tax requirements:
(i) attributable to the grant or exercise of an Option, a Restricted Stock
award, a Deferred Stock Award or a Stock Appreciation Right or to a
disqualifying disposition of stock received upon exercise of an Incentive Stock
Option, or (ii) otherwise incurred with respect to an Award or (b) require the
Participant promptly to remit the amount of such withholding to the Company
before taking any action with respect to an Award.
13.2 SPECIAL RULES.
(a) Without limiting the generality of Section 13.1 above, the
Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to satisfy, in whole or in
part, any withholding or employment-related tax obligations described in
Section 13.1 above by electing to use Previously Acquired Shares or by
electing to have the Company accept a Broker Exercise Notice with respect
to that number of shares, in any such case, having a Fair Market Value,
on the Tax Date, equal to the amount necessary to satisfy the withholding
or employment-related taxes due, or by agreeing to deliver to the Company
a promissory note in payment for some or all of the necessary amounts
(containing such terms and conditions as the Committee in its discretion
may determine).
(b) A Participant's election to use Previously Acquired Shares, a
Broker Exercise Notice or a promissory note must be made on or prior to
the Tax Date, is irrevocable and is subject to the consent or disapproval
of the Committee. If the Participant is an officer, director or
beneficial owner of more than 10% of the outstanding Common Stock and the
Company has a class of equity securities registered under Section 12 of
the Exchange Act, an election to
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use Previously Acquired Shares may not be made within six months of
the date the Option is granted (unless the death or Disability of the
Participant occurs prior to the expiration of such six-month period),
and (unless otherwise permitted by the Committee in its discretion)
must be made either six months prior to the Tax Date or at any time
prior to the Tax Date between the third and twelfth business days
following public release of any of the Company's quarterly or annual
summary earnings statements. When shares of Common Stock are issued
prior to the Tax Date to a Participant making an election to use
Previously Acquired Shares, the Participant shall agree in writing to
surrender that number of shares on the Tax Date having an aggregate
Fair Market Value equal to the tax due.
ARTICLE 14
RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS:
TRANSFERABILITY
14.1 EMPLOYMENT OR SERVICE. Nothing in the Plan shall interfere with or limit
in any way the right of the Company or any Affiliate with respect to the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Affiliate.
14.2 RESTRICTIONS ON TRANSFER. Other than pursuant to a qualified domestic
relations order (as defined by the Code), no right or interest of any
Participant in an Option prior to the exercise of such Options shall be
assignable or transferable, or subjected to any lien, during the lifetime of the
Participant, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise, including execution, levy, garnishment,
attachment, pledge, divorce or bankruptcy. A Participant shall, however, be
entitled to designate a beneficiary to receive an Option upon such Participant's
death. In the event of a Participant's death, such Participant's rights and
interest in Options shall be transferable by testamentary will or the laws of
descent and distribution, and payment of any amounts due under the Plan shall be
made to, and exercise of any Options (to the extent permitted pursuant to
Article 11 of the Plan) may be made by, the Participant's legal representatives,
heirs or legatees. If in the opinion of the Committee a Participant holding an
Option is disabled from caring for his or her affairs because of mental
condition, physical condition or age, any payments due the Participant may be
made to, and any rights of the Participant under the Plan shall be exercised by,
such Participant's guardian, conservator or other legal personal representative
upon furnishing the Committee with evidence satisfactory to the Committee of
such status. Notwithstanding the foregoing, the Board or the Committee may, in
its discretion, determine that an Option may be exercised by someone other than
the optionee and that the Option may be transferable based on the tax and
federal securities laws then in effect for such Options.
14.3 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is intended
to amend, modify or rescind any previously approved compensation plans or
programs entered into by the Company. The Plan will be construed to be in
addition to any and all such other plans or programs. Neither the adoption of
the Plan nor the submission of the Plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
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ARTICLE 15
SECURITIES LAW RESTRICTIONS
15.1 SHARE ISSUANCES. Notwithstanding any other provision of the Plan or any
agreement entered into pursuant hereto, the Company shall not be required to
issue or deliver any certificate for shares of Common Stock under this Plan, and
an Option shall not be considered to be exercised notwithstanding the tender by
the Participant of any consideration therefor, unless and until each of the
following conditions has been fulfilled:
(a) (i) there shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable state
securities laws if the Committee, in its discretion, shall have
determined to file, cause to become effective and maintain the
effectiveness of such registration statement; or (ii) if the Committee
has determined not to so register the shares of Common Stock to be issued
under the Plan, (A) exemptions from registration under the Securities Act
and applicable state securities laws shall be available for such issuance
(as determined by counsel to the Company) and (B) there shall have been
received from the Participant (or, in the event of death or disability,
the Participant's heir(s) or legal representative(s)) any representations
or agreements requested by the Company in order to permit such issuance
to be made pursuant to such exemptions; and
(b) there shall have been obtained any other consent, approval or
permit from any state or federal governmental agency which the Committee
shall, in its discretion upon the advice of counsel, deem necessary or
advisable.
15.2 SHARE TRANSFERS. Shares of Common Stock issued pursuant to Options,
Restricted Stock awards or Deferred Stock Awards granted under the Plan may not
be sold, assigned, transferred, pledged, encumbered or otherwise disposed of,
whether voluntarily or involuntarily, directly or indirectly, by operation of
law or otherwise, except pursuant to registration under the Securities Act and
applicable state securities laws or pursuant to exemptions from such
registrations. The Company may condition the sale, assignment, transfer,
pledge, encumbrance or other disposition of such shares not issued pursuant to
an effective and current registration statement under the Securities Act and all
applicable state securities laws on the receipt from the party to whom the
shares of Common Stock are to be so transferred of any representations or
agreements requested by the Company in order to permit such transfer to be made
pursuant to exemptions from registration under the Securities Act and applicable
state securities laws.
15.3 LEGENDS.
(a) Unless a registration statement under the Securities Act is in
effect with respect to the issuance or transfer of shares of Common Stock
under the Plan, each certificate representing any such shares shall be
endorsed with a legend in substantially the following form, unless
counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR UNDER
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE AVAILABILITY
OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
(b) The Committee, in its discretion, may endorse certificates
representing shares issued pursuant to the exercise of Incentive Stock
Options with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF ON
OR BEFORE [THE LATER OF THE ONE-YEAR OR TWO-YEAR INCENTIVE STOCK
OPTION HOLDING PERIODS], WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMPANY.
ARTICLE 16
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Awards under the Plan shall conform to any change
in applicable laws or regulations or in any other respect the Board may deem to
be in the best interests of the Company; provided, however, that no such
amendment shall be effective, without approval of the shareholders of the
Company, if shareholder approval of the amendment is then required pursuant to
Rule 16b-3 under the Exchange Act or any successor rule or Section 422 of the
Code or under the applicable rules or regulations of any securities exchange or
the NASD. No termination, suspension or amendment of the Plan shall alter or
impair any outstanding Award without the consent of the Participant affected
thereby; provided, however, that this sentence shall not impair the right of the
Committee to take whatever action it deems appropriate under Section 4.3 or
Article 12 of the Plan.
ARTICLE 17
EFFECTIVE DATE OF THE PLAN
17.1 EFFECTIVE DATE. The Plan is effective as of June 1, 1998, the date it
was adopted by the Board, subject to approval within 12 months of such adoption
by a vote of the holders of a majority
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of the voting stock of the Company represented in person or by proxy at a
duly held shareholders' meeting, or by written consent of all shareholders.
17.2 DURATION OF THE PLAN. The Plan shall terminate at midnight on ten years
from effective date and may be terminated prior thereto by Board action, and no
Award shall be granted after such termination. Options outstanding upon
termination of the Plan may continue to be exercised in accordance with their
terms.
ARTICLE 18
MISCELLANEOUS
18.1 CONSTRUCTION AND HEADINGS. The use of the masculine gender shall also
include within its meaning the feminine, and the singular may include the plural
and may include the singular, unless the context clearly indicates to the
contrary. The headings of the Articles, Sections and subparts of the Plan are
for convenience of reading only and are not meant to be of substantive
significance and shall not add or detract from the meaning of such Article,
Section or subpart.
18.2 PUBLIC POLICY. No person shall have any claim or right to receipt of an
Award if, in the opinion of counsel to the Company, such receipt conflicts with
law or is opposed to governmental or public policy.
18.3 GOVERNING LAW. The place of administration of the Plan shall be
conclusively deemed to be within the State of Minnesota, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Awards shall be governed by
and construed exclusively and solely in accordance with the laws of the State of
Minnesota without regard to the conflict of laws provisions of any
jurisdictions. All parties agree to submit to the jurisdiction of the state and
federal courts of Minnesota with respect to matters relating to the Plan and
agree not to raise or assert the defense that such forum is not convenient for
such party.
18.4 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Company, including,
without limitation, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company and any and all such successors and assigns shall
absolutely and unconditionally assume all of the Company's obligations under the
Plan.
18.5 SURVIVAL OF PROVISIONS. The rights, remedies, agreements, obligations
and covenants contained in or made pursuant to the Plan, any agreement
evidencing an Award and any other notices or agreements in connection therewith,
including, without limitation, any notice of exercise of any Option, shall
survive the execution and delivery of such notices and agreements and the
delivery and receipt of shares of Common Stock and shall remain in full force
and effect.
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EXHIBIT 10.15
FORM DOCUMENT Option # 30
NET RADIO CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of ____________________,
_____, (the "Date of Grant"), by and between NET RADIO CORPORATION (the
"Company") and ____________________ (the "Optionee").
A. The Company has adopted the Net Radio Corporation 1998 Stock Option
and Incentive Plan (the "Plan") authorizing the Board of Directors of the
Company, or a committee as provided for in the Plan (the Board or such a
committee to be referred to as the "Committee"), to grant incentive stock
options to eligible employees of the Company, which options will qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
B. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of common stock of the Company pursuant to the Plan.
Accordingly, the parties hereby agree as follows:
ARTICLE 1. GRANT OF OPTION. The Company hereby grants to the Optionee the
right, privilege, and option (the "Option") to purchase ____________________
thousand (__________) shares (the "Option Shares") of the Company's common
stock, no par value share (the "Common Stock"), according to the terms and
subject to the conditions hereinafter set forth and as set forth in the Plan.
The Option is intended to be an "incentive stock option," as that term is used
in Section 422 of the Code.
ARTICLE 2. OPTION EXERCISE PRICE. The per share price to be paid by Optionee
in the event of an exercise of the Option shall be $______.
ARTICLE 3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option shall become
exercisable with respect to the Option Shares in five installments. The
following table sets forth the initial dates of exercisability of each
installment and the number of Option Shares as to which this Option shall become
exercisable on such dates:
<TABLE>
<CAPTION>
INITIAL DATE OF NUMBER OF OPTION SHARES
EXERCISABILITY AVAILABLE FOR EXERCISE
--------------- -----------------------
<S> <C>
January 1, 1999
June 1, 1999
1
<PAGE>
June 1, 2000
June 1, 2001
June 1, 2002
</TABLE>
The foregoing rights to exercise this Option shall be cumulative with respect to
the Option Shares becoming exercisable on each such date but in no event shall
this Option be exercisable after, and this Option shall become void and expire
as to all unexercised Option Shares at, 5:00 p.m. (Minneapolis, Minnesota time)
on May 31, 2003 (the "Time of Termination").
3.2 TERMINATION OF EMPLOYMENT. Except as otherwise provided in Section
3.3 below:
(a) In the event that the Optionee's employment with the Company and all
Affiliates (as defined in the Plan) is terminated by reason of the Optionee's
death, Disability or Retirement (as such terms are defined in the Plan), this
Option shall remain exercisable to the extent exercisable as of such termination
for a period of three months after such termination in the event of the
Optionee's death or Retirement and for a period of one year after such
termination in the event of the Optionee's Disability (but in no event after the
Time of Termination).
(b) In the event the Optionee's employment with the Company and
Affiliates is terminated voluntarily by Optionee, for "cause" by the Company, or
for any reason other than the events described in Section 3.2(a) above, all
rights of the Optionee under the Plan and this Agreement shall immediately
terminate without notice of any kind, and this Option shall no longer be
exercisable; provided, however, that with respect to performance Option
previously granted hereunder that have fully vested prior to such termination,
such fully vested Options shall remain exercisable for a period of thirty (30)
days after the date of Optionee's termination of employment for reasons other
than death, Disability or Retirement.
3.3 CHANGE IN CONTROL.
(a) For purposes of this Section 3.3, the term "Change in Control" shall
have the meaning set forth in Section 12.1 of the Plan.
(b) If any events constituting a Change in Control of the Company shall
occur, then this Option shall become immediately exercisable in full until the
Time of Termination, whether or not the Optionee remains in the employ of the
Company or any Affiliate. In addition, if a Change in Control of the Company
shall occur, the Committee, in its discretion, and without the consent of the
Optionee, may determine that the Optionee shall receive, with respect to some or
all of the Option Shares, as of the effective date of any such Change in Control
of the Company, cash in an amount equal to the excess of the Fair Market Value
(as defined in the Plan) of such Option Shares immediately prior to the
effective date of such Change in Control of the Company over the option exercise
price per share of this Option.
(c) Notwithstanding anything in this Section 3.3 to the contrary, if,
with respect to the Optionee, acceleration of the exercisability of this Option
or the payment of cash in exchange for all or part of this Option as provided
above (which acceleration or payment could be deemed a payment within the
meaning of Section 280G(b)(2) of the Code), together with any other payments
which the Optionee has the right to receive from the Company or any corporation
which is a member of an "affiliated group" (as defined in Section 1504(a) of the
Code without regard to
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Section 1504(b) of the Code), of which the Company is a
member, would constitute a "parachute payment" (as defined in Section 280G(b) of
the Code), the payments to the Optionee as set forth herein shall be reduced to
the largest amount as will result in no portion of such payments being subject
to the excise tax imposed by Section 4999 of the Code.
ARTICLE 4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole or in
part from time to time, subject to the conditions contained in the Plan and
herein, by delivery, in person or by registered mail, to the Company at its
principal executive office in Minneapolis, Minnesota (Attention: President), of
a written notice of exercise. Such notice shall be in a form satisfactory to
the Committee, shall identify the Option, shall specify the number of Option
Shares with respect to which the Option is being exercised, and shall be signed
by the person or persons so exercising the Option. Such notice shall be
accompanied by payment in full of the total purchase price of the Option Shares
purchased. In the event that the Option is being exercised, as provided by the
Plan and Section 3.2 above, by any person or persons other than the Optionee,
the notice shall be accompanied by appropriate proof of right of such person or
persons to exercise the Option. As soon as practicable after the effective
exercise of the Option, the Optionee shall be recorded on the stock transfer
books of the Company as the owner of the Option Shares purchased, and the
Company shall deliver to the Optionee one or more duly issued stock certificates
evidencing such ownership.
4.2 PAYMENT. At the time of exercise of this Option, the Optionee shall
pay the total purchase price of the Option Shares to be purchased solely in cash
(including a personal check or a certified or bank cashier's check, payable to
the order of the Company); provided, however, that the Committee, in its
discretion, may allow such payments to be made, in whole or in part, by delivery
of a Broker Exercise Notice or a promissory note (containing such terms and
conditions as the Committee may in its discretion determine), by transfer from
the Optionee to the Company of Previously Acquired Shares, or by a combination
thereof. The Committee may, in its discretion, permit the Optionee to pay all
or part of the total purchase price by having the Company withhold from the
shares of Common Stock that would otherwise be issued upon exercise the number
of shares of Common Stock having a Fair Market Value (as of the date of
exercise) equal to the aggregate option exercise price for the shares with
respect to which such election is made. For purposes of this Agreement, the
terms "Broker Exercise Notice" and "Previously Acquired Shares" shall have the
meanings set forth in the Plan. In the event the Optionee is permitted to pay
the total purchase price of this Option in whole or in part with Previously
Acquired Shares, the value of such shares shall be equal to their Fair Market
Value on the date of exercise of this Option.
ARTICLE 5. NONTRANSFERABILITY; RIGHTS OF FIRST REFUSAL AND REPURCHASE.
5.1 NONTRANSFERABILITY. Neither this Option nor the Option Shares
acquired upon exercise may be transferred by the Optionee, either voluntarily or
involuntarily, or subjected to any lien, directly or indirectly, by operation of
law or otherwise, except as provided in this Agreement and the Plan. Any
attempt to transfer or encumber this Option or the Option Shares other than in
accordance with this Agreement and the Plan shall be null and void and shall
void this Option.
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5.2 RIGHTS OF FIRST REFUSAL. If the Optionee receives a bona fide offer
from another corporation, entity, person or group (the "Purchaser") to purchase
a specified number of the Option Shares acquired upon exercise by the Optionee,
and wishes to accept such offer, the Optionee shall promptly give written notice
to the Company of the identity of the Purchaser, the number of the Option Shares
the Purchaser wishes to purchase and the proposed price and terms of the sale.
The Company shall have the right, exercisable by giving written notice to the
Optionee within sixty (60) days after the Company's receipt of such notice, to
purchase (or to cause a corporation, entity, person or group designated by the
Company to purchase) all or any portion of the Option Shares, in its discretion,
either at the price and on the terms stated in the notice or at the price per
share determined by dividing the aggregate net book value of the Company as of
the end of the calendar month ended next prior to the date of receipt by the
Company of the notice from the Optionee described above, divided by the
aggregate number of issued and outstanding shares of Common Stock of the Company
on a fully diluted basis (the "Book Value Per Share"). If the Company (or its
designee) does not exercise its option within the time period provided above
with respect to any of the Option Shares, the Optionee shall be free to accept
the bona fide offer and sell any of the Option Shares as to which the Company
shall not have exercised its option, provided that any such sale shall be at the
price and on the terms specified in the notice to the Company and shall be
consummated within sixty (60) days after expiration of the 60-day period allowed
the Company above. If the Company exercises its option with respect to all of
the Option Shares, the closing of the purchase will take place at a time and
location designated by the Company, but in any event within thirty (30) days
after the date on which the Company gave notice of exercise. At such closing,
the Optionee shall deliver to the Company the certificate or certificates
evidencing the Option Shares, properly endorsed and assigned in writing, and
thereupon by force hereof and without further act or agreement, the Optionee
shall warrant that he or she has good title, right to possession of and right to
sell the Option Shares free and clear of any and all claims, liens,
encumbrances, restrictions or other adverse claims.
5.3 RIGHTS OF REPURCHASE. Upon the termination of the Optionee's
employment with the Company for any reason, whether voluntary or involuntary,
the Company shall have the right, exercisable by giving written notice to the
Optionee within six (6) months after the termination of the Optionee's
employment with the Company, to purchase (or to cause a corporation, entity,
person or group designated by the Company to purchase) all or any portion of the
Option Shares then owned or that may thereafter be acquired by the Optionee
hereunder, at the Book Value Per Share, as defined above, determined as of the
end of the calendar month ending next prior to the date of termination of the
Optionee's employment with the Company. If the Company exercises its option
with respect to any of the Option Shares hereunder, the closing of the purchase
will take place at a time and location designated by the Company, but in any
event within thirty (30) days after the date on which the Company gave notice of
exercise. At such closing, the Optionee shall deliver to the Company the
certificate or certificates evidencing the Option Shares, properly endorsed and
assigned in writing, and thereupon by force hereof and without further act or
agreement, the Optionee shall warrant that he or she has good title, right to
possession of and right to sell the Option Shares free and clear of any and all
claims, liens, encumbrances, restrictions or other adverse claims.
ARTICLE 6. LIMITATION OF LIABILITY. Nothing in this Agreement shall be
construed to
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(a) limit in any way the right of the Company to terminate the
employment of the Optionee at any time, or (b) be evidence of any agreement or
understanding, express or implied, that the Company will retain the Optionee in
any particular position, at any particular rate of compensation or for any
particular period of time.
ARTICLE 7. WITHHOLDING TAXES. The Company is entitled to (a) withhold and
deduct from future wages of the Optionee (or from other amounts which may be due
and owing to the Optionee from the Company), or make other arrangements for the
collection of, all legally required amounts necessary to satisfy any federal,
state or local withholding and employment-related tax requirements attributable
to the grant or exercise of this Option or to a disqualifying disposition of the
Option Shares acquired upon exercise of this Option, or otherwise incurred with
respect to this Option, or (b) require the Optionee promptly to remit the amount
of such withholding to the Company before acting on the Optionee's notice of
exercise of this Option. In the event that the Company is unable to withhold
such amounts, for whatever reason, the Optionee hereby agrees to pay to the
Company an amount equal to the amount the Company would otherwise be required to
withhold under federal, state or local law.
ARTICLE 8. ADJUSTMENTS. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering or extraordinary dividend or
divestiture (including a spin-off) or any other change in the corporate
structure or shares of the Company, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation), in order to prevent dilution or enlargement of the
rights of the Optionee, shall make appropriate adjustment (which determination
shall be conclusive) as to the number, kind and exercise price of securities
subject to this Option.
ARTICLE 9. SUBJECT TO PLAN. The Option and the Option Shares granted and
issued pursuant to this Agreement have been granted and issued under, and are
subject to the terms of, the Plan. The terms of the Plan are incorporated by
reference herein in their entirety, and the Optionee, by execution hereof,
acknowledges having received a copy of the Plan. The provisions of this
Agreement shall be interpreted as to be consistent with the Plan, and any
ambiguities herein shall be interpreted by reference to the Plan. In the event
that any provision hereof is inconsistent with the terms of the Plan, the terms
of the Plan shall prevail.
ARTICLE 10. MISCELLANEOUS.
10.1 BINDING EFFECT. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
10.2 GOVERNING LAW. This Agreement and all rights and obligations
hereunder shall be construed in accordance with the Plan and governed by the
laws of the State of Minnesota.
10.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the entire
agreement and understanding of the parties hereto with respect to the grant and
exercise of this Option and the administration of the Plan and supersede all
prior agreements, arrangements, plans and understandings relating to the grant
and exercise of this Option and the administration of the Plan.
5
<PAGE>
10.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties hereto or, in the case of a waiver, by the
party waiving compliance.
The parties hereto have executed this Agreement effective the day and year
first above written.
NET RADIO CORPORATION
By: ______________________________
Eric H. Paulson
Its Chairman and President
[By execution hereof, the Optionee OPTIONEE:
acknowledges having received a
copy of the Plan.]
______________________________
6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 1, 1999, in the Registration Statement (Form
S-1 No. 33-00000) and related Prospectus of NetRadio Corporation for the
Registration of its common stock.
Minneapolis, Minnesota
March 1, 1999
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