SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
WEBQUEST INTERNATIONAL, INC.
(Exact name of registrant in its charter)
Nevada 86-0894019
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
2241 Park Place, Suite E, Minden, Nevada 89423
(Address of principal executive offices) (Zip Code)
(702) 782-0350
(Issuer's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of Each Exchange on which
to be so registered each class is to be registered
None None
Securities to be registered pursuant to section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
<PAGE>
Item 1. Description of Business
Background
WebQuest International, Inc., incorporated in Nevada on March 25, 1998,
(the "Company"), is the successor by merger with WebQuest International, Inc., a
Utah corporation formerly known as Phaser Enterprises, Inc. ("WB Utah"). In
April 1997 Web Utah entered into an Agreement and Plan of Reorganization with
WebQuest International, Inc., a Nevada Corporation ("old WB"), incorporated in
November 1996, formerly known as iPONG International, Inc., pursuant to which
agreement the old WB merged with and into WB Utah. Prior to April 1997 WB Utah
had no operations.
The Company's present business is the development and marketing of an
interactive game arcade, known as the iPONG Game Arcade on the
Internet. Site visitors use their eye/hand coordination and trivia knowledge to
win cash and/or prizes. The Company anticipates that it will derive revenue from
the sale of advertising.
iPONG Game Arcade
iPONG Game and Trivia Arcade is an interactive game site. The site
provides visitors a Variety of PONGTM games, a simple arcade game licensed from
Atari, a division of JTSR corporation, with 10 different categories of trivia.
After entering the Company's web site at www.iPONG.com, players compete for
points on a weekly basis. As players respond to questions throughout the game,
each question or activity is accompanied by advertising. iPONG is a game of
skill and knowledge. Players who successfully score high win cash and/or prizes.
The Company intends to charge advertisers per advertisement placed with the
games questions. As of the date of this Registration Statement the Company has
not entered into contracts. For advertising with any person, and the Company has
not engaged any advertising agency to do so, although it intends to do so in the
future.
The Company has entered into a Licensing and Marketing Agreement with
NDS Software, Inc. ("NDS"), which owns 18.7% of the Company's Common Stock.
Pursuant to this Agreement, the Company licensed the software and trademarks
related to iPONG for a ten year term. The license fee is 7% of the revenues for
the first year commencing on the live date for the site 1998, 10% in the second
year, and 15% thereafter. In addition, the Company is required to pay NDS for
technical services rendered by NDS.
Employees
The Company currently has four employees, two in management, one
administration and one in sales.
Item 2. Management's Discussion and Analysis or Plan of Operation
As of December 31, 1997 the Company had not received revenues from
operations. The Company intends to obtain advertising revenue in connection with
the iPONG Game Arcade. Based on discussions with advertisers, the
Company believes it will be able to enter into contracts for advertising only
when it achieves approximately 40,000 to 50,000 players per week. The primary
focus of the Company at this time is obtaining players, which it does so by
marketing its web site. Management believes that an expenditure of $50,000
will be required for web site marketing to bring the number of players to the
desired level. There can be no assurance that the Company will ever be able to
generate revenues, nor that it will be able to raise sufficient capital for its
requirements.
The Company anticipates its capital needs over the next twelve months
to be $80,000 per month. The Company's cash needs have been met to date from
placements of its equity securities. As of December 31, 1997 the Company had a
working capital deficit of $133,000.
Item 3. Description of Property
2
<PAGE>
The Company subleases 320 square feet of office space from NDS for $200
per month on a month to month basis. The Company also leases 200 square feet in
Del Mar, California at the rate of $550 per month. The lease expires on October
6, 1998. The Del Mar location is used for game development. The Company will
seek additional office space in Nevada over the next four to six months.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information relating to the beneficial
ownership of Company common stock by those persons beneficially holding more
than 5% of the Company capital stock, by the Company's directors and executive
officers, and by all of the Company's directors and executive officers as a
group. The address of each person is care of the Company.
<TABLE>
<CAPTION>
Percentage
Name of Number of of Outstanding
Stockholder Shares Owned Common Stock
<S> <C> <C> <C>
Bob Horn (1)(2) 150,000 3.9%
Kirk Johnson (1)(3) 298,554 7.9%
Frank Howard(1)(4) 5,000 0%
All directors and officers
as a group (three people) 453,554 11.7%
Greg & Jeannie Johnson) 471,749 12.6%
Dr. Jack Kelly 878,138 23.4%
Darin Murphy 677,443 18.1%
NDS Software, Inc. 700,000 18.7%
Topaz Limited/Octagon
Worldwide, LTD 361,616 9.4%
</TABLE>
(1) The address of this person is in care of the Company.
(2) Includes currently exercisable options to purchase 100,000 shares of
common stock. See Item 6, "Executive
Compensation."
(3) Includes currently exercisable options to purchase 30,000 shares of
common stock. See Item 6, " Executive
Compensation."
(4) Includes 2,500 shares issuable upon exercise of warrants.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company is as
follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert Horn 43 Chairman, Chief Executive Officer
and President
Kirk Johnson 41 Vice President, Secretary, Treasurer
and Director
Frank Howard 50 Director
</TABLE>
3
<PAGE>
Robert Horn has been Chairman, Chief Executive Officer and President
of WebQuest International Inc. since September 1997. From June 1995 to August
1997 he was employed as Executive Producer for BlueSky Software, a San Diego
computer and video game developer. From July 1988 to May 1995 he owned Bob Horn
Productions, a commercial and industrial video production company. From 1984 to
1988 he produced "San Diego at Large", a local television show for KFMB TV.
Prior to that Mr. Horn was a middle linebacker for the San Diego Chargers and
the San Francisco 49ers from 1976 to 1984
Kirk Johnson has been Vice President, Secretary, Treasurer and
Director of the Company since October 1997. From 1981 to Oct 1997 he was active
Chief Executive Officer and President of Nevada Johnson, Inc., a Nevada real
estate and construction firm.
Frank Howard has been a Director since December 1997.Since 1989 he has
been President and CEO of STI (Sales Technology, Inc.). From 1976 to 1989 he
worked for Bently Nevada Corporation.His last position for Bently was as acting
Vice President of Sales.
Item 6. Executive Compensation
The Company has entered into a two year employment agreement with its
President and Chief Executive Officer Mr. Horn, effective September 29, 1997
providing for annual compensation of $120,000, and the issuance of options to
purchase 400,000 shares of common stock at a price of $.116 per share. The
option vest at the rate of 100,000 shares each September 23, commencing on
September 23, 1997. The Agreement provides Mr. Horn shall be eligible for
benefits under any health, life and retirement plan which may be established in
the future. In the event of any termination without cause, all options become
immediately vested and Mr. Horn shall be entitled to six months severance pay.
The Company has entered into a two year employment agreement with its
Vice President, Secretary and Treasurer, Kirk Johnson, commencing on October 1,
1997 pursuant to which Mr. Johnson shall be paid $2,000 per week, or in lieu
thereof, options to purchase 2,500 shares of common stock at a price of $.116
per share, for each week.Mr. Johnson elected to receive 30,000 share options in
lieu of salary. In addition, Mr. Johnson used stock options to purchase 150,000
shares of common stock at a price of $.116 per share vesting one half on October
1, 1998 and the remainder on October 1, 1999. Mr. Johnson is also entitled to
participate in any group medical or pension plan that may be implemented in the
future.
Frank Howard receives $500 per month and $100 per meeting
for his services as Director.
Item 7. Certain Relationships and Related Transactions
The Company has entered into a Licensing and Marketing Agreement with
NDS Software, Inc. as discussed under Part I, Item 1 - Business. The Company
also sublets office space from NDS, as disclosed under Part I, Item 2 -
Properties. NDS Software, Inc. owns 700,000 shares of Company's common stock, or
18.7% of the outstanding shares.
The Company borrowed $10,000 and $100,000, respectively, on April 23,
1997 and December 31, 1996 from Jack Kelly, the father of the Company's then
President. The notes bear interest of 12% and are due on demand.
The balance owed as of December 31, 1997 was $14,852.
Kirk Johnson, the Company's Vice President, Secretary and Treasurer is
the brother of Greg Johnson, also a holder of Common and Preferred Stock of the
Company and the CEO of NDS.
Item 8. Description of Securities
Common Stock
4
<PAGE>
The Company's Articles of Incorporation authorizes the issuance of
45,000,000 shares of common stock, $.001 par value per share, of which 3,765,101
shares were outstanding as of April 30, 1998. Holders of shares of common stock
are entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of common stock have no cumulative voting rights. Holders
of shares of common stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of common stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of common stock have no preemptive rights to purchase the
Company's common stock. There are no conversion rights or redemption or sinking
fund provisions with respect to the common stock. All of the outstanding shares
of common stock are fully paid and non-assessable.
The transfer agent for the common stock is American Registrar and
Transfer, 10 Exchange Place, Suite 705, Salt Lake City, Utah 84110.
Preferred Stock
The Company's Articles of Incorporation authorize the issuance of up
to 5,000,000 shares of Preferred Stock, of which 212,250 shares of Series B
Preferred Stock are outstanding. The Preferred Stock is convertible into shares
of common stock on a one for one basis. The holders of Series B Preferred are
senior to the Common Stock with respect to dividend rights and are entitled to
receive a 12% annual cumulative dividend, payable on the first day of June and
December commencing on December 1, 1998. In the option of the Corporation, such
dividend may be paid in cash or in Common Stock valued at market price, or a
combination thereof. senior to the Common Stock with respect to dividend rights.
Holders of Series B Preferred Stock are entitled to a liquidation preference of
$500 per share. The Company may issue additional preferred stock in the future.
The Company's Board of Directors has authority, without action by the
shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series.
The Company considers it desirable to have preferred stock available
to provide increased flexibility in structuring possible future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either
public offering or private placements, the provisions for preferred stock in the
Company's Articles of Incorporation would avoid the possible delay and expense
of a shareholder's meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the Common Stock which would result in dilution
of the income per share and net book value of the Common Stock. Issuance of
additional Common Stock pursuant to any conversion right which may be attached
to the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the Common Stock. The specific
terms of any series of preferred stock will depend primarily on market
conditions, terms of a proposed acquisition or financing, and other factors
existing at the time of issuance. Therefore, it is not possible at this time to
determine in what respect a particular series of preferred stock will be
superior to the Company's Common Stock or any other series of preferred stock
which the Company may issue. The Board of Directors may issue additional
preferred stock in future financings.
The issuance of Preferred Stock could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of Maryland law could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. While such provisions are intended to enable the Board of Directors to
maximize stockholder value, they may have the effect of discouraging takeovers
which could be in the best interest of certain stockholders. There is no
assurance that such provisions will not have an adverse effect on the market
value of the Company's stock in the future.
Shares Eligible for Future Sale
The outstanding shares of the Company are subject to resale
restrictions and, unless registered under the Securities Act of 1933 (the "Act")
or exempted under another provision of the Act, will be ineligible for sale in
the public market. Sales may be made after one year from their acquisition based
upon Rule 144.
5
<PAGE>
In general, under Rule 144 as currently in effect a person (or persons
whose shares are aggregated) who has beneficially owned shares privately
acquired or indirectly from the Company or from an Affiliate, for at least one
year, or who is an Affiliate, is entitled to sell within any three-month period
a number of such shares that does not exceed the greater of 1% of the then
outstanding shares of the Company's Common Stock (approximately 37,464 shares)
or the average weekly trading volume in the Company's Common Stock during the
four calendar weeks immediately preceding such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
at any time during the 90 days preceding a sale, and who has beneficially owned
shares for at least two years, is entitled to sell all such shares under Rule
144 without regard to the volume limitations, current public information
requirements, manner of sale provisions, or notice requirements.
Sales of substantial amounts of the Common Stock of the Company in the
public market could adversely affect prevailing market prices.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
(a) Market Information
The Company's Common Stock has not traded for the past three
years.
(b) Holders
As of April 30, 1998, there were 194 holders of Company common
stock.
(c) Dividends
The Company has not paid any dividends on its common stock. The
Company currently intends to retain any earnings for use in its
business, and therefore does not anticipate paying cash dividends in
the foreseeable future.
Item 2. Legal Proceedings
Not applicable.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 4. Recent Sales of Unregistered Securities
In May 1997, the Company issued 2,555,000 shares to acquire all of
the shares of old WB from the 10 shareholders of old WB, in an offering exempt
under Section 4(2) of the Securities Act of 1933.
In March 1997 to December 1997 the Company issued 212,250 shares of
Common Stock and 212,250 shares of Series B Preferred Stock to 23 investors at a
price of $1.00 per share, in an offering made under Rule 504.
On August 27, 1997 the Company issued 30,000 shares for services
valued at $1.00 per share to officers, directors and employees under Rule 701.
On September 14, 1997 the Company issued 700,000 shares to NDS in
connection with a licensing agreement, under the exemption provided by Section
4(2) of the Securities Act.
6
<PAGE>
Item 5. Indemnification of Directors and Officers
The Company has adopted provisions in its articles of incorporation
and bylaws that limit the liability of its directors and provide for
indemnification of its directors and officers to the full extent permitted under
the Nevada General Corporation Law. Under the Company's Certificate of
Incorporation, and as permitted under the Nevada General Corporation Law,
directors are not liable to the Company or its stockholders for monetary damages
arising from a breach of their fiduciary duty of care as directors. Such
provisions do not, however, relieve liability for breach of a director's duty of
loyalty to the Company or its stockholders, liability for acts or omissions not
in good faith or involving intentional misconduct or knowing violations of law,
liability for transactions in which the director derived as improper personal
benefit or liability for the payment of a dividend in violation of Nevada law.
Further, the provisions do not relieve a director's liability for violation of,
or otherwise relieve the Company or its directors from the necessity of
complying with, federal or state securities laws or affect the availability of
equitable remedies such as injunctive relief or recision.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim for indemnification by any director or
officer.
PART F/S
The following financial statements are included herein:
Independent Auditor's Report
Balance Sheets at December 31, 1997, and September 30, 1997
Statement of Operations from Inception (November 5, 1996) through
September 30, 1997 and for the three months ended December 31, 1997
Statement of Stockholders' Equity Statement of Cash Flows from
Inception (November 5, 1996) through September 30, 1997 and for the
three months ended December 31, 1997 Notes to Financial Statements
PART III
Item 1. Index to Exhibits.
The following exhibits required by Part III of Form 1-A are filed
herewith:
Exhibit No. Document Description
2. Charter and Bylaws
2.1 Articles of Incorporation(1)
2.2 Bylaws(1)
2.3 Articles of Merger(1)
3. Instruments Defining the rights of security holders
Not Applicable.
5. Voting Trust Agreement
Not Applicable.
6. Material Contracts
6.1 License and Marketing Agreement with NDS
Software, Inc.(1)
7
<PAGE>
6.2 Employment Agreement - Robert Horn(1)
6.3 Employment Agreement - Kirk Johnson(1)
7. Material Foreign Patents.
Not Applicable.
(1) Filed herewith
Item 2. Description of Exhibits.
See Item 1.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: April 30, 1998 WEBQUEST INTERNATIONAL, INC.
By:/s/ Robert Horn
Robert Horn
President
8
<PAGE>
WEBQUEST INTERNATIONAL, INC.
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
<TABLE>
<CAPTION>
CONTENTS
PAGE
<S> <C>
-- Independent Auditors' Report 1
-- Balance Sheet, September 30, 1997 2
-- Statement of Operations, from inception
on November 5, 1996 through September 30,
1997 3
-- Statement of Stockholders' Equity (Deficit),
from inception on November 5, 1996
through September 30, 1997 4
-- Statement of Cash Flows, from inception
on November 5, 1996 through September 30,
1997 5 - 6
-- Notes to Financial Statements 7 - 18
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
WEBQUEST INTERNATIONAL, INC.
Minden, NV
We have audited the accompanying balance sheet of Webquest International, Inc.
[a development stage company] at September 30, 1997, and the related statements
of operations, stockholders' equity and cash flows from inception on November 5,
1996 through September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Webquest International, Inc. as of
September 30, 1997, and the results of its operations and its cash flows for the
period from inception through September 30, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 10 to the financial
statements, the Company has liabilities in excess of assets, has incurred losses
since inception and has not yet established profitable operations, raising
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 10. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
November 6, 1997
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
BALANCE SHEET
ASSETS
September 30,
1997
CURRENT ASSETS:
<S> <C>
Cash in bank $ 9,321
Total Current Assets 9,321
PROPERTY AND EQUIPMENT, net 5,716
SOFTWARE LICENSE RIGHTS, net 925,000
$ 940,037
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 140,896
Note payable - related party 14,852
Other accrued liabilities 10,415
Total Current Liabilities 166,163
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value,
5,000,000 shares authorized, 93,750 shares of 12% Series B convertible
preferred stock issued and outstanding for which 500,000
shares have been authorized 94
Common stock, $.001 par value,
20,000,000 shares authorized,
3,578,951 shares issued and
outstanding 3,579
Capital in excess of par value 1,578,879
Deficit accumulated during the
development stage (459,001)
Less: deferred compensation expense
In accordance with APB 25 (349,677)
Total Stockholders' Equity 773,874
$ 940,037
</TABLE>
The accompanying notes are an integral part of this
financial statement.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF OPERATIONS
From Inception
on November 5,
1996 Through
September 30, 1997
<S> <C>
REVENUE $ --
EXPENSES:
Selling expense 199,290
General and administrative 253,382
Compensation expense recorded in
accordance with APB 25 for Stock
Options issued below market value 3,923
Total Expenses 456,595
OTHER EXPENSES:
Interest expense 2,406
Total Other Expenses 2,406
LOSS BEFORE INCOME TAXES (459,001)
CURRENT TAX EXPENSE --
DEFERRED TAX EXPENSE --
NET LOSS $ (459,001)
LOSS PER COMMON SHARE $ (.21)
</TABLE>
The accompanying notes are an integral part of this
financial statement.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 1997
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
Excess of Development
Shares Amount Shares Amount Par Value Stage
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, November 5, 1996 -- $ -- -- $ -- $ -- $ --
Issuance of 2,438,333 shares common
stock for cash, January 1997, at
$.123 per share -- -- 2,438,333 2,438 297,562 --
Issuance of 116,667 shares common
stock for services, January 1997, at
$.116 per share -- -- 116,667 117 13,417 --
Recapitalization of Phaser, issuance
of 200,201 shares of common stock
for Phaser stock, May 1997 -- -- 200,201 200 (2,282) --
Issuance of 93,750 shares preferred and
common stock for cash, March through
September 1997, at $1.00 per share 93,750 94 93,750 94 187,312 --
Issuance of 30,000 shares common
stock for services, August 1997, at
$1.00 per share -- -- 30,000 30 29,970 --
Issuance of 700,000 shares common
stock for licensing agreement, at
$1.00 per share, September 1997 -- -- 700,000 700 699,300 --
Granting of options to acquire 400,000
Shares of common stock at below market
value. Compensation expense calculated
in accordance with APB 25. -- -- -- -- 353,600 --
Net loss for the period ended
September 30, 1997 -- -- -- -- -- (459,001)
BALANCE, September 30, 1997 93,750 $ 94 3,578,951 $ 3,579 $1,578,879 $ (459,001)
</TABLE>
The accompanying notes are an integral part of this
financial statement.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
From Inception
on November 5,
1996 Through
September 30, 1997
Cash Flows from Operating Activities:
<S> <C>
Net loss $ (459,001)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 75,371
Non-cash expense 43,533
APB 25 compensation recorded for
Stock options issued below
Market value 3,923
Changes in assets and liabilities:
Increase in accounts payable 140,896
Increase in accounts payable - related party 14,852
Increase in accrued liabilities 10,415
Net Cash Flows Used by Operating Activities (170,011)
Cash Flows from Investing Activities:
Purchase of equipment (6,087)
Purchase of software licensing rights (300,000)
Net Cash Flows Used by Investing Activities (306,087)
Cash Flows from Financing Activities:
Proceeds from preferred stock issuance 93,750
Proceeds from common stock issuance 391,669
Net Cash Flows Provided by Financing Activities 485,419
Net Increase in Cash 9,321
Cash at Beginning of Period --
Cash at End of Period $ 9,321
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest $ 2,406
Income taxes $ --
</TABLE>
[Continued]
- 5 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF CASH FLOWS [Continued]
NET INCREASE (DECREASE) IN CASH
Supplemental schedule of Noncash Investing and Financing Activities:
For the period ended September 30, 1997:
The Company issued a total of 700,000 shares of restricted common stock
in exchange for licensing rights valued at $700,000.
The Company issued a total of 146,667 shares of restricted common stock
in exchange for services rendered valued at $43,533.
The Company issued stock options to purchase 400,000 shares of common
stock to an officer of the Company at below market value prices.
Additional paid in capital of $353,600 was recorded, $3,923 in current
compensation expense was recorded and $349,677 of deferred compensation
expense ( a reduction to stockholders' equity) was recorded.
The Company issued a total of 200,201 shares of common stock in exchange
for merger with Phaser valued at $(2,082).
The accompanying notes are an integral part of this
financial statement.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- 6 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
Organization - The Company was organized under the laws of the State of
Nevada on November 5, 1996 as IPONG International, Inc. but subsequently
reorganized with WebQuest International, Inc. (which was formed to serve
as a vehicle for a reorganization of the Company). During April, 1997 the
Company entered into a plan and agreement of merger with Phaser
Enterprises, Inc. ["Phaser"], a publicly held Utah corporation wherein
the operations of the Company is the surviving entity. The Company has
not commenced planned principal operations and is considered a
development stage company as defined in SFAS No. 7. The Company is
planning to engage in the business of creating and marketing Internet
"web" sites on a commercial basis along with other Internet related
businesses.
Comparative Financial Statements - Prior year financial statements of
Phaser are not included because the reorganization with the Company has
been accounted for as a recapitalization in a manner similar to a reverse
purchase. Phaser was inactive prior to the reorganization and the
operations of the Company are the on-going operations of the combined
enterprise. Accordingly, the operations of Phaser prior to the date of
reorganization have been eliminated. A summary of Phaser's stockholders'
equity prior to reorganization has been included in Footnote 12
(Unaudited).
Property and Equipment - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized, upon being placed in
service. Expenditures for maintenance and repairs are charged to expense
as incurred. Depreciation is computed for financial statement purposes on
a straight-line basis over the estimated useful lives of the assets which
ranges from five to seven years.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This statement requires an asset and liability approach
for accounting for income taxes.
Dividend Policy - The Company has not paid any dividends on common stock
to date and does not anticipate paying dividends on common stock in the
foreseeable future.
Recently Enacted Accounting Standards - In February 1997, SFAS Nos. 128,
"Earnings Per Share" and 129, "Disclosures of Information about Capital
Structure" were issued. SFAS No. 128 changes the computation,
presentation and disclosure requirements of earnings per share for
entities with publicly held common stock. SFAS No. 129 addresses
standards for disclosing information about an entity's capital structure.
Although such statements are not effective until December 31, 1997, had
such statements been adopted for the eleven months ended September 30,
1997 and for the period from inception through September 30, 1997 the
effect would not be significant.
Revenue Recognition - The Company has not yet generated any revenues.
Loss Per Share - The computation of loss per share is based on the weighted
average number of shares outstanding during the period presented.
Statement of Cash Flows - For purposes of the statement of cash flows, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Stock Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting Standard
123 "Accounting for Stock-Based Compensation". This statement establishes an
accounting method based on the fair value of equity instruments awarded to
employees as compensation. However, companies are permitted to continue
applying previous accounting standards in the
- 7 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
determination of net income with disclosure in the notes to the financial
statements of the differences between previous accounting measurements and
those formulated by the new accounting standard. The Company has adopted the
disclosure only provisions of SFAS No. 123, accordingly, the Company has
elected to determine net income using previous accounting standards.
Reverse Stock Split - In connection with the recapitalization, Phaser
reverse split its outstanding common stock on the basis of 1 share issued
for each 27 shares previously outstanding. The financial statements have
been restated to reflect the common stock split for all periods presented.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles required management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the disclosures 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
estimated by management.
NOTE 2 - RECAPITALIZATION
The Company was organized on November 5, 1996 as IPONG International, Inc.
and subsequently reorganized with WebQuest International, Inc. (which was
formed to serve as a vehicle for a reorganization of the Company). During
April, 1997 the Company entered into a plan and agreement of merger with
Phaser Enterprises, Inc., a public corporation, wherein Webquest
International, Inc. was the surviving entity. The transaction has been
accounted for as a recapitalization of the Company. The operations of Phaser
are included only from the date of recapitalization. Accordingly, the
previous operations and retained deficits of Phaser prior to the date of
reorganization have been eliminated. In anticipation of the reorganization,
Phaser effected a reverse stock split on the basis of 1 share issued for
each 27 shares previously outstanding. The former shareholders of Phaser
held approximately 200,201 shares of common stock immediately after the
reorganization.
NOTE 3 - SOFTWARE LICENSE RIGHTS
Software licensing rights consists of the following at September 30, 1997:
<TABLE>
<CAPTION>
1997
<S> <C>
Cash paid for licensing rights $ 300,000
Stock issued for licensing rights 700,000
1,000,000
Less accumulated amortization 75,000
$ 925,000
</TABLE>
Amortization expense amounted to $75,000 for the period ended September 30,
1997.
Licensing and Marketing Agreement - During December, 1996 the Company paid
$300,000 for an option to acquire licensing rights to an interactive
advertising game for use on the Internet. On January 5, 1997, the Company
exercised its option and entered into a licensing and marketing agreement
(with technical support) with a Nevada corporation, NDS Software, Inc.,
that owns the software rights. The license agreement has a 10-year term and
allows the Company to develop, use, and market the product on an exclusive
basis. Licensing rights are capitalized and amortized on a 10- year basis
(the life of the agreement) and programming costs are expensed as incurred.
Programming expense amounted to $194,290 for the period ended September 30,
1997. As consideration for this agreement the Company agreed to pay $58,333
per month for a year, commencing January 5, 1997. During September 1997,
the Company issued 700,000 shares of restricted common stock at an agreed
- 8 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
upon value of $700,000 (or $1.00 per share) for full consideration of the
one year, $58,333 per month payment. The Company agreed to pay 7% of gross
revenues for the first year after the live date (anticipated to be March 9,
1998), 10% of gross revenues for the second year after the live date, and
15% thereafter. The company also agreed to pay $20,000 per month commencing
at the live date for "website" fees to the Nevada corporation. The Company
agreed to pay $125 per hour and $0.50 per development question to the
Nevada corporation for technical support. Upon merger with IPONG
International, Inc. on April 18, 1997 Webquest assumed the rights and
obligations to this agreement.
Non-exclusive License Agreement - On July 3, 1997, the Company entered into
a non-exclusive licensing agreement with a Delaware corporation, Atari-JTS
Corp. that owns the software, programs, trade names, trademarks,
promotional material, and intellectual property for use on the Internet.
The agreement with the Company has a five year term (which is renewable for
an additional five years if minimum royalty fees received are at least
$400,000 over the five year period) and allows the Company to license and
use the game (Pong) in connection with its "website" on a non-exclusive
basis. As consideration for this agreement the Company paid a $5,000
non-refundable execution of agreement fee. The Company also agreed to pay a
quarterly $1/10 of one cent ($.001) royalty fee for each player who
accesses Pong; with a base amount of $5,000 to the Delaware corporation if
the number of Pong players fails to exceed 5,000,000 in each quarter.
Royalty fees are expensed as incurred. Royalty expense amounted to $5,000
for the period ended September 30, 1997.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 1997:
1997
Office equipment $ 2,357
Computer equipment 3,730
6,087
Less accumulated depreciation 371
$ 5,716
Depreciation expense amounted to $371 for the period ended September 30,
1997.
NOTE 5 - NOTES PAYABLE - Related Party
A shareholder of the Company made two advances to the Company totaling
$110,000. The unpaid balance of the advances was $14,852 at September 30,
1997; of which $2,232 was unpaid accrued interest.
NOTE 6 - CAPITAL STOCK
Common Stock - During January, 1997, the Company issued 2,438,333 shares of
its previously authorized, but unissued common stock to its initial
shareholders. Total proceeds from the sale of stock amounted to $300,000 (or
$.123 per share).
Services Rendered - During January, 1997, the Company issued 116,667 shares
of common stock for services rendered which were valued at $13,534 (or $.116
per share). Also, during August, 1997, the Company issued 30,000 shares of
common stock for services rendered which were valued at $30,000 (or $1.00 per
share).
Public Offering - During the period from March through September, 1997, the
Company sold 93,750 shares of common stock and 93,750 shares of series B
preferred stock pursuant to a public offering. This offering was
- 9 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
registered by qualification in the State of Utah and was made in reliance on
Rule 504 of Regulation D under the Securities Act of 1933. An offering price
of $10,000 per unit was arbitrarily determined by the Company and the sales
agent. Each unit sold consisted of 5,000 shares of common stock, 2,500
warrants to purchase common stock and 5,000 shares of Series B 12%
convertible preferred stock. Total proceeds from the stock sold through
September 30, 1997 amounted to $187,500. The warrants are exercisable at
$7.50 per share commencing one year from the date of closing of the stock
offering and continuing till January 15, 1999. The warrants are subject to
redemption by the Company at $.01 per warrant provided the common stock of
the Company has traded at a price of more than $10.00 for 10 consecutive days
concluding within any 20 consecutive day period immediately prior to the date
the Company has provided notice of such redemption.
Stock Options - During September, 1997, the Company issued options to an
officer of the Company to purchase 400,000 shares of common stock at $.116,
which was below the current market value of $1.00 per share. Total
compensation expense (in accordance with APB 25) of $353,600 has been
calculated with $3,923 being recorded as a current period expense. The
deferred portion of $349,677 is recorded as a reduction to stockholders'
equity.
License Agreement - During September, 1997, the Company issued 700,000 shares
of common stock for software licensing rights which were valued at $700,000
(or $1.00 per share).
Preferred Stock - The Company authorized 5,000,000 shares of preferred stock,
$.001 par value with such rights, preferences and designations and to be
issued in such series as determined by the Board of Directors.
Series B Preferred Stock - The Series B Preferred Stock pays dividends at the
rate of 12% and is fully cumulative. The series B preferred stock shall be
entitled to receive dividends, commencing December 1, 1998, at an annual rate
of 12% per share out of the funds legally available and to the extent
declared by the Board of Directors. The dividends shall be payable in
semi-annual installments on December 1 and June 1 commencing December 1,
1998. The dividends may be paid either in cash, in common stock of the
corporation or a combination thereof. The Series B Preferred Stock will be
automatically converted to one (1) share common stock one year from the date
of issuance. The holders of Series B Preferred Stock shall be entitled to one
(1) vote of each share of Series B Preferred Stock held.
- 10 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS
A summary of the status of the options granted under agreements at September
30, 1997, and changes during the period then ended is presented in the table
below:
<TABLE>
<CAPTION>
1997
Weighted Average
Shares Exercise Price
<S> <C> <C>
Outstanding at beginning of period -- $ --
Granted 400,000 .116
Exercised -- --
Forfeited -- --
Canceled -- --
outstanding at end of Period 400,000 $ .116
Exercisable at end of period 100,000 $ .116
Weighted average fair value of options
granted 400,000 $ .88
</TABLE>
The fair value of each option granted is estimated on the date granted using
the Black-Scholes option pricing model, with the following weighted-average
assumptions used for grants during the period ended September 30, 1997:
risk-free interest rate of 6.1%, expected dividend yield of zero, an
expected life of 5 years and expected volatility of 225%.
A summary of the status of the options outstanding under agreements at
September 30, 1997 is presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-Average Weighted Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ .116 400,000 5 years $ .116 100,000 $ .116
</TABLE>
- 11 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
The Company accounts for options agreements under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. Had compensation cost for these options been determined,
based on the fair value at the grant dates for awards under these agreements,
consistent with the method prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company's
net loss would have been the proforma amounts as indicated below:
<TABLE>
<CAPTION>
Period Ended
September 30,
1997
<S> <C>
Net Loss As reported $ (459,001)
Proforma $ (459,001)
Earnings per Share As reported $ (.21)
Proforma $ (.21)
</TABLE>
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability equal
to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. At September 30, 1997, the
Company's tax assets consist primarily of unused operating loss
carryforwards of approximately $455,000, which may be applied against future
taxable income and which expire in 2012.
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the amount of the
loss carryforwards and, therefore, no deferred tax asset has been recognized
for the loss carryforwards. The net deferred tax assets are approximately
$156,000 as of September 30, 1997.
NOTE 9 - RELATED PARTY TRANSACTIONS
Employment Agreements - The Company has entered into two employment
agreements with officers of the Company.
The employment agreement for the Chief Executive Officer was effective as
of September 22, 1997 and has a term of two years. The agreement provides
for a base salary of $120,000 per year. The employee may terminate the
agreement on 30 days notice. The agreement also provides for stock options
to purchase 400,000 shares of registered common stock of the Company.
Options to purchase 100,000 shares of common stock vest immediately while
the remainder of the options vest at the rate of 100,000 shares on each
yearly anniversary. There are no restrictions on the underlying common
stock except for those imposed under Rule 144 of the Securities Act of
1933, as amended. Once vested the options are exercisable for a five year
period from the date of vesting whether or not the employee is still
employed by the company. However, the employee must be employed by the
company on the date of vesting or the options for that date will not vest.
The options are exercisable at $.116 per share which is less than the
current market value of the stock on the date the agreement took effect and
the options were granted (See Note 6).
The employment agreement for the position which includes Vice-President,
Secretary and Treasurer was effective as of October 1, 1997 and has a term
of two years. The agreement provides for a base salary of $2,000 per week
commencing December 1, 1997. For the period from October 1, 1997 through
November 30, 1997 the employee will receive stock options as follows:
10,000 upon signing and 2,500 per week. The options vest on a monthly
basis. At November 30, 1997, all 30,000 options received will be fully
vested. Beginning December 1, 1997, the employee can elect to receive
options in lieu of cash salary at the rate of 2,500 options per week. The
options will vest on a monthly basis. The employee may terminate the
agreement on 30 days notice. The agreement also provided for stock options
to be immediately granted to purchase 150,000 shares of registered common
stock of the Company. Options to purchase 75,000 shares of common stock
vest on October 1, 1998 while the remainder of the options (75,000 shares)
vest on October 1, 1999. There are no restrictions on any of the underlying
common stock except for those imposed under Rule 144 of the Securities Act
of 1933, as amended. Once vested the options are exercisable for a five
year period from the date of vesting whether or not the employee is still
employed by the company. However, the employee must be employed by the
company on the date of vesting or the options for that date will not vest.
The options are exercisable at $.116 per share which is less than the
current market value of the stock on the date the agreement took effect and
the options were granted (See Note 6).
Office Space - Prior to September 30, 1997, the Company had no office
facilities. Officers of the Company conducted the Company's business from
their own residences or offices at no expense to the Company.
- 12 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
Notes Payable - During 1997, the Company entered into two notes payable
with a shareholder of the company. The notes payable from the shareholder
of the Company totaled $110,000, bear interest at 12%, and have a remaining
balance of $12,620. The Company has paid $174 interest and interest expense
for the period ended September 30, 1997 totaled $2,407.
Related Entity - Certain officers or shareholders of the Company are also
affiliated with an entity with whom the Company has a licensing and
marketing agreement (See Note 3).
NOTE 10 - GOING CONCERN
The Company was formed with a very specific business plan. However, the
possibility exists that the Company could expend virtually all of its
working capital in a relatively short time period and may not be successful
in establishing on-going profitable operations. The financial statements do
not contain any allowances, liabilities or other adjustments which may need
to be recorded if the Company is not successful in achieving profitable
operations.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company is newly formed, has
incurred losses since its inception, has current liabilities in excess of
current assets of $156,842 and has not yet been successful in establishing
profitable operations. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. In this regard,
management is proposing to raise any necessary additional funds not
provided by operations through loans and/or through additional sales of its
common stock. There is no assurance that the Company will be successful in
raising additional capital or achieving profitable operations. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
NOTE 11 - LEASE OBLIGATIONS
Operating Leases - The Company has no long-term operating leases that have
remaining terms in excess of one year as of September 30, 1997. However,
the Company has a month to month sublease for office space and telephone
line access with the same company that the Company purchased the licensing
rights from (and is performing the technical support), wherein the Company
pays $400 per month starting October 1, 1997.
- 13 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - PHASER'S STOCKHOLDERS' EQUITY (UNAUDITED)
Financial statements of Phaser prior to the recapitalization of subsidiary
have not been included because Parent's operations have been eliminated in
the recapitalization. However, the following information taken from Phasers
April 30, 1997 financial statements summarizes the Stockholders' Equity of
Phaser prior to the reorganization.
<TABLE>
<CAPTION>
PHASER ENTERPRISES, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 5, 1984 THROUGH JUNE 30, 1996
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
Paid-in Development
Shares Amount Shares Amount Capital Stage
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 5, 1984 -- $ -- -- $ -- $ -- $ --
Common stock issued to
officers, directors and others
for cash at $0.022667
per share -- -- 45,000 45 20,355 --
Preferred stock issued
to officers, directors and others
for cash at $1.00 per share 50,000 50 -- -- 38,050 --
Forward split of common stock -- -- 405,000 405 (405) --
Net loss from inception on
July 5, 1984 through
June 30, 1985 -- -- -- -- -- (21,417)
BALANCE, June 30, 1985 50,000 50 450,000 450 58,000 (21,417)
Common stock issued to
officers and others for cash
at $0.037044 per share -- -- 460,800 461 340,934 --
Retirement of preferred stock (45,000) (45) -- -- (44,955) --
Retirement of common stock -- -- (431,650) (432) (1,566) --
</TABLE>
[CONTINUED]
- 14 -
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
PHASER ENTERPRISES, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 5, 1984 THROUGH JUNE 30, 1996
[CONTINUED]
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
Paid-in Development
Shares Amount Shares Amount Capital Stage
Common stock issued to
shareholders of Phaser
Enterprises, Inc. pursuant
<S> <C> <C> <C> <C> <C>
to merger agreement -- -- 1,850,003 1,850 460,650 --
Net loss for the year ended
June 30, 1986 -- -- -- -- -- (73,989)
BALANCE, June 30, 1986 5,000 5 2,329,153 2,329 796,661 (95,406)
Common stock issued to
officers and others for
services provided at $0.001
per share -- -- 176,500 177 3,353 --
Retirement of preferred stock (5,000) (5) -- -- 5 --
Net loss for the year ended
June 30, 1987 -- -- -- -- -- (707,319)
BALANCE, June 30, 1987 -- -- 2,505,653 2,506 800,019 (802,725)
Net loss for the year ended
June 30, 1988 -- -- -- -- -- (100)
BALANCE, June 30, 1988 -- -- 2,505,653 2,506 800,019 (802,825)
Net loss for the year ended
June 30, 1989 -- -- -- -- -- (460)
BALANCE, June 30, 1989 -- -- 2,505,653 2,506 800,019 (803,285)
Net loss for the year ended
June 30, 1990 -- -- -- -- -- (844)
BALANCE, June 30, 1990 -- -- 2,505,653 2,506 800,019 (804,129)
</TABLE>
- 15 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS
PHASER ENTERPRISES, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 5, 1984 THROUGH JUNE 30, 1996
[CONTINUED]
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
Paid-in Development
Shares Amount Shares Amount Capital Stage
Net loss for the year ended
<S> <C> <C> <C> <C> <C> <C>
June 30, 1991 -- -- -- -- -- (100)
BALANCE, June 30, 1991 -- -- 2,505,653 2,506 800,019 (804,229)
Net loss for the year ended
June 30, 1992 -- -- -- -- -- (391)
BALANCE, June 30, 1992 -- -- 2,505,653 2,506 800,019 (804,620)
Net loss for the year ended
June 30, 1993 -- -- -- -- -- (100)
BALANCE, June 30, 1993 -- -- 2,505,653 2,506 800,019 (804,720)
Net loss for the year ended
June 30, 1994 -- -- -- -- -- (100)
BALANCE, June 30, 1994 -- -- 2,505,653 2,506 800,019 (804,820)
Common stock issued
to officer for services
provided at $0.001 per share -- -- 3,000,000 3,000 57,000 --
Net loss for the year ended
June 30, 1995 -- -- -- -- -- (59,600)
BALANCE, June 30, 1995 -- -- 5,505,653 5,506 857,019 (864,420)
Adjustment for fractional
shares in 20 for 1 reverse
stock split -- -- 5 -- -- --
Net loss for the year ended
June 30, 1996 -- -- -- -- -- (191)
BALANCE, June 30, 1996 -- $ -- 5,505,658 $5,506 $857,019 $(864,611)
</TABLE>
- 16 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
The following unaudited Proforma condensed financial information assumes that
PHASER and the Company entered into the reorganization on November 5, 1996:
<TABLE>
<CAPTION>
For the
Period Ended
September 30,
1997
(Unaudited)
<S> <C>
Revenues $ --
Expenses 459,001
Net loss $ (459,001)
Loss per share $ (.21)
</TABLE>
NOTE 13 - SUBSEQUENT EVENTS
Public Offering - During the period subsequent to September, 1997, the
Company is continuing to sell shares of common stock pursuant to a public
offering (See Note 6). During the period from October 1, 1997 through
November 18, 1997 a total of 93,500 additional shares of common and
preferred stock have been sold. Total proceeds from the subsequent stock
sales amounted to $187,000.
Lease Agreement - The Company entered into a one year lease agreement for
office facilities which commenced on October 6, 1997 and expires on October
6, 1998. The agreement calls for monthly payments of $550.
Consulting Agreements - During November, 1997 the Company entered into two
consulting agreements to provide financial public relations for the Company.
Both agreements have a term of one year. One agreement provides for monthly
cash payments of $3,500 ($42,000 total). The other agreement provides for
the issuance of a stock option to purchase 100,000 shares of the Company's
common stock at a price of $3.00 per share.
- 17 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
- 18 -
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
<TABLE>
<CAPTION>
CONTENTS
PAGE
<S> <C>
- Accountant's Disclaimer of Opinion 1
- Unaudited Balance Sheet, December 31, 1997 2
- Unaudited Statements of Operations, for the three months ended
December 31, 1997 and from inception on November 5, 1996 through
December 31, 1997 3
-- Unaudited Statements of Stockholders' Equity, for the period from
inception on November 5, 1996 through September 30, 1997 and through
December, 1997 4 - 5
- Unaudited Statements of Cash Flows, for the three months ended
December 31, 1997 and from inception on November 5, 1996 through
December 31, 1997 6 - 7
-- Notes to Unaudited Financial Statements 8 - 20
</TABLE>
- 19 -
<PAGE>
ACCOUNTANT'S DISCLAIMER OF OPINION
Board of Directors
WEBQUEST INTERNATIONAL, INC.
Minden, NV
The accompanying balance sheet of Webquest International, Inc. as of December
31, 1997 and the related statements of operations, stockholders' equity and cash
flows for the periods then ended were not audited by us, and, accordingly, we do
not express an opinion on them.
April 3, 1997
Salt Lake City, Utah
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
<TABLE>
<CAPTION>
BALANCE SHEET
[Unaudited - See Accountant's Disclaimer of Opinion]
ASSETS
December 31,
1997
CURRENT ASSETS:
<S> <C>
Cash in bank $ 4,839
Refundable deposit 1,005
Total Current Assets 5,844
PROPERTY AND EQUIPMENT, net 12,248
SOFTWARE LICENSE RIGHTS, net 900,000
$ 918,092
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 106,912
Note payable - related party 15,253
Other accrued liabilities 16,738
Total Current Liabilities 138,903
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value,
5,000,000 shares authorized, 187,250 shares of 12% Series B convertible
preferred stock issued and outstanding for which 500,000
shares have been authorized 187
Common stock, $.001 par value,
20,000,000 shares authorized,
3,675,451 shares issued and
outstanding 3,675
Capital in excess of par value 1,927,809
Deficit accumulated during the
development stage (715,149)
Less: deferred compensation expense
In accordance with APB 25 (437,333)
Total Stockholders' Equity 779,189
$ 918,092
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF OPERATIONS
[Unaudited - See Accountant's Disclaimer of Opinion]
For the From Inception
Three Months on November 5,
Ended 1996 Through
December 31, December 31,
1997 1997
<S> <C> <C>
REVENUE $ -- $ --
EXPENSES:
Selling expense 34,350 233,640
General and administrative 149,933 403,315
Compensation expense recorded in
accordance with APB 25 for Stock
Options issued below market value 71,464 75,387
Total Expenses 255,747 712,342
OTHER EXPENSES:
Interest expense 401 2,807
Total Other Expenses 401 2,807
LOSS BEFORE INCOME TAXES (256,148) (715,149)
CURRENT TAX EXPENSE -- --
DEFERRED TAX EXPENSE -- --
NET LOSS $ (256,148) $ (715,149)
LOSS PER COMMON SHARE $ (.07) $ (.29)
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF STOCKHOLDERS' EQUITY
[Unaudited - See Accountant's Disclaimer of Opinion]
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH DECEMBER 31, 1997
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
Excess of Development
Shares Amount Shares Amount Par Value Stage
<S> <C> <C> <C> <C> <C> <C>
BALANCE, November 5, 1996 -- $ -- -- $ -- $ -- $ --
Issuance of 2,438,333 shares common
stock for cash, January 1997, at
$.123 per share -- -- 2,438,333 2,438 297,562 --
Issuance of 116,667 shares common
stock for services, January 1997, at
$.116 per share -- -- 116,667 117 13,417 --
Recapitalization of Phaser, issuance
of 200,201 shares of common stock
for Phaser stock, May 1997 -- -- 200,201 200 (2,282) --
Issuance of 93,750 shares preferred and
common stock for cash, March through
September 1997, at $1.00 per share 93,750 94 93,750 94 187,312 --
Issuance of 30,000 shares common
stock for services, August 1997, at
$1.00 per share -- -- 30,000 30 29,970 --
Issuance of 700,000 shares common
stock for licensing agreement, at
$1.00 per share, September 1997 -- -- 700,000 700 699,300 --
Granting of options to acquire 400,000
shares of common stock at below market
value. Compensation expense calculated
in accordance with APB 25. -- -- -- -- 353,600 --
Net loss for the period ended
September 30, 1997 -- -- -- -- -- (459,001)
</TABLE>
[Continued]
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF STOCKHOLDERS' EQUITY
[Unaudited - See Accountant's Disclaimer of Opinion]
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH DECEMBER 31, 1997
[CONTINUED]
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
Excess of Development
Shares Amount Shares Amount Par Value Stage
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1997 93,750 94 3,578,951 3,579 1,578,879 (459,001)
Issuance of 93,500 shares preferred and common stock for cash, October through
November 1997, at $1.00
per share 93,500 93 93,500 93 186,813 --
Granting of options to acquire 150,000
shares of common stock at below market
value. Compensation expense calculated
in accordance with APB 25, October, 1997 -- -- -- -- 132,600 --
Granting of options to acquire 30,000
shares of common stock at below market
value. Compensation expense calculated
in accordance with APB 25, October, 1997 -- -- -- -- 26,520 --
Issuance of 3,000 shares common stock
for programming costs, December 1997,
at $1.00 per share -- -- 3,000 3 2,997 --
Net loss for the period ended
December 31, 1997 -- -- -- -- -- (256,148)
BALANCE, December 31, 1997 187,250 $ 187 3,675,451 $3,675 $1,927,809 $(715,149)
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
[Unaudited - See Accountant's Disclaimer of Opinion]
NET INCREASE (DECREASE) IN CASH
For The From Inception
Three Monthson November 5,
Ended 1996 Through
December 31, December 31,
1997 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $ (256,148) $ (715,149)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 25,509 100,880
Non-cash expense 3,000 46,533
APB 25 compensation recorded for
Stock options issued below
Market value 71,464 75,387
Changes in assets and liabilities:
(Increase) in deposits (1,005) (1,005)
Increase in accounts payable (33,984) 106,912
Increase in accounts payable - related party 401 15,253
Increase in accrued liabilities 6,323 16,738
Net Cash Used by Operating Activities (184,440) (354,451)
Cash Flows from Investing Activities:
Purchase of equipment (7,042) (13,129)
Purchase of software licensing rights -- (300,000)
Net Cash Used by Investing Activities (7,042) (313,129)
Cash Flows from Financing Activities:
Proceeds from preferred stock issuance 93,500 187,250
Proceeds from common stock issuance 93,500 485,169
Net Cash Provided by Financing Activities 187,000 672,419
Net Increase (Decrease) in Cash (4,482) 4,839
Cash at Beginning of Period 9,321 --
Cash at End of Period $ 4,839 $ 4,839
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest $ -- $ 174
Income taxes $ -- $ --
[Continued]
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
[Unaudited - See Accountant's Disclaimer of Opinion]
NET INCREASE (DECREASE) IN CASH
[CONTINUED]
Supplemental schedule of Noncash Investing and Financing Activities:
For the period ended December 31, 1997:
The Company issued 3,000 shares of common stock in exchange for
programming costs valued at $3,000.
The Company issued stock options to purchase 180,000 shares of common
stock to an officer of the Company at below market value prices.
Additional paid in capital of $159,120 was recorded, $43,095 in current
compensation expense was recorded and $115,843 of deferred compensation
expense ( a reduction to stockholders' equity) was recorded.
Amortization of deferred compensation on stock options granted prior to
October 1, 1997 amounted to $28,369.
For the period ended September 30, 1997:
The Company issued a total of 700,000 shares of restricted common stock in
exchange for licensing rights valued at $700,000.
The Company issued a total of 146,667 shares of restricted common stock in
exchange for services rendered valued at $43,533.
The Company issued stock options to purchase 400,000 shares of common
stock to an officer of the Company at below market value prices.
Additional paid in capital of $353,600 was recorded, $3,923 in current
compensation expense was recorded and $349,677 of deferred compensation
expense ( a reduction to stockholders' equity) was recorded.
The Company issued a total of 200,201 shares of common stock in exchange
for merger with Phaser valued at $(2,082).
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The Company was organized under the laws of the State of
Nevada on November 5, 1996 as IPONG International, Inc. but subsequently
reorganized with WebQuest International, Inc. (which was formed to serve as a
vehicle for a reorganization of the Company). During April, 1997 the Company
entered into a plan and agreement of merger with Phaser Enterprises, Inc.
["Phaser"], a publicly held Utah corporation wherein the operations of the
Company is the surviving entity. The Company has not commenced planned
principal operations and is considered a development stage company as defined
in SFAS No. 7. The Company is planning to engage in the business of creating
and marketing Internet "web" sites on a commercial basis along with other
Internet related businesses.
Comparative Financial Statements - Prior year financial statements of Phaser
are not included because the reorganization with the Company has been
accounted for as a recapitalization in a manner similar to a reverse
purchase. Phaser was inactive prior to the reorganization and the operations
of the Company are the on-going operations of the combined enterprise.
Accordingly, the operations of Phaser prior to the date of reorganization
have been eliminated. A summary of Phaser's stockholders' equity prior to
reorganization has been included in Footnote 14 (Unaudited).
Property and Equipment - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized, upon being placed in service.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed for financial statement purposes on a straight-line
basis over the estimated useful lives of the assets which ranges from five to
seven years.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes.
Dividend Policy - The Company has not paid any dividends on common stock to
date and does not anticipate paying dividends on common stock in the
foreseeable future.
Recently Enacted Accounting Standards - In June 1997, SFAS Nos. 130,
"Reporting Comprehensive Income" and 131, "Disclosures about Segments of an
Enterprise and Related Information" were issued. SFAS No. 130 requires that
all items that are required to be recognized as comprehensive income be
reported in a financial statement that is displayed with the same prominence
as the other financial statements. SFAS No. 131 sets standards for reporting
information about operating segments in the financial statements. SFAS No.
131 also sets standards for the disclosures about products, major customers,
and geographical areas. Although such statements are not effective until
fiscal years beginning after December 15, 1997, had such statements been
adopted for the periods presented, their effect on the financial statements
would not have been significant.
27
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Revenue Recognition - The Company has not yet generated any revenues.
Loss Per Share - Effective for the period ended December 31, 1997 the Compan
adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share," which requires the
Company to present basic
earnings per share and dilutive earning per share when the effect is
dilutive. There was no effect on the financial
statements for the change in accounting principle. [See Note 15]
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Stock Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting Standard
123 "Accounting for Stock-Based Compensation". This statement establishes an
accounting method based on the fair value of equity instruments awarded to
employees as compensation. However, companies are permitted to continue
applying previous accounting standards in the determination of net income
with disclosure in the notes to the financial statements of the differences
between previous accounting measurements and those formulated by the new
accounting standard. The Company has adopted the disclosure only provisions
of SFAS No. 123, accordingly, the Company has elected to determine net income
using previous accounting standards.
Reverse Stock Split - In connection with the recapitalization, Phaser reverse
split its outstanding common stock on the basis of 1 share issued for each 27
shares previously outstanding. The financial statements have been restated to
reflect the common stock split for all periods presented.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles required management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the disclosures 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
estimated by management.
NOTE 2 - RECAPITALIZATION
The Company was organized on November 5, 1996 as IPONG International, Inc.
and subsequently reorganized with WebQuest International, Inc. (which was
formed to serve as a vehicle for a reorganization of the Company). During
April, 1997 the Company entered into a plan and agreement of merger with
Phaser Enterprises, Inc., a public corporation, wherein Webquest
International, Inc. was the surviving entity. The transaction has been
accounted for as a recapitalization of the Company. The operations of Phaser
are included only from the date of recapitalization. Accordingly, the
previous operations and retained deficits of Phaser prior to the date of
reorganization have been eliminated. In anticipation of the reorganization,
Phaser effected a reverse stock split on the basis of 1 share issued for each
27 shares previously outstanding. The former shareholders of Phaser held
approximately 200,201 shares of common stock immediately after the
reorganization.
28
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 3 - SOFTWARE LICENSE RIGHTS
Software licensing rights consists of the following at December 31, 1997:
1997
Cash paid for licensing rights $ 300,000
Stock issued for licensing rights 700,000
1,000,000
Less accumulated amortization 100,000
$ 900,000
Amortization expense amounted to $25,000 for the three month period ended
December 31, 1997.
Licensing and Marketing Agreement - During December, 1996 the Company paid
$300,000 for an option to acquire licensing rights to an interactive
advertising game for use on the Internet. On January 5, 1997, the Company
exercised its option and entered into a licensing and marketing agreement
(with technical support) with a Nevada corporation, NDS Software, Inc., that
owns the software rights. The license agreement has a 10-year term and allows
the Company to develop, use, and market the product on an exclusive basis.
Licensing rights are capitalized and amortized on a 10- year basis (the life
of the agreement) and programming costs are expensed as incurred. Programming
expense amounted to $29,350 for the three month period ended December 31,
1997. As consideration for this agreement the Company agreed to pay $58,333
per month for a year, commencing January 5, 1997. During September 1997, the
Company issued 700,000 shares of restricted common stock at an agreed upon
value of $700,000 (or $1.00 per share) for full consideration of the one year,
$58,333 per month payment. The Company agreed to pay 7% of gross revenues for
the first year after the live date (anticipated to be March 9, 1998), 10% of
gross revenues for the second year after the live date, and 15% thereafter.
The company also agreed to pay $20,000 per month commencing at the live date
for "website" fees to the Nevada corporation. The Company agreed to pay $125
per hour and $0.50 per development question to the Nevada corporation for
technical support. Upon merger with IPONG International, Inc. on April 18,
1997 Webquest assumed the rights and obligations to this agreement.
Non-exclusive License Agreement - On July 3, 1997, the Company entered into a
non-exclusive licensing agreement with a Delaware corporation, Atari-JTS Corp.
that owns the software, programs, trade names, trademarks, promotional
material, and intellectual property for use on the Internet. The agreement
with the Company has a five year term (which is renewable for an additional
five years if minimum royalty fees received are at least $400,000 over the
five year period) and allows the Company to license and use the game (Pong) in
connection with its "website" on a non-exclusive basis. As consideration for
this agreement the Company paid a $5,000 non-refundable execution of agreement
fee. The Company also agreed to pay a quarterly $1/10 of one cent ($.001)
royalty fee for each player who accesses Pong; with a base amount of $5,000 to
the Delaware corporation if the number of Pong players fails to exceed
5,000,000 in each quarter. Royalty fees are expensed as incurred. Royalty
expense amounted to $5,000 for the three month period ended December 31, 1997.
29
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997:
1997
Office equipment $ 6,471
Computer equipment 6,658
13,129
Less accumulated depreciation 881
$ 12,248
Depreciation expense amounted to $510 for the three month period ended
December 31, 1997.
NOTE 5 - NOTES PAYABLE - Related Party
A shareholder of the Company has made two advances to the Company totaling
$110,000. The unpaid balance of the advances was $15,254 at December 31, 1997;
of which $2,634 was unpaid accrued interest.
During October, 1997, a shareholder of the Company advanced the company
$5,000, which is non-interest bearing and payable upon demand. Also during
October, the advance was paid in full.
NOTE 6 - CAPITAL STOCK
Common Stock - During January, 1997, the Company issued 2,438,333 shares of
its previously authorized, but unissued common stock to its initial
shareholders. Total proceeds from the sale of stock amounted to $300,000 (or
$.123 per share).
Services Rendered - During January, 1997, the Company issued 116,667 shares of
common stock for services rendered which were valued at $13,534 (or $.116 per
share). Also, during August, 1997, the Company issued 30,000 shares of common
stock for services rendered which were valued at $30,000 (or $1.00 per share).
Public Offering - During the period from March through September, 1997, the
Company sold 93,750 shares of common stock and 93,750 shares of series B
preferred stock pursuant to a public offering. From October through December,
1997 the Company sold an additional 93,500 shares of common and preferred
stock. This offering was registered by qualification in the State of Utah and
was made in reliance on Rule 504 of Regulation D under the Securities Act of
1933. An offering price of $10,000 per unit was arbitrarily determined by the
Company and the sales agent. Each unit sold consisted of 5,000 shares of
common stock, 2,500 warrants to purchase common stock and 5,000 shares of
Series B 12% convertible preferred stock. Total proceeds from the stock sold
through September 30, 1997 amounted to $187,500. Proceeds from the subsequent
sales through December, 1997 amounted to $187,000. The warrants are
exercisable at $7.50 per share commencing one year from the date of closing of
the stock offering and continuing till January 15, 1999. The warrants are
subject to redemption by the Company at $.01 per warrant provided the common
stock of the Company has traded at a price of more than $10.00 for 10
consecutive days concluding within any 20 consecutive day period immediately
prior to the date the Company has provided notice of such redemption.
30
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 6 - CAPITAL STOCK [Continued]
Stock Options - During September, 1997, the Company issued options to an
officer of the Company to purchase 400,000 shares of common stock at $.116,
which was below the current market value of $1.00 per share. Total
compensation expense (in accordance with APB 25) of $353,600 has been
calculated with $3,923 being recorded as compensation expense through
September, 1997 and $28,369 for the three months ended December, 1997. The
deferred portion of $321,308, as of December, 1997, is recorded as a reduction
to stockholders' equity.
During October, 1997, the Company issued options to the vice-president of the
Company to purchase 150,000 shares of common stock at $.116, which was below
the current market value of $1.00 per share. Total compensation expense (in
accordance with APB 25) of $132,600 has been calculated with $16,575 being
recorded as compensation expense for the three months ended December, 1997.
The deferred portion of $115,843, as of December, 1997, is recorded as a
reduction to stockholders' equity.
During November, 1997, the Company issued options to the vice-president of the
Company to purchase 30,000 shares of common stock at $.116, which was below
the current market value of $1.00 per share. The options were issued in lieu
of salary for services rendered during October and November, 1997. Total
compensation expense (in accordance with APB 25) of $26,520 has been recorded
as of December, 1997.
Warrants - At December 31, 1997 the Company had 93,625 warrants to purchase
common stock outstanding. The warrants were issued in conjunction with the
public stock offering (see above).
License Agreement - During September, 1997, the Company issued 700,000 shares
of common stock for software licensing rights which were valued at $700,000
(or $1.00 per share).
Programming Fees - During December, 1997 the Company issued 3,000 shares of
common stock, valued at $3,000 or $1.00 per share, for contract programming
services.
Preferred Stock - The Company authorized 5,000,000 shares of preferred stock,
$.001 par value with such rights, preferences and designations and to be
issued in such series as determined by the Board of Directors.
Series B Preferred Stock - The Series B Preferred Stock pays dividends at the
rate of 12% and is fully cumulative. The series B preferred stock shall be
entitled to receive dividends, commencing December 1, 1998, at an annual rate
of 12% per share out of the funds legally available and to the extent declared
by the Board of Directors. The dividends shall be payable in semi-annual
installments on December 1 and June 1 commencing December 1, 1998. The
dividends may be paid either in cash, in common stock of the corporation or a
combination thereof. The Series B Preferred Stock will be automatically
converted to one (1) share common stock one year from the date of issuance.
The holders of Series B Preferred Stock shall be entitled to one (1) vote of
each share of Series B Preferred Stock held.
31
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS
A summary of the status of the options granted under agreements at December
31, 1997, and changes during the three month period then ended is presented in
the table below:
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
Weighted Average
Shares Exercise Price
<S> <C> <C>
Outstanding at beginning of period 400,000 $ .116
Granted 280,000 1.15
Exercised -- --
Forfeited -- --
Canceled -- --
Outstanding at end of Period 680,000 $ .54
Exercisable at end of period 230,000 $ 1.30
Weighted average fair value of options
granted during the period 280,000 $ .57
</TABLE>
The fair value of each option granted is estimated on the date granted using the
Black-Scholes option pricing model, with the following weighted-average
assumptions used for grants during the three month period ended December 31,
1997: risk-free interest rate of 6.0%, expected dividend yield of zero, an
expected life of 4 years and expected volatility of 225%.
A summary of the status of the options outstanding under agreements at December
31, 1997 is presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-Average Weighted Average Weighted-Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ .116 400,000 5 years $ .116 100,000 $ .116
$ .116 180,000 2 years $ .116 30,000 $ .116
$ 3.00 100,000 3 years $ 3.00 100,000 $ 3.00
</TABLE>
32
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS [Continued]
The Company accounts for options agreements under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. Had compensation cost for these options been
determined, based on the fair value at the grant dates for awards under
these agreements, consistent with the method prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss would have been the proforma amounts
as indicated below:
<TABLE>
<CAPTION>
From
Three months Inception
Ended Through
December 31, December 31,
1997 1997
<S> <C> <C> <C>
Net Loss As reported $ (256,148) $ (715,149)
Proforma $ (256,148) $ (715,149)
Earnings per Share As reported $ (.07) $ (.29)
Proforma $ (.07) $ (.29)
</TABLE>
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability equal
to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. At December 31, 1997, the
Company's tax assets consist primarily of unused operating loss
carryforwards of approximately $715,000, which may be applied against future
taxable income and which expire in 2012.
The amount of and ultimate realization of the benefits from the operating
loss carryforwards for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforwards the
Company has established a valuation allowance equal to the amount of the
loss carryforwards and, therefore, no deferred tax asset has been recognized
for the loss carryforwards. The net deferred tax assets are approximately
$243,100 as of December 31, 1997. The net change in the valuation allowance
amounted to approximately $87,000 for the three months ended December 31,
1997.
NOTE 9 - RELATED PARTY TRANSACTIONS
Notes Payable - During the fiscal year ended September 30, 1997, the Company
entered into two notes payable with a shareholder of the company. The notes
payable from the shareholder of the Company totaled $110,000, bear interest
at 12%, and have a remaining balance of $12,620 at December 31, 1997. The
Company has paid $174 interest and total unpaid interest expense for the
period ended December 31, 1997 totaled $2,634. During October, 1997, a
shareholder advanced $5,000 to the Company which was subsequently paid in
full during October, 1997.
33
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 9 - RELATED PARTY TRANSACTIONS [Continued]
Employment Agreements - The Company has entered into two employment
agreements with officers of the Company.
The employment agreement for the Chief Executive Officer was effective as of
September 22, 1997 and has a term of two years. The agreement provides for a
base salary of $120,000 per year. The employee may terminate the agreement
on 30 days notice. The agreement also provides for stock options to purchase
400,000 shares of registered common stock of the Company. Options to
purchase 100,000 shares of common stock vest immediately while the remainder
of the options vest at the rate of 100,000 shares on each yearly
anniversary. There are no restrictions on the underlying common stock except
for those imposed under Rule 144 of the Securities Act of 1933, as amended.
Once vested the options are exercisable for a five year period from the date
of vesting whether or not the employee is still employed by the company.
However, the employee must be employed by the company on the date of vesting
or the options for that date will not vest. The options are exercisable at
$.116 per share which is less than the current market value of the stock on
the date the agreement took effect and the options were granted (See Note
6).
The employment agreement for the position which includes Vice-President,
Secretary and Treasurer was effective as of October 1, 1997 and has a term
of two years. The agreement provides for a base salary of $2,000 per week
commencing December 1, 1997. For the period from October 1, 1997 through
November 30, 1997 the employee received stock options as follows: 10,000
upon signing and 2,500 per week. The options vest on a monthly basis. At
November 30, 1997, all 30,000 options received were fully vested. Beginning
December 1, 1997, the employee can elect to receive options in lieu of cash
salary at the rate of 2,500 options per week. The options will vest on a
monthly basis. The employee may terminate the agreement on 30 days notice.
No such election was made. The agreement also provided for stock options to
be immediately granted to purchase 150,000 shares of registered common stock
of the Company. Options to purchase 75,000 shares of common stock vest on
October 1, 1998 while the remainder of the options (75,000 shares) vest on
October 1, 1999. There are no restrictions on any of the underlying common
stock except for those imposed under Rule 144 of the Securities Act of 1933,
as amended. Once vested the options are exercisable for a five year period
from the date of vesting whether or not the employee is still employed by
the company. However, the employee must be employed by the company on the
date of vesting or the options for that date will not vest. The options are
exercisable at $.116 per share which is less than the current market value
of the stock on the date the agreement took effect and the options were
granted (See Note 6).
Office Space - Prior to September 30, 1997, the Company had no office
facilities. Officers of the Company conducted the Company's business from
their own residences or offices at no expense to the Company. For the three
months ended December 31, 1997 the Company rented office facilities from
un-related parties.
Related Entity - Certain officers or shareholders of the Company are also
affiliated with an entity with whom the Company has a licensing and
marketing agreement (See Note 3).
34
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 10 - GOING CONCERN
The Company was formed with a very specific business plan. However, the
possibility exists that the Company could expend virtually all of its
working capital in a relatively short time period and may not be successful
in establishing on-going profitable operations. The financial statements do
not contain any allowances, liabilities or other adjustments which may need
to be recorded if the Company is not successful in achieving profitable
operations.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company is newly formed, has
incurred losses since its inception, has current liabilities in excess of
current assets of $133,059 at December, 1997, and has not yet been
successful in establishing profitable operations. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. In this regard, management is proposing to raise any necessary
additional funds not provided by operations through loans and/or through
additional sales of its common stock. There is no assurance that the Company
will be successful in raising additional capital or achieving profitable
operations. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
NOTE 11 - LEASE OBLIGATIONS
Operating Leases - The Company has no long-term operating leases that have
remaining terms in excess of one year as of December 31, 1997. However, the
Company has a month to month sublease for office space and telephone line
access with the same company that the Company purchased the licensing rights
from (and is performing the technical support), wherein the Company pays
$400 per month starting October 1, 1997. The company has another lease
agreement which commenced October 6, 1997 and expires October 6, 1998 which
calls for monthly rents of $550.
NOTE 12 - CONSULTING AGREEMENTS
Consulting Agreements - During November, 1997 the Company entered into two
consulting agreements to provide financial public relations for the Company.
Both agreements have a term of one year. One agreement provides for monthly
cash payments of $3,500 ($42,000 total). The other agreement provides for
the issuance of a stock option to purchase 100,000 shares of the Company's
common stock at a price of $3.00 per share.
NOTE 13- SUBSEQUENT EVENTS
Public Stock Offering - Subsequent to December 31, 1997, the Company is
continuing to sell shares of common stock pursuant to a public offering.
[See Note 6] During the period from January 1, 1998 through March 31, 1998 a
total of 25,000 additional shares of common and preferred stock were sold.
Total proceeds from the subsequent stock sales amounted to $50,000. Included
with the stock sales were warrants to purchase 12,500 shares of common stock
[See Note 6 for terms of exercise].
35
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 14 - PHASER'S STOCKHOLDERS' EQUITY (UNAUDITED)
Financial statements of Phaser prior to the recapitalization of the Company
have not been included because Phaser's operations have been eliminated in
the recapitalization. However, the following information taken from Phaser's
April 30, 1997 financial statements summarizes the Stockholders' Equity of
Phaser prior to the reorganization.
<TABLE>
<CAPTION>
PHASER ENTERPRISES, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 5, 1984 THROUGH JUNE 30, 1996
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
Paid-in Development
Shares Amount Shares Amount Capital Stage
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 5, 1984 -- $ -- -- $ -- $ -- $ --
Common stock issued to
officers, directors and others
for cash at $0.022667
per share -- -- 45,000 45 20,355 --
Preferred stock issued
to officers, directors and others
for cash at $1.00 per share 50,000 50 -- -- 38,050 --
Forward split of common stock -- -- 405,000 405 (405) --
Net loss from inception on
July 5, 1984 through
June 30, 1985 -- -- -- -- -- (21,417)
BALANCE, June 30, 1985 50,000 50 450,000 450 58,000 (21,417)
Common stock issued to
officers and others for cash
at $0.037044 per share -- -- 460,800 461 340,934 --
Retirement of preferred stock (45,000) (45) -- -- (44,955) --
Retirement of common stock -- -- (431,650) (432) (1,566) --
Common stock issued to
shareholders of Phaser
Enterprises, Inc. pursuant
to merger agreement -- -- 1,850,003 1,850 460,650 --
Net loss for the year ended
June 30, 1986 -- -- -- -- -- (73,989)
BALANCE, June 30, 1986 5,000 5 2,329,153 2,329 796,661 (95,406)
[Continued]
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 14 - PHASER'S STOCKHOLDERS' EQUITY (UNAUDITED) [Continued]
PHASER ENTERPRISES, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 5, 1984 THROUGH JUNE 30, 1996
[CONTINUED]
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
Paid-in Development
Shares Amount Shares Amount Capital Stage
Common stock issued to
officers and others for
services provided at $0.001
<S> <C> <C> <C> <C> <C> <C>
per share -- -- 176,500 177 3,353 --
Retirement of preferred stock (5,000) (5) -- -- 5 --
Net loss for the year ended
June 30, 1987 -- -- -- -- -- (707,319)
BALANCE, June 30, 1987 - -- 2,505,653 2,506 800,019 (802,725)
Net loss for the year ended
June 30, 1988 -- -- -- -- -- (100)
BALANCE, June 30, 1988 -- -- 2,505,653 2,506 800,019 (802,825)
Net loss for the year ended
June 30, 1989 -- -- -- -- -- (460)
BALANCE, June 30, 1989 -- -- 2,505,653 2,506 800,019 (803,285)
Net loss for the year ended
June 30, 1990 -- -- -- -- -- (844)
BALANCE, June 30, 1990 -- -- 2,505,653 2,506 800,019 (804,129)
Net loss for the year ended
June 30, 1991 -- -- -- -- -- (100)
BALANCE, June 30, 1991 -- -- 2,505,653 2,506 800,019 (804,229)
Net loss for the year ended
June 30, 1992 -- -- -- -- -- (391)
BALANCE, June 30, 1992 -- -- 2,505,653 2,506 800,019 (804,620)
Net loss for the year ended
June 30, 1993 -- -- -- -- -- (100)
BALANCE, June 30, 1993 -- -- 2,505,653 2,506 800,019 (804,720)
</TABLE>
[Continued]
37
<PAGE>
<TABLE>
<CAPTION>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 14 - PHASER'S STOCKHOLDERS' EQUITY (UNAUDITED) [Continued]
PHASER ENTERPRISES, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 5, 1984 THROUGH JUNE 30, 1996
[CONTINUED]
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
Paid-in Development
Shares Amount Shares Amount Capital Stage
Net loss for the year ended
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994 -- -- -- -- -- (100)
BALANCE, June 30, 1994 -- -- 2,505,653 2,506 800,019 (804,820)
Common stock issued
to officer for services
provided at $0.001 per
share -- -- 3,000,000 3,000 57,000 --
Net loss for the year ended
June 30, 1995 -- -- -- -- -- (59,600)
BALANCE, June 30, 1995 -- -- 5,505,653 5,506 857,019 (864,420)
Adjustment for fractional
shares in 20 for 1 reverse
stock split -- -- 5 -- -- --
Net loss for the year ended
June 30, 1996 -- -- -- -- -- (191)
BALANCE, June 30, 1996 -- $ -- 5,505,658 $ 5,506 $ 857,019 $ (864,611)
</TABLE>
<TABLE>
<CAPTION>
The following unaudited Proforma condensed financial information assumes that
PHASER and the Company entered into the reorganization on November 5, 1996:
For the
Period Ended
December 31,
1997
(Unaudited)
<S> <C>
Revenues $ --
Expenses 715,149
Net loss $ (715,149)
Loss per share $ (.29)
</TABLE>
38
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 15 - EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the periods ended December 31, 1997:
<TABLE>
<CAPTION>
For the three Ended From inception
Months ended through
December 31, 1997 December 31, 1997
Income from continuing operations applicable to
<S> <C> <C>
common stock $ (256,148) $ (715,149)
Less: preferred dividends -- --
Income available to common stockholders used in
earnings per share $ (256,148) $ (715,149)
Weighted average number of common shares used
in earnings per share outstanding during the period 3,652,788 2,478,767
</TABLE>
Dilutive earnings per share was not presented as its effect is anti-dilutive.
The Company had at December 31, 1997, options and warrants to purchase 773,625
shares of common stock, at prices ranging from $.116 to $7.50 per share, that
were not included in the computation of diluted earnings per share because
their effect was anti-dilutive. The Company also has preferred stock
outstanding at December 31, 1997 which is convertible into approximately
187,250 shares of common stock that was not included in the computation of
diluted earnings per share as its effect was anti-dilutive.
39
<PAGE>
ARTICLES OF INCORPORATION
OF
WB INTERNATIONAL, INC.
The undersigned, desiring to form a corporation for profit under the
General Corporation Law of Nevada, does hereby certify:
FIRST: The name of the corporation shall be WB International,
Inc.
SECOND: The name of the natural person or corporation designated as
the Corporation's resident agent is Robert Horn, whose address is 2241 Park
Place, Suite E, Minden, Nevada 89423.
THIRD: The purpose for which the corporation is formed is to
engage in any lawful activity.
FOURTH: A. The maximum number of shares of all classes which the
Corporation is authorized to have outstanding is Fifty Million (50,000,000)
shares, consisting of Forty Five Million (45,000,000) shares of Common Stock,
all par value $.001, and Five Million (5,000,000) shares of Preferred Stock, all
par value $.001. The holders of Preferred Stock shall have such rights,
preferences, and privileges as may be determined, prior to the issuance of such
shares, by the Board of Directors.
B. 1. Initial Issuance. Initially there shall be authorized
500,000 shares of preferred stock, designated as the Series A
Preferred Stock, having the voting powers, preferences, relative,
participating, limitations, qualifications optional and other
special rights and the qualifications, limitations and restrictions
thereof that are set forth below.
2. Dividend Provisions. The holders of
shares of Series A
Preferred Stock shall be entitled to receive, a 12% annual
cumulative dividend, payable on the first day of June and December commencing on
December 1, 1998. In the option of the Corporation, such dividend may be paid in
cash or in Common Stock valued at market price, or a combination thereof. Each
share of Series A Preferred Stock shall rank on a parity with each other share
of Series A Preferred Stock with respect to dividends.
3.
Redemption Provisions. The Series A Preferred Stock is
not redeemable except with the written consent of the holders
thereof.
4. Liquidation Provisions. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series A Preferred Stock shall be entitled to
receive an amount equal to $1.00 per share. After the full
preferential liquidation amount has been paid to, or determined and
<PAGE>
set apart for the Series A Preferred Stock and all other series of Preferred
Stock hereafter authorized and issued, if any, the remaining assets of the
Corporation available for distribution to shareholders shall be distributed
ratably to the holders of the common stock. In the event the assets of the
Corporation available for distribution to its shareholders are insufficient to
pay the full preferential liquidation amount per share required to be paid the
Corporation's Series A Preferred Stock, the entire amount of assets of the
Corporation available for distribution to shareholders shall be paid up to their
respective full liquidation amounts first to the Series A Preferred Stock, then
to any other series of Preferred Stock hereafter authorized and issued, all of
which amounts shall be distributed ratably among holders of each such series of
Preferred Stock, and the common stock shall receive nothing. A reorganization or
any other consolidation or merger of the Corporation with or into any other
corporation, or any other sale of all or substantially all of the assets of the
Corporation, shall not be deemed to be a liquidation, dissolution or winding up
of the Corporation within the meaning of this Section 4, and the Series A
Preferred Stock shall be entitled only to (i) the right provided in any
agreement or plan governing the reorganization or other consolidation, merger or
sale of assets transaction, (ii) the rights contained in the Nevada General
Corporation Law and (iii) the rights contained in other Sections hereof.
5. Conversion Provisions. The holders of shares of Series
A Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. (1) Each share of Series A Preferred
Stock (the "Preferred Shares") shall be convertible, at the
option of its holder, at any time, one year after initial issuance
thereof at the option of the Corporation, into one share of common
stock of the Company (the "Common Stock"), increased proportionally
for any reverse stock split and decreased proportionally for any
forward stock split or stock dividend (the "Conversion Rate").
(2) No fractional shares of Common Stock shall be issued upon
conversion of the Preferred Shares, and in lieu thereof the number of
shares of Common Stock issuable for each Preferred Share converted
shall be rounded to the nearest whole number. Such number of whole
shares of Common Stock issuable upon the conversion of one Preferred
Share shall be multiplied by the number of Preferred Shares submitted
for conversion pursuant to the Notice of Conversion (defined below) to
determine the total number of shares of Common Stock issuable in
connection with any conversion.
(3) In order to convert the Preferred Shares into shares of
Common Stock, the holder of the Preferred Shares shall: (i)
complete, execute and deliver to the Corporation the
10
<PAGE>
conversion certificate attached hereto as Exhibit A (the "Notice of
Conversion"); and (ii) surrender the certificate or certificates
representing the Preferred Shares being converted (the "Converted
Certificate") to the Corporation.
(4) Upon receipt of a Notice of Conversion, the Corporation shall
absolutely and unconditionally be obligated to cause a certificate of
certificates representing the number of shares of Common Stock to
which a converting holder of Preferred Shares shall be entitled as
provided herein, which shares shall constitute fully paid and
nonassessable shares of Common Stock that are freely transferable on
the books and records of the Corporation and its transfer agents, to
be issued to, delivered by overnight courier to, and received by such
holder by the fifth (5th) calendar day following the Conversion Date.
Such delivery shall be made at such address as such holder may
designate therefor in its Notice of Conversion or in its written
instructions submitted together therewith.
(5) No less than 25 shares of Series A Preferred Stock may be
converted at any one time, unless the holder then holds less than 25
shares and converts all shares at that time.
(b) Adjustments to Conversion Rate. (1) Reclassification,
Exchange and Substitution. If the Common Stock issuable on
conversion of the Series A Preferred Stock shall be changed
into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification,
reverse stock split or forward stock split or stock dividend or
otherwise (other than a subdivision or combination of shares provided
for above), the holders of the Series A Preferred Stock shall, upon
its conversion, be entitled to receive, in lieu of the Common Stock
which the holders would have become entitled to receive but for such
change, a number of shares of such other class or classes of stock
that would have been subject to receipt by the holders if they had
exercised their rights of conversion of the Series A Preferred Stock
immediately before that change.
(2) Reorganizations, Mergers, Consolidations or Sale of Assets. If at
any time there shall be a capital reorganization of the Corporation's
common stock (other than a subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section (5) or
merger of the Corporation into another corporation, or the sale of the
Corporation's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization,
merger or sale, lawful provision shall be made so that the holders of
the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock, the number of shares
of stock or other securities or property of the Corporation, or of the
11
<PAGE>
successor corporation resulting from such merger, to which holders of
the Common Stock deliverable upon conversion of the Series A Preferred
Stock would have been entitled on such capital reorganization, merger
or sale if the Series A Preferred Stock had been converted immediately
before that capital reorganization, merger or sale to the end that the
provisions of this paragraph (b)(2) (including adjustment of the
Conversion Rate then in effect and number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after
that event as nearly equivalently as may be practicable.
(c) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, merger, dissolution, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation, but will at all times in good faith assist in the
carrying out of all the provision of this Section 5 and in the taking
of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series A Preferred
Stock against impairment.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate for any shares of
Series A Preferred Stock, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock effected thereby a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii)
the Conversion Rate at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such holder's
shares of Series A Preferred Stock.
(e) Notices of Record Date. In the event of the establishment by the
Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other
distribution, the Corporation shall mail to each holder of Series C
Preferred Stock at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend or
12
<PAGE>
distribution and the amount and character of such dividend or
distribution.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock
such number of its shares of Common Stock as shall from time to time
be sufficient, based on the Conversion Rate then in effect, to effect
the conversion of all then outstanding shares of the Series C
Preferred Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Preferred Stock,
then, in addition to all rights, claims and damages to which the
holders of the Series A Preferred Stock shall be entitled to receive
at law or in equity as a result of such failure by the Corporation to
fulfill its obligations to the holders hereunder, the Corporation will
take any and all corporate or other action as may, in the opinion of
its counsel, be helpful, appropriate or necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(g) Notices. Any notices required by the provisions hereof to be given
to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid and
return receipt requested, and addressed to each holder of record at
its address appearing on the books of the Corporation or to such other
address of such holder or its representative as such holder may
direct.
6. Voting Provisions. Except as otherwise expressly
provided or required by law, the Series A Preferred Stock shall
vote as a class with the holders of Common Stock.
FIFTH: The members of the governing body shall be styled directors and
the initial number of directors shall be 3. The name and office addresses of the
first Board of Directors, to serve until their successors are elected and
qualified, are as follows:
Robert Horn, 2241 Park Place, Suite E, Minden, Nevada 89423,
and
Kirk Johnson, 2241 Park Place, Suite E, Minden, Nevada 89423,
and
Frank Howard, 2241 Park Place, Suite E, Minden, Nevada 89423.
The number of directors may be increased or decreased (but not less than one)
pursuant to the provisions of the corporation's bylaws and Chapter 78 of the
Nevada Revised Statutes.
13
<PAGE>
SIXTH: No capital stock issued by the corporation shall be
assessable following payment of the subscription price or par value
therefor.
SEVENTH: The corporation shall have perpetual existence.
EIGHTH: The incorporator and his post office address is as
follows: Jehu Hand, Hand & Hand, 24901 Dana Point Harbor Drive,
Suite 200, Dana Point, California 92629.
NINTH: Every person who was or is a party or is threatened to be a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director, officer, employee,
agent or other person of the corporation, or is or was serving at the request of
the corporation or for its benefit as a director, officer employee or other
person of another corporation, partnership, joint venture, trust or enterprise,
shall be indemnified and held harmless to the fullest extent legally permissible
under the law of the State of Nevada as it may be amended from time to time
against all expenses, liability and loss (including attorneys' fees, judgments,
fines and amounts paid or to be paid in settlement) reasonably incurred or
suffered by him in connection therewith. The expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. Such right of indemnification shall be a
contract right which may be enforced in any manner desired by such person. Such
right of indemnification shall not be exclusive of any other right which such
directors, officers, employees, agents or other persons may have or hereafter
acquire and, without limiting the generality of such statement they shall be
entitled to their respective rights or indemnification under any bylaw,
agreement, vote of stockholders, provisions of law or otherwise, as well as
their rights under this Article.
Without limiting the application of the foregoing, the board of directors may
adopt bylaws from time to time with respect to indemnification permitted by the
law of the State of Nevada and may cause the corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, agent or other person of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, agent or other
person of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred in
any such capacity or arising out os such status whether or not the corporation
would have the power to indemnify such person.
14
<PAGE>
TENTH: A director of officer of the corporation shall not be personally liable
to this corporation or its stockholders for damages for breach of fiduciary duty
as a director or officer, but this Article shall not eliminate or limit the
liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or knowing violation of law or (ii) the unlawful
payment of dividends. Any repeal or modification of this Article by the
stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of the director or
officer of the corporation for acts or omissions prior to such repeal or
modification.
ELEVENTH: A director or officer of the corporation shall not be disqualified by
his office from dealing or contracting with the corporation as a vendor,
purchaser, employee, agent or otherwise.
No transaction, contract or act of the corporation shall be void or voidable or
in any way affected or invalidated by reason of the fact that any director or
officer of any corporation is a member of any firm, a shareholder, director or
officer of the corporation or trustee or beneficiary of any trust that is in any
way interested in such transaction, contract or act. No director or officer
shall be accountable or responsible to the corporation for or in respect to any
transaction, contract or act of the corporation for any gain or profit directly
or indirectly realized by him by reason of the fact that he or any firm in which
he is a member or any corporation of which he is a trustee, or beneficiary, is
interested in such transaction, contract, or act; provided the fact that such
director or officer or such firm, corporation or trust is so interested shall
have been disclosed or shall have been known to the members of the Board of
Directors as shall be present at any meeting at which action upon such contract,
transaction or act shall have been taken. Any director may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
which shall authorize or take action in respect to any such contract,
transaction or act, and may vote thereat to authorize, ratify or approve any
such contract, transaction or act, and any officer of the corporation may take
any action within the scope of his authority, respecting such contract,
transaction or act, and any officer of the corporation of which he is a
shareholder, director or officer, or any trust of which he is a trustee or
beneficiary, were not interested in such transaction, contract or act. Without
limiting or qualifying the foregoing, if in any judicial other inquiry, suit,
cause or proceeding, the question of whether a director or officer of the
corporation has acted in good faith is material, and notwithstanding any statute
or rule of law or equity to the contrary (if any there be), his good faith shall
be presumed in the absence of proof to the contrary by clear and convincing
evidence.
TWELFTH: No shareholder of the corporation shall have any
preemptive rights.
15
<PAGE>
Dated this 26th day of February, 1998.
-----------------------------
Jehu Hand, Incorporator
STATE OF CALIFORNIA }
} ss
COUNTY OF ORANGE }
On February 26, 1998, before me, Kimberly Peterson, a Notary Public in and for
said State, personally appeared Jehu Hand, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same.
WITNESS my hand and official seal.
- ---------------------------------
Signature
16
<PAGE>
ARTICLES OF MERGER
THESE ARTICLES OF MERGER, dated as of March 25, 1998, are entered into by and
between Webquest International, Inc., a Utah corporation ("Webquest") and WB
International, Inc., a Nevada corporation ("WB International"), to effectuate
the merger of Webquest with and into WB International (the "Merger"). Webquest
and WB International are hereinafter collectively referred to as the
"Constituent Corporations." WB International is sometimes hereinafter referred
to as the "Surviving Corporation."
RECITALS
A. Webquest owns all of the outstanding 100 shares of common stock of WB
International, which is the only class outstanding (the "WB International Common
Stock"). WB International has authorized 45,000,000 shares of Common Stock,
$.001 value (the "WB International Common Stock") and 5,000,000 shares of
preferred stock, including 500,000 shares of Series A Preferred Stock ("WB
International Preferred Stock"), none of which are outstanding.
B. WB International and Webquest have agreed that WB
International and Webquest shall merge, with WB International to be
the Surviving Corporation.
C. Webquest has authorized 45,000,000 shares of Common Stock, which is the only
class of authorized stock, of which 3,746,451 shares are issued and outstanding
("Webquest Common Stock") and 5 million shares of Preferred Stock, of which
197,250 shares of Series A Preferred Stock are outstanding ("Webquest Preferred
Stock") which is entitled to vote as a class together with holders of Common
Stock on all matters submitted to shareholders of Webquest.
D. In respect of WB International, Webquest, as the sole
shareholder of WB International, has approved the Merger.
E. In respect of Webquest, the Merger was approved by shareholders holding
3,416,258 shares of WB International Common Stock and none of the holders of the
Webquest Preferred Stock, at a meeting of the shareholders duly noticed and held
on March 23, 1998 in accordance with Section 16-10a-702 of the Utah Revised
Business Corporations Act.
F. The number of votes cast by shareholders of Webquest and
WB International was sufficient for the approval of the Merger.
NOW, THEREFORE, in order to prescribe (a) the terms and conditions of the
Merger; (b) the method of carrying the same into effect; (c) the manner and
basis of converting and exchanging the shares of Webquest Common Stock and
Webquest Preferred Stock into shares of WB International Common Stock and WB
International Preferred Stock; and (d) such other details and provisions as are
deemed necessary or desirable; and in consideration of the foregoing recitals
and the agreements, provisions and covenants
<PAGE>
herein contained, WB International and Webquest hereby agree as
follows:
1. Effective Date. The Merger shall become effective upon the filing
of a copy of these Articles of Merger with the Secretary of State of Utah, as
required by Section 16-10a-1105 of the Utah Revised Business Corporation Act,
and the Secretary of State of Nevada, as required by Section 92A.200 of the
Nevada General Corporation Law. The date and time on which the Merger becomes
effective is hereinafter referred to as the "Effective Date."
2. Merger. At the Effective Date, Webquest shall merge with and into
WB International with WB International being the Surviving Corporation and the
separate corporate existence of Webquest shall cease. The corporate identity,
existence, purposes, franchises, powers, rights and immunities of Webquest at
the Effective Date shall be merged into WB International which shall be fully
vested therewith. WB International shall be subject to all of the debts and
liabilities of Webquest as if WB International had itself incurred them and all
rights of creditors and all liens upon the property of each of the Constituent
Corporations shall be preserved unimpaired, provided that such liens, if any,
upon the property of WB International shall be limited to the property affected
thereby immediately prior to the Effective Date.
3. Articles of Incorporation. At the Effective Date,
the Articles of Incorporation of WB International shall be the
Articles of Incorporation of the Surviving Corporation, provided
that Article FIRST of the Articles of Incorporation shall be
amended to read as follows:
First: The name of the Corporation shall be
WebQuest International, Inc.
4. Effect of Merger on Outstanding Shares, Options and
Warrants.
(a) Surviving Corporation Shares. Each one share of Webquest
Common Stock issued and outstanding immediately prior to the
Effective Date of the Merger shall convert into one share of
WB International Common Stock. Each one share of Webquest
Preferred Stock issued and outstanding immediately prior to
the Effective Date of the Merger shall convert into one share
of WB International Preferred Stock.
(b) Disappearing Corporation Shares. At the
Effective Date, each of the 100 previously issued
and outstanding shares of WB International Common
Stock shall be canceled and cease to be outstanding.
(c) Warrants, Options and Other Derivative Rights.
At the Effective Date, each warrant or option to
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purchase Webquest Common Stock shall be converted into the
right to acquire one share of Surviving Corporation Common
Stock.
5. Surrender of Share Certificates. After the Effective Date, each
holder of an outstanding certificate which prior to the Effective Date
evidenced Webquest Common Stock or Webquest Preferred Stock shall surrender the
same, duly endorsed as WB International may require, to WB International or its
designated agent for cancellation. Thereupon such holder shall receive in
exchange therefor a certificate or certificates representing the number of full
shares of WB International Common Stock or Webquest Preferred Stock to which
such holder shall be entitled as provided in Section 4(a) hereof and shall also
be entitled to receive dividends on each such share of WB International Common
Stock or Webquest Preferred Stock in an amount and to the extent provided in
Section 6(a) hereof.
6. Status of WB International Common Stock and Webquest
Preferred Stock After the Effective Date.
(a) After the Effective Date, until surrendered in accordance
with Section 5 hereof, each outstanding certificate which
prior to the Effective Date represented shares of Webquest
Common Stock or Webquest Preferred Stock, shall be deemed for
all corporate purposes (subject to the further provision of
this Section 6(a)) to evidence WB International Common Stock
or WB International Preferred Stock in accordance with the
terms of these Articles of Merger. After the Effective Date,
there shall be no further registry of transfers on the
records of WB International Common Stock or WB International
Preferred Stock outstanding immediately prior to the
Effective Date, and, if certificates representing such shares
are presented to WB International, they shall be canceled,
and the holder thereof shall be entitled to receive WB
International Common Stock or Webquest Preferred Stock in
accordance with the terms of these Articles of Merger. No
dividends or distributions will be paid to persons entitled
to receive certificates for shares of WB International Common
Stock or WB International Preferred Stock until such persons
shall have surrendered their Webquest Common Stock or
Webquest Preferred Stock certificates in accordance with
Section 5 hereof; provided, however, that when such
certificates shall have been so surrendered in exchange for
shares of WB International Common Stock or WB International
Preferred Stock, there shall be paid to the holders thereof,
but without interest thereon, all dividends and other
distributions payable subsequent to and in respect of a
record date after the Effective Date on the shares of
Webquest Common Stock or Webquest
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Preferred Stock for which such certificates shall have been
so exchanged. Holders of certificates for shares of Webquest
Common Stock or Webquest Preferred Stock shall not be
entitled, as such, to receive any dividends unless and until
they have exchanged those certificates for certificates
representing shares of WB International Common Stock or WB
International Preferred Stock as provided herein.
(b) If any certificate of WB International Common Stock or WB
International Preferred Stock is to be issued in a name other
than that in which the certificate for the Webquest Common
Stock or Webquest Preferred Stock surrendered in exchange is
registered, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person
requesting such exchange shall (i) pay any transfer or other
taxes required by reason of the issuance of such WB
International Common Stock or WB International Preferred
Stock in any name other than that of the registered holder of
the certificates surrendered or (ii) establish to the
satisfaction of WB International or its designated agent that
such tax has been paid or is not applicable.
7. Other Provisions.
(a) Governing Law;. These Articles of Merger
shall be governed by and construed in accordance
with the laws of the State of Nevada.
(b) Counterparts. These Articles of Merger may be executed in
any number of counterparts and each such counterpart shall be
deemed to be an original instrument, but all of such
counterparts together shall constitute but one agreement.
(c) Further Assurances. Each Constituent Corporation shall
from time to time upon the request of the other Constituent
Corporation, execute and deliver and file and record all such
documents and instruments and take all such other action as
such corporation may request in order to vest or evidence the
vesting in Webquest of title to and possession of all rights,
properties, assets and business of Webquest to the extent
provided herein, or otherwise to carry out the full intent
and purpose of these Articles of Merger.
IN WITNESS WHEREOF, the parties hereto have caused these Articles of Merger to
be executed on behalf of the Constituent Corporations as of the day and year
first above written.
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WEBQUEST INTERNATIONAL, INC. WB INTERNATIONAL, INC.
By: By:
Robert Horn Robert Horn
President President
By: By:
Kirk Johnson Kirk Johnson
Secretary Secretary
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STATE OF NEVADA }
} ss.
COUNTY OF _______ }
On March __, 1998, before me, ____________________, personally
appeared Robert Horn, personally known to me, to be the President of Webquest
International, Inc. and WB International, Inc., whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________ (Seal)
STATE OF NEVADA }
} ss.
COUNTY OF _______ }
On March __, 1998, before me, ____________________, personally
appeared Kirk Johnson, personally known to me, to be the Secretary of Webquest
International, Inc. and WB International, Inc., whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument the person, or the entity
upon behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________ (Seal)
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BYLAWS
OF
WEBQUEST INTERNATIONAL, INC.
ARTICLE I
Meetings of Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders of
this Company, for the purpose of fixing or changing the number of directors of
the Company, electing directors and transacting such other business as may come
before the meeting, shall be held on such date, at such time and at such place
as may be designated by the Board of Directors.
Section 2. Special Meetings. Special meetings of the shareholders may
be called at any time by the president or a vice-president or a majority of the
Board of Directors acting with or without a meeting, or the holder or holders of
10% of all the shares outstanding and entitled to vote thereat.
Section 3. Place of Meetings. Meetings of shareholders shall be held
at the principal office of the Company, unless the Board of Directors decides
that a meeting shall be held at some other place within or without the State of
Nevada and causes the notice thereof to so state.
Section 4. Notices of Meetings. Unless waived, a written, printed, or
typewritten notice of each annual or special meeting, stating the day, hour and
place and the purpose of purposes thereof shall be served upon or mailed to each
shareholder of record entitled to vote or entitled to notice, not more than
sixty (60) days nor less than ten (10) days before any such meeting. If mailed,
it shall be directed to a shareholder at his or her address as the same appears
on the records of the Company. If a meeting is adjourned to another time and
place, no further notice as to such adjourned meeting need be given if the time
and place to which it is adjourned are fixed and announced at such meeting. In
the event of a transfer of shares after notice has been given and prior to the
holding of the meeting, it shall not be necessary to serve notice on the
transferee. Nothing herein contained shall prevent the setting of a record date
in the manner provided by law for the determination of the shareholders who are
entitled to receive notice of or to vote at any meeting of shareholders or for
any purpose permitted by law.
Section 5. Waiver of Notice. Notice of the time, place and purpose of
any meeting of shareholders may be waived in writing, either before or after the
holding of such meeting, by any shareholder.
<PAGE>
Section 6. Quorum. At any meeting of shareholders, the holders of a
majority in amount of the shares of the Company then outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum for such meeting but no action required by law, the Articles of
Incorporation or these Bylaws to be authorized or taken by the holders of a
designated proportion of the shares of any particular class, or of each class,
may be authorized or taken by a lesser proportion. The holders of a majority of
the voting shares represented at a meeting in person or by proxy may adjourn
such meeting from time to time, and at such adjourned meeting any business may
be transacted as if the meeting had been held as originally called.
Section 7. Organization. At each meeting of the shareholders, the
president, or, in the absence of the president, a chairman chosen by a majority
in interest of the shareholders present in person or by proxy and entitled to
vote, shall act as chairman, and the secretary of the Company, or, if the
secretary of the Company not be present, the assistant secretary, or if the
secretary and the assistant secretary not be present, any person whom the
chairman of the meeting shall appoint, shall act as secretary of the meeting.
Section 8. Shareholders Entitled to Vote. Every shareholder of record
shall be entitled at each meeting of shareholders to one vote for each share
standing in his name on the books of the Company.
A corporation owning shares in this Company may vote the same by its
president or its secretary or its treasurer, and such officer shall conclusively
be deemed to have authority to vote such shares and to secure any proxies and
written waivers and consents in relation thereto, unless, before a vote is taken
or a consent or waiver is acted upon, it shall be made to appear by a certified
copy of the regulations, by-laws or resolution of the Board of Directors of the
corporation owning such shares that such authority does not exist or is vested
in some other officer or person.
Section 9. Shareholder Voting. At each meeting of the shareholders for
the election of directors at which a quorum is present, the persons receiving
the greatest number of votes shall be the directors. Such election may be by
ballot or viva voce, as the shareholders may determine. All other questions
shall be determined by a majority vote of the shares entitled to vote and
represented at the meeting in person or by proxy, unless for any particular
purpose the vote of a greater proportion of the shares, or of any particular
class of shares, or of each class, is otherwise required by law, the Articles of
Incorporation or these Bylaws.
Section 10. Proxies. At meetings of the shareholders any shareholder
of record entitled to vote thereat may be represented and may vote by a proxy or
proxies appointed by an instrument in writing, but such instrument shall be
filed with the secretary of the meeting before the person holding such proxy
shall be allowed to vote thereunder. No proxy shall be valid after the
expiration of six (6) months after the date of its execution, unless coupled
with an interest of the shareholder executing it shall have specified therein
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the length of time it is to continue in force, which in no case shall exceed
seven (7) years from the date of its execution.
Section 11. Order of Business and Procedure. The order of business at
all meetings of the shareholders and all matters relating to the manner of
conducting the meeting shall be determined by the chairman of the meeting, whose
decisions may be overruled only by majority vote of the shareholders present and
entitled to vote at the meeting in person or by proxy. Meetings shall be
conducted in a manner designed to accomplish the business of the meeting in a
prompt and orderly fashion and to be fair and equitable to all shareholders, but
it shall not be necessary to follow any manual of parliamentary procedure.
ARTICLE II
Board of Directors
Section 1. General Powers of Board. The powers of the Company shall be
exercised, its business and affairs conducted, and its property controlled by
the Board of Directors, except as otherwise provided by the law of Nevada or in
the Articles of Incorporation.
Section 2. Number and Qualification. The number of directors of the
Company, none of whom need be shareholders or residents of Nevada, shall be at
least three. Without amendment of these Bylaws, the number of directors may be
fixed or changed by resolution adopted by the vote of the majority of directors
in office or by the vote of holders of shares representing a majority of the
voting power at any annual meeting, or any special meeting called for that
purpose; but not reduction of the number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
Section 3. Term of Office. Unless he shall earlier resign, be removed
as hereinafter provided, die, or be adjudged mentally incompetent, each director
shall hold office until the sine die adjournment of the annual meeting of
shareholders for the election of directors next succeeding his election, or the
taking by the shareholders of an action in writing in lieu of such meeting, or,
if for any reason the election of directors shall not be held at such annual
meeting or any adjournment thereof, until the sine die election of directors
held thereafter as provided for in Section 4 of Article I of these Bylaws, or
the taking by the shareholders of an action in writing in lieu of such meeting,
and until his successor is elected and qualified.
Section 4. Removal. Any director may be removed without cause at any
special meeting of shareholders called for such purpose by the vote of the
holders of two-thirds of the voting power entitling them to elect directors in
place of those to be removed, provided that unless all the directors, or all the
directors of a particular class are removed no individual director shall be
removed if the votes of a sufficient number of shares are cast against his
removal which, if
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cumulatively voted at on election of directors, or of all directors of a
particular class, as the case may be, would be sufficient to elect at least one
director. In case of any such removal, a new director may be elected at the same
meting for the unexpired term of each director removed. Failure to elect a
director to fulfill the unexpired term of any director removed shall be deemed
to create a vacancy in the Board.
Section 5. Resignations. Any director of the company may resign at any
time by giving written notice to the president or the secretary of the Company.
Such resignation shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. Vacancies in the Board of Directors may be
filled by a majority vote of the remaining directors, even though they be less
than a quorum of the entire number of directors constituting a full Board, until
an election to fill such vacancies is had. Within the meaning of this Section, a
vacancy exists if the board of directors increases the authorized number of
directors or if the shareholders increase the authorized number of directors but
fail at the meeting at which such increase is authorized, or an adjournment
thereof, to elect the additional directors provided for, or if the shareholders
fail at any time to elect the whole authorized number of directors. Any director
elected under the provisions of this Section 6 shall serve until the next annual
election of directors and until their successors are elected and qualified.
Section 7. Meetings. The directors shall hold such meetings from time
to time as they may deem necessary and such meetings as may from time to time be
called by the president or the chairman of the board. Meetings shall be held at
the principal office of the Company or at such other place within or without the
State of Nevada as the president or a majority of the directors may determine. A
regular meeting of the Board of Directors shall be held each year at the same
place as and immediately after the annual meeting of shareholders, or at such
other place and time as shall theretofore have been determined by the Board of
Directors and notice thereof need not be given. At its regular annual meeting,
the Board of Directors shall organize itself and elect the officers of the
Company for the ensuing year, and may transact any other business.
Section 8. Notice of Meetings. Notice of each special meeting or,
where required, each regular meeting, of the Board of Directors shall be given
to each director either by being mailed on at least the third day prior to the
date of the meeting or by being telegraphed or given personally or by telephone
on at least twenty-four (24) hours notice prior to the date of meeting. Such
notice shall specify the date and time of the meeting, the purpose or purposes
for which the meeting is called. At any meeting of the Board of Directors at
which every director shall be present, even though without such notice, any
business may be transacted. Any acts or proceedings taken at a meeting of the
Board of Directors not validly called or constituted may be made valid and fully
effective
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by ratification at a subsequent meeting which shall be legally and validly
called or constituted. Notice of any regular meting of the Board of Directors
need not state the purpose of the meeting and, at any regular meeting duly held,
any business may transacted. If the notice of a special meeting shall state as a
purpose of the meeting the transaction of any business that may come before the
meeting, then at the meeting any business may be transacted, whether or not
referred to in the notice thereof. A written waiver of notice of a special or
regular meeting, signed by the person or person entitled to such notice, whether
before or after the time stated therein shall be deemed the equivalent of such
notice, and attendance of a director at a meeting shall constitute a waiver of
notice of such meeting except when the director attends the meeting and prior to
or at the commencement of such meeting protests the lack of proper notice.
Section 9. Quorum and Voting. At all meetings of the directors fifty
percent of all of the authorized directors of the company shall constitute a
quorum, but less than fifty percent of the authorized directors may adjourn a
meeting of the directors from time to time, and at adjourned meetings any
business may be transacted as if the meeting had been held as originally called.
The act of a majority of Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as otherwise provided
by law, the Articles of Incorporation or these Bylaws.
Section 10. Compensation. Directors shall be entitled to receive for
services and expenses such reasonable compensation as the Board of Directors may
determine by affirmative vote of a majority of those directors in office. The
Board of Directors may also delegate its authority to establish reasonable
compensation for directors to one or more officers or directors by an
affirmative vote of a majority of those directors in office. Any vote taken by
the Board of Directors with respect to director compensation shall be effective
irrespective of the financial or personal interest of any of the directors
involved.
Section 11. Committees. The Board of Directors may create any
committee of directors, to be composed of one or more directors, and may
delegate to any such committee any of the authority and powers of the Board of
Directors, however conferred. Each such committee shall serve at the pleasure of
the Board of Directors shall act only in the intervals between meetings of the
Board of Directors and shall be subject to all times to the control and
direction of the Board of Directors. Any such committee may act by a majority of
its members. Any such committee shall keep written minutes of its meetings and
report same to the Board of Directors prior to or at the next regular meeting of
the Board of Directors. Any act or authorization of an act by any such committee
within the authority delegated to it shall be as effective for all purposes as
the act or authorization of the Board of Directors.
ARTICLE III
Officers
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Section 1. General Provisions. The officers of the Company shall be a
president, such number of vice-presidents as the Board may from time to time
determine, a secretary, a treasurer and such other officers as the directors may
elect. The Company may also have, at the discretion of the Board of Directors, a
Chairman of the Board or Vice Chairman who shall have the duties prescribed by
the Board of Directors. Except as specifically provided in these Bylaws, the
directors shall determine the duties and term of each of the officers of the
Company and shall be responsible for the designation of the Company's chief
executive officer. Officers need not be shareholders of the Company and may be
paid such compensation as the Board of Directors may determine. Any person may
hold any two or more officers and perform the duties thereof. If one person is
chosen to hold the offices of secretary and treasurer, he shall be known as
secretary-treasurer if one person be elected to both of these offices.
Section 2. Election, Term of Office, and Qualification. The officers
of the Company named in Section 1 of this Article III shall be elected by a
majority of the Board of Directors present and constituting a quorum for an
indeterminate term and shall hold office during the pleasure of the Board of
Directors. The qualifications of all officers shall be such as the Board of
Directors may see fit to impose.
Section 3. Additional Officers, Agents, etc. In addition to the
officers mentioned in Section 1 of this Article III, the Company may have such
other officers, committees, agents, and factors as the Board of Directors may
deem necessary and may appoint, each of whom or each member of which shall hold
office for such period, have such authority, and perform such duties as may be
provided in these Bylaws, or as the Board of Directors may from time to time
determine. The Board of Directors may delegate to any officer or committee the
power to appoint any subordinate officers, committees, agents or factors. In the
absence of any officer of the Company, or for any other reason the Board of
Directors may deem sufficient, the Board of Directors may delegate, for the time
being, the powers and duties, or any of them, of such officer to any other
officer, or to any director.
Section 4. Removal. Any officer of the Company may be removed either
with or without cause, at any time, by resolution adopted by the Board of
Directors at any meeting of the Board, the notices (or waivers of notice) of
which shall have specified that such removal action was to be considered. Any
officer appointed not by the Board of Directors but by an officer or committee
to which the Board shall have delegated the power of appointment may be removed,
with or without cause, by the committee or superior officer (including
successors) who made the appointment, or by any committee or officer upon whom
such power of removal may be conferred by the Board of Directors.
Section 5. Resignations. Any officer may resign at any time
by giving written notice to the Board of Directors, or to the
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president, or to the secretary of the Company. Any such resignation shall take
effect at the time specified therein, and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 6. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, shall be filled in the
manner prescribed in these Bylaws for regular appointments or elections to such
office.
ARTICLE IV
Duties of the Officers
Section 1. The President. The president shall manage and have general
supervision over the business of the Company and over its several officers,
subject, however, to the control of the Board of Directors. He shall, if
present, preside at all meetings of shareholders and of the Board of Directors.
He shall see that all orders and resolutions of the Board of Directors are
carried into effect, and shall from time to time report to the Board of
Directors all matters within his knowledge which the interests of the
corporation may require to be brought to the notice of the Board. He may sign
with the secretary, the treasurer, or any other proper officer of the company
thereunto authorized by the Board of Directors, certificates for share in the
Company. He may sign, execute and deliver in the name of the Company all deeds,
mortgages, bonds, contracts, or other instruments either when specially
authorized by the Board of Directors or when required or deemed necessary or
advisable by him in the ordinary conduct of the Company's normal business,
except in cases where the signing and execution thereof shall be expressly
delegated by these Bylaws to some other officer or agent of the Company or shall
be required by law or otherwise to be signed or executed by some other officer
or affixed to any instrument requiring the same; and, in general, perform all
duties as from time to time may be assigned to him by the Board of Directors. In
case the president for any reason shall be unable to attend to any of his
duties, such duties may be performed by a vice-president of the Company.
Section 2. Vice-Presidents. The vice-presidents shall perform such
duties as are conferred upon them by these Bylaws or as may from time to time be
assigned to them by the Board of Directors or the president. At the request of
the president (or in his or her absence or disability, the vice-president
designated by the Board) shall perform all the powers of the president. The
authority of vice-presidents to sign in the name of the Company all certificates
for shares and authorized deeds, mortgages, bonds, contracts, notes and other
instruments, shall be coordinate with like authority of the president.
Section 3. The Treasurer. The treasurer shall:
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(a) Have charge and custody of, and be responsible for, all funds,
securities, notes, contracts, deeds, documents, and all other indicia of title
in the Company and valuable effects of the Company; receive and give receipts
for moneys due and payable to the name of the Company in such banks, trust
companies, or other depositories as shall be selected by or pursuant to the
directions of the Board of Directors; cause such funds to be discharged by
checks or drafts on the authorized depositories of the Company, signed as the
Board of Directors may require; and be responsible for the accuracy of the
amounts of, and cause to be preserved proper vouchers for, all moneys to be
disbursed;
(b) Have the right to require from time to time reports or statements
giving such information as he may desire with respect to any and all financial
transactions of the Company from the officers or agents transacting the same;
(c) Keep or cause to be kept at the principal office or such other
office or offices of the Company as the Board of Directors shall from time to
time designate correct records of the business and transactions of the Company
and exhibit such records to any of the directors of the Company upon application
at such office;
(d) Have charge of the audit and statistical
departments of the Company;
(e) Render to the president or the Board of Directors whenever they
shall require him so to do an account of the financial condition of the company
and of all his transactions as treasurer and as soon as practicable after the
close of each fiscal year, make and submit to the Board of Directors a like
report for such fiscal year; and
(f) Exhibit at all reasonable times his cash
books and other records to any of the directors of the Company upon
application.
Section 4. The Secretary. The secretary shall:
(a) Keep the minutes of all meetings of the
shareholders and of the Board of Directors in one or more books
provided for that purpose;
(b) See that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law;
(c) Be custodian of the corporate records and, if one is provided, of
the seal of the Company, and see that such seal is affixed to all certificates
for shares prior to the issue thereof and to all other documents to which the
seal is required to be affixed and the execution of which on behalf of the
Company under its seal is duly authorized in accordance with the provisions of
these Bylaws;
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(d) Have charge, directly or through such transfer agent or transfer
agents and registrar or registrars as the Board of Directors shall appoint, of
the issue, transfer and registration of certificates for shares in the Company
and of the records thereof, such records to be kept in such manner as to show at
any time the number of shares in the Company issued and outstanding, the manner
in which and time when such stock was paid for, the names and addresses of the
holders of record thereof, the number of classes of shares held by each, and the
time when each became such holder of record;
(e) Exhibit at all reasonable times to any
directors, upon application, the aforesaid records of the issue,
transfer, and registration of such certificates;
(f) Sign (or see that the treasurer or other proper officer of the
Company thereunto authorized by the Board of Directors shall sign), with the
president or vice-president, certificates for shares in the Company;
(g) See that the books, reports, statements,
certificates, and all other documents and records required by law are
properly kept and filed; and
(h) In general, perform all duties incident to the office of
secretary, he shall perform such duties as are conferred upon him by the
officers of the Company, or the Board of Directors, and in the absence or the
inability of the secretary to act, shall perform all the duties of the secretary
and when so acting shall have all the powers of the secretary.
In the event the Board of Directors shall elect an assistant
secretary, he shall perform such duties as are conferred upon him by the
officers of the Company, or the Board of Directors, and in the absence or
inability of the secretary to act, shall perform all the duties of the secretary
and when so acting shall have all the powers of the secretary.
ARTICLE V
Indemnification of Directors and Officers
Section 1. Indemnification. The Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened or
pending action, suit, or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he, his testator, or intestate is or
was a director or officer of the Company, or is or was serving at the request of
the Company as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, or as a member of any
committee or similar body against all expenses (including attorneys' fees),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
(including appeals) or the defense
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or settlement thereof or any claim, issue, or matter therein, to the fullest
extent permitted by the laws of Nevada as they may exist from time to time.
Section 2. Insurance. The proper officers of the Company without
further authorization by the Board of Directors, may in their discretion
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent for another
corporation, partnership, joint venture, trust or other enterprise, against any
liability.
Section 3. ERISA. To assure indemnification under this provision of
all such persons who are or were "fiduciaries" of an employee benefit plan
governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974", as amended from time to time, this Article shall, for the purposes
hereof, be interpreted as follows: an "other enterprise" shall be deemed to
include an employee benefit plan; the Company shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the Company also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to said Act of Congress shall be deemed "fines"; and action taken or
omitted by a person with respect to an employee benefit plan in the performance
of such person's duties for a purpose reasonably believed by such person to be
in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
Company.
Section 4. Contractual Nature. The foregoing provisions of this
Article shall be deemed to be a contract between the Company and each director
and officer who serves in such capacity at any time while this Article is in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts.
Section 5. Construction. For the purposes of this Article, references
to "the Company" include in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director or officer of such
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as a member of any
committee or similar body shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
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Section 6. Non-Exclusive. The Company may indemnify, or agree to
indemnify, any person, and pay any expenses, including attorney's fees in
advance of final disposition of any action, suit or proceeding, if such
indemnification and/or payment is approved by the vote of the shareholders,
disinterested directors, or is in the opinion of independent legal counsel
selected by the Board of Directors for an indemnitee who acted in good faith in
a manner he reasonably believed to be in, or not opposed to, the best interest
of the Company.
ARTICLE VI
Seal
The Board of Directors may provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Company, and the words
"Seal" and "Nevada".
ARTICLE VII
Amendment of Bylaws
These Bylaws may be amended or added to, or repealed and superseded by
new Bylaws, at any annual or special meeting of shareholders in the notice (or
waivers of notice) of which the intention to consider such amendment, addition,
or repeal is stated, by the affirmative vote of the holders of record of shares
entitling them to exercise a majority of the voting power on such proposal, or
at anytime, by the affirmative vote of the Board of Directors.
ARTICLE VIII
Shares and Their Transfer
Section 1. Certificate for Shares. Every owner of one or more shares
in the Company shall be entitled to a certificate, which shall be in such form
as the Board of Directors shall prescribe, certifying the number and class of
paid-up shares in the Company owned by him. The certificates for the respective
classes of such shares shall be numbered in the order in which they shall be
issued and shall be signed in the name of the Company by the president or
vice-president and by the secretary, or any other proper officer of the Company
thereunto authorized by the Board of Directors, or the treasurer, and the seal
of the Company, if any, may be affixed thereto. A record shall be kept of the
name of the person, firm, or corporation owning the shares represented by each
such certificate and the number of shares represented by each such certificate
and the number of shares represented thereby, the date thereof, and in case of
cancellation, the date of cancellation. Every certificate surrendered to the
Company for exchange or transfer shall be cancelled and no new certificate or
certificates until such existing certificates shall
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have been so cancelled, except in cases provided for in Section 2 of this
Article.
Section 2. Lost, Destroyed and Mutilated Certificates. If any
certificates for shares in this Company become worn, defaced, or mutilated but
are still substantially intact and recognizable, the directors, upon production
and surrender thereof, shall order the same cancelled and shall issue a new
certificate in lieu of same. The holder of any shares in the Company shall
immediately notify the Company if a certificate therefor shall be lost,
destroyed, or mutilated beyond recognition, and the Board of Directors may, in
its discretion, require the owner of the certificate which has been lost,
destroyed, or mutilated beyond recognition, or his legal surety or sureties as
it may direct, not exceeding double the value of the stock, to indemnify the
Company against any claim that may be made against it on account of the alleged
loss, destruction, or mutilation of any such certificate. The Board of Directors
may, however, in its discretion, refuse to issue any such new certificate except
pursuant to legal proceedings, under the laws of the State of Nevada in such
case made and provided.
Section 3. Transfers of Shares. Transfers of shares in the Company
shall be made only on the books of the Company by the registered holder thereof,
his legal guardian, executor, or administrator, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the Company or with a transfer agent appointed by the Board of Directors, and on
surrender of the certificate or certificates for such shares. The person in
whose name shares stand on the books of the Company shall, to the full extent
permitted by law, be deemed the owner thereof for all purposes as regards the
Company.
Section 4. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer, and registration of certificates for shares in
the Company. It may appoint one or more transfer agents or one or more
registrars or both, and may require all certificates for shares to bear the
signature of either or both.
ARTICLE IX
Depositories, Contracts and Other Instruments
Section 1. Depositories. The president and any vice-president of the
Company are each authorized to designate depositories for the funds of the
Company deposited in its name and the signatories and conditions with respect
thereto in each case, and from time to time, to change such depositories,
signatories and conditions, with the same force and effect as if each such
depository, the signatories and conditions with respect thereto and changes
therein had been specifically designated or authorized by the Board of Directors
or by the president, or any vice-president of the Company, shall be entitled to
rely upon the certificate of the secretary or any assistant secretary of the
Company setting forth the fact of such
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designation and of the appointment of the officers of the Company or of both or
of other persons who are to be signatories with respect to the withdrawal of
funds deposited with such depository, or from time to time the fact of any
change in any depository or in the signatories with respect thereto.
Section 2. Execution of Instruments Generally. Except as provided in
Section 1 of this Article IX, all contracts and other instruments requiring
execution by the Company may be executed and delivered by the president or any
vice-president and authority to sign any such contracts or instruments, which
may be general or confined to specific instances, may be conferred by the Board
of Directors upon any other person or persons. Any person having authority to
sign on behalf of the Company may delegate, from time to time, by instrument in
writing, all or any part of such authority to any person or persons if
authorized so to do by the Board of Directors.
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LICENSING AND MARKETING AGREEMENT
WITH TECHNICAL SUPPORT
THIS AGREEMENT made and entered into this 5th day of January, 1997, by
and between NDS SOFTWARE, INC., a Nevada Corporation (NDS), and IPONG
INTERNATIONAL, INC., a Nevada Corporation (hereinafter collectively referred to
as LICENSEE).
WHEREAS, NDS has partially developed and owns all proprietary rights
in an interactive advertising game for us on the Internet, commonly known as
"IPONG", as more fully defined and referred to hereinafter as the "PRODUCT";
WHEREAS, LICENSEE is desirous of obtaining an exclusive license from
NDS for development, use and marketing of the PRODUCT and assignment of
associated trade names and trademarks therefore;
WHEREAS, NDS has experience in developing an Internet "website" and
agrees to provide technique services to LICENSEE in areas of product
development, website support and management to complete development of the
PRODUCT; and,
WHEREAS, LICENSEE has experience in marketing, management and
financing of products and services and the parties are desirous of pursuing the
potentials of the PRODUCT through their respective capabilities to complete the
development and commence marketing of the PRODUCT for their mutual benefit;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. TERM OF AGREEMENT: This Agreement shall
be effective for an initial term of ten (10) years from the date hereof, and
shall automatically renew for a like term unless and until either party provides
thirty (30) days written notice of termination to the other.
2. DEFINITIONS: As used herein, the
following definitions shall apply:
2.1. PRODUCT shall mean collectively the Software
and Documentation (as hereinafter defined).
2.2. SOFTWARE shall mean the software commonly known as "IPONG" and
identified on SCHEDULE A, annexed hereto and made a part hereof, in object and
source code forms, and shall include all updates and revisions thereto supplied
by NDS during the term hereof, and all permitted copies of the foregoing.
2.3. DOCUMENTATION shall mean all documentation,
other than the Software, related to the Software supplied or
developed by NDS hereunder.
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2.4. LIVE DATE shall mean the date that the website for the PRODUCT
becomes functional and can be accessed on the Internet by the public, but does
not include completion of advertiser graphics or banner ads, player profile
data, or category questions required to play the game.
2.5. WORK REQUEST shall mean the document, in a form acceptable to
NDS, requesting and defining the scope of services requested by LICENSEE and to
be rendered by NDS pursuant to the terms of the Agreement, including technical
support, product development, management consulting, and change modifications or
enhancements to the PRODUCT.
3. LICENSE: NDS hereby grants to LICENSEE,
and LICENSEE hereby accepts, an exclusive license to develop, use and market the
PRODUCT during the term hereof, subject to the terms and conditions set forth
herein.
4. LICENSE FEES, CHARGES AND TAXES:
4.1. LICENSE FEE: LICENSEE shall pay to NDS the following percentage
of gross revenues from sales: 7% for the first year after live date, 10% for the
second year, and 15% thereafter. The LICENSE FEE shall be due and payable
quarterly within fifteen (15) business days of the end of each quarter.
Additionally, LICENSEE shall pay $58,333.00 per month to NDS for one year
beginning ____________ and accruing January 1, 199_, the first payment due upon
financing and each month in arrears thereafter. At the time of payment of any
installment, LICENSEE shall render an accounting to NDS of revenues derived from
the PRODUCT from any source with all supporting documentation, in the medium,
form and manner as may reasonably be requested by NDS.
4.2. TECHNICAL SUPPORT FEES: LICENSEE shall pay
the following amounts for the respective technical support services
provided by NDS pursuant to any work request:
4.2.1. Webpage development, website changes
or customization, and management consulting at a rate of $125.00 per
hour; and,
4.2.2. Questions development at a rate of
$0.50 per question. Technical support fees shall be due and payable
by LICENSEE within ten (10) business days after receipt of an invoice
for services from NDS. The technical support fees shall be
adjusted
upward annually according to the "best price" offered by and charged
by NDS to its preferred vendors, which shall
not exceed an increase of 10% over the amount charged in the previous
year. Failure by the LICENSEE to pay NDS, at its election, to stop
work until payment is made without liability for any damages or being
considered in breach of contract.
4.3. WEBSITE FEES: LICENSEE shall pay to NDS the
sum of $20,000.00 per month for the day-to-day management and
operation of the website on a twenty four hours per day, seven days
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per week basis beginning on live date. Website fees shall be due and payable on
the first of each month without demand, and will be considered past due if not
paid within fifteen (15) days of the due date.
4.4. PAYMENT TERMS: LICENSEE shall be responsible for payment of all
applicable state and federal taxes, fees, charges and assessments attributable
to the PRODUCT, including without limitation, personal property taxes,
registration and other licensing fees. Any amounts not paid when due shall bear
interest at a rate of 12% per annum, and all payments shall first be applied to
principal then to accrued interest. Any unpaid balance outstanding for more than
90 days shall be considered a breach of the Agreement.
4.5. INVOICES FOR TECHNICAL SUPPORT: On or about
the first day of each month, NDS will prepare and submit an invoice
for technical support to LICENSEE estimating the costs, charges and
fee to be incurred by NDS during that month. In addition, on or
about the tenth of each month, NDS shall prepare and submit to
LICENSEE a reconciliation statement setting forth the actual charges,
costs and fees incurred during the previous month. Any differences
between the estimated amounts and actual amounts for a particular
month shall be adjusted on the next month's invoice. NDS will submit
the final invoice to LICENSEE within 10 days following the end of the
month. All invoices for technical support fees will be due and
LICENSEE. In the event of a dispute over any invoice, LICENSEE shall
pay timely that portion not in dispute and the parties shall make
every effort to settle the dispute within 20 days.
5. LICENSEE OBLIGATIONS
5.1. WEBSITE: LICENSEE shall immediately purchase all necessary
computer and Internet hardware equipment and on-line services as needed and
recommended by NDS to establish and construct the website for operation of the
PRODUCT, LICENSEE agrees to retain NDS on an exclusive basis to operate the
website after the live date and all services provided by NDS in this regard
shall be paid by LICENSEE as set forth in Article 4 herein. LICENSEE shall
provide for and be responsible to pay all costs and expenses attributable to the
operation of the website including, without limitation, telephone costs and
charges, rental for space occupied by the website, utilities, security,
maintenance of equipment and hardware, and all costs for insurance. LICENSEE
shall obtain adequate office space (if necessary) in a satisfactory location as
determined by NDS.
5.2. TECHNICAL SUPPORT/PRODUCT DEVELOPMENT: LICENSEE agrees to retain
NDS on an exclusive basis prior to and after the live date to provide finish
graphics for advertisers, question development, webpage development, and any
enhancements, changes, modifications, or customization of the PRODUCT or website
as may be requested by LICENSEE or any advertisers. NDS shall also provide
website management consulting as requested by LICENSEE. All services provided by
NDS shall be paid by LICENSEE as set forth in
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Article 4 herein. In the event NDS agrees to provide any service by a specific
date but fails to deliver as promised, LICENSEE may out-source the particular
work request to a third party; provided, however, that any further services
shall continue to be provided exclusively by NDS unless otherwise mutually
agreed by the parties.
5.3. MARKETING OF PRODUCT: LICENSEE shall obtain an opinion of counsel
as to the legality of the PRODUCT as to gambling and prize pool aspects prior to
performing any marketing of the PRODUCT. NDS shall immediately apply for and
obtain and keep current all appropriate Copyright and Patent registrations for
the PRODUCT and any enhancements, upgrades or modifications thereto on behalf of
and in the name of NDS as owner.
5.4. PRIZE FUND POOL: LICENSEE shall at all times maintain and
disburse the prize fund pool as a trust account with applicable fiduciary
duties. Irrespective of this obligation, nothing herein is to be constructed as
conferring any claim, cause or right of action upon or for any person or entity
directly or indirectly against NDS arising or resulting from the PRODUCT for
prize money or any other benefit or compensation, and LICENSEE expressly agrees
to indemnify NDS for any such damages or claims pursuant to Articles 1 and 13
hereof.
5.5. LICENSEE'S REPRESENTATIVES: LICENSEE shall,
at its own expense, appoint in writing an individual, hereinafter
referred to as the "LICENSEE'S REPRESENTATIVE", who shall be authorized to act
on behalf of LICENSEE who whom NDS may consult at all reasonable times, and
whose instructions, requests and decisions will be binding upon LICENSEE as to
all matters pertaining to this Agreement and the performance of the parties
hereunder.
5.6. ACCOUNTING: LICENSEE shall maintain and keep available adequate
books and records according to generally accepted accounting principles for all
revenue generated or attributable to the PRODUCT. LICENSEE shall preserve and
maintain such records for inspection for a minimum of 3 years or such further
period of time as NDS may designate in writing. NDS shall have the right to
audit the books and records during normal business hours upon 5 days written
notice. In the event the audit results exceed the revenue amounts declared by
LICENSEE by an amount equal to or greater than 4%, LICENSEE shall reimburse NDS
for the cost of the audit out of its portion of the net revenues.
5.7. COMPLIANCE WITH LAW: LICENSEE hereby
warrants and represents that it shall conduct or operate the PRODUCT
in compliance with any and all applicable federal, state and local
laws, rules and regulations.
6. NDS OBLIGATIONS
6.1. WEBSITE: Subject to LICENSEE'S continued
performance of all obligations hereunder, NDS shall establish the
website by connecting all hardware and installing all programming
necessary for operation of the PRODUCT on the Internet. Such
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technical support services provided by NDS in this regard shall be paid by
LICENSEE as set forth in Article 4 herein.
6.2. PRODUCT DEVELOPMENT: NDS shall complete the basic development of
the PRODUCT, without charge, to the live date, including basic webpage graphics
and button functions. The PRODUCT shall be considered complete and delivered to
LICENSEE upon the live date. Any further enhancements, charges, customizing or
modifications shall be performed by NDS as technical support at the rates set
forth herein.
6.3. WORK REQUESTS: NDS agrees to exercise due
diligence in meeting the estimated completion schedule agreed upon
the parties in any work request. NDS shall, subject to the terms and
provisions of the Agreement, furnish the services of all necessary
principals, lead professionals, programmers and other personnel
necessary for the performance of the services.
6.4. NDS REPRESENTATIVE: NDS shall appoint, in writing, one or more
individuals who shall be authorized to act on behalf of NDS and with whom
LICENSEE may consult at all reasonable times, and whose instructions, requests
and decisions will be binding upon NDS as to all matters pertaining to this
Agreement and the performance of the parties hereunder.
7. PROTECTION OF PROPRIETARY INTERESTS
7.1. LICENSEE acknowledges that the PRODUCT and all permitted copies
thereof are NDS'S exclusive property. LICENSEE shall not disclose or make
available to third parties the PRODUCT or any portion thereof without NDS'S
prior written consent. It is the intent of this Agreement that NDS retain
exclusive ownership rights to the PRODUCT and nothing herein is to be in any way
construed as creating any right, title, claim or interest of LICENSEE whatsoever
i the PRODUCT or any other proprietary rights of NDS, except as otherwise
expressly stated herein.
7.2. Upon any termination, cancellation or expiration of the
Agreement, LICENSEE shall return the PRODUCT and all copies thereof to NDS, or
destroy the same and submit evidence thereof to NDS.
7.3. The parties acknowledge that NDS shall continue to own all
proprietary interests in the PRODUCT and NDS shall use its best efforts and
every means to protect the PRODUCT from infringement by others.
8. CONFIDENTIALITY. The parties agree that,
during the term of this Agreement or any extensions hereof, and for a period of
three (3) years thereafter, each will keep confidential any information which
they obtain from the other or any of their subsidiaries, sister corporations or
concerns, now or hereafter existing or created, concerning their properties,
assets, properties assets, source codes, data bases, copyrights, business
methods and trade secrets. Upon termination hereof the parties will return to
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the other all written matter regarding their respective business obtained by
them in connection with the negotiation, consummation or performance of this
Agreement. The parties shall retain all patents, copyrights, trade secrets,
license and any other rights to their respective programs and enhancements
thereto.
9. EXCLUSIVITY. During the term of this
Agreement and any extensions hereof, and for a period of three (3) years
thereafter, the parties agree not to directly or indirectly solicit business
from, engage in business with, or divert business from any current or future
customers of either party with regard to the parties' product, and that neither
party will participate as a shareholder, partner, employee, consultant or
otherwise in any enterprise engaging in activities that would violate this
provision if engaged in them directly. This covenant shall be applicable to the
entire United States Of America on the basis that the parties sell or expect to
sell the PRODUCT nationally and world wide, and the parties acknowledge and
agree that the scope of this covenant in time and geographic area is reasonable
given the special relationship of the parties and the nature of the Internet.
10. REPRESENTATIONS AND WARRANTIES. The
parties hereby agree to the following representations and warranties:
10.1. RIGHT TO GRANT: NDS has an unrestricted exclusive right to use,
execute and reproduce its product, enhancements and upgrades thereof, and to
sell, lease or otherwise distribute the PRODUCT without obligation or
restriction of any kind. NDS is the sole and exclusive owner of and has good and
marketable title to the PRODUCT and is duly authorized and empowered to lease
the rights to the PRODUCT without the consent of any other person or entity;
and; there are no debts, liens, encumbrances or obligations against the PRODUCT
and NDS has paid all taxes, charges, debts and other assessments as may be
attributed thereto and that all debts and obligations relating thereto are and
will remain fully satisfied. The PRODUCT is not subject to any permits,
licenses, subscriptions or grants of use or any right whatsoever other than as
otherwise described herein and NDS has not sold or granted any interest, whether
in total or in part, in any portion of the PRODUCT to any person or entity.
10.2. INFRINGEMENT: Except as otherwise provided herein, NDS hereby
disclaims all warranties or representations, and Optionee acknowledges and
accepts such disclaimer, that use of the PRODUCT does not conflict or otherwise
infringe in any way with the trademarks, trade names, copyright, or other
proprietary rights, nondisclosure or other rights or interest of any other
person or entity. The parties acknowledge that confirmation of the
non-infringing nature or status of the PRODUCT shall be the obligation of
LICENSEE and LICENSEE assumes all risk associated with the possibility of the
infringement of the trademarks, trade names, copyright, or other proprietary
rights or other interest of any other person or entity, the parties agree that
LICENSEE'S sole and exclusive remedy shall be to change the PRODUCT to an
non-infringing nature and proceed according to the terms of this Agreement, or,
if
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the infringing aspect cannot be cured, to cancel and rescind this Agreement
between the parties without further liability to NDS. In no event shall NDS be
liable for any damages arising from the causes described in this Paragraph 9.1
and LICENSEE expressly agrees to indemnify, defend and hold NDS harmless from
and waives any claims for such damages.
10.3. COMPLIANCE WITH LAW: Except as otherwise
provided herein, NDS hereby disclaims all warranties or
representations, and Optionee acknowledges and accepts such disclaimer, that the
PRODUCT has been and presently is in compliance with all applicable federal
state or local laws, rules and regulations. the parties acknowledge that
confirmation of the legal nature or status of the PRODUCT, as gambling or
otherwise, shall be the obligation of Optionee. In the event the PRODUCT is
considered illegal, the parties agree that the sole and exclusive remedy shall
be to terminate the Agreement between the parties according to the terms
thereof. In no event shall NDS be liable for any damages arising from the causes
described in this Paragraph 9.2 and Optionee expressly agrees to indemnify,
defend and hold NDS harmless from and waives any claims for any such damages.
10.4. DEVELOPMENT RESTRICTION: The parties agree, on behalf of
themselves, their affiliated companies, officers, directors, consultants or
employees, successors and assigns, not to develop products or services
competitive to the PRODUCT, directly or indirectly, either for itself or any
third party during the term of this Agreement or any extension, renewal or
modification hereof.
10.5. CORPORATE AUTHORITY: The parties are corporations duly
organized, validly existing, and in good standing under the laws of the state of
their incorporation and have full corporate power and authority to enter into
this Agreement and to carry out their respective obligations hereunder. This
Agreement constitutes a valid and binding obligation of the parties and
performance hereunder will not violate any provision of the parties' respective
Articles of Incorporation, Bylaws, or other agreements or commitments.
10.6. PRODUCT STATUS: LICENSEE acknowledges and agrees that: (1) the
PRODUCT is not fully operational nor tested and the possibility exists that the
PRODUCT may not perform entirely as designed; (2) the likelihood or probability
of the success of the PRODUCT is unknown because of the competitive and volatile
nature of the Internet; (3) LICENSEE is familiar with product development and
marketing and has informed itself to its satisfaction of the risks associated
with the PRODUCT; (4) LICENSEE is not relying on any representations by NDS as
to the probability of success of the PRODUCT and expressly accepts and assumes
all such risks and releases and holds NDS harmless from all damages that may be
incurred as a result thereof.
10.7. TEMPORARY INTERRUPTION: LICENSEE acknowledges that
temporary interruption of the website may occur whether caused by
hardware, software, or environmental anomalies. In such event, NDS
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agrees to provide such technical support as needed to address any temporary
interruption as soon as possible after notification by LICENSEE pursuant to the
provisions hereof. In no event shall NDS be liable for any claims or damages
that may result from any interruption of the website, regardless of cause, and
LICENSEE hereby releases NDS and waives any and all claims against NDS therefor.
11. TERMINATION/CANCELLATION
11.1. NDS may terminate/cancel this Agreement and any license
granted hereunder if:
11.1.1. LICENSEE is in default of any
material provision hereof and such default is not cured within 30
days after NDS gives LICENSEE written notice thereof; or,
11.1.2. LICENSEE becomes insolvent or seeks
protection, voluntarily or involuntarily, under any bankruptcy law.
11.1.3. LICENSEE is in breach of any of the
terms and conditions of the Option greement executed between NDS and
IPONG, which Agreement is incorporated herein by reference as though
set forth fully.
11.2. Should this Agreement be so terminated, NDS shall be paid for
all costs incurred to date of termination for technical services, including any
reasonable cancellation charges and any reasonable costs incurred in terminating
any service or work under any work request, plus a fee of 10% of the total of
such costs, and a proportional amount of other fees payable hereunder.
11.3. In the event of any termination/cancellation hereof or any
license granted hereunder, LICENSEE shall comply with all provisions of this
Agreement regarding termination. IN NO EVENT WILL THE LIABILITY OF NDS IN
CONNECTION WITH THE SERVICES PROVIDED PURSUANT TO THIS AGREEMENT EXCEED THE
AMOUNTS ACTUALLY PAID TO NDS UNDER THIS AGREEMENT. The limitation is an
exclusive remedy and applies to all causes of action in the aggregate, including
without limitation, breach of contract, breach of warranty, negligence, strict
liability, or any other cause, excluding the misrepresentation or intentional
conduct of NDS.
12. WARRANTY
12.1. WARRANTY FOR TECHNICAL SUPPORT SERVICES: NDS guarantees that the
technical support services provided by NDS shall be performed in accordance with
sound practices. Following completion of any service pursuant to any work
request, if the work does not so conform or the end result is not successful,
and the dame is reported to NDS by LICENSEE in writing within 15 days after the
nonconformity, if possible. If, in NDS's opinion, the work request cannot be
accomplished using reasonable commercial efforts, then no further attempts to
cure shall be required and LICENSEE waives and releases NDS from any and all
claims for reimbursement or damages incurred thereby. If the nonconformity is
caused by hardware
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problems, NDS shall replace any hardware necessary to correct the problem, at
LICENSEE's expense.
12.2. LIMITATION OF REMEDIES: ALL WARRANTIES OR
GUARANTEES MADE BY NDS IN CONNECTION WITH ITS SERVICES ARE LIMITED
TO THOSE SET FORTH IN THIS ARTICLE 11. NDS MAKES NO OTHER WARRANTIES
OR GUARANTEES, EXPRESS OR IMPLIED, WHETHER FOR MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
12.3. CONSEQUENTIAL DAMAGES: Notwithstanding
anything to the contrary stated herein, in no case shall NDS be
liable for any indirect, special, contingent or consequential or
other indirect damages including, without limitation, damages for
loss of profit, revenue or product, operating costs and downtime
arising out of or related to this Agreement or the performance or
breach thereof, even if NDS has been advised of the possibility
thereof, and however the same may be caused, including, without
limitation, the fault or concurrent or sole negligence of NDS, its
subcontractors or vendors.
12.4. EXCLUSIVE REMEDIES: For the breach of any
warranty or guarantee or any breach of any term or provision hereof
by NDS, LICENSEE shall be restricted to the remedies expressly set
forth in this Agreement and specifically this Article II as LICENSEE'S sole and
exclusive remedies. LICENSEE hereby waives any and all other rights or remedies
it may have, whether at law or in equity, against NDS, regardless of cause,
including the breach of contract, the sole or concurrent negligence of NDS, but
excluding the wilful misconduct of NDS.
13. INSURANCE AND LIABILITY
13.1. COMMITMENT OF INSURANCE: Commencing with
acquisition of rental space for establishment of the website and
continuing until termination of this Agreement, both parties shall
maintain standard insurance policies as follows:
13.1.1. Worker's Compensation insurance
covering injury to or occupational disease or death of all employees
engaged in providing services in accordance with the statutory
requirements of the state or states in which the services are to be
performed, including Employers' Liability
Insurance with a limit of liability of $500,000.00.
13.1.2. Comprehensive Liability Insurance
(including bodily and personal injury, property damage, owned, non-owned, leased
or hired automobiles, contractual liability, completed operations liability, and
contractor's protective liability for loss
or damage to property and injury to or death
of third parties. Such coverage shall provide a limit of
$1,000,000.00 combined single limit bodily injury and property damage for each
occurrence subject to an aggregate limit of $1,000,000.00.
13.2. CERTIFICATES AND POLICY RENEWALS: The
foregoing insurance shall be maintained with carriers satisfactory
9
<PAGE>
to the other party and the terms of coverage shall be evidenced by certificates
to be furnished to each party. Such certificates shall provide that ten (10)
days' written notice shall be given to the other party prior to the cancellation
of any policy.
13.3. INDEMNITY: Anything in this Agreement to the contrary
notwithstanding, LICENSEE hereby agrees to defend, indemnify and hold harmless
NDS, its subsidiaries, subcontractors and vendors, and their directors,
officers, employees, agents and representatives, from and against any and all
claims, losses, fines, penalties, expense (including attorney's fees), or
liabilities on account of injury to or death of persons (including the employees
of LICENSEE, NDS, and its subcontractors and vendors), damage to or loss of
property arising by any reason or by failure to comply with any law or
regulation or on account of actual or alleged contamination, pollution, public
or private nuisance, exposure to and/or hazardous substances at LICENSEE'S
operations whether or not related to NDS'S, its subcontractors' or vendors'
performance of the services under this Agreement, and irrespective of whether or
not due to NDS'S, its subcontractors or vendors' breach of contract, tort
(including sole or concurrent negligence), strict liability or otherwise.
Subrogation against NDS, its subcontractors or vendors under any and all of
LICENSEE'S insurance for such losses or claims shall be, and is hereby, waived
and LICENSEE represents it has the authority to so waive such claims. The
indemnity provisions of this Agreement shall apply to any such subrogation
claim.
13.4. INFRINGEMENT: NDS agrees to indemnify, defend and hold harmless
LICENSEE for any and all damages, costs and attorney fees incurred arising out
of any adverse claim or action commenced against or including LICENSEE regarding
any claim of infringement of copyright, trademark, trade name, or other
proprietary interest pertaining to the PRODUCT.
13.5. LICENSEE'S PROPERTY: As between NDS and
LICENSEE, LICENSEE assumes responsibility for and hereby releases NDS
from all loss of or damage to or caused by LICENSEE'S property,
however such loss or damage shall occur, including the fault, breach
of contract, tort (including the concurrent or sole and exclusive
negligence), strict liability or otherwise of NDS.
14. MISCELLANEOUS.
14.1 NOTICE: Notices to or for the respective parties shall be given
in writing and delivered in person or mailed by certified or registered mail,
addressed to the respective party at the address as set below, or at such other
address as either party may elect to provide in advance in writing, to the other
party:
NDS SOFTWARE IPONG
GREG JOHNSON,CEO BRIAN C. KELLY, PRESIDENT
2241 Park Place, Suite E One East Liberty Street, Suite 416
Minden, NV 89423 Reno, NV 89501
10
<PAGE>
14.2. CHOICE OF LAW: This Agreement shall be construed under the laws
of the State Of Nevada and any action brought by the parties hereunder shall be
brought in the Ninth Judicial District Court located in Minden, Douglas County,
Nevada. The parties agree that this document is executed and shall be performed
in Douglas County, Nevada.
14.3. AMENDMENTS: This Agreement may be altered,
amended, restated, or modified in writing signed by the parties.
14.4. WAIVER: Any failure on the part of either
party hereto to comply with any of their obligations, agreements or
conditions hereunder may be waived in writing by the party to whom
such compliance is owed.
14.5. BROKERS: Each of the parties represents to the other parties
that no broker or finder has acted for them in connection with this Agreement
and agrees to indemnify and hold harmless the other parties against any fee,
loss or expense arising out of claims by brokers or finders employed or alleged
to have been employed by such party.
14.6. ENTIRE AGREEMENT: This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto and contains
all of the covenants and agreements between the parties with the respect to this
matter. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement or promise not contained in this
Agreement shall be binding. Any modification of this Agreement will be effective
only if it is in writing, signed by the party to be charged specifically
referencing this Agreement.
14.7. INTERPRETATION: Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid and effective under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
14.8. ASSIGNMENT: Except as expressly provided for herein, this
Agreement shall not be assignable by either party without the prior consent of
the other party hereto. No assignment of this Agreement shall relieve the
assignor until this Agreement shall have been assumed by the assignee. When duly
assigned in accordance with the foregoing, this Agreement shall be binding upon
and shall inure to the benefit of the assignee. Additionally, NDS may
subcontractor is disclosed to and approved by LICENSEE prior to the provision of
any such services under this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
11
<PAGE>
NDS SOFTWARE, INC., IPONG INTERNATIONAL, INC.,
a Nevada Corporation a Nevada Corporation
BY: BY:
GREG JOHNSON, Chairman/CEO BRIAN C. KELLY, President
12
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into by and
between Bob Horn, hereafter "Employee," and Webquest International, Inc. a
Nevada corporation, hereafter "Employer," with reference to and in light of the
following facts:
A. Employer is engaged in the business of creating and
maintaining Internet "Web"
sites on a commercial basis, and related businesses.
B. Employee has extensive knowledge and experience in the areas
of business
management.
C. Employer desires to retain and hire employee on the terms and
conditions set forth
in this Agreement.
Based upon the foregoing, and in consideration of the mutual promises
and covenants set forth herein, the parties agree as hereafter provided.
1. Employment. Employer hereby employs Employee as Chief
Executive Officer
(CEO) of Employer's business to provided executive, management, and general
business services
to Employer on the terms and conditions set forth in this Agreement. The duties
and
responsibilities of Employer and Employer shall be as follows:
1.1. Duties of Employer. Employer agrees to provide
Employee with each of
the following items and services, as deemed appropriate by Employee, to be paid
for and/or
compensated by Employer.
(a) A modem and up-to-date computer system and
monitor and related
hardware and software with compatible and necessary telephone lines.
(b) Secretarial and support staff as may be
necessary in the discretion
of Employee for the performance of his duties, which may include employees,
and/or outside "office support" firms and companies to be utilized on a
contractual basis, access to legal counsel, certified public accountants and
related accounting staff, other appropriate and necessary outside professional
services as deemed appropriate by Employee, sales staff as deemed appropriate by
Employee, either as employees or independent contractors. All decisions relating
to hiring and firing of employees and retention of independent contractors,
other than legal counsel and accountants require the approval of the Board of
Directors of Employer.
(c) Employer shall also provide Employee with the compensation and
benefits more particularly set forth below in this Agreement.
1.2 Duties of Employee. Employee agrees to provide executive
management and business services to Employer, as Chief Executive Officer (CEO)
of Employer's Internet-related business in consideration for the compensation
and benefits as more particularly set forth
<PAGE>
below in this Agreement. Employee shall supervise, administer and coordinate all
departments of Employer's business under his direct control and supervision in
accordance with all departments of Employer's Board of Directors, of which
Employee shall be a member at all times during the terms of this Agreement.
Employee shall have active executive management and supervisory authority of the
business of Employer, subject to the policies set forth by the Board of
Directors of Employer. Employee shall devote full time effort to perform all of
the duties described herein.
2. Compensation and Benefits. In consideration for Employee's
services, Employer
shall pay to employee the following compensation and benefits.
2.1 Base Salary. Employee shall be paid a base of One
Hundred Twenty
Thousand Dollars ($120,000) per year payable bi-weekly commencing on the
Effective Date and
continuing throughout the term of this Agreement.
2.2 Benefits. In addition to Employee's base salary as
described above,
Employee shall also receive the following benefits.
2.2.1 Group Medical and Life Insurance.
There is no Group Medical or
Life Insurance at this time. Group medical and life insurance under the terms of
any group insurance plan that may be created by a compensation committee to be
established by the Board of Directors and maintained by Employer from time to
time. Benefits under such plan may include, but not be limited to, such group
health, life, dental, vision, disability, and supplemental life insurance
benefits.
2.2.2 Stock Options. Employer hereby grants to Employee options to
purchase four hundred thousand (400,000) registered shares of Employer's $.001
par value common stock at an exercise price equal to the current value of eleven
and 6/10 cents ($.116) per share for such stock that vests on the effective
dates as set forth below. Employer represents and warrants to Employee that the
four hundred thousand (400,000) shares of stock shall be sully transferable
except for any restriction imposed on "affiliates" of Employer under Rule 144 of
the Securities Act of 1933, hereafter referred to in this Agreement as
"restricted Rule 144 stock."
Date of Vesting Option Shares
Agreement Effective 100,000
September 23, 1998 100,000
September 23, 1998 100,000
September 23, 2000 100,000
(a) Any vested option may be exercised with respect to all or
any part of the shares optioned until the expiration of five (5) years from the
respective date on which the option vests; provided, however, that the option
shall be exercised for full shares only and shall not be
<PAGE>
exercised for less than one hundred (100) shares at any one time or the
remaining shares covered by the option if less that one hundred (100).
(b) Once the respective options vest, they will not lapse for
any reason until the specified expiration date. However, on the respective
applicable vesting date, the respective option shall lapse unless Employee is
still employed by Employer.
(c) Notwithstanding the foregoing, any vested option shall
expire and the right to purchase shares thereunder shall cease two (2) years
after the date of death of Employee, if death occurs at a time when Employee is
still employed by Employer.
(d) The options shall be nontransferable by Employee other
than to a revocable living trust in which Employee is a grantor, or by Will or
by the laws of descent and distribution, and shall be exercisable during the
lifetime of Employee only by him or any revocable living trust to which Employee
has transferred the option.
(e) The option may be exercised by delivering written notice
to Employer pursuant to section 7.6 of the number of shares with respect to
which the option rights are being exercised, and payment in an amount equal to
the purchase price os the shares to be purchased at that time. Payment for the
shares purchased shall be made in cash or by cashier's check.
(f) The issue and sale of the shares of stock upon the
exercise of the option shall be subject to full compliance with all then
applicable requirements of law, the Securities and Exchange Commission, and any
other regulatory agencies having jurisdiction, and of any exchange upon which
the stock of the Employer may be listed.
2.2.4 Vacations. Employee shall be entitled to
reasonable vacation.
2.2.5 Expense Reimbursements. Employer shall reimburse
Employee for all reasonable expenses incurred by Employee in operating the
business of Employer and in performing Employee's duties under this Agreement,
including, but not necessarily limited to, expenses for entertainment, travel,
meals, lodging and similar items, all of which are to be reimbursed to Employee
on a monthly basis.
2.2.6 Disability Benefits. There are no
disability benefits at this time. The
company may adopt disability benefits at some time in the future as set out by
the compensation
committee and approved by the Board of Directors.
2.2.7 Termination Compensation. Employer shall
pay to Employee the
Termination Compensation set forth below in Section 4.2 upon the early
termination of this
Agreement.
2.28 Compensation Upon Transfer of Control or Sale. In the
event of a "transfer of control" as hereafter defined, Employer shall pay to
Employee the compensation set forth in subsection 4.2.2, below, concurrently
with the effective date of the transfer of control. As used in this subsection,
the term "transfer of control" shall mean (a) a change in control of the
<PAGE>
company of a nature that would have to be recorded under the terms of the
Securities and Exchange Act of 1934, or any regulations issued and promulgated
pursuant to that law, or (b) the election at any time of a majority of directors
to the Board of Directors of Employer (together or separately) whose election is
opposed by management.
3. Term. The term of this Agreement shall being on September 22, 1997
(the "Effective Date") and shall continue for a term which shall expire two (2)
years thereafter, i.e., at the close of business on September 22, 1999 (the
"Scheduled Expiration Date"). The term of this Agreement is subject to earlier
termination as set forth in Section 4, below.
4. Early Termination of Agreement. Notwithstanding the
provisions of Section 3,
above, this Agreement may be terminated prior to the Scheduled Expiration Date
as provided
below.
4.1 Events of Early Termination.
4.1.1 Termination for Cause. Employer may at any
time, at its election,
upon thirty (30) days written notice to the Employee, terminate this Agreement
and the term of Employee's employment as a result of the following events, which
events shall constitute a termination hereunder "for cause."
(a) Gross negligence and the willful
neglect of Employee to
perform his duties after receiving written notice from Employer of such.
4.1.2 Termination Without Cause. Employer may
also, at any time, at
its election, upon thirty (30) days written notice to Employee, terminate this
Agreement prior to the Scheduled Expiration Date and the term of Employee's
employment for any reason not set forth in subsection 4.1.1 above, including,
but not limited to, the death or disability of Employee, which event shall
constitute a termination hereunder "without cause."
4.1.3 Voluntary Resignation by Employee. Employee
may at any time,
at his sole election, and without liability, terminate this Agreement and his
employment by Employer by a voluntary resignation. In such event, Employee shall
provide Employer with written notice of his intent to resign of a minimum of
thirty (30) days.
4.2 Compensation Upon Early Termination.
4.2.1 Termination for Cause. Upon any termination
of this Agreement
by Employer for cause as set forth in subsection 4.1.1 above, Employee shall be
entitled to receive all compensation and benefits accrued for services performed
through the date of such termination.
4.2.2 Termination Without Cause. Upon any
termination of this
Agreement without cause as set forth in subsection 4.1.2 above, Employee shall
ben entitled to the compensation set forth below.
<PAGE>
(a) Employer shall pay to Employee an
amount equal to the
Employee's total base salary payable for a six (6) moth period.
(b) All of Employee's unvested stock
options pursuant to
subsection 2.2.3 shall immediately vest and be exercisable.
4.2.3 Voluntary Resignation by Employee. Upon any
termination of this
Agreement by the voluntary resignation of Employee, as set forth in subsection
4.1.3 above, then Employee shall still be entitled to only stock options vested
prior to resignation on the conditions specified in subsection 2.2.3.
5. Covenant of Confidentiality. Employee acknowledges ad recognizes
that in the course of his employment with Employer he will become acquainted
with confidential information of the Employer relating to the conduct of the
Employer's business. Employee acknowledges that such confidential information
and trade secrets are owned and shall continue to be owned solely by Employer.
6. Indemnification. Employer shall indemnify, defend, and hold harmless
Employee when Employee is a party or threatened to be made a party to any
threatened, pending, or completed action, lawsuit, or proceeding, whether civil,
criminal, administrative, or investigative, resulting directly or indirectly
from (1) any alleged acts of omissions of Employee while acting in the course
and scope of Employee's duties for Employer, and (2) any alleged acts of
omissions of Employee while acting int he course and scope of Employee's duties,
or while serving at the request of Employer as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, from all liability, costs, judgements, damages, losses, and
expenses, including attorneys' fees and court costs, fines and amounts paid in
settlement in connection with any such action, lawsuit, or proceeding. Employee
shall give Employer prompt notice os any claim for which Employer is to
indemnify, defend, and hold Employee harmless. The determination of liability of
Employer for indemnification of Employee shall be made pursuant to the then
existing provisions of federal and Nevada law as may be applicable, the intent
of this indemnification being to provide Employee with the most comprehensive
indemnification protection permitted by law. Employer shall, when economically
reasonable, be required to purchase and maintain insurance on behalf of Employee
against any liability asserted against Employee as a result of any alleged acts
or omissions of Employee within the course and scope of his duties as an
officer, director, employee, or agent of Employer, including attorney's fees and
costs.
7. Miscellaneous.
7.1 Waiver. If in one or more instances either party fails to
insist that the other party perform any of the terms of this Agreement, such
failure shall not be construed as a waiver by such party of any past, present,
or future right granted under this Agreement; the obligations under this
Agreement shall continue in full force and effect.
7.2 Survival. The obligations contained in Sections 4,5,and 6
hereof shall survive the
termination of this Agreement. In addition, the termination of this Agreement
shall not affect
<PAGE>
any of the rights or obligations of either party arising prior to or at the time
of the termination of this Agreement, or which may arise by any event causing
the termination of this Agreement.
7.3 Assignment. Neither Employer nor Employee may assign any rights or
obligations under this Agreement without the prior written approval of the other
party. Notwithstanding the foregoing, this Agreement shall inure to the benefit
of an shall be binding upon the parties hereto and their respective successors
and assigns.
7.4 Severability. If any provision, paragraph, or subparagraph of this
Agreement is adjudged by any court to be void or unenforceable in whole or in
part, such adjudication shall not affect the validity of the remainder of this
Agreement, including any other provision, paragraph, or subparagraph. Each
provision, paragraph, and sub paragraph of this Agreement is separable from
every other provision, paragraph, and subparagraph, and constitutes a separate
and distinct covenant.
7.5 Applicability. This Agreement shall be binding upon and shall inure
to the benefit of the parties and their permitted successors, assigns,
executors, administrators, and personal representatives.
7.6 Notices. All notices required or permitted to be given by law or by
the terms of this Agreement shall be in writing and shall be given by (1)
personal services of a copy to the party to be served, or (2) seventy-two (72)
hours after mailing of such written notice by certified or registered mail,
postage prepaid, receipt for delivery requested, addressed to the party to be
served and properly deposited in the United States mail. Notices shall be given
to the parties at the addresses listed below the parties' signatures to this
Agreement. Any change in the address of either party shall be given by the party
making such change to the other party in the manner provided above. Thereafter,
all notices shall be given in accordance with the notice of change of address.
Notices given before actual receipt of the notice of change of address shall not
be invalidated by any such change.
7.7 Complete Understanding. This Agreement constitutes the entire and
complete understanding between the parties, all prior representations or
agreement having been merged into this Agreement. Employee acknowledges and
agrees that he has had a full and adequate opportunity to consult with legal
counsel prior to executing this Agreement.
7.8 Attorneys' Fees. If either party to this Agreement breaches any of
the terms of this Agreement, such breaching party shall pay to the other party
all of such other party's costs and expenses, including attorneys' fees,
incurred by that party in enforcing the terms of this Agreement.
7.9 Modification. No alteration of modification to any of the
provisions of this
Agreement shall be valid unless made in writing and signed by both parties.
7.10 Captions. The captions inserted herein have been inserted for
convenience only and are not to be considered when construing the provisions of
this Agreement.
<PAGE>
7.11 Governing Law. This Agreement and all the rights and obligations
hereunder shall be governed by and construed pursuant to the laws of the State
of Nevada in effect from time to time. The parties hereby agree that all
litigation resulting under this Agreement shall be under the sole and exclusive
jurisdiction of the Second Judicial District Court of the State of Nevada in and
for the County of Washoe, and the parties hereby submit to the exclusive
jurisdiction of such court and venue therein.
7.12 Counterparts. This Agreement may be executed in counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one in the same instrument.
Executed copies of this Agreement may be delivered by telefacsimile, and
delivery of executed telefacsimile copies to the parties and their counsel shall
be deemed to be a delivery of a duplicate original and sufficient delivery to
result in entry to this Agreement by the transmitting party; provided, however,
that within ten (10) days thereafter a signed duplicate original shall be
forwarded to the party to whom a telefacsimile copy was forwarded.
7.13 Further Assurances. Employer and Employee agree to execute
and deliver such
additional instruments and documents and to take such actions as may be
necessary in order to
carry our the intent of this Employment Agreement.
DATED: DATED:
Employee: WebQuest International, Inc.
By: By:
Bob Horn
2355 San Elijo Ave
Cardiff, CA 92007 Shareholders:
Greg Johnson
Darren Murphy
Jack Kelly
Bill Bradely, Sr.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into on this 1st day of October,
1997, between WEBQUEST INTERNATIONAL, INC., a Nevada corporation, (hereinafter
referred to as "Employer") and Kirk Johnson (hereinafter referred to as
"Employee"), to be effective as of October 1, 1997.
WITNESSETH:
WHEREAS, Employer and Employee desire to enter into this Employment
Agreement to employ Employee and to set forth the rights and duties of the
parties hereto.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment Agreement. The Employer hereby agrees to employ
Employee, and
Employee hereby agrees to serve as such Employee upon the terms and conditions
hereinafter set
forth.
2. Term of Employment. Subject to the provisions for terminatio
as hereinafter
provided, the term of all employment shall commence as of the date of this
Agreement and shall
end October 1, 1999 (2) years from that date. At the end the term hereof, this
Agreement may
be renewed by mutual agreement of the parties.
3. Duties of Employer. Employer agrees to provide Employee with
each of the
following items and services, as deemed appropriate by Employee, to be paid fo
and/or
compensated by Employer:
a. A modem and up-to-date computer system and monitor and related
hardware and
software with compatible and necessary telephone lines.
b. Secretarial and support staff as may be necessary in the
discretion of Employee
and agreed upon by the Employer for the performance of his duties.
c. Employer shall also provide Employee with the compensation and
benefits more
particularly set forth below in this Agreement.
4. Employee's Position and Duties. Employee agrees as follows:
a. Employee shall initially as directed by the Board of Directors
assume responsibility
as Vice-President, Secretary and Treasurer and Webquest International, Inc. and
the management
and supervision thereof, and shall perform any other duties relating to
Employer's operations
1
<PAGE>
which may from time to time be assigned by the Board of Directors and governed
by the Bylaws of Webquest International, Inc., for the successful operation of
Employer's business.
b. During the term of this Employment Agreement, Employee shall, in
good faith, devote his best efforts and full time to his employment and perform
diligently and in good faith such duties as are or may be from time to time
required by the Employer, which duties shall be consistent with his position as
set forth above; it being understood and acknowledged that, the terms "best
efforts" and "full time" mean such effort and time commitment as is necessary to
achieve the success of the business.
c. Employee shall not, without the prior written consent of Employer,
directly or indirectly, during the term of this Agreement, whether the
compensation or otherwise, render services of a business, professional or
commercial nature to any person or firm that is engaged in a business similar to
that of the Employer.
5. Compensation and Benefits. During the term of employment
hereunder, Employer
shall compensate Employee as follows:
a. Signing Bonus. For all services he may render to Employer during the
term of this Agreement, Employee shall receive from Employer as a signing bonus,
options to purchase Ten Thousand (10,000) registered shares of Employer's $.001
par value common stock at an exercise price equal to the current value of eleven
and 6/10 cents ($.116) per share for such stock that vests on the dates set
forth below. Employer represents and warrants to Employee that the Ten Thousand
(10,000) shares of stock shall be fully transferable except for any restrictions
imposed on "affiliates" of Employer under Rule 144 of the Securities Act of
1933, hereafter referred to in this Agreement as "restricted Rule 144 stock".
b. Salary. From October 1, 1997 through November 30, 1997, Employee
shall receive from Employer, in leu of salary, options to purchase Two Thousand
Five Hundred (2500) registered shares of Employer's $.001 par value common
"restricted Rule 144 stock" at an exercise price equal to the current value of
eleven and 6/10 cents ($.116) per share for such stock that vests on the dates
set forth below. The stock options will be accrued at a rate of Two Thousand
Five Hundred (2500) shares per week and be received monthly commencing on the
Effective Date and continuing through November 30, 1997. Starting December 1,
1997, the Employee has the option to continue receiving stock option in leu of
salary at the rate above and continuing throughout the term of the Agreement or
to receive a salary of Two Thousand Dollars ($2,000) per week, payable bi-weekly
the Employee must submit his salary option in writing one week before the next
pay period. The Employee may opt at any time after December 1, 1998 to take his
salary of Two Thousand Dollars ($2,000) per week, payable bi-weekly, continuing
throughout the term of this Agreement, provided his option is submitted one week
before the next pay period.
Date of Vesting Option Shares
Agreement Effective 10,000
2
<PAGE>
October 31, 1997 10,000
November 30, 1997 10,000
vesting will continue monthly at the above rate.
c. Stock Options. Employer hereby grants to Employee options to
purchase One Hundred Fifty Thousand (150,000) registered shares of Employer's
$.001 par value common stock at an exercise price equal to the current value of
eleven and 6/10 cents ($.116) per share that vests on the effective dates as set
forth below. Employer represents and warrants to Employee that the One Hundred
Fifty Thousand (150,000) shares of stock shall by fully transferable except for
any restrictions imposed on "affiliates" of Employer under Rule 144 of the
Securities Act of 1933, hereafter referred to in this Agreement as "restricted
Rule 144 stock."
Date of Vesting Option Shares
October 1, 1998 75,000
October 1, 1999 75,000
i. Any vested option may be exercised with respect to all or
any part of the shares optioned until the expiration of five (5) years from the
respective applicable vesting date, the respective option shall lapse unless
Employee is still employed by Employer.
ii. Once the respective options vests, they will not lapse for
any reason until the specified date. However, on the respective applicable
vesting date, the respective option shall lapse unless Employee is still
employed by Employer.
iii. Notwithstanding the forgoing, any vested option shall
expire and the right to purchase share thereunder shall cease two (2) years
after the date of death of Employee, if death occurs at a time when Employee
otherwise had a right to exercise any options granted hereunder.
iv. The options shall be nontransferable by Employee other
than to a revocable living trust in which Employee is a grantor, or by Will or
by laws of descent and distribution, and shall be exercisable during the
lifetime of Employee only by him or any revocable living trust to which Employee
has transferred the option.
v. The options may be exercised by delivering written notice
to Employer pursuant to section 12 of the number of shares with respect to which
the option rights are being exercised, and payment in an amount equal to the
purchase price of the shares to be purchased at that time. Payment for the
shares purchased shall be made in cash or by cashier's check.
vi. The issue and sale of the shares of stock upon the
exercise of the option shall be subject to full compliance with all then
applicable requirements of law, the Securities and Exchange Commission and any
other regulatory agencies having jurisdiction, and of any exchange upon which
the stock of the Employer may by listed.
3
<PAGE>
d. Group Medical and Life Insurance. There is no Group Medical or Life
Insurance at this time. Group Medical and Life Insurance under the terms of any
group insurance plan that may be created by a compensation committee to be
established by the Board of Directors and maintained by Employer from time to
time. Benefits under such plan may include, but not limited to, such group
health, life, dental, vision, disability and supplemental life insurance
benefits.
e. Retirement Plans. Participation in any profit sharing plan,
pension plan, 401(k)
plan, or other retirement plan that may be created by a compensation committee
to be established
by the Board of Directors and maintained by Employer, subject to the provisions
of the respective
plans.
f. Vacations. Employee shall be entitled to reasonable vacation.
g. Expense Reimbursement. Employer shall reimburse Employee for all
reasonable expenses incurred by Employee in performing Employee's duties under
this agreement, including but not necessarily limited to, expenses for
entertainment, travel, meals, lodging and similar items, all of which are to be
reimbursed to Employee on a monthly basis.
h. Disability Benefits. There are no disability benefits at this
time. The company
nay adopt disability benefits at some time in the future as set out by the
compensation committee
and approved by the Board of Directors.
6. Events of Termination of Employment.
a. For Cause. The employment of Employee under this Employment
Agreement, and
the term hereof, may be terminated by the Employer only upon a showing of cause,
upon thirty
(30) days' written notice of termination is delivered to the Employee. Cause
is defined as
follows:
i. An act or omission in the course of Employee's duties
which is dishonest
or fraudulent;
ii. An act or omission which constitutes willful
misconduct or gross negligence
in the performance of duties or assignment;
iii. A breach if this Agreement by Employee;
iv. A breach of any term of the Plan and Agreement of
Reorganization,
including without limitation, the non competition provision.
v. The continuous substandard performance and/or
inattention to duties
required by this Agreement as determined in the sole
discretion of Employer; and
vi. Engaging in compensation with the Employer by
Employee without the
prior express written consent of Employer.
b. Written Cause. Employer may also, at any time, at its
election, upon thirty (30)
days written notice to Employee, terminate this Agreement prior to the
Scheduled Expiration Date
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and the term of Employee's employment for any reason not set forth in Section 5a
above, including but not limited to, the death or disability of Employee, which
event shall constitute a termination hereunder "without cause."
c. Disability or Death. The employment of Employee under this
Employment Agreement, and the term hereof, shall be terminated by the death or
partial or total disability of Employee. For the purposes hereof, the term
"disability" is hereby defined to mean any mental or physical disability which
renders Employee unable to perform his duties or assignment as determined by the
Board of Directors of Employer, in the sole judgement and discretion of said
Board as determined by a majority vote of the members thereof.
d. Voluntary Resignation by Employee. The employment of Employee under
this Employment Agreement, and the term hereof, will be terminated by the
voluntary resignation of Employee. In such event, Employee shall provide
Employer with written notice of his intent to resign of a minimum of thirty (30)
days.
7. Compensation Upon Early Termination. Employer shall pay to
Employee the
Termination Compensation set forth below upon the early termination of this
agreement.
a. Termination for Cause. Upon any termination of this Agreement
by Employer for
cause set forth in subsection 6a above, Employee shall be entitled to receive
all compensation and
benefits accrued for services performed through the date of such termination.
b. Termination Without Cause. Upon any termination of this
Agreement without
cause as set forth in subsection 6b above, Employee shall be entitled to the
compensation set
forth below.
i. Employer shall pay to Employee an amount equal to the
Employee's total base
salary payable for a six (6) month period.
ii. All of Employee's unvested stock options pursuant to
subsection 5b and 5c shall
immediately vest and be exercisable.
8. Voluntary Resignation by Employee. Upon any termination of this
Agreement by the voluntary resignation of Employee, as set forth in subsection
6d above, then Employee shall still be entitled to only stock options vested
prior to resignation on the conditions specified in subsection 5b and 5c.
9. Compensation Upon Transfer of Control or Sale. In the event of a
"Transfer of Control" as hereafter defined, Employer shall pay to Employee the
compensation set forth in subsection 7b above, concurrently with the effective
date of the transfer of control. As used in this subsection, the term "transfer
of control" shall mean (a) a change in control of the company of a nature that
would have to be recorded under the terms of the Securities and Exchange Act of
1934, or any regulation issued and promulgated pursuant to that law; or (b) the
election at any
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time of a majority of directors to the Board of Directors of Employer (together
or separately) whose election is opposed by management.
10. Covenant of Confidentiality. Employee acknowledges and recognizes
that in the course of his employment with Employer he will become acquainted
with confidential information of the Employer relating to the conduct of
Employer's business. Employee acknowledges that such confidential information
and trade secrets are owned and shall continue to be owned solely by Employer.
11. Indemnification. Employer shall indemnify, defend, and hold
harmless Employer when Employee is a party or threatened to be made a party to
any threatened, pending, or completed action, lawsuit, or proceeding, whether
civil, criminal, administrative, or investigative, resulting directly or
indirectly from (1) any alleged acts or omissions of Employee while acting in
the course and scope of Employee's duties for Employer, and (2) any alleged acts
of omissions of Employee while acting in the course and scope of Employee's
duties, or while serving at the request of Employer as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, from all liability, cost, judgement, damages, losses and
expenses, including attorney's fees and court costs, fines, and amounts paid in
settlements with any such action, lawsuit, or proceeding. Employee shall give
Employer prompt notice of any claim for which Employer is to indemnify, defend,
and hold Employee harmless. The determination of liability for Employer for
indemnification of Employee shall be made pursuant to the then existing
provisions of federal and Nevada law as may be applicable, the intent of this
indemnification being to provide Employee with the most comprehensive
indemnification protection permitted by law. Employer shall, when economically
reasonable, be required to purchase and maintain insurance on behalf of Employee
within the course and scope of his duties as an officer, director, employee or
agent of Employer, including attorney's fees and costs.
12. Miscellaneous.
a. Waiver. If in one or more instances either party fails to
insist that the other party
perform any of terms of this Agreement, such failure shall not be constructed
as a waiver by such
party of any past, present, or future right granted under this Agreement; the
b. Survival. The obligation contained in Sections 6, 7, 10, and 11
hereof shall survive the termination of this Agreement. In addition, the
termination shall not affect any of the rights or obligations of either party
arising prior to or at the time of the termination of this Agreement, or which
may arise by any event causing the termination of this Agreement.
c. Assignment. Neither Employer nor Employee may assign any
rights or obligations
under this Agreement without prior written approval of the other party.
Notwithstanding the
foregoing, this Agreement shall inure to the benefit of and shall be binding
upon the parties
hereto and their respective successors and assigns.
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d. Severability. If any provision, paragraph, or subparagraph of this
Agreement is adjusted by any court to be voided or unenforceable in whole or
part, such adjudication shall not affect the validity of the remainder of this
Agreement, including any other provision, paragraph, or subparagraph. Each
provision, paragraph and subparagraph of this Agreement is separate from every
other provision, paragraph and subparagraph and constitutes a separate and
distinct covenant.
e. Applicability. This Agreement shall be binding upon and shall
inure to the benefit
of the parties and their permitted successors, assigns, executors,
administrators and personal
representatives.
f. Notice. All notices required or permitted to be given by law or by
the terms of this Agreement shall be in writing and shall be given by (1)
personal service of a copy to the party to be served, or (2) seventy-two (72)
hours after mailing of such written notice by certified or registered mail,
postage prepaid, receipt for delivery requested, addressed to the party to be
served and properly deposited in the United States mail. Notices shall be given
to the parties at the addresses listed below the parties' signatures to this
Agreement. Any changes in the address of either party shall be given by the
party making such changes to the other party in the manner provided above.
Thereafter, all notices shall be given in accordance with the notice of change
of address. Notices given before actual receipt of the notice of change of
address shall not be invalidated by any such change.
g. Complete Understanding. This Agreement constitutes the entire
and complete
understanding between the parties, all prior representations or agreements
having been merged
into this Agreement. Employee acknowledges and agrees that he has had a full
and adequate
opportunity to consult with legal counsel prior to executing this Agreement.
h. Attorney's Fees. If either party to this Agreement breaches any of
the terms of this Agreement, such breaching party shall pay to the other party
all of such other party's costs and expenses, including attorney's fees,
incurred by that party ___ enforcing the terms of this Agreement.
i. Modification. No alteration of modification to any of the
provisions of this
Agreement shall be valid unless made in writing and signed by both parties.
j. Captions. The Captions inserted herein have been inserted for
convenience only
and are not to be considered when constructing the provisions of this Agreement.
k. Governing Law. This Agreement and all the rights and obligations
hereunder shall be governed by and constructed pursuant to the laws of the State
of Nevada in effect from time to time. The parties hereby agree that all
litigation resulting under this Agreement shall be under the sole and exclusive
jurisdiction of the Second Judicial District of the State of Nevada in and for
the County of Washoe, and parties hereby submit to the exclusive jurisdiction of
such court and venue therein.
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l. Counterparts. This Agreement may be executed in counterparts, each
of which when so executed and delivered shall be deemed and original, but all
such counterparts together shall constitute but one in the same instrument.
Executed copies of this Agreement may be delivered by telefacsimile, and
delivery of executed telefacsimile copies to the parties and their counsel shall
be deemed to be a delivery of a duplicate original and sufficient delivery to
result in entry to this Agreement by the transmitting party; however, that
within ten (10) days thereafter a signed duplicate original shall be forwarded
to the party to whom a telefacsimile copy was forwarded.
m. Further Assurances. Employer and Employee agree to execute
and deliver such
additional instruments and documents and to take such actions as may be
necessary in order to
carry out the intent of this Employment Agreement.
DATED: DATED:
EMPLOYEE: WEBQUEST INTERNATIONAL, INC.,
By:
Kirk Johnson Robert Horn
Chairman / CEO
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