<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
REGISTRATION NO. 333-73261
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
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>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
Common stock, no par value per share........ 3,832,950 $13.00 $49,828,350 $10,391(3)
$3,461(4)
</TABLE>
(1) Includes 499,950 shares of common stock that the underwriters have the
option to purchase to cover any over-allotments.
(2) 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.
(3) Previously paid in connection with the March 3, 1999 filing of this
registration statement.
(4) Paid in connection with this filing of Amendment No. 1 to this registration
statement.
------------------------------
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 APRIL 30, 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
3,333,000 SHARES
[LOGO]
NETRADIO CORPORATION
COMMON STOCK
------------------
This is the initial public offering of our common stock. We are offering
3,333,000 shares. We anticipate that the initial public offering price will be
between $11.00 and $13.00. No public market currently exists for our common
stock. The common stock has been approved for listing on the Nasdaq National
Market under the symbol "NETR," subject to official notice of issuance.
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 499,950
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. LEGG MASON WOOD WALKER
INCORPORATED
, 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 16 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
<PAGE>
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.............................................................................................. 38
Related Party Transactions.............................................................................. 43
Principal Shareholders.................................................................................. 46
Description of Capital Stock............................................................................ 47
Shares Eligible for Future Sale......................................................................... 48
Underwriting............................................................................................ 50
Legal Matters........................................................................................... 52
Experts................................................................................................. 52
Where You Can Get More Information...................................................................... 52
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.
------------------------
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
IN OUR COMMON STOCK.
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, thereby creating a "sticky" Web site. I/PRO,
Internet Profiles Corporation, an independent consultant that monitors Web site
traffic, has estimated that in February 1999 over 951,214 different users
listened to one or more of our 120 music and news audio channels. I/PRO has also
estimated that in February 1999 the average time a visitor spent listening to
any of our audio channels was approximately 16 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
We believe that broadcast audio is a major step in the continued
transformation of the Internet into a multimedia platform. 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 an annual rate of 68% from $187 million in 1998 to nearly $2.5 billion
in 2003, and will 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 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 and support traffic to our Web
site and fulfill our product distribution needs. We have alliances with
major record labels, RealNetworks, AT&T 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 3,333,000 shares
Corporation................................
Common stock outstanding after the 9,805,500 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 March 31, 1999; however, it reflects ValueVision's
purchase of 550,000 shares of common stock effective as of the closing of this
offering. 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 or warrants:
- 2,000,000 shares reserved for issuance upon the exercise of options under
our stock option plan: consisting, as of April 15, 1999, of: (a) 1,202,250
options outstanding at a weighted average exercise price of $2.88 per
share, and (b) 797,750 shares reserved for future issuance under the plan.
Please see "Management--Benefit Plans."
- 191,648 shares reserved for issuance upon the exercise of warrants. Please
see "Underwriting."
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes important 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) (3,952)
Net loss............................................... $ (2,254) $ (754) $ (1,987) $(3,977)
Loss per share--basic and diluted...................... $ (.67 )
Weighted average shares outstanding(1)................. 5,899,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(2) ADJUSTED(3)
------- ----------- ------------
(IN
THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 51 $ 551 $ 37,075
Working capital (deficit)............... (176) 324 36,848
Total assets............................ 2,740 3,240 39,524
Long term obligations, less current
portion............................... 5,363 129 129
Total shareholders' equity (deficit).... $(3,830) $ 1,905 $ 38,189
</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 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 occurring at the closing of this offering. Please see
"Related Party Transactions."
(3) Pro forma as adjusted to reflect the sale of 3,333,000 shares of common
stock offered by this prospectus at an assumed initial public offering price
of $12.00 per share and after deducting the underwriting discount and
estimated offering expenses and reclassifying previously expensed offering
expenses to equity. 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 AND WE CANNOT
ASSURE YOU THAT WE WILL ACHIEVE MARKET ACCEPTANCE
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 MAY NOT ACHIEVE FUTURE PROFITABILITY DUE TO CONTINUING OPERATING LOSSES
To date we have not been profitable. We have recorded a net loss for each
year since our inception in 1995. In 1998, we had net revenues of approximately
$255,000 and a net loss of approximately $4 million. We had an accumulated
deficit of approximately $6.0 million during the period from March 21, 1997 to
December 31, 1998. At December 31, 1998, we owed approximately $5.2 million to
Navarre. Concurrent with the closing of this offering, this debt will be
converted into equity of NetRadio without the issuance of additional shares of
capital stock. 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.
OUR OPERATING REVENUES HAVE BEEN INSUFFICIENT TO SUPPORT OUR BUSINESS
We have historically funded our business by selling capital stock and
borrowing money. We have not achieved sufficient revenues from sales of our
audio merchandise or advertising to meet our expenses in any quarterly or annual
period. We believe that our future profitability and success will depend in
large part on, among other things, our ability to generate sufficient revenues
from sales of compact discs and other audio merchandise and Internet
advertising. There can be no assurance that our revenues will increase or even
continue at their current levels or that we will achieve or maintain
profitability or generate cash from operations in future periods.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY NEGATIVELY AFFECT OUR STOCK
PRICE
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,
7
<PAGE>
- 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 WHICH MAY NEGATIVELY AFFECT OUR STOCK
PRICE
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 significantly with
economic cycles, which may negatively affect our stock price. 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.
IF THE INTERNET IS NOT ACCEPTED AS AN ADVERTISING MEDIUM, OUR ADVERTISING
REVENUES MAY DECLINE
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 advertising revenues may decline.
No standards have been widely accepted to measure the effectiveness of
Internet advertising. If these 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 MAY BE UNABLE TO CONTINUE TO EXPAND OUR TECHNICAL CAPACITY TO MEET AN
EVER-INCREASING 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 rely upon AT&T Corp. to provide bandwidth (i.e.,
transmission capacity) and technical support to meet our traffic needs. If AT&T
substantially increases the fees it charges us or refuses to contract with us
for its services, our business could be materially damaged. In addition, we must
acquire, test and deploy additional network equipment to successfully scale our
network infrastructure to serve mass audiences. There can be no
8
<PAGE>
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.
INTENSE COMPETITION FOR THE PRODUCTS AND ADVERTISING WE SELL MAY RESULT IN A
DECLINE IN OUR REVENUES
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 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:
- 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, K-Tel and
getmusic.com, who market audio merchandise, 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. For example, Yahoo! Inc. recently announced its
intention to acquire broadcast.com inc, and Viacom Inc. entered into an
agreement to acquire Imagine Radio and committed to invest up to $150 million.
IF WE ARE UNABLE TO ADAPT TO RAPID TECHNOLOGICAL CHANGE, OUR BUSINESS COULD BE
MATERIALLY DAMAGED
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
capability over the Internet. In the event that we do not successfully deploy
technology in a timely manner or an alternative technology emerges, we would
likely be required to expend significant resources to deploy that 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 because MP3
technology permits immediate downloading of music and eliminates 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.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT WHICH COULD CAUSE OUR WEB SITE TO BE
UNAVAILABLE
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 Year 2000 compliance issues are not successful, or if distributors,
suppliers
9
<PAGE>
and other third parties with whom we conduct business do not successfully
address these 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 MAY BE UNABLE TO CONTINUE TO DEVELOP OUR BRAND, WHICH COULD HARM FUTURE
GROWTH OF OUR BUSINESS
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.
IF THE COST OF STREAMING INTERNET AUDIO BECOMES PROHIBITIVELY EXPENSIVE, OUR
BUSINESS COULD BE MATERIALLY DAMAGED
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.
CAPACITY CONSTRAINTS ASSOCIATED WITH THE GROWTH OF INTERNET USAGE COULD CAUSE
OUR ADVERTISING AND PRODUCT SALES REVENUES TO DECLINE
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.
IF CORPORATE INTRANETS DO NOT ACCEPT OUR PROGRAMMING, THE NUMBER OF LISTENERS TO
OUR AUDIO CONTENT MAY DECLINE
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
10
<PAGE>
streaming media technology fails to achieve broad commercial acceptance or
acceptance is delayed, our business could be materially damaged.
OUR INTERNALLY DEVELOPED AND COMMERCIALLY AVAILABLE SOFTWARE MAY NOT ADEQUATELY
SUPPORT OUR GROWTH
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
software as necessary to accommodate increased traffic to our Web site or
increased volume of transactions, our business could be materially damaged.
BECAUSE WE HAVE MOST OF OUR OPERATIONS AT A SINGLE LOCATION AND WE HAVE LIMITED
REDUNDANT SYSTEMS, OUR OPERATIONS ARE VULNERABLE TO INTERRUPTIONS DUE TO
UNFORESEEN EVENTS
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 presently have limited redundant systems and no 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.
IF WE ARE UNABLE TO INTEGRATE NEW BUSINESSES, OUR BUSINESS MAY NOT GROW
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 of our efforts will 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 sufficient revenues from our
expanded services or products to offset our costs, our business could be
materially damaged.
OUR INTERCOMPANY AGREEMENTS WERE NOT NEGOTIATED AT ARMS-LENGTH
We have entered into 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 these
agreements are as favorable to us as those that we could have obtained from
unaffiliated third parties. Please see "Related Party Transactions." In
addition, we have indemnification obligations with respect to Navarre in
connection with our agreements. Please see "Related Party
Transactions--Separation Agreement."
IF WE ARE UNABLE TO EXPAND INTO INTERNATIONAL MARKETS, OUR BUSINESS MAY NOT GROW
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
11
<PAGE>
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.
IF WE ARE UNABLE TO PREVENT THIRD PARTIES FROM ACQUIRING WEB ADDRESSES SIMILAR
TO OURS, OUR BUSINESS MAY BE MATERIALLY DAMAGED
We currently hold various Internet domain names relating to our products and
services, including the "netradio.net" and "netradio.com" domain names. 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.
IF WE ARE UNABLE TO PROTECT OUR TRADEMARKS AND PROPRIETARY RIGHTS, OUR
REPUTATION IN THE MARKETPLACE MAY BE MATERIALLY DAMAGED
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 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 AND ANY RELATED
LITIGATION, REGARDLESS OF ITS MERIT, COULD MATERIALLY DAMAGE OUR BUSINESS
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
12
<PAGE>
copyright laws of jurisdictions outside the United States, and our broadcasts
may violate the copyright laws of 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 exclusive performance rights in their
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. These 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 STRATEGIC AND PRODUCT FULFILLMENT ALLIANCES WITH VALLEY MEDIA AND
NAVARRE
Our success depends in part upon our strategic alliances. We purchase all of
our music products from two vendors, Valley Media and Navarre. For the fiscal
year ended December 31, 1998, we purchased approximately 95% 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 order fulfillment 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, or ISPs, to deliver traffic to our
Web site and to promote our brand. There can be no assurance that our
relationships with ISPs or 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.
IF WE DO NOT CONTINUE TO DELIVER COMPELLING AUDIO CONTENT, TRAFFIC TO OUR WEB
SITE WILL DECREASE
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.
OUR SUCCESS DEPENDS ON KEY PERSONNEL, MANY OF WHOM HAVE ONLY 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
13
<PAGE>
place, a significant strain on our management. From June 30, 1998 to April 1,
1999, we expanded from 22 to 45 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. 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 "Related Party 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."
WE MAY BE VULNERABLE TO ONLINE COMMERCE SECURITY RISKS, WHICH COULD RESULT IN A
DECLINE IN OUR PRODUCT SALES REVENUES
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 compromise were to occur, or if our
customers, or Internet users in general, believe that data transmissions over
the Internet are not secure, we would have to expend significant capital 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.
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 STOCK PRICE MAY BE MATERIALLY AFFECTED BY MARKET VOLATILITY
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 often been brought against that company. This
litigation could result in substantial costs and a diversion of management's
attention and resources.
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<PAGE>
OUR CONTROLLING SHAREHOLDER MAY NOT CONTINUE TO FUND OUR CAPITAL NEEDS
We operate as a majority-owned subsidiary of Navarre. Prior to this
offering, Navarre has met our financial needs for 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 our 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
this additional financing will be available to us when needed or, if available,
that it will be on satisfactory terms or will be completed without dilution to
our shareholders.
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 could allow us to delay
or block a third party from acquiring us.
MANAGEMENT'S INTEREST IN CONSUMMATING THIS OFFERING MAY DIFFER FROM THE
INTERESTS OF INVESTORS
Some of our officers and employees will realize benefits from this offering,
including pay raises, additional stock options, and bonuses. Please see
"Management--Employment Agreements and Change of Control Considerations." There
is a potential conflict between the immediate economic benefits accruing to
officers and employees upon the closing of this offering and the interests of
investors who may invest with the goal of long term capital appreciation.
AFTER THIS OFFERING, NAVARRE AND VALUEVISION, ACTING TOGETHER, WILL HAVE THE
ABILITY TO CONTROL THE VOTE ON ALL MATTERS SUBMITTED TO OUR SHAREHOLDERS
Navarre and ValueVision will beneficially own approximately 66% of our
outstanding common stock after this offering, 62% 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. This 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 3,333,000 shares of our common stock sold in this
offering will be freely tradeable. Beginning 180 days after the date of this
offering, approximately 6,472,500 additional 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. Of the shares that will first become eligible for sale in the public
market 180 days after this offering, approximately 5,922,500
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<PAGE>
shares will be subject to volume and other resale restrictions. With respect to
our stock option plan, outstanding options to purchase 386,616 shares will be
vested on December 1, 1999. We may file a registration statement to register all
of our common stock under our stock option plan. After the registration
statement becomes effective, shares issued upon exercise of stock options will
be eligible for resale in the public market. The supply of substantial
additional 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."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTY
FUTURE REGULATION OF THE INTERNET COULD EXPOSE US TO SIGNIFICANT LIABILITY
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 COULD EXPOSE US TO
SIGNIFICANT LIABILITY
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.
IF WE ARE REQUIRED TO COLLECT SALES TAXES IN FOREIGN JURISDICTIONS, OUR BUSINESS
COULD BE MATERIALLY DAMAGED
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 $36,284,280, or
$41,863,722 if the over-allotment option is exercised in full, based upon an
estimated initial public offering price of $12.00, 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
alliances or acquisitions of this kind, and we are not currently engaged in
negotiations related to any alliances or acquisitions. Until we determine the
allocation of these proceeds, we intend to invest the net proceeds of this
offering 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:
- an actual basis;
- 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
- 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 $12.00
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; 9,805,500 shares issued and outstanding, pro forma as
adjusted.................................................................. 2,134 7,869 44,153
Accumulated deficit........................................................... (5,964) (5,964) (5,964)
--------- ----------- -----------
Total shareholders' equity (deficit).......................................... (3,830) 1,905 38,189
--------- ----------- -----------
Total capitalization.......................................................... $ 1,534 $ 2,034 $ 38,318
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
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<PAGE>
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 $1,379,074 or $.21 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 3,333,000 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 $37,663,354 or $3.84 per share. This represents an immediate increase in
net tangible book value of $3.63 per share to existing shareholders and an
immediate dilution of $8.16 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................... $ 12.00
Pro forma net tangible book value per share as of
December 31, 1998................................... $ .21
Increase per share attributable to new investors...... $ 3.63
---------
Pro forma as adjusted net tangible book value per share
after this offering................................... $ 3.84
---------
Dilution per share to new investors..................... $ 8.16
---------
---------
</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>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).......................... 6,472,500 66% $ 6,800,440 15% $ 1.15
New investors(2).................................. 3,333,000 34% $ 39,996,000 85% $ 12.00
---------- --- ------------- ---
Total............................................. 9,805,500 100% $ 46,796,440 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>
- ------------------------
(1) Reflects the conversion of $5,234,840 in debt owed to Navarre at December
31, 1998 into equity, ValueVision's purchase of 882,500 shares for
$1,000,000 in cash in March 1997, ValueVision's purchase of 550,000 shares
of common stock for $500,000 at the closing of this offering and the
issuance of 40,000 shares of common stock for $65,600 in September 1998.
(2) If the over-allotment option is exercised in full, the number of shares of
common stock held by new investors will increase to 3,832,950 shares, or
37.1% of the total shares of common stock outstanding after this offering.
18
<PAGE>
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 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 2,786
--- ------------ ----- ------- -------
Total operating expenses........ 94 2,581 905 2,101 4,142
--- ------------ ----- ------- -------
Loss from operations................ (72) (2,260) (737) (1,955) (3,952)
Net loss............................ $ (74) $ (2,254) $ (754) $ (1,987) $ (3,977)
--- ------------ ----- ------- -------
--- ------------ ----- ------- -------
Loss per share--basic and diluted... $ (.67)
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 occurring at the closing of this offering. Please see
"Related Party 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 MANY 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 audio merchandise 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. Our
accumulated deficit of approximately $6.0 million reflects our 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 and 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 our future performance.
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<PAGE>
RESULTS OF OPERATION FOR FISCAL YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 product
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 audio merchandise
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 primarily 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 $2,786,385 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.
The growth in accounts receivable in 1998 to $50,756 compared to $4,253 in
1997 was due primarily to a change in the mix of revenue from promotional events
that had occurred early in 1997 to advertising revenues. The increase in
accounts payable to $1,022,639 in 1998 compared to $737,300 in 1997 was due
primarily to higher operating expenses in developing our infrastructure as a
result of the growth of our business.
Net cash used in operating activities was $2,771,915 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 $3,724,667 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
these 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 specified stock ownership changes have occurred or could occur
in the future.
YEAR 2000 COMPLIANCE
STATE OF READINESS. Our information technology, or 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
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<PAGE>
be vulnerable to those service providers' failure to remedy their own presently
unknown Year 2000 issues. These 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 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 Year 2000 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. A failure of this kind 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 a failure, would include, but not be
limited to, lost advertising and audio merchandising 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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<PAGE>
OUR BUSINESS
OVERVIEW
NETRADIO
We are a leading broadcaster of originally programmed audio entertainment
over the Internet. I/PRO, an independent consultant which monitors Internet
traffic, has estimated that over 951,214 different users listened to our 120
music and news channels in February 1999. I/PRO has also estimated that, during
February 1999, the average time a visitor spent listening to any of our channels
was approximately 16 minutes. We believe that attracting users through audio
entertainment creates a "sticky" Web site by extending the time visitors spend
on NetRadio.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET. International Data Corporation, 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:
- the increasing number of computers installed in homes and offices,
- the decreasing cost of computers,
- lower cost and more efficient Internet access,
- improving network infrastructure,
- expanding Internet content, and
- 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 many types of retail
stores and distribution methods by linking consumers directly to wholesale,
distribution channels that provide superior 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, audio and
video cassettes, books 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.
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Forrester Research estimates that United States Internet sales to consumers
in the United States 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 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.
Streaming audio combines the Internet's interactivity with traditional, more
passive radio listening. Music 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
------------------------------------ ------------------------------------
<S> <C> <C>
- Generally limited by - Generally limited only by
DISTRIBUTION geographic region availability of Internet
AREA service
- 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>
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<PAGE>
DISTRIBUTION AREA. Traditional radio stations broadcast to listeners within
a defined geographic 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 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. Therefore, Internet audio
quality is 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 broadcasting 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, news, talk, ethnic or religious content. Internet broadcasters, by
contrast, can globally transmit a wide variety of specially designed programming
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 supermarket. 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
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<PAGE>
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, scale broadcasts from small
to large audiences, deploy new transmission and streaming technologies, provide
multimedia advertisements and attract and retain listeners. Internet
broadcasters must 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
music channels and 22 information channels. Each music 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 16 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, Blues Revival, 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
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<PAGE>
extends the length of time spent on our Web site. Our programming is divided by
music genre into 14 communities of similar interests, or 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 Country COSI comprise a community within NetRadio's
audience that reflects country music tastes and demographics. Our online 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 audio 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 recently entered into an agreement with AT&T, under which we
will lease additional bandwidth and secure additional technical support.
In addition, we
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<PAGE>
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 seek 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
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 that 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 our 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's listeners are
available for sale. The assortment of products offered includes compact
discs and audio cassettes tailored to the COSI's demographics.
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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.
NetRadio's channels as of April 1, 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
Blues Revival
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
70's Country
Country Divas
INFORMATION CHANNELS
Country Music News
NetRadio Network Today
CDPoint Update
DANCE/URBAN
MUSIC CHANNELS
Acid Jazz
Ambient
Bhangra
Big Beat/Breaks
Club Mix
Disco Dance
Drum & Bass
Experimental
Electronica
Funk
Hip Hop
House
House Hits
Industrial
Latin
Lounge
Mixed Rhythms
Mix Masters
Rap
Punk
Ska
Spring Break
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
Hardcore
Industrial
Jungle Breaks
Musical Starstreams
New Age
Techno
Tech House
Trance/Acid
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
Adult Alternative
New Wave
Punk
Dot.Comedy
Ska
INFORMATION CHANNELS
NetRadio Network Today
CDPoint Update
NEW AGE
MUSIC CHANNELS
Acoustic
Ambient
Celtic
Electronic World
Folk
Hearts of Space
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
Movie News
Showbiz
NetRadio Network
KidzNews
National News
This Is True...Really
News
NetRadio Network Today
Health File
World News
Info Junkie
MUSIC NEWS CHANNELS
Classical Notes
Country News
Jazz Notes
Music Industry News
This Day in Rock History
SPORTS CHANNELS
Sports
(Various sports channels
depending on seasonal
interest)
Baseball News
Basketball News
Football News
Hockey News
POP HITS
MUSIC CHANNELS
Grammy
Pop Hits
Lite Hits
Disco Fever
Dot.Comedy
Fab 60's
Groovin' 70's
80's Hits
Party Hits
Showtunes
Teen Scene
INFORMATION CHANNELS
Pop Hits News
NetRadio Network Today
CDPoint Update
VINTAGE ROCK
MUSIC CHANNELS
British Invasion
Guitar Heroes
Hard Rock
Jazz Rock
Psychedelic Rock
Party Rock
Pre-Fab 60's
Progressive Rock
Rockin' Blues
Rockin' Rhythm 50's
Vintage Reggae
Vintage Rock
Vintage Surf
Dot.Comedy
INFORMATION CHANNELS
This Day In Rock History
NetRadio Network Today
CDPoint Update
WORLD MUSIC
MUSIC CHANNELS
Ambient World
Celtic
Earth Beat
Electronica
Hawaiian
Latin & Salsa
Musical Starstreams
Native American
Nature Sounds
New Age
Reggae
World Beat
INFORMATION CHANNELS
NetRadio Network Today
CDPoint Update
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C-COMMERCE, PRODUCT SALES AND FULFILLMENT
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, audio
cassettes 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 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 campaigns with customers. In addition, we use this
information to project purchase patterns and to ensure maximum product
availability, selection and shipping efficiencies.
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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 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 DVDs, 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 several 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 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 have developed custom programming for the Mannheim Steamroller
series of album releases, including a custom channel and a dedicated Web page
for Mannheim Steamroller products.
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:
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- RealNetworks. RealNetworks licenses software that allows our listeners to
hear our audio streams. In addition to providing technology, we believe
that RealNetworks is an important source of traffic to our Web site. We
have several channel 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.
- AT&T Corporation. We have entered into an agreement with AT&T under which
AT&T will provide additional bandwidth, round-the-clock technical support
and redundant back-up servers, to meet our increasing listener demand.
- 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 and 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 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 Valley Media. 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
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sending it to the speakers. This buffering compensates for momentary delays in
packet delivery. Audio 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 obtain bandwidth from AT&T. 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 also have recently contracted with AT&T to support our bandwidth
requirements. Under our agreement, AT&T agrees to provide us as much bandwidth
as is needed to support the traffic to our Web site. AT&T also provides
round-the-clock technical support and redundant back-up servers in case we
suffer system failures. The agreement with AT&T expires in March 2001.
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 during 1999 we will stream all content 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 NET.RADIO 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 NET.RADIO 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 our proprietary rights. Notwithstanding
these 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 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 our 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 those jurisdictions, and we have not sought protection for our intellectual
property in every country where our broadcasts may be heard.
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We have licensed in the past, and expect to continue 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 our 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.
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 our 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 those jurisdictions where our
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 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 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:
- online retail vendors of music, computer software and DVDs, including
CDNow, N2K, Amazon.com, Barnes & Noble.com, and getmusic.com,
- streaming media sites such as broadcast.com and Spinner,
- other small online vendors, and
- 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 order 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. Our competitors may be able to
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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
Web 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' budgets. We must
license and provide high quality, sufficiently compelling and popular audio
content, along with technology and value-added Internet services, to attract
users, support advertising intended to reach those 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 advertising spots, adopt more aggressive
pricing policies and devote substantially more resources to selling advertising
inventory.
EMPLOYEES
As of April 1, 1999, we had 37 full-time and 8 part-time employees. We also
employed 9 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 this 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. These 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 April 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 and Director
Michael P. Wise............... 42 Vice President and Chief Financial Officer
Eric H. Paulson............... 54 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 Senior Vice President of Content and Programming
Nancy R. Kielty............... 42 Vice President of Commerce
James Caparro(1)(2)........... 47 Director
Charles E. Cheney(2).......... 55 Director
Marc H. Kalman(1)(2).......... 55 Director
Gene McCaffery(1)............. 51 Director
</TABLE>
- ------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
EDWARD A. TOMECHKO. Mr. Tomechko has served as our Chief Executive Officer
and a director of NetRadio since January 1999 and served as Chief Financial
Officer from August 1998 until March 15, 1999. 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 The County Seat Stores, Inc., 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.
MICHAEL P. WISE. Mr. Wise has served as our Vice President and Chief
Financial Officer since March 15, 1999. From December 1997 through March 1999,
Mr. Wise served as Vice President and Corporate Controller for Health Fitness
Corporation, a publicly held, Minneapolis-based manager of fitness centers for
Fortune 500 and large hospital clients. From April 1994 through October 1997,
Mr. Wise served as a consultant, and Chief Financial Officer, Treasurer and
Secretary of The Sled Dogs Company, a publicly held, Minneapolis-based
manufacturer, marketer and distributor of snow skates. On November 5, 1997, The
Sled Dogs Company filed a voluntary petition under Chapter 11 of the Bankruptcy
Code with the United States Bankruptcy Court for the District of Minnesota. From
April 1986 to March 1994, Mr. Wise was employed by National Computer Systems,
Inc., a publicly held, Minneapolis-based developer and marketer of information
systems and services for education, serving in various financial and sales,
marketing and management positions.
ERIC H. PAULSON. Mr. Paulson has served as our Chairman of the Board since
May 1996 and has 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 since 1983.
DONAVAN W. PEDERSON. Mr. Pederson has served as our Chief Technology
Officer and 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
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1994, Mr. Pederson served as President of Donavan International, Inc., an
international trade services company.
JAN K. ANDERSEN. Mr. Andersen has served as our 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 our Senior 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 Regional Director,
Chicago, of EMI Music Distribution. Mr. Witzig has 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 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 served as a director of NetRadio since
May 1996. From March 1997 to September 1998, he also served as our Chief
Financial Officer. Mr. Cheney has served as a director and Chief Financial
Officer of Navarre 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 currently 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 currently 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. Upon the closing of this offering, we will
divide our board of directors into three classes with staggered three-year
terms. The terms of Messrs. Cheney and Pederson will expire at the annual
meeting of our shareholders in 2000, the terms of Messrs. Caparro and Kalman
will expire at the annual meeting of our shareholders in
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<PAGE>
2001, and the terms of Messrs. Tomechko, Paulson and McCaffery will expire at
the annual meeting of our shareholders in 2002.
ARRANGEMENTS FOR NOMINATION AS DIRECTOR
Under the terms of a March 1997 stock purchase agreement among Navarre,
NetRadio and ValueVision, and based upon our total number of directors,
ValueVision has the right to elect the number of directors equal to its
proportionate share of ownership of NetRadio, rounded up to the next whole
number. Following ValueVision's purchase of 550,000 shares of common stock for
$500,000 occurring at the closing of this offering, ValueVision will have the
right to elect two directors of NetRadio. Please see "Related Party
Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
Our 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.
Our 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
our audit committee are Messrs. Caparro, Cheney and Kalman.
Our 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 our board of directors regarding these matters. Our 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 our
board of directors on such matters. The members of our 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 our 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 51% and ValueVision will
own approximately 14.6% of our common stock, assuming the underwriter's
over-allotment option is not exercised.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth 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.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- --------------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------------------------------- --------- ----------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Eric H. Paulson, Chief Executive Officer........... 1998 $ 0 $ 0 $ 0 90,000
</TABLE>
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 SEC. 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 DECEMBER AT
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.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL CONSIDERATIONS
We have entered into employment agreements with Edward A. Tomechko, Michael
P. Wise, Donavan W. Pederson, Jan K. Andersen, David R. Witzig and Nancy R.
Kielty. 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.
Ms. Kielty's agreement commenced on February 25, 1999 and
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<PAGE>
Mr. Wise's agreement commenced on April 29, 1999. 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 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. Ms.
Kielty and Mr. Wise received termination agreements in February 1999 and April
1999, respectively, that provide that if there is a change in control of
NetRadio and they are terminated, their status with NetRadio adversely changes
or their salary is substantially reduced, then they will receive a cash
severance payment equal to six months' salary.
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
September 1999. In January 1999, Mr. Tomechko received an option to purchase
125,000 shares of common stock that vests in equal increments over 3 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 February 1999, Mr. Wise received an option to purchase
50,000 shares of common stock that vests in equal increments over 3 years
beginning in February 2000.
In February 1999, Mr. Wise executed a stock option agreement with NetRadio,
that provides that if he is terminated without cause, his stock options will
immediately become fully-vested. In June 1998, Mr. Pederson received an option
to purchase 100,000 shares of common stock that vests in equal increments over 3
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 3 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, our board of directors adopted, and our 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 our board of directors, or a
committee of at least two directors, and the 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. Our 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
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<PAGE>
on any award, and to make all other determinations necessary or advisable for
the administration of the stock option plan. If our board of directors or the
committee makes an award to an eligible participant, the recipient must enter
into an agreement with NetRadio in a form that our 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, our 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.
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, or 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 limitations defined in the 401(k) Plan 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. Under
these agreements, among other things, we will indemnify our directors and
executive officers for expenses including attorneys' fees, judgments, fines and
settlement amounts incurred by any of them in any action or proceeding,
including any action by or in the right of NetRadio arising out of the 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 indemnification.
RELATED PARTY 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 to our predecessor's
shareholders as of the date of this prospectus. As a result of the two
transactions, Navarre acquired
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<PAGE>
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 also was granted a right of first refusal to distribute any products
other than music and software sold by us. ValueVision is an integrated
electronic and print media direct marketing company that operates a television
home shopping network.
Under the terms of the stock purchase agreement by and among NetRadio,
ValueVision and Navarre, and based upon our total number of directors,
ValueVision has the right to elect the number of directors equal to its
proportionate share of ownership of NetRadio, rounded up to the next whole
number. Following ValueVision's purchase of 550,000 shares of common stock for
$500,000 occurring at the closing of this offering, ValueVision will have the
right to elect two directors of NetRadio.
In connection with ValueVision's investment in NetRadio, ValueVision and
Navarre entered into a conversion agreement. The conversion agreement grants
ValueVision the right to demand that Navarre buy back ValueVision's NetRadio
common stock for $3,000,000, less unused advertising time, or convert
ValueVision's NetRadio common stock into shares of Navarre common stock equal to
$3,000,000, less unused advertising time. These rights are exercisable if
NetRadio does not register its common stock under the Securities Act within 5
years from March 20, 1997. ValueVision's conversion rights will terminate upon
the closing of this offering.
ValueVision also has 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 waived its future
preemptive rights, effective 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 waived 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 terminated this right in exchange for ValueVision's agreement
to purchase 550,000 shares of common stock immediately prior to the closing of
this offering for $500,000.
In the event that this offering exceeds 3,499,999 shares of common stock,
ValueVision will receive additional shares of common stock for no additional
consideration. If this offering exceeds 3,499,999 shares, then ValueVision will
receive 10,000 shares of common stock. In addition, for every 100,000 shares of
common stock that we sell in this offering in excess of 3,499,999 shares of
common stock, ValueVision will receive an additional 7,000 shares of common
stock.
The following are summaries of agreements that we have entered into with
Navarre. These summaries do not describe or contain every provision of the
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.
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<PAGE>
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 identified 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 NetRadio 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 indemnification obligations to Navarre and its affiliates under the
separation agreement, including indemnification for liability arising out of
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 will
agree to repay to Navarre all amounts advanced to NetRadio beginning January 1,
1999. The Note 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 options to purchase common stock to the following
executives and affiliates of Navarre:
Eric H. Paulson, Chairman of the Board and Chief Executive Officer of
Navarre and Chairman of the Board 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.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of our common stock as of April 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).......................................... 5,046,000 77.5% 51.3%
Charles E. Cheney (2)(5)........................................ 5,024,000 77.3 51.1
Navarre Corporation (2)......................................... 5,000,000 77.2 51.0
ValueVision International, Inc. (3)............................. 1,432,500 22.1 14.6
Gene McCaffery (3)(6)........................................... 1,432,500 22.1 14.6
Donavan W. Pederson (7)......................................... 101,666 1.5 1.0
James Caparro................................................... -- 0.0 0.0
Marc H. Kalman.................................................. -- 0.0 0.0
Edward A. Tomechko.............................................. -- 0.0 0.0
All executive officers and directors as a group
(11 persons)(8)............................................... 6,734,166 100% 67.0%
----------- ----- -----------
</TABLE>
- ------------------------
(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 36,000 shares of common stock exercisable within 60 days of
April 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 24,000
shares of common stock exercisable within 60 days of April 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 91,666 shares of common stock exercisable
within 60 days of April 1, 1999.
(8) Includes options to purchase 301,666 shares of common stock exercisable
within 60 days of April 1, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of April 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
effected June 1, 1998. Our authorized capital stock, as of April 1, 1999, also
included 10,000,000 shares of preferred stock, no par value, of which no shares
were issued and outstanding as of April 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 in the
offering will be when issued, fully paid and nonassessable. The shares of common
stock in this 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 legally available funds. Any 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 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 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 April 15, 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 rights with respect to the registration of
their common stock. Please see "Related Party Transactions."
ANTI-TAKEOVER PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of new percentages of voting control (in excess of 20%,
33 1/3% or 50%) by an existing shareholder or other person is approved by a
majority of our disinterested shareholders, the shares acquired above
46
<PAGE>
new percentage levels 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 10 days after acquiring
shares representing a new threshold percentage of voting control, or if the
disinterested shareholders vote not to approve the 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 the 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
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 the shareholder or the acquisition of
shares that made the shareholder a statutory interested shareholder. If prior
approval is not obtained, the statute imposes a 4-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 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 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 the
over-allotment option, we will have 9,805,500 shares of common stock
outstanding. Of this amount, the 3,333,000 shares of common stock offered will
be freely tradeable in the public market without restriction under the
Securities 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 securities 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. Sales
of the restricted securities 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 lock-up agreements under which they may not dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, without the prior written consent
of EVEREN Securities, Inc. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the
47
<PAGE>
provisions of Rule 701, shares subject to lock-up agreements will not be
saleable until the 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 these lock-up agreements. Immediately following expiration
of the lock-up agreements, and subject to 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 386,616 of the 1,202,250 shares underlying
options outstanding as of April 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. The
registration statement will automatically become effective upon filing.
Accordingly, shares of our common stock registered under the registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market, unless the 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
securities 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 98,055 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 the sale. Sales under Rule 144 are also subject to 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 his or her shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below for whom EVEREN Securities and Legg Mason, Inc. are
acting as 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...........................................
Legg Mason Wood Walker, Incorporated.............................
---------
Total.......................................................... 3,333,000
---------
---------
</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 a number of securities dealers (who may include the
underwriters) at a price, less a concession not in excess of $ per
share of common stock. The underwriters may allow, and the selected dealers may
reallow, a concession not in excess of $ per share of common stock to
various 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 499,950 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 Securities warrants to purchase up to
191,648 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 by EVEREN Securities prior to this offering. The warrants are exercisable
for a period of 4 years, commencing 1 year 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
49
<PAGE>
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 Securities
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 securityholders 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 Securities.
We have agreed to indemnify the underwriters against material misstatements
and other claims arising 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 these 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, the underwriters 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 of these short positions 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. They 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 this
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. No representation is made as to
the magnitude or effect of any possible stabilization or other transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
50
<PAGE>
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. and for the
underwriters by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
Ernst & Young LLP, independent auditors, has 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
--------------------
PRO FORMA
SHAREHOLDERS'
EQUITY
(DEFICIT) AT
DECEMBER 31,
1997 1998 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 2,134,150 7,868,990
-------------
Accumulated deficit................................. (1,986,983) (5,963,666) (5,963,666)
--------- --------- -------------
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
----------------------- ----------------------
PERIOD
PERIOD FROM FROM
JANUARY 1, MARCH 21,
1997 1997
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER MARCH 20, DECEMBER DECEMBER
31, 1996 1997 31, 1997 31, 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
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 2,786,385
---------- ----------- ---------- ----------
Total operating expenses.................. 2,581,339 904,724 2,100,688 4,143,037
---------- ----------- ---------- ----------
Loss from operations........................ (2,260,678) (736,774) (1,954,706) (3,952,800)
Other (income) expense:
Interest.................................. (6,650) 17,694 32,277 23,883
---------- ----------- ---------- ----------
Net loss before taxes....................... (2,254,028) (754,468) (1,986,983) (3,976,683)
Income tax expense.......................... -- -- -- --
---------- ----------- ---------- ----------
Net loss.................................... $(2,254,028) $(754,468) $(1,986,983) $(3,976,683)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Loss per share--basic and diluted........... $ (.67)
----------
----------
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 65,600 -- -- -- 65,600
Stock option compensation.......... -- 20,500 -- -- -- 20,500
Notes forgiven by shareholders..... -- 48,050 -- -- -- 48,050
Net loss........................... -- -- -- (3,976,683) -- (3,976,683)
----------- ------------ ----------- ------------- ------------ -------------
Balance, December 31, 1998........... 5,922,500 $ 2,134,150 $ -- $ (5,963,666) $ -- $ (3,829,516)
----------- ------------ ----------- ------------- ------------ -------------
----------- ------------ ----------- ------------- ------------ -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
NETRADIO CORPORATION AND PREDECESSOR
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------ ---------------------------
PERIOD
FROM
JANUARY
1, PERIOD FROM
1997 MARCH 21,
YEAR ENDED THROUGH 1997 THROUGH YEAR ENDED
DECEMBER 31, MARCH 20, DECEMBER 31 DECEMBER 31,
1996 1997 1997 1998
------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................... $ (2,254,028) $(754,468) $ (1,986,983) $ (3,976,683)
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) (2,771,915)
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) (113,983)
Deferred offering costs....... -- -- -- (239,643)
Proceeds from stock
issuances................... 1,680,054 -- 1,000,000 65,600
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 3,724,667
------------ --------- ------------ ------------
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
Notes forgiven by
shareholders............ -- -- -- 48,050
</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, as
follows:
furniture and fixtures--3 to 5 years
computer equipment and software--3 years
office equipment--3 to 5 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
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)
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.
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 arising from prepayment of advertising fees were
recorded as deferred revenue. There were no prepaid advertising fees received at
December 31, 1997 and 1998.
INTERNAL SOFTWARE DEVELOPMENT COSTS
Internal 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, in accordance with AICPA Statement of Position
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Uses."
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. In addition, television advertising time
contributed by ValueVision International, Inc. (see Note 8) is charged to
operations as the advertising time is used. Advertising expenses, including
prepaid advertising costs charged to operations, 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.
DEFERRED OFFERING COSTS
Legal, accounting and registration costs directly related to the anticipated
initial public offering of the Company's common stock have been deferred and
will be offset against the gross proceeds of the offering.
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.
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)
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.
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) $ (3,976,683)
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) $ (.67)
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Diluted loss per share................................ $ (.68) $ (.14) $ (.34) $ (.67)
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</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.
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
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.
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.
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
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.
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 with vesting periods of up to 5 years and maximum option terms of 10
years.
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.
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............................................................. $ (4,123,837)
Pro forma basic and diluted loss per share..................................... $ (.70)
</TABLE>
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)
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>
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.............................................................. $ 13,852
NASD filing fee................................................................... 5,483
Nasdaq National Market listing fee................................................ 78,875
Printing and engraving expenses................................................... 150,000
Legal fees and expenses........................................................... 300,000
Accounting fees and expenses...................................................... 200,000
Blue Sky fees and expenses........................................................ 8,000
Transfer agent and registrar fees................................................. 7,500
Directors and officers insurance.................................................. 55,000
Miscellaneous expenses............................................................ 93,920
-----------
Total......................................................................... $ 912,000
-----------
-----------
</TABLE>
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: (1) have not been
indemnified by another organization, (2) acted in good faith, (3) received no
improper personal benefit, (4) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful, and (5) 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 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.
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.
II-1
<PAGE>
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, Net Radio Nevada also
issued 1,082,430 shares of common stock to approximately 34 individuals
under non-recourse promissory notes.
In May 1996, Net Radio Nevada, sold 2,085,815 shares of common stock to
Navarre in exchange for $1,500,000.
In March 1997, 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 reorganization, 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 million, of which $1 million was paid in
cash, and $2 million was paid in television advertising.
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.
At the closing of this offering, we expect to sell ValueVision approximately
550,000 shares of common stock for consideration of $500,000. In the event that
this offering exceeds 3,499,999 shares of common stock, ValueVision will receive
additional shares of common stock for no additional consideration. If this
offering exceeds 3,499,999 shares, then ValueVision will receive 10,000 shares
of common stock. In addition, for every 100,000 shares of common stock that we
sell in this offering in excess of 3,499,999 shares, ValueVision will receive an
additional 7,000 shares of common stock.
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 securityholders 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 purposes
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.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
(a) Exhibits
1.1 Form of Underwriting Agreement
1.2 Form of Warrant Agreement between NetRadio and EVEREN Securities, Inc.
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
10.6 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.
10.18** Agreement between AT&T and NetRadio dated March 12, 1999.
10.19 Termination Agreement dated April 29, 1999 between NetRadio and Michael P. Wise
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Lindquist & Vennum, P.L.L.P. (contained in Exhibit 5.1)
23.3 Consent of I/PRO, Internet Profiles Corporation
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
24.1* Power of Attorney (see Page II-5 of the registration statement)
27.1* Financial Data Schedule
(b) Financial Statement Schedules.
99.1 Schedule II: Valuation and Qualifying Accounts
</TABLE>
- ------------------------
* Previously filed.
** 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 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 Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Minneapolis, State of Minnesota, on
this 30th day of April, 1999.
<TABLE>
<S> <C> <C>
NETRADIO CORPORATION
By: /s/ EDWARD A. TOMECHKO
-----------------------------------------
Edward A. Tomechko
President and Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated on April
30th, 1999:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Chairman
Eric H. Paulson
*
- ------------------------------ Director
Charles E. Cheney
*
- ------------------------------ Director
Gene McCaffery
*
- ------------------------------ Director
James Caparro
*
- ------------------------------ Director
Marc H. Kalman
Director, President and
/s/ EDWARD A. TOMECHKO Chief Executive Officer
- ------------------------------ (PRINCIPAL EXECUTIVE
Edward A. Tomechko OFFICER)
/s/ MICHAEL P. WISE Chief Financial Officer
- ------------------------------ (PRINCIPAL ACCOUNTING
Michael P. Wise OFFICER)
*
- ------------------------------ Director and Chief
Donavan W. Pederson Technical Officer
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ EDWARD A. TOMECHKO
-------------------------
Edward A. Tomechko
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Warrant Agreement between NetRadio and EVEREN Securities, Inc.
3.1* Articles of Incorporation of NetRadio, as amended
3.2* Form of 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.
10.18** Agreement between AT&T and NetRadio dated March 12, 1999.
10.19 Termination Agreement dated April 29, 1999 between NetRadio and Michael P. Wise
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Lindquist & Vennum, P.L.L.P. (contained in Exhibit 5.1)
23.3 Consent of I/PRO, Internet Profiles Corporation
24.1* Power of Attorney
27.1* Financial Data Schedule
(b) Financial Statement Schedules.
99.1 Schedule II: Valuation and Qualifying Accounts
</TABLE>
- ------------------------
* Previously filed.
** 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 1.1
KMZ DRAFT:
APRIL 29, 1999
3,333,000 SHARES
NETRADIO CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
___________ ___, 1999
EVEREN Securities, Inc.
Legg Mason Wood Walker, Incorporated
As Representatives of the
Several Underwriters
c/o EVEREN Securities, Inc.
77 West Wacker Drive
31st Floor
Chicago, Illinois 60601
Dear Sirs:
NetRadio Corporation, a Minnesota corporation (the "Company"), proposes to
issue and sell 3,333,000 shares (the "Firm Shares") of its authorized but
unissued common stock, no par value ("Common Stock"), to the several
underwriters named in SCHEDULE I hereto (the "Underwriters"). The Company
proposes to grant to the Underwriters an option to purchase up to an aggregate
of 499,950 additional shares of Common Stock (the "Additional Shares"). The
Firm Shares and the Additional Shares are herein collectively referred to as the
"Shares". The Shares are more fully described in the Registration Statement and
Prospectus referred to below. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Registration Statement and
Prospectus.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder
(collectively, the "Act"), a registration statement on Form S-1 (No. 333-73261)
including a prospectus relating to the Shares, which may be amended. The
registration statement as amended at the time when it becomes effective,
including information (if any) deemed to be part of the registration statement
at the time of effectiveness pursuant to Rule 430A or Rule 434 under the Act, is
hereinafter referred to as the "Registration Statement", and the prospectus in
the form first used to confirm sales of the Firm Shares is hereinafter referred
as the "Prospectus". Any registration statement filed by the Company pursuant
to Rule 462(b)
<PAGE>
under the Securities Act is called the "Rule 462(b) Registration Statement", and
from and after the date and time of filing of the Rule 462(b) Registration
Statement the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. "Amended," "amendment" or "supplement" with respect to
the Registration Statement or the Prospectus shall be deemed to include the
filing by the Company of any document pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
after the date hereof.
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell the Firm Shares, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
at a price per share of $_____ (the "Purchase Price"), the number of Firm Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) set forth opposite the name of such Underwriter on SCHEDULE I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell up to 499,950 Additional Shares and (ii) the Underwriters shall
have the right to purchase, severally and not jointly, up to an aggregate of
499,950 Additional Shares from the Company at the Purchase Price. Additional
Shares may be purchased solely for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The Underwriters may
exercise their option to purchase Additional Shares, in whole or in part, from
time to time, by giving written notice thereof to the Company within 30 days
after the date of this Agreement. You shall give any such notice on behalf of
the Underwriters and such notice shall specify the aggregate number of
Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof. The date specified in any such notice shall be a
business day (i) no earlier than the Closing Date (as hereinafter defined), (ii)
no later than five business days after such notice has been given and (iii) no
earlier than two business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in SCHEDULE I bears to the total number of
Firm Shares.
The Company shall, concurrently with the execution of this Agreement,
deliver agreements (collectively, the "Lock-up Agreements") executed by each of
the directors, executive officers and securityholders of the Company, pursuant
to which each such person agrees not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of any Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for such Common Stock or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of any such Common Stock for a period of 180 days after the date of
the Prospectus without the prior written consent of EVEREN Securities, Inc.
Notwithstanding the foregoing, during such period (i) the Company may, in the
ordinary course, grant stock options to purchase shares of Common Stock pursuant
to the Company's existing stock option plan, and (ii) the Company may issue
shares of its Common
-2-
<PAGE>
Stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof.
3. TERMS OF PUBLIC OFFERING. You have advised the Company that the
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the date the Registration Statement becomes
effective under the Act as in your judgment is advisable and (ii) initially to
offer the Shares upon the terms set forth in the Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and payment
for the Firm Shares shall be made to the Company at 9:00 a.m., Chicago time, on
the fourth business day (the "Closing Date") following the date of the initial
public offering at such place as you shall designate. Payment for the Firm
Shares shall be made by one or more certified checks or official bank check or
checks in same day funds or by a wire transfer of immediately available funds,
as you and the Company may agree. The Closing Date and the location of delivery
of and the form of payment for the Firm Shares may be varied by agreement
between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares to
be purchased by the Underwriters shall be made to the Company at 9:00 a.m.,
Chicago time, on the date specified in the applicable exercise notice given by
you pursuant to SECTION 2 (an "Option Closing Date"). Payment for the
Additional Shares shall in each case be made by one or more certified checks or
official bank check or checks in same day funds or by a wire transfer of
immediately available funds, as you and the Company may agree. Any such Option
Closing Date and the location of delivery of and the form of payment for such
Additional Shares may be varied by agreement between you and the Company.
Certificates for the Shares shall be registered in such names and issued
in such denominations as you shall request in writing not later than two full
business days prior to the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you for inspection not
later than 8:30 a.m., Chicago time, on the business day next preceding the
Closing Date or any Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or any Option Closing Date as the case may be, with any transfer taxes
thereon duly paid by the Company, for the respective accounts of the several
Underwriters, against payment of the Purchase Price therefor.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Additional Shares
are purchased for the account of such Underwriter. Any such payment by you
shall not relieve such Underwriter from any of its obligations hereunder.
5. FURTHER AGREEMENTS OF THE COMPANY AND NAVARRE CORPORATION. The
Company and Navarre Corporation, a Minnesota corporation and the majority
shareholder of the Company (the "Majority Shareholder"), covenant and agree
as follows:
-3-
<PAGE>
(a) The Registration Statement has been declared effective under
the Act.
(b) The Company will advise you promptly and, if requested by you,
to confirm such advice in writing, (i) when any post-effective amendment
to the Registration Statement has become effective (ii) of any request by
the Commission for amendments to the Registration Statement or amendments
or supplements to the Prospectus or for additional information, (iii) of
the receipt of any comments from the Commission or the Blue Sky or other
securities authority of any jurisdiction regarding the Registration
Statement, any post-effective amendment thereto, the Prospectus, or any
amendment or supplement thereto, (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of the suspension of qualification of the Shares for offering or sale
in any jurisdiction, or the initiation of any proceeding for such
purposes, and (v) of the happening of any event during the period referred
to in PARAGRAPH (e) below which makes any statement of a material fact
made in the Registration Statement or the Prospectus untrue or which
requires the making of any additions to or changes in the Registration
Statement or the Prospectus in order to make the statements therein not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company
will make every reasonable effort to obtain the withdrawal or lifting of
such order at the earliest possible time. If the Registration Statement
has become effective with a form of prospectus omitting certain
information pursuant to Rule 430A under the Act, or filing of the
Prospectus is otherwise required under Rule 424(b) under the Act, the
Company will file the Prospectus, properly completed, pursuant to Rule
424(b) within the time period prescribed and will provide evidence
satisfactory to you of such timely filing.
(c) The Company will furnish to you, without charge, four signed
copies of the Registration Statement as first filed with the Commission
and of each amendment to it, including all exhibits, and will furnish to
you and each Underwriter designated by you such number of conformed copies
of the Registration Statement as so filed and of each amendment to it,
without exhibits, as you may reasonably request.
(d) The Company will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the Prospectus of which
you shall not previously have been advised or to which you shall
reasonably object; and the Company will prepare and file with the
Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the Shares
by you, and use its best efforts to cause the same to become promptly
effective.
(e) The Company will promptly after the Registration Statement
becomes effective, and from time to time thereafter for such period as in
the opinion of counsel for the Underwriters a prospectus is required by
law to be delivered in connection with sales by an Underwriter or a
dealer, furnish to each Underwriter and dealer as many copies of the
Prospectus (and of any amendment or supplement to the Prospectus) as such
Underwriter or dealer may reasonably request and during such period comply
with all
-4-
<PAGE>
requirements imposed upon it by the Act, as now existing and as hereafter
amended, so far as necessary to permit the continuance of sales of or
dealings in the Shares in accordance with the provisions hereof and the
Prospectus.
(f) If during the period specified in PARAGRAPH (e) any event
shall occur as a result of which, in the opinion of your counsel it
becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law,
the Company will forthwith prepare and file with the Commission an
appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in
the light of the circumstances when it is so delivered, be misleading, or
so that the Prospectus will comply with law, and furnish to each
Underwriter and to such dealers as you shall specify, such number of
copies thereof as such Underwriter or dealers may reasonably request.
(g) Prior to any public offering of the Shares, the Company will
cooperate with you and counsel for the Underwriters in connection with the
registration or qualification of the Shares for offer and sale by you and
by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, continue such qualification in effect so
long as required for distribution of the Shares and file such consents to
service of process or other documents as may be necessary in order to
effect such registration or qualification.
(h) The Company will make generally available to its
securityholders as soon as reasonably practicable an earnings statement
covering a period of at least twelve months after the effective date of
the Registration Statement (but in no event commencing later than 90 days
after such date) which shall satisfy the provisions of Section 11(a) of
the Act, and advise you in writing when such statement has been so made
available.
(i) During the period of five (5) years after the date of this
Agreement, the Company will (i) mail as soon as reasonably practicable
after the end of each fiscal year to the record holders of its Common
Stock a financial report of the Company, all such financial reports to
include a balance sheet, a statement of operations, a statement of cash
flows and a statement of shareholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of
and for the preceding fiscal year, certified by independent certified
public accountants, and (ii) make generally available as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a balance sheet, a
statement of operations and a statement of cash flows (and similar
financial reports of all unconsolidated subsidiaries, if any) as of the
end of and for such period, and for the period from the beginning of such
fiscal year to the close of such quarterly period, together with
comparable information for the corresponding periods of the preceding
fiscal year.
(j) During the period of five years after the date of this
Agreement, the Company will furnish to you as soon as available a copy of
each report or other publicly
-5-
<PAGE>
available information of the Company mailed to the securityholders of the
Company or filed with the Commission, the National Association of
Securities Dealers, Inc. (the "NASD") or any securities exchange, and such
other publicly available information concerning the Company as you may
reasonably request.
(k) Whether or not the transactions contemplated hereunder are
consummated or this Agreement becomes effective or is terminated (whether
by you in accordance with the provisions of SECTION 9 or otherwise) the
Company will pay all reasonable costs, expenses, fees and taxes incident
to (i) the preparation, printing, filing and distribution under the Act of
the Registration Statement (including financial statements and exhibits),
each preliminary prospectus and all amendments and supplements to any of
them prior to or during the period specified in PARAGRAPH (e), (ii) the
preparation, printing and delivery of the Prospectus and all amendments or
supplements to it during the period specified in PARAGRAPH (e), (iii) the
preparation, printing and delivery of this Agreement, any Preliminary and
Supplemental Blue Sky Memoranda, the certificates for the Shares and all
other agreements, memoranda, correspondence and other documents printed
and delivered in connection with the offering of the Shares (including in
each case any disbursements of counsel for the Underwriters), (iv) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states (including in each case
the fees and disbursements of counsel for the Underwriters relating to
such registration or qualification and memoranda relating thereto), (v)
filings and clearance with the NASD in connection with the offering of the
Shares, (vi) the listing of the Shares on the National Association of
Securities Dealers Automated Quotation system ("NASDAQ National Market
System") and (vii) furnishing such copies of the Registration Statement,
the Prospectus and all amendments and supplements thereto as may be
requested for use in connection with the offering or sale of the Shares by
the Underwriters or by dealers to whom Shares may be sold.
(l) Except to the extent reasonably believed by the Company's
Board of Directors to be consistent with their fiduciary obligations to
the Company's shareholders, neither the Company nor the Majority
Shareholder shall take any action or fail to take any action which the
Company or the Majority Shareholder has agreed, prior to the date hereof,
to take, nor shall any such party authorize any employee, director,
shareholder, partner, affiliate (within the meaning of Rule 405 under the
Act), agent or other person to take any action or fail to take any action
which the Company or the Majority Shareholder has agreed, prior to the
date hereof, to take, directly or indirectly, during the five (5) years
after the Registration Statement becomes effective, which action or
failure to take such action shall be designed to, or might reasonably be
expected to, cause or result in the suspension, revocation or termination
of the quotation or trading of the Common Stock on the NASDAQ National
Market System.
(m) Prior to the Closing Date and any Option Closing Date, as the
case may be, neither the Company nor the Majority Shareholder will issue
any press release or other communication relating to the offering of the
Shares or hold any press conference with respect to the Company or its
financial conditions, results of operations, business,
-6-
<PAGE>
properties, assets, or liabilities or this offering, without the prior
written consent of EVEREN Securities, Inc., which consent shall not be
unreasonably withheld.
(n) The Company will apply the proceeds from the sale of the
Shares substantially as set forth under "Use of Proceeds" in the
Prospectus. Additionally, the Company shall report the use of the
proceeds of the issuance of the Shares as may be required under Rule 463
under the Act.
(o) The Company and the Majority Shareholder will use their best
efforts to do and perform all things required or necessary to be done and
performed under this Agreement by the Company and the Majority Shareholder
prior to the Closing Date or any Option Closing Date, as the case may be,
and satisfy all conditions precedent to the delivery of the Shares.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MAJORITY
SHAREHOLDER. The Company and the Majority Shareholder, jointly and severally,
hereby represent and warrant to you that:
(a) The Company has filed with the Commission the Registration
Statement, including the Prospectus relating to the Shares.
(b) The Registration Statement has become effective under the Act,
no stop order suspending the effectiveness of the Registration Statement
is in effect and, to the Company's and the Majority Shareholder's
knowledge, no proceedings for such purpose are pending before or
contemplated by the Commission.
(c) (i) Each part of the Registration Statement, when such part
became effective under the Act, did not contain and each such part, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply and,
as amended or supplemented, if applicable, will comply in all material
respects with the Act and the Exchange Act and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this PARAGRAPH (c) do not
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use
therein.
(d) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the requirements of the Act and did not contain an
untrue statement of a material fact or omit to state a material fact
-7-
<PAGE>
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(e) The documents incorporated by reference into the Prospectus,
if any, at the time they were filed with the Commission, complied in all
material respects with the requirements of the Exchange Act and the rules
and regulations thereunder, and, as of the date of this Agreement, the
Closing Date and any Option Closing Date, as the case may be, when read
together with the Prospectus and any supplement thereto, will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
and any documents filed after the date of this Agreement and so
incorporated by reference in the Prospectus will, when they are filed with
the Commission, comply in all material respects with the requirements of
the Exchange Act and the rules and regulations thereunder, and when read
together with the Prospectus and any supplement thereto, will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(f) The Company does not own or control, directly or indirectly,
any corporation, association or other entity. The Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate
power and authority to carry on its business as it is currently being
conducted and to own, lease and operate its properties. The Company is
duly qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification, except
where the failure to be so qualified would not have a material adverse
effect on the condition (financial or otherwise), earnings, assets,
results of operations, business affairs or business prospects of the
Company (a "Material Adverse Effect"), and no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification.
(g) The Company has authorized and outstanding capital stock as
set forth under the heading "Capitalization" in the Prospectus and all of
the issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable,
have been issued in substantial compliance with all federal and state
securities laws and, except as disclosed in the Prospectus, were not
issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities.
(h) Except as disclosed in the Prospectus and the financial
statements of the Company and the related notes thereto included in the
Prospectus, the Company has no outstanding options to purchase,
registration rights, or preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any
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contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations.
(i) The Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided in this Agreement, will be validly
issued, fully paid and nonassessable. Except as disclosed in the
Prospectus, (i) neither the Company nor the Majority Shareholder is a
party to any agreement or understanding, and neither the Company nor the
Majority Shareholder has knowledge of any agreement or understanding,
granting any person or entity a right to acquire Shares or participate in
the sale of Shares pursuant to the Registration Statement; (ii) no person
or entity has the right to require registration under the Act of any
securities of the Company at any time; and (iii) neither the Company nor
the Majority Shareholder is a party to any agreement or understanding, or
has knowledge of any agreement or understanding, granting any person or
entity a right to acquire Common Stock or any other security of the
Company at any time, upon any conditions or upon the occurrence of any
events.
(j) Both the Company and the Majority Shareholder have the
requisite corporate power and authority to enter into, execute and deliver
this Agreement and perform their respective obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Company
and the Majority Shareholder and is a valid and binding agreement of the
Company and the Majority Shareholder enforceable in accordance with its
terms, except as enforceability may be limited by general equitable
principles, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether such
enforceability is considered in a proceeding in equity or at law),
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other laws affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution for liabilities arising
under the Act.
(k) The Company's Common Stock, including the Shares, is eligible
for trading on the Nasdaq National Market System.
(l) The Company is not in violation of its charter or by-laws or,
except for conditions that have been satisfied or waived, in default in
the performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of the
business of the Company to which the Company is a party or by which it or
its property is bound, except where such violations or defaults would not
result in a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, (i) the Company is in
possession of and is operating in substantial compliance with all
authorizations, licenses, permits, consents, approvals, certificates,
orders and other rights of or with any court, regulatory, administrative
or other governmental body reasonably necessary or required and material
to the conduct of its businesses as now conducted, all of which are valid
and in full force
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and effect in all material respects subject to any conditions imposed by
any such authority, (ii) neither the Company nor the Majority Shareholder
has reason to believe that any governmental body or agency is considering
limiting, suspending, revoking or refusing to grant or renew any such
authorizations, licenses, permits, consents, approvals, certificates,
orders or other rights in any material respect reasonably necessary to the
conduct of the Company's business as now conducted or as proposed to be
conducted as disclosed in the Prospectus and (iii) the Company is in
substantial compliance with all laws, rules, regulations, judgments,
decrees, orders and statutes of any court or jurisdiction to which it is
subject, except where noncompliance would not have a Material Adverse
Effect.
(n) No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state or local governmental authority or any court or other
tribunal is required by the Company or the Majority Shareholder for the
execution or delivery of, or the performance of the Company's and the
Majority Shareholder's obligations under, this Agreement (except filings
under Blue Sky or state securities laws or as may be required under the
rules of the NASD).
(o) Except for conditions that have been satisfied or waived, no
consent of any party to any material contract, agreement, instrument,
lease, license, arrangement, or understanding to which the Company or the
Majority Shareholder is a party, or to which any of their properties or
assets are subject, is required for the execution or delivery of, or the
performance of the Company's or the Majority Shareholder's obligations
under, this Agreement.
(p) Except for conditions that have been satisfied or waived,
neither the execution and delivery of, nor the performance of the
Company's and the Majority Shareholder's obligations under, this
Agreement, nor the issuance and sale of the Shares as contemplated hereby,
nor the consummation of any other of the transactions herein contemplated,
nor the fulfillment of the terms hereof, will violate, result in a breach
of, conflict with, nor (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default
under any contract, agreement, instrument, lease, license, arrangement, or
understanding, to which the Company or the Majority Shareholder is a
party, or to which any of their respective properties or assets are
subject, nor violate or result in a breach of any term of the charter or
by-laws of the Company or the Majority Shareholder, nor violate, result in
a breach of, or conflict with any law, rule, or regulation, or any order,
judgment, or decree binding on the Company or the Majority Shareholder or
to which any of their respective operations, businesses, properties, or
assets are subject, except where such violation, breach or conflict would
not, individually or in the aggregate, have a Material Adverse Effect and
would not impair materially the ability of the Company and the Majority
Shareholder to perform their respective obligations hereunder or
thereunder.
(q) Neither the Company, any of its executive officers, directors,
or affiliates (as defined pursuant to the Act), nor the Majority
Shareholder has taken or will take, directly or indirectly, prior to the
termination of the underwriting arrangements contemplated by this
Agreement, any action designed to stabilize or manipulate the price
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of the Common Stock or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Shares.
(r) There is no legal or governmental proceeding pending or, to
the Company's and the Majority Shareholder's knowledge, threatened, to
which the Company is a party or to which its properties are subject which
is required to be described in the Registration Statement or the
Prospectus and is not so described or, or of any contract or other
document which is required to be described in the Registration Statement
or the Prospectus or is required to be filed as an exhibit to the
Registration Statement, which is not described or filed as required.
(s) To the Company's and the Majority Shareholder's knowledge, the
Company is conducting its business in compliance with, and has not
violated, any foreign, federal, state or local laws or regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), any federal or state laws relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, or any provisions of the
Employee Retirement Income Security Act or the rules and regulations
promulgated thereunder, in each case that are applicable to it, except
where violation of or failure to be in compliance with would not result in
a Material Adverse Effect.
(t) The Company has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("Permits"),
including, without limitation, under any applicable Environmental Laws, as
are necessary to own, lease and operate its properties and to conduct its
business; the Company has fulfilled and performed all of its material
obligations with respect to such Permits and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the
rights of the holder of any such Permit; in each case except where failure
to so have, fulfill or perform would not result in a Material Adverse
Effect.
(u) The Company has good and marketable title, free and clear of
all liens, claims, encumbrances and restrictions (collectively, "Liens"),
to all property and assets described in the Prospectus, except (i) Liens
for taxes not yet due and payable, (ii) Liens entered into in connection
with that certain Loan and Security Agreement, dated June 12, 1997,
between Congress Financial Corporation (Central) and the Majority
Shareholder, as amended, and (iii) Liens that are described in the
Prospectus or where failure to so have would not result in a Material
Adverse Effect.
(v) All leases to which the Company is a party are valid and
binding on the Company and no default has occurred or is continuing
thereunder, except where such invalidity, unenforceability or default
would not result in a Material Adverse Effect, and the Company enjoys
peaceful and undisturbed possession under all such leases to which
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it is a party as lessee with such exceptions as do not materially
interfere with the use made by the Company.
(w) Ernst & Young LLP, who have expressed their opinion with
respect to certain of the financial statements and schedules included in
the Registration Statement, are independent public accountants with
respect to the Company, as required by the Act.
(x) The financial statements and schedules of the Company, and the
related notes thereto, included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) present fairly the
financial position, results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they apply;
such statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved as certified by the
independent accountants named in the preceding paragraph of this section,
except as disclosed therein; and the other financial and statistical
information and data set forth in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) is, in all material
respects, accurately presented and prepared on a basis consistent with
such financial statements and the books and records of the Company.
(y) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as described
therein: (i) the Company has not incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any material
verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material reduction
in the future earnings of the Company; (ii) the Company has not sustained
any material loss or interference with its business or properties from
fire, flood, windstorm, accident or other calamity, whether or not covered
by insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company is
not in default in the payment of principal or interest on any outstanding
debt obligations; and (iv) there has not been any change in the capital
stock or indebtedness material to the Company (other than in the ordinary
course of business).
(z) The Company and the Majority Shareholder maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
and (iii) access to assets is permitted only in accordance with
management's general or specific authorization.
(aa) To the Company's and the Majority Shareholder's knowledge, and
except as disclosed in the Prospectus, the Company has sufficient
trademarks, trade names, patent rights, mask works, copyrights, licenses,
approvals and governmental authorizations reasonably necessary to conduct
its business as now conducted; the expiration of any
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trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals or governmental authorizations would not have a
Material Adverse Effect; neither the Company nor the Majority
Shareholder has knowledge of any material infringement by the Company
of trademark, trade name rights, patent rights, mask works, copyrights,
licenses, trade secret or other similar propriety rights (collectively,
"Proprietary Rights") of others, and there is no claim being made
against the Company regarding infringement of any Proprietary Right
which could have a Material Adverse Effect; and except as disclosed in
the Prospectus, the Company is not obligated or under any liability
whatsoever to pay any royalty, fee or other similar payment in respect
of any Proprietary Rights.
(ab) Except as disclosed in the Prospectus, to the Company's and
the Majority Shareholder's knowledge, the Company owns and has the
unrestricted right to use all trade secrets, including know-how, customer
lists, inventions, designs, processes, computer programs and technical
data necessary to manufacture, operate and sell all products and services
sold or developed and proposed to be sold by it as described in the
Prospectus, free and clear of any rights, liens and claims of others. To
the Company's and the Majority Shareholder's knowledge, the Company is not
using any material confidential information or trade secrets of any former
employer of any of its past or present employees.
(ac) The Company has filed all necessary federal, state and foreign
income and franchise tax returns and has paid all taxes shown as due
thereon; and neither the Company nor the Majority Shareholder has
knowledge of any tax deficiency which has been or might reasonably be
asserted or which has been threatened against the Company which could have
a Material Adverse Effect.
(ad) Except as set forth in the Prospectus, there are no
agreements, claims, payment, issuances, arrangements or understandings,
whether oral or written, for services in the nature of finder's,
consulting or origination fees with respect to the sale of Shares
hereunder or any other arrangements, agreements, understandings, payments
or issuances with respect to the Company or, to the knowledge of the
Company and the Majority Shareholder, any of its officers, directors,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the NASD.
(ae) The Company is not involved in any material labor dispute nor,
to the knowledge of the Company and the Majority Shareholder, is any such
dispute threatened.
(af) Except as described in the Prospectus or as set forth on
SCHEDULE II, neither the Company nor the Majority Shareholder maintains,
sponsors or contributes on behalf of the Company's employees to any
program or arrangement that is an "employee welfare benefit plan,"
"employee pension benefit plan," or a "multiemployer plan" as such terms
are defined in Sections 3(1), 3(2) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended (herein called
ERISA) (herein collectively called the ERISA Plans). Neither the Company
nor the Majority Shareholder maintains or contributes, now or at any time
previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
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<PAGE>
"prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the United States Internal Revenue Code of 1986, as
amended (herein called the Code), which could subject the Company to any
tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to
any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan (or the
underlying prototype document relating thereto) and the attendant trust
are qualified thereunder. Neither the Company nor the Majority
Shareholder has ever completely or partially withdrawn from a
"multiemployer plan."
(ag) Except as set forth in the Prospectus, no officer, director
(to the extent required to be disclosed by applicable Commission
regulations) or shareholder of the Company or any "affiliate" or
"associate" (as these terms are defined in Rule 405 under the Act) of any
of the foregoing persons or entities has or has had (to the extent in
excess of $25,000), either directly or indirectly (i) an interest in any
person or entity that (x) furnishes or sells services or products which
are furnished or sold or that are proposed to be furnished or sold by the
Company, or (y) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under the captions
"Certain Transactions" and "Management" there are no existing or proposed
agreements, arrangements, understandings or transactions, between the
Company and any existing officer, director, principal shareholder of the
Company or any partner, affiliate or associate of any of the foregoing
persons or entities.
(ah) The minute books of the Company have been made available to
the Underwriters and contain an accurate summary of all meetings with
respect to which minutes exist and contain all actions taken by the
directors and shareholders of the Company during such meetings since the
time of its incorporation, and reflect accurately and fairly in all
respects all transactions referred to in such minutes. No material
actions that would materially adversely affect the Company have been taken
by the directors and/or shareholders of the Company at a meeting for which
minutes do not exist.
(ai) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(aj) To the Company's and the Majority Shareholder's knowledge, the
Company has complied with all provisions of Section 517.075, Florida
Statutes (Chapter 92-198, Laws of Florida) relating to doing business with
the Government of Cuba or with any person or any affiliate located in
Cuba.
7. INDEMNIFICATION.(a) The Company and the Majority Shareholder,
jointly and severally, agree to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the
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Exchange Act from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any
Underwriter or underwriting arrangements furnished in writing to the Company
by or on behalf of any Underwriter through you expressly for use therein.
Both the Company and the Majority Shareholder acknowledge that the only
information relating to any Underwriter or underwriting arrangements
furnished in writing to the Company by or on behalf of any Underwriter
expressly for use in the Registration Statement or Prospectus are the
statements set forth in the third and last paragraphs under the caption
"Underwriting" in the Prospectus.
(b) In case any action shall be brought against any Underwriter or any
person controlling such Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company, such
Underwriter shall promptly notify the Company and the Majority Shareholder in
writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such indemnified party and
payment of all reasonable fees and expenses. Any Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the employment of such counsel has been specifically authorized in
writing by the Company, (ii) the Company shall have failed to assume the defense
and employ counsel or (iii) the named parties to any such action (including any
impleaded parties) include both such Underwriter or such controlling person and
the Company, as the case may be, and counsel for such Underwriter or such
controlling person has reasonably concluded that there may be one or more legal
defenses available to such Underwriter or such controlling person which are
different from or additional to those available to the Company (in which case
the Company shall not have the right to assume the defense of such action on
behalf of such Underwriter or such controlling person, it being understood,
however, that the Company shall not, in connection with any one such action or
separate but substantially similar or related actions arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Underwriters and controlling persons, which firm shall be
designated in writing by EVEREN Securities, Inc. and that all such reasonable
fees and expenses shall be reimbursed as they are incurred). The Company shall
not be liable for any settlement of any such action effected without the written
consent of the Company but if settled with the written consent of the Company,
the Company agrees to indemnify and hold harmless any Underwriter and any such
controlling person from and against any loss or liability by reason of such
settlement. If at any time the indemnified party shall have requested the
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second sentence of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than fifteen business days after receipt by such
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indemnifying party of the aforesaid request and (ii) the indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Majority Shareholder and their respective
directors and officers who sign the Registration Statement, any person
controlling the Company or the Majority Shareholder within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, to the same extent
as the foregoing indemnity from the Company and the Majority Shareholder to
each Underwriter but only with reference to information relating to such
Underwriter or the underwriting arrangements furnished in writing by or on
behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any preliminary prospectus. In case any action
shall be brought against the Company, the Majority Shareholder or any of
their respective directors, any such officer or any person controlling the
Company or the Majority Shareholder based on the Registration Statement, the
Prospectus or any preliminary prospectus and in respect of which indemnity
may be sought against any Underwriter, such Underwriter shall have the rights
and duties given to the Company and the Majority Shareholder (except that if
the Company or the Majority Shareholder shall have assumed the defense
thereof, such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof but the fees
and expenses of such counsel shall be at the expense of such Underwriter),
and the Company, the Majority Shareholder and their respective directors, any
such officers and any person controlling the Company, the Majority
Shareholder shall have the rights and duties given to the Underwriter, by
SECTION 7(b) hereof.
(d) If the indemnification provided for in this SECTION 7 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities and judgments (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and
the Majority Shareholder, on the one hand, and the Underwriters, on the other
hand, from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company, the Majority
Shareholder and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Underwriters shall be deemed to be the
total underwriting discount received by the Underwriters and the relative
benefits received by the Company and the Majority Shareholder shall be deemed
to be the total net proceeds from the offering (before deducting expenses)
received by the Company, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company, the Majority
Shareholder and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state
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<PAGE>
a material fact relates to information supplied by the Company, the Majority
Shareholder or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Majority Shareholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this SECTION
7(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in
the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this SECTION 7, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this SECTION 7(d) are several in proportion to the respective
number of Shares purchased by each of the Underwriters hereunder and not
joint.
(e) Notwithstanding anything to the contrary contained herein, an
Underwriter or person controlling an Underwriter shall not bring any claim
against the Majority Shareholder under this SECTION 7 with respect to any
breach of a representation, warranty or agreement contained in this Agreement
unless (i) such Underwriter or controlling person shall have first submitted
such claim to the Company and (ii) the Company shall not, within forty-five
(45) days, (a) have paid such claim in full or (b) be otherwise fully
satisfying its indemnification obligations with respect to such claim (by
assuming the defense of any proceeding giving rise to such claim or otherwise
as set forth in this SECTION 7); provided, however, that if at any time
thereafter the Company is no longer fully satisfying its indemnification
obligations with respect to such claim, such Underwriter or controlling
person may immediately bring such claim against the Majority Shareholder.
8. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The several obligations
of the Underwriters to purchase the Firm Shares under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Majority Shareholder contained in this Agreement shall be true and correct
as of the date hereof and as of the Closing Date with the same force and
effect as if made on and as of such date.
(b) The Registration Statement shall have become effective not
later than 4:00 p.m., Chicago time, on the date of this Agreement or at
such later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness
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of the Registration Statement shall have been issued and no proceedings
for that purpose shall have been commenced or shall be pending before
or contemplated by the Commission.
(c) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, (i) there shall not have been any action or inaction which
might result in a Material Adverse Change of the Company which makes it
impractical or inadvisable in your judgment to proceed with the public
offering or purchase the Shares as contemplated hereby, (ii) except as set
forth in the Registration Statement and the Prospectus, no verbal or
written agreement or other transaction shall have been entered into by the
Company, which is not in the ordinary course of business or which could
result in a Material Adverse Change, (iii) no loss or damage (whether or
not insured) to the property of the Company shall have been sustained the
result of which would have a Material Adverse Effect, (iv) no legal or
governmental action, suit or proceeding affecting the Company the result
of which could have a Material Adverse Effect or may materially affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) on the Closing Date you shall have received a
certificate dated the Closing Date, signed by Edward A. Tomechko and
Michael P. Wise in their capacities as the Chief Executive Officer and
Chief Financial Officer of the Company, respectively, confirming the
matters set forth in PARAGRAPHS (a), (b) and (c) of this SECTION 8.
(d) You shall have received on the Closing Date and any Option
Closing Date, as the case may be, an opinion (satisfactory to you and your
counsel), dated as of the Closing Date or any Option Closing Date, as the
case may be, of Lindquist & Vennum, P.L.L.P, counsel for the Company and
the Majority Shareholder, to the effect that:
(i) The Company is duly qualified and is in good standing
as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect
and to the best of such counsel's knowledge, after due inquiry, no
proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(ii) The Company has authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus and all of the issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued,
are fully paid and nonassessable, and, except as disclosed in the
Prospectus, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase
securities.
(iii) The Firm Shares have been duly authorized and,
when issued and delivered, will be validly issued, fully paid
and non-assessable and free and clear of all liens and
restrictions on transfer. The Additional Shares have been duly
authorized and, when issued and delivered, will be validly
issued, fully paid and non-assessable and free and clear of all
liens and restrictions on transfer.
-18-
<PAGE>
(iv) Except as disclosed in the Prospectus and the financial
statements of the Company and the related notes thereto included in
the Prospectus, or to such counsel's knowledge, the Company has no
outstanding options to purchase, registration rights, preemptive
rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any
such options, rights, convertible securities or obligations.
(v) This Agreement has been duly authorized, executed and
delivered by the Company and the Majority Shareholder and is a valid
and binding agreement of the Company and the Majority Shareholder
enforceable in accordance with its terms, except as enforceability
may be limited by general equitable principles, including, without
limitation, concepts of materiality, reasonableness, good faith and
fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law), bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors' rights generally and except as to
those provisions relating to indemnity or contribution for
liabilities arising under the Act.
(vi) The Registration Statement has become effective under
the Act, no stop order suspending its effectiveness has been issued
and no proceedings for that purpose are, to the best of such
counsel's knowledge, after due inquiry, pending before or
contemplated by the Commission.
(vii) The statements set forth in the Prospectus under the
headings "Risk Factors -- Shares eligible for future sale by our
current shareholders may adversely affect our stock price,"
"Capitalization" and "Description of Capital Stock" and Item 15 Part
II of the Registration Statement insofar as such statements
constitute a summary of documents referred to therein or of legal
matters or proceedings, are complete and accurate in all material
respects and fairly summarize in all material respects the
information called for with respect to such documents, legal matters
and proceedings.
(viii) The Shares and the Common Stock conform in all material
respects as to legal matters to the description thereof contained in
the Prospectus.
(ix) Neither the Company nor the Majority Shareholder is in
violation of its charter or by-laws and, to such counsel's
knowledge, and except for conditions that have been satisfied or
waived, the Company is not in default in the performance of any
obligation, agreement or condition contained in any bond, debenture,
note or any other evidence of indebtedness or in any other
agreement, indenture or instrument material to the conduct of the
business of the Company to which the Company is a party or by which
it or its properties are bound, except where such violation or
default would not result in a Material Adverse Effect.
-19-
<PAGE>
(x) To such counsel's knowledge and except as disclosed in
the Prospectus, (i) the Company is in possession of and is operating
in substantial compliance with all authorizations, licenses,
permits, consents, approvals, certificates, orders and other rights
of or with any court, regulatory, administrative or other
governmental body reasonably necessary or required and material to
the conduct of its business as now conducted, all of which are valid
and in full force and effect in all material respects, subject to
any conditions imposed by any such authority and (ii) the Company is
in substantial compliance with all laws, rules, regulations,
judgements, decrees, orders and statutes of any court or
jurisdiction to which it is subject, except where noncompliance
would not have a Material Adverse Effect.
(xi) No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with,
any federal, state or local governmental authority or any court or
other tribunal is required by the Company for the execution or
delivery of, or the performance of the Company's obligations under,
this Agreement (except filings under the Act which have been or will
be made before the Closing Date or any Option Closing Date, as the
case may be, and filings under Blue Sky or state securities laws or
as may be required under the rules of the NASD).
(xii) Except for conditions that have been satisfied or
waived, no consent of any party to any material contract, agreement,
instrument, lease, license, arrangement, or understanding to which
the Company or the Majority Shareholder is a party, or to which any
of their properties or assets are subject, is required for the
execution or delivery of, or the performance of the Company's or the
Majority Shareholder's obligations under, this Agreement.
(xiii) Except for conditions that have been satisfied or
waived, neither the execution and delivery of, nor the performance
of the Company's and the Majority Shareholder's respective
obligations under, this Agreement nor the issuance and sale of the
Shares as contemplated hereby nor the consummation of any other of
the transactions herein contemplated nor the fulfillment of the
terms hereof, will violate, result in a breach of, conflict with,
nor (with or without the giving of notice or the passage of time or
both) entitle any party to terminate or call a default under any
material contract, agreement, instrument, lease, license,
arrangement, or understanding to which the Company is a party, or to
which its properties or assets are subject, nor violate or result in
a breach of any term of the charter or by-laws of the Company or the
Majority Shareholder, nor violate, result in a breach of, or to the
best of such counsel's knowledge, conflict with any law, rule, or
regulation, or any order, judgment, or decree binding on the Company
or the Majority Shareholder or to which any of its operations,
business, properties, or assets are subject, except where such
violation, breach or conflict would not, individually or in the
aggregate, have a Material Adverse Effect or would impair materially
the ability of the Company or the Majority Shareholder to perform
its obligations hereunder or thereunder.
-20-
<PAGE>
(xiv) To such counsel's knowledge, such counsel does not know
of any legal or governmental proceeding pending or threatened to
which the Company is a party or to which any of its properties are
subject which is required to be described in the Registration
Statement or the Prospectus and is not so described or, or of any
contract or other document which is required to be described in the
Registration Statement or the Prospectus or is required to be filed
as an exhibit to the Registration Statement which is not described
or filed as required.
(xv) To such counsel's knowledge, the Company has such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities ("Permits"), as are necessary to own, lease
and operate its properties and to conduct its business; the Company
has fulfilled and performed all of its material obligations with
respect to such Permits and no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination
thereof or result in any other material impairment of the rights of
the holder of any such Permit; in each case except where failure to
so have, fulfill or perform would not result in a Material Adverse
Effect.
(xvi) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xvii) (1) The Registration Statement and the Prospectus and
any supplement or amendment thereto (except for financial statements
and notes, schedules and other financial statistical data included
therein, as to which no opinion need be expressed) comply as to form
in all material respects with the Act and the Exchange Act and (2)
no facts have come to the attention of such counsel that have led
such counsel to believe that the Registration Statement and the
prospectus included therein at the time the Registration Statement
became effective contained any untrue statement of a material fact,
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus as amended or supplemented, if applicable (except for
financial statements as aforesaid) contained any untrue statement of
a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely on (A) an opinion
or opinions of other counsel retained by them or the Company as to laws of
any jurisdiction other than the United States and Minnesota, provided that
(i) each such local counsel is acceptable to you, (ii) such reliance is
expressly authorized by each opinion so relied upon and (iii) each such
opinion is in form and substance satisfactory to you and your counsel; and
(B) as to matters of fact, certificates of officers of the Company and the
Majority Shareholder and governmental officials. In each such case, the
opinion of such counsel is to state that they are so doing and that they
have no reason to believe that the Underwriters are not
-21-
<PAGE>
justified in relying on such opinions or certificates and copies of said
opinions or certificates are to be attached to the opinion. In addition,
in giving such opinion with respect to the matters covered by clause
(xvii)(2) such counsel may state that their opinion is based upon their
participation in the preparation of the Registration Statement and
Prospectus, any amendments or supplements thereto or other documents, as
the case may be, and review and discussion of the contents thereof, but
is without independent check or verification except as specified.
The opinion of Lindquist & Vennum, P.L.L.P. described in PARAGRAPH
(d) above shall be rendered to you at the request of the Company and shall
so state therein.
(e) You shall have received, on the Closing Date and any Option
Closing Date, as the case may be, a letter dated the Closing Date or any
Option Closing Date, as the case may be, in form and substance
satisfactory to you, of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and stating
that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all
material respect with the applicable accounting requirements of the Act;
and containing such other statements and information as is ordinarily
included in accountants' "comfort letters" to Underwriters with respect to
the financial statements and certain financial and statistical information
contained in the Registration Statement and Prospectus.
(f) You shall have received on the Closing Date, the Lock-up
Agreements referred to in SECTION 2 herein, duly executed by each of the
executive officers, directors and securityholders of the Company.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to
the good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such
Additional Shares.
9. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the later of (i) the execution of this Agreement
and (ii) when notification of the effectiveness of the Registration Statement
has been released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or
otherwise, of the Company or the earnings, affairs, or business prospects of
the Company, whether or not arising in the ordinary course of business, which
would, in your judgment, make it impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus, (ii) any outbreak or
escalation of hostilities or other national or international calamity or
crisis or change in economic conditions or in the financial markets of the
United States or elsewhere that, in your judgment, is material and adverse
and would, in your judgment, make it impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus, (iii) the
suspension or
-22-
<PAGE>
material limitation of trading in securities on the New York Stock Exchange,
the American Stock Exchange or the NASDAQ National Market System or
limitation on prices for securities on any such exchange or NASDAQ National
Market System, (iv) the enactment, publication, decree or other promulgation
of any federal or state statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects, or will materially and adversely affect, the business or operations
of the Company, (v) the declaration of a banking moratorium by either Federal
or New York State authorities or (vi) the taking of any action by any
Federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or the Additional Shares, as the case may be, which it or they
have agreed to purchase hereunder on such date and the aggregate number of
Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm
Shares set forth opposite its name in SCHEDULE I bears to the total number of
Firm Shares which all the non-defaulting Underwriters, as the case may be,
have agreed to purchase, or in such other proportion as you may specify, to
purchase the Firm Shares or the Additional Shares, as the case may be, which
such defaulting Underwriter or Underwriters, as the case may be, agreed but
failed or refused to purchase on such date; PROVIDED, that in no event shall
the number of Firm Shares or Additional Shares, as the case may be, which any
Underwriter has agreed to purchase pursuant to SECTION 2 hereof be increased
pursuant to this SECTION 9 by an amount in excess of one-ninth of such number
of Firm Shares or Additional Shares, as the case may be, without the written
consent of such Underwriter. If on the Closing Date or on an Option Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or
refuse to purchase Firm Shares or Additional Shares, as the case may be, and
the aggregate number of Firm Shares or Additional Shares, as the case may be,
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date by all Underwriters
and arrangements satisfactory to you and the Company for purchase of such
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
on the part of the Company and the Selling Securityholder. In any such case
which does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Date or the applicable
Option Closing Date, as the case may be, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
10. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company or the
Majority Shareholder, to NetRadio Corporation, with copies to Lindquist &
Vennum P.L.L.P., 4200 IDS Center, Minneapolis, Minnesota 55402, attention:
Thomas G. Lovett, and (b) if to any Underwriter or to you, to EVEREN
Securities, Inc., 77 West Wacker Drive, 31st Floor, Chicago, Illinois 60601,
attention:
-23-
<PAGE>
Kameron K. Rabenou, with copies to Katten Muchin & Zavis, 525 West Monroe
Street, Chicago, Illinois 60661-3693, attention: Lawrence D. Levin, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Majority Shareholder,
their respective executive officers and directors and of the Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in
full force and effect, and will survive delivery of and payment for the
Shares, regardless of (i) any investigation, or statement as to the results
thereof, made by or on behalf of any of the Underwriters or by or on behalf
of the Company or the Majority Shareholder, the executive officers or
directors of the Company or the Majority Shareholder or any controlling
person of the Company or the Majority Shareholder, (ii) acceptance of the
Shares and payment for them hereunder or (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company or the Majority Shareholder
to comply with the terms or to fulfill any of the conditions of this
Agreement, the Company and the Majority Shareholder agree to reimburse the
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Majority
Shareholder, the Underwriters, any controlling persons referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or
by virtue of this Agreement. The term "successors and assigns" shall not
include a purchaser of any of the Shares from the Underwriters merely because
of such purchase.
For purposes of this Agreement, the term "knowledge" means, with
respect to a person, knowledge that is possessed, or should have been
possessed after due inquiry, by such person.
This Agreement shall be governed and construed in accordance with the
internal laws (and not the laws pertaining to conflicts of laws) of the State
of Illinois.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Majority Shareholder and the Underwriters.
Very truly yours,
NETRADIO CORPORATION
By:
------------------------------------
Title:
---------------------------------
NAVARRE CORPORATION
By:
------------------------------------
Title:
---------------------------------
EVEREN SECURITIES, INC.
LEGG MASON WOOD WALKER, INCORPORATED
Acting severally on behalf of
themselves and the several
Underwriters named in Schedule I
hereto
By: EVEREN SECURITIES, INC.
By:
---------------------
Title:
---------------------
-25-
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
- ------------------------------------------------------------------------
<S> <C>
EVEREN Securities, Inc. . . . . . . . . . . . . . . . . . . .
Legg Mason Wood Walker, Incorporated . . . . . . . . . . . . .
---------
TOTAL 3,333,000
=========
</TABLE>
-26-
<PAGE>
SCHEDULE II
EMPLOYEE BENEFIT PLANS
-27-
<PAGE>
Exhibit 1.2
NETRADIO CORPORATION
AND
EVEREN SECURITIES, INC.
---------------
WARRANT AGREEMENT
Dated as of , 1999
<PAGE>
WARRANT AGREEMENT, dated as of ____________, 1999, between NETRADIO
CORPORATION, a Minnesota corporation (the "Company"), and EVEREN SECURITIES,
INC., a Delaware corporation ("EVEREN").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to EVEREN warrants (each, a
"Warrant") to purchase up to an aggregate of 191,648 shares of Common Stock (as
defined in Section 8.3 hereof);
WHEREAS, pursuant to that certain Underwriting Agreement (the
"Underwriting Agreement"), dated as of the date hereof, among EVEREN and Legg
Mason Wood Walker, Incorporated (the "Representatives"), as representatives of
the several Underwriters (as such term is defined in the Underwriting
Agreement), Navarre Corporation, a Minnesota corporation, and the Company, the
Representatives and the other Underwriters have agreed to purchase 3,333,000
shares of common stock, no par value per share, of the Company, at a public
offering price of $____ per share in connection with the Company's proposed
public offering (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to EVEREN in consideration for, and as part of
EVEREN's compensation in connection with its service as financial advisor to the
Company.
NOW, THEREFORE, in consideration of the premises, the payment by EVEREN to
the Company of an aggregate of one hundred dollars ($100.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT. EVEREN is hereby granted the right to purchase, at any time
from __________, 2000 [ONE YEAR FROM THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT] until 4:30 p.m., Chicago time, on _________, 2004 [FIVE YEARS FROM
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT] (the "Exercise Period"), up
to an aggregate of 191,648 shares of Common Stock (the "Shares") at an initial
exercise price (subject to adjustment as provided in Section 8 hereof) of $____
[120% OF THE INITIAL PUBLIC OFFERING PRICE PER SHARE] per share of Common Stock
subject to the terms and conditions of this Agreement. Except as set forth
herein, the Shares issuable upon exercise of the Warrants are in all respects
identical to the shares of Common Stock being purchased by the Underwriters for
resale to the public pursuant to the terms and provisions of the Underwriting
Agreement.
2. WARRANT CERTIFICATES. The warrant certificate(s) (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth on Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
<PAGE>
3. EXERCISE OF WARRANTS.
3.1 METHOD OF EXERCISE. The Warrants initially are exercisable at
an aggregate initial exercise price per share of Common Stock set forth in
Section 6 hereof (subject to adjustment as provided in Section 8 hereof) payable
by wire or certified or official bank check in New York Clearing House funds.
Upon surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Purchase Price (as
hereinafter defined) for the shares of Common Stock purchased at the Company's
principal offices in Minnesota (presently located at Riverplace Exposition Hall,
43 Main Street Southeast, Suite 149, Minneapolis, Minnesota 55414) the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part for all or
part of the shares of Common Stock represented thereby (but not as to fractional
shares of the Common Stock underlying the Warrant). In the case of the purchase
of less than all the shares of Common Stock purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
3.2. EXERCISE BY SURRENDER OF WARRANTS. In addition to the method
of payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in whole or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of shares of Common Stock equal to (x) the number of shares as to
which such Warrants are being exercised MULTIPLIED BY (y) a fraction, the
numerator of which is the Market Price (as defined below) of the Common Stock
less the Exercise Price and the denominator of which is such Market Price. The
term "Market Price" as used herein shall mean, with respect to shares of Common
Stock, the average of the closing prices of such sale on all recognized
securities exchanges on which the Common Stock may at the time be listed, or, if
there has been no sale on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not listed, the average of the
representative bid and asked prices quoted in the Nasdaq Stock Market as of 4:00
p.m., New York time, or, if on any day the Common Stock is not quoted in the
Nasdaq Stock Market, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged on a weighted basis over a period of twenty-one (21) days
consisting of the day as of which "Market Price" is being determined and the
twenty (20) consecutive trading days prior to such day. Solely for the purposes
of this paragraph, Market Price shall be calculated either (i) on the date which
the form of election attached hereto is deemed to have been sent to the Company
pursuant to Section 13 hereof ("Notice Date") or (ii) as the average of the
Market Prices for each of the five (5) consecutive trading days preceding the
Notice Date, whichever of (i) or (ii) is greater.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of a Warrant, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrant, shall be made forthwith (and in
any event within three (3) business days thereafter)
2
<PAGE>
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; PROVIDED,
HOWEVER, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder, and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon the exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof, and that the Warrants will not be sold, offered for sale, transferred,
assigned or hypothecated for a period of one (1) year from the date of this
Agreement other than to officers, employees or partners of EVEREN, in which
case, such officers, employees or partners shall be entitled to receive a
replacement Warrant Certificate in accordance with Section 9 hereof upon
presentment of a properly executed Form of Assignment (in the form included on
Exhibit A attached hereto).
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in Section 8 hereof, the initial exercise price of the Warrants shall
be $____ [120% OF THE INITIAL PUBLIC OFFERING PRICE] per share of Common Stock.
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" as used herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrants, the
Shares and any of the other securities issuable upon exercise of the Warrants
have not been registered under the Securities Act of 1933, as amended (the
"Act"). Upon exercise of the Warrants, in whole or in part, the certificates
representing the Shares underlying the Warrants and any of the
3
<PAGE>
other securities issuable upon exercise of the Warrants (collectively, the
"Warrant Shares") shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws, and may not be offered
or sold except pursuant to (i) an effective registration
statement under the Act and registration under applicable
state securities laws, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under the Act relating to
the disposition of securities) and any similar exemption under
state securities laws, or (iii) another available exemption
from registration under the Act and applicable state securities
laws.
7.2 PIGGYBACK REGISTRATION. If, at any time commencing after the
date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than in connection with a
merger or pursuant to Form S-8 or a successor form) it will give written notice
by delivery in person, registered or certified mail (postage prepaid, return
receipt requested), telex, telecopier or overnight air courier guaranteeing next
day delivery, at least thirty (30) days prior to the filing of each such
registration statement, to EVEREN and to all other Holders of the Warrants
and/or the Warrant Shares (the "Registrable Securities") of its intention to do
so. If EVEREN or other Holders of the Warrants and/or Warrant Shares notify the
Company within twenty (20) days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford EVEREN and such Holders of the Warrants and/or Warrant
Shares the opportunity to have any such Warrant Shares registered under such
registration statement; PROVIDED HOWEVER, that if EVEREN and such Holders shall
be the only persons exercising such rights to have securities registered under
such registration statement, then the Company shall not be obligated to comply
with the registration request unless it receives such notice from Holders
(including EVEREN) of fifty percent (50%) or more of the Warrants and/or Warrant
Shares.
Notwithstanding the foregoing, if, in the case of an underwritten
offering by the Company, the managing underwriter of such offering shall advise
the Company in writing that, in its opinion, the distribution of the Warrant
Shares requested to be included in the registration concurrently with the
securities being registered by the Company would adversely affect the market
price of such securities by the Company, then the offering and sale of such
Warrant Shares shall be delayed for such period, not to exceed ninety (90) days,
as such managing underwriter shall request. In the event of a delay as provided
in the preceding sentence, the Company shall file such supplements and
post-effective amendments, and take any such other steps as may be necessary, to
permit the proposed offering and sale of such Shares for a period of ninety (90)
days immediately following the end of such period of delay.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not
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to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Shares
representing a Majority (as hereinafter defined) of such securities (assuming
the exercise of the Warrants in full) not previously sold pursuant to this
Section 7 shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, a registration statement and
such other documents, including a prospectus, as may be necessary in the opinion
of both counsel for the Company and counsel for EVEREN and the Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Shares for six (6) consecutive months by such
Holders and any other Holders of the Warrants and/or Warrant Shares who notify
the Company within twenty (20) days after receiving notice from the Company of
such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Shares within five (5)
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of the Warrants and/or
the Warrant Shares shall have the right, exercisable by written request to the
Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement so as to permit a public offering and sale
for six (6) consecutive months by any such Holder of its Warrant Shares;
PROVIDED, HOWEVER, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
(d) No right of the Holders under this Section 7.3 shall be
deemed to have been exercised if with respect to such right:
(i) the requisite notice given by Holders pursuant to this
Section 7.3 is withdrawn prior to the date of filing of a registration
statement or if a registration statement filed by the Company under the
Act pursuant to this Section 7.3 is withdrawn prior to its effective
date, in either case, by written notice to the Company from the Holders
of fifty percent (50%) or more of the Warrants and/or Warrant Shares to
be included or which are included in such registration statement
stating that such Holders have elected not to proceed with the offering
contemplated by such registration statement because (i) a development
in the Company's affairs has occurred or has become known to such
Holders subsequent to the date of the notice by the Holders to the
Company requesting registration of
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the Warrant Shares of the filing of such registration statement which,
in the judgment of such Holders or the managing underwriter of the
proposed public offering, adversely affects the market price of such
Warrant Shares or (ii) a registration statement filed by the Company
pursuant to this Section 7.3, in the reasonable opinion of counsel for
such Holders or the managing underwriter of the proposed public
offering, contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances under which made (other than any such statement or
omission relating to such Holders and based on information supplied or
failed to be supplied by such Holders) and the Company has not,
promptly after written notice thereof, corrected such statement or
omission in an amendment filed to such registration statement pursuant
to Section 7.4(m); or
(ii) a registration statement pursuant to this Section 7.3
shall have become effective under the Securities Act and (i) the underwriters
shall not purchase any Warrant Shares because of a failure of condition
contained in the underwriting agreement (other than a condition to be performed
by or within the control of the Holders) relating to the offering covered by
such registration statement or (ii) less than eighty-five percent (85%) of the
Warrant Shares included therein shall have been sold as a result of any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Shares such number of prospectuses as shall reasonably
be requested.
Notwithstanding the foregoing, the Company shall be entitled to
postpone, for a period of not more than sixty (60) days after receipt of a
request to effect a registration, the filing of any registration statement
otherwise required to be prepared and filed by it pursuant to Section 7.3 hereof
if, at any time it receives a request for registration, the Board of Directors
of the Company determines in its reasonable business judgment that such
registration and offering would interfere with any material financing,
acquisition, corporate reorganization or other material transaction or
development involving the Company and promptly gives the Holders demanding
registration written notice of such determination; PROVIDED that (i) upon such
postponement by the Company, the Company shall be required to file such
registration statement as soon as practicable after the Board of Directors of
the Company shall determine, in its reasonable business judgment, that such
registration and offering will not interfere with the aforesaid material
financing, acquisition, corporate reorganization or other material transaction
or development involving the Company, (ii) the Company may utilize this right
once each year; PROVIDED, HOWEVER, that the Company shall not utilize this right
more than one time unless, prior to utilizing such right, the
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Company delivers to the Holders an opinion of counsel to the Company,
satisfactory to the Holders, to the effect that such postponement by the
Company is necessary to avoid interference with a material financing,
acquisition, corporate reorganization or other material transaction or
development involving the Company, (iii) the Holders who made such written
request to effect such registration, may, at any time in writing, withdraw
such request for such registration and therefore preserve the right provided
in Section 7.3 hereof for such Holders to again request such registration,
and (iv) the Exercise Period shall automatically be extended by an additional
one hundred and eighty (180) days.
(b) The Company shall pay all costs (including fees and
expenses of one counsel to the Holder(s), but not underwriting or selling
commissions), fees and expenses in connection with all registration statements
filed pursuant to Sections 7.2 and 7.3(a) hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, blue sky fees and
expenses. The Holder(s) will pay all costs, fees and reasonable expenses in
connection with any registration statement filed pursuant to Section 7.3(c).
If the Company shall fail to comply with the provisions of Section 7.4(a), the
Company shall, in addition to any other equitable or other relief available to
the Holder(s), extend the Exercise Period by such number of days as shall equal
the delay caused by the Company's failure, and be liable for any or all damages
as the Holder(s) may be entitled to as a matter of law.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as the Holder(s) shall designate; PROVIDED that the Company
shall not be obligated to qualify to do business in any such jurisdiction or to
file any general consent to service of process in any jurisdiction in any action
other than one arising out of the offering or the sale of the Warrant Shares.
(d) Nothing contained in this Agreement shall be construed as
requiring a Holder to exercise the Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(e) Except for the shares of Common Stock held by ValueVision
International, Inc. that the Company may be required to register, the Company
shall not permit the inclusion of any securities other than the Warrant Shares
to be included in any registration statement filed pursuant to Section 7.3
hereof, or file any registration statement subsequent to the receipt of any
notice pursuant to Section 7.3 hereof and until one hundred and eighty (180)
days after the effectiveness of a registration statement filed pursuant to
Section 7.3 hereof or permit any other registration statement to be or remain
effective during the effectiveness of a registration statement filed pursuant to
Section 7.3 hereof; PROVIDED, HOWEVER, that in the event of an underwritten
public offering, the Company shall have the right to permit the inclusion of
such other securities if the managing underwriter of such offering advises the
Company or the Holders in writing that, in its opinion, the inclusion of such
securities other than the Warrant Shares in such registration statement will not
adversely affect the distribution or the offering price of such Warrant Shares.
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(f) In connection with any registration statement filed
pursuant to Section 7.2 hereof, the Company shall furnish to each Holder
participating in any underwritten offering and to each underwriter, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement), signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(g) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within fifteen
(15) months thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Act and covering a period of
at least twelve (12) consecutive months beginning after the effective date of
the registration statement.
(h) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below, and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(i) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders holding
a Majority of the Warrant Shares requested to be included in such underwriting,
which may be any of the Underwriters. Such agreement shall be reasonably
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their Warrant
Shares and may, at their option, require that any or all the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
Holders shall not be required to make any representations or warranties to or
agreements
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with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(j) For purposes of this Agreement, the term "Majority," in
reference to the Holders of the Warrants or Warrant Shares, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Shares that
(i) are not held by the Company, an officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith or (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
(k) The Company shall promptly notify each Holder of the
Warrants and/or Warrant Shares covered by such registration statement, at any
time when a prospectus relating thereto is required to be delivered under the
Act, upon the Company's discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and at the request of any such Holder promptly prepare and furnish to such
Holder and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made.
7.5 INDEMNIFICATION.
(a) In the event of the filing of any registration statement
with respect to the Shares pursuant to this Section 7, the Company agrees to
indemnify and hold harmless EVEREN and all other Holders of Warrants and/or the
Warrant Shares and each person, if any, who controls such Holder within the
meaning of the Act (each, an "EVEREN Indemnified parties"), against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees), to which any EVEREN
Indemnified Party may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement, or any related
preliminary prospectus, final prospectus, or amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
preliminary prospectus, final prospectus or amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to the
Company by such EVEREN Indemnified Party specifically for use in the preparation
thereof. This indemnity will be in addition to any liability which the Company
may otherwise have.
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(b) EVEREN and all other Holders of Warrants and/or the Warrant
Shares agree that they will indemnify and hold harmless the Company, each other
person referred to in subparts (1), (2) and (3) of Section 11(a) of the Act in
respect of the registration statement and each person, if any, who controls the
Company within the meaning of the Act (each, a "Company Indemnified Party"),
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which such Company Indemnified
Parties may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, or any related preliminary
prospectus, final prospectus or amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by EVEREN specifically for use in
the preparation thereof. This indemnity agreement will be in addition to any
liability which EVEREN and all other Holders of the Warrant and/or the Warrant
Shares may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim with respect thereof is to be made against any indemnifying
party under this Section 7, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise then under this Section 7. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 7 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso in the preceding sentence (it
being understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with appropriate local
counsel) approved by the indemnifying party representing all the indemnified
parties under Section 7.5(a) or 7.5(b) hereof who are parties to such action),
(ii) the indemnifying party shall
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not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved the
terms of such settlement; provided that such consent shall not be unreasonably
withheld. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnification could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from liability on claims that are the subject matter of such proceeding.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES.
8.1 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall be decreased, in the case of subdivision, or increased, in the case
of combination, in the same proportions as the Common Stock is subdivided or
combined, in each case effective automatically upon, and simultaneously with,
the effectiveness of the subdivision or combination which gives rise to the
adjustment.
8.2 ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Shares issuable upon the exercise of the Warrants shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.3 DEFINITION OF COMMON STOCK. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Articles of Incorporation of the Company as may be amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares of Common
Stock outstanding as of the date hereof, the Holder, at its option, may receive
upon exercise of the Warrants either shares of Common Stock or a like number of
such securities with greater or superior voting rights.
8.4 MERGER OR CONSOLIDATION. (a) In case the Company after the date
hereof (i) shall consolidate with or merge into any other person and shall not
be the continuing or surviving corporation of such consolidation or merger, or
(ii) shall permit any other person to consolidate with or merge into the Company
and the Company shall be the continuing or surviving person but, in connection
with such consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other person or cash or any other
property, or (iii) shall transfer all or substantially all of its properties or
assets to any other person, or (iv) shall effect a capital reorganization or
reclassification of the Common Stock (other than a capital
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reorganization or reclassification resulting in the issue of additional shares
of Common Stock for which adjustment in the Exercise Price is provided in
Section 8), then, and in the case of each such transaction, proper provision
shall be made so that, upon the basis and the terms and in the manner provided
in this Agreement and the Warrants, the Holders of the Warrants, upon the
exercise thereof at any time after the consummation of such transaction, shall
be entitled to receive (at the aggregate Exercise Price in effect at the time
of such consummation for all Common Stock issuable upon such exercise
immediately prior to such consummation), in lieu of the Common Stock or other
securities issuable upon such exercise prior to such consummation, the highest
amount of securities, cash or other property to which such Holders would
actually have been entitled as stockholders upon such consummation if such
Holders had exercised the rights represented by the Warrants immediately prior
thereto, subject to adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for in Section 8; PROVIDED
that if a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than fifty percent (50%) of the outstanding
shares of Common Stock, and if a Holder of the Warrants so designates in a
notice given to the Company on or before the date immediately preceding the
date of the consummation of such transaction, such Holder of the Warrants shall
be entitled to receive the highest amount of securities, cash or other property
to which such Holder would actually have been entitled as a stockholder if such
Holder of the Warrants had exercised the Warrants prior to the expiration of
such purchase, tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender or
exchange offer) as nearly equivalent as possible to the adjustments provided
for in Section 8.
8.5 ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained
in the Warrants to the contrary, the Company will not effect any of the
transactions described in clauses (i) through (iv) of Section 8.4 unless, prior
to the consummation thereof, each person (other than the Company) which may be
required to deliver any stock, securities, cash or property upon the exercise of
the Warrants as provided herein shall assume, by written instrument delivered
to, and reasonably satisfactory to, the Holders of the Warrants, (a) the
obligations of the Company under this Agreement and the Warrants (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Agreement and the Warrants) and (b) the
obligation to deliver to such Holders such shares of stock, securities, cash or
property as, in accordance with the foregoing provisions of this Section 8, such
Holders may be entitled to receive, and such person shall have similarly
delivered to such Holders an opinion of counsel for such person, which counsel
shall be reasonably satisfactory to such Holders, stating that this Agreement
and the Warrants shall thereafter continue in full force and effect and the
terms hereof (including, without limitation, all of the provisions of this
Section 8) shall be applicable to the stock, securities, cash or property which
such person may be required to deliver upon any exercise of the Warrants or the
exercise of any rights pursuant hereto.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company
shall at any time prior to the exercise in full of the Warrants declare a
dividend or otherwise distribute to its stockholders any assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another, or any other thing of
value, the Holders of the unexercised portion of the Warrants shall thereafter
be entitled, in
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addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of the
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Warrants had
been exercised immediately prior to such dividend or distribution. At the time
of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Section 8.6.
8.7 OTHER DILUTIVE EVENTS. In case any event shall occur as to
which the purchase rights represented by the Warrants shall be diluted, then,
in each such case, the Exercise Price and/or the amount of any Common Stock,
cash, securities or other assets to be delivered upon exercise of the Warrants
shall be adjusted on a weighted-average basis, consistent with preserving,
without dilution, the purchase rights represented by the Warrants.
8.8 NOTICE OF ADJUSTMENT EVENTS. Whenever the Company contemplates
the occurrence of an event which would give rise to adjustments under this
Section 8, the Company shall mail to EVEREN (or its designee) on behalf of each
Holder, at least thirty (30) days prior to the record date with respect to such
event or, if no record date shall be established, at least thirty (30) days
prior to such event, a notice specifying (i) the nature of the contemplated
event, (ii) the date of which any such record is to be taken for the purpose of
such event, (iii) the date on which such event is expected to become effective
and (iv) the time, if any is to be fixed, when the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable in connection with such event.
8.9 NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the kind
of securities or property issuable upon exercise of the Warrants, or both,
shall be adjusted pursuant to this Section 8, the Company shall make a
certificate signed by its President or a Vice President and by its Chief
Financial officer, Secretary or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method of which such adjustment was calculated (including a
description of the basis on which the Company made any determination
hereunder), and the Exercise Price and the kind of securities or property
issuable upon exercise of the Warrants after giving effect to such adjustment,
and shall cause copies of such certificate to be mailed (by first class mail
postage prepaid) to each Holder promptly after each adjustment.
8.10 PRESERVATION OF RIGHTS. The Company will not, by amendment of
its Articles of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Agreement or the Warrants or the rights
represented thereby, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may be necessary
or appropriate in order to protect the rights of the Holders of the Warrants
against dilution or other impairment.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing
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in the aggregate the right to purchase the same number of Warrant Shares in
such denominations as shall be designated by the Holder thereof at the time
of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificates, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up
to the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
shares of Common Stock and other securities issuable upon such exercise shall
be duly and validly issued, fully paid, nonassessable and not subject to the
preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed on all
securities exchanges and/or included in the automated quotation system of the
Nasdaq National Market System (subject to official notice of issuance) with
respect to which the Common Stock issued to the public in connection herewith
may then be so listed and/or quoted.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise in full, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution payable; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
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(c) a voluntary or involuntary dissolution, liquidation or
winding-up of the Company (other than in connection with a consolidation or
merger) or any capital reorganization, recapitalization or reclassification or
a sale of all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company will mail to each Holder
of the Warrants a notice specifying (i) the date or expected date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right,
and (ii) the date or expected date on which any such reorganization,
reclassification, recapitalization, consolidation, merger, sale, dissolution,
liquidation or winding-up is to take place and the time, if any such time is to
be fixed, as of which the holders of record of Common Stock shall be entitled
to exchange their shares of Common Stock for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding-up. Such
notice shall be mailed at least thirty (30) days prior to the date therein
specified.
13. NOTICES.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly given or made at the time
delivered by hand if personally delivered; five calendar days after mailing if
sent by registered or certified mail; when answered back, if telexed; when
receipt is acknowledged, if telecopied; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee):
(a) If to the registered Holders of the Warrants, to the address of
such Holders as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and EVEREN may from time to
time supplement or amend this Agreement without the approval of any holders of
Warrant Certificates (other than EVEREN) in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and EVEREN
may deem necessary or desirable and which the Company and EVEREN deem shall not
adversely affect the interests of the Holders of Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of business
on ____________, 2004, provided, however, that the indemnification provisions
in Section 7 hereof shall
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survive such termination until such time for filing an action for which
indemnification is provided under Section 7 has expired under the applicable
statute of limitation.
17. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of the state of Illinois and for all purposes shall be construed
in accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
Any process or summons to be served upon any of the Company, EVEREN and
the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, EVEREN and the Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to
the subject matter hereof and may not be modified or amended except by a
writing duly signed by the party against whom enforcement of the modification
or amendment is sought.
19. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended to be, nor should they
be construed as, part of this agreement and shall be given no substantive
effect.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company and EVEREN
and any other registered Holder(s) of the Warrant Certificates or Warrant
Shares any legal or equitable right, remedy or claim under this Agreement; and
this Agreement shall be for the sole and exclusive benefit of the Company,
EVEREN and any other registered Holder(s) of the Warrant Certificates or
Warrant Shares.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
NETRADIO CORPORATION
By: ________________________________
EVEREN SECURITIES, INC.
By: ________________________________
Its: ________________________________
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WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH
THE DISTRIBUTIONS HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES) AND ANY SIMILAR EXEMPTION UNDER STATE
SECURITIES LAWS, OR (III) ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO
THE TERMS AND PROVISIONS OF A WARRANT AGREEMENT DATED AS OF APRIL __, 1999
BETWEEN NETRADIO CORPORATION (THE "COMPANY") AND EVEREN SECURITIES, INC.
("EVEREN") (AS SUCH AGREEMENT MAY BE SUPPLEMENTED, MODIFIED, AMENDED OR
RESTATED FROM TIME TO TIME, THE "WARRANT AGREEMENT").
__________ Shares Warrant No. _____
of the Company
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
NETRADIO CORPORATION
This is to certify that, in consideration of ten dollars ($10.00) and
other good and valuable consideration, which is hereby acknowledged as
received, ____________________, its successors and registered assigns, is
entitled at any time during the Exercise Period (as defined in the Warrant
Agreement) to exercise this Warrant to purchase __________ shares of common
stock, no par value per share, of NetRadio Corporation, a Minnesota corporation
(the "Company"), as the same shall be adjusted from time to time pursuant to
the provisions of the Warrant Agreement at a price per unit as specified in the
Warrant Agreement and to exercise the other rights, powers, and privileges
hereinafter provided, all on the terms and subject to the conditions specified
in this Warrant and in the Warrant Agreement.
This Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in the Warrant Agreement, to all
terms and provisions of which the registered holder of this Warrant, by
acceptance of this Warrant, assents. Reference is hereby made to the Warrant
Agreement for a more complete statement of the rights and limitations of
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rights of the registered holder of this Warrant and the rights and duties of
the Company under this Warrant. Copies of the Agreement are on file at the
office of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of May ___, 1999.
NETRADIO CORPORATION
By: _____________________________
Its: _____________________________
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<PAGE>
Exhibit 3.3
AMENDED AND RESTATED BYLAWS
OF
NETRADIO CORPORATION
ARTICLE I.
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of NetRadio
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. The principal executive office of the Corporation shall be located at
43 Main Street Southeast, Suite 149, Minneapolis, MN 55414.
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, except that a regular or special
meeting called by or at the demand of a shareholder shall be held in the county
where the principal executive office of the Corporation is located.
<PAGE>
SECTION 2. REGULAR MEETINGS. The regular meeting of the shareholders
shall be held on an annual or other less frequent basis as shall be determined
by the Board of Directors or by the chief executive officer. At the regular
meeting, the 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. No meeting shall be considered a regular meeting unless
specifically designated as such in the notice of meeting or unless all the
shareholders entitled to vote are present in person or by proxy and none of them
objects to such designation.
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 Chairman of the Board, chief
executive officer, chief financial officer or any two or more directors.
SECTION 4. MEETINGS HELD UPON SHAREHOLDER DEMAND. Regular or special
meetings may be demanded by a shareholder or shareholders pursuant to the
provisions of Minnesota Statutes, Sections 302A.431, Subd. 2 and 302A.433, Subd.
2, or any successor provisions.
SECTION 5. 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
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of the meeting were announced at the time of adjournment, or except as otherwise
permitted by statute. This notice shall be mailed at least ten (10) days prior
thereto and no earlier 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.
SECTION 6. 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 7. 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. If a quorum is not
present, a meeting may be adjourned from time to time without notice other than
announcement at the meeting, until the requisite number of shares entitled to
vote shall be represented. At such adjourned meetings, 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 continue to transact business until adjournment,
even though the withdrawal of a number of shareholders originally present leaves
less than a quorum.
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SECTION 8. 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 duly appointed by an instrument in writing subscribed to by such
shareholder, but no proxy shall be valid after eleven (11) months unless a
longer period is expressly provided for in the appointment. Each shareholder,
unless provided otherwise by the terms of the shares, 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. Directors shall be elected by a plurality of the
votes cast by holders of shares entitled to vote thereon.
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. PROPERLY BROUGHT BUSINESS. At the regular meeting, the
shareholders shall elect directors of the Corporation and shall transact such
other business as may properly come before them. To be properly brought before
the meeting, business must be of a nature that is appropriate for consideration
at a regular meeting and must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly
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brought before the meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the meeting by a shareholder. In
addition to any other applicable requirements, for business to be properly
brought before the regular meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the secretary of the Corporation. To
be timely, each such notice must be given, either by personal delivery or by
United States mail, postage prepaid, to the secretary of the Corporation, not
less than sixty (60) days nor more than ninety (90) days prior to a meeting date
corresponding to the previous year's regular meeting. Each such notice to the
secretary shall set forth as to each matter the shareholder proposes to bring
before the regular meeting (a) a brief description of the business desired to be
brought before the regular meeting and the reasons for conducting such business
at the regular meeting, (b) the name and address of record of the shareholders
proposing such business, (c) the class or series (if any) and number of shares
of the corporation which are owned by the shareholder, and (d) any material
interest of the shareholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be transacted at the regular meeting
except in accordance with the procedures set forth in this Article; provided,
however, that nothing in this Article shall be deemed to preclude discussion by
any shareholder of any business properly brought before the regular meeting, in
accordance with these Bylaws. The amendment or repeal of this section or the
adoption of any provision inconsistent therewith shall require the approval of
the holders of shares representing at least 70% of the outstanding shares of the
common stock.
SECTION 11. 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
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<PAGE>
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 shareholders, the record date shall be the sixtieth (60th) day preceding
the date of such meeting.
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 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, QUALIFICATION AND TERM OF OFFICE. The Board of
Directors consists of not less than 3 or more than 9 directors, as may be
designated by the Board of Directors from time to time. The directors shall
be divided into three (3) classes, as nearly equal in number as the then total
number of directors constituting the whole Board permits, with the term of
office of one class expiring each year at the regular meeting of shareholders.
Each director shall be elected by the shareholders to hold office for a term of
three consecutive years. Each director shall serve until a successor shall have
been duly elected and qualified, unless the director shall retire, resign, die
or be removed.
SECTION 3. TRANSITIONAL BOARD. Upon the adoption of these Amended
and Restated Bylaws, one class of directors shall hold office for a term
expiring at the regular meeting of shareholders to be held in 2000, another
class shall hold office for a term expiring at the regular meeting of
shareholders to be held in 2001 and another class shall hold office for a
term expiring at the regular meeting of shareholders to be held in 2002.
6
<PAGE>
SECTION 4. BOARD MEETINGS; PLACE; NOTICE. 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.
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. The notice need not state the purpose
of the meeting. In the absence of designation by the Board of Directors, Board
meetings shall be held at the principal executive office of the corporation,
except as may be otherwise unanimously agreed orally, or in writing, or by
attendance. If a meeting schedule is adopted by the Board, or if the date and
time of a Board meeting has been announced at a previous meeting, no notice is
required.
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 AND VOTING. 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. Except as otherwise required by law or the Articles of
Incorporation, the acts of a majority of the directors present at a meeting at
which a quorum is present shall be the acts of the Board of Directors.
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
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<PAGE>
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.
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. The provisions of this section
shall apply to committees and members of committees to the same extent as they
apply to the Board and directors.
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.
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<PAGE>
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, 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.
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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, or any committee, may be taken by
written action signed by all of the directors, or all members of the committee,
unless less than unanimous action is permitted by the Articles of Incorporation,
in which 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, or committee members,
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. NOMINATION FOR ELECTION. Subject to the rights of holders
of any class or series of stock having a preference over the common shares as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or a committee appointed by the Board of
Directors or by any shareholder entitled to vote generally in the election of
directors. However, any shareholder entitled to vote generally in the election
of directors may nominate one or more persons for election as directors at a
meeting only if written notice of such shareholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United
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States mail, postage prepaid, to the secretary of the Corporation not less than
sixty (60) days nor more than ninety (90) days prior to a meeting date
corresponding to the previous year's regular meeting. Each such notice to the
Secretary shall set forth: (i) the name and address of record of the shareholder
who intends to make the nomination; (ii) a representation that the shareholder
is a holder of record of shares of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (iii) the name, age, business and
residence addresses, and principal occupation or employment of each nominee;
(iv) a description of all arrangements or understandings between the shareholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (v) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (vi)
the consent of each nominee to serve as a director of the Corporation if so
elected. The Corporation may require any proposed nominee to furnish such other
information as may reasonable be required by the corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
The presiding officer of the meeting may, if the facts warrant, determine that a
nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. The amendment or repeal of this section or the
adoption of any provision inconsistent therewith shall require the approval of
the holders of shares representing at least seventy percent (70%) of the
outstanding shares of the common stock.
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SECTION 14. 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 15. 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.
12
<PAGE>
ARTICLE IV.
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be chosen by
the Board of Directors and shall include a chief executive officer and a chief
financial officer. The Board of Directors may also choose a Chairman of the
Board, a President, Secretary, Treasurer, 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, 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 unless otherwise determined by the Board.
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 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.
13
<PAGE>
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 exercise general supervision and director over the more significant mattes
of policy affecting the affairs of the Corporation, including particularly, its
financial and fiscal affairs.
SECTION 5. PRESIDENT. Unless otherwise determined by the Board, 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 carry out the duties of the Chairman of the Board. He/She shall
see that all orders and resolutions of the Board of Directors are carried into
effect. 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
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
14
<PAGE>
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. Unless otherwise determined by the Board, the
Treasurer shall be the chief financial officer of the Corporation and shall keep
accurate financial records for the Corporation. 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, 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.
SECTION 12. DELEGATION. Unless prohibited by the Articles of
Incorporation, these Bylaws or a resolution approved by the affirmative vote of
a majority of the directors present, an officer elected or appointed by the
Board may, without the approval of the Board, delegate some or all of the duties
and powers of his office to other persons.
15
<PAGE>
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 and Secretary or any other officer of the Corporation, certifying
the number of shares owned by him/her in the Corporation. Unless otherwise
determined by the Board of Directors, the certificates of stock shall be
numbered (separately for each class) 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, 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,
16
<PAGE>
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 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. TRANSFER OF SHARES. Transfer of shares on the books of the
Corporation may be authorized only by the shareholder named in the certificate
(or his legal representative or duly authorized attorney-in-fact) and upon
surrender for cancellation of the certificate or certificates for such shares.
The shareholder in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
corporation; provided, that when any transfer of shares shall be made as
collateral security and not absolutely, such fact, if known to the
17
<PAGE>
corporation or to the transfer agent, shall be so expressed in the entry of
transfer; and provided, further, that the Board of Directors may establish a
procedure whereby a shareholder may certify that all or a portion of the shares
registered in the name of the shareholder are held for the account of one or
more beneficial owners.
SECTION 6. SHARE REGISTER. As used in these Bylaws, the term
"shareholder" shall mean the person, firm or corporation in whose name
outstanding shares of capital stock of the Corporation are currently registered
on the stock record books of the Corporation. The Corporation shall keep, at its
principal executive office or at another place or places within the United
States determined by the Board, 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. The Corporation shall also keep at
its principal executive office or at another place or places within the United
States determined by the Board, a record of the dates on which certificates
representing shares were issued. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled and no new certificate or
certificates shall be issued in exchange for any existing certificate until such
existing certificate shall have been so canceled (except as provided for in
Section 4 of this Article V).
SECTION 7. 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.
18
<PAGE>
ARTICLE VI.
INDEMNIFICATION OF CERTAIN PERSONS
SECTION 1. LIABILITY AND INDEMNIFICATION. No director shall be
personally liable to the Corporation or to its shareholders for monetary damages
for any breach of fiduciary duty as a director, except to the extent such
exemption from liability or limitation thereof is not permitted under the laws
of the State of Minnesota as the same may exist or may hereafter be amended. Any
repeal or modification of the provisions of this Article shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
Any person who at any time shall serve or shall have served as a
director, officer, or employee of the Corporation, or of any other enterprise at
the request of the Corporation, and the heirs, executors and administrators of
such person shall be indemnified by the Corporation in accordance with, and to
the fullest extent permitted by, the provisions of the Minnesota Business
Corporation Act, as it may be amended from time to time.
SECTION 2. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of the Minnesota Business Corporation Act.
19
<PAGE>
ARTICLE VII.
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;
(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
20
<PAGE>
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.
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
21
<PAGE>
(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 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 sixty (60)
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
22
<PAGE>
receive payment of such dividend notwithstanding any transfer of shares on the
books of the Corporation after the record date.
SECTION 3. 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 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed or changed by resolution of the Board of Directors.
SECTION 5. 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.
23
<PAGE>
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
SECTION 1. VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise
ordered by the Board of Directors, the chief executive officer shall have full
power and authority on behalf of the Corporation (i) to attend and to vote at
any meeting of security holders of other companies in which the Corporation may
hold securities; (ii) to execute any proxy for such meeting on behalf of the
Corporation; and (iii) to execute a written action in lieu of a meeting of such
other company on behalf of this Corporation. At such meeting, by such proxy or
by such writing in lieu of meeting, the chief executive officer shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities that the Corporation might have possessed and exercised if it had
been present. The Board of Directors may from time to time confer like powers
upon any other person or persons.
SECTION 2. PURCHASE AND SALE OF SECURITIES. Unless otherwise ordered by
the Board of Directors, the chief executive officer shall have full power and
authority on behalf of the Corporation to purchase, sell, transfer or encumber
securities of any other company owned by the Corporation which represent not
more than 10% of the outstanding securities at such issue, 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.
24
<PAGE>
The undersigned, Donavan W. Pederson, Secretary of NetRadio Corporation
hereby certifies that the foregoing Amended and Restated Bylaws were duly
adopted as the bylaws of the Corporation by the Board of Directors on April 23,
1999.
/s/ Donanvan W. Pederson, Secretary
------------------------------------------
Donanvan W. Pederson, Secretary
Attest:
/s/Edward A. Tomechko
- -----------------------------
Edward A. Tomechko
Chief Executive Officer
25
<PAGE>
COMMON SHARES COMMON SHARES
[LOGO]
SEE REVERSE FOR CERTAIN DEFINITIONS
----------------------------------------
CUSIP 64114E 10 8
----------------------------------------
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, NO PAR VALUE, OF
_____________________________ NETRADIO CORPORATION _____________________________
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTRAR.
WITNESS FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED: SECRETARY PRESIDENT AND CEO
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
(MINNEAPOLIS, MINNESOTA) TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The issuer of securities represented by this certificate will furnish to any
shareholder upon request and without charge, a full statement of the
designations, preferences, limitations and relative rights of the shares of
each class or series authorized to be issued by such issuer, so far as they
have been determined, and the authority of the board of directors of such
issuer to determine the relative rights and preferences of subsequent
classes or series.
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were written
out in full according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- ......... Custodian .........
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
as joint tenants with right
JT TEN -- of
survivorship and not as
tenants Act.................................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received____ hereby sell, assign and transfer unto
<TABLE>
<S> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------------------------------------------------
</TABLE>
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_____________________________________ Shares
of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
____________________________________ Attorney
to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated ______________________
________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED
<PAGE>
[L&V Letterhead]
EXHIBIT 5.1
April , 1999
NetRadio Corporation
Riverplace Exposition Hall
43 Main Street Southeast, Suite 149
Minneapolis, Minnesota 55414
RE: OPINION OF COUNSEL AS TO LEGALITY OF 3,832,950 SHARES OF
COMMON STOCK TO BE REGISTERED UNDER THE SECURITIES ACT OF 1933
Ladies and Gentlemen:
This opinion is furnished in connection with the registration under the
Securities Act of 1933 on Form S-1 of 3,832,950 shares of Common Stock, no par
value per share, of NetRadio Corporation (the "Company"), including 499,950
shares of Common Stock subject to the Underwriters= over-allotment option, which
shares are being sold to the public through an underwriting group headed by
EVEREN Securities, Inc.
As counsel for the Company, we advise you that it is our opinion, based
on our familiarity with the affairs of the Company and upon our examination of
pertinent documents, that the 3,832,950 shares of Common Stock to be offered
will, when paid for and issued, be validly issued and lawfully outstanding,
fully paid and non-assessable shares of Common Stock of the Company.
The undersigned hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an Exhibit to the Registration Statement
with respect to said shares of Common Stock under the Securities Act of 1933.
Very truly yours,
LINDQUIST & VENNUM P.L.L.P.
<PAGE>
EXHIBIT 10.9
WAIVER OF CERTAIN PROVISIONS OF THE STOCK PURCHASE AGREEMENT
DATED AS OF MARCH 7, 1997 BY AND AMONG
VALUEVISION INTERNATIONAL, INC., NAVARRE CORPORATION AND NETRADIO CORPORATION
This waiver is made and executed by the undersigned as of February 26,
1999.
All of the capitalized terms herein shall have the meaning ascribed to
them in the Stock Purchase Agreement by and among ValueVision International,
Inc., NetRadio Corporation and Navarre Corporation dated as of March 7, 1997.
RECITALS
A. ValueVision International, Inc. ("ValueVision"), NetRadio Corporation
("NetRadio") and Navarre Corporation ("Navarre") are parties to that
certain Stock Purchase Agreement dated March 7, 1997 (the "Stock
Purchase Agreement") and ValueVision and Navarre are parties to that
certain Conversion Agreement dated March 20, 1997 (the "Conversion
Agreement");
B. Section 9.15 of the Stock Purchase Agreement provides ValueVision with
certain preemptive rights should NetRadio decide to issue and sell
additional shares of any capital stock, warrants, or securities
convertible into capital stock of NetRadio;
C. Section 5 of the Stock Purchase Agreement provides that, among other
things, if NetRadio achieves net revenues (excluding revenues from
product sales) equal to or greater than $3.0 million in any rolling
consecutive four quarter period, then for 180 days thereafter,
NetRadio has the right to require ValueVision to make an additional
investment of $500,000 in cash for such additional shares of NetRadio
common stock equal to 4.95 percent of the issued and outstanding
shares of NetRadio Common Stock after such issuance, and during such
period ValueVision has the right to purchase 4.95 percent of the
issued and outstanding shares of NetRadio Common Stock for $500,000;
D. In September 1998, the Board of Directors of NetRadio sold a total of
40,000 shares of Common Stock at $1.64 per share to Donavan Pederson,
Jan Anderson, David Witzig and Karen Paulson in a private sale (the
"Private Sale");
E. NetRadio has authorized the issuance of 2,000,000 shares of its Common
Stock pursuant to its Stock Option Plan;
F. Section 12 of the Stock Purchase Agreement provides ValueVision and
Navarre with certain demand registration rights if NetRadio has not
commenced an initial
<PAGE>
public offering of Common Stock in a minimum aggregate amount of
$10 million before on or about March 7, 2000;
G. The Board of Directors and shareholders of NetRadio have engaged
EVEREN Securities, Inc. as Underwriters to undertake an initial public
offering of Common Stock of NetRadio (the "Offering");
H. The Offering may trigger ValueVision's preemptive rights under Section
9.15 of the Stock Purchase Agreement;
I. As of December 31, 1998, NetRadio had 5,922,500 shares of Common Stock
outstanding of which Navarre held 5,000,000 shares and ValueVision
held 882,500 shares. Based on discussion with the Underwriters,
NetRadio believes that the Underwriters propose to sell approximately
3,000,000 shares to the public (before any stock split or reverse
stock split);
J. NetRadio and ValueVision have determined that NetRadio's right to
require ValueVision to acquire additional shares of Common Stock and
ValueVision's right to acquire shares of Common Stock under Section 5
of the Stock Purchase Agreement may impede the Offering;
L. ValueVision, Navarre and NetRadio acknowledge that they will benefit
from an initial public offering of NetRadio securities and the
transactions contemplated thereby;
In consideration of the foregoing recitals, the respective covenants and
agreements contained herein, and for other valuable consideration the receipt
and adequacy of which are hereby acknowledged, ValueVision, Navarre and
NetRadio agree as follows:
1. ValueVision hereby waives, as of the date hereof, all of its
preemptive rights as set forth in Section 9.15 of the Stock Purchase
Agreement to the extent such rights have been triggered by the
Private Sale or the grant of options under the NetRadio Stock Option
Plan through the date hereof.
2. ValueVision hereby waives its preemptive rights as set forth in
Section 9.15 of the Stock Purchase Agreement for any shares of Common
Stock issued to the public through an underwriting syndicate managed
by EVEREN Securities, such waiver to be effective upon the closing
(the "Closing") of the Offering, provided that the Offering will
result in gross proceeds to NetRadio of at least $10,000,000.
3. ValueVision hereby waives its preemptive rights as set forth in
Section 9.15 of the Stock Purchase Agreement to purchase additional
securities of NetRadio in
<PAGE>
connection with all future issuances by NetRadio of equity securities
or rights to purchase equity securities, such waiver to be effective
upon the Closing.
4. Based upon the representation of NetRadio that the Offering is to be
structured in the manner specified in Section H and assuming that the
total number of shares of Common Stock to be sold by NetRadio in the
Offering will not exceed 3,500,000, (before any stock split or reverse
stock split), ValueVision and NetRadio hereby agree that the right of
NetRadio in Section 5 of the Stock Purchase Agreement to require
ValueVision to purchase Common Stock of NetRadio and the right of
ValueVision to require NetRadio to sell Stock to it are terminated
effective as of the Closing.
5. ValueVision has decided not sell in the Offering and is waiving any
rights it has to sell shares in the Offering, as part of the over-
allotment option or otherwise. This waiver does not affect any future
registration rights that ValueVision may have or may receive as part
of this agreement.
6. Immediately prior to the closing, NetRadio agrees to sell to
ValueVision and ValueVision agrees to purchase from NetRadio 550,000
shares of Common Stock of NetRadio for aggregate consideration of
$500,000, with payment to be made for the shares immediately prior
to the Closing. Payment for such shares shall be made in cash. If
the number of shares of Common Stock to be sold by NetRadio in the
Offering exceeds 3,499,999, then the 550,000 shares of Common Stock
to be issued to ValueVision hereunder shall be increased in accordance
with the following formula: If the number of shares sold is 3,500,000
more, then ValueVision shall receive an additional 10,000 shares, plus
an additional 7000 shares for each additional 100,000 shares sold by
NetRadio in the Offering.
7. In connection with the Offering, ValueVision shall have the
registration rights attached as Exhibit A. As soon as practicable
after the execution of this Agreement, NetRadio, Navarre and
ValueVision will work to finalize the registration rights and other
documents anticipated by this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Waiver to be executed
and to be dated as of the date written above.
VALUEVISION INTERNATIONAL, INC., NETRADIO CORPORATION,
a Minnesota corporation a Minnesota corporation
By: /s/ David T. Quimby By: /s/ Edward A. Tomechko
---------------------------------- -------------------------------
Its: Vice President & General Counsel Its: President & C.E.O.
---------------------------------- -------------------------------
NAVARRE CORPORATION,
a Minnesota corporation
By: /s/ Charles E. Cheney
----------------------------------
Its: C.F.O.
----------------------------------
<PAGE>
Exhibit A
1. Demand right for the 550,00 shares 12 months after closing.
2. Demand right for all remaining shares of ValueVision 24 month after
closing.
3. Piggyback rights subject to reasonable underwriter backdown.
4. Indemnification and related rights similar to those in conversion
agreement.
5. Fees and expenses.
a. If shares are sold in an offering with NetRadio selling, NetRadio and
the selling shareholders will share all expenses pro rata.
b. If there are only selling shareholders, the selling shareholders will
share all expenses pro rata.
c. If NetRadio grants to Navarre any registration rights in which
NetRadio agrees to pay for expenses for Navarre as a selling
shareholder, NetRadio will grant equal rights to ValueVision.
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
FULFILLMENT AGREEMENT
This Fulfillment Agreement, including all exhibits and attachments hereto (the
"Agreement") is entered into this 1st day of December, 1998 (the "Effective
Date"), by and between NAVARRE CORPORATION, a Minnesota corporation ("Navarre")
with its principal place of business at 7400 49th Avenue North, New Hope,
Minnesota 55428 and NETRADIO CORPORATION, a Minnesota corporation ("NetRadio")
with its principal place of business at Riverplace Exposition Hall, 43 Main
Street Southeast, Suite 149, Minneapolis, Minnesota 55414.
RECITALS
WHEREAS, Navarre is in the business of sales and distribution of audio/video
computer software, compact disks, cassettes and DVDs, and provides, packs and
ships such products to the NetRadio Retail Website customers; and
WHEREAS, NetRadio operates several "Online Retail Websites" on the "World Wide
Web" through which it intends to sell "Products" (as hereinafter defined) to
consumers including, but not limited to, audio/video computer software, compact
disks, cassettes, vinyl, and DVDs, via a Website channel; and
WHEREAS, NetRadio desires to engage Navarre for the purpose of fulfilling
NetRadio purchase orders for Products on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
(a) "Product(s)" shall mean audio and/or video products and computer
software items including, but not limited to, compact disks,
cassettes, vinyl, singles, computer software programs, and DVD
available for sale as offered over the NetRadio Websites or as
available from time to time on the NetRadio Websites and any partner
Websites via "Nested Commerce."
(b) "Nested Commerce" shall mean the business conducted by creating
NetRadio Retail Website "Virtual Storefronts" on other, non-owned
Websites. The purpose is to distribute the NetRadio Retail Websites to
as many locations as possible in exchange
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
for a commission on Products sold off of the Nested Commerce Websites.
The goal for Nested Commerce is to maximize sales for NetRadio Retail
Websites.
(c) "Navarre Payments" shall mean all payments due Navarre from NetRadio
based on the pricing list and payment schedule set forth on the
attached Exhibit A, which pricing list may be updated by Navarre from
time to time, and such updates shall be a part of this Agreement
within [60] days after Navarre's delivery to NetRadio of an updated
Exhibit A.
(d) "Term" shall mean the term of this Agreement [which shall be for
approximately five (5) years] beginning on the date of this Agreement
and ending on December 1, 2003. Thereafter, the Agreement shall
automatically renew for successive [one (1)] year periods unless
sooner terminated by one or the other of the parties in accordance
with the procedures set forth in Section 10 of this Agreement.
(e) "User(s)" shall mean those individuals or entities who sign on to a
NetRadio Website and who are potential customers.
(f) "SCICOM" shall mean the company that provides Management Information
Systems ("MIS") for Navarre including inventory updates, order status,
and database updates.
2. GRANT.
(a) BASIC AGREEMENT. NetRadio and Navarre agree to develop a computer
interface for the purposes of conducting small order music product
transactions via on-line retail stores. NetRadio has built and will
maintain Online Retail Websites. NetRadio will also conduct all
marketing and merchandising efforts, collect orders and send such
orders to Navarre via Electronic Data Interchange ("EDI"). Navarre
will be responsible for picking, packing and shipping orders directly
to NetRadio's customers. Navarre hereby accepts such grant and agrees
to fulfill such orders as set forth herein.
(b) INTERNET FULFILLMENT. During the term of this Agreement, Navarre
agrees that it will not provide Internet fulfillment of Products for
any other exclusive Internet company; provided, however, that Navarre
reserves the right to provide Internet fulfillment for any current or
prospective retail customer of Navarre that also buys audio CD product
from Navarre for its retail sales establishments. If Navarre does
provide such Internet fulfillment, it will be at a pricing schedule
equal to or higher than the prices then charged to NetRadio.
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
(c) COMPLIANCE. NetRadio and Navarre agree to implement such practices and
procedures as are necessary to assure the compliance of either party,
or any division thereof, with the terms and conditions of this
Agreement.
(d) SET UP. Navarre will provide database and technical assistance to
NetRadio for the testing of NetRadio's EDI transmission of orders to
Navarre's inventory and IT system.
(e) ADVERTISING REVENUE. NetRadio will procure co-op advertising revenue
from media software manufacturers. Navarre will administer co-op funds
for all NetRadio Retail Website co-op advertising programs from labels
distributed by Navarre. In exchange for co-op administration services,
Navarre will receive a 15% commission for such services performed on
labels distributed by Navarre.
(f) "FIRST-CHOICE SUPPLIER". Navarre will be a "First-Choice" supplier of
Products and related order fulfillment services for NetRadio Retail
Websites; provided, however, that NetRadio may utilize third party
fulfillment sources for any Products not available through Navarre.
The mutual goal for NetRadio and Navarre will be to provide a
competitive range of products, at a competitive retail price, for all
NetRadio Retail Websites and be competitive with industry benchmarks
for fulfillment, delivery, and service. First-Choice is defined as
follows:
NetRadio's e-commerce engine will search the Navarre database
system for immediate availability of Product inventory before any
other fulfillment source is used. If Navarre's database indicates
that inventory is available, Navarre shall notify NetRadio in
writing within 24 hours if for any reason such inventory is not
immediately available for shipment. If Navarre has current
inventory, and the lowest cost per item, for the selected
product, Navarre will receive the purchase order via EDI from
NetRadio. If Navarre does not carry current inventory for the
selected product, NetRadio will then search secondary fulfillment
sources for inventory availability. In the case of a multiple
unit order, Navarre must be able to fulfill all items on a
multiple-unit order, at the lowest cost per item, to avoid a
duplication of shipping costs to NetRadio (by using multiple
fulfillment sources to fulfill one transaction). If Navarre
cannot fulfill all items for a multiple unit order, NetRadio's
e-commerce engine will search for a secondary fulfillment source
that can fill all items on the purchase order.
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
3. ORDER PROCEDURE.
(a) FULFILLMENT. The following sets forth NetRadio's service requirements
from Navarre's fulfillment and warehouse operational systems:
(i) STANDARD. Standard orders are defined as orders shipped
domestically and internationally via carriers other than
overnight carriers (FedEx, UPS Overnight, Airborne Express,
etc.). On any business day that Navarre receives standard orders
by 1:00 p.m. Central Standard Time ("CST"), it will ship the
orders the same business day. Standard orders received after 1:00
p.m. CST will be deemed received the next business day and
Navarre will ship these orders the next business day. Orders from
NetRadio retail Websites will be transmitted via EDI every hour.
The fulfillment goal for standard shipments for United States
orders shall be shipment to the customer within three (3)
business days from receipt of the order at NetRadio. The
fulfillment goal for international order delivery is to have
Products arrive within seven (7) to ten (10) business day from
the receipt of the order.
(ii) PRIORITY. Priority orders are defined as orders shipped
domestically via Federal Express, UPS overnight or 2 Day or
Airborne Express. Priority orders received on any business day by
11:00 a.m. CST will be shipped on the same day. Orders received
after 11:00 a.m. CST will be shipped the following business day.
(iii) PEAK PERIODS. The first day of a business week and any day on
which order volume is greater than 20% above average (calculated
on a floating 30-day basis) is defined as a "Peak Period."
Navarre shall use best efforts to (a) notify NetRadio in advance
of any seasonal or other anticipated Peak Periods and (b) adhere
to the fulfillment policies set forth above during Peak Periods,
but its failure to so adhere during Peak Periods shall not be
considered a default under this Agreement.
(iv) PRE-ORDERS. NetRadio shall collect pre-orders until five (5)
business days prior to the date that a new release title is first
to be made available to consumers (the "street date"), at which
point such pre-orders will be forwarded in a separate batch-EDI
to Navarre on the date and time of day required by Navarre.
Navarre shall ship all pre-
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
orders no later than street date minus one day, provided Navarre
has received the new release title(s) from the label/distributor
of such new release(s) in time for processing. If a street date
is delayed, NetRadio will be responsible for holding the
pre-orders until five (5) days before the new street date.
(v) BACK-ORDERS. NetRadio may elect to have Navarre hold an order
that has one or more items out of stock (only if secondary
fulfillment sources are also out of stock) until it is completely
fulfilled by typing a "Y" in the "ship complete" field of the EDI
inbound specifications. NetRadio may inform Navarre from time to
time of the number of days, up to a maximum of 30 days (the
"Back-Order Period"), that Navarre is to hold such "ship
complete" orders before shipping the available Products and
canceling the out of stock Products. In the event that all
Products included in an order are out of stock, and secondary
fulfillment sources cannot ship an order, Navarre will hold the
order for a 30 day period before canceling the order (subject to
prior cancellation of such order by NetRadio).
(vi) INVENTORY. Navarre will provide NetRadio with inventory updates
on an hourly basis via File Transfer Protocol ("FTP"). This FTP
update should occur during Navarre business hours, second shifts,
and any time that SCICOM updates the Navarre inventory database.
Since the NetRadio Retail Websites are open 24 hours a day and
seven days a week, this information is vital for timely, accurate
information for NetRadio customers. NetRadio will e-mail
customers with information on inventory availability. NetRadio
customers will have the option of canceling an order that cannot
be fulfilled, or choosing to elect an option of waiting no longer
than 30 days for the back-ordered Product to be fulfilled. In
addition, if Navarre's record keeping is inaccurate and/or
Navarre cannot ship requested inventory within 24 hours, NetRadio
shall be entitled to use alternative fulfillment sources.
(vii) LABELS; PACKING SLIPS. At the request and with the approval of
NetRadio, Navarre will create customer mailing labels AND packing
slips with NetRadio Retail Website logos for all orders shipped
from Navarre.
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
(viii) PACKAGING. Navarre will strive for the highest quality of
package presentation for all items fulfilled by Navarre. This
includes, but is not limited to (1) cardboard box packaging for
all configurations for media software, (2) even alignment of the
mailing label on the top of the carton, (3) even alignment of
sealing tape on the shipping carton, (4) the packing list shall
be neatly folded and placed INSIDE of the carton, (5) packaging
shall be consistent with other, leading Online Retail Websites.
This will help maintain the consumer perception that NetRadio
Retail Websites are of the highest quality and consistent with
industry benchmarks.
(ix) NAVARRE PAYMENTS. At the end of each month, NetRadio shall
transfer the Navarre Payments for Product orders for the month to
the Navarre account designated for this purpose by Navarre.
Calculations of the Navarre Payment due each month shall be based
on the total Navarre Product orders completed at the prices
calculated in accordance with the pricing sheet attached to this
Agreement as Exhibit A.
(x) MONTHLY REPORTS. NetRadio and Navarre shall compare and deliver
to the other party summary reports of Product transactions each
month within 15 days of the end of each calendar month. These
reports will verify and confirm that unit sales and costs are
accurate and the respective sales reporting systems are in synch.
4. PRODUCT RETURNS.
(a) RETURN POLICY. Navarre will re-fulfill orders to NetRadio's customers
at no additional fulfillment or return processing costs to NetRadio
for returnable Product, under the following circumstances:
(i) Items reported as missing by the consumer that were listed on the
invoice as fulfilled;
(ii) Items returned as incorrect items shipped (items included in the
package that were not listed on the invoice); and
(iii) Items returned as defective product. Return processing
information will be posted weekly to Navarre's Bulletin Board
System.
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
(b) RETURNS. Navarre will accept NetRadio Retail Website returns into the
Navarre warehouse facility. Shipping instructions and return policies
will be included on the back of each packing list.
(c) RESTOCKING FEE. All accepted returns, other than those set forth in
Section 4(a) above, will include a [Confidential Treatment Requested]
percent [Confidential Treatment Requested] restocking fee payable to
Navarre for processing such returns. NetRadio will also pay a
[Confidential Treatment Requested] refurbishing fee on all accepted
open returns.
(d) MODIFICATIONS. Navarre and NetRadio reserve the right to modify
respective return policies through mutual agreement from time to time
by way of written notice.
(e) RESTRICTED RETURNS. Navarre will not accept for return accessories,
blank tape and vinyl product (including, without limitation, LPs and
12" singles), shopworn product (items that have damage to the artwork,
have foreign substance on the media or have been defaced), imports,
limited editions, Product identified in the Navarre database as
non-returnable, Product sold by a record club, promotional product
(free product give-a-ways), counterfeit product, product without the
original artwork or liner notes, or Product with a last customer
return date (as defined in the Navarre database documentation) prior
to the date the returned Product is received by Navarre from NetRadio.
In addition, Navarre does not accept return of opened CDs from the
following: (1) Sony Music Entertainment ("Sony"); (2) Universal
("UNI"); (3) Warner, Electra & Atlantic ("WEA"); or (4) Polygram
Distribution ("PGD") CDs, or PGD cassettes, or any opened PGD
cassettes that do not have their original wrapper intact. For purposes
hereof, "opened" means product returned with the top spine label or
original manufacturer's "dog-bone" holographic sticker removed or cut
in any way.
(f) CREDIT CARD CHARGE BACKS. NetRadio will be responsible for any
required credit card charge back and may set off any Navarre portion
of the return against Navarre Payments due in the following month.
Products not returned within this 30-day period shall be deemed
accepted by NetRadio and its users as non-defective. Other than return
of defective Products, NetRadio shall have no right of return or
refund without the express written approval of Navarre.
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
5. SHIPPING.
(a) RISK OF LOSS. All shipments under this Agreement shall be F.O.B.
Navarre's shipping facility. Title and risk of loss with respect to
all orders and Products shipped by Navarre under this Agreement shall
pass to NetRadio or its customers upon delivery of the Products to the
carrier at the point of shipment. In the event of shipping damage or
orders lost in shipment, Navarre will assist in filing a claim on
behalf of NetRadio and will credit NetRadio any amounts received or
credit to Navarre in connection with each claim.
(b) CHOICE OF CARRIER. Navarre shall ship the order with the carrier
requested by NetRadio or its customer. Navarre shall cancel any order
for which the delivery address is not serviced by the indicated
carrier, and NetRadio shall have the option to retransmit the order to
be shipped via a secondary fulfillment source or alternate carrier.
(c) SHIPPING COSTS. Navarre shall invoice NetRadio's customers at such
rates as are requested by NetRadio. NetRadio shall pay Navarre
shipping costs per the shipping tables attached hereto as Exhibit B
(as amended from time to time by Navarre). Navarre shall provide
NetRadio written notice of shipping rate changes and the effective
date of such changes. Navarre represents that the shipping costs
charged to NetRadio are its actual shipping costs (not considering
rebates).
(d) PAPER INSERTS. NetRadio shall pay a fee of [Confidential Treatment
Requested] per paper insert packed by Navarre at the request of
NetRadio in Product shipped under this Agreement. NetRadio shall
supply the required paper inserts at no cost to Navarre. All paper
inserts must be lightweight, paper-based, promotional items the same
size or smaller than a standard single CD, or pre-folded to such size.
(e) MERCHANDISE INSERTS. At NetRadio's request, Navarre shall insert
promotional merchandise inserts in its orders at a cost to be
negotiated by the parties. NetRadio shall supply those inserts at no
cost to Navarre.
(f) INSERT BAR-CODES. A unique UPC bar-code is required for each
merchandise insert. NetRadio shall purchase and apply a proprietary
bar-code on all merchandise inserts. At NetRadio's request or if the
bar-code does not meet Navarre's standards, Navarre shall create and
apply a bar-code for a fee of [Confidential Treatment Requested] per
applied bar-code.
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
(g) EXCLUSIVE MERCHANDISE. Navarre shall receive, warehouse and ship
exclusive merchandise sold through NetRadio for a fee to be negotiated
after a sample has been received and reviewed for packing and shipping
requirements. For merchandise that is standard Product (single CDs or
cassettes and single VHS) a fee of [Confidential Treatment Requested]
per unit will be applied.
6. PAYMENTS.
(a) PRICING SHEETS. The Navarre Payments due Navarre from NetRadio for the
sales of Products shall be determined as set forth on the pricing
sheets attached to this Agreement as Exhibit A.
(b) NAVARRE PAYMENTS. All Navarre Payments shall be made in United States
dollars, and shall be made without deduction or withholding. All risk
of currency exchange shall be borne by NetRadio. Navarre's fees do not
include any foreign, national, state or local sales, use, value-added,
withholding or other taxes, custom duties or similar tariffs and fees
which Navarre may be required to pay or collect upon delivery of the
Products. Should any tax or levy be made, NetRadio agrees to be fully
responsible for, and promptly pay such tax or levy and indemnify
Navarre for any claim for such tax or levy demanded. NetRadio is not
liable for any income taxes due by Navarre. NetRadio agrees to provide
Navarre with appropriate resale certificate numbers and other
documentation satisfactory to the applicable taxing authorities to
substantiate any claim of exemption from any such taxes or fees.
7. FURTHER OBLIGATIONS.
(a) "FIRST-CHOICE" PROVIDER. NetRadio agrees that Navarre is, for the Term
of this Agreement, NetRadio's First-Choice provider for fulfillment of
Products sold over the NetRadio Websites.
(b) EMPLOYEES. Navarre and NetRadio shall each assign specific individuals
to assist the other in the fulfillment of this Agreement for order
placement and confirmation.
(c) DISCLOSURE. Navarre and NetRadio may make public statements about the
existence of general terms of this Agreement.
(d) INFORMATION DATABASE. NetRadio maintains the rights and ownership of
the customer "Transaction Information Database" of sales off of
NetRadio Retail Websites. Both parties shall use best efforts to
ensure maximum security of transaction information maintained on each
party's computer system including, but not limited to, the names,
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
addresses and Products ordered by NetRadio's customers. NetRadio and
Navarre shall not sell, license, or transfer the customer information
database to a third party as this would be a violation of the NetRadio
customer "Privacy Pledge."
(e) FILL RATES. Navarre shall strive to maintain 24-hour turnaround fill
rates greater than 90% for all items listed in the Navarre inventory
database as "in stock." If Navarre-distributed transaction fill rates
fall below the 90% level, NetRadio reserves the right to direct orders
to secondary fulfillment sources until Navarre can achieve fill rates
above the 90% level. In addition, if Navarre cannot ship any
particular product or products within 24 hours, NetRadio shall be
entitled to use secondary fulfillment sources.
8. CONFIDENTIALITY.
(a) CONFIDENTIAL INFORMATION. During the Term of this Agreement, and for a
period of two (2) years from the termination or expiration of this
Agreement, NetRadio and Navarre mutually agree to keep in confidence
and prevent the acquisition, disclosure, use or misappropriation by
any person or persons of information relating to this Agreement,
including but not limited to all types of information regarding
customer and supplier lists, pricing information, new product
development, technical information, data, formulas, patterns,
compilations, programs, devices, methods, techniques, marketing plans,
business procedures, agreements with any supplements, techniques or
know-how, processes or other proprietary or confidential or
intellectual proprietary information (hereafter "Confidential
Incorporation") which is received from either party under this
Agreement; provided, however, that neither party shall be liable to
the other party for disclosure of any data if the same is disclosed
with the prior written approval of the other party. Both parties agree
that if it breaches this non-disclosure agreement, the owner of the
Confidential Information shall suffer irreparable injury and be
entitled immediately to a temporary and permanent injunction.
(b) EXEMPT CONFIDENTIAL INFORMATION. The foregoing confidentiality
obligation shall not apply to information which the recipient can
demonstrate by written evidence:
(i) is or becomes publicly available without breach of this Agreement
by the party receiving the Confidential Information;
(ii) is released for disclosure by the disclosing party with its
written consent;
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
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Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
(iii) is known by the receiving party prior to the disclosure;
(iv) is rightly received by the receiving party from a third party
without confidential limitations; or
(v) is hereafter disclosed by the owner of the Confidential
Information to a third party without restriction on disclosure.
(c) CONFIDENTIAL INFORMATION REPRESENTATIONS. NetRadio and Navarre each
hereby agree:
(i) that all Confidential Information remains the property of the
disclosing party and will upon written request by the disclosing
party, promptly return all Confidential Information to the
disclosing party;
(ii) that the parties hereto shall disclose Confidential Information
in writing when practical, and when Confidential Information is
disclosed orally, shall promptly confirm such Confidential
Information in writing;
(iii) that the parties hereto shall not disclose Confidential
Information given to it by the other party to any person, real or
legal, except as necessary for the other party to perform its
obligations under this Agreement;
(iv) that the parties hereto shall require employees and third parties
having necessary access to Confidential Information obligations
of confidence and non-use consistent with this non-disclosure
agreement;
(v) that the parties hereto shall exercise the same degree of care to
safeguard the confidentiality of such Confidential Information as
it would exercise in protecting the confidentiality of similar
property of its own (but in no event less than is standard in the
industry); and
(vi) that the parties hereto use their best efforts to prevent
inadvertent or unauthorized disclosure, publication or
dissemination of any Confidential Information.
(d) UNAUTHORIZED USE OF CONFIDENTIAL INFORMATION. Each party shall notify
the other of any actual or suspected unauthorized use or disclosure of
Confidential Information
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--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
of infringement of any proprietary rights of which such party has
knowledge and will reasonably cooperate with the other party in the
investigation and prosecution of such unauthorized use, disclosure or
infringement.
(e) CONFIDENTIAL INFORMATION SURVIVAL. This confidentiality and
non-disclosure agreement shall survive the termination or expiration
of the entire Agreement.
9. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATIONS
(a) NETRADIO RIGHTS. NetRadio represents and warrants to Navarre that it
has (i) used best-practices to obtain the sufficient rights to all the
code, documentation, trademarks, trade names, copyrights and other
intellectual properties that are contained in the NetRadio Website(s)
or the Products to be sold by NetRadio, and has (ii) procured the
right to grant the rights contemplated by this Agreement.
(b) NETRADIO INDEMNIFICATION. NetRadio shall indemnify Navarre and hold
Navarre harmless from and against any and all claims, costs, or
damages arising from any claim relating to Paragraph 9(a) above.
(c) NAVARRE RIGHTS. Navarre represents and warrants to NetRadio that it
has (i) used best-practices to obtain the sufficient rights to all the
code, documentation, trademarks, trade names, copyrights and other
intellectual properties that are used in Navarre's business or the
Products to be sold by Navarre, and has (ii) procured the right to
grant the rights contemplated by this Agreement.
(d) NAVARRE INDEMNIFICATION. Navarre shall indemnify NetRadio and hold
NetRadio harmless from and against any and all claims, costs, or
damages arising from any claim relating to Paragraph 9(c) above.
(e) AUTHORITY. Each party represents to the other party that it has
authority to enter into this Agreement and to carry out the
transactions contemplated herein.
10. TERMINATION. Either party may terminate this Agreement upon thirty (30)
days' written notice under the following conditions:
(a) MUTUAL BREACH. On thirty (30) days written notice, for material breach
of the terms by the other party hereof unless the breach is cured in
the said thirty (30) days; or
(b) CEASE BUSINESS. Immediately if the other party shall cease conducting
business in the normal course for more than 10 days; or
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EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
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Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
(c) INSOLVENCY. Immediately if the other party becomes
insolvent, makes a general assignment for the benefit of
creditors, suffers or permits the appointment of a receiver
provided such action is not dismissed within sixty (60) days;
or
(d) DISCONTINUATION. Navarre or NetRadio delivers to the other
party a 30-day written notice of termination for a material
breach of this Agreement, provided such breach was previously
identified by way of written notice and the other party failed
to resolve such breach within thirty (30) days; or
(e) DISCONTINUATION. Navarre discontinues fulfillment services
to online customers or NetRadio discontinues the online sale
of pre-recorded music.
11. DISPUTES AND RESOLUTIONS. The Agreement shall be governed by the laws of the
United States and the State of Minnesota (without regard to its principles of
conflicts of laws) and without regard to any state or federal provision
providing for the interpretation of an agreement more strongly against the
drafter thereof. Both parties expressly reject the application of the United
Nations Convention on Contracts for the International Sale of Goods. All
disputes related to this Agreement shall be subject to the jurisdiction of the
United States Federal Court in Minneapolis, Minnesota. Provided, however, that
this clause shall not be construed to limit or preclude either party from
bringing any action in any court of competent jurisdiction for an injunction or
other provisional relief as either party deems to be necessary or appropriate to
compel either party to fulfill its obligations hereunder or to protect the
trademark or other proprietary rights of either party.
12. MISCELLANEOUS PROVISIONS.
(a) AGREEMENT NOT TO CONSTITUTE JOINT VENTURE. Nothing in this Agreement
shall be construed as making either NetRadio or Navarre the agent of,
or in joint venture with, the other for any purposes except as
specifically set forth herein.
(b) ASSIGNMENT. This Agreement and the rights and obligations hereunder
shall not be assigned by either party without the prior written
consent of the other party.
(c) ENTIRE AGREEMENT. This Agreement represents the final, complete and
understanding of every kind or nature whatsoever between the parties
hereto concerning this subject.
(d) COVENANTS. The covenants contained in this Agreement which, by their
terms, expressed or implied, require performance by the parties after
the expiration or
-13-
<PAGE>
EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
termination of this Agreement, shall be enforceable notwithstanding
said expiration or other termination of this Agreement for any reason
whatsoever.
(e) SUCCESSORS AND ASSIGNS. The covenants, conditions and obligations
herein contained shall apply to and bind any heirs, successors or
assigns of the parties hereto.
(f) WAIVER. No waiver by Navarre of any breach or series of breaches or
defaults in performance by NetRadio and no failure, refusal, delay or
neglect of Navarre to exercise any right, power, or option given to it
hereunder or to insist upon strict compliance with or performance of
Navarre's obligations under this Agreement shall constitute a waiver
of the provisions of this Agreement with respect to any subsequent
breach thereof or a waiver by Navarre of its right at any time
thereafter to require exact and strict compliance with the provisions
thereof.
(g) FORCE MAJEURE. Notwithstanding any provisions of this Agreement to the
contrary, neither party shall be liable to the other, nor shall any
breach of this Agreement occur, by reason of any delay or loss
reasonably incurred by acts of God, fire, natural disaster,
governmental order, materials shortages, war, riot or insurgency, work
stoppage or strike, or other such occurrence.
(h) SALES. The Products subject to this Agreement shall be sold,
advertised, and promoted by NetRadio in accordance with all applicable
laws, rules, and regulations, and the policies and methods of sale,
advertising, and promotion shall be of high standard and shall in no
manner reflect adversely upon Navarre. It is expressly understood that
it is the responsibility of NetRadio to comply with all applicable
regulations, including but not limited to, licensing, royalty and
copyright requirements. Additionally, it is the sole responsibility of
NetRadio to pay all duties, tariffs and taxes relating to sale of the
Products.
(i) SEVERABILITY. This Agreement is severable and the invalidity of any
term or condition shall not affect the validity of any other term or
condition. Nothing contained in this Agreement shall be construed as
requiring the commission of any act contrary to the law. Whenever
there is any conflict between any provisions of this Agreement and any
present or future statute, ordinance, or regulation contrary to which
the parties have no legal right to contract, the latter shall prevail,
but in such event the provision of this Agreement thus affected shall
be curtailed and limited to only the extent necessary to bring it
within the requirements of law. In the event that any part, article,
paragraph, sentence, or clause of this Agreement shall be held to be
indefinite, invalid, or otherwise unenforceable, the indefinite,
invalid, or unenforceable
-14-
<PAGE>
EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
provision shall be deemed deleted, and the remaining part of the
Agreement shall continue in full force and effect, unless said
provision pertains to the payment of fees in which case this Agreement
shall terminate. If any tribunal or court of appropriate jurisdiction
deems any provision hereof, other than for the payment of money,
unenforceable, such provision shall be modified only to the extent
necessary to render it enforceable and this Agreement shall be valid
and enforceable and the parties hereto agree to be bound by and
perform same as thus modified.
(j) INCORPORATION OF EXHIBITS. The provisions set forth in Exhibits A and
B as may be updated from time to time by Navarre, are a part hereof as
if fully incorporated into this document, and shall supersede the
terms and conditions of the body of this Agreement to the extent that
they are inconsistent with the same.
(k) COUNTERPARTS. This Agreement may be executed in various counterparts
or copies, all of which, when taken together, shall constitute the
entire agreement.
(l) AMENDMENTS. All amendments or modifications to this Agreement must be
in writing and signed by all parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
NAVARRE CORPORATION, NETRADIO CORPORATION,
a Minnesota corporation a Minnesota corporation
By: /s/ ERIC H. PAULSON By: /s/ EDWARD A. TOMECHKO
---------------------------- -----------------------------
Its: President Its: President and C.E.O.
-15-
<PAGE>
EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
EXHIBIT A
PRICING SHEET and PAYMENT SCHEDULE
Pricing Sheet
<TABLE>
<CAPTION>
MANUFACTURERS
SUGGESTED CD CASSETTE PRIMARY PRODUCT
LIST PRICE COST COST CATEGORIES
---------- ---- ---- ----------
[Confidential [Confidential [Confidential
Treatment Requested] Treatment Treatment
Requested] Requested]
<S> <C> <C> <C>
Cassette Singles
Budget Cass (BMG, UNI) CD
Singles/Cass Maxi
Budget Cassette (PGD, Sony) Cassette
Maxi
CD5
CD5
Midline Cass/Budget CDs
Frontline Bass/Budget CDs (BMG,
CEMA, PGD, Sony, WEA)
Premium Frontline Cass
Budget CD - UNI Midline CD (All Majors)
Premium Frontline CS
Developing Artist Frontline CD
Frontline CD
Frontline CD
Frontline CD
</TABLE>
<PAGE>
EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
Frontline CD
* NetRadio terms are [Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.10 CONFIDENTIAL TREATMENT REQUESTED
--------------------------------
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
EXHIBIT B
SHIPPING & HANDLING CHARGES
NetRadio will pay the following Shipping and Handling costs:
- For each Domestic order:
First unit @ [Confidential Treatment Requested]
Each additional unit @ [Confidential Treatment Requested],
maximum of [Confidential Treatment Requested] per order
- For each International order:
First unit @ [Confidential Treatment Requested]
Each additional unit @ [Confidential Treatment Requested];
maximum of [Confidential Treatment Requested] per order
<PAGE>
EXHIBIT 10.11
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
(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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
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
CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
Table of Denial Orders. By using the User Streams 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.
Should you have any questions concerning this License Agreement, or if you
desire to contact RealNetworks for any reason, please contact the RealNetworks
distributor serving your country.
Copyright -C- 1995-1998 RealNetworks, Inc. and/or its suppliers. 1111 Third
Avenue, Suite 2900, Seattle, Washington 98101 U.S.A. All rights reserved.
RealNetworks, Real Audio and RealVideo are trademarks or registered trademarks
of RealNetworks, Inc.
RealNetworks User-Stream License (6-4-98).
<PAGE>
EXHIBIT 10.13
MULTIPLE ADVANCE
TERM NOTE
$5,234,840.00 New Hope, Minnesota
March 1, 1999
1. FOR VALUE RECEIVED, NET RADIO CORPORATION, a Minnesota corporation,
its successors and assigns (the "Borrower") promises to pay to the
order of NAVARRE CORPORATION, a Minnesota corporation (the "Lender"),
at its address at 7400 49th Avenue North, New Hope, Minnesota 55428,
the principal sum of FIVE MILLION TWO HUNDRED THIRTY-FOUR THOUSAND
EIGHT HUNDRED FORTY AND 00/100 DOLLARS ($5,234,840.00) plus such
additional amounts as may be advanced to or for the benefit of the
Borrower for working capital financing through December 31, 1999, in
lawful money of the United States and immediately available funds,
together with interest on the unpaid balance accruing as of January 1,
1999 at an initial rate equal at all times to one-half percent (0.5%)
in excess of the "Prime Rate of Interest" (as hereinafter defined) as
the same changes from time to time and is adjusted in the manner
hereinafter set forth.
2. Principal and accrued interest on this Note shall be due and payable
on the earlier of (i) June 1, 2001, or (ii) the occurrence of an "Event
of Default" (as hereinafter defined) (the earlier of said dates
hereinafter referred to as (the "Maturity Date").
3. The term "Prime Rate of Interest" shall mean the prime rate of
interest or reference rate of interest (or equivalent successor rate)
published in the Midwest Edition of the WALL STREET JOURNAL as a basis
for determining the rate of interest on commercial borrowing, whether
or not the Lender makes loans to other parties at, above or below said
base rate of interest.
4. The rate of interest due hereunder shall initially be determined as
of the date hereof and shall thereafter be adjusted on the first day of
each month (each such day hereinafter being referred to as an
"Adjustment Date") to the Prime Rate of Interest in effect on such
Adjustment Date. All such adjustments to said rate shall be made and
become effective as of the Adjustment Date and said rate as adjusted
shall remain in effect until and including the day immediately
preceding the next Adjustment Date. Interest hereunder shall be
computed on the basis of a year of three hundred sixty (360) days but
charged for actual days principal is unpaid.
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<PAGE>
5. This Note is a multiple advance note but does not evidence a
revolving credit facility. The Borrower acknowledges that as of January
1, 1999, $5,234,840.00 has already been advanced to the Borrower with
additional amounts advanced hereunder from January 1, 1999 to December
31, 1999 to be evidenced by subsequent advance confirmations issued by
Lender to Borrower and thereby added to the principal balance hereof.
6. All payments and prepayments shall, at the option of the Lender, be
applied first to any costs of collection, second to any late charges,
third to accrued interest and the remainder thereof to principal (and,
in the case of prepayment of principal, to installments of principal in
the inverse order of their maturity).
7. Any one or more of the following events shall constitute an "Event
of Default" hereunder and under the documents related hereto:
(a) the Borrower shall fail to pay when due, any amounts required to be
paid by the Borrower under this Note or any other indebtedness of the
Borrower to the Lender whether any such indebtedness is now existing or
hereafter arises and whether direct or indirect, due or to become due,
absolute or contingent, primary or secondary or joint or joint and
several; or
(b) the Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or future
state or federal bankruptcy act or under any similar federal or state
law, or shall be adjudicated a bankrupt or insolvent, or shall make a
general assignment for the benefit of its creditors, or shall be unable
to pay its debts generally as they become due; or if an order for
relief under any present or future federal bankruptcy act or similar
state or federal law shall be entered against the Borrower; or if a
petition or answer requesting or proposing the entry of such order for
relief or the adjudication of the Borrower as a debtor or a bankrupt or
its reorganization under any present or future state or federal
bankruptcy act or any similar federal or state law shall be filed in
any court and such petition or answer shall not be discharged or denied
within thirty (30) days after the filing thereof; or if a receiver,
trustee or liquidator of the Borrower of all or substantially all of
the assets of the Borrower or of the collateral or any part thereof,
shall be appointed in any proceeding brought against the Borrower and
shall not be discharged within thirty (30) days of such appointment; or
if the Borrower shall consent to or acquiesce in such appointment; or
if any property of the Borrower (including without limitation the
estate or interest of the Borrower in the collateral or any part
thereof) shall be levied upon or attached in any proceeding; or
(c) final judgment(s) for the payment of money shall be rendered
against the Borrower and shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively
stayed; or
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<PAGE>
(d) the Borrower shall be or become insolvent (whether in the equity or
bankruptcy sense) or shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in
the ordinary course, or sell all or substantially all of its assets,
without the prior written consent of the Lender; or
(e) any representation or warranty made by the Borrower herein or in
other any document related hereto shall prove to be untrue or
misleading in any material respect, or any statement, certificate or
report furnished hereunder or under any of the foregoing documents by
or on behalf of the Borrower shall prove to be untrue or misleading in
any material respect on the date when the facts set forth and recited
therein are stated or certified; or
(f) any material adverse change in the condition of the Borrower
(financial or otherwise) which, in the reasonable opinion of the
Lender, increases its risk with respect to this Note or any other
obligations, or the Lender otherwise in good faith deems itself
insecure for any reason with respect to the payment of this Note, any
other obligations of the Lender; or
(g) the Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax or tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued; or
(h) any property of the Borrower shall be garnished, levied upon, or
attached in any proceeding and such garnishment or attachment shall
remain undischarged for a period of thirty (30) days during which
execution has not been effectively stayed.
8. Notwithstanding anything to the contrary contained herein, if and
for so long as an Event of Default, or an event or condition which with
the passage of time or the giving of notice or both would constitute an
Event of Default, has occurred and continues or exists, the rate of
interest hereunder shall be four and one-half percent (4.5%) per annum
in excess of the Reference Rate of Interest in effect at the time such
increased rate of interest is imposed. Such increased rate of interest
is intended to compensate the Lender for (i) the resulting increased
cost of servicing and monitoring the credit facility; and (ii) the
increased risk to the Lender.
9. Upon the occurrence of any Event of Default or at any time
thereafter, the outstanding principal balance hereof and accrued
interest and all other amounts due hereon shall become immediately due
and payable, without formal notice or demand.
10. Upon the occurrence at any time of an Event of Default, the Lender
shall have the right to set off any and all amounts due hereunder by
the Borrower to the Lender against
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<PAGE>
any indebtedness or obligation of the Lender to the Borrower and while
such Event of Default is continuing.
11. Upon the occurrence at any time of an Event of Default, the
Borrower promises to pay all costs of collection of this Note,
including but not limited to attorneys' fees, paid or incurred by the
Lender on account of such collection, whether or not suit is filed with
respect thereto and whether or not such costs are paid or incurred, or
to be paid or incurred, prior to or after the entry of judgment.
12. Demand, presentment, protest and notice of nonpayment and dishonor
of this Note are hereby waived.
13. This Note shall be governed by and construed in accordance with the
laws of the State of Minnesota.
14. The Borrower irrevocably submits to the jurisdiction of any
Minnesota state court or federal court over any action or proceeding
arising out of or relating to this Note, and any instrument, agreement
or document related hereto, and the Borrower hereby irrevocably agree
that all claims in respect of such action or proceeding may be heard
and determined in such Minnesota state or federal court. The Borrower
hereby irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such
action or proceeding. The Borrower agrees that judgment final by
appeal, or expiration of time to appeal without an appeal being taken,
in any such action or proceeding shall be conclusive and may be
enforced in any other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this paragraph shall affect
the right of the Lender to serve legal process in any other manner
permitted by law or affect the right of the Lender to bring any action
or proceeding against the Borrower or its property in the courts of any
other jurisdiction to the extent permitted by law.
NET RADIO CORPORATION
By: EDWARD A. TOMECHKO
----------------------------------------
Its CHIEF EXECUTIVE OFFICER
----------------------------------
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<PAGE>
EXHIBIT 10.16
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the "Agreement"), dated as of March 1, 1999, is made
and entered into by and between Navarre Corporation, a Minnesota corporation
("Navarre") and Net Radio Corporation, a Minnesota corporation ("Net Radio").
RECITALS
WHEREAS, Navarre currently owns approximately 85% of the issued and
outstanding common stock of Net Radio, and as such, currently performs certain
corporate services for Net Radio;
WHEREAS, Net Radio is undertaking a public offering of its common stock
pursuant to a Form S-1 Registration Statement filed under the Securities Act of
1933 (the "Offering"), on such terms and conditions as are contained therein;
WHEREAS, following the Offering, Navarre and Net Radio will be operated
as independent public companies, and Net Radio will no longer be a subsidiary of
Navarre; and
WHEREAS, Navarre and Net Radio wish to provide for the separation of
certain services provided by Navarre to Net Radio following the Offering, in
connection with Net Radio's transition to an independent public company; and
WHEREAS, Navarre and Net Radio have determined that it is necessary and
desirable to establish certain other agreements governing matters relating to
the Offering and the relationship of Navarre and Net Radio after the Offering.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and intending to be legally bound,
Navarre and Net Radio hereby agree as follows:
1. TRANSITIONAL SERVICES. Subject to the terms and conditions of this
Agreement, Navarre and Net Radio will endeavor to separate the accounting,
finance, human resources, and other administrative functions of Net Radio
from Navarre during the 45-day period following the closing date of the
Offering (the "Closing Date") at a cost to NetRadio of $7,500.00. During
this time, it is acknowledged that Navarre may provide some transitional
services to Net Radio. Net Radio understands that the services are intended
only to be transitional in nature, and may be furnished by Navarre solely
for the purpose of accommodating Net Radio in connection with its
transition to a separate public company. Net Radio hereby covenants and
agrees to undertake such actions as may be necessary to phase out the
services provided by Navarre within forty-five (45) days after the
Offering, which actions may include, but are not
<PAGE>
limited to, hiring appropriate personnel to provide the services within its
own internal organization, or entering into agreements with third parties
for the provision of the services.
2. BILLING AND PAYMENT TERMS. Navarre will invoice Net Radio for all services
delivered during the 45-day period, and Net Radio will pay such invoice
within thirty (30) days after the date thereof.
3. INTERCOMPANY NOTES. Navarre and NetRadio have entered into a $5,234,840.00
Multiple Advance Term Note in the form of Exhibit A (the "Note"),
evidencing the indebtedness due to Navarre as of December 31, 1998. Upon
the successful completion of the Offering, (1) Navarre will contribute the
amount of $5,234,840.00 (the amount of the original indebtedness due to
Navarre as of December 31, 1998), to the equity of NetRadio without the
issuance of additional shares, and (2) the remaining outstanding principal
balance, plus accrued interest, on the note (as increased by any subsequent
advances) shall be evidenced by a replacement Term Note, in the form
attached hereto as Exhibit B.
4. COVENANT NOT TO COMPETE. From the Closing Date and for a period of four
years thereafter, Navarre shall not, either directly or indirectly:
(a) engage in Internet broadcasting of music and information or online
retail sales of entertainment-related products in substantially the
same manner and format as conducted by Net Radio on the date of this
Agreement; or
(b) disclose, make available or divulge to any corporation, partnership,
individual, firm, other business or person any trade secret
information concerning the business and affairs of Net Radio or other
information concerning the business and affairs of Net Radio.
Navarre agrees that any breach of covenants (a) or (b) above will cause Net
Radio irreparable harm for which there is no adequate remedy at law, and,
without limiting whatever other rights and remedies Net Radio may have
under this Section 4, Navarre consents to the issuance of an injunction in
favor of Navarre enjoining the breach of any of the aforesaid covenants by
any court of competent jurisdiction. If any or all of the aforesaid
covenants are held to be unenforceable because of the scope or duration of
such covenant or the area covered thereby, the parties agree that the court
making such determination shall have the power to reduce the scope,
duration and area of such covenant to the extent that allows the maximum
scope, duration and/or area permitted by applicable law.
5. Confidential Information.
(a) Each of Navarre and Net Radio will hold, and will cause its officers,
employees, agents, consultants, advisors and affiliates to hold, in
strict confidence, and not to disclose, unless compelled to disclose
by judicial or administrative process or, in the opinion of its
independent legal counsel, by other requirements of law, all
confidential information concerning the other party.
(b) For purposes of this Section 5, confidential information about a
particular party (referred to herein as the "first party") shall mean
information known by the other party on the Closing Date and
reasonably understood by the other party to be
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<PAGE>
confidential and related to the first party's business interests, or
disclosed confidentially by the first party to the other party after
the Closing Date under the terms and for the purposes of this
Agreement, except for:
(i) information learned by the other party for the first time after
the Closing Date, but prior to any disclosure by the first party;
(ii) information which is or becomes publicly available through no act
of the other party, from and after the date of public
availability;
(iii) information disclosed to the other party by a third party,
provided: (A) under the circumstances of disclosure the other
party does not have a duty of non-disclosure owed to such third
party; (B) the third party's disclosure is not violative of a
duty of non-disclosure owed to another, including the first
party; and (C) the disclosure by the third party is not otherwise
unlawful; and
(iv) information developed by the other party independent of any
confidential information of the first party which is known by the
other party on the Closing Date and/or disclosed by the first
party thereafter.
(c) The foregoing restrictions will expire with respect to business
information which is confidential information five (5) years after the
date of disclosure of such information, unless and to the extent the
parties agree to a longer period for the foregoing restrictions with
respect to specific categories of business information which is
confidential information on the expiration of such longer period. The
date of disclosure in the case of confidential business information
known by a party on the Closing Date shall be the Closing Date. Each
of Navarre and Net Radio shall not disclose to another, or use, except
for purposes of fulfilling their respective obligations under this
Agreement, any business information which is confidential information
of Net Radio or confidential information of Navarre, respectively. The
foregoing restrictions shall not expire until such time and to the
extent that such information ceases to be confidential information.
(d) Each party will protect confidential information hereunder by using
the same degree of care, but no less than a reasonable degree of care,
to prevent the unauthorized disclosure of the other party's
confidential information as the party uses to protect its own
confidential information.
(e) Each party shall ensure that its affiliates, sublicensees and other
transferees agree to be bound by the same restrictions on use and
disclosure of confidential information as set forth herein prior to
disclosure of confidential information of the other party to such
persons.
6. INDEMNIFICATION.
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(a) INDEMNIFICATION BY NET RADIO. Net Radio agrees to indemnify, defend
and hold harmless Navarre, its directors, officers, employees, agents
and representatives from any and all third-party claims, actions,
demands, judgments, losses, costs, expenses, damages and liabilities
relating to, arising out of or resulting from: (1) Net Radio's failure
to pay, perform or otherwise promptly discharge any of Net Radio's
debts or other liabilities in accordance with their respective terms;
(2) any breach by Net Radio of the terms of this Agreement or any
other written agreement between Navarre and Net Radio; and (3) any
untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, with respect to all information contained in the
Prospectus or Registration Statement related to the Offering of which
it forms a part; provided, however, that in no event will Net Radio be
required to indemnify and hold harmless Navarre in the event damages
are attributable to Navarre's fraud, intentional criminal misconduct
or gross negligence. Navarre agrees to indemnify, defend and hold
harmless Net Radio in respect of all liabilities related to, arising
from asserted against or associated with such fraudulent,
intentionally criminal, or grossly negligent conduct.
(b) INDEMNIFICATION BY NAVARRE. Navarre agrees to indemnify, defend and
hold harmless Net Radio, its directors, officers, employees, agents
and representatives from any and all third-party claims, actions,
demands, judgments, losses, costs, expenses, damages and liabilities
relating to, arising out of or resulting from: (1) Navarre's failure
to pay, perform or otherwise promptly discharge any of Navarre's debts
or other liabilities in accordance with their respective terms, other
than Net Radio's liabilities; and (2) any breach by Navarre of the
terms of this Agreement or any other written agreement between Navarre
and Net Radio.
(c) PROCEDURE. If either party intends to claim indemnification under this
Section 6, the claiming party (the "Indemnitee") will promptly notify
the other party (the "Indemnifying Party") in writing of any such
claim, tender to the Indemnifying Party the right to defend or settle
such claim at the Indemnifying Party's expense, and reasonably
cooperate with the Indemnifying Party in defending or settling any
such claim. At its expense, the Indemnitee may be represented by, and
actively participate through, counsel of its choice in the defense or
settlement of any such claim. In any event, the Indemnifying Party may
not settle any claim under this Section 6 without the prior written
consent of the Indemnitee, which consent will not be unreasonably
withheld or delayed. The Indemnifying Party will have no liability
whatsoever with respect to claims which the Indemnitee or its
independent counsel settle without the prior consent of the
Indemnifying Party. The Indemnifying Party will have the right to
pursue any and all claims, whether at law or in equity, that the
Indemnifying Party may have against the Indemnitee, its successors in
interest, permitted assigns, officers, directors, employees, agents,
representatives and persons and entities acting on its behalf based
upon, arising out of or in connection with the performance,
non-performance or delayed performance of this Agreement or any acts
or omissions relating thereto.
7. RELEASE OF EXISTING CLAIMS. Each of Net Radio and Navarre hereby release
all rights, claims and actions they and their successors have or may have
against the other party, and
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hereby discharge all liabilities between the parties, relating to or
arising from all acts and events occurring or failing to occur or alleged
to have occurred or to have failed to occur and all conditions existing or
alleged to have existed on or before the Closing Date between Navarre and
Net Radio (including any contractual agreements or arrangements existing or
alleged to exist between Navarre and Net Radio or before the Closing Date).
8. DISPUTE RESOLUTION.
(a) PROCEDURES. If a dispute, controversy or claim (collectively, a
"Dispute") between Navarre and Net Radio arises out of or relates to
this Agreement, Navarre and Net Radio agree to use the following
procedures in lieu of either party pursuing other available remedies
and as the sole remedy (except as provided in subsection 8(d) below),
to resolve the Dispute.
(b) INITIATION. A party seeking to initiate the procedures will give
written notice to the other party, briefly describing the nature of
the Dispute. The parties will hold a meeting within ten (10) days of
the receipt of such notice, attended by individuals with
decision-making authority regarding the Dispute, to attempt in good
faith to negotiate a resolution of the Dispute.
(c) SUBMISSION TO ARBITRATION. If, within thirty (30) days after such
meeting, the parties have not succeeded in negotiating a resolution of
the Dispute, they agree to submit the Dispute to binding arbitration
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, by a sole arbitrator selected by the parties.
The arbitration proceeding will be held in Minneapolis, Minnesota,
will be governed by the Minnesota equivalent of the Federal
Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The costs of arbitration may be apportioned
between Navarre and Net Radio by the arbitrator in such manner as the
arbitrator deems reasonable, taking into account the circumstances of
the Dispute, the conduct of each of the parties during the proceeding,
and the result of the arbitration.
(d) EQUITABLE RELIEF. Nothing herein will preclude either party from
taking whatever actions are necessary to prevent any immediate,
irreparable harm to its interests, including multiple breaches of this
Agreement by the other party. Otherwise, the parties agree to fully
exhaust these procedures prior to initiating litigation. Either party
may seek specific enforcement of any arbitrator's decision under this
Section 8(d).
(e) CONSOLIDATION. The arbitrator may consolidate an arbitration under
this Agreement with any arbitration arising under or relating to any
other agreement between the parties if the subject of the Disputes
thereunder arise out of or relate essentially to the same set of facts
or transactions. Such consolidated arbitration will be determined by
the arbitrator appointed for the arbitration proceeding that was
commenced first in time.
9. FORCE MAJEURE. Neither party will hold the other party responsible for a
delay in the performance of any obligation hereunder due to labor
disturbances, accidents, fires,
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floods, wars, riots, rebellions, blockages, acts of governments,
governmental requirements and regulations, restrictions imposed by law or
any other similar conditions, beyond the reasonable control and without the
fault or negligence of such party, and the time for performance by such
party will be extended by the period of such delay.
10. RELATIONSHIP OF THE PARTIES. Neither party is an agent of the other party
and neither party has any authority to bind the other party, transact any
business in the other party's name or on its behalf, or make any promises
or representations on behalf of the other party unless provided for in any
Exhibit or otherwise agreed to in writing. Each party will perform all of
its respective obligations under this Agreement as an independent
contractor, and no joint venture, partnership or other relationship will be
created or implied by this Agreement.
11. ENTIRE AGREEMENT. This Agreement, and the Exhibits the Agreement refers to
and which are incorporated into and made a part of this Agreement by
reference, constitute the entire agreement between Navarre and Net Radio
relating to the subject matter hereof, and there are no further agreements
or understandings, written or oral, between the parties with respect to
such subject matter.
12. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota (regardless
of the laws that might otherwise govern under applicable principles of
conflict of laws) as to all matters, including, without limitation, matters
of validity, construction, effect, performance and remedies.
13. JURISDICTION AND VENUE. Subject to the arbitration provisions of this
Agreement, each party consents to the personal jurisdiction of the state
and federal courts located in the State of Minnesota and hereby waives any
argument that venue in any such forum is not convenient or proper.
14. NOTICES. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given
(i) on the date of service if served personally on the party to whom notice
is given; (ii) on the day of transmission if sent via facsimile
transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of
transmission; (iii) on the business day after delivery to an overnight
courier service or the express mail service maintained by the United States
Postal Service, provided receipt of delivery has been confirmed; or (iv) on
the fifth day after mailing, provided receipt of delivery is confirmed, if
mailed to the party to whom notice is to be given, by registered or
certified mail, postage prepaid, properly addressed and return-receipt
requested, to the party as follows:
If to Navarre: Navarre Corporation
7400 - 49th Avenue North
New Hope, MN 55428
Attn: Chief Executive Officer
Facsimile No. (612) 504-1107
If to Net Radio: Net Radio Corporation
43 Main Street SE, Suite 149
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<PAGE>
Minneapolis, MN 55414
Attn: Chief Executive Officer
Facsimile No. (612) 378-9540
Any party may change its address by giving the other party written notice
of its new address in the manner set forth above.
15. MODIFICATION OF AGREEMENT. No modification, amendment or waiver of any
provision of this Agreement shall be effective unless the same shall be in
writing and signed by each of the parties hereto and then such
modification, amendment or waiver shall be effective only in the specific
instance and for the purpose for which given.
16. SUCCESSORS AND ASSIGNS. A party's rights and obligations hereunder may not
be assigned or transferred without the prior written consent of the other
party hereto. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and shall survive any acquisition,
disposition or other corporate restructuring or transaction involving
either party.
17. NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for the benefit of
the parties to this Agreement and should not be deemed to confer upon third
parties any remedy, claims, liability, reimbursement, claim of action or
other right in excess of those existing without this Agreement.
18. TITLES AND HEADINGS. The titles and headings to Sections herein are
inserted for convenience of reference only and are not intended to
constitute a part of or to affect the meaning or interpretation of this
Agreement.
19. SEVERABILITY. In case any one or more of the provisions contained in this
Agreement should be invalid, illegal or unenforceable, the enforceability
of the remaining provisions hereof shall not in any way be affected or
impaired thereby. It is hereby stipulated and declared to be the intention
of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions hereof without including any of such
which may hereafter be declared invalid, void or unenforceable. In the
event that any such term, provision, covenant or restriction is hereafter
held to be invalid, void or unenforceable, the parties hereto agree to use
their best efforts to find and employ an alternate means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.
20. NO WAIVER. Neither the failure nor any delay on the part of any party
hereto to exercise any right under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right preclude any
other or further exercise of the same or any other right, nor shall any
waiver of any right with respect to any occurrence be construed as a waiver
of such right with respect to any other occurrence.
21. SURVIVAL OF PROVISIONS. The representations, warranties and covenants
contained herein will survive termination or expiration of this Agreement
to the full extent necessary to protect the party in whose favor they run.
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22. CONFLICTING PROVISIONS. In the event any provision of any Exhibit conflicts
with the provisions of this Agreement, the provisions of this Agreement
will be controlling.
23. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall
become a binding agreement when one or more counterparts have been signed
by each party and delivered to the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first written above.
NAVARRE CORPORATION
By: /s/ ERIC H. PAULSON
-----------------------------------
Its: PRESIDENT
-----------------------------------
NET RADIO CORPORATION
By: /s/ EDWARD A. TOMECHKO
-----------------------------------
Its: PRESIDENT AND C.E.O
-----------------------------------
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EXHIBIT A
TERM NOTE
$5,234,840.00 New Hope, Minnesota
March 1, 1999
1. FOR VALUE RECEIVED, NET RADIO CORPORATION, a Minnesota corporation,
its successors and assigns (the "Borrower") promises to pay to the
order of NAVARRE CORPORATION, a Minnesota corporation (the "Lender"),
at its address at 7400 49th Avenue North, New Hope, Minnesota 55428,
the principal sum of FIVE MILLION TWO HUNDRED THIRTY-FOUR THOUSAND
EIGHT HUNDRED FORTY AND 00/100 DOLLARS ($5,234,840.00), in lawful money
of the United States and immediately available funds, together with
interest on the unpaid balance accruing as of January 1, 1999, at an
initial rate equal at all times to one-half percent (0.5%) in excess of
the "Prime Rate of Interest" (as hereinafter defined) as the same
changes from time to time and is adjusted in the manner hereinafter set
forth.
2. Accrued interest on this Note shall be due and payable on the
earlier of (i) June 1, 2001, or (ii) the Occurrence of an "Event of
Default" (as hereafter defined) (the earlier of said dates hereinafter
referred to as the Maturity Date").
3. The term "Prime Rate of Interest" shall mean the prime rate of
interest or reference rate of interest (or equivalent successor rate)
published in the Midwest Edition of the WALL STREET JOURNAL as a basis
for determining the rate of interest on commercial borrowing, whether
or not the Lender makes loans to other parties at, above or below said
base rate of interest.
4. The rate of interest due hereunder shall initially be determined as
of the date hereof and shall thereafter be adjusted on the first day of
each month (each such day hereinafter being referred to as an
"Adjustment Date") to the Prime Rate of Interest in effect on such
Adjustment Date. All such adjustments to said rate shall be made and
become effective as of the Adjustment Date and said rate as adjusted
shall remain in effect until and including the day immediately
preceding the next Adjustment Date. Interest hereunder shall be
computed on the basis of a year of three hundred sixty (360) days but
charged for actual days principal is unpaid.
5. This Note is a multiple advance note but does not evidence a
revolving credit facility. The Borrower acknowledges that as of January
1, 1999, $5,234,840.00 has already been advanced to the Borrower with
additional amounts advanced hereunder from January 1, 1999, to December
31, 1999, to be evidenced by subsequent advance confirmations issued by
lender to Borrower and thereby added to the principal balance hereof.
6. All payments and prepayments shall, at the option of the Lender, be
applied first to any costs of collection, second to any late charges,
third to accrued interest and the remainder
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<PAGE>
thereof to principal (and, in the case of prepayment of principal, to
installments of principal in the inverse order of their maturity).
7. Any one or more of the following events shall constitute an "Event of
Default" hereunder and under the documents related hereto:
(a) the Borrower shall fail to pay when due, any amounts required to be
paid by the Borrower under this Note or any other indebtedness of the
Borrower to the Lender whether any such indebtedness is now existing or
hereafter arises and whether direct or indirect, due or to become due,
absolute or contingent, primary or secondary or joint or joint and
several; or
(b) the Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or future
state or federal bankruptcy act or under any similar federal or state
law, or shall be adjudicated a bankrupt or insolvent, or shall make a
general assignment for the benefit of its creditors, or shall be unable
to pay its debts generally as they become due; or if an order for
relief under any present or future federal bankruptcy act or similar
state or federal law shall be entered against the Borrower; or if a
petition or answer requesting or proposing the entry of such order for
relief or the adjudication of the Borrower as a debtor or a bankrupt or
its reorganization under any present or future state or federal
bankruptcy act or any similar federal or state law shall be filed in
any court and such petition or answer shall not be discharged or denied
within thirty (30) days after the filing thereof; or if a receiver,
trustee or liquidator of the Borrower of all or substantially all of
the assets of the Borrower or of the collateral or any part thereof,
shall be appointed in any proceeding brought against the Borrower and
shall not be discharged within thirty (30) days of such appointment; or
if the Borrower shall consent to or acquiesce in such appointment; or
if any property of the Borrower (including without limitation the
estate or interest of the Borrower in the collateral or any part
thereof) shall be levied upon or attached in any proceeding; or
(c) final judgment(s) for the payment of money shall be rendered
against the Borrower and shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively
stayed; or
(d) the Borrower shall be or become insolvent (whether in the equity or
bankruptcy sense) or shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in
the ordinary course, or sell all or substantially all of its assets,
without the prior written consent of the Lender; or
(e) any representation or warranty made by the Borrower herein or in
other any document related hereto shall prove to be untrue or
misleading in any material respect, or any statement, certificate or
report furnished hereunder or under any of the foregoing documents by
or on behalf of the Borrower shall prove to be untrue or misleading in
any material respect on the date when the facts set forth and recited
therein are stated or certified; or
(f) any material adverse change in the condition of the Borrower
(financial or otherwise) which, in the reasonable opinion of the
Lender, increases its risk with
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<PAGE>
respect to this Note or any other obligations, or the Lender otherwise
in good faith deems itself insecure for any reason with respect to the
payment of this Note, any other obligations of the Lender; or
(g) the Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax or tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued; or
(h) any property of the Borrower shall be garnished, levied upon, or
attached in any proceeding and such garnishment or attachment shall
remain undischarged for a period of thirty (30) days during which
execution has not been effectively stayed.
8. Notwithstanding anything to the contrary contained herein, if and
for so long as an Event of Default, or an event or condition which with
the passage of time or the giving of notice or both would constitute an
Event of Default, has occurred and continues or exists, the rate of
interest hereunder shall be four and one-half percent (4.5%) per annum
in excess of the Reference Rate of Interest in effect at the time such
increased rate of interest is imposed. Such increased rate of interest
is intended to compensate the Lender for (i) the resulting increased
cost of servicing and monitoring the credit facility; and (ii) the
increased risk to the Lender.
9. Upon the occurrence of any Event of Default or at any time
thereafter, the outstanding principal balance hereof and accrued
interest and all other amounts due hereon shall become immediately due
and payable, without formal notice or demand.
10. Upon the occurrence at any time of an Event of Default, the Lender
shall have the right to set off any and all amounts due hereunder by
the Borrower to the Lender against any indebtedness or obligation of
the Lender to the Borrower and while such Event of Default is
continuing.
11. Upon the occurrence at any time of an Event of Default, the
Borrower promises to pay all costs of collection of this Note,
including but not limited to attorneys' fees, paid or incurred by the
Lender on account of such collection, whether or not suit is filed with
respect thereto and whether or not such costs are paid or incurred, or
to be paid or incurred, prior to or after the entry of judgment.
12. Demand, presentment, protest and notice of nonpayment and dishonor
of this Note are hereby waived.
13. This Note shall be governed by and construed in accordance with the
laws of the State of Minnesota.
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<PAGE>
14. The Borrower irrevocably submits to the jurisdiction of any
Minnesota state court or federal court over any action or proceeding
arising out of or relating to this Note, and any instrument, agreement
or document related hereto, and the Borrower hereby irrevocably agree
that all claims in respect of such action or proceeding may be heard
and determined in such Minnesota state or federal court. The Borrower
hereby irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such
action or proceeding. The Borrower agrees that judgment final by
appeal, or expiration of time to appeal without an appeal being taken,
in any such action or proceeding shall be conclusive and may be
enforced in any other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this paragraph shall affect
the right of the Lender to serve legal process in any other manner
permitted by law or affect the right of the Lender to bring any action
or proceeding against the Borrower or its property in the courts of any
other jurisdiction to the extent permitted by law.
NET RADIO CORPORATION
By:
------------------------------------
Its
---------------------------------
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<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
ORDER FULFILLMENT AGREEMENT
This Order Fulfillment Agreement ("Agreement") is entered into effective as of
the 2nd day of March, 1999, by and between NetRadio Corporation ("Retailer") and
Valley Media, Inc. ("Valley"). The terms of this Agreement supercede all prior
agreements between the parties, either oral or written, specifically including
but not limited to the Order Fulfillment Agreement dated as of January 1, 1998.
BACKGROUND
A. Valley has created a database known as "audiofile" which contains
information regarding pre-recorded music and music related products
("Audio Product"), theatrical video and video related products ("Video
Product"), and theatrical DVD and DVD related products ("DVD Product").
Audio, Video, and DVD may be collectively referred to herein as
"Product."
B. Valley provides to various retailers direct-to-customers order
fulfillment services, pursuant to which Valley provides, packs and
ships such products to the retailer's customers.
C. Retailer intends to operate on the World Wide Web an "on-line retail
store" (the "Site") through which it intends to sell Product.
AGREEMENT
Subject to the terms and conditions set forth below, the parties agree as
follows:
1. BASIC AGREEMENT. Retailer and Valley agree to develop a computer and
customer service interface for the purposes of conducting small order
Product transactions via an on-line
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
music/video store and other direct response marketing efforts. Retailer
will build and maintain a web site. Retailer will also conduct all
marketing and merchandising efforts, collect all orders and send such
orders to Valley via EDI. Valley will be responsible for picking,
packing and shipping the orders directly to Retailer's customers.
2. SET UP. Valley will provide audiofile and technical assistance to
Retailer for the testing of Retailer's EDI transmission of orders to
Valley's Bulletin Board System.
3. NON-EXCLUSIVITY. Valley acknowledges that Navarre, Inc. will be
Retailer's "First-Choice Supplier" under the terms and conditions of a
Fulfillment Agreement between Retailer and Navarre dated December 1,
1998. Valley will be considered the secondary supplier of Product for
Retailer. Retailer will utilize Valley for Order Fulfillment Services
if Navarre does not have inventory immediately available for shipment,
or in the case of a multiple unit order, if Navarre is unable to
fulfill all items at the lowest cost per item to avoid a duplication of
shipping costs to Retailer provided, however, that Retailer may utilize
other parties as sources for Product not available through Navarre,
Inc. or Valley (either through audiofile or otherwise) if Retailer
provides Valley fourteen (14) days notice of its intention to do so and
Valley fails to make specified Product available by the end of such
period.
4. PRODUCT PRICING.
4.1. AUDIO PRODUCT. Valley agrees to sell and Retailer agrees to
purchase Audio Product at [Confidential Treatment Requested]
percent (Confidential Treatment Requested)%)] off the
wholesale prices set forth in Exhibit A attached hereto (the
"Base Prices"). Base Prices may be revised by Valley from time
to time, effective upon written notice to Retailer of such
changes.
4.2. VIDEO PRODUCT. Retailer agrees to buy and Valley agrees to
sell Video Product at [Confidential Treatment Requested]
percent ([Confidential Treatment Requested]%) off suggested
retail price.
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
4.3. DVD PRODUCT. Retailer agrees to buy and Valley agrees to sell
DVD Product at [Confidential Treatment Requested] percent
q([Confidential Treatment Requested] %) off suggested retail
price.
5. ORDER PLACEMENT AND FULFILLMENT.
5.1. FULFILLMENT. The following sets forth Valley's fulfillment
practices:
5.1.1. PRIORITY. Priority orders are defined as orders
shipped domestically via overnight or second-day air
delivery. Priority orders received on any business
day by 10:00 a.m. Pacific Standard Time ("PST") will
be shipped on the same day. Orders received after
10:00 a.m. PST will be shipped the following business
day.
5.1.2. STANDARD. Standard orders are defined as orders other
than Priority orders. On any business day that Valley
receives Standard orders by 1:00 p.m. PST, it will
ship the orders the following business day. Standard
orders received after 1:00 p.m. PST will be deemed
received the next business day and Valley will ship
these orders the business day after the day they are
deemed to be received.
5.1.3. PEAK PERIODS. The first day of a business week and
any day on which order volume is greater than 20%
above average (calculated on a floating 30-day basis)
is defined as a Peak Period. Valley shall use best
efforts to adhere to the fulfillment policies set
forth above during Peak Periods, but its failure to
so adhere during Peak Periods shall not be considered
a default under this Agreement.
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
5.2 PRE-ORDERS.
5.2.1. AUDIO PRODUCT. Retailer shall collect pre-orders
until four days prior to the date that a new release
title is first to be made available to consumers (the
"street date"), at which point such pre-orders will
be forwarded in a separate batch to Valley on the
date and time of day required by Valley. Valley shall
ship all pre-orders no later than street date minus
one day, provided Valley has received the new release
title(s) from the label/distributor of such new
release(s) in time for processing. If a street date
is delayed, Retailer will be responsible for holding
the pre-orders until four (4) days before the new
street date.
5.2.2. VIDEO AND DVD PRE-ORDERS. Retailer shall forward to
Valley all Video and DVD pre-orders as it receives
them (in batches separate from regular orders) up to
one day prior to pre-book date. Retailer shall mark
each pre- order "ship complete" by typing a "Y" in
the "ship complete" field of the EDI inbound
specifications. Valley shall ship all pre-orders no
later than street date minus one day, provided Valley
has received the new release title(s) from the
studio/distributor of such new release(s) in time for
processing. If a street date is delayed, Retailer
will be responsible for holding the pre-orders until
four (4) days before the new street date.
5.3. BACK-ORDERS. Valley shall ship the in-stock items of an order
as set forth in this Agreement and, except as set forth in
this Section 5.3, will cancel the out of stock items. Retailer
may elect to have Valley hold an order that has one or more
items out of stock until it is completely fulfilled by typing
a "Y" in the "ship complete" field of the EDI inbound
specifications. Retailer may inform Valley from time to time
of the number of days, up to a maximum of 25 days (the "Hold
Period"), that Valley is to hold such "ship complete" orders
before shipping the available products and canceling the out
of stock products. In the event that all products included in
an order are out of stock, Valley will hold the order for the
Hold
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
Period before canceling the order (subject to prior
cancellation of such order by Retailer).
6. SHIPPING.
6.1. RISK OF LOSS. All shipments under this Agreement shall be
F.O.B. Valley's shipping facility. Title and risk of loss with
respect to all orders and products shipped by Valley or Valley
under this Agreement shall pass to Retailer or its customers
upon delivery of the products to the carrier at the point of
shipment. In the event of shipping damage or orders lost in
shipment, Valley will assist in filing a claim on behalf of
Retailer and will credit Retailer any amounts received or
credits to Valley in connection with each claim.
6.2. CHOICE OF CARRIER. Valley will ship the order with the carrier
requested by Retailer or its customer. Valley will cancel any
order for which the delivery address is not serviced by the
indicated carrier, and Retailer shall have the option to
retransmit the order to be shipped via an alternate carrier.
6.3 SHIPPING COSTS. Valley will invoice Retailer's customers at
such rates as are requested by Retailer. Retailer will pay
Valley shipping costs per the shipping tables attached hereto
as Exhibit B (as amended from time to time by Valley). Valley
will provide Retailer written notice of shipping rate changes
and the effective date of such changes. Valley represents that
the shipping costs charged to Retailer are its actual shipping
costs (not considering rebates).
7. FULFILLMENT FEES.
7.1. PACKING AND HANDLING FEES. Unless otherwise provided in this
Agreement, and in full consideration of all order fulfillment
services performed by Valley, Retailer will pay Valley the
following fees for each order fulfilled:
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
7.1.1. All Products: $[Confidential Treatment Requested]
for the first unit, plus
$[Confidential Treatment Requested]
per unit after the first unit.
7.1.2. USPS Priority Mail Insured/International Surcharge:
$[Confidential Treatment Requested]
per unit shipped USPS Priority Mail
Insured or Internationally.
7.2. PAPER INSERTS. Retailer will pay a fee of $[Confidential
Treatment Requested] per paper insert packed by Valley at the
request of Retailer in product shipped under this Agreement.
Retailer shall supply the required paper inserts at no cost to
Valley. For purposes of this paragraph, paper inserts must be
lightweight, paper-based, promotional items the same size or
smaller than a standard single CD, or pre-folded to such size.
7.3. MERCHANDISE INSERTS. At Retailer's request, Valley will insert
promotional inserts (other than the paper inserts described in
paragraph 7.2) ("Merchandise Inserts") in its orders at a cost
to be negotiated by the parties. Retailer shall supply those
inserts at no cost to Valley.
7.4. INSERT BAR CODES. A unique UPC bar-code is required for each
Paper or Merchandise insert. Retailer should purchase and
apply a proprietary bar-code on all inserts. At Retailer's
request or if the bar-code does not meet Valley's standards,
Valley will create and apply a bar-code for a fee of
$[Confidential Treatment Requested] per applied bar-code.
7.5. EXCLUSIVE MERCHANDISE. Valley will receive, warehouse and ship
Exclusive Merchandise sold through Retailer for a fee to be
negotiated after a sample has
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
been received and reviewed for packing and shipping
requirements. For merchandise that is standard product (single
CDs or cassettes and single VHS) a management fee of
$[Confidential Treatment Requested] per unit will be applied.
8. RETURNS.
8.1. DEFINITIONS.
8.1.1. REJECTED RETURNS. Any of the following: accessories;
blank tape; counterfeit Product; Imports; promos; limited
editions; Product identified in audiofile as non-returnable;
Product sold by a record or video club; Product sold on a
one-way basis; Product with a last customer return date (as
defined in the audiofile license agreement) prior to the date
the returned product is received by Valley; Product without
the original artwork or liner notes: Schwann Guides; shopworn
Product (items that have damage to the artwork, have foreign
substance on the media or have been defaced); and all vinyl
Product.
8.1.2. BREACHED PRODUCT. Any Opened CDs from the following
companies: Intersound; Polygram Distribution ("PGD"); RYKO;
Sony Music Entertainment ("Sony"); Universal ("UNI"); and
Warner, Elektra and Atlantic ("WEA"); and all Opened PGD
cassettes. In addition, Opened Video and DVD Product are
considered Breached Product.
8.1.3. OPENED PRODUCT. Any Product with the top spine label or
original manufacturer's shrink wrap or "dog bone" holographic
sticker removed or cut in any way.
8.1.4. DEFECTIVE PRODUCT. Any Opened Product that is
identified as defective when returned and which is actually
defective.
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
8.1.5. ACCEPTED RETURNS. Any Product which is neither Rejected
Return nor Breached Product.
8.2. RETURN POLICY. Accepted Returns are returnable and eligible
for return credit to Retailer. Rejected Returns and Breached
Product are non-returnable and not eligible for return credit
to Retailer.
8.3. RETURN FEES. In the event Valley receives Rejected Returns or
Breached Product from Retailer, such Product will be returned
to Retailer at Retailer's expense and a $[Confidential
Treatment Requested] per unit processing charge will be
imposed. Retailer may elect to have Valley keep the Product to
avoid the $[Confidential Treatment Requested] per unit
processing charge.
8.4. REFURBISHING FEES. Retailer will pay a $[Confidential
Treatment Requested] per unit refurbishing fee on all Accepted
Opened Product except for Defective Product.
8.5. RESTOCKING FEES. Retailer will pay a [Confidential Treatment
Requested] percent ([Confidential Treatment Requested]%)
restocking fee for processing all Accepted Returns except for
Defective Product and unopened Product returned as incorrect
items.
8.6. MODIFICATIONS. Valley reserves the right to modify its return
policies from time to time. Such modifications shall be
effective upon Receipt by Retailer of written notice thereof.
9. BILLING AND PAYMENT.
9.1. INVOICES AND ACCOUNT RECONCILIATION. Valley will provide
Retailer with an invoice and account reconciliation on a
monthly basis. Invoices are due and payable thirty (30) days
after the invoice date.
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
9.2. PAST-DUE AMOUNTS. Retailer shall be charged a [Confidential
Treatment Requested] percent ([Confidential Treatment
Requested] %) late fee on any amounts not paid within thirty
(30) days after the invoice date. Furthermore, all overdue
balances not paid within thirty (30) days after the invoice
date, will be assessed interest at the lesser of [Confidential
Treatment Requested] percent ([Confidential Treatment
Requested] %) or the maximum interest rate allowable by law,
beginning on the due date. Valley, in its sole discretion, may
refer collection of any past due amount to an agency or
attorney, and Retailer will be liable for the payment of all
costs and expenses, including reasonable attorneys' fees,
associated therewith.
10. PROPRIETARY RIGHTS.
10.1. CONFIDENTIAL INFORMATION. The term "Confidential Information"
refers to this Agreement and the subject matter of this
Agreement and to all information which one party furnishes or
makes available to the other party and all information related
to one party's business which the other party acquires in the
course of performing its obligations under this Agreement.
Disclosure of Confidential Information by a party is forbidden
except in the following circumstances: (i) to employees and
outside parties, but only to the extent necessary to fulfil
its obligations under the Agreement; (ii) if the information
disclosed is already publicly known through no fault of the
disclosing party; and (iii) if the Information is required to
be disclosed by law or legal process, provided that the party,
from whom disclosure is promptly required, gives the other
party notice and agrees to cooperate with the non-disclosing
party as that party may reasonably request to oppose
disclosure.
10.2. TRANSACTION INFORMATION. Both parties shall use best efforts
to ensure maximum security of transaction information
maintained on each party's computer system including, but not
limited to, the names, addresses and products ordered by
Retailer's customers.
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
10.3. AUDIOFILE DATABASE. The rights to intellectual property
related to the audiofile database are governed by the
audiofile License (Exhibit C). Any termination of this
Agreement will automatically terminate the audiofile License,
and any termination of the audiofile License will
automatically terminate this Agreement.
10.4. NO RIGHTS TO MARKS. Each party is hereby granted no rights in
or to the other party's Marks. "Marks" means the trademarks,
service marks, trade names or other marks, registered or
otherwise, used by either Valley or Retailer, as applicable.
11. TERMINATION.
11.1. TERM. The term of this Agreement begins on the date this
Agreement is executed by both parties and expires one (1) year
thereafter.
11.2. EARLY TERMINATION. Either party may terminate this Agreement
upon thirty (30) days' written notice under the following
conditions:
11.2.1. Valley discontinues fulfillment services to on-line
customers or Retailer discontinues the on-line sale
of pre-recorded music; or
11.2.2. Valley or Retailer delivers to the other party a
30-day written notice of termination for a material
breach of this Agreement, provided such breach was
previously identified in a written notice and the
other party failed to cure such breach within thirty
(30) days.
12. LIMITATION OF REMEDIES AND EXCLUSION OF WARRANTIES. IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO RETAILER FOR INDIRECT OR CONSEQUENTIAL
DAMAGES, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES AND REGARDLESS OF THE FORM OF ACTION. ALL PRODUCT SOLD
HEREUNDER IS SOLD "AS-IS," AND VALLEY
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO
PRODUCT SOLD UNDER THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY AND FITNESS FOR PURPOSE.
13. REPRESENTATIONS AND WARRANTIES.
13.1. VALLEY'S REPRESENTATIONS AND WARRANTIES
13.1.1. Valley has the right and authority to enter into this
Agreement.
13.1.2. Valley will use best efforts to deliver Product to
Retailer's customers in substantially the same
condition as it was in when it was received by Valley
in Valley's distribution facility.
13.2. RETAILER'S REPRESENTATIONS AND WARRANTIES.
13.2.1. Retailer has the right and authority to enter into
this Agreement.
13.2.2. Retailer will not include any content on its website
that infringes on the intellectual property rights,
including copyright and trademark rights, of any
third party, and will abide by all applicable rules
and regulations.
13.2.3. Retailer will provide adequate customer service and
abide by its terms of service and privacy policies.
14. INDEMNIFICATION. Both parties will, at all times, indemnify and hold
the other party harmless from any and all third-party claims, damages,
liabilities, costs and expenses (including reasonable attorney's fees)
arising out of any error, omission, misconduct or negligence on the
part of the indemnifying party or any breach or alleged breach by such
party of any warranty or representation made by such party in this
Agreement.
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
15. FORCE MAJEURE. Neither party will be liable for failure to perform, or
the delay in ------------- performance of, any of its obligations under
this Agreement if, and to the extent that such failure or delay is
caused by events substantially beyond its control, including, but not
limited to, acts of God, acts of the public enemy or governmental body
in its sovereign or contractual capacity, war, fire, floods, strikes,
epidemics, quarantine restrictions, civil unrest or riots, freight
embargoes and/or unusually severe weather. Lack of funds by either
party shall not excuse timely performance. The parties affected shall
use best efforts to avoid or remove such causes of non-performance or
delay, and shall continue performance hereunder with reasonable
dispatch whenever such causes are removed. If any such non-performance
or delay continues for more than sixty (60) days, the unaffected party
may elect to terminate this Agreement upon written notice to the other
party.
16. GENERAL.
16.1. NOTICE. All notices, including those related to product,
pricing, ordering and fulfillment policies that will have a
material impact on the other party's business, shall be in
writing and delivered by certified mail, postage prepaid and
return receipt requested, or transmitted either by facsimile
or electronic mail if confirmed contemporaneously by such
mailing, to the addresses provided in writing, from time to
time, by the parties.
16.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the
entire agreement of the parties concerning the subject matter
hereof, superseding all prior proposals, negotiations and
agreements concerning the subject matter of this Agreement. No
representation or promise relating to and no amendment of this
Agreement will be binding unless it is in writing and signed
by authorized representatives of both parties.
16.3. ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either party to a third party without the prior
written consent of the other party.
NetRadio
-----
Valley
-----
<PAGE>
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
Subject to the foregoing, this Agreement will bind and inure
to the benefit of the successors and permitted assigns of
Valley and Retailer.
16.4. CAPTIONS:WAIVER SEVERABILITY. The captions appearing in this
Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or
interpretation of this Agreement. No waiver by a party of any
breach of any provision of this Agreement will constitute a
waiver of any other provision of this Agreement. If any
provision of this Agreement shall be held invalid, void or
unenforceable, the remaining provisions hereof shall in no way
be affected or impaired, and such remaining provisions shall
remain in full force and effect.
16.5. GOVERNING LAW AND ARBITRATION. This Agreement shall be
construed and enforced pursuant to the laws of the State of
California. If the parties are unable to settle any
disagreements regarding this Agreement or the project
contemplated by this Agreement, such disagreements shall be
submitted to binding arbitration within the State of
California under the rules of the American Arbitration
Association as then in effect.
16.6. FACSIMILE SIGNATURES; COUNTERPARTS. Facsimile signatures will
be accepted as original signatures for all purposes. This
Agreement may be executed in counterparts.
In witness whereof, the parties hereto have executed this Agreement as of the
date first above written.
VALLEY MEDIA, INC. NETRADIO CORPORATION
By: Nancy Moore Jimenez By: Edward A. Tomechko
------------------- ------------------
Its: Director New Media Its: President & CEO
Telephone: 530 661-5416 Telephone: (612) 379-6233
Facsimile: 530 661-7878 Facsimile: (612) 378-9540
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
Exhibit A
VALLEY MEDIA INC.
PRICE SCHEDULE FOR ALL LABELS
[CONFIDENTIAL TREATMENT REQUESTED]
<TABLE>
<CAPTION>
% DISCOUNT SCHEDULE
COMPACT DISCS Suggested Retail Price Invoice Cost
------------- ---------------------- ------------
<S> <C> <S>
---------------------- ------------
---------------------- ------------
---------------------- ------------
ALL LABELS ---------------------- ------------
---------------------- ------------
---------------------- ------------
- --------------------------------------------------------------------------------
CASSETTES
- --------------------------------------------------------------------------------
---------------------- ------------
---------------------- ------------
---------------------- ------------
ALL LABELS ---------------------- ------------
---------------------- ------------
---------------------- ------------
- --------------------------------------------------------------------------------
SINGLES
- --------------------------------------------------------------------------------
---------------------- ------------
---------------------- ------------
---------------------- ------------
ALL LABELS ---------------------- ------------
---------------------- ------------
---------------------- ------------
- --------------------------------------------------------------------------------
EXCEPTIONS (a)
- --------------------------------------------------------------------------------
Compact Discs Only (b)
---------------------- ------------
</TABLE>
PRICES SUBJECT TO CHANGE
VALLEY MEDIA, INC.
1280 SANTA ANITA COURT/P.O. BOX 2057/WOODLAND, CA 95776
PHONE: 800.845.8444/FAX: 800.999.1794 O
UTSIDE THE U.S. PHONE: 530.661.5442/FAX: 530.661.2502
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
Exhibit B
[Confidential Treatment Requested]
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
AUDIOFILE LICENSE AGREEMENT
This agreement ("Agreement"( is entered into by and between Valley Media, Inc.
(the "Licensor"); and the party identified in Exhibit A as the "Licensee" (not
including any subsidiaries, affiliates, or franchisees). This Agreement is the
complete and exclusive statement of the agreement between the parties with
respect to the subject matter hereof (superseding all proposals, communications
or prior agreements, oral or written with respect to such subject matter); and
may be amended only in a writing signed by both parties. As used herein,
"Database" means the proprietary database described in the Audiofile
Specifications attached as Exhibit B to this Agreement created and developed by
Licensor, and includes "Database Updates," daily updates of information
contained in the Database.
1. LICENSE GRANT
(a) Licensor hereby grants to Licensee during the term of this Agreement, a
non-exclusive, non-transferable, non-sublicenseable license to:
(i) Load, transmit, execute, store or display the Database on the
Licensee's servers at the location(s) specified in Exhibit A
attached hereto for use by Licensee and Licensee's retail
customers;
(ii) Modify the Database for use by Licensee and Licensee's retail
customers; or
(iii) Incorporate the Database or portions thereof into its own
database for use by Licensee and Licensee's retail customers,
provided, however, that the Database portion of the resulting
conjoined work may be used only in accordance with the license
granted in Section 1(a) above.
(b) Licensee may not, without prior written consent from Licensor,
sublicense, sell, lend, rent the Database or any portion thereof, or
assign this license or any of its rights or obligations under this
Agreement to any party; provided, however, that Licensee may make
copies of the Database sufficient for back-up, development and
production purposes.
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
2. FEES
(a) As consideration for the License granted herein, upon execution of this
Agreement, Licensee shall pay to Licensor the TOTAL FEES DUE set forth
on Fees-Line 4 of Exhibit A, which includes:
(i) The LICENSE FEE (Fees-Line 1 of Exhibit A) to operate the
Database at the location(s) listed in Exhibit A; and
(ii) The PRO-RATED UPDATE FEE (Fees-Line 2 of Exhibit A) for the
Database Updates for the specified period; and
(b) Licensee shall also pay the UPDATE FEE (Fees-Line 5 of Exhibit A) to
Licensor as consideration for Licensor providing the Database Updates.
The subscription is to be paid quarterly in advance on the first day of
each calendar quarter (January 1, April 1, July 1 and October 1). The
UPDATE FEE entitles the Licensee to receive Database updates for the
succeeding three (3) month period.
(c) Licensor shall provide Licensee with reasonable telephone support for
the Database and Database Update at no additional charge.
3. RIGHTS IN TANGIBLE AND INTELLECTUAL PROPERTY
Licensor shall be the sole owner of the Database, Database Updates and
all supporting materials as between Licensor and Licensee, including
any and all copies thereof, and including all patent, trademark,
copyright, trade secret and other intellectual property rights
associated therewith. Licensee agrees to treat the Database, Database
Updates and supporting materials as confidential trade secrets of the
Licensor.
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
4. TERM: TERMINATION
The term of the Agreement and the licenses granted hereunder shall
commence on the Agreement Date specified in Exhibit A and continue
until terminated as set forth herein:
Either party may terminate the term of this Agreement on thirty (30)
days' notice for a material breach of this Agreement, provided such
breach was previously identified in a written notice and the other
party did not cure that breach within thirty (30) days. If Licensee
terminates this Agreement or the Order Fulfillment Agreement between
the parties, then Licensor will refund a pro-rata portion of all fees
paid by Licensee under this Agreement. The term of this Agreement may
also be terminated with the mutual consent of the parties.
5. WARRANTY
(a) Licensor warrants that the media on which or transmission by which the
Database or Database Update are delivered will be free from defects.
Licensor's sole obligations under the foregoing warranty are limited to
(i) replacement of any defective media, (ii) re-transmission of the
Database or Database Update, or (iii) termination of this Agreement and
refunding a pro rata portion of any FEES paid in advance by Licensee.
(b) EXCEPT AS SET FORTH IN SECTION 5(a) ABOVE:
(i) THE DATABASE AND DATABASE UPDATES ARE PROVIDED "AS IS" AND
LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES WITH RESPECT
TO THE CONTENT, SUFFICIENCY, ACCURACY, COMPLETENESS OR
CURRENTNESS THEREOF.
(ii) LICENSOR EXPRESSLY DISCLAIMS ANY EXPRESS, IMPLIED OR STATUTORY
WARRANTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSES.
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
6. LIMITATIONS OF LIABILITIES
(a) IN NO EVENT WILL LICENSOR BE LIABLE TO LICENSEE FOR THE
RESULTS OF LICENSEE'S USE OF THE DATABASE, FOR ANY
IMPAIRMENT OF LICENSEE'S ABILITY TO CONDUCT ITS
BUSINESS AS A RESULT OF ITS USE OR INABILITY TO USE THE
DATABASE. NEITHER PARTY SHALL BE LIABLE FOR ANY
LOSSES OR DAMAGES, WHETHER DIRECT OR INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL, ARISING FROM
THIS AGREEMENT; THE DESIGN, CONTENT, OPERATION OR USE
OF THE DATABASE; OR FOR ANY ERRORS OR OMISSIONS
CONTAINED THEREIN, REGARDLESS OF THE CAUSE, THE
CIRCUMSTANCES, OR THE FORM OF THE ACTION.
(b) IN NO EVENT WILL LICENSOR'S LIABILITY TO LICENSEE FOR ANY CLAIMS,
LOSSES OR DAMAGES ARISING UNDER THIS AGREEMENT, WHETHER IN CONTRACT,
TORT OR OTHER FORM OF ACTION, EXCEED THE LICENSE FEE SPECIFIED IN
FEES-LINE 2 OF EXHIBIT A.
7. INDEMNIFICATION
Licensee will at all times indemnify and hold harmless Licensor from
any and all claims, damages, liabilities, costs and expenses, including
reasonable legal expenses and attorneys fees, arising out of any claims
arising out of Licensee's use of the Database.
8. ASSIGNMENT
This Agreement may not be assigned by either party without the express
written consent of the other party; provided, however, that without
Licensee's consent, Licensor may assign its right to receive funds
hereunder and may assign this Agreement to an affiliate or subsidiary
of Licensor.
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
NetRadio Corporation
Order Fulfillment Agreement
9. SURVIVAL
Paragraphs 6, 7 and 8 of this Agreement will survive the expiration or
termination of the term of this Agreement.
10. TAX PAYER IDENTIFICATION NUMBER
Licensor's Tax Payer Identification Number is 942556440.
LICENSOR: LICENSEE:
Valley Media, Inc. /s/ D.W. Pederson
1280 Santa Anita Court -----------------
Woodland, California 95776 D.W. Pederson
-----------------
C.C.O.
-----------------
By: /s/ Nancy Moore Jimenez By (Database):
----------------------- -------------------
Its: Director New Media By (Database Updates):
------------
Its:
-----------------------------
<PAGE>
EXHIBIT 10.17
EXHIBIT 10.17 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this exhibit
and filed separately with the SEC pursuant to a request
for confidential treatment under Rule 406
AUDIOFILE LICENSE AGREEMENT
EXHIBIT A
LICENSEE INFORMATION: AGREEMENT DATE: 4/1/98
NETRADIO, A DIVISION OF NAVARRE, INC.
- --------------------------------------------------------------------------------
(Legal Name of Business)
NETRADIO
- --------------------------------------------------------------------------------
(Store Name)
43 MAIN STREET S.E.
- --------------------------------------------------------------------------------
(Billing Address)
MINNEAPOLIS, MN 55414
- --------------------------------------------------------------------------------
(City, Sate, ZIP Code)
(612) 378-2211 (612) 378-9540
- --------------------------------------------------------------------------------
(Phone Number) (Fax Number)
DAVID WITZIG SEAN WALKER
- --------------------------------------------------------------------------------
(Owner) (Technical Contact)
LOCATION(S) USING DATABASE: *PLEASE ATTACH ADDITIONAL SHEETS IF NECESSARY*
1) STORE NAME: ABOVE
----------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------
PHONE & CONTACT:
------------------------------------------------------
2) STORE NAME:
----------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------
PHONE & CONTACT:
------------------------------------------------------
3) STORE NAME;
----------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------
PHONE & CONTACT:
------------------------------------------------------
MEDIUM FOR DELIVERY OF DATABASE: o Database Date:
----------
o 3 1/2" High Density Diskette
o Included with POS software o Current through:
---------
o Other:
----------------------------
o Update Disk Type:
--------
MEDIUM FOR DELIVERY OF UPDATES:
o 3 1/2" High Density Diskette o Update Frequency:
--------
o BBS Retrieval
o Other: o Software System: NT/ SITE
SERVER
-------------------------
OPERATING SYSTEM ON EQUIPMENT USING THE o Modem Speed: MULTIPLE
T3'S (OC3)
-------------------------
DATABASE/UPDATES:
o MS-DOS or PC-DOS
o Macintosh
o SCO Xenix
o Unix
o Other:
--------------------------
<TABLE>
<S> <C>
FEES:
Line 1, LICENSEE FEE: $[CONFIDENTIAL TREATMENT REQUESTED] PER YEAR
Line 2, PRO-RATED UPDATE FEE: $__________ for the period from ____________ to ____________
Line 3, MISCELLANEOUS FEES: $__________
Line 4, TOTAL FEES DUE: $__________ upon receipt, to initiate your subscription.
Line 5, UPDATE FEE: $__________ per o Calendar Quarter (audiofile Rep Initials: __________)
(for periodic updates) $__________ per o Year
</TABLE>
By initialing here, I agree that all information listed above is true and
correct, and that I have disclosed all locations using the Database and Database
Updates. D.W. (Please Initial)
-------
(Licensee)
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
EXHIBIT 10.18
AT&T NETWORKED COMMERCE SERVICES
GENERAL AGREEMENT
- --------------------------------------------------------------------------------
Customer Name ("Customer") AT&T
Networked Commerce Services Contract
Management
NetRadio Network
- --------------------------------------------------------------------------------
Address Address
43 Main Street Southeast, Suite 149 55 Corporate Drive, Room - 32B15
Minneapolis, MN 55414 Bridgewater, NJ 08807
- --------------------------------------------------------------------------------
This Agreement consists of this Cover Sheet, the attached General Terms and
Conditions and all Service Attachments ("Attachments") indicated below
(collectively, this "Agreement"). In the event of conflict between the General
Terms and conditions and any Attachment, the Attachment shall take precedence.
This Agreement shall become effective when signed by both parties and shall
continue in effect for as long as any Attachment remains in effect, unless
earlier terminated in accordance with the provisions of the Agreement. The term
of each Attachment is stated in the Attachment.
- --------------------------------------------------------------------------------
SERVICE(S) ORDERED
- --------------------------------------------------------------------------------
All of the following services must by
accompanied with an AT&T WEB SITE
/ / AT&T WorldNet-Registered Trademark- SERVICES ATTACHMENT
Managed Internet Service
/ / AT&T Easy World Wide Web
Service-Registered Trademark-
("EW3")
/ / AT&T WorldNet-Registered Trademark- / / AT&T Easy World Wide Web
Enhanced Fax Service Service-Registered Trademark-
("EW3" Basic)
/ / AT&T Easy World Wide Web
Service-Registered Trademark-
/ / AT&T WorldNet-Registered Trademark- ("EW3" for Alternate Channel)
Virtual Private Network Service / / AT&T Enhanced Web Development
Package ("EWDP")
/ / AT&T Dedicated Hosting Service
- Level 1
/ / AT&T WorldNet-Registered Trademark- /X/ AT&T Dedicated Hosting Service
Business Dial Service - Level 2
/ / AT&T SecureBuy-TM- Service
/ / AT&T Interactive Answers-TM-
Service
/ / AT&T Web Site Service
eCommerce Suite
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS
EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND AGREES TO BE BOUND BY
THEM.
- --------------------------------------------------------------------------------
CUSTOMER: AT&T CORP.
By: /s/ Edward A. Tomechko By:
--------------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
EDWARD A. TOMECHKO
- ------------------------------------- -----------------------------------
(Typed or Printed Name) (Typed or Printed Name)
PRESIDENT & C.E.O.
- ------------------------------------- -----------------------------------
(Title) (Title)
3/12/99
- ------------------------------------- -----------------------------------
(Date) (Date)
(612) 379-6233
- -------------------------------------
(Telephone #)
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
SALES TRACKING INFORMATION
- --------------------------------------------------------------------------------
AT&T SALES REPRESENTATIVE INFORMATION AT&T AUTHORIZED AGENT INFORMATION
------------------------------------- ---------------------------------
- --------------------------------------------------------------------------------
BRANCH MANAGER Del Van Eklenburg NAME:
- --------------------------------------------------------------------------------
NAME: David Reitman COMPANY NAME:
- --------------------------------------------------------------------------------
PHONE NUMBER: (213) 787-0288 PHONE NUMBER:
- --------------------------------------------------------------------------------
E-MAIL: [email protected] E-MAIL:
- --------------------------------------------------------------------------------
ADDRESS: 700 S. Flower ADDRESS:
Street, Suite 810
Los Angeles, CA
90017
- --------------------------------------------------------------------------------
SALES STRATA: N/A Agent Code:
- --------------------------------------------------------------------------------
SALES REGION: CENTRAL
- ------------------------------------------
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
AT&T NETWORKED COMMERCE SERVICES
GENERAL AGREEMENT
The following terms and conditions shall apply to the provision and use of the
products and services (individually a "Service" and collectively the "Services")
provided pursuant to the Attachments.
1.0 DEFINITIONS
1.1 "Affiliate" of a party means any entity that controls, is controlled by
or is under common control with such party, and, in the case of AT&T, also means
any entity which AT&T has authorized under contract to offer any Service or part
of any Service.
1.2 "Content" means information made available, displayed or transmitted in
connection with a Service (including, without limitation, information made
available by means of an HTML "hot link" a third party posting or similar means)
including all trademarks, service marks and domain names contained therein as
well as the contents of any bulletin boards or chat forums, and, all updates,
upgrades, modifications and other versions of any of the foregoing.
1.3 "User" means anyone whom CUSTOMER allows, by action or omission, to use
or access any Service including, without limitation. CUSTOMER's Affiliates.
2.0 CHARGES AND BILLING
2.1 CUSTOMER shall pay AT&T for its and Users' use of the Services at the
rates and charges specified in the Attachments, without deduction, setoff or
delay for any reason, including circumstances arising under any other
Attachment. Charges set forth in the Attachments are exclusive of any
applicable taxes. CUSTOMER may be required to pay a deposit before Services are
provided or as specified in Section 10.1.
2.2 CUSTOMER shall pay all shipping charges, taxes (excluding those on
AT&T's net income) and other similar charges (and any related interest and
penalties) relating to the sale, transfer of ownership, installation, license,
use or provision of the Services, except to the extent a valid tax exemption
certificate is provided by CUSTOMER to AT&T prior to the delivery of Services.
2.3 Payment is due within 30 days after the date of invoice and shall refer
to the invoice number. Restrictive endorsements or other statements on checks
accepted by AT&T will not apply. CUSTOMER shall reimburse AT&T for all costs
(including reasonable attorney fees) associated with collecting delinquent or
dishonored payments. At AT&T's option, interest charges may be added to any
past due amounts at the lower of 1.5% per month or the maximum rate allowed by
law.
3.0 RESPONSIBILITIES OF THE PARTIES
3.1 AT&T shall provide Services to CUSTOMER in accordance with the terms and
conditions and at the charges specified in this Agreement.
3.2 CUSTOMER represents and warrants that its and Users' use of the Services
and the Content will at all times comply with all applicable laws, regulations
and written and electronic instructions for use. CUSTOMER shall promptly
resolve all claims by anyone that CUSTOMER's or Users' use or Content violate
any laws or regulations. AT&T reserves the right to terminate affected
Attachments, suspend affected Services and/or remove CUSTOMER or Users' Content
from the Services of AT&T (i) determines, in its sole discretion, that AT&T's
public image, reputation or goodwill will be adversely affected or that such use
or Content does not conform with the requirements set forth in this Agreement,
or that AT&T could be subject to liability; or (ii) receives notice from anyone
that CUSTOMER's or Users' use or Content may violate any laws or regulations.
AT&T's actions or inaction under this Section shall not constitute review or
approval of CUSTOMER's or Users' use or Content.
3.3 AT&T grants to CUSTOMER the right to permit Users to access and use the
Services, provided that CUSTOMER shall remain solely responsible for such access
and use and shall defend, indemnify and hold harmless AT&T from and against all
Damages (including, without limitation, reasonable attorneys fees), whether or
not arising out of third-party claims and regardless of the form of action,
whether in contract, tort, strict liability or otherwise, concerning or relating
to: any noncompliance by CUSTOMER or Users with any provision of this
Agreement; negligent acts or omissions by CUSTOMER or Users; CUSTOMER's or
Users' Content or use of the Services (including, without limitation,
infringement of any personal or property rights); and claims by any User or
business affiliate of Customer relating to any Service failure, defect or
outage.
3.4 Except to the extent required by law or expressly permitted in an
Attachment, CUSTOMER may not resell any Services.
4.0 USE OF INFORMATION
4.1 All documentation, technical information, Software, business
information, proposals for new Services or other materials that are disclosed by
either party to the other in the course of performing this Agreement shall be
considered proprietary information ("INFORMATION") of the disclosing party,
provided such information is in written or other tangible form that is clearly
marked as "proprietary" or "confidential", or is disclosed orally as is both
identified as proprietary or confidential at the time of disclosure and
summarized in a writing so marked within 15 business days following the oral
disclosure. This Agreement shall be deemed to be AT&T INFORMATION.
4.2 Each party's INFORMATION shall, for a period of 3 years following its
disclosure (except in the case of Software, for an indefinite period): (i) be
held in confidence; (ii) be used only for purposes of performing this Agreement
and using the Services; and, (iii) not be disclosed except to the receiving
party's employees, agents and contractors having a need-to-know (provided that
such agents and contractors are not direct AT&T competitors and agree in writing
to use and disclosure restrictions as restrictive as this Article 4) or to the
extent required by law.
4.3 The restrictions in Section 4.2 shall not apply to any information that:
(i) is independently developed by the receiving party; or (ii) is lawfully
received by the receiving party free of any obligation to keep it confidential,
or (iii) becomes generally available to the public other than by breach of this
Agreement.
4.5 CUSTOMER authorizes AT&T to: (i) monitor and record calls and
transmissions using the Services and calls or transmissions to AT&T concerning
the Services in order to detect fraud, check quality and operate, maintain and
repair the Services; and (ii) disclose such information to the extent AT&T deems
it is legally required.
5.0 PUBLICITY AND MARKS
5.1 No public statements or announcements relating to this Agreement shall
be issued by either party without the prior written consent of the other party.
5.2 Each party agrees not to display or use, in advertising or otherwise,
any of the other party's trade names, logos, trademarks, service marks or other
indicia of origin (collectively, "Marks") without the other party's prior
written consent, provided that such consent may be revoked at any time and
consent to use AT&T's Marks can only be granted by the AT&T Vice President,
Corporate Identity.
6.0 SOFTWARE
6.1 AT&T grants CUSTOMER a personal, non-transferable and non-exclusive
license (without the right to sublicense) to use, in object code form, all
software and associated written and electronic documentation and date furnished
pursuant to the Attachments (collectively, the "Software"), solely in connection
with the Services and solely in accordance with applicable written and
electronic documentation. CUSTOMER will refrain from taking any steps to
reverse assemble, reverse compile or otherwise derive a source code version of
the Software. The Software shall at all times remain the sole and exclusive
property
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
of AT&T or its suppliers. "Third-Party Software" means Software that
bears a copyright notice of a third party. "AT&T Software" means all Software
other than Third-Party Software.
6.2 CUSTOMER shall not copy or download the Software, except to the extent
expressly provided otherwise in the applicable documentation for the Service or
in writing signed by AT&T. Any copy must contain the same copyright notices and
proprietary markings as the original Software.
6.3 CUSTOMER shall ensure that its employees and Users comply with the terms
and conditions of this Article 6.
6.4 The term of the license granted hereunder shall be coterminous with the
Attachment which covers the Software.
6.5 CUSTOMER agrees to comply with any additional restrictions that are
provided with any Third-Party Software.
6.6 AT&T warrants that all AT&T Software will perform substantially in
accordance with its applicable published specifications during a warranty period
of ninety (90) days beginning on the date of delivery of the AT&T Software to
CUSTOMER. If CUSTOMER returns to AT&T, within the 90-day warranty period, any
AT&T Software that does not comply with this warranty, then AT&T, at its option,
will either repair or replace the portion of the AT&T Software that does not
comply or refund the amount paid by CUSTOMER for such failed or defective AT&T
Software. This warranty will apply only if the AT&T Software is used in
accordance with the terms of this Agreement and is not altered, modified or
tampered with by CUSTOMER or Users.
7.0 DISPUTE RESOLUTION
7.1 Except as described in Section 7.3, all disputes, controversies or
claims, whether based in contract, tort, statute, fraud, misrepresentation or
any other legal theory, arising out of or relating to this Agreement and the
Services provided under this Agreement (collectively, "Disputes"), not resolved
amicably between the parties shall be settled by final and binding arbitration
conducted in New York or other mutually agreed location by one neutral
arbitrator, in accordance with this Agreement and the then current Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). The
arbitrability of Disputes shall also be determined by the arbitrator. Each
party shall bear its own expenses and the parties shall equally share the filing
and other administrative fees of the AAA and the expenses of the arbitrator.
Any award of the arbitrator shall be in writing and shall state the reasons for
the award. Judgement upon an award may be entered in any Court having competent
jurisdiction. The arbitrator shall not have the power to award any damages in
excess of the liability limitations set forth in this Agreement, including any
Attachment. The arbitrator shall not have the power to order pre-hearing
discovery of documents or the taking of depositions, but may compel attendance
of witnesses and the production of documents at the hearing. The Federal
Arbitration Act, 9 U.S.C. Section 1 to 14, shall govern the interpretation and
enforcement of this Section 7.1.
7.2 The parties, their representatives and participants and the arbitrator
shall hold the existence, content and result of the arbitration in confidence,
except to the limited extent necessary to enforce a final settlement agreement
or to obtain or enforce a judgement on any arbitration decision and award.
7.3 Dispute relating to: (i) matters that are subject to the primary
jurisdiction of the FCC, a state public utility commission or other
administrative agency; or (ii) non-compliance with Articles 4,5 or 6 of this
Agreement, a violation of which would cause irreparable harm for which damages
would be inadequate; or (iii) billing or payment of charges under an Attachment;
or (iv) Software, technology or other intellectual property; shall be exempt
from the binding arbitration requirement described in Section 7.1. As to
Disputes described in this Section 7.3, the claimant reserves the right to seek
relief from an administrative agency having primary jurisdiction or a court of
competent jurisdiction, as appropriate.
8.0 FORCE MAJEURE
Neither AT&T nor CUSTOMER shall be liable for any delay, failure in performance,
loss or damage due to: fire, explosion, power blackout, earthquake, flood, the
elements, strike, embargo, labor disputes, acts of civil or military authority,
war, acts of God, acts or omissions of carriers or suppliers, acts of regulatory
or governmental agencies, or other causes beyond such party's reasonable
control, whether or not similar to the foregoing, except that CUSTOMER's
obligation to pay for charges incurred shall not be excused.
9.0 LIMITATIONS OF LIABILITY
9.1 For purposes of Section 3.3, and Articles 8 and 9 and all other
exclusive remedies and limitations of liability set forth in this Agreement or
any Attachment. "AT&T" shall be defined as AT&T, its Affiliates, and its and
their employees, directors, officers, agents, representatives, subcontractors,
interconnection service providers and suppliers; and "Damages" will refer
collectively to all injury, damage, liability, loss, penalty, interest and
expense incurred.
9.2 AT&T's ENTIRE LIABILITY, AND CUSTOMER'S EXCLUSIVE REMEDIES AGAINST AT&T,
FOR ANY DAMAGES CAUSED BY ANY SERVICE DEFECT OR FAILURE, OR FOR OTHER CLAIMS
ARISING IN CONNECTION WITH ANY SERVICE OR THIS AGREEMENT SHALL BE,
(i) FOR BODILY INJURY OR DEATH TO ANY PERSON NEGLIGENTLY CAUSED BY AT&T,
CUSTOMER'S RIGHT TO PROVEN DIRECT DAMAGES;
(ii) FOR DEFECTS OR FAILURES OF SOFTWARE, THE REMEDIES SET FORTH IN SECTION 6.6;
(iii) FOR DAMAGES OTHER THAN THOSE SET FORTH ABOVE AND NOT EXCLUDED UNDER THIS
AGREEMENT OR ANY ATTACHMENT, AT&T'S LIABILITY SHALL BE LIMITED TO PROVEN DIRECT
DAMAGES NOT TO EXCEED PER CLAIM (OR IN THE AGGREGATE DURING ANY TWELVE-MONTH
PERIOD) THE TOTAL, NET PAYMENTS MADE BY CUSTOMER FOR THE APPLICABLE SERVICE
UNDER THE APPLICABLE ATTACHMENT DURING THE 12 MONTHS PRECEDING THE MONTH IN
WHICH THE DAMAGE OCCURRED.
9.3 IN NO EVENT SHALL AT&T BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE, RELIANCE OR SPECIAL DAMAGES. INCLUDING WITHOUT
LIMITATION, DAMAGES FOR LOST PROFITS, ADVANTAGE, SAVINGS, OR REVENUES OF ANY
KIND OR INCREASED COST OF OPERATIONS, WHETHER OR NOT AT&T HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
9.4 AT&T ALSO SHALL NOT BE LIABLE FOR ANY DAMAGES ARISING OUT OF OR RELATING
TO SERVICE INTERRUPTIONS; LOST OR ALTERED MESSAGES OR TRANSMISSIONS;
INTEROPERABILITY, INTERACTION OR INTERCONNECTION PROBLEMS WITH APPLICATIONS,
EQUIPMENT, SERVICES OR NETWORKS PROVIDED BY CUSTOMER OR THIRD PARTIES; OR
UNAUTHORIZED ACCESS TO OR THEFT, ALTERATION, LOSS OR DESTRUCTION OF CUSTOMER'S,
USERS' OR THIRD PARTIES' APPLICATIONS, CONTENT, DATA, PROGRAMS, INFORMATION,
NETWORK OR SYSTEMS.
9.5 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT. AT&T MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT OR
ANY WARRANTY ARISING BY USAGE OF TRADE, COURSE OF DEALING OR COURSE OF
PERFORMANCE. AT&T DOES NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED OR
ERROR-FREE, OR THAT THE SERVICES WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE
SERVICES WILL PREVENT UNAUTHORIZED ACCESS BY THIRD PARTIES. AT&T DOES NOT
AUTHORIZE ANYONE TO MAKE A WARRANTY OF ANY KIND ON ITS BEHALF AND CUSTOMER
SHOULD NOT RELY ON ANYONE MAKING SUCH STATEMENTS.
9.6 THE LIMITATIONS OF LIABILITY SET FORTH IN THIS ARTICLE 9 AND IN ANY
ATTACHMENT SHALL APPLY: (i) REGARDLESS OF THE
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE; AND
(ii) WHETHER OR NOT DAMAGES WERE FORESEEABLE. THESE LIMITATIONS OF LIABILITY
SHALL SURVIVE FAILURE OF ANY EXCLUSIVE REMEDIES PROVIDED IN THIS AGREEMENT.
9.7 This Agreement does not expressly or implicitly provide any third party
(including Users) with any remedy, claim, liability, reimbursement, cause of
action or other right or privilege.
10.0 TERMINATION
10.1 If a party fails to perform or observe any material term or condition of
this Agreement and the failure continues unremedied for 30 days after receipt of
written notice, the other party may terminate for cause any Attachment affected
by the breach. If CUSTOMER fails to pay any charge when due and such failure
continues unremedied for ten days after written notice by AT&T, AT&T may, at its
option, terminate affected Attachments, suspend Service under affected
Attachments, require a deposit under any or all Attachments as a condition of
continuing to provide Services and/or terminate this entire Agreement.
10.2 An Attachment may be terminated immediately upon written notice by: (i)
either party if the other party has violated the other's Marks, becomes
insolvent or involved in a liquidation or termination of its business, files a
bankruptcy petition, has an involuntary bankruptcy petition filed against it (if
not dismissed within 30 days of filing), becomes adjudicated bankrupt or becomes
involved in an assignment for the benefit of its creditors; (ii) AT&T pursuant
to Section 3.2 or in the event of a material breach of any provision of Article
6; or (iii) either party if mandated by governmental or regulatory authority.
10.3 CUSTOMER shall be responsible for payment of all charges under a
terminated Attachment incurred as of the effective date of termination.
CUSTOMER shall also be liable to AT&T for Termination Charges, as specified in a
terminated Attachment, in the event that AT&T terminates under Section 10.1,
10.2(i) or (ii), or CUSTOMER terminates without cause.
10.4 Termination by either party of an Attachment does not waive any other
rights or remedies it may have under this Agreement.
10.5 Except as provided under Section 10.1, termination or suspension of an
Attachment shall not affect the Services provided or the rights and obligations
of the parties under any other Attachment.
11.0 GENERAL PROVISIONS
11.1 Any supplement, modification or waiver of any provision of this
Agreement or any Attachment must be in writing and signed by authorized
representatives of both parties.
11.2 This Agreement may not be assigned by either party without the prior
written consent of the other, except that AT&T may, without CUSTOMER's consent,
assign this Agreement or any Attachment to a present or future Affiliate or
successor and may assign its right to receive payments. AT&T may subcontract
work to be performed under this Agreement, but shall retain responsibility for
all such work.
11.3 If any portion of this Agreement is found to be invalid or
unenforceable, the remaining provisions shall remain in effect and the parties
shall promptly begin negotiations to replace invalid or unenforceable portions
that are essential parts of this Agreement.
11.4 Any initial demand for arbitration pursuant to Section 7.1 and any legal
action arising in connection with this Agreement must begin within two years
after the cause of action arises.
11.5 All notices under this Agreement shall be in writing and either mailed
by certified or registered mail, postage prepaid return receipt requested, sent
by express courier or hand delivered and addressed to each party at the address
set forth on the front of this Agreement or, if the notice relates to a specific
Attachment, the address set forth in such Attachment or, in any case, such other
address a party designates in writing.
11.6 The construction, interpretation and performance of this Agreement shall
be governed by the substantive law of the State of New York, excluding its
choice of law rules and the United Nations Convention on Contracts for
International Sale of Goods.
11.7 The respective obligations of CUSTOMER and AT&T which by their nature
would continue beyond the termination or expiration of this Agreement or any
Attachment shall survive termination or expiration of this Agreement or any
Attachment.
11.8 With respect to any indemnification obligations under this Agreement;
(i) the indemnified party will notify the indemnifying party in writing
promptly upon learning of any claim for suit for which indemnification may be
sought; provided that failure to do so shall not affect the indemnity except to
the extent the indemnifying party is prejudiced thereby; (ii) the indemnifying
party shall have control of the defense or settlement, provided that the
indemnified party shall have the right to participate in such defense or
settlement with counsel of its own selection and at its sole expense; (iii) the
indemnified party shall reasonably cooperate with the defense, at the
indemnifying party's expense; and (iv) the indemnifying party shall not,
without the indemnified party's express prior written consent, make any
admission or stipulation, or consent to any settlement agreement or injunctive
or non-monetary relief which could adversely affect any indemnified party.
11.9 THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH
RESPECT TO THE SERVICES TO BE PROVIDED HEREUNDER. THIS AGREEMENT SUPERSEDES ALL
PRIOR AGREEMENTS, PROPOSALS, REPRESENTATIONS, STATEMENTS OR UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, CONCERNING SUCH SERVICES OR THE RIGHTS AND OBLIGATIONS
RELATING TO THOSE SERVICES. THIS AGREEMENT SHALL NOT BE CONTRADICTED, EXPLAINED
OR SUPPLEMENTED BY ANY WRITTEN OR ORAL STATEMENTS, PROPOSALS, REPRESENTATIONS,
ADVERTISEMENTS, SERVICE DESCRIPTIONS OR CUSTOMER PURCHASE ORDER FORMS NOT
EXPRESSLY SET FORTH IN THIS AGREEMENT OR AN ATTACHMENT.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
AT&T WEB SITE SERVICES ATTACHMENT
ADDITIONAL TERMS AND CONDITIONS
- ----------------------------------
Customer Name
NetRadio Network
- ----------------------------------
This attachment consists of the following terms and conditions, and, as
applicable, the attached Additional Terms and Conditions for AT&T Easy World
Wide Web-Registered Trademark- Service, AT&T Enhanced Web Development Package,
AT&T Dedicated Hosting Service Level 1, AT&T Dedicated Hosting Service Level
2, AT&T SecureBuy-TM- Service and AT&T interactiveAnswers-TM- Service, the
applicable Price Schedule(s) (collectively, this "Attachment"). This
Attachment, together with the AT&T Networked Commerce Services General
Agreement to which this is attached, sets forth the terms and conditions
pursuant to which AT&T will provide the Web Site Services which Customer now
orders or subsequently orders during the term of this Attachment.
1. PRICE SCHEDULES.
The current rates for the Web Site Services are set forth in the attached Price
Schedule(s). AT&T may change any of the Price Schedules at any time upon
thirty (30) days' prior notice to Customer.
2. CUSTOMER RIGHTS AND RESPONSIBILITIES.
(a) Customer agrees that AT&T will not provide customer service for end users
of the Customer's Web Site Services. Customer will have sole responsibility for
fulfillment of purchase orders and delivery of all produces and services
purchased through the Web Sites. Customer will also have sole responsibility
for any collection activities relating to a purchaser's failure to make payment,
and complying with all applicable laws, including tax laws in any jurisdiction
associated with such sale.
(b) In the event that any virus or destructive element is found in or furnished
with any Content, Customer will use its best efforts, upon learning that such
situation exists, to immediately eliminate the virus or destructive element.
Customer will notify AT&T as to the existence of any such virus or destructive
element immediately upon discovery thereof, and AT&T will have the right to take
any steps it deems appropriate to eliminate the virus or destructive element and
to be reimbursed by Customer for its reasonable costs.
(c) As between AT&T and Customer, Customer will own all right, title and
interest in and to the Content, but specifically excluding any portion of the
Software and any copyright notices or Marks of AT&T which may be included or
embodied in the Content.
(d) For purposes of this Attachment, (i) "Web Sites" shall mean any Internet
Sites for which any Web Site Services are being used hereunder, including,
without limitation, any Web Site containing a Service HyperLink (as subsequently
defined); and (ii) "Content" shall be deemed to include the materials and
information to be made available or displayed (including, without limitation,
text, graphics, art, animation, software, photographs, video, music,
advertisements, other audio and visual assets) on or through the Web Sites,
including without limitation the contents of any third party contributions to
bulletin boards, chat forums, or other communications services, transaction
services, or information services incorporated into the Web Sites.
3. CONTENT AND SERVICE USE.
(a) Customer is solely responsible for creating, updating and maintaining the
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
Content. Customer agrees that the Content and Customer's use of the Web Site
Services will comply in all respects with the Standards established by AT&T from
time to time (the "Standards"). The current Standards are set forth in this
Section 3. AT&T may change the Standards at any time upon 30 days' notice to
Customer, which notice may be provided by posting such new Standards on the
customer care web site for the Web Site Service.
(b) Customer agrees that the Content will not include any information or
material that (i) is libelous, defamatory, indecent, obscene, pornographic,
discriminatory or factually inaccurate; (ii) would violate or infringe any right
of privacy or other personal right; (iii) would violate any applicable federal,
state or local law of the United States or any foreign country having
jurisdiction; (iv) would violate the property rights of others, including
unauthorized use of copyrighted text, graphics, art, animation, software,
photographs, video, music, advertisements and other audio and visual assets, or
unauthorized programs, trade secrets or other confidential or proprietary
information, or trademarks or service marks used in an infringing fashion; (v)
contains any virus or destructive feature or may for any other reason cause any
loss, injury or damage to AT&T, any end user of the Customer Web Site Services
or any other third party. In the development of the Content, Customer agrees to
comply with all requirements of any union or guild having jurisdiction.
Customer may not use the Web Site or the facilities and capabilities of AT&T to
conduct or solicit the performance of any illegal activity or to conduct any
other activity which infringes the rights of AT&T or any third party.
(c) Customer will (i) not send any unsolicited email that could be expected in
AT&T's reasonable discretion, to provoke complaints; (ii) provide recipients of
unsolicited emails a clear and easily exercisable means to be excluded from
additional emails from Customer; (iii) honor any request by any party to be
excluded from unsolicited emails (which means, among other things, that Customer
will not provide such party's email address to any third party for the purpose
of sending unsolicited email); (iv) refrain from any use of the Web Site
Services which could interfere with a third party's ability to access or use the
Internet or the Web Site Services; and (v) ensure that any email Customer sends
clearly and accurately identifies the sender, the sender's return address and
the email address of the origin.
(d) The Standards shall apply not only to Customer's use of the Web Site
Services, but also to any other email or Content Customer transmit using a
non-AT&T Service, which either (i) is channeled through an AT&T account,
remailer or otherwise through an AT&T Service; (ii) uses an AT&T account as a
mailbox for responses; or (iii) otherwise indicates to recipients that AT&T was
involved in the preparation or transmission of such Content. Customer agrees
that failure to comply with any of the foregoing restrictions would result in
irreparable harm to AT&T and its customers.
(e) AT&T will have the right to remove, block, filter or delete, without prior
notice to Customer, any Content or suspend Service provided under this
Attachment that in AT&T's sole opinion does not comply with the Standards or
could subject AT&T to potential liability. AT&T will use reasonable efforts to
notify Customer following the removal of any Content. For any Content that is
not hosted by AT&T or otherwise located on an AT&T facility, upon AT&T's request
Customer agrees to remove promptly any such Content, and Customer agrees to
remove promptly any hyperlink from the Web Site to any third-party content, that
in either case in AT&T's sole opinion does not comply with the Standards or
could subject AT&T to potential liability.
4. DOMAIN NAME SERVICES.
(a) Customer may, from time to time, request that AT&T submit to InterNIC or
another Domain Name Registry, on Customer's behalf, domain name registration
applications (each, an "Application"), for domain names selected by the Customer
(each, a "Domain Name"). In the event that AT&T elects, in its sole discretion,
to perform such Service, the Applications shall name AT&T as the Internet
Service Provider which will host such domain name. AT&T is not a domain name
registry. AT&T's charges for the Domain Name Management Services do not include
the domain name registry's fees. Customer shall be responsible for, and shall
promptly pay, all such fees.
(b) Customer represents and warrants that (i) all statements on the Application
are true and correct; (ii) none of the requested Domain Names or Customer's use
of any Domain Name will interfere with the rights of any third party, infringe
upon any trademark, service mark or other personal, moral or property right or
violate any of the other Standards; and (iii) Customer has a legitimate business
purpose for registering each Domain Name, which purpose relates to Customer's
purchase of AT&T Services.
(c) With respect to any Domain Name, AT&T may elect to terminate or suspend its
hosting of or provision of any DNS Services with respect to any or all of
Customer's Domain Names immediately upon written notice in the event that (i) an
Application is rejected; (ii) the Domain Name Registration is revoked or placed
on "hold" or assigned to a third party; or (iii) AT&T receives or becomes aware
of any complaints, conflicting claims or court orders regarding the Domain name.
5. LIMITATION OF LIABILITY.
(a) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, AT&T DOMAIN
NAME SERVICES, AT&T INTERNET MAIL AND ALL RELATED SOFTWARE ARE PROVIDED ON AN
"AS IS" BASIS. AT&T SHALL NOT BE LIABLE IN ANY WAY WHATSOEVER FOR ANY DIRECT OR
INDIRECT LOSS, COST OR DAMAGE CUSTOMER MAY INCUR IN CONNECTION WITH CUSTOMER'S
USE OF SUCH SERVICES OR SOFTWARE OR AT&T PROVIDING OR FAILING TO PROVIDE SUCH
SERVICES OR SOFTWARE TO CUSTOMER. WITHOUT LIMITING THE FOREGOING, AT&T DOES NOT
MAKE ANY WARRANTIES REGARDING THE SUCCESSFUL REGISTRATION OF ANY DOMAIN NAME.
THE TIME OF SUBMISSIONS OF THE APPLICATION OR CUSTOMER'S RIGHT TO CONTINUED USE
OF A DOMAIN NAME AFTER REGISTRATION. AT&T IS NOT REQUIRED TO PARTICIPATE IN ANY
DISPUTES RELATING TO THE APPLICATION OR THE REGISTRATION OF ANY DOMAIN NAME.
(b) IF ANY WEB SITE SERVICE FAILS TO PERFORM SUBSTANTIALLY IN CONFORMANCE WITH
ITS APPLICABLE PUBLISHED SPECIFICATIONS, AT&T MAY PROVIDE CUSTOMER A PRO-RATED
REFUND OR CREDIT OF THE CHARGE(S) APPLICABLE TO THE PORTION OF THE SERVICE THAT
PERFORMED IMPROPERLY OR FAILED TO PERFORM, SUBJECT, IN ALL CASES, TO ANY
EXCLUSIONS THAT MAY APPLY UNDER THIS AGREEMENT. AT&T'S ENTIRE LIABILITY, AND
CUSTOMER'S EXCLUSIVE REMEDY AGAINST AT&T FOR ANY WEB SITE SERVICE DEFECT OR
FAILURE WILL BE LIMITED TO THE REMEDY SET FORTH IN THE PRECEDING SENTENCE.
6. TERMINATION.
Either party may terminate this Attachment or any Web Site Service provided
pursuant to this Attachment without cause upon thirty (30) days' written notice
to the other party, unless otherwise specifically set forth (i) in any
Additional Terms and Conditions to this Attachment; or (ii) in the Price
Schedule at the time the applicable Web Site Service is ordered by the Customer.
7. GENERAL.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
(a) Notices to Customer under this Attachment may also be given electronically
to the email address listed on the Cover Sheet to this Attachment.
(b) Unless otherwise specifically set forth in this Attachment, AT&T does not
provide any Web design or development services or other professional services as
part of the Web Site Services. Any Web design and development services
performed in connection with the Web Site Services (whether such services are
performed by a member of the AT&T Creative Alliance Program or otherwise) are
rendered by independent entities having no affiliation with AT&T. Customer
understands that AT&T has no control over and shall have no responsibility or
liability with respect to such entities or the services they provide.
INSERT 1112012 "ADDITIONAL TERMS AND CONDITIONS HERE"
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
36 MONTH FRS 18
- --------------------------------------------------------------------------------
ACCESS CIRCUITS INSTALLATION MONTHLY
- --------------------------------------------------------------------------------
T1.5 access @ Minneapolis-A
T1.5 access @ Minneapolis-B
T1.5 access @ New York
T1.5 access @ Palo Alto
[Confidential Treatment Requested]
Total Access Discounts
TOTAL ACCESS CIRCUITS
36 month FRS 18 applied
- --------------------------------------------------------------------------------
PORTS AND PVC'S INSTALLATION MONTHLY
- --------------------------------------------------------------------------------
1544K Port Minneapolis-A
1544K Port Minneapolis-B
[Confidential Treatment Requested]
1544K Port New York
512kb PVC To Minneapolis-A
1544K Port Palo Alto
512kb PVC To Minneapolis-B
Total Frame Discounts
TOTAL PORTS AND PVC'S
36 month FRS 18 applied-$10K MMRC
- --------------------------------------------------------------------------------
SERVICE TOTAL INSTALLATION MONTHLY
- --------------------------------------------------------------------------------
Total Access Circuits
Total Frame Relay Components [Confidential Treatment Requested]
Less: Total Discounts
GRAND TOTAL
Unless otherwise specified in writing by AT&T, this proposal shall expire in
sixty (60) days. Each party may withdraw from discussions relating to this
proposal at any time without liability or further obligation to the other party.
Submission of this proposal does not obligate either party to enter a contract
of any kind, create legal obligations on the part of either party or obligate
either party to pay expenses incurred by the other party.
This proposal contains proprietary and confidential AT&T information that:
CUSTOMER is required to maintain as confidential, CUSTOMER may use only to
evaluate a possible business arrangement with AT&T and CUSTOMER may not disclose
to any third party without the advance written consent of AT&T and pursuant to
an AT&T approved written non-disclosure agreement.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
AT&T CONTRACT TARIFF ORDER FORM
- --------------------------------------------------------------------------------
Cutomer Name (Full Legal AT&T Corp.
Name):
NetRadio
("Customer") ("AT&T")
- --------------------------------------------------------------------------------
Customer Address: AT&T Address:
- --------------------------------------------------------------------------------
Riverplace Exposition 1100 Walnut Street AT&T Contact Name:
Hall 8th Floor Jeff Breinig
43 Main Street SE
Suite 149
- --------------------------------------------------------------------------------
City State Zip Code City State Zip Code AT&T Contact Telephone
Minneapolis, MN 55 Kansas City, MO 64106 Number:
800-225-5856 x 4278
- --------------------------------------------------------------------------------
CUSTOMER HEREBY PLACES AN ORDER FOR:
New AT&T Contract Tariff (attachment required) Existing AT&T Contract
Tariff NO. 10607
(attachment required)
Customer HEREBY agrees to the following term and revenue COMMITMENT:
TERM: [Confidential Treatment Requested]
MMRC: Tariff 4 [Confidential Treatment Requested]
- --------------------------------------------------------------------------------
EXISTING PRICING PLAN REPLACEMENT DISCONTINUANCE:
Check here and identify below any AT&T CT or other AT&T pricing plan
being discontinued in conjunction with this order. Also specify the CT No.,
Plan ID No. or Main Billed Account No. (Note: Charges may apply as specified
in the plan being discontinued.)
- --------------------------------------------------------------------------------
1. Services will be provided under the Contract tariff ("CT") ordered
hereunder, subject to the rates, terms and conditions in the CT as well
as the AT&T tariffs (if any) referenced in the CT ("Applicable
Tariffs"), as those Applicable Tariffs may be modified from time to
time.
2. This Form (including its addenda, if any), the CT and the Applicable
Tariffs constitute the entire agreement (collectively the "Agreement")
between Customer and AT&T with respect to the services provided under
the CT and supersede any and all prior agreements, proposals,
representations, statements, or understandings, whether written or oral,
concerning such services or the rights and obligations relating to such
services. In the event of any inconsistency between the terms of this
Form (including its addenda, fi any) and the CT or Applicable Tariffs,
the terms of the Applicable Tariffs and CT shall prevail. In the event
of any inconsistency between the terms of the CT and the Applicable
Tariffs, the terms of the CT shall prevail. Except for changes to rates
(to the extent permitted under the CT) and changes to the Applicable
Tariffs, no change, modification or waiver of any of the terms of this
Agreement shall be binding unless reduced to writing and signed by
authorized representatives of both parties and, to the extent required
by law filed with FCC.
3. Except to the extent that the federal law applies, the construction,
interpretation and performance of this Agreement shall be governed by
the substantive law of the State of New York, excluding its choice of
law rules.
4. EXCEPT FOR ANY WARRANTIES EXPRESSLY MADE IN THIS AGREEMENT, AT&T
EXCLUDES ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING B UT NOT LIMITED
TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. AT&T DOES NOT AUTHORIZE ANYONE TO MAKE A WARRANTY
OF ANY KIND ON ITS BEHALF AND CUSTOMER SHOULD NOT RELY ON ANYONE MAKING
SUCH STATEMENTS.
5. As to new CTs, Customer may, as its sole remedy, cancel this order for
the CT without liability before the CT becomes effective if, without
Customer's consent: (a) AT&T fails to file the CT with the FCC within 30
days after the date this Form is signed by both parties: (b) the CT as
filed is not consistent with the attached illustrative copy; or (c) the
CT does not go into effect within 30 days after filing.
6. Orders for existing CTs will be accepted and implemented by AT&T only if
the specified CT is available when ordered and Customer is eligible for
the CT. THE CUSTOMER'S INITIAL SERVICE DATE (CISD) REFERENCED IN THE CT
SHALL BE one (1) day after AT&T sign date.
7. Customer shall provide installation instructions and other information
as required by AT&T.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
================================================================================
YOUR SIGNATURE ACKNOWLEDGES THAT YOU HAVE READ, UNDERSTAND AND AGREE TO THE
PROVISIONS OF THIS AGREEMENT AND THAT YOU ARE DULY AUTHORIZED TO SIGN THIS
AGREEMENT.
================================================================================
CUSTOMER AT&T
Full Legal Name: NetRadio
----------------------
By: /s/ Edward A. Tomechko By:
----------------------------------- -------------------------------
(Authorized Customer Signature) (Authorized AT&T Signature)
EDWARD A. TOMECHKO, C.E.O. & PRESIDENT
- -------------------------------------- -----------------------------------
(Typed or Printed Name and Title) (Typed or Printed Name and Title)
Date: 3/5/99 Date:
----------------------------- --------------------
AT&T PROPRIETARY
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
Adm. Rates and Tariffs CONTRACT TARIFF NO. 10607
Bridgewater, NJ 08807 Original Title Page
Issued: November 6, 1998 Effective: November 7, 1998
**All Material on this page is new.**
CONTRACT TARIFF NO. 10607
TITLE PAGE
This Contract Tariff applies to AT&T Domestic services consisting of: Domestic
ACCUNET T1.5 Services, Domestic ACCUNET Spectrum of Digital Services; AT&T
Switched Digital Services consisting of: Domestic InterSpan Frame Relay
Service; AT&T Local Channel Service, and to AT&T Switched Digital Services
consisting of: AT&T International InterSpan Frame Relay Service for interstate
or foreign communications in accordance with the Communications Act of 1934, as
amended.
Telecommunications services provided under this Contract Tariff are furnished
by means of wire, radio, satellite, fiber optics or any suitable technology or
combination of technologies.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
Adm. Rates and Tariffs CONTRACT TARIFF NO. 10607
Bridgewater, NJ 08807 Original Title Page
Issued: November 6, 1998 Effective: November 7, 1998
**All Material on this page is new.**
CONTRACT TARIFF NO. 10607
CHECK SHEET
The Title Page and Pages 1 through 8 inclusive of this tariff are effective as
of the date shown.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Check Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
List of Concurring, Connecting and Other Participating Carriers. . . . . . 1
Explanation of Symbols - Coding of Tariff Revisions . . . . . . . . . . . 1
Trademarks and Service Marks . . . . . . . . . . . . . . . . . . . . . . . 2
Explanation of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . 2
Contract Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
</TABLE>
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS
CONCURRING CARRIERS - NONE
CONNECTING CARRIERS - NONE
OTHER PARTICIPATING CARRIERS - NONE
EXPLANATION OF SYMBOLS - Coding of Tariff Revisions
Revisions to this tariff are coded through the use of symbols. These symbols
appear in the right margin of the page. The symbols and their meanings are:
R - to signify reduction.
I - to signify increase.
C - to signify changed regulation.
T - to signify a change in text but no change in rate or regulation.
S - to signify reissued matter.
M - to signify matter relocated without change.
N - to signify new rate or regulation.
D - to signify discontinued rate or regulation.
Z - to signify a correction.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
Other marginal codes are used to direct the tariff reader to a footnote for
specific information. Codes used for this purpose are lower case letters of the
alphabet, e.g., x, y and z. These codes may appear beside the page revision
number in the page header or in the right margin opposite specific text.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
Adm. Rates and Tariffs CONTRACT TARIFF NO. 10607
Bridgewater, NJ 08807 Original Title Page
Issued: November 6, 1998 Effective: November 7, 1998
**All Material on this page is new.**
TRADEMARKS AND SERVICE MARKS -The following marks, to the extent, if any, used
throughout this tariff, are trademarks and service marks of AT&T Corp.
Trademarks Service Marks
-------------------------------
None ACCUNET
EXPLANATION OF ABBREVIATIONS
Adm - Administrator
IOCs - Inter Office Channels
kbps - kilobits per second
Mbps - Megabits per second
DETARIFFING - If during the term of this Contract Tariff, the AT&T Tariffs
referenced herein ("Applicable AT&T Tariffs") are detariffed in whole or in part
pursuant to a statutory change, order or requirement of a governmental or
judicial authority of competent jurisdiction, then following such detariffing:
(i) the terms and conditions for the Services Provided will remain the same
as those in this Contract Tariff, except that the relevant terms and conditions
contained in the Applicable AT&T Tariffs will remain the same as those in effect
as of the date AT&T detariffs in whole or in part those Applicable AT&T Tariff
provisions, and will be incorporated as part of this Contract Tariff, and
(ii) the rates for the Services Provided will be:
(a) to the extent Applicable AT&T Tariff provisions remain filed and
effective, those rates specified in such Applicable AT&T Tariff
provisions, as amended from time to time; and
(b) to the extent that this Contract Tariff contains specific rates
or rate schedules that would apply in lieu of (or in addition to)
the rates or rate schedules in Applicable AT&T Tariffs, such
specific Contract Tariff rates and rate schedules; and
(c) to the extent Applicable AT&T Tariff provisions are detariffed,
and (b) preceding does not apply, those rates specified in the
applicable AT&T Price Lists, as amended from time to time.
In all cases (a, b or c), the applicable rates shall continue to be subject to
any discounts, waivers, credits, and restrictions on rate changes that may be
contained in this Contract Tariff. Where rates and rate changes (both increases
and decreases) would have been calculated by reference to a tariff rate that has
been detariffed, rates and rate changes shall instead be calculated during the
term of this Contract Tariff by reference to applicable AT&T Price Lists and (to
the extent changes to tariff rates were permitted under this Contract Tariff)
AT&T shall have the right to change its Price Lists from time to time.
All references to the AT&T Tariffs in this Contract Tariff shall be construed to
mean the AT&T Tariffs specified herein, as well as the documents which will
replace those tariffs, including the AT&T Price Lists, when AT&T cancels those
tariffs.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
CONTRACT TARIFF NO. 10607
Adm. Rates and Tariffs Original Page 3
Bridgewater, NJ 08807
Issued: November 6, 1998 Effective: November 7, 1998
** All material on this page is new. **
CONTRACT TARIFF NO. 10607
1. SERVICES PROVIDED:
A. DOMESTIC SERVICES
1. AT&T Private Line Services (AT&T Tariff F.C.C. No. 9) consisting
of:
(a) Domestic ACCUNET T1.5 Service IOCs and Access Connections
(b) Domestic ACCUNET T1.5 Service M-24 Multiplexing Office
Functions
(c) Domestic 56/64 kbps ACCUNET Spectrum of Digital Services
(ASDS) IOCs and Access Connections
(d) Domestic 128 kbps and above ASDS IOCs and Access Connections
2. AT&T Local Channel Service (AT&T Tariff F.C.C. No. 11) consisting
of:
(a) AT&T Terrestrial 1.544 Mbps Access Coordination Functions
(b) AT&T Terrestrial 1.544 Mbps Local Channels
(c) 56/64 kbps ACCUNET Generic Digital Access Local Channels
(GDA)
(d) 56/64 kbps ACCUNET Generic Digital Access Local Channel
Access Coordination Functions
3. AT&T Switched Digital Services (AT&T Tariff F.C.C. No. 4)
consisting of:
(a) Domestic InterSpan Frame Relay Services (FRS)
B. INTERNATIONAL SERVICES
1. AT&T Switched Digital Services (AT&T Tariff F.C.C. No. 4)
consisting of:
(a) International InterSpan Frame Relay Service (FRS)
1.1 INITIAL QUANTITIES - The Initial Quantities of AT&T Private Line and
Local Channel Service components are as follows:
A. AT&T PRIVATE LINE SERVICES
1 ACCUNET T1.5 Service Access Connection and/or 1 56/64 kbps ASDS Access
Connection
B. AT&T LOCAL CHANNEL SERVICES
1 AT&T Terrestrial 1.544 Mbps Local Channel and/or 1 56/64 kbps GDA Local
Channel
1 AT&T Terrestrial 1.544 Mbps and/or 1 56/64 kbps GDA Access Coordination
Function
2. CONTRACT TARIFF TERM; RENEWAL OPTIONS - The term of this Contract Tariff
is 2, 3, 4, or 5 years beginning with the Customer's Initial Service Date
(CISD). No renewal option is available for this Contract Tariff.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
CONTRACT TARIFF NO. 10607
Adm. Rates and Tariffs Original page 4
Bridgewater, NJ 08807
Issued: November 6, 1998 Effective: November 7, 1998
** All material on this page is new. **
3. MINIMUM COMMITMENTS/CHARGES
A. AT&T INTERSPAN FRAME RELAY SERVICES - The Customer must commit to either
a two, three, four or five year term with an undiscounted Minimum Monthly
Revenue Commitment (MMRC) level of either [Confidential Treatment Requested]
per month. Starting in the 7th month following the CISD and for the remainder
of the Contract Tariff Term, the Customer must maintain the selected MMRC level.
The MMRC will be satisfied by including Frame Relay Volume Price Plan (FRVPP)
Eligible FRS Charges, as specified in AT&T Tariff F.C.C. No. 4, as amended from
time to time. If, in any month, the Customer fails to meet the MMRC, the
Customer will be billed a shortfall charge in an amount equal to the difference
between the MMRC and the sum of the actual undiscounted FRVPP Eligible FRS
Charges for the domestic and international FRS components, in service for that
month.
4. CONTRACT PRICE
A. AT&T PRIVATE LINE SERVICES
1. The Contract Price for the AT&T Private Line Services provided
under this Contract Tariff is the same as the undiscounted Recurring and
Nonrecurring Rates and Charges specified in AT&T Tariff F.C.C. No. 9, as amended
from time to time.
B. AT&T LOCAL CHANNEL SERVICES
1. The Contract Price for the AT&T Local Channel Services provided
under this Contract Tariff is the same as the undiscounted Recurring and
Nonrecurring Rates and Charges specified in AT&T Tariff F.C.C. No. 11, as
amended from time to time.
C. AT&T INTERSPAN FRAME RELAY SERVICE
1. The Contract Price for AT&T InterSpan Frame Relay Service provided
under this Contract Tariff is the same as the undiscounted Recurring and
Nonrecurring Rates and Charges for FRS as specified in AT&T Tariff F.C.C. No. 4,
as amended from time to time.
5. DISCOUNTS - The following discounts are the only discounts for the
Services Provided under this Contract Tariff. No other discounts apply. Unless
modified below, the Base Discounts listed in this section are the same discounts
as specified in the AT&T Tariffs referenced in Section 1., preceding, as amended
from time to time.
A. AT&T INTERSPAN FRAME RELAY SERVICES - In lieu of the InterSpan Frame
Relay Services discounts specified in AT&T Tariff F.C.C. No. 4, one of the
following discounts based on the MMRC for either the 2, 3, 4, or 5 year term
commitment will apply and will be applied in the same manner as the FRVPP
discounts as specified in AT&T Tariff F.C.C. No. 4.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
CONTRACT TARIFF NO. 10607
Adm. Rates and Tariffs Original Page 5
Bridgewater, NJ 08807
Issued: November 6, 1998 Effective: November 7, 1998
** All material on this page is new. **
5.A.AT&T INTERSPAN FRAME RELAY SERVICES (CONTINUED)
Minimum Discounts
Monthly
RevenueTwo Three Four Five
Commitment Years Years Years Years
---------- -----------------------------------
[Confidential Treatment Requested]
B. AT&T LOCAL CHANNEL SERVICES
1. Based on the Contract Tariff term commitment, the Customer will
receive one of the following discounts which will be applied to the AT&T
Terrestrial 1.544 Mbps and 56/64 kbps GDA Local Channels provided under this
Contract. These discounts do not apply to Terrestrial 1.544 Mbps Local Channels
under an AVA and/or AVP.
Contract Tariff
Term Monthly T1.5 Mbps Monthly 56/64 kbps GDA
Commitment Local Channel Discount Local Channel Discount
---------------------------------------------------------------
[Confidential Treatment Requested]
C. AT&T PRIVATE LINE SERVICE IOCS
1. Based on the Contract Tariff term commitment, the Customer will
receive one of the following discounts which will be applied to the AT&T 56/64
kbps ASDS IOCs, 128 kbps and above ASDS IOCs and ACCUNET T1.5 IOCs provided
under this Contract Tariff.
Contract Tariff Monthly 128 kbps
Term Monthly 56/64 kbps and above Monthly ACCUNET
Commitment ASDS IOC Discount ASDS IOC Discount T1.5 IOC Discount
-----------------------------------------------------------------------------
[Confidential Treatment Requested]
CONTRACT TARIFF NO. 10607
Adm. Rates and Tariffs Original Page 6
Bridgewater, NJ 08807
Issued: November 6, 1998 Effective: November 7, 1998
** All material on this page is new. **
6. CLASSIFICATIONS, PRACTICES AND REGULATIONS
A. All references in the Applicable AT&T Tariffs to "tariffs",
"tariffed services" or other variations thereof shall also mean this Contract
Tariff and the services provided under this Contract Tariff.
B. MONITORING CONDITIONS - None.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
The Customer is ineligible for any promotions, credits or waivers for the
Services Provided under this Contract Tariff, which are filed or which may be
filed in the AT&T tariffs specified in Section 1., preceding.
The following credits and waivers will be applied to the Customer's bill. If at
the end of the Contract Tariff Term the Customer has not fully used any or all
of the waiver(s) specified in this Section, the residual value of any such
waiver(s) will be set to zero and will not be applied to any other AT&T
services.
1. AT&T PRIVATE LINE SERVICES, AT&T INTERSPAN FRAME RELAY AND AT&T
LOCAL CHANNEL SERVICES
(a) AT&T will waive the nonrecurring Installation Charges for each
new ACCUNET T1.5 Access Connection, 56/64 kbps ASDS Function Connections,
ACCUNET T1.5 M-24 Multiplexing Office Function and ASDS Access Connection as
specified in AT&T Tariff F.C.C. No. 9, as amended from time to time, the AT&T
Terrestrial 1.544 Mbps and 56/64 kbps GDA Local Channels and associated Access
Coordination Functions as specified in AT&T Tariff F.C.C. No. 11, as amended
from time to time, provided such service components: (1) are installed on or
after the CISD, (2) remain in service for at least 12 months, except for
upgrades to higher speeds. If any of the service components are disconnected
for any reason prior to the 12 months, the waived nonrecurring charges for the
installation of the disconnected service components will be billed to the
Customer at the time of disconnect. If a service component has not been in
service for the minimum period of 12 months prior to the expiration of the
Contract Tariff Term, the Customer may elect to be billed the waived
nonrecurring charges at the end of the Contract Tariff Term, elect to continue
the services in another AT&T Contract Tariff or include the services in either a
new or existing term plan for AT&T Tariff F.C.C. Nos. 9 and 11 services
applicable to Contract Tariffs. If the Customer elects to continue the
services, the obligation for the services to remain in-service for the minimum
period of 12 months no longer applies.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
CONTRACT TARIFF NO. 10607
Adm. Rates and Tariffs Original Page 7
Bridgewater, NJ 08807
Issued: November 6, 1998 Effective: November 7, 1998
** All material on this page is new. **
6.C.1. AT&T PRIVATE LINE SERVICES, AT&T INTERSPAN FRAME RELAY AND AT&T LOCAL
CHANNEL SERVICES (CONTINUED)
(b) AT&T will waive the nonrecurring Installation Charges for the
installation of new FRVPP eligible FRS components as specified in AT&T Tariff
F.C.C. No. 4, as amended from time to time, for InterSpan Frame Relay Services,
provided such new FRVPP eligible FRS components: (1) are installed on or after
the CISD; (2) have not been disconnected and reconnected after the CISD and (3)
remain in service for at least 12 months. If a FRVPP eligible FRS component is
disconnected for any reason prior to 12 months, the waived nonrecurring
Installation Charges for that component will be billed at the time of
disconnect. If a service component has not been in service for the minimum
period of 12 months prior to the expiration of the Contract Tariff Term, the
Customer may elect to be billed the waived nonrecurring charges at the end of
the Contract Tariff Term, or elect to continue the services in another AT&T
Contract Tariff or include the services in either a new or existing term plan
for AT&T Tariff F.C.C. No. 4 services applicable to Contract Tariffs. If the
Customer elects to continue the services, the obligation for the services to
remain in-service for the minimum period of 12 months no longer applies.
(c) AT&T will waive the discounted recurring charges for each new
and/or existing ACCUNET T1.5 Service Access Connection, M-24 Multiplexing Office
Function and 56/64 kbps ASDS Access Connections as specified in AT&T Tariff
F.C.C. No. 9, as amended from time to time, and associated new and/or existing
AT&T Terrestrial 1.544 Mbps and 56/64 kbps GDA Access Coordination Functions as
specified in AT&T Tariff F.C.C. No. 11, as amended from time to time, provided
such service components: (1) are in service on or after the CISD; (2) are
associated directly with AT&T Switched Services provided under AT&T Tariff
F.C.C. Nos. 1 and 2 and/or AT&T InterSpan Frame Relay Service provided under
AT&T Tariff F.C.C. No. 4 and (3) remain in service for at least 12 months. If
any of the service components are disconnected for any reason prior to the 12
months, the waived recurring charges for the disconnected service components
will be billed at the time of disconnect. If a service component has not been
in service for the minimum period of 12 months prior to the expiration of the
Contract Tariff Term, the Customer may elect to be billed the waived recurring
charges at the end of the Contract Tariff Term, elect to continue the services
in another AT&T Contract Tariff or include the services in either a new or
existing term plan for AT&T Tariff F.C.C. Nos. 9 and 11 services applicable to
Contract Tariffs. If the Customer elects to continue the services, the
obligation for the services to remain in-service for the minimum period of 12
months no longer applies.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
CONTRACT TARIFF NO. 10607
Adm. Rates and Tariffs Original Page 8
Bridgewater, NJ 08807
Issued: November 6, 1998 Effective: November 7, 1998
** All material on this page is new. **
D. DISCONTINUANCE - In lieu of any Discontinuance With or Without
Liability provisions that are specified in the AT&T tariffs referenced in
Section 1., preceding, the following provisions shall apply.
The Customer may discontinue this Contract Tariff prior to the end of the
Contract Tariff Term, provided the Customer replaces this Contract Tariff with
other AT&T Tariff F.C.C. Nos. 4, 9 and 11 Services or another AT&T Contract
Tariff for AT&T Tariff F.C.C. Nos. 4, 9 and 11 Services having: (i) equal or
greater volume commitments and (ii) a new term equal to or greater than the
remaining term, but not less than 2 years.
If the Customer discontinues this Contract Tariff for any reason other than
specified above, prior to the expiration of the Contract Tariff Term, a
Termination Charge will apply. The Termination Charge for AT&T Private Line,
AT&T InterSpan Frame Relay and AT&T Local Channel Services will be an amount
equal to 35% of each respective MMRC for each remaining month of the Contract
Tariff Term.
E. OTHER REQUIREMENTS - Not Applicable.
F. AVAILABILITY - This Contract Tariff is available only to Customers who:
(1) will order this Contract Tariff only once, either by the Customer or any
Affiliate of the Customer, which is any entity that owns a controlling interest
in either the Customer or an Affiliate of the Customer, or any entity in which a
controlling interest is owned by either the Customer or an Affiliate of the
Customer; (2) orders service within 120 days after the effective date of this
Contract Tariff for initial installation of the Services Provided under this
Contract Tariff within 60 days after the date ordered and (3) have received an
offer for substantially similar services from another provider at an equal or
lower price in which the nonrecurring installation charges have been waived.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
AMENDMENT TO AT&T NETWORKED COMMERCE SERVICES GENERAL AGREEMENT, AT&T WEB SITE
SERVICES ATTACHMENT ADDITIONAL TERMS AND CONDITIONS AND AT&T DEDICATED HOSTING
SERVICE
LEVEL 2 ADDITIONAL TERMS AND CONDITIONS
This Amendment, effective as of the date of the last signature herein to the
AT&T Networked Commerce Services General Agreement, AT&T Web Site Services
Attachment Additional Terms and Conditions and AT&T Dedicated Hosting Service
Level 2 Additional Terms and Conditions (the "Agreements") between NetRadio
Network ("Customer) and AT&T Corporation ("Provider") dated March 12, 1999, is
hereby incorporated with reference to the following:
WITNESSETH:
Whereas, Customer agrees to amend and define certain obligations of the parties
hereto pursuant to the Agreements.
Whereas, Provider agrees to amend and define certain obligations of the parties
hereto pursuant to the Agreements.
Whereas, Customer and Provider agrees to amend certain obligations and
incorporate this Amendment as expressed and set forth.
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein the parties agree as follows:
The Agreements are amended as follows:
1. Provider shall provide MRTG graphs for bandwidth monitoring purposes for the
following locations: PAIX, NYC and ALS Minneapolis.
2. Provider shall be responsible for Customer backups for PAIX and NYC only.
Customer is responsible for server backups in ALS Minneapolis.
3. Provider requires as much as a four (4) hour response time for outages
(Service and replacement of servers) in the PAIX Data Center. Only Compaq
7x24x4 maintenance shall be provided for Customer's servers in ALS
Minneapolis.
4. Provider shall be responsible for moving Customer's servers and back end
frame relay connection from PAIX to the Redwood City Data Center when the
new data center becomes operational. Provider shall provide sufficient
notice to move in and shall coordinate timing with Customer.
5. Provider shall provide unmanaged service for Customer in ALS Minneapolis.
CERFnet shall only provide MRTG graphs for Customer servers in this
location.
6. Server maintenance shall be provided by Compaq.
7. Provider shall install and support "Redhat version 5.2" Linux OS for
Customer's servers.
All other Terms and Conditions pursuant to the Agreements shall remain in full
force and effect.
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
Amendment Dated: March 19, 1999
Amendments to AT&T Networked Commerce Services General Agreement,
AT&T Web Site Services Attachment Additional Terms and Conditions and
AT&T Dedicated Hosting Service Level 2 Additional Terms and Conditions
for NetRadio Network
March 19, 1999
Page 2 of 2
The parties have caused this Amendment to be executed by duly authorized
representatives as indicated herein below.
AT&T CORPORATION NETRADIO NETWORK
Name: Name: EDWARD A. TOMECHKO
------------------------------- -------------------------------
(Print) (Print)
Title:
----------------------------- Title: PRESIDENT & C.E.O.
-----------------------------
Signature:
-------------------------
Signature: /s/ Edward A. Tomechko
------------------------
Date:
------------------------------- Date: 3/22/99
-----------------------------
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
ADDITIONAL TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
Customer Name Service Period: (Specify)
NetRadio Network Twenty-Four (24) months
- --------------------------------------------------------------------------------
1. INITIAL CONTRACT TERM, SERVICE PERIOD, AND BILLING
This Attachment is effective when signed by Customer and accepted in writing by
AT&T ("Effective Date"). The Initial Contract Term begins on the Effective Date
and, if applicable, ends on the anniversary of the Implementation Date (as
defined below) unless terminated earlier in accordance with the provisions
hereof. Charges for Customer's early cancellation of service are set forth on
the Price Sheet. After the initial Contract Term, this Attachment shall
continue in effect until terminated as set forth in the Agreement; provided,
however, that in the case of Collocated Web Services (as defined below), this
Attachment shall expire no later than the date on which the Lease (as defined
below), expires or is terminated unless the same has been replaced with another
Lease, and provided further that it is understood that AT&T shall have no
obligation to renew, extend, keep in effect or replace the Lease. Billing with
respect to each site, begins as of the date of physical completion of server
deployment and connection of the server at AT&T's network ("Implementation
Date"), regardless of when or whether the Customer's content has been deployed.
The Service Period begins on the Implementation Date.
2. ABSENCE OF SUPPORT FOR AUTHORING TOOLS OR CONTENT
Customer is solely responsible for creating, updating and maintaining the
Content. AT&T will not provide support for use of content authoring tools or
other support in connection with the Content of Customer's Web Site.
3. COLLOCATION SPACE
The services covered by this Attachment may involve the provision to Customer of
collated web service ("Collocated Web Services"), which include a AT&T or
Customer-owned server or other equipment that is to be collocated on AT&T's
premises and which may include use of third party software, hardware, or other
third party services. The collocation space (the "Space"), which is in premises
that may be leased by AT&T, is described on Exhibit A. If Customer has elected
to do so, AT&T agrees to allow Customer to place certain equipment (the
"Equipment") as defined in Exhibit A, subject and subordinate to the terms and
provisions of the applicable lease or leases (the "Lease") between AT&T or its
Affiliates and the landlord or landlords of the Space. The Equipment shall be
approved by AT&T prior to installation in the Space and shall not exceed the
standard dimensions identified in the Price Sheet. Customer hereby accepts the
Space in its as is condition and acknowledges that AT&T has no obligation to
make alterations, improvements, additions, decorations or changes within the
leased premises, Space or any part thereof. In connection with the provision of
the Space, AT&T shall provide to Customer the installation services, remote hand
services and other space services set forth on Exhibit A hereto. In the event
of any taking by eminent domain or damage by fire or other casualty to the
leased premises or the Space, Customer shall acquiesce and be bound by any
action taken by or agreement entered into between AT&T or its Affiliates and the
landlord or landlords with respect hereto.
4. EQUIPMENT
All right, title and interest in all facilities and associated equipment
provided by either party shall at all times remain exclusively with such party.
Neither party shall create any liens or encumbrances with respect to such
facilities or equipment of the other party. Upon termination of Collocated Web
Services, Customer shall as promptly as possible and in any event within 60 days
of termination, release to AT&T all ____ addresses provided by At&T in
connection with the Collocated Web Services. Upon rumination of Collocated Web
Services. Upon termination of this Agreement, Customer shall leave the Space in
as good condition (except for normal wear and tear) as it was at the
commencement of this Agreement, and shall remove its Equipment and other
property from the Space. Upon sixty (60) days' prior written notice or, in the
event of an emergency, with as much notice as may be feasible, AT&T may require
Customer at Customers expense to relocate the Equipment within the leased
premises, provided, however, that the site of relocation shall afford comparable
environmental conditions for the Equipment and comparable accessibility to the
Equipment. AT&T shall use reasonable efforts to maintain the Collocated Web
Services in accordance with applicable performance standards therefor and to
obtain and keep in effect all rights of way required to provide the Collocated
Web Service.
AT&T shall have no responsibility for the hardware maintenance, repair of , or
any liability of any kind with respect to, facilities and equipment which it did
not furnish, and may assess Customer its standard charge for any false call
outs.
5. INDEMNIFICATION
Without limitation of any other provision of the Agreement, Customer
hereby agrees to indemnify and hold harmless AT&T against any and all
liabilities, costs, expenses and claims relating to (i) Customers unlawful or
improper use of the Collocated Web Services, the Space or leased premises or the
AT&T network, (ii) Customers failure to comply with terms and provisions of this
Agreement, including without limitation this Attachment, or (iii) property
damage or personal injury claims caused by Customer's acts or omissions or
arising from its operation of its Equipment or its use of the Space or the
leased premises.
6. ACCESS
As part of the covered services, Customer is granted access into AT&T Space.
Customer shall at all times use care when working in and around AT&T's or other
Customer's equipment. AT&T, at its sole discretion, may grant Customer use of
an access card. In the event such a card is lost or stolen, Customer shall so
report to AT&T as soon its loss is discovered. A lost or stolen access card is
replaceable upon payment of a replacement fee to AT&T.
7. INTERNET SERVER AVAILABILITY
Under the AT&T Internet Server Availability guarantee program, AT&T Level 2
Dedicated Hosting Service customers have the confidence that their Web site will
be accessible by end users of the global Internet, subject to program rules and
regulations set forth below.
If an AT&T-hosted customer reports that an end user has been unable to access
their web site due to the unavailability of AT&T content, hosting production web
server, the customer will be eligible to receive a credit against his/her
hosting Monthly Service Fee incurred during the affected month as specified
below, subject to the rules and restrictions set forth below.
- ------------------------------------------------------------------------
INTERRUPTION LENGTH CREDIT
- ------------------------------------------------------------------------
Less than 4 hours none
- ------------------------------------------------------------------------
4 hours - 7 hours 59 minutes 1/3 day
- ------------------------------------------------------------------------
8 hours - 11 hour 59 minutes 1/2 day
- ------------------------------------------------------------------------
12 hours - 15 hours 59 minutes 2/3 day
- ------------------------------------------------------------------------
16 hours - 24 hours one day
- ------------------------------------------------------------------------
INTERRUPTIONS OF OVER 24 HOURS - Interruptions over 24 hours will be credited
1/6 day for each 4-hour period or period or fraction thereof. No more than one
full day's credit will be allowed for any period of 24 hours.
PROGRAM RULES AND REGULATIONS:
1. Claims may be made only by participating AT&T hosting service customers.
2. An outage under this limited guarantee is defined as unscheduled
unavailability of an AT&T web content hosting server and does not include
outages for scheduled periods of maintenance and upgrades.
3. Web server availability only applies to content hosting servers used for
hosting customer's web site. It does not apply to servers used to provide
services other
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
than this hosting service, including without
limitation transaction service servers or AT&T Internet Mail servers.
4. AT&T must be notified in writing of a claim by a customer within 10 days
of an occurrence of a possible outage. Customer claims must be sent via
to the email address [email protected] or as otherwise specified in
the website provided for customer support. All submitted claims must
include the date and time of the service outage.
5. All claims are subject to review and verification by AT&T.
6. AT&T will be the sole party to verify and determine that an AT&T hosting
server experienced an outage.
7. A customer may only receive credits equal to up to one (1) months's AT&T
hosting service fee during any calendar quarter. A customer will not
receive a credit for AT&T web hosting nonrecurring charges, other
recurring monthly charges, or charges related to storage space and data
download by users.
8. AT&T reserves the right to change or modify the program rules and
regulations or discontinue this limited guarantee program at any time
without notice.
9. Credits are exclusive of any applicable taxes charged to Customer or
collected by AT&T.
This limited guarantee is subject to the applicable AT&T hosting service terms
and conditions set forth in the Agreement.
EXHIBIT A
REMOTE HANDS TERMS OF SERVICE
1. REMOTE HANDS SERVICE.
Customer has, pursuant to the Agreement, located certain equipment in the AT&T
premises (the "Premises"), and may from time to time request that AT&T perform
certain basic services with respect to such equipment. Such services (herein
referred to as "Remote Hands Services") offer an opportunity for the Customer to
avoid dispatching field services personnel for certain basic on-site activity.
2. LEVELS OF SERVICE.
Remote Hands Services include 3 levels of service, as follows:
Remote Hands Level 1, provided at no additional cost, involves the most basic
activities of an on-site technician, performed with "eyes," "ears" and
"fingers," but without involvement of tools, equipment, physical labor, keyboard
or other data input. Examples of Level 1 service would include.
- pushing a button
- switching a toggle
- setting a dip switch
- power cycling (turning off and on) equipment
- securing cabling to connections
- observing, describing or reporting on indicator lights or display
information on machines or consoles
- basic observation and reporting on local environment in AT&T
premises
Remote Hands Level 2, provided for the fees) set forth in the Price Schedule,
involves all the services of Level 1, plus some configuration or running of
certain basic operations pursuant to real-time instructions of Customer. This
level of service does not involve opening or moving equipment or any direct
hardware or software interaction. Examples of Level 2 services would include:
- running single built in diagnostic equipment
- typing commands on a keyboard console
- changing of pre-labeled tapes
- cable organization, ties or labeling
- modifying basic cable layout, such as Ethernet or FDDI
connections
- re-labeling equipment
Remote Hands Level 3, provided for the fee(s) set forth in the Price Schedule,
involves all the services of Level 2, plus direct contact with equipment,
configuration, including hardware and software interaction, provided Customer
provides accurate, understandable real-time instructions. Examples of Level 3
services would include:
- installation of previously received equipment in existing track
space
- replacing hardware components with spares or upgrades
- adding memory
- upgrading drive capacity by installation of new or additional
disk drives
AT&T shall, in its own reasonable discretion, determine the appropriate level of
Remote Hands to which each service request falls.
Remote Hands Services may be purchased on a per hour basis as needed, or on a
monthly contract basis. Customer will be billed for services rendered along
with Customer's monthly service invoice.
3. REQUEST PROCEDURE.
Customer shall initiate a Remote Hands Service request by following the
procedure set forth in the Configuration Review Form (CRF) provided to Customer,
as such procedure may be modified by notice to Customer by AT&T from time to
time. Each service request requires a separate initiation by the Customer, by
fax, email or other writing if possible. Each request from a Customer which has
not elected a contract option shall require an original signed request from a
previously authorized Customer representative. In cases of emergency, a signed
facsimile transmission service request followed by a signed original is
acceptable. AT&T's technicians will use reasonable efforts to respond to a
Customer request for Remote Hands Service by telephone or electronic
communication within 30 minutes of receipt of the initial Customer request.
Technician will assign a Trouble Ticket and will use reasonable efforts to
commence the rendering of the service within the time window specified below
from the assignment of the Trouble Ticket.
- --------------------------------------------------------------------------
AT&T PREMISE SERVICE INITIATION WITHIN
- --------------------------------------------------------------------------
San Diego, 9850 1 hr
Scranton Road
- --------------------------------------------------------------------------
New York, 67 Broad Street 1 hr
- --------------------------------------------------------------------------
Los Angeles, 700 Flower 1 hr between 8:00 am - 5:00pm.
4 hrs between 5:00pm - 8:00 am
- --------------------------------------------------------------------------
San Francisco, PAIX 1 hr between 8:00 am - 5:00pm
4 hrs between 5:00pm - 8:00 am
- --------------------------------------------------------------------------
Boston 1 hr between 8:00 am - 5:00pm
4 hrs between 5:00pm - 8:00 am
- --------------------------------------------------------------------------
Philadelphia 1 hr between 8:00 am - 5:00pm
- --------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
- --------------------------------------------------------------------------
4 hrs between 5:00pm - 8:00 am
- --------------------------------------------------------------------------
Princeton 1 hr between 8:00 am - 5:00pm
4 hrs between 5:00pm - 8:00 am
- --------------------------------------------------------------------------
Chicago 1 hr between 8:00 am - 5:00pm
4 hrs between 5:00pm - 8:00 am
- --------------------------------------------------------------------------
5. NO WARRANTY/LIMITATION ON DAMAGES.
Customer acknowledges that AT&T will provide Remote Hands Services under
Customer's specific direction. AT&T DOES NOT OFFER OR PROVIDE (AND HEREBY
DISCLAIMS) ANY WARRANTY WITH RESPECT TO REMOTE HANDS SERVICES. NOTWITHSTANDING
ANYTHING CONTAINED IN THE AGREEMENT TO THE CONTRARY, THE REMOTE HANDS SERVICES
ARE PROVIDED ON AN "AS IS" BASIS. AT&T SHALL NOT BE LIABLE IN ANY WAY
WHATSOEVER FOR ANY DIRECT OR INDIRECT LOSS, COST OR DAMAGE CUSTOMER MAY INCUR IN
CONNECTION WITH AT&T PROVIDING OR FAILING TO PROVIDE THE REMOTE HANDS SERVICES
TO CUSTOMER.
6. INDEMNITY.
Customer will at all times defend, indemnify and hold harmless AT&T from and
against any and all damages, liabilities, losses, penalties, interest and other
expenses (including without limitation, reasonable attorney's fees), whether or
not arising out of or relating to any third party claims, and regardless of the
form of action, whether in contract, tort, strict liability or otherwise,
concerning AT&T's provision of the Remote Hands Services to Customer.
EXHIBIT B
SERVICE COMPONENTS AND PRICING
This exhibit specifies the AT&T Dedicated Hosting Service hardware and software
components, along with one-time service set-up fees, recurring service fees, and
standard charges for other services which may be requested from time to time
under the term of the Agreement.
SECTION 1: STANDARD SERVICE FEE
Standard fees include recurring and non-recurring charges. Nonrecurring charges
are for site set-up, which includes hardware and software installation,
configuration and testing, and Remote Hands Service, which may be requested by
the customer as needed during the term of the Agreement.
TABLE 1. NON-RECURRING CHARGES.
- ----------------------------------------------------------
Basic Site Registration Set-Up [Confidential Treatment
Charge Requested]
- ----------------------------------------------------------
On-demand Remote Hands Service
Level 1
Level 2 [Confidential Treatment Requested]
Level 3
- ----------------------------------------------------------
TABLE 2. RECURRING CHARGES (PER MONTH).
- ----------------------------------------------------------
Bandwith* 1.5 Mbps [Confidential Treatment
Requested]
1 Mbps additional [Confidential Treatment
bandwidth Requested]
- ----------------------------------------------------------
Maintenance, Monitoring, Power and Standard [Confidential
Rack Space (per server) Treatment
Requested]
- ----------------------------------------------------------
Contracted Remote Hours per Level Level
Hands Service month 2 3
-----------------------------------
0 to 10
0 to 25 [Confidential Treatment
Requested]
0 to 50
- ----------------------------------------------------------
SECTION 2: QUOTED SERVICE FEES
Service fees are quoted for each contract for the following components:
LEASE: Rental of equipment and software provided by AT&T.
RACK SPACE: Non-standard rack space.
ADDITIONAL INSTALLATION AND SET-UP FEES: Installation and set-up of more than
one server system and software.
BANDWIDTH OPTIONS: Bandwidth values other than those described in "Section 1:
Standard Service Fees." rate shaping and bursting options.
Detailed information about quoted charges, including descriptions and itemized
pricing, is specified below in "SECTION 3: Services and Fees."
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
SECTION 3: SERVICES AND FEES
TABLE 3. DETAILED CHARGES FOR HARDWARE. Detailed description of hardware to be
provided with charges for installation and monthly rental (if applicable).
- -------------------------------------------------------------------------------
Description: QUANTITY of [Confidential Treatment Requested] for each of the
blow described items ([Confidential Treatment Requested]
servers to be located at the NYC facility, [Confidential
Treatment Requested] servers to be located at the DEC PAIX &
[Confidential Treatment Requested] servers at ALS MN: Compaq
Proliant 1850R +50Mhz, additional 450 Mhz processor, 64MB
Memory, 128 MB Memory, 256MB Memory, 9.1GB Hard Disk,
Redundant Power Supplies. Redundant PCI 10/100MB. Remote
Insight Board.
- -------------------------------------------------------------------------------
Comments/Additional
Amount Information
- -------------------------------------------------------------------------------
Installation/Set-up [Confidential Total of [Confidential
Treatment Treatment Requested] Servers,
Requested] [Confidential Treatment
Requested] on each
Monthly Fee coast,[Confidential Treatment
Requested] at ALS MN
Hardware lease/rental fee
- -------------------------------------------------------------------------------
TABLE 4. DETAILED CHARGES FOR SOFTWARE. Detailed description of software to be
provided with charges for installation and monthly rental (if applicable).
- -------------------------------------------------------------------------------
Amount Comments/Additional
Information
- -------------------------------------------------------------------------------
Installation/Set-up [Confidential
Monthly Fee Treatment
Requested]
- -------------------------------------------------------------------------------
TABLE 5. DETAILED CHARGES FOR ADDITIONAL FEATURES AND SERVICES. Detailed
description of any additional features or services with charges for installation
and any monthly charge.
- -------------------------------------------------------------------------------
Description: [Confidential Treatment Requested] Cisco 1601 routers,
[Confidential Treatment Requested] Data Center Cross Connect Setup Fees &
Monthly Fees
- -------------------------------------------------------------------------------
Amount Comments/Additional
Information
- -------------------------------------------------------------------------------
Installation/Set-up [Confidential [Confidential Treatment
Treatment Requested] Cisco 1601 Setup Fee
Requested] & Frame
Relay/Private Line Cross Connect
SetUp Fee
Monthly Fee [Confidential [Confidential Treatment
Treatment Requested] Cisco 1601
Requested] lease/rental fee & Frame
Relay/Private Line Cross Connect,
Monthly Fee
- -------------------------------------------------------------------------------
SECTION 4: SUMMARY OF CHARGES:
This detailed itemization will constitute the customer ordered and agreed to
equipment, software components and configurations.
AT&T Dedicated Hosting Service Level 2 offer includes four key elements plus an
installation fee. These elements are combined as required to build the client's
customized server configurations.
B: Ethernet connection unit to a cluster of maximum three (3) servers.
L: Lease of certified Sun or Compaq computers (optional) plus software.
M: OS maintenance, performance monitoring, per server.
R: Rack space (required for servers exceeding the standard four (4) inch
height).
TABLE 6. SERVICE ELEMENTS ORDERED. Summary of total charges by Element, plus
Total Installation charge.
- -------------------------------------------------------------------------------
Element Amount Description/Comments and additional information
- -------------------------------------------------------------------------------
B [Confiden- [Confidential Treatment Requested] Data Center
tial Treat- Connections: 100Mb Fast Ethernet w/ a 20 Mb
ment Re- CIR (Data Centers: NYC & DEC PAIX)
quested] BANDWIDTH RATE SCHEDULE (for each Data Center):
Initial 1.5Mbps of bandwidth CIR on a 100Mb Fast
Ethernet Segment
[Confidential Treatment Requested] at each
Data Center
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.18 - CONFIDENTIAL TREATMENT REQUESTED
Certain information has been omitted from this
exhibit and filed separately with the SEC
pursuant to a request for Confidential treatment
under Rule 406
- -------------------------------------------------------------------------------
Additional per Mb Rate up to 18Mbps
[Confidential Treatment Requested] per Mb per
month
Additional per Mb Rate from 18.01 Mbps to
45 Mbps [Confidential Treatment Requested] per
Mb per month
Additional per Mb Rate from 45.01 Mbps to 100
Mbps [Confidential Treatment Requested] per Mb
per month
Data Center: ALS MN
BANDWIDTH RATE SCHEDULE: (for each Data Center)
Initial 1.5Mbps of bandwidth CIR on a 100Mbps
Fast Ethernet Segment [Confidential Treatment
Requested] at each Data Center
Additional per Mb Rate up to 18Mbps
[Confidential Treatment Requested] per Mb per
month
Additional per Mb Rate from 18.01 Mbps to 45
Mbps [Confidential Treatment Requested] per Mb
per month
Additional per Mb Rate from 45.01 Mbps to 100
Mbps [Confidential Treatment Requested] per Mb
per month
- -------------------------------------------------------------------------------
L [Confiden- [Confidential Treatment Requested] Compaq
tial Treat- Proliant 1850R servers (as described above),
ment Re- [Confidential Treatment Requested] Cisco 1601
quested] routers & CSU/DSUs, & Frame Relay/Private Line
Monthly Cross Connect Fees
- -------------------------------------------------------------------------------
M [Confiden- [Confidential Treatment Requested] Compaq
tial Treat- Proliant 1850R servers (as described above),
ment Re- standard Level 2 Service Offering Maintenance.
quested]
- -------------------------------------------------------------------------------
R [Confident- [Confidential Treatment Requested] Full Racks
tial Treat- (one Full Rack in each Data Center(Data Centers
ment Re- include: NYC, DEC PAIX & ALS MN))
quested]
- -------------------------------------------------------------------------------
Install [Confident- INSTALL: [Confidential Treatment Requested]
ial Treat- Compaq Proliant servers (as described above),
ment Re- [Confidential Treatment Requested] Cisco 1601
quested] routers & CSU/DSUs, Frame Relay/Private Line
Cross Connect Setup Fees & 100 Mb Fast Ethernet
Segment Setup fee [Confidential Treatment
Requested] per Segment [Confidential Treatment
Requested] Total Segments)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL INSTALLATION FEE [Confi- Client is responsible for
dential installation and content
Treat- management
ment Re-
quested]
- -------------------------------------------------------------------------------
TOTAL MONTHLY SERVICE FEE [Confi-
dential
Treat-
ment Re-
quested]
- -------------------------------------------------------------------------------
Prices shown are for U.S. only and are subject to change on sixty days notice.
Every effort has been made to ensure that the information is complete and
accurate; however, AT&T is not responsible for typographic errors or omissions.
As prices change, the most current prices will be reflected in on-line HELP.
AT&T AND AT&T and the Globe Design are registered trademarks and service marks
of AT&T Corp. Any other marks may be proprietary marks of one or more third
parties. 1998 AT&T. All rights Reserved. Printed in the U.S.A.
- ----------------------------------------------
1 Includes vanity domain name registration (2 years) and set-up, installation
and testing of hardware and standard software for a single server system.
2 Refer to the AT&T Dedicated Hosting Service Level 2 Additional Terms and
Conditions - Exhibit A for a description of Remote Hands Services.
3 Minimum term commitment of 1 year. Except as specified below, in the event
of early cancellation of services, the customer is responsible for payment of
the remaining portion of the term commitment in full and is not eligible for a
refund of any fees. In the event of a notice of price increase of the Monthly
Base Rate of 10% or more, the customer may cancel service with no cancellation
penalty by providing written notice of cancellation within 60 days following the
date of notice of such price increase. In the event of a notice of price
increase of any of the software options noted above of 10% or more, the customer
may cancel the affected optional feature with no cancellation penalty by
providing written notice of cancellation of such feature within 60 days
following the date of notice of such price increase.
4 Billed one month in advance, pro-ratable for partial months. Registration
and monthly charges accrue upon physical completion of server deployment and
connection of the server to AT&T's network regardless of when or whether the
customer's content has been deployed. Customer is responsible for content
installation and management.
5 The AT&T Dedicated Hosting Service Level 2 does not include inbound email
or Internet across capabilities, which are the responsibility of the customer
to obtain.
6 Standard bandwidth must be ordered with no more than two (2) 1 Mbps
increments for each 1.5 Mbps. Charges for nonstandard bandwidth and bursting,
if applicable, will be specified in Section 3 of this Exhibit.
7 See Note 1 above. Additional charges apply when more than one server is
ordered, and for any software which AT&T deems not to be a part of its standard
configuration.
<PAGE>
EXHIBIT 10.19
TERMINATION AGREEMENT
THIS AGREEMENT is made and entered into this 29th day of April, 1999, by and
between NETRADIO CORPORATION, a Minnesota corporation (the "Company") and
MICHAEL WISE, the Company's Chief Financial Officer (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 that would
entitle the Executive to receive a severance payment in a case where certain
events trigger either the Executive's termination or diminishment in position
after a sale of the Company.
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 material adverse change in Executive's status or position
as an executive officer of the Company, including without limitation,
any material 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 materially and adversely effects the
Executive.
2. PAYMENTS DUE. If any of the events described in Paragraph 1 above are
triggered, the Company shall pay Executive the "Severance Payment" (as
defined below) in cash within ten (10) business days of the triggering
event; provided, however, that in no event shall the amount due and payable
hereunder constitute a "Parachute Payment" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended. In the event
that any portion of the Severance Payment would be deemed a Parachute
<PAGE>
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) "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;
(iii) 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
(iv) 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 (1) three directors or
(2) directors constituting a majority of the number of directors
of the Company then in office.
(b) "Executive Salary" shall mean Executive's salary in effect when Change
in Control occurs.
(c) "Severance Payment" shall mean an amount equal to six (6) months of
Executive's Salary.
4. MODIFICATIONS - WAIVER. No termination or modification of any provisions
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.
IN WITNESS WHEREOF, the parties have executed this Termination Agreement as
of the date first set forth above.
-2-
<PAGE>
NETRADIO CORPORATION
By: /s/ Edward A. Tomechko /s/ Michael P. Wise
------------------------ ---------------------------
MICHAEL WISE
Its President & C.E.O.
--------------------
-3-
<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 Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-73261) and related Prospectus of
NetRadio Corporation for the Registration of 3,333,000 shares of its common
stock.
Ernst & Young LLP
Minneapolis, Minnesota
April 26, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF I/PRO
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our name and reports, relating to visitor
and listener traffic for NetRadio Corporation which appear in such Prospectus.
I/PRO, Internet Profiles Corporation
April 16, 1999
/s/ Patrizia Owen
- --------------------
Patrizia Owen
Vice President, Finance and Administration
<PAGE>
Exhibit 99.1
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------
ADDITIONS DEDUCTIONS
--------- ----------
Balance Charged to Balance
at Beginning Costs and at End
Description of Period Expenses Describe of Period
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Deducted from asset accounts
Allowance for doubtful accounts $5,000 $ -- $ -- $5,000
-----------------------------------------------------------
Total $5,000 $ -- $ -- $5,000
-----------------------------------------------------------
-----------------------------------------------------------
Year ended December 31, 1997:
Deducted from asset accounts
Allowance for doubtful accounts $5,000 $ -- $ -- $5,000
-----------------------------------------------------------
Total $5,000 $ -- $ -- $5,000
-----------------------------------------------------------
-----------------------------------------------------------
Year ended December 31, 1996:
Deducted from asset accounts
Allowance for doubtful accounts $5,000 $ -- $ -- $5,000
-----------------------------------------------------------
Total $5,000 $ -- $ -- $5,000
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
