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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D. C. 20549
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FORM 10-SB
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
WARPRADIO.COM, INC.
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(Exact name of registrant as specific in its charter)
Nevada 87-0538158
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(State of Incorporation) (I.R.S. Employer I.D. No.)
6535 South Dayton Street, Suite 3000
Greenwood Village, CO 80111
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(Address of principal executive offices, including zip code)
(303) 799-9118
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(Registrant's telephone number, including area code)
Copies to:
Gary A. Agron, Esq.
5445 D.T.C. Parkway, Suite 520
Englewood, CO 80111
Securities to be registered pursuant to Section 12(b) of the Act:
None
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(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) Business Development.
WarpRadio.com, Inc. (the "Company") was organized under the laws of the
State of Nevada, on March 23, 1995, under the name HomeQuest, Inc. for the
purpose of acquiring the assets and operations of New Horizon Education, Inc.
("NHE"). The Company marketed educational and nutritional products through a
network marketing plan. In June 1995, the Company assumed the operations of NHE
and in August 1995, the Company purchased NHE. In March 1998, the Company (i)
sold its operations, inventory, related fixed assets and other intangible assets
and (ii) issued 638,889 shares to an investor in exchange for cash and debt
assumption of $313,000. Pursuant to an Agreement and Plan of Reorganization (the
"Agreement and Reorganization") between the Company and Web Audio & Radio
Portal, Inc., a Colorado corporation ("WARP"), which was completed on September
30, 1999, the Company (i) reverse split its stock on the basis of one share for
each 7.2 shares outstanding, (ii) purchased all of the stock of WARP and (iii)
changed its name to "WarpRadio.com, Inc." All share information in this
Registration Statement reflects the reverse stock split.
(b) The Company's Business.
(i) Overview.
The Company owns and operates an Internet portal that broadcasts
"streaming" radio station programming 24 hours a day, seven days a week through
the World Wide Web (the "Web"). Visitors to the Company's Web site use their
computers to listen to live, uninterrupted radio programming from more than 84
radio stations across the United States free of charge. The Company's audience
benefits from the ability to receive local radio programming online (without the
use of a traditional radio) and outside the listener's geographic area, allowing
users to select from dozens of stations and formats. While listening to the
Company's radio programming, users can continue to perform other tasks on their
computers.
Radio stations that join the Company's Web site deliver continuous, live
audio feeds to the Company's servers through the use of a dedicated computer, a
dedicated Internet connection and a soundboard connection. The Company has
developed a unique barter arrangement with the radio stations available on its
Web site. In exchange for continuously streaming the station's programming live
over the Internet and providing each station with its own informational site on
the Company's Web site, the Company receives two minutes of prime time
advertising time per day. In addition, the Company has entered into licensing
agreements with Broadcast Music, Inc. ("BMI") and the American Society of
Composers, Authors and Publishers ("ASCAP"), whereby the Company has agreed to
assume all Internet license and royalty fees traditionally paid by radio
stations for each song they broadcast. Instead, the Company assumes
responsibility for the license and royalty fees based upon a percentage of the
Company's gross revenues, in the case of the BMI agreement, and a flat license
fee, in the case of the ASCAP agreement. The Company believes that this is the
only such arrangement of its kind and that it affords the Company a distinct
advantage over its competitors who must pass along additional licensing and
royalty fees to radio stations. The Company earns revenue by reselling the
advertising time it receives from the radio stations on its Web site and by
selling banner and other promotional advertisements on its Web site.
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(ii) Industry Background.
The Internet has grown rapidly in recent years, spurred by developments
such as easy-to-use Web browsers, the availability of multimedia personal
computers ("PCS") and the emergence of compelling Web-based content and commerce
applications. The broad acceptance of the Internet Protocol standard has also
led to the emergence of intranets and the development of a wide range of non-PC
devices that allow users to access the Internet and intranets. International
Data Corporation ("IDC"), an independent Internet market research firm, expects
the number of Internet users to grow 29% per year from approximately 142 million
worldwide in 1998 to exceed 500 million by the end of 2003. In 1998,
approximately 150 million devices were used to access the Internet. By the year
2002, IDC estimates that the number of Internet devices is expected to increase
to more than 720 million, a compound annual growth rate of 37%. A number of
factors are expected to fuel the growth of the Internet, including: (a) the
increasing number of computers installed in homes and offices, (b) the
decreasing cost of computers, (c) lower cost and more efficient Internet access,
(d) improving network infrastructure, (e) expanding Internet content, and (f)
increasing familiarity with and acceptance of the Internet as a resource for
consumers and businesses.
The Internet has quickly evolved from a relatively simple mechanism for the
delivery of text-based Web pages and electronic mail to a multimedia platform,
providing an interactive world of information, entertainment and commerce. The
resulting convergence of every day computer applications with communication,
entertainment and commerce platforms permits the Internet to deliver content in
such areas as music, sports, games, hobbies and shopping opportunities. The
development of streaming audio media, a new technology that permits the
simultaneous transmission and playback of digitized audio streams, allows the
Internet to broadcast music, information, advertising and other content to
hundreds of thousands of simultaneous listeners worldwide. Streaming audio
combines the Internet's interactivity with traditional, more passive radio
listening. According to a study performed in January 1999 by The Arbitron
Company, 27% of Internet users have listened to Internet radio. The development
of the Internet as a broadcast medium suggests a comparison to traditional
radio.
Broadcasting audio content over the Internet offers certain opportunities
that are not generally available from traditional media. Currently available
analog technology and government regulations limit the ability of radio stations
to broadcast beyond certain geographic areas. Radios are not widely used in
office buildings and other workplaces, where Internet access has become
commonplace. Through the Internet, audio programming can be delivered to a large
number of computer users who can listen to music from the broadcaster's Internet
site while working on other applications. Moreover, Internet users can interact
with the broadcast content by responding to advertising, voting in polls and
obtaining additional information.
In addition, atmospheric conditions and physical barriers can interfere
with traditional radio transmissions. By contrast, Internet broadcasters
transmit music and information using audio streaming technology, which has
inherent advantages over traditional radio broadcasts, such as permitting the
continuous transmission of music to a virtually unlimited geographic region.
Because audio streams are transmitted in digitized form over telephone lines,
they are unaffected by atmospheric or structural barriers. They may, however, be
limited by Internet congestion and other factors unique to Internet traffic,
such as a user's or broadcaster's computer hardware or software. At times when
bandwidth is not available, Internet audio quality may not be as clear as
traditional broadcast radio. However, as bandwidth increases, Internet audio
quality is expected to improve and become comparable to, or even better than,
the quality of traditional broadcast radio.
In addition, traditional broadcasters are limited in their ability to
measure or identify in real time the listeners of a program because they
typically rely upon reports from companies, such as The Arbitron Company, that
use statistical sampling methods to determine the size and demographic profile
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of the station's audience. As a result, traditional radio broadcasts generally
must appeal to a broad spectrum of listeners to capture the widest possible
market for their advertising. These companies periodically capture information
regarding listening habits from a cross section of the market and then estimate
the popularity of competing radio stations in the market. Web site audience
traffic measurements, by contrast, are not limited to statistical sampling and
can provide a more reliable measurement of listener traffic. Web sites or
servers communicate and respond to incoming requests from Internet users. These
servers can record listener and audience information on server log files and
provide current and exact measurements of the number of listeners and the length
of time listeners spend on a Web site. Internet broadcasters can provide highly
specific information about a program's audience to content providers and
advertisers. By using the Internet, targeted streaming audio content can be
broadcast to a geographically dispersed audience of customers, suppliers,
employees and stockholders at relatively low costs.
In short, the convergence of the Internet's capabilities and attributes has
accelerated the demand for live audio programming, leading to rapidly growing
economic opportunities in Web-based broadcasting.
(iii) The Company's Competition.
Competition among Web sites that broadcast streaming audio content is
intense and is expected to increase significantly in the future. The Company
competes with Internet Service Providers ("ISPs"), radio stations and networks
that aggregate audio content as well as originate their own Internet broadcasts.
The Company expects competition to intensify and the number of competitors to
increase significantly in the future. Because the operations and strategic plans
of existing and future competitors are undergoing rapid change, it is extremely
difficult for the Company to anticipate which companies are likely to offer
competitive services in the future. The Company also competes with online
services, other Web site operators and advertising networks, as well as
traditional media such as television, radio and print for a share of
advertisers' total advertising budgets. The Company believes that the principal
competitive factors for attracting advertisers include the number of users
accessing the Company's Web site, the demographics of the Company's users, the
Company's ability to deliver focused advertising and interactivity through its
Web site and the overall cost-effectiveness and value of the advertising offered
by the Company.
(iv) The Company's Strategy.
The Company believes that in order to achieve success as an Internet audio
broadcaster it must cost-effectively aggregate diverse and compelling content,
implement a network capable of streaming audio programming to large audiences 24
hours a day, seven days a week, enhance brand awareness and develop an
attractive, heavily trafficked advertising platform. The Company believes that
it is able to rapidly and cost-effectively identify and secure licensing
opportunities by entering into barter relationships with radio stations. By
providing broadcasters with royalty-free, continuous audio streaming to hundreds
of thousands of Internet listeners in exchange for two minutes of prime time
advertising per day, the Company is able to eliminate many of the barriers the
Company believes prevent most radio stations from broadcasting on the Internet.
Continuously streaming audio over the Internet is extremely capital- and
time-intensive and thus an unattractive and infeasible option for most radio
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stations. Indeed, broadcasting audio on the Internet requires that radio
stations design, develop, integrate and maintain complex network elements,
including extensive bandwidth, streaming licenses, equipment and technical
expertise. The Company's licensing program, however, allows broadcasters and
their advertisers to reach a vast and diverse audience without expending any
capital or labor whatsoever.
The Company has developed and implemented an extensive streaming audio
aggregation and distribution network designed to ensure the broadcast quality of
the content received from broadcasters and distributed to users. The Company is
capable of simultaneously receiving audio content from hundreds of broadcasters
through Internet network connections to the Company's servers. The audio streams
are constantly monitored for quality through buffering software contained on the
Company's servers and encoded prior to distribution. The Company employs
multicasting technology to transmit streaming audio to the Internet where
listeners access the broadcast through their own network connections. This
network is designed to efficiently and securely broadcast live audio programming
to a virtually unlimited audience.
In order to augment the number of radio stations available on its Web site
and expand its broadcast audience, the Company currently utilizes a majority of
the advertising it receives under licensing agreements with radio stations to
promote the Company's brand name. The Company believes that this is a
cost-effective means by which to enhance brand awareness, increase demand for
the Company's service and attract advertisers. By demonstrating to broadcasters
and advertisers the Company's broad-based distribution and the ability to
deliver associated traffic, the Company believes that its Web site provides an
attractive platform for broadcasters and advertisers seeking to target specific
users with rich, compelling content and advertising solutions.
(v) Employees.
As of the date hereof, the Company has thirteen full-time employees and one
part-time employee.
(c) Reports to Security Holders.
As a result of its filing of this Form 10-SB, the Company will become
subject to reporting obligations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These obligations include an annual report under
cover of Form 10-KSB, with audited financial statements, unaudited quarterly
reports and the requisite proxy statements with regard to annual shareholder
meetings. The public may read and copy any materials the Company files with the
Securities and Exchange Commission (the "Commission") at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information of the operation of the Public Reference Room by calling the
Commission at 1-800- SEC-0030. The Commission maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
RISK FACTORS
In addition to the other information contained in this Registration
Statement, the following risk factors should be considered carefully before
investing in the Company. This Registration Statement contains forward-looking
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statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below.
Limited Operating History; History of Losses; Negative Net Worth and
Anticipation of Future Losses. The Company commenced its operations in March
1999 and expects a net loss for the foreseeable future. As of August 31, 1999,
the Company had an accumulated deficit of $352,438 and a negative net worth of
$348,446. Accordingly, the Company has a limited operating history on which to
base an evaluation of its business and prospects. The Company and its prospects
must be considered in light of the risks, difficulties and uncertainties
frequently encountered by companies in an early stage of development,
particularly companies in new and rapidly evolving markets such as the market
for Internet broadcasting, business services and advertising. To achieve and
sustain profitability, the Company believes it must, among other things, (i)
provide compelling and unique content to Internet users, (ii) effectively
develop new and maintain existing relationships with advertisers and
broadcasters, (iii) continue to develop and upgrade its technology and network
infrastructure, (iv) respond to competitive developments, (v) successfully
introduce enhancements to its existing products and services to address new
technologies and standards, (vi) effectively sell its inventory of radio ad
spots and (vii) attract, retain and motivate qualified personnel. There can be
no assurance that the Company will be successful in addressing these risks, and
failure to do so could have a material adverse effect on the Company's business,
results of operations and financial condition. Additionally, the limited
operating history of the Company makes the prediction of future operating
results difficult or impossible. The Company expects to continue to incur
significant losses on a quarterly and annual basis for the foreseeable future.
For these and other reasons, there can be no assurance that the Company will
ever achieve profitability or, if profitability is achieved, that it can be
sustained. See "Financial Statements" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Unpredictability of Future Revenues; Increase in Operating Expenses;
Potential Fluctuations in Quarterly Operating Results. Because of the Company's
limited operating history and the emerging nature of the markets in which it
competes, the Company is unable to forecast accurately its revenues. The market
for the Company's services and the long-term acceptance of Web-based advertising
are uncertain. The Company currently intends to increase substantially its
operating expenses in order to, among other things, (i) expand its distribution
network capacity, (ii) fund increased sales and marketing activities, (iii)
acquire additional content, (iv) develop and upgrade technology and (v) purchase
equipment for its operations. The Company's expense levels are based, in part,
on its expectations with regard to future revenues, and to a large extent such
expenses are fixed, particularly in the short term. To the extent the Company is
unsuccessful in increasing its revenues, the Company may be unable to
appropriately adjust spending in a timely manner to compensate for any
unexpected revenue shortfall or will have to reduce its operating expenses,
causing it to forego potential revenue generating activities, either of which
could cause a material adverse effect in the Company's business, results of
operations and financial condition. The Company's quarterly operating results
may fluctuate significantly in the future as a result of a variety of factors,
many of which are outside the Company's control. Factors that may affect the
Company's quarterly operating results include (i) the cost of acquiring and the
availability of content, (ii) demand for Internet advertising, (iii) seasonal
trends in Internet and advertising placements, (iv) the advertising cycles for,
or the addition or loss of, individual advertisers, (v) the level of traffic on
the Company's Web site, (vi) the amount and timing of capital expenditures and
other costs relating to the expansion of the Company's operations, (vii) price
competition or pricing changes in Internet broadcasting services and in Internet
advertising, (viii) the level of and seasonal trends in the use of the Internet,
(ix) technical difficulties or system downtime, (x) the cost to acquire
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sufficient bandwidth or to integrate efficient broadcast technologies, such as
multicasting, to meet the Company's needs, (xi) the introduction of new products
or services by the Company or its competitors and (xii) general economic
conditions and economic conditions specific to the Internet, such as electronic
commerce and online audio. Any one of these factors could cause the Company's
revenues and operating results to vary significantly in the future. In addition,
as a strategic response to changes in the competitive environment, the Company
may from time to time make certain pricing, service or marketing decisions or
acquisitions that could cause significant declines in the Company's quarterly
operating results.
The Company believes that advertising sales in traditional media, such as
radio, generally are lower in the first and third calendar quarters of each
year, and that advertising expenditures fluctuate significantly with economic
cycles. Depending on the extent to which the Internet is accepted as an
advertising medium, seasonality and cyclicality in the level of Internet
advertising expenditures could become more pronounced than it is currently. As a
result, the Company believes that its revenues from Web advertising sales have
been affected by these cyclical factors and the Company expects its Web
advertising sales generally to follow the quarterly trends of traditional media
advertising. The foregoing factors could have a material adverse effect on the
Company's business, results of operations and financial condition.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore, it is possible that the Company's operating results in one or more
quarters will fail to meet the expectations of securities analysts or investors.
In such event, the price of the Common Stock could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Reliance on Barter Arrangements; Possible Inability to Recognize Revenue.
The Company intends to barter its streaming services to radio stations in
exchange for advertising time on the radio stations. Thereafter, the Company
intends to sell the advertising time to third party advertisers. There can be no
assurance that the Company will be able to sell the bartered advertising time,
in which event the Company's cash flow, revenue and earnings, if any, will be
negatively effected.
Dependence on Radio Stations and Performance Rights Societies for Content;
NonExclusive Rights. The Company's future success depends in large part upon its
ability to aggregate and deliver streaming audio broadcast from radio stations
over the Internet. Accordingly, the Company relies on radio stations to provide
its content. The Company's ability to maintain its existing relationships with
radio stations and to build new relationships with radio stations is critical to
the success of its business. Although many of the Company's agreements with
radio stations are for initial terms of more than one year, the radio stations
may choose not to renew such agreements or may terminate such agreements prior
to the expiration of their terms if the Company fails to fulfill its contractual
obligations. The Company's inability to secure licenses from radio stations or
performance rights societies, such as BMI or ASCAP, or the termination of a
significant number of radio station agreements would decrease the availability
of content that the Company can offer users. This may result in decreased
traffic on the Company's Web site and, as a result, decreased advertising
revenue, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
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The Company's agreements with certain of its radio stations are
nonexclusive, allowing many of the Company's competitors the ability to offer
the same content now offered by the Company from such nonexclusive radio
stations. Such direct competition could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Competition."
License fees payable to radio stations, performance rights societies and
other licensing agencies may increase in the future. There can be no assurance
that the radio stations, performance rights societies and other licensing
agencies will enter into agreements with the Company on terms acceptable to it.
If the Company is required to pay increased licensing fees, such increased
payments could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Government Regulation and Legal
Uncertainty."
Uncertain Acceptance of Streaming Audio Technology. The Company's success
depends on the market acceptance of streaming audio technology provided by
companies such as Microsoft Corporation ("Microsoft"). Prior to the advent of
streaming technology, Internet users could not initiate the playback of audio
clips until such content was downloaded in its entirety, resulting in
significant waiting times. As a result, live broadcasts of audio content over
the Internet or intranets were not possible. Early streaming audio technology
suffered from poor audio quality. In addition, congestion over the Internet and
packet loss may interrupt audio streams, resulting in unsatisfying user
experiences. In order to receive streamed audio adequately, users generally must
have multimedia PCS with certain microprocessor requirements and at least 28.8
kbps Internet access and streaming audio software. Users typically
electronically download such software and install it on their PCS. Such
installation may require technical expertise that some users do not possess. In
addition, older versions of certain Web browsers may need to be reconfigured in
order to receive streaming audio from the Company's Web site. Furthermore, in
order for users to receive streaming media over corporate intranets, information
systems managers may need to reconfigure such intranets. Because of bandwidth
constraints on corporate intranets, some information systems managers may block
reception of streamed audio. Widespread adoption of streaming audio technology
depends on overcoming these obstacles, improving audio quality and educating
customers and users in the use of streaming audio technology. If streaming audio
technology fails to achieve broad commercial acceptance or such acceptance is
delayed, the Company's business, results of operations and financial condition
could be materially adversely affected. See "Competition."
Uncertain Acceptance of the Internet as an Advertising Medium. The market
for Internet advertising has only recently begun to develop, is rapidly evolving
and is characterized by an increasing number of market entrants. As is typical
in the case of a new and rapidly evolving industry, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty. The Company's ability to generate advertising revenue will depend
on, among other factors, (i) the development of the Internet as an advertising
medium, (ii) pricing of advertising on other Web sites, (iii) the amount of
traffic on the Company's Web site, (iv) the Company's ability to achieve and
demonstrate user and member demographic characteristics that are attractive to
advertisers, (v) the development and expansion of the Company's advertising
sales force and (vi) the establishment and maintenance of desirable advertising
sales agency relationships. Most potential advertisers and their advertising
agencies have only limited experience with the Internet as an advertising medium
and have not devoted a significant portion of their advertising expenditures to
Web-based advertising. There can be no assurance that advertisers or advertising
agencies will be persuaded to allocate or continue to allocate portions of their
budgets to Web-based advertising or, if so persuaded, that they will find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. No standards have yet been widely
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accepted for the measurement of the effectiveness of Web-based advertising, and
there can be no assurance that such standards will develop sufficiently to
enable Web-based advertising to become a significant advertising medium.
Acceptance of the Internet among advertisers and advertising agencies will also
depend, to a large extent, on the level of use of the Internet by consumers and
upon growth in the commercial use of the Internet. If widespread commercial use
of the Internet does not develop, or if the Internet does not develop as an
effective and measurable medium for advertising, the Company's business, results
of operations and financial condition could be materially adversely affected.
Management of Growth. The Company has rapidly and significantly expanded
its operations and anticipates that significant expansion of its operations will
continue to be required in order to address potential market opportunities. The
Company expanded from two employees in March 1999, to thirteen employees by
September 1999, and the Company expects to increase its personnel significantly
in the near future. The Company's recent growth has placed, and is expected to
continue to place, a significant strain on its managerial, operational and
financial resources and systems. To manage its growth, the Company must
implement, improve and effectively utilize its operational, management,
marketing and financial systems and train and manage its employees. Many of the
Company's senior management have only recently joined the Company. These
individuals have not previously worked together and are in the process of
integrating as a management team. There can be no assurance that the Company
will be able to effectively manage the expansion of its operations or that the
Company's current personnel, systems, procedures and controls will be adequate
to support the Company's operations. Any failure of management to manage
effectively the Company's growth could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Dependence on Key Personnel; Need for Additional Personnel."
Risk of System Failure, Delays and Inadequacy; Single Site. The
performance, reliability and availability of the Company's Web site and network
infrastructure are critical to its reputation and ability to attract and retain
users, advertisers and content providers. All of the Company's network
infrastructure is located at a single, leased facility in Greenwood Village,
Colorado. The Company's systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, Internet
breakdowns, break-ins, tornadoes and similar events. The Company does not
presently have redundant facilities or systems or a formal disaster recovery
plan and does not carry sufficient business interruption insurance to compensate
it for losses that may occur. Services based on sophisticated software and
computer systems often encounter development delays and the underlying software
may contain undetected errors that could cause system failures when introduced.
Any system error or failure that causes interruption in availability of content
or an increase in response time could result in a loss of potential or existing
business services customers, users, advertisers or content providers and, if
sustained or repeated, could reduce the attractiveness of the Company's Web site
to such entities or individuals. In addition, because the Company's Web
advertising revenues are directly related to the number of advertisements
delivered by the Company to users, system interruptions that result in the
unavailability of the Company's Web site or slower response times for users
would reduce the number of advertisements delivered and reduce revenues.
A sudden and significant increase in traffic on the Company's Web site
could strain the capacity of the software, hardware and telecommunications
systems deployed or utilized by the Company, which could lead to slower response
times or system failures. The Company's operations also are dependent upon
receipt of timely feeds from its content providers, and any failure or delay in
the transmission or receipt of such feeds, whether due to system failure of the
Company, its content providers or otherwise, could disrupt the Company's
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operations. The Company is also dependent upon Web browsers, ISPs and online
service providers ("OSPs") to provide Internet users access to the Company's Web
site. Users may experience difficulties accessing or using the Company's Web
site due to system failures or delays unrelated to the Company's systems. These
difficulties may negatively affect audio quality or result in intermittent
interruption in programming. In addition, the Company relies on third party ISPs
to provide hosting services with respect to some of the Company's content
providers. Any sustained failure or delay could reduce the attractiveness of the
Company's Web site to users, advertisers and content providers. The occurrence
of any of the foregoing events could have a material adverse effect on the
Company's business, results of operations and financial condition.
Security Risks. Despite the implementation of security measures, the
Company's networks may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. A party who is able to circumvent security
measures could misappropriate proprietary information or cause interruptions in
the Company's Internet operations. ISPs and OSPs have in the past experienced,
and may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. The Company may be required to expend significant capital
or other resources to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Although the Company intends to
continue to implement and utilize security measures, there can be no assurance
that measures implemented by the Company will not be circumvented in the future.
Eliminating computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to users accessing the Company's
Web site, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
Competition. The market for Internet broadcasting and services is highly
competitive and the Company expects that competition will continue to intensify.
The Company competes with (i) other Web sites, Internet portals and Internet
broadcasters to acquire and broadcast streaming audio and to attract users and
(ii) online services, other Web site operators and advertising networks, as well
as traditional media such as television, radio and print, for a share of
advertisers' total advertising budgets. There can be no assurance that the
Company will be able to compete successfully or that the competitive pressures
faced by the Company, including those described below, will not have a material
adverse effect on the Company's business, results of operations and financial
condition. Most competitors have larger and more established sales organizations
than the Company, greater name recognition and more established relationships
with advertisers and advertising agencies than the Company. Such competitors may
be able to undertake more extensive marketing campaigns, obtain a more
attractive inventory of ad spots, adopt more aggressive pricing policies and
devote substantially more resources to selling advertising inventory. The
Company believes that the number of companies selling Web-based advertising and
the available inventory of advertising space have recently increased
substantially. Accordingly, the Company may face increased pricing pressure for
the sale of advertisements. Reduction in the Company's Web advertising revenues
would have a material adverse effect on the Company's business, results of
operations and financial condition.
Risks Associated with Traditional Media Advertising Sales. The Company is
dependent, in part, on its ability to sell its inventory of radio ad spots
obtained from stations in exchange for the Company's Internet broadcast of their
programming. Selling radio advertising is highly competitive. The Company
depends on WinStar Global Media, Inc. ("WinStar") to sell a majority of its
radio ad spots. The Company's traditional media advertising sales efforts are
focused on selling ads to traditional national advertisers in order to avoid
competing with advertising sales efforts of its local radio station content
providers. Sales of ad spots to national advertisers are typically sold at a
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lower cost per thousand ("CPM") than local advertising. The Company competes for
traditional audio advertising sales with national radio stations. National radio
networks typically have larger and more established sales organizations as
compared to those of the Company. There can be no assurance that WinStar will
continue to sell effectively the Company's inventory of ad spots or that
competitive pressures with respect to traditional media advertising sales will
not have a material adverse effect on the Company's business, results of
operations and financial condition.
Dependence on Providers of Streaming Audio Products. The Company relies on
providers of streaming audio products, such as Microsoft, to provide a broad
base of users with streaming audio software. The Company currently licenses
software products that enable the broadcast of streaming audio from such
companies and others. The Company may need to acquire additional licenses from
such streaming audio companies to meet its future needs. Users are currently
able to download electronically copies of the Microsoft's Media Player and Real
Networks' RealPlayer software free of charge. If providers of streaming audio
products substantially increase license fees charged to the Company for the use
of their products, refuse to license such products to the Company or begin
charging users for copies of their player software, such actions could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Dependence on Continued Growth in Use of the Internet and Streaming Audio
Content on the Internet. Rapid growth in use of and interest in the Internet is
a recent phenomenon and there can be no assurance that acceptance and use of the
Internet will continue to develop or that a sufficient base of users will emerge
to support the Company's business. Future revenues of the Company will depend
largely on the widespread acceptance and use of the Internet as a source of
multimedia information and entertainment and as a vehicle for commerce in goods
and services. The Internet may not be accepted as a viable commercial medium for
broadcasting audio content, if at all, for a number of reasons, including (i)
potentially inadequate development of the necessary infrastructure, (ii)
inadequate development of enabling technologies, (iii) lack of acceptance of the
Internet as a medium for distributing streaming media content and (iv)
inadequate commercial support for Web-based advertising. To the extent that the
Internet continues to experience an increase in users, an increase in frequency
of use or an increase in the bandwidth requirements of users, there can be no
assurance that the Internet infrastructure will be able to support the demands
placed upon it. Furthermore, user experiences on the Internet are affected by
access speed.
Risk of Technological Change. The market for Internet broadcast services is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The emerging character of these
products and services and their rapid evolution will require the Company to
effectively use leading technologies, continue to develop its technological
expertise, enhance its current services and continue to improve the performance,
features and reliability of its network infrastructure. Changes in network
infrastructure, transmission and content delivery methods and underlying
software platforms and the emergence of new broadband technologies, such as xDSL
and cable modems, could dramatically change the structure and competitive
dynamic of the market for streaming media solutions. In particular,
technological developments or strategic partnerships that accelerate the
adoption of broadband access technologies or advancements in streaming and
compression technologies may require the Company to expend resources to address
these developments. There can be no assurance that the Company will be
successful in responding quickly, cost effectively and sufficiently to these or
other such developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by the Company
to modify or adapt its Web site and services. A failure by the Company to
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<PAGE>
rapidly respond to technological developments could have a material adverse
effect on the Company's business, results of operations and financial condition.
Dependence on Key Personnel; Need for Additional Personnel. The Company's
performance and development is substantially dependent on the continued services
of certain members of senior management, including Denise A. Sutton, Chief
Executive Officer, and Gregory J. Liptak, President, as well as on the Company's
ability to retain and motivate its other officers and key employees. The Company
does not have "key person" life insurance policies on any of its officers or
other employees. The Company's future success also depends on its continuing
ability to attract and retain highly qualified technical personnel and
management. Competition for such personnel is intense and there can be no
assurance that the Company will be able to retain its key management and
technical employees or that it will be able to attract or retain additional
qualified technical personnel and management in the future. The inability to
attract and retain the necessary technical personnel and management could have a
material adverse effect upon the Company's business, result of operations and
financial condition.
Government Regulation and Legal Uncertainty. Although there are currently
few laws and regulations directly applicable to the Internet, it is likely that
new laws and regulations will be adopted in the United States and elsewhere
covering issues such as music licensing, broadcast license fees, copyrights,
privacy, pricing, sales taxes and characteristics and quality of Internet
services. The adoption of restrictive laws or regulations could slow Internet
growth or expose the Company to significant liabilities associated with content
available on its Web site. The application of existing laws and regulations
governing Internet issues such as property ownership, libel and personal privacy
is also subject to substantial uncertainty. There can be no assurance that
current or new government laws and regulations, or the application of existing
laws and regulations (including laws and regulations governing issues such as
property ownership, content, taxation, defamation and personal injury), will not
expose the Company to significant liabilities, significantly slow Internet
growth or otherwise cause a material adverse effect on the Company's business,
results of operations or financial condition.
In November 1995, the Digital Performance Right in Sound Recordings Act of
1995 (the "Sound Recordings Act") was enacted. The Sound Recordings Act provides
that the owners of sound recordings have certain exclusive performance rights in
such recordings, and, if applicable to the Company, could require the Company to
pay additional licensing fees for its broadcasts. The Company believes, however,
that its broadcasts are exempt from such fees under the Sound Recordings Act. No
assurance, however, can be given that the Company's belief is correct,
particularly because the Sound Recordings Act has not yet been sufficiently
interpreted. An interpretation of the Sound Recordings Act on this or other
provisions of the Act that is adverse to the Company, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company currently does not collect sales or other taxes with respect to
the sale of services or products in states and countries where the Company
believes it is not required to do so. One or more states or countries have
sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more states or countries that the Company should collect sales or other taxes on
products and services, or remit payment of sales or other taxes for prior
periods, could have a material adverse effect on the Company's business, results
of operations and financial condition.
The Communications Decency Act of 1996 (the "CDA") was enacted in 1996.
Although those sections of the CDA that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over the
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<PAGE>
Internet were held to be unconstitutional by the U.S. Supreme Court, there can
be no assurance that similar laws will not be proposed and adopted. Although the
Company does not currently distribute the types of materials that the CDA may
have deemed illegal, the nature of such similar legislation and the manner in
which it may be interpreted and enforced cannot be fully determined, and
legislation similar to the CDA could subject the Company to potential liability,
which in turn could have an adverse effect on the Company's business, financial
condition and results of operations. Such laws could also damage the growth of
the Internet generally and decrease the demand for the Company's products and
services, which could adversely affect the Company's business, results of
operations and financial condition.
Although the Company will be subject to regulation under the Securities Act
of 1933 and the Securities Exchange Act of 1934, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940
insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company will be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940, and consequently, any violation of such Act will
subject the Company to material adverse consequences.
Liability for Internet Content. As a distributor of Internet content, the
Company faces potential liability for negligence, copyright, patent, trademark,
defamation, indecency and other claims based on the nature and content of the
materials that it broadcasts. Such claims have been brought, and sometimes
successfully pressed, against Internet content distributors. In addition, the
Company could be exposed to liability with respect to the content or
unauthorized duplication or broadcast of content. The Company is currently in
the process of obtaining general liability insurance. However, when such
insurance is in place it may not cover potential claims of this type or may not
be adequate to indemnify the Company for all liability that may be imposed. In
addition, although the Company generally requires its content providers to
indemnify the Company for such liability, such indemnification may be
inadequate. Any imposition of liability that is not covered by insurance, is in
excess of insurance coverage or is not covered by an indemnification by a
content provider could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Government Regulation and
Legal Uncertainty."
Control by Certain Stockholders. The Company's directors and executive
officers beneficially own approximately 73% of the outstanding Common Stock. As
a result, these stockholders, if they act as a group, will have a significant
influence on all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. Such ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Security Ownership of Certain Beneficial Owners and Management."
Certain Anti-Takeover Provisions. Certain provisions of the Company's
Articles of Incorporation (the "Articles") and Bylaws, as amended (the "Bylaws")
will have the effect of delaying, deferring or preventing a change of control of
the Company. There are no preemptive rights in connection with the Company's
Common Stock. Cumulative voting in the election of directors is not allowed.
Accordingly, the holders of a majority of the shares of Common Stock, present
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<PAGE>
in person or by proxy, will be able to elect all of the Company's Board of
Directors. These provisions provide, among other things, that the Board of
Directors will be divided into three classes to serve staggered three-year terms
following the first annual meeting after a public offering, that stockholders
may not take actions by written consent and that the ability of stockholders to
call special meetings will be restricted. The Company's indemnification
agreements with directors and officers, the Company's Articles and Bylaws
provide that the Company will indemnify officers and directors against losses
that they may incur in investigations and legal proceedings resulting from their
services to the Company, which may be broad enough to include services in
connection with takeover defense measures. Such provisions may have the effect
of preventing changes in the management of the Company.
Year 2000 Compliance. There are issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex, as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is in the process of working with its software vendors to
assure that the Company is prepared for the year 2000. The Company has not
verified that companies doing business with it are year 2000 compliant. The
Company does not anticipate that it will incur significant operating expenses or
be required to invest heavily in computer systems improvements to be year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any year 2000 compliance. Any year 2000
compliance problem of either the Company or its users, customers or advertisers
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Penny Stock Disclosure. The Commission has adopted rules that define a
"penny stock" as equity securities under $5.00 per share which are not listed
for trading on Nasdaq (unless the issuer (i) has a net worth of $2,000,000 if in
business for more than three years or $5,000,000 if in business for less than
three years or (ii) has had average annual revenues of $6,000,000 for the prior
three years). The Company's securities are characterized as penny stock, and
therefore broker-dealers dealings in the securities are subject to the
disclosure rules of transactions involving penny stock which require the
broker-dealer, among other things, to (i) determine the suitability of
purchasers of the securities and obtain the written consent of purchasers to
purchase such securities and (ii) disclose the best (inside) bid and offer
prices for such securities and the price at which the broker-dealer last
purchased or sold the securities. The additional requirements imposed upon
broker-dealers discourage them from engaging in transactions in penny stocks,
which reduces the liquidity of the Company's securities.
No Dividends Anticipated. At the present time the Company does not
anticipate paying dividends, cash or otherwise, on its Common Stock in the
foreseeable future. Future dividends will depend on earnings, if any, of the
Company, its financial requirements and other factors. Investors who anticipate
the need of an immediate income from their investment in the Company's Common
Stock should refrain from the purchase of the Company's securities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS.
The following discussion of the Company's financial condition and results
of operations for the period from March 16, 1999 (inception) to August 31, 1999
should be read in conjunction with the Company's financial statements, the notes
related thereto and the other financial data included elsewhere in this
Registration Statement.
14
<PAGE>
Results of Operations
The Company is a development stage company that commenced operations on
March 16, 1999. The Company's operations to date have been limited to organizing
the Company, raising operating capital, hiring initial employees and preparing
the Company's business plan. For this reason, the Company's results of
operations will not have comparable data for previous years.
Since inception on March 16, 1999, the Company hired its current management
and employees, raised working capital for development and operations and
launched the Company's Web site. The Company has no revenue to date, but has
incurred approximately $344,459 of operating losses for the period ended August
31, 1999.
During the period from March 16, 1999 (inception) to August 31, 1999, the
Company's $344,459 operating loss was comprised primarily of the following:
o $36,000 for advertising and marketing expenses, which primarily
included industry publications.
o $199,000 for general and administrative expenses, which primarily
included $144,000 for salaries and related expenses, $22,000 for
professional fees and $33,000 for other office and related expenses.
o $67,000 for product and content development expenses, which primarily
included $45,000 for Internet service costs and the Company's BMI and
ASCAP Internet licenses.
Liquidity and Capital Resources
The Company anticipates that in the near term it will incur significant
continuing losses due to ongoing substantial operating expenses offset by
negligible revenue. The Company currently barters an average of two minutes of
advertising inventory per day Monday through Sunday with each contracted radio
station that uses the Company's streaming services. Although the Company entered
into an agreement with WinStar Global Media, Inc. in October 1999 to represent
the Company in reselling its advertising inventory, the Company does not expect
to realize significant revenue in 1999. Rather, the Company has used its earned
advertising inventory to promote its Web site and intends to continue to do so
until it has accumulated enough advertising inventory to be marketable to
national advertisers.
Currently, the Company has commitments under non-cancelable operating
leases for office facilities requiring payments from September 1, 1999 through
October 31, 1999 of $11,342, from November 1, 1999 through October 31, 2000 of
$68,052 and from November 1, 2000 through October 31, 2001 of $69,132.
Since inception, the Company has received $550,000 to fund operations from
the issuance of convertible promissory notes. During the period from March 16,
1999 (inception) to August 31, 1999, the Company incurred interest expense of
$7,979 on these convertible promissory notes.
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<PAGE>
The Company expects to incur significantly higher costs, particularly
marketing and advertising costs, products content and development costs, general
and administrative costs and additional technology and equipment purchase costs
during the remainder of the calendar year in order to expand the Company's
business. The Company expects to expend the largest portion of existing capital
on increasing the Company's technical staff, adding key management level
employees and purchasing additional technology and equipment. The Company
believes that its current capitalization will be sufficient to meet the
Company's working capital and capital expenditure needs for the next six months.
The Company may, however, need additional funds to respond to competitive
pressures or to acquire complementary products, features or technologies.
Year 2000 Issue
The Company depends on the delivery of information over the Internet, a
medium which is susceptible to the "Year 2000 Issue." The "Year 2000 Issue" is
typically the result of limitations of certain software written using two digits
rather than four to define the applicable year. If software with date-sensitive
functions is not Year 2000 compliant, it may recognize a date using "00" as the
year 1900 rather than the year 2000. The Year 2000 Issue could result in system
failure or miscalculations causing significant disruption to the Company's
operations, including, among other things, interruptions in Internet traffic,
accessibility of the Company's Web site, delivery of streaming audio or other
features of the Company's services. It is possible that this disruption will
continue for an extended period of time.
The Company depends on information contained primarily in electronic format
in databases and computer systems maintained by third parties and the Company.
The disruption of third party systems or the Company's systems interacting with
these third party systems could prevent the Company from delivering streaming
audio in a timely matter which could have a material adverse effect on the
Company's business and results of operations.
The Company has assessed its information technology equipment and systems,
which includes its development servers, workstations and production server
monitoring software. The Company also uses multiple software systems for
internal business purposes, including e-mail, office software and word
processing. All of the Company's equipment and software has been purchased in
the last six months. The Company does not believe that its systems contain Year
2000 deficiencies. However, the Company is currently conducting its own tests to
determine to what extent software running on any of the Company's hardware
platforms fails to properly recognize Year 2000 dates.
The Company has identified and assessed non-information technology embedded
systems such as its telephone system and voice mail and the Company believes
that such systems do not present Year 2000 Issues.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company subleases 2,709 square feet of office space from Webster Audio
Products, Inc., an affiliate of the Company, at 6535 South Dayton Street, Suite
3000, Greenwood Village, CO 80111. The Company currently pays $5,671 per month
for the office space on a lease which expires on October 31, 2001. The Company
believes the terms of the lease are fair, reasonable and consistent with terms
offered by non-affiliated companies in the same market area.
The Company owns no property.
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<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the Common Stock ownership of (i) each
person known by the Company to be the beneficial owner of five percent or more
of the Company's Common Stock, (ii) each director individually and (iii) all
officers and directors of the Company as a group as of September 30, 1999. Each
person has sole voting and investment power with respect to the shares of Common
Stock shown, and all ownership is of record and beneficial. The address of each
owner is in care of the Company at 6535 South Dayton Street, Suite 3000,
Greenwood Village, CO 80111.
Name Number of shares Percent of class
- --------------------------------------------------------------------------------
Denise A. Sutton 6,369,500 70.8%
All officers and 6,569,500 73.0%
directors as a
group (3 persons)
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company, their ages and present positions
held in the Company are as follows:
Name Age Position
- ---- --- --------
Denise A. Sutton 41 Chief Executive Officer, Secretary
and Director
Gregory J. Liptak 28 President
Jo Saari Hadley 45 Vice President
The Company's directors serve in such capacity until the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualified. The Company's officers serve at the discretion of the
Company's Board of Directors, until their death, or until they resign or have
been removed from office.
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There are no agreements or understandings for any director or officer to
resign at the request of another person and none of the directors or officers is
acting on behalf of or will act at the direction of any other person. The
activities of each director and officer are material to the operation of the
Company. No other person's activities are material to the operation of the
Company.
Denise A. Sutton - Chief Executive Officer, Secretary and Director
Ms. Sutton has served as the Company's Chief Executive Officer, Secretary
and the sole member of its Board of Directors since March 1999. From October
1995 to February 1999, Ms. Sutton managed Webster Audio Products, Inc., a radio
production company in Greenwood Village, Colorado. Ms. Sutton served as an
internal auditor for Joslins from September 1994 to August 1996 and was a Schwab
500 Representative with Charles Schwab from January 1992 to July 1994.
Gregory J. Liptak - President
Mr. Liptak has served as the Company's President since July 1999. From
March 1998 to July 1999, Mr. Liptak was a Web Consultant for RMI.Net, an
e-commerce and convergent telecommunications company in Denver, Colorado. Mr.
Liptak served as Marketing Director for the ISP Report, a Denver-based monthly
financial newsletter for the Internet service provider market from December 1997
to February 1998. From March 1994 to December 1998, Mr. Liptak was a Regional
Manager for the Sega Channel and from May 1993 to March 1994, Mr. Liptak was an
Account Executive for Telecommunications, Inc. Mr. Liptak holds a B.S. in
Business Administration - Marketing from Colorado State University.
Jo Saari Hadley - Vice President
Ms. Hadley has served as the Company's Vice President since March 1999.
From May 1997 to March 1999, Ms. Hadley was an independent contractor with
Webster Audio Products, Inc. Ms. Hadley founded and operated The Well Wisher, a
gift basket and balloon business in Denver, Colorado from August 1994 to April
1997 and was a Veterinary Technician for Centaurion Animal Hospital from January
1991 to July 1994.
ITEM 6. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth information concerning
the compensation paid to the Company's officers and directors during the
calendar years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Securities All other
Name and annual Restricted underlying compen-
principal position Year Salary Bonus compensation stock awards options sation
- ------------------ ---- ------ ----- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard Ruff, 1996 $31,577 0 0 0 0 0
President 1997 $15,000 0 0 0 0 0
1998 $ 0 0 0 0 0 0
</TABLE>
18
<PAGE>
The Company pays Denise A. Sutton, Gregory J. Liptak and Jo Saari Hadley,
the Company's executive officers, $60,000, $80,000 and $30,000, respectively. No
officer or director of the Company has received compensation in excess of
$100,000.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1998, the Company entered into an agreement with Phoenix Ink, LLC,
a company owned by a former officer and shareholder of the Company. Pursuant to
the agreement, the Company issued 4,600,000 shares of Common Stock to Phoenix in
consideration for Phoenix purchasing the assets and assuming the liabilities of
the Company and providing the Company with $50,000 in cash.
In March, 1998, the Company transferred inventory, certain fixed assets,
trademarks and other intangible assets with a book value of $143,395 to a former
consultant of the Company, in payment of $27,340 in accrued wages payable
resulting in a loss of $116,055.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par value per share, and 7,000,000 shares of Preferred Stock, $.001 par value
per share. As of September 30, 1999, 9,000,000 shares of Common were
outstanding. No Preferred Stock is currently outstanding.
(a) Common Stock.
All shares of Common Stock have equal voting rights and are not assessable.
Voting rights are not cumulative and, therefore, the holders of more than 50% of
the Common Stock could, if they chose to do so, elect all of the directors of
the Company. Upon liquidation, dissolution or winding up of the Company, the
assets of the Company, after the payment of liabilities, will be distributed pro
rata to the holders of the Common Stock. The holders of the Common Stock do not
have preemptive rights to subscribe for any securities of the Company and have
no right to require the Company to redeem or purchase their shares. The shares
of Common Stock currently outstanding are validly issued, fully paid and
non-assessable.
(b) Preferred Stock.
The Preferred Stock may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors of
the Company may determine be resolution. The rights, preferences and limitations
of separate series of preferred stock may differ with respect to such matters as
may be determined by the Board of Directors, including, without limitation, the
rate of dividends, method and nature of payment of dividends, terms of
redemption, amounts payable on liquidation, sinking fund provisions (if any),
conversion rights (if any) and voting rights.
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<PAGE>
(c) Dividends.
Holders of the Common Stock are entitled to share equally in dividends
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefore. No dividend has been paid on the Common Stock since
inception, and none is contemplated in the foreseeable future.
(d) Transfer Agent.
Interwest Transfer Company, 1981 E. Murray-Holladay Road, P.O. Box 17136,
Salt Lake City, Utah 84117 is the Company's transfer agent.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
(a) Market Information.
The Company's Common Stock currently trades on the over-the-counter
bulletin board market under the symbol WRPR. Prior to the effective date of the
Agreement and Reorganization (September 30, 1999), the Company's Common Stock
traded on the over-the-counter bulletin board market under the symbol HOMQ. The
following table sets forth the high and low bid prices for the Company's Common
Stock within the last two fiscal years and the subsequent interim period. The
prices below also reflect inter-dealer quotations, without retail mark-up,
mark-down or commissions and may not represent actual transactions.
Quarter ended Low bid High bid
- ------------- ------- --------
3/31/97 $ 36.00 $ 86.40
6/30/97 $ 14.40 $ 72.00
9/30/97 $ 14.40 $ 39.60
12/31/97 $ 4.50 $ 21.60
3/31/98 $ 3.60 $ 9.00
6/30/98 $ 3.15 $ 14.40
9/30/98 $ 4.50 $ 11.70
12/31/98 $ .90 $ 4.50
3/31/99 $ 1.35 $ 1.80
6/30/99 $ 1.80 $ 2.70
9/30/99 $ 1.80 $ 2.70
(b) Holders.
As of September 30, 1999, a total of 9,000,000 shares of the Company's
Common Stock were outstanding and there were 45 holders of record of the
Company's Common Stock.
(c) Dividends.
The Company has not paid any dividends since it is inception. The Company
currently intends to retain any earnings for use in its business, and therefore
does not anticipate paying dividends in the foreseeable future.
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<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and, to its knowledge, no
action, suit or proceedings against it has been threatened against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no disagreements on accounting and financial disclosures
nor any change in accountants from the inception of the Company through the date
of this Registration Statement.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1998, the Company issued 4,600,000 shares of Common Stock to
Phoenix in consideration for Phoenix purchasing the remaining assets and
assuming full responsibly for all the remaining liabilities of the Company and
providing the Company with $50,000 in cash.
Between April 1999 and October 1999, the Company raised $550,000 from the
issuance of promissory notes convertible into the Company's Common Stock at
$1.00 per share.
Pursuant to the Agreement and Reorganization, the Company reverse split its
outstanding securities in September 1999 on the basis of 1:7.2 and issued
7,500,000 post-split shares of Common Stock to the stockholders of WARP to
purchase all of the stock of WARP.
All of the issued and outstanding shares of the Company's Common Stock were
issued in accordance with the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended and/or Regulation D promulgated
thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and Bylaws provide for
indemnification of the Company's officers, directors and controlling persons.
The Articles of Incorporation provide that no director or officer shall be
personally liable to the Company or its stockholders for monetary damages for
any breach of fiduciary duty by such person as a director or officer.
Notwithstanding the foregoing sentence, a director or officer shall be liable to
the extent provided by Nevada law, (i) for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (ii) for the
payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes.
The Company's Bylaws provide that any person made a party to or involved in
any civil, criminal or administrative action, suit or proceeding by reason of
the fact that such person or such person's testator or intestate is or was a
director, officer, or employee of the Company, or of any corporation which such
person, the testator, or intestate served as such at the request of the Company,
shall be indemnified by the Company against expenses reasonably incurred by such
person or imposed on such person in connection with or resulting from the
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defense of such action, suit, or proceeding and in connection with or resulting
from any appeal thereon, except with respect to matters as to which it is
adjudged in such action, suit or proceeding that such officer, director, or
employee was liable to the Company, or to such other corporation, for negligence
or misconduct in the performance of such person's duty. The term "expense" shall
include all obligations incurred by such person for the payment of money,
including, without limitation, attorney's fees, judgments, awards, fines,
penalties and amounts paid in satisfaction of judgment or in settlement of any
such action, suit, or proceeding, except amounts paid to the Company or such
other corporation by such person.
Section 78.751 of the Nevada Revised Statutes allows the Company to
indemnify any person who was or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, by reason of the
fact that he or she 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 of any corporation, partnership, joint venture, trust
or other enterprise.
PART F/S
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
- -------------------- ----
Proforma Unaudited Combined Condensed Financial
Statements of Web Audio & Radio Portal, Inc. as of
August 31, 1999 and for the eight months ended
August 31, 1999. F-1
Financial Statements of Web Audio & Radio Portal,
Inc. As of August 31, 1999 and for the period from
March 16, 1999 (date of inception) to August 31, 1999. F-4
Financial Statements of HomeQuest, Inc. as of
December 31, 1998 and 1997 and for the years ended
December 31, 1998 and 1997 and for the cumulative
period from March 1, 1998 to December 31, 1998. F-15
Unaudited Financial Statements of HomeQuest, Inc.
as of June 30, 1999 and for the six months ended
June 30, 1999 and for the cumulative period from
March 1, 1998 to June 30, 1999. F-29
22
<PAGE>
PART III
ITEMS 1 AND 2. INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation, as amended, of the Registrant.
3.2 By-laws of the Registrant.
4.1 Specimen Stock Certificate of the Registrant.
10.1 Agreement and Plan of Reorganization between HomeQuest, Inc.
and Web Audio & Radio Portal, Inc.
10.2 Internet Licensing Agreement with Broadcast Music, Inc.
10.3 Internet Licensing Agreement with American Society of
Composers, Authors and Publishers.
10.4 Form of licensing agreement with radio stations.
10.5 Office lease of the Registrant.
23.1 Consent of Angell & Deering.
23.2 Consent of Pritchett, Siler & Hardy, P.C.
27.1 Financial Data Schedule of Web Audio & Radio Portal, Inc.
27.2 Financial Data Schedule of HomeQuest, Inc.
23
<PAGE>
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.
WARPRADIO.COM, INC.
By: /s/ Denise A. Sutton
-----------------------------------------
Denise A. Sutton, Chief Executive Officer
Date: 11-15-99
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Denise A. Sutton
- ----------------------
Denise A. Sutton Chief Executive Officer, November 15, 1999
Chief Financial Officer
(Principal Accounting
Officer), Secretary and
Director
/s/ Gregory J. Liptak
- ----------------------
Gregory J. Liptak President November 15, 1999
/s/ Jo Saari Hadley
- ----------------------
Jo Saari Hadley Vice President November 15, 1999
24
<PAGE>
WARPRADIO.COM, INC.
UNAUDITED PROFORMA COMBINED CONDENSED BALANCE SHEET
AUGUST 31, 1999
The following unaudited proforma combined balance sheet gives effect to the
merger of Web Audio & Radio Portal, Inc. ("Warp") and HomeQuest, Inc.
("HomeQuest") in a transaction accounted for as a reverse acquisition and
purchase of HomeQuest by Warp for accounting purposes. The proforma information
is presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
merger had been consummated nor is it necessarily indicative of future operating
results or financial position. The unaudited proforma balance sheet gives effect
to the merger as if it had occurred on August 31, 1999. This proforma balance
sheet should be read in conjunction with the accompanying notes and related
historical financial statements and notes thereto of Warp and HomeQuest included
elsewhere herein.
<TABLE>
<CAPTION>
Proforma Proforma
ASSETS Warp HomeQuest Adjustments Combined
- ------ ---- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,496 $ -- $ -- $ 8,496
Prepaid expenses 3,925 -- -- 3,925
--------- ----------- ------------- ---------
Total Current Assets 12,421 -- -- 12,421
--------- ----------- ------------- ---------
Property and Equipment, at cost:
Office equipment 57,283 -- -- 57,283
Furniture 1,788 -- -- 1,788
--------- ----------- ------------- ---------
59,071 -- -- 59,071
Less accumulated depreciation (2,204) -- -- (2,204)
--------- ----------- ------------- ---------
Net Property and Equipment 56,867 -- -- 56,867
--------- ----------- ------------- ---------
Total Assets $ 69,288 $ -- $ -- $ 69,288
========= ============ ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current Liabilities:
Accounts payable - trade $ 43,527 $ -- $ -- $ 43,527
Accrued expenses 22,707 -- -- 22,707
Notes payable 351,500 -- -- 351,500
--------- ----------- ------------- ---------
Total Current Liabilities 417,734 -- -- 417,734
--------- ----------- ------------- ---------
Commitments and Contingencies -- -- -- --
Stockholders' Equity (Deficit):
Common stock 3,992 37,200 (32,192)(1) 9,000
Additional paid in capital -- 1,789,666 (1,794,674)(1) (5,008)
Deficit accumulated during the development stage (352,438) (1,826,866) 1,826,866 (1) (352,438)
--------- ---------- ------------- ---------
Total Stockholders' Equity (Deficit) (348,446) -- -- (348,446)
--------- ------------ ------------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 69,288 $ -- $ -- $ 69,288
========= ============ ============= =========
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-1
<PAGE>
WARPRADIO.COM, INC.
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED AUGUST 31, 1999
The following unaudited proforma combined statement of operations and per share
data gives effect to the merger of Warp and HomeQuest in a transaction accounted
for as a reverse acquisition and purchase of HomeQuest by Warp for accounting
purposes. The proforma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated nor is it
necessarily indicative of future operating results or financial position. The
unaudited proforma statement of operations gives effect to the merger as if it
had occurred on January 1, 1999. This proforma statement of operations should be
read in conjunction with the accompanying notes and related historical financial
statements and notes thereto of Warp and HomeQuest included elsewhere herein.
Proforma Proforma
Warp HomeQuest Adjustments Combined
---- --------- ----------- --------
Revenue $ -- $ -- $ -- $ --
Operating expenses 344,459 70,908 (70,908)(2) 344,459
--------- -------- --------- ---------
Loss From Operations (344,459) (70,908) 70,908 (344,459)
--------- -------- --------- ---------
Other Income (Expense):
Interest expense (7,979) -- -- (7,979)
--------- -------- --------- ---------
Total Other Income (Expense) (7,979) -- -- (7,979)
--------- -------- --------- ---------
Net Income (Loss) $(352,438) $(70,908) $ 70,908 $(352,438)
========= ======== ======== =========
Net Income (Loss) Per Basic and
Diluted Share of Common Stock $ (.04)
Weighted Average Number of Basic and
Diluted Common Shares Outstanding 9,000,000
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-2
</TABLE>
<PAGE>
WARPRADIO.COM, INC.
NOTES TO UNAUDITED PROFORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
On September 28, 1999, Warp executed an Agreement and Plan of
Reorganization (the "Agreement") to merge with HomeQuest. The merger was
effective September 30, 1999. Under the terms of the Agreement HomeQuest
issued 7,500,000 shares of its common stock for all of the issued and
outstanding shares of Warp's common stock. HomeQuest had 1,500,000 shares
of common stock outstanding at the date of the merger. Since Warp's
stockholders will own approximately 83% of the outstanding shares of common
stock after the merger, Warp is treated as the acquiror for accounting
purposes, whereas for legal purposes HomeQuest is the acquiror. In
September 1999 HomeQuest changed its name to WarpRadio.Com, Inc. The merger
will be treated as a recapitalization of Warp, similar to a reverse
acquisition. In addition, 500,000 shares of common stock will be reserved
for conversion of Warp's convertible notes and 500,000 shares of common
stock will be reserved for a private placement of common stock.
The proforma combined balance sheet gives effect to the merger with
HomeQuest in a transaction accounted for as a reverse acquisition and
purchase of HomeQuest by Warp. The transaction is reflected in the proforma
balance sheet as if it occurred on August 31, 1999.
The proforma combined condensed statement of operations gives effect to the
merger with HomeQuest in a transaction accounted for as a reverse
acquisition and purchase of HomeQuest by Warp. The transaction is reflected
in the proforma statement of operations as if it occurred at the beginning
of the period presented.
The statement of operations for the period ended August 31, 1999 includes
Warp's operations from March 16, 1999 (date of inception) to August 31,
1999. The operations for HomeQuest are included for the eight months ended
August 31, 1999.
2. Proforma Net Income (Loss) Per Share of Common Stock
----------------------------------------------------
The proforma net income (loss) per share of common stock is based on the
weighted average number of common shares outstanding after giving effect to
the merger.
3. Proforma Adjustments
--------------------
Adjustments to present the proforma combined condensed financial statements
are as follows:
1. Record the merger of Warp and HomeQuest in a stock for stock exchange
as described above.
2. Eliminate operations of HomeQuest in connection with the reverse
acquisition treatment for accounting purposes.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Web Audio & Radio Portal, Inc.
We have audited the accompanying balance sheet of Web Audio & Radio Portal, Inc.
(a development stage company) as of August 31, 1999 and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows for the
period from March 16, 1999 (date of inception) to August 31, 1999. 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 referred to above present fairly, in
all material respects, the financial position of Web Audio & Radio Portal, Inc.
as of August 31, 1999 and the results of its operations and its cash flows for
the period from March 16, 1999 (date of inception) to August 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $352,438 and, as of that date had a working
capital deficiency of $405,313 and stockholders' deficit of $348,446. As
discussed in Note 1 to the financial statements, the Company's significant
operating losses and working capital deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Angell & Deering
Certified Public Accountants
Denver, Colorado
September 21, 1999, except for the
last paragraph of Note 5 as to which
the date is September 30, 1999
F-4
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 1999
ASSETS
------
Current Assets:
Cash and cash equivalents $ 8,496
Prepaid expenses 3,925
---------
Total Current Assets 12,421
---------
Property and Equipment, at cost:
Office equipment 57,283
Furniture 1,788
---------
59,071
Less accumulated depreciation (2,204)
---------
Net Property and Equipment 56,867
---------
Total Assets $ 69,288
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current Liabilities:
Accounts payable - trade $ 43,527
Accrued expenses:
Interest 7,979
Payroll taxes 14,728
Notes payable 351,500
---------
Total Current Liabilities 417,734
---------
Commitments and Contingencies --
Stockholders' Equity (Deficit):
Common stock: no par value, 50,000,000 shares
authorized, 7,500,000 shares issued and outstanding 3,992
Deficit accumulated during the development stage (352,438)
---------
Total Stockholders' Equity (Deficit) (348,446)
---------
Total Liabilities and Stockholders' Equity (Deficit) $ 69,288
=========
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 16, 1999 (INCEPTION) TO AUGUST 31, 1999
Revenue $ --
Operating expenses 344,459
-----------
Loss From Operations (344,459)
-----------
Other Income (Expense):
Interest expense (7,979)
-----------
Total Other Income (Expense) (7,979)
-----------
Net Income (Loss) $ (352,438)
===========
Net Income (Loss) Per Basic and
Diluted Share of Common Stock $ (.05)
Weighted Average Number of Basic and
Diluted Common Shares Outstanding 7,500,000
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MARCH 16, 1999 (INCEPTION) TO AUGUST 31, 1999
Deficit
Accumulated
Common Stock During the
------------ Development
Shares Amount Stage
------ ------ -----
<S> <C> <C> <C>
Balance at March 16, 1999 (inception) -- $ -- $ --
Shares of common stock issued in March for
services valued at $.0004 per share 7,319,500 3,202 --
Shares of common stock issued in July for
services valued at $.004 per share 180,500 790 --
Net loss for the period -- -- (352,438)
--------- --------- ---------
Balance at August 31, 1999 7,500,000 $ 3,992 $(352,438)
========= ========= =========
The accompanying notes are an integral
part of these financial statements.
F-7
</TABLE>
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 16, 1999 (INCEPTION) TO AUGUST 31, 1999
Cash Flows From Operating Activities:
Net income (loss) $(352,438)
Adjustments to reconcile net income (loss) to net
cash (used) by operating activities:
Depreciation 2,204
Common stock issued for services 3,992
Changes in assets and liabilities:
Prepaid expenses (3,925)
Accounts payable 43,527
Accrued expenses 22,707
---------
Net Cash (Used) By Operating Activities (283,933)
---------
Cash Flows From Investing Activities:
Capital expenditures (59,071)
---------
Net Cash (Used) By Investing Activities (59,071)
---------
Cash Flows From Financing Activities:
Proceeds from borrowing 351,500
---------
Net Cash Provided By Financing Activities 351,500
---------
Net Increase in Cash and Cash Equivalents 8,496
Cash and Cash Equivalents at Beginning of Period --
---------
Cash and Cash Equivalents at End of Period $ 8,496
=========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ --
Income taxes --
The accompanying notes are an integral
part of these financial statements.
F-8
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Description of Business
-----------------------
Web Audio & Radio Portal, Inc., (the "Company") was organized on March
16, 1999 as a Colorado corporation. The Company is in the development
stage as is more fully defined in Statement of Financial Accounting
Standards ("SFAS") No. 7 "Accounting and Reporting by Development
Stage Enterprises". Planned principal operations of the Company have
not yet commenced and activities to date have been primarily
organizational in nature.
The Company offers radio stations streaming of their programs on the
Internet to a worldwide audience. With the capability to bring live
local radio programming from the backyard to the world instantly, the
Company brings the world's radio programming to everyone. The service
is offered through a barter agreement to exchange the streaming
services for advertising time. Through the Company's search portal
which lists all United States stations, and the latest streaming
technology, web surfers can reach, find and listen to the stations of
their choice.
Additionally, the Company intends to look at a number of other areas
of exposure and marketing to enhance its image through special
promotions and joint ventures. The Company is also pursuing e-commerce
products for the consumer and strategic alliances with
business-to-business relationships.
Basis of Presentation
---------------------
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis and to obtain additional financing as may be required,
and to increase sales to a level where the Company becomes profitable.
The Company's continued existence is dependent upon its ability to
achieve its operating plan. Management's plan consists of the
following:
1. Complete the merger with HomeQuest, Inc. (Note 5) and become a
publicly-held company.
2. Obtain additional equity capital through a private placement of
the Company's common stock to raise at least $1,000,000.
3. Achieve the Company's operating plan to provide audio streaming
services to radio stations and others and achieve a level of
sales that will result in positive cash flow to the Company.
Stock Split
-----------
On September 21, 1999, the Company's shareholders adopted a resolution
approving a 2.2857 for one stock split of the issued and outstanding
common shares, effective September 21, 1999. All share information and
per share data have been retroactively restated for all periods
presented to reflect the stock split.
F-9
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Property and Equipment
----------------------
Depreciation of the primary asset classifications is calculated based
on the following estimated useful lives using the straight-line
method.
Classification Useful Life in Years
-------------- --------------------
Office equipment 5
Furniture 7
Depreciation of property and equipment charged to operations is $2,204
for the period ended August 31, 1999.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers
all highly liquid investments with a maturity of three months or less
at the date of purchase to be cash equivalents.
Stock-Based Compensation
------------------------
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation". The Company will
measure compensation expense for its stock-based employee compensation
plan using the intrinsic value method prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees".
Long-Lived Assets
-----------------
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", the Company reviews for the
impairment of long-lived assets and certain identifiable intangibles,
whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. An impairment loss would be
recognized when the estimated future cash flows is less than the
carrying amount of the assets. No impairment losses have been
identified by the Company.
Income Taxes
------------
Deferred income taxes are provided for temporary differences between
the financial reporting and tax basis of assets and liabilities using
enacted tax laws and rates for the years when the differences are
expected to reverse.
Net Income (Loss) Per Share of Common Stock
-------------------------------------------
Basic earnings per share is calculated using the average number of
common shares outstanding. Diluted earnings per share is computed on
the basis of the average number of common shares outstanding plus the
dilutive effect of outstanding stock options using the "treasury
stock" method.
Estimates
---------
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
F-10
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Estimates (Continued)
---------------------
and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Current Notes Payable
---------------------
10% unsecured convertible notes with interest
due at maturity, one year from the date of
the note. The notes are convertible into common
stock of the Company at $1.00 per share. $351,500
========
3. Commitments and Contingencies
-----------------------------
Leases
------
The Company leases its office facilities under noncancellable
operating leases. The following is a schedule of future minimum lease
payments at August 31, 1999 under the Company's operating leases that
have initial or remaining noncancellable lease terms in excess of one
year:
Year Ending
December 31,
------------
1999 $ 22,684
2000 68,232
2001 57,610
--------
Total Minimum Lease Payments $148,526
========
Rent expense charged to operations was $10,036 for the period ended
August 31, 1999.
The Year 2000
-------------
The Company is currently working to resolve the potential impact of
the Year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The Year 2000 problem is
the result of computer programs being written using two digits (rather
than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Costs of addressing potential
problems are expensed as incurred and are not expected to have a
material adverse impact on the Company's financial position, results
of operations or cash flows in future periods. The Company has
completed its analysis of its computerized systems and believes all of
its hardware and software are Year 2000 compliant. However, if the
Company or its vendors are unable to resolve such processing issues in
a timely manner, it could result in a material financial risk.
Accordingly, the Company plans to devote the necessary resources to
resolve all significant Year 2000 issues in a timely manner. While the
Company does not at this time anticipate significant problems with
suppliers, it will develop contingency plans, if required, with these
third parties due to the possibility of compliance issues.
F-11
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. Income Taxes
-------------
The components of the provision for income taxes for the period ended
August 31, 1999 are as follows:
Current:
Federal $ --
State --
-----
Total --
-----
Deferred:
Federal --
State --
-----
Total --
-----
Total Provision For Income Taxes $ --
=====
The provision (benefit) for income taxes reconciles to the amount
computed by applying the federal statutory rate to income before the
provision (benefit) for income taxes as follows:
Federal statutory rate 34%
State income taxes, net of federal benefits 3
Valuation allowance (37)
---
Total --%
===
The following is a reconciliation of the provision for income taxes to
income before provision for income taxes computed at the federal
statutory rate of 34%.
Income taxes at the federal statutory rate $(119,829)
State income taxes, net of federal benefits (11,631)
Valuation allowance 131,460
---------
Total $ --
=========
Significant components of deferred income taxes as of August 31, 1999
are as follows:
Net operating loss carry forward $ 132,500
---------
Total Deferred Tax Asset 132,500
---------
Accelerated depreciation (1,000)
---------
Total Deferred Tax Liability (1,000)
Less valuation allowance (131,500)
----------
Net Deferred Tax Asset $ --
==========
F-12
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
4. Income Taxes (Continued)
-----------------------
The Company has assessed its past earnings history and trends and
expiration dates of carryforwards and has determined that it is more
likely than not that no deferred tax assets will be realized. A
valuation allowance of $131,500 as of August 31, 1999 is maintained on
deferred tax assets which the Company has not determined to be more
likely than not realizable at this time. The net change in the
valuation allowance for deferred tax assets was an increase of
$131,500 for the period ended August 31, 1999. The Company will
continue to review this valuation on a quarterly basis and make
adjustments as appropriate.
As of August 31, 1999 the Company had net operating loss carryforwards
of approximately $360,000. The net operating losses can be carried
forward twenty years to offset future taxable income. The net
operating loss carryforwards expire in 2019.
5. Proposed Acquisition
--------------------
The Company entered into a letter of intent for a merger with
HomeQuest, Inc. ("HomeQuest") on July 30, 1999. Under the terms of the
Agreement HomeQuest will issue 7,500,000 shares of its common stock
for all of the issued and outstanding shares of the Company's common
stock. HomeQuest will have 1,500,000 shares of common stock
outstanding at the date of the merger. Since the Company's
stockholders will own approximately 83% of the outstanding shares of
common stock after the merger, the Company is treated as the acquiror
for accounting purposes, whereas for legal purposes HomeQuest is the
acquiror. HomeQuest will change its name to WarpRadio.com, Inc. after
the merger is completed. The merger will be treated as a
recapitalization of the Company, similar to a reverse acquisition. In
addition, 500,000 shares of common stock will be reserved for
conversion of the Company's convertible notes and 500,000 shares of
common stock will be reserved for a private placement of common stock
after closing on the merger.
The merger between the Company and HomeQuest was completed on
September 30, 1999.
6. License Agreements
------------------
In June 1999, the Company entered into a web site music performance
agreement with Broadcast Music, Inc. ("BMI") for a non-exclusive
license to perform publicly within the United States as part for the
Company's web site to transmit over the Internet all musical works,
the rights to public performance licenses of which BMI controls. The
Agreement is for a one year period and expires June 30, 2000.
The license fee is based one of two formulas, at the Company's option,
with a minimum annual fee of $500, as follows:
1. 1.75% of the Company's gross revenues generated by the Company's
web site during the term of the Agreement.
2. The greater of 2.5% of Music Area Revenues, as defined in the
Agreement, or .25% of the Company's gross revenues generated by
the Company's web site during the term of the Agreement.
F-13
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
6. License Agreements (Continued)
-----------------------------
In July 1999, the Company entered into a license agreement with the
American Society of Composers, Authors and Publishers ("ASCAP") for a
license to publicly perform, by means of web site transmissions, non
dramatic renditions of the separate musical compositions in ASCAP's
repertory. The Agreement is effective June 1, 1999 and expires on
December 31, 1999. ASCAP has agreed to an interim license fee of
$20,000 for the period and the interim license fee is subject to
retroactive adjustment as agreed by ASCAP and the Company or as
determined by the Court. If the parties do not reach an agreement on
final fees by December 31, 1999, the parties will either agree upon
interim license fees for the period beginning January 1, 2000, or such
interim license fees as may be fixed by the Court.
The Company originally entered into an agreement with ASCAP in June
1999 which provided for a license fee calculated on a rate schedule
based on the Company's clients' web sites available to web site users
accessing the Company's web site. The agreement was revised as an
interim license based on terms of ASCAP's consent decree with the
United States.
7. Fair Value of Financial Instruments
-----------------------------------
Disclosures about Fair Value of Financial Instruments for the
Company's financial instruments are presented in the table below.
These calculations are subjective in nature and involve uncertainties
and significant matters of judgment and do not include income tax
considerations. Therefore, the results cannot be determined with
precision and cannot be substantiated by comparison to independent
market values and may not be realized in actual sale or settlement of
the instruments. There may be inherent weaknesses in any calculation
technique, and changes in the underlying assumptions used could
significantly affect the results. The following table presents a
summary of the Company's financial instruments as of August 31, 1999:
Carrying Estimated
Amount Fair Value
------ ----------
Financial Assets:
Cash and cash equivalents $ 8,496 $ 8,496
Financial Liabilities:
Notes payable 351,500 351,500
The carrying amounts for cash and cash equivalents, accounts payable
and accrued expenses approximate fair value because of the short
maturities of these instruments. The fair value of the notes payable
approximates fair value because of the market rate of interest on the
notes.
8. Subsequent Events
-----------------
Debt Financing
--------------
The Company issued promissory notes in the amount of $148,500 for cash
in September 1999. The terms of the promissory notes are the same as
those issued prior to August 31, 1999 (See Note 2).
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
HOMEQUEST, INC.
Springville, Utah
We have audited the balance sheets of HomeQuest, Inc.[a development stage
company] as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1998 and 1997, and for the cumulative period from March 1, 1998
through December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HomeQuest, Inc. as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
the years ended December 31, 1998 and 1997, and for the cumulative period from
March 31, 1998 through December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 8 to the financial statements,
the Company has no on-going operations, has current liabilities in excess of
current assets, has sustained substantial losses from inception and has a
stockholders' deficit. These factors raise substantial doubt about its ability
to continue as a going concern. Management's' plans in regards to these matters
are also described in Note 8. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
January 26, 1999
Salt Lake City, Utah
F-15
<PAGE>
<TABLE>
<CAPTION>
HOMEQUEST, INC.
BALANCE SHEETS
ASSETS
December 31,
------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ 35,507
----------- -----------
Total Current Assets -- 35,507
ORGANIZATION COSTS, net 428 795
----------- -----------
$ 428 $ 36,302
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable $ 2,909 $ --
Net current liabilities of discontinued operations -- 415,884
----------- -----------
Total Current Liabilities 2,909 415,884
NET NON-CURRENT LIABILITIES OF DISCONTINUED
OPERATIONS -- 30,484
----------- -----------
Total Liabilities 2,909 446,368
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value, 7,000,000
shares authorized, 3,000,000 shares issued
and outstanding -- 3,000
Common stock, $.001 par value, 50,000,000
shares authorized,7,200,000 and 2,372,920
shares issued and outstanding 7,200 2,373
Additional paid in capital 1,789,666 1,329,017
Accumulated deficit (1,759,367) (1,744,456)
----------- -----------
37,499 (410,066)
Less: Cash to be received for
common stock issued (39,980) --
----------- -----------
Total Stockholders' Equity (Deficit) (2,481) (410,066)
----------- -----------
$ 428 $ 36,302
=========== ===========
The accompanying notes are an integral part of this financial statement.
F-16
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENTS OF OPERATIONS
For the Years Cumulative from
Ended December 31, March 1, 1998
------------------------------- through
1998 1997 December 31, 1998
-------- ----------- -----------------
SALES $ -- $ -- $ --
COST OF SALES -- -- --
-------- ----------- --------
Gross Profit (Loss) -- -- --
-------- ----------- --------
EXPENSES:
General and administrative 12,930 -- 12,930
Amortization 367 -- 306
-------- ----------- --------
OPERATING LOSSES (13,297) -- (13,236)
OTHER EXPENSES:
Interest expense 1,614 -- --
-------- ----------- --------
LOSS FROM OPERATIONS BEFORE INCOME
TAXES (14,911) -- (13,236)
CURRENT TAX EXPENSE -- -- --
DEFERRED TAX EXPENSE -- -- --
-------- ----------- --------
LOSS FROM OPERATIONS BEFORE
DISCONTINUED OPERATIONS (14,911) -- (13,236)
-------- ----------- --------
DISCONTINUED OPERATIONS:
Loss from discontinued network marketing
operations (net of income taxes) -- (846,252) --
Loss on disposal of network marketing
operations (net of income taxes) -- (58,302) --
-------- ----------- --------
NET LOSS (14,911) $ (904,554) $(13,236)
-------- ----------- --------
LOSS PER COMMON SHARE
Loss from continuing operations $ (.00) $ (.00) $ (.00)
Loss from discontinued operations -- (.37) --
Loss on disposal of discontinued Operations -- (.02) --
-------- ------------ --------
LOSS PER COMMON SHARE $ (.00) $ (.39) $ (.00)
-------- ------------ --------
The accompanying notes are an integral part of this financial statement.
F-17
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM DECEMBER 31, 1996 THROUGH DECEMBER 31, 1998
Preferred Stock Common Stock Additional
------------------------ ------------------------- Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1996 3,000,000 $ 3,000 1,755,420 $ 1,755 $ 899,635 $ (839,902)
Issuance of common stock upon
exercise of stock options for
cash at $.67 per share,
January - March, 1997 - - 607,500 608 404,392 -
Issuance of common stock for
cash at $2.50 per share, May
1997 - - 10,000 10 24,990 -
Net loss for the year ended
December 31, 1997 - - - - - (904,554)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1997 3,000,000 3,000 2,372,920 2,373 1,329,017 (1,744,456)
Common stock issued for accrued
wages payable at approximately
$.19 per share, January 1998 - - 27,080 27 5,049 -
Common stock issued to retire,
preferred stock, April, 1998 (3,000,000) (3,000) 200,000 200 2,800 -
Common stock issued in
connection with disposal of
discontinued operations at
approximately $.10 per share,
March 1998 - - 4,600,000 4,600 452,800 -
Net loss for the year ended
December 31, 1998 - - - - - (14,911)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1998
- $ - 7,200,000 $ 7,200 $ 1,789,666 $ (1,759,367)
---------- --------- ----------- ---------- ---------- -----------
The accompanying notes are an integral part of this financial statement.
F-18
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
For the Years Cumulative from
Ended December 31, March 1, 1998
--------------------------- through
1998 1997 December 31, 1998
--------- --------- -----------------
Cash Flows from Operating Activities:
Net (loss) $ (14,911) $(904,554) $ (13,236)
--------- --------- ---------
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 367 32,027 306
Non-cash expense -- 117,274 --
Estimate future losses from discontinued operations (183,872) 179,077 (193,761)
Change in assets and liabilities:
(Increase) decrease in accounts receivable -- 130,171 --
(Increase) decrease in prepaid expenses -- 90,268 --
(Increase) decrease in inventory -- (11,201) --
Increase (decrease) in bank overdraft -- -- 47,722
Increase (decrease) in accounts payable -- 40,344 --
Increase (decrease) in accrued expenses 2,909 38,205 (1,031)
--------- --------- ---------
Total Adjustments (180,596) (616,165) (146,764)
--------- --------- ---------
Net Cash Flows (Used) by Operating Activities (195,507) (288,389) (160,000)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets -- (10,529) --
Deposits, organizational costs and other assets -- 1,423 --
--------- --------- ---------
Net Cash Flows (Used) by Investing Activities -- (9,106) --
--------- --------- ---------
Cash Flows from Financing Activities:
Payments on notes payable - related party -- (34,997) --
Proceeds from sale of common stock 160,000 430,000 160,000
Proceeds from notes payable -- 277,600 --
Payments on notes payable -- (416,740) --
--------- --------- ---------
Net Cash Flows Provided by Financing Activities 160,000 255,863 160,000
--------- --------- ---------
Net Increase (Decrease) in Cash (35,507) (41,632) --
Cash at Beginning of Period 35,507 77,139 --
--------- --------- ---------
Cash at End of Period $ -- $ 35,507 $ --
--------- --------- ---------
Supplemental Disclosures of Cash Flow information:
Cash paid during the year for:
Interest $ 1,614 $ 30,337 $ --
Income taxes $ -- $ -- $ --
[Continued]
F-19
</TABLE>
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
[Continued]
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the year ended December 31, 1998:
The Company transferred inventory, certain fixed assets, trademarks
and other intangible assets with a book value of $143,395 to a former
consultant of the company in payment of $27,340 in accrued wages
payable resulting in a loss of $116,055, which was included in loss
from discontinued operations as of December 31, 1997.
The Company issued 200,000 shares of common stock in consideration for
the cancellation of 3,000,000 shares of preferred stock.
The Company entered into an agreement with Phoenix, Ink. (a company
owned by an officer and shareholder of the Company) wherein the
Company agreed to issued 4,600,000 shares to Phoenix, Ink. or it's
designees in consideration for Phoenix, Ink purchasing the remaining
assets and assuming full responsibilities for all the remaining
liabilities of the Company. Over and above satisfying all of the
Company's liabilities, Phoenix Ink. will provide $50,000 in cash to
the Company. [See Note 2]
For the year ended December 31, 1997:
The Company wrote off approximately $117,000 in accounts receivable.
The Company recorded an estimated future loss of $120,775 for the
discontinuance of their network marketing operations and $58,302 from
the disposal of the related inventory and fixed assets.
The accompanying notes are an integral part of this financial statement.
F-20
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The accompanying financial statements and notes
were prepared by the Company and are the representations of the Company's
management who is responsible for their integrity and objectivity. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at December 31,
1998 and 1997 have been made.
Organization - The Company was incorporated on March 23, 1995 in the State
of Nevada for the purpose of acquiring the assets and operations of New
Horizon Education, Inc. ["NHE"], including its business concept,
compensation plan, sales downline, and related marketing rights. The
Company marketed educational and nutritional products through a network
marketing plan. The Company took over the operations of NHE on June 1,
1995, and on August 1, 1995 signed a purchase agreement. During the year
ended December 31, 1998, the company formalized a plan of disposition and
disposed of the operations to prepare the Company for a possible reverse
merger [See Note 2]. On March 1, 1998, the Company re-entered and is
considered a development stage company as defined by SFAS. No. 7, due to
the disposition of their operations and having no planned principal
operations. Currently the Company is considering other business
opportunities or possible business acquisitions.
Organization Costs - The Company is amortizing its organization costs,
which reflect amounts expended to organize the Company, over sixty [60]
months using the straight line method.
Income Taxes - The Company accounts for income taxes in accordance with
FASB Statement No. 109, "Accounting for Income Taxes".
Loss Per Share - The Company calculates earnings (loss) per share in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share," which requires the Company to present basic earnings
per share and dilutive earnings per share when the effect is dilutive. [See
Note 9] Dilutive loss per share is not presented because its effect is
anti-dilutive.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments 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
No.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 provision of SFAS No. 123, accordingly, the Company has
elected to determine net income using previous accounting standards.
F-21
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimated.
Reclassification - The financial statements for all periods presented have
been reclassified to conform to the headings and classifications used in
the December 31, 1998 financial statements.
Recently Enacted Accounting Standards - SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" SFAS No. 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits", SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and SFAS No.
134, "Accounting for Mortgage-Backed Securities..." were recently issued.
SFAS No. 130, 131, 132, 133 and 134 have no current applicability to the
Company or their effect on the financial statements would not have been
significant.
NOTE 2 - DISCONTINUED OPERATIONS
The accompanying financial statements as of December 31, 1998 and 1997 have
been reclassified to reflect management's decision to discontinue the
operations of the Company. On February 17, 1998, the shareholders approved
a plan to dispose of the Company's operation. The plan entailed effective
March 1, 1998, the sale of the Company's network marketing operations,
inventory, related fixed assets, and other intangible assets to a
consultant of the Company in exchange for $27,340 in consulting fees owed
him. The plan also approved the board of directors to seek and negotiate a
reverse-takeover-type merger. The board of directors then approved an
agreement with Phoenix Ink, a corporation owned by certain directors and
shareholders of the Company, wherein Phoenix Ink, or its assignees
purchased, 4,600,000 shares of the Company's common stock, a controlling
interest of the Company's common stock, at approximately $.10 per share by
clearing the Company of the remaining assets amounting to approximately
$16,909, and assuming the remaining liabilities amounting to approximately
$313,129 and providing the Company with $50,000 in cash. As of December 31,
1998, $10,020 of the $50,000 had been received; the remaining $39,980 has
been recorded as contra equity. These transactions resulted in losses of
$120,775. Losses from the discontinued operations for the year ended
December 31, 1998 were $58,302. These losses along with the Company's
result of operations for the year ended December 31, 1997 were recorded as
loss from discontinued operation in the December 31, 1997 financial
statements. The Shareholders further approved the Company's board of
directors to seek and negotiate a reverse-takeover-type merger.
F-22
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - DISCONTINUED OPERATIONS [Continued]
Net current (liabilities) of discontinued operations of the Company
consisted of the following at December 31, 1997:
1997
-------------
Accounts receivable, net $ 96,293
Inventory 70,512
Prepaid Expenses 2,323
Short-term notes payable (127,610)
Accounts payable (141,316)
Accrued Expenses (137,009)
Estimated future losses of
Discontinued operations (179,077)
-------------
Net current (liabilities) of
discontinued operations $ (415,884)
-------------
Net non-current (liabilities) of discontinued operations of the Company
consisted of the following at December 31, 1997:
1997
-------------
Property and equipment, net $ 75,400
Other assets, net 8,801
Notes payable (20,000)
Notes payable - related party (94,685)
-------------
Net non-current (liabilities) of
discontinued operations $ (30,484)
-------------
The following is a condensed proforma statement of operations that reflects
what the presentation would have been for year ended without the
reclassification required by discontinued operations accounting principles
and the related sale of the assets:
December 31,
1998 1997
------------- -------------
Net sales $ 89,895 $ 1,103,852
Cost of goods sold (27,641) (377,091)
Other operating expenses (138,024) (1,490,206)
Other Income (expense) (2,165) 37,968
Provision for taxes - -
----------- -----------
Net loss $ (77,935) $ (725,477)
----------- -----------
Loss per share $ (.02) $ (.31)
----------- -----------
F-23
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS
Agreement - During March 1998, the Company entered into an agreement with
Phoenix, Ink. (a company owned by an officer and shareholder of the
Company) wherein the Company agreed to issued 4,600,000 shares of common
stock to Phoenix, Ink. or it's designees in consideration for Phoenix, Ink
purchasing the remaining assets and assuming full responsibilities for all
the remaining liabilities of the Company and providing the Company with
$50,000 in cash. [See Note 2]
Note Payable - On August 1, 1995, in connection with the purchase of assets
from NHE, the Company issued a note payable to NHE for $337,055. The note
provides a minimum monthly payment of $5,000 with the balance due at
maturity on July 31, 1998. For the years ended December 31, 1997, payments
of $34,997 have been made against the note and related accrued interest,
leaving an unpaid principal balance of $94,685 at December 31, 1997. The
Company has included in interest expense $6,544 interest as of December 31,
1997. During March 1998, the remaining balance of the note $90,344 was paid
off in connection with Phoenix, Ink. purchasing the remaining assets and
assuming the remaining liabilities of the Company.
Common Stock - During April, 1998 the Company issued 200,000 shares of
common stock to NHE in consideration for the cancellation of 3,000,000
shares of preferred stock.
Related Party Advances - The Company routinely paid bills on behalf of NHE
and the Company's president, which are treated as non-interest bearing
advances. These advances were used to satisfy the payment requirements of
the note payable to NHE.
NOTE 4 - NOTES PAYABLE
During December 1995, the company gave a $50,000 note bearing interest at
12% and issued 3,000 shares of common stock, valued at $.67 per share and
recorded as interest expense, to an individual in consideration for $50,000
cash. The note was due on February 1, 1996. During the year ended December
31, 1996 the Company paid the individual $25,000, with the remaining
$25,000 in default. The Company has included in accrued expense $5,919 in
accrued interest as of December 31, 1997. During May 1996, the Company
issued another note (for $25,000) bearing interest at 12% and issued 3,000
shares of common stock, valued at $.67 per share and recorded as interest
expense, to an individual in consideration for an additional $25,000 cash.
The note was due August 15, 1996 and is also in default as of December 31,
1997. The Company has included $5,162 in accrued interest for the years
ended December 31, 1997. During 1998, in connection with Phoenix Ink
assuming the liabilities of the Company, the holder of the notes agreed to
cancel the notes in consideration for a note issued them by Phoenix, Ink.
The Company has arranged for the financing of some of their sales wherein
the related receivable is held as collateral on short-term borrowings.
During 1998, the short-term borrowings and related receivables were assumed
by Phoenix Ink. [See Note 2].
F-24
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTES PAYABLE [Continued]
During the year ended December 31, 1996 the Company gave four convertible
notes payable to individuals for a total of $65,000. The notes bear
interest at 10%, the interest is to be paid quarterly and the notes mature
between April 15, 1999 and August 15, 1999. The notes are convertible into
the Company's common stock at $.67 per share. As of December 31, 1996,
three notes totaling $45,000 were converted to 67,500 shares of common
stock with a $20,000 note remaining outstanding. During 1997 the remaining
note payable accrued $2,143 interest with total accrued interest payable
amounting to $3,508. During 1998, in connection with Phoenix Ink assuming
the liabilities of the Company, the holder of the notes agreed to cancel
the notes in consideration for a note issued him by Phoenix, Ink.
During July 1997 the Company took a loan payable for the purchase of
inventory. The balance outstanding at December 31, 1997 was $1,100 with
related accrued interest of $90. During 1998, the loan and related accrued
interest was paid off.
NOTE 5 - CAPITAL STOCK
Preferred Stock - On November 18, 1996 the Company's Board of Directors
approved to increase the authorized preferred shares from 5,000,000 to
7,000,000 with the par value to remain unchanged. The Company's 7,000,000
authorized shares of preferred stock have a $.001 par value with such
rights, preferences and designations, and to be issued in such series as
determined by the Board of Directors.
On August 1, 1995, the Company agreed to designate and issue 3,000,000
shares of preferred stock to NHE in accordance with the NHE purchase
agreement. The preferred stock has been designated by the board of
directors as Series A preferred stock. The preferred shares are convertible
to common shares at the rate of 75,000 shares for the first $500,000 of
annual earnings and 75,000 shares for each $100,000 thereafter. The
preferred shares have no voting rights. The preferred stock also has a
liquidation preference of $.01 per share and a preference to receive any
declared dividends before the common stockholders receive a dividend.
During April 1998, the Company issued 200,000 shares of common stock in
consideration for the cancellation of 3,000,000 share of preferred stock.
Common Stock - During 1998, the Company issued 27,080 shares of common
stock in settlement of $5,076 in accrued vacation.
During March 1998, the Company issued 4,600,000 shares of common stock to
Phoenix, Ink. (a company owned by an officer and shareholder of the
Company) or it's designees in consideration for assuming all the remaining
liabilities of the Company [See Note 2].
Stock Options - The following table reflects the current non-compensatory
options outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
Number Exercise Number of Option
of Shares Price Shares Exercised Outstanding Vesting Date Expiration Date
--------- --------- ---------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
360,000 $.67 262,500 97,500 July 18, 1996 July 18, 1999
412,500 $.67 300,000 112,500 August 31, 1996 August 31, 1999
15,000 $.67 15,000 -- July 21, 1996 August 1, 1999
</TABLE>
F-25
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL STOCK [Continued]
Stock Based Compensation Plan - On November 18, 1995, the Board of
Directors of the Company adopted and a majority of the stockholders
approved a stock option plan. The plan provides for the granting of awards
of up to 900,000 shares of common stock to key employees, officers,
directors, consultants and sales representatives. The awards can consist of
stock options, restricted stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards as described in the plan.
Awards under the plan will be granted as determined by the board of
directors.
A summary of the status of the options granted under the Company's stock
option plan and other agreements at December 31, 1998, and 1997, and
changes during the periods then ended is presented in the table below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
---------------------------- ----------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of period 435,000 $.72 532,500 $.70
Granted - - - -
Exercised - - - -
Forfeited (435,000) $.72 (60,000) $.67
Expired - - (37,500) $.67
-------- ------------- -------- ------------
Outstanding at end of Period - - 435,000 $.72
-------- ------------- -------- ------------
Exercisable at end of period - - 99,000 $.72
-------- ------------- -------- ------------
Weighted average fair value
of options granted - - - -
-------- ------------- -------- ------------
</TABLE>
During the year ended December 31, 1998 and 1997, no compensatory options
were granted. During the year ended December 31, 1998, the remaining
employees forfeited their options and the plan was terminated.
F-26
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard 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 and any available operating loss or tax
credit carry forwards. At December 31, 1998, the company has available
unused operating loss carryforwards of approximately $2,100,000 which may
be applied against future taxable income and which expire through 2013. The
amount 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 effect of which cannot be determined. Because of the
uncertainties surrounding the realization of the loss carry forwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The change in the valuation
allowance was a decrease of approximately $87,000. Because operations have
ceased and with the substantial changes in the Company's ownership [See
Note 2] it is doubtful that these tax benefits will ever be realized as
there is an annual limitation on the amount of carryforwards which can be
utilized.
NOTE 7 - COMMITMENTS AND CONTINGENTCIES
Management believes that the Company is not liable for any existing
liabilities related to its former operations, as the amounts were assumed
by Phoenix, Ink. [See Note 2]. At December 31, 1998, there was still
approximately $45,000 in unpaid contingent commissions payable and refunds
payable that were assumed by Phoenix, Ink. The unpaid commissions are
contingent upon collection of the related accounts receivable which were
also assumed by Phoenix InK. There is the possibility that creditors and
others seeking relief, which if not paid by Phoenix, Ink., may cause the
Company to be included in claims and or lawsuits. The Company is not
currently named nor is it aware of any such claims or suits against the
Company. No amounts have been reflected or accrued in these financial
statements for any contingent liability.
NOTE 8 - GOING CONCERN
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 has recently sold
their business operations and assets and is considered a development stage
company with no on-going operations. In addition, the Company has
experienced losses since inception, 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 additional funds through loans
and/or through additional sales of its common stock or through the proposed
acquisition of another company by issuing common stock. There is no
assurance that the Company will be successful in raising this additional
capital or finding a suitable acquisition.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be unable to obtain additional financing, establish profitable
operations or locate another company to acquire.
F-27
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the periods ending December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Cumulative from
For the Years March 1, 1998
Ended December 31, through
1998 1997 December 31,1998
-------------- --------------- ----------------
Loss available to common stockholders used in
<S> <C> <C> <C>
Loss per share (14,911) $ (904,554) $ (13,236)
-------------- --------------- ---------------
Weighted average number of common shares used
in earnings per share outstanding during the period 5,659,097 2,315,215 6,300,582
-------------- --------------- ---------------
Dilutive earnings per share was not presented as its effect is
anti-dilutive. The Company had at December 31, 1998, options to purchase
210,000 shares of common stock, respectively, at a price of $.67 per share,
that were not included in the computation of diluted earnings per share
because their effect was anti-dilutive.
F-28
<PAGE>
HOMEQUEST, INC.
UNAUDITED BALANCE SHEET
ASSETS
June 30,
1999
-----------
CURRENT ASSETS:
Cash $ --
-----------
Total Current Assets --
-----------
$ --
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable $ 3,409
-----------
Total Current Liabilities 3,409
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 7,000,000
shares authorized, no shares issued
and outstanding --
Common stock, $.001 par value, 50,000,000
shares authorized,7,200,000 shares issued
and outstanding 7,200
Additional paid in capital 1,789,666
Accumulated deficit (1,765,795)
-----------
(31,071)
Less: Cash to be received for
common stock issued (34,480)
-----------
Total Stockholders' Deficit (3,409)
-----------
$ --
-----------
The accompanying notes are an integral part of this financial statement.
F-29
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
UNAUDITED STATEMENTS OF OPERATIONS
For the Six Cumulative from
Months Ended March 1, 1998
June 30, through
1999 June 30, 1999
-------- -------------
SALES $ -- $ --
COST OF SALES -- --
-------- --------
Gross Profit (Loss) -- --
-------- --------
EXPENSES:
General and administrative 6,000 18,930
Amortization 428 734
-------- --------
TOTAL EXPENSES (6,428) (19,664)
-------- --------
LOSS FROM OPERATIONS BEFORE INCOME
TAXES (6,428) (19,664)
CURRENT TAX EXPENSE -- --
DEFERRED TAX EXPENSE -- --
-------- --------
NET LOSS $ (6,428) $(19,664)
-------- --------
LOSS PER COMMON SHARE $ (.00) $ (.00)
-------- --------
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
UNAUDITED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM MARCH 1, 1998 THROUGH JUNE 30, 1999
Preferred Stock Common Stock Additional
------------------------ ------------------------- Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- --------- ----------- ---------- ---------- -----------
BALANCE, March 1, 1998 3,000,000 3,000 2,400,000 2,400 1,329,017 (1,744,456)
Common stock issued in
connection with disposal of
discontinued operations at
approximately $.10 per share,
March 1998 - - 4,600,000 4,600 452,800 -
Common stock issued to retire,
preferred stock, April, 1998 (3,000,000) (3,000) 200,000 200 2,800 -
Net loss for the period ended
December 31, 1998 - - - - - (14,911)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1998 - - 7,200,000 7,200 1,789,666 (1,759,367)
Net loss for the period ended
June 30, 1999 - - - - - (6,428)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, June 30, 1999 - $ - 7,200,000 $ 7,200 $ 1,789,666 $ (1,765,795)
---------- --------- ----------- ---------- ---------- -----------
The accompanying notes are an integral part of this financial statement.
F-31
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
UNAUDITED STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
For the Six Cumulative from
Months Ended March 1, 1998
June 30, through
1999 June 30, 1999
--------- -------------
Cash Flows from Operating Activities:
Net (loss) $ (6,428) $ (19,664)
--------- ---------
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 428 734
Non-cash expense -- --
Losses from discontinued operations -- (193,761)
Change in assets and liabilities:
Increase (decrease) in bank overdraft -- 47,722
Increase (decrease) in accounts payable 500 500
Increase (decrease) in accrued expenses -- (1,031)
--------- ---------
Total Adjustments 928 (145,836)
--------- ---------
Net Cash Flows (Used) by Operating Activities (5,500) (165,500)
--------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets -- --
Deposits, organizational costs and other assets -- --
--------- ---------
Net Cash Flows (Used) by Investing Activities -- --
--------- ---------
Cash Flows from Financing Activities:
Proceeds from sale of common stock 5,500 165,500
--------- ---------
Net Cash Flows Provided by Financing Activities 5,500 165,500
--------- ---------
Net Increase (Decrease) in Cash -- --
Cash at Beginning of Period -- --
--------- ---------
Cash at End of Period $ -- $ --
--------- ---------
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest $ -- $ 1,614
Income taxes $ -- $ --
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period ended June 30, 1999:
The Company expensed organization costs of $428
The accompanying notes are an integral part of these financial statements.
F-32
</TABLE>
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The accompanying financial statements and notes
were prepared by the Company and are the representations of the Company's
management who is responsible for their integrity and objectivity. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1999
have been made.
Organization - The Company was incorporated on March 23, 1995 in the State
of Nevada for the purpose of acquiring the assets and operations of New
Horizon Education, Inc. ["NHE"], including its business concept,
compensation plan, sales downline, and related marketing rights. The
Company marketed educational and nutritional products through a network
marketing plan. The Company took over the operations of NHE on June 1,
1995, and on August 1, 1995 signed a purchase agreement. During the year
ended December 31, 1998, the company formalized a plan of disposition and
disposed of the operations to prepare the Company for a possible reverse
merger [See Note 2]. On March 1, 1998, the Company re-entered and is
considered a development stage company as defined by SFAS. No. 7, due to
the disposition of their operations and having no planned principal
operations. Currently the Company is considering other business
opportunities or possible business acquisitions.
Organization Costs - The Company expensed organization costs of $428, which
reflect amounts expended to organize the Company, during the period ended
June 30, 1999 in accordance with Statement of Financial Accounting Position
No. 98-5.
Income Taxes - The Company accounts for income taxes in accordance with
FASB Statement No. 109, "Accounting for Income Taxes".
Loss Per Share - The Company calculates loss per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which requires the Company to present basic loss per share and
dilutive earnings per share when the effect is dilutive. [See Note 8]
Dilutive earnings per share is not presented because its effect is
anti-dilutive.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments 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
No.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 provision of SFAS No. 123, accordingly, the Company has
elected to determine net income using previous accounting standards.
F-33
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimated.
NOTE 2 - DISCONTINUED OPERATIONS
The accompanying financial statements as of June 30, 1999 have been
reclassified to reflect management's decision to discontinue the operations
of the Company. On February 17, 1998, the shareholders approved a plan to
dispose of the Company's operation. The plan entailed effective March 1,
1998, the sale of the Company's network marketing operations, inventory,
related fixed assets, and other intangible assets to a consultant of the
Company in exchange for $27,340 in consulting fees owed him. The plan also
approved the board of directors to seek and negotiate a
reverse-takeover-type merger. The board of directors then approved an
agreement with Phoenix Ink, a corporation owned by certain directors and
shareholders of the Company, wherein Phoenix Ink, or its assignees
purchased, 4,600,000 shares of the Company's common stock, a controlling
interest of the Company's common stock, at approximately $.10 per share by
clearing the Company of the remaining assets amounting to approximately
$16,909, and assuming the remaining liabilities amounting to approximately
$313,129 and providing the Company with $50,000 in cash. As of June 30,
1999, $15,520 of the $50,000 had been received; the remaining $34,480 has
been recorded as contra equity. These transactions resulted in losses of
$120,775. Losses from the discontinued operations for the year ended
December 31, 1998 were $58,302. These losses along with the Company's
result of operations for the year ended December 31, 1997 were recorded as
loss from discontinued operation in the December 31, 1997 financial
statements. The Shareholders further approved the Company's board of
directors to seek and negotiate a reverse-takeover-type merger.
NOTE 3 - RELATED PARTY TRANSACTIONS
Agreement - During March 1998, the Company entered into an agreement with
Phoenix, Ink. (a company owned by an officer and shareholder of the
Company) wherein the Company agreed to issued 4,600,000 shares of common
stock to Phoenix, Ink. or it's designees in consideration for Phoenix, Ink
purchasing the remaining assets and assuming full responsibilities for all
the remaining liabilities of the Company and providing the Company with
$50,000 in cash. [See Note 2]
Common Stock - During April, 1998 the Company issued 200,000 shares of
common stock to NHE in consideration for the cancellation of 3,000,000
shares of preferred stock.
F-34
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 4 - CAPITAL STOCK
Preferred Stock - On November 18, 1996 the Company's Board of Directors
approved to increase the authorized preferred shares from 5,000,000 to
7,000,000 with the par value to remain unchanged. The Company's 7,000,000
authorized shares of preferred stock have a $.001 par value with such
rights, preferences and designations, and to be issued in such series as
determined by the Board of Directors.
On August 1, 1995, the Company agreed to designate and issue 3,000,000
shares of preferred stock to NHE in accordance with the NHE purchase
agreement. The preferred stock has been designated by the board of
directors as Series A preferred stock. The preferred shares are convertible
to common shares at the rate of 75,000 shares for the first $500,000 of
annual earnings and 75,000 shares for each $100,000 thereafter. The
preferred shares have no voting rights. The preferred stock also has a
liquidation preference of $.01 per share and a preference to receive any
declared dividends before the common stockholders receive a dividend.
During April 1998, the Company issued 200,000 shares of common stock in
consideration for the cancellation of 3,000,000 share of preferred stock.
Common Stock - During March 1998, the Company issued 4,600,000 shares of
common stock to Phoenix, Ink. (a company owned by an officer and
shareholder of the Company) or it's designees in consideration for assuming
all the remaining liabilities of the Company [See Note 2].
Stock Options - The following table reflects the current non-compensatory
options outstanding as of June 30, 1999:
<TABLE>
<CAPTION>
Number Exercise Number of Option
of Shares Price Shares Exercised Outstanding Vesting Date Expiration Date
--------- --------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
360,000 $.67 262,500 97,500 July 18, 1996 July 18, 1999
412,500 $.67 300,000 112,500 August 31, 1996 August 31, 1999
</TABLE>
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard 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 and any available operating loss or tax
credit carry forwards. At June 30, 1999, the company has available unused
operating loss carryforwards of approximately $2,100,000 which may be
applied against future taxable income and which expire in various years
through 2018. The amount 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 effect of which cannot be determined. Because of the
uncertainties surrounding the realization of the loss carry forwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The change in the valuation
allowance for the six months ended June 30, 1999 was a decrease of
approximately $0. Because operations have ceased and with the substantial
changes in the Company's ownership [See Note 2] it is doubtful that these
tax benefits will ever be realized as there is an annual limitation on the
amount of carryforwards which can be utilized.
F-35
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 6 - COMMITMENTS AND CONTINGENTCIES
Management believes that the Company is not liable for any existing
liabilities related to its former operations, as the amounts were assumed
by Phoenix, Ink. [See Note 2]. At June 30, 1999, there was still
approximately $45,000 in unpaid contingent commissions payable and refunds
payable that were assumed by Phoenix, Ink. The unpaid commissions are
contingent upon collection of the related accounts receivable which were
also assumed by Phoenix InK. There is the possibility that creditors and
others seeking relief, which if not paid by Phoenix, Ink., may cause the
Company to be included in claims and or lawsuits. The Company is not
currently named nor is it aware of any such claims or suits against the
Company. No amounts have been reflected or accrued in these financial
statements for any contingent liability.
NOTE 7 - GOING CONCERN
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 has recently sold
their business operations and assets and is considered a development stage
company with no on-going operations. In addition, the Company has
experienced losses since inception, 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 additional funds through loans
and/or through additional sales of its common stock or through the proposed
acquisition of another company by issuing common stock. There is no
assurance that the Company will be successful in raising this additional
capital or finding a suitable acquisition.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be unable to obtain additional financing, establish profitable
operations or locate another company to acquire.
NOTE 8 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the periods ending June 30, 1999:
<TABLE>
<CAPTION>
For the Six Cumulative from
Months Ended March 1, 1998
June 30, through
1999 June 30, 1999
------------ ------------
Loss available to common stockholders used in
<S> <C> <C>
Loss per share $ (6,428) $ (19,664)
------------ ------------
Weighted average number of common shares used
in earnings per share outstanding during the period 7,200,000 6,300582
------------ ------------
</TABLE>
Dilutive earnings per share was not presented as its effect is
anti-dilutive. The Company had at June 30, 1999, options to purchase
210,000 shares of common stock, respectively, at a price of $.67 per share,
that were not included in the computation of diluted earnings per share
because their effect was anti-dilutive.
F-36
Articles Of Incorporation
Of
HOMEQUEST, INC.
WE, THE UNDERSIGNED natural persons of the age of eighteen (18) years or
more, acting as incorporators of a corporation under the Nevada Business
Corporation Act, adopt the following Articles Incorporation.
Article I
NAME
----
The Name of the corporation is HomeQuest, Inc.
Article II
DURATION
--------
The duration of the corporation is perpetual.
Article III
PURPOSES
--------
The purpose or purposes for which this corporation is engaged are;
(a) To be a holding company. Also, to acquire, develop, explore, and
otherwise deal in and with all kinds of real and personal property and all
related activities, and for any and all other lawful purposes.
(b) To acquire by purchase, exchange, gift, bequest, subscription, or
otherwise; and to hold, own, mortgage, pledge, hypothecate, sell, assign,
transfer, exchange, or otherwise dispose of or deal in or with its own corporate
securities or stock or other securities including, without limitations, any
shares of stock, bonds, debentures, notes mortgages, or other obligations, and
any certificates, receipts or other instruments representing rights or interests
therein on any property or assets created or issued by any person, firm,
associate, or corporation, or instrumentalities thereof; to make payment
therefor in any lawful manner or to issue in exchange therefor in any lawful
manner or to issue in exchange therefor its unreserved earned surplus for the
purchase of its own shares, and to exercise as owner or holder of any
securities, any and all rights, powers, and privileges in respect thereof.
-1-
<PAGE>
(c) To do each and everything necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated, or which may, at any time, appear conducive to
or expedient for the protection or benefit of this corporation, and to do said
acts as fully and to the same extent as natural persons might, or could do in
any part of the world as principals, agents, partners, trustees, or otherwise,
either alone or in conjunction with any other person, association, or
corporation.
(d) The foregoing clauses shall be construed both as purposes and powers
and shall not be held to limit or restrict in any manner the general powers of
the corporation, and the enjoyment and exercise thereof, as conferred by the
laws of the State of Nevada; and it is the intention that the purposes and
powers specified in each of the paragraphs of this Article Ill shall be regarded
as independent purposes and powers.
Articles IV
STOCK
-----
(a) Common Stock. The aggregate number of shares of Common Stock which the
Corporation shall have authority to issue is 50,000,000 shares at a par value of
$.001 per share. All stock when issued shall be fully paid and non-assessable,
shall be of the same class and have the same rights and preferences.
No holder of shares of Common Stock of the Corporation shall be entitled,
as such, to any pre-emptive or preferential rights to subscribe to any unissued
stock or any other securities which the Corporation may now or thereafter be
authorized to issue.
Each share of Common Stock shall be entitled to one vote at a stockholders
meetings, either in person or by proxy. Cumulative voting in elections of
Directors and all other matters brought before stockholders meeting, whether
they be annual or special, shall not be permitted.
(b) Preferred Stock. The aggregate number of share of Preferred Stock which
the Corporation shall have authority to issue is 5,000,000 shares, par value
$.001, which may be issued in series, with such designations, preferences,
stated values, rights, qualifications or limitations as determined solely by the
Board of Directors of the Corporation.
Article V
AMENDMENT
---------
These Articles of Incorporation may be amended by the affirmative Vote of
"a majority" of the shares entitled to vote on each such amendment.
-2-
<PAGE>
Article VI
SHAREHOLDERS RIGHTS
-------------------
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of Directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation.
Article VII
INITIAL OFFICE AND AGENT
------------------------
The registered office of the Corporation in the State of Nevada is 3230 E.
Flamingo Road, Suite 1 56, Las Vegas, NV 891 21. The registered agent in charge
thereof at such address is Gateway Enterprises, Inc.
Article VIII
DIRECTORS
---------
The directors are hereby given the authority to do any act on behalf of the
corporation by law and in each instance where the Business corporation act
provides that the directors may act in certain instances where the Articles of
Incorporation authorize such action by the directors, the directors are hereby
given authority to act in such instances without specifically numerating such
potential action or instance herein.
The directors are specifically given the authority to mortgage or pledge
any or all assets of the business with stockholders' approval.
The number of directors constituting the initial Board of Directors of this
corporation is one (1). The names and addresses of persons who are to serve as
Directors until the first annual meeting of stockholders or until their
successors are elected and qualify are:
NAME ADDRESS
---- -------
HOWARD J. RUFF 2001 SOUTH MAIN STREET
MAPLETON, UT 84664
-3-
<PAGE>
Articles IX
INCORPORATORS
-------------
The name and address of each incorporator is:
NAME ADDRESS
---- -------
HOWARD J. RUFF 2001 SOUTH MAIN STREET
MAPLETON, UT 84664
KAY F. RUFF 2001 SOUTH MAIN STREET
MAPLETON, UT 84664
JOANN ALLEN 999 NORTH 600 EAST
OREM, UT 84057
Article X
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
----------------------------------------------------
No contract or other transaction between this corporation and any on or
more of its directors or any other corporation, firm, association, or entity in
which one or more of its directors or officers are financially interested, shall
be either void or voidable because of such relationship or interest, or because
such director or directors are present at the meeting of the Board of Directors,
or a committee thereof, which authorizes, approves, or ratifies such contract or
transaction, or because his or their votes are counted for such purpose if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies the contract or
transaction by vote or consent sufficient for the purpose without counting the
votes or consents of such interested director; or (b) the fact of such
relationship or interest is disclosed or known to the stockholders entitled to
vote and they authorize, approve, or ratify such contract or transaction by vote
or written consent, or (c) the contract or transaction is fair and reasonable to
the corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or committee there of which
authorizes, approves or ratifies such contract or transaction.
Article XI
LIABILITY OF DIRECTORS AND OFFICERS
-----------------------------------
No director or officer shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer. Notwithstanding the foregoing sentence, a
director or officer shall be liable to the extent
-4-
<PAGE>
provided by applicable law, (i) for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) for the payment of
dividends in violation of NRS 78.300.
The provisions hereof shall not apply to or have any effect on the
liability or alleged liability of any officer or director of the Corporation for
or with respect to any acts or omissions of such person occurring prior to such
amendment.
Under penalties of perjury, I declare that these Articles of Incorporation
have been examined by me and are, to the best of my knowledge and belief, true,
correct and complete.
Dated this 21st day of March, 1995.
/s/ Howard J. Ruff
-----------------------------------------
Howard J. Ruff
/s/ Kay F. Ruff
-----------------------------------------
Kay F. Ruff
/s/ Joann Allen
-----------------------------------------
Joann Allen
STATE OF UTAH )
) ss.
COUNTY OF )
On the 21st day of March, 1995, personally appeared before me, Howard J.
Ruff, Kay F. Ruff and Joann Allen, who being by me first duly sworn, declared
that they were the persons who signed the foregoing document as incorporators
and that the statements therein contained are true.
IN WITNESS THEREOF, I have hereunto set my hand and seal this 21st day of
March, 1995.
/s/ Kathryn Matson
-------------------------------
NOTARY PUBLIC
[Notary Graphic Omitted]
Residing at Utah
---------------------------------
---------------------------------
My commission expires:
October 15, 1996
- ----------------------
-5-
Exhibit 3.2
BY-LAWS
of
HOMEQUEST, INC.
A NEVADA CORPORATION
ARTICLE I
OFFICES
-------
Section I. The principal office of the Corporation shall be located at 757
South Main Street, Springville, Utah 84663. The Corporation may have such other
offices, either within or without the State of Utah as the Board of Directors
may designate or as the business of the Corporation may require from time to
time.
The registered office of the Corporation required by the Nevada Business
Corporation Act to be maintained in the State of Nevada may be, but need not be,
identical with the principal offices in the State of Utah, and the address of
the registered office may be changed, from time to time, by the Board of
Directors.
ARTICLE II
STOCKHOLDERS
------------
Section 1. ANNUAL MEETING. The annual meeting of stockholders shall be held
at the principal office of the Corporation, at 757 South Main Street,
Springville, Utah 84663 or at such other places on the third Friday of April,
or at such other times as the Board of Directors may, from time to time,
determine. If the day so designated falls upon a legal holiday then the meeting
shall be held upon the first business day thereafter. The Secretary shall serve
personally or by mail a written notice thereof, not less than ten (10) nor more
than fifty (50) days previous to such meeting, addressed to each stockholder at
his address as it appears on the stock book; but at any meeting at which all
stockholders shall be present, or of which all stockholders not present have
waived notice in writing, the giving of notice as above required may be
dispensed with.
Section 2. SPECIAL MEETINGS. Special meetings of stockho1ders other than
those regulated by statute, may be called at any time by a majority of the
Directors. Notice of such meeting stating the place, day and hour and the
purpose for which it is called shall be served personally or by mail, not less
than ten (10) days before the date set for such meeting. If mailed, it shall be
directed to a stockholder at his address as it appears on the stock book; but at
any meeting at which all stockholders shall be present, or of which stockholders
not present have waived notice in writing, the giving of notice as above
described may be dispensed with. The Board of Directors shall also, in like
manner, call a special meeting of stockholders whenever so requested in writing
by stockholders representing not less than ten percent (10%) of the capital
stock of the Corporation entitled to vote at the meeting. The President may in
his discretion call a special meeting of stockholders upon ten (10) days notice.
No business other than that specified in the call for the meeting shall be
transacted at any special meeting of the stockholders, except upon the unanimous
consent of all the stockholders entitled to notice thereof.
1
<PAGE>
Section 3. CLOSING OF TRANSFER BOOKS OR FiXING OF RECORD DATE. For the
purpose of determining stockholders entitled to receive notice of or to vote at
any meeting of stockholders or any adjournment thereof, or stockholders entitled
to receive payment of any dividend; or in order to make a determination of
stockholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period not to exceed, in any case, fifty (50) days. If the stock transfer
books shall be closed for the purpose of determining stockholders entitled to
notice of or to vote at a meeting of stockholders, such books shall be closed
for a least ten (10) days immediately preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a date as
the record date for any such determination of stockholders, such date in any
case to be not more than fifty (50) days, and in case of a meeting of
stockholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of stockholders, is to be taken.
If the stock transfer books are not closed, and no record date is fixed for the
determination of stockholders entitled to receive notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination as to
stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
Section 4. VOTING. At all meetings of the stockholders of record having the
right to vote, subject to the provisions of Section 3, each stockholder of the
Corporation is entitled to one (1) vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Corporation.
Votes may be cast in person or by written authorized proxy.
Section 5. PROXY. Each proxy must be executed in writing by the stockholder
of the Corporation or his duly authorized attorney. No proxy shall be valid
after the expiration of eleven (11) months from the date of its execution unless
it shall have specified therein its duration.
Every proxy shall be revocable at the discretion of the person executing it
or of his personal representatives or assigns.
Section 6. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name
of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
noted by him either in person or by proxy without a transfer of such shares into
his name. Shares standing in the name of a trustee may be voted by him either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate Order of the Court by which such receiver was
appointed.
2
<PAGE>
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledge, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 7. ELECTION OF DIRECTORS. At each election for Directors every
stockholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for as many persons as
there are Directors to be elected and for whose election he has a right to vote.
There shall be no cumulative voting.
Section 8. QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the stockholders.
If a quorum shall not be present or represented, the stockholders entitled
to vote thereat, present in person or by proxy, shall have the power to adjourn
the meeting, from time to time, until a quorum shall be present or represented.
At such rescheduled meeting at which a quorum shall be present or represented
any business or any specified item of business may be transacted winch might
have been transacted at the meeting as originally notified.
The number of votes or consents of the holders of stock having voting power
which shall be necessary for the transaction of any business or any specified
item of business at any meeting of stockholders, or the giving of any consent,
shall be a majority of the outstanding shares of the Corporation entitled to
vote.
Section 9. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be taken
at a meeting of the stockholders, or any other action which may be taken at a
meeting of the stockholders, may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all, of the
stockholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
DIRECTORS
---------
Section 1. NUMBER The affairs and business of this Corporation shall be
managed by a Board of Directors. The present Board of Directors shall consist of
two (2) members. Thereafter the number of Directors may be increased to not more
than nine (9) by resolution of the Board of Directors. Directors need not be
residents of the State of Nevada and need not be stockholders of the
Corporation.
3
<PAGE>
Section 2. ELECTION. The Directors shall be elected at each annual meeting
of the stockholders, but if any such annual meeting is not held, or the
Directors are not elected thereat, the Directors may be elected at any special
meeting of the stockholders held for that purpose.
Section 3. TERM OF OFFICE. The term of office of each of the Directors
shall be one (1) year, which shall continue until his successor has been elected
and qualified.
Section 4. DUTIES. The Board of Directors shall have the control and
general management of the affairs and business of the Corporation. Such
Directors shall in all cases act as a Board, regularly convened, and may adopt
such rules and regulations for the conduct of meetings and the management of the
Corporation, as may be deemed proper, so long as it is not inconsistent with
these By-Laws and the laws of the State of Nevada.
Section 5. DIRECTORS' MEETINGS. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the stockholders, and
at such other time and places as the Board of Directors may determine. Special
meetings of the Board of Directors may be called by the President or the
Secretary upon the written request of two (2) Directors.
Section 6. NOTICE OF MEETINGS. Notice of meetings other than the regular
annual meeting shall be given by service upon each Director in person, or by
mailing to him at his last known address, at least three (3) days before the
date therein designated for such meeting, of a written notice thereof specifying
the time and place of such meeting, and the business to be brought before the
meeting, and no business other than that specified in such notice shall be
transacted at any ~special meeting. At any Directors' meeting at which a quorum
of the Board of Directors shall be present (although held without notice), any
and all business may be transacted which might have been transacted if the
meeting had been duly called if a quorum of the Directors waive or are willing
to waive the notice requirements of such meeting.
Any Directors may waive notice of any meeting under the provisions of
Article XII. The attendance of a Director at a meeting shall constitute a waiver
of notice of such meeting except where a Director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully convened or called.
Section 7. VOTING. At all meetings of the Board of Directors, each Director
is to have one (1) vote. The act of a majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
Section 8. VACANCIES. Vacancies in the Board occurring between annual
meetings shall be filled for the unexpired portion of the term by a majority of
the remaining Directors.
Section 9. REMOVAL OF DIRECTORS. Any one or more of the Directors may be
removed, with or without cause, at any time, by a vote of the stockholders
holding a majority of the stock, at any special meeting called for that purpose.
Section 10. QUORUM. The number of Directors who shall be present at any
meeting of the Board of Directors in order to constitute a quorum for the
transaction of any business or any specified item of business shall be a
majority.
4
<PAGE>
The number of votes of Directors that shall be necessary for the
transaction of any business of any specified item of business at any meeting of
the Board of Directors shall be a majority.
If a quorum shall not be present at any meeting of the Board of Directors,
those present may adjourn the meeting, from time to time, until a quorum shall
be present.
Section 11. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors or each may be paid a stated salary as Director. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefore.
Section 12. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent is entered in the minutes of the meeting or unless he shall 6Th his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered or certified mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
ARTICLE IV
OFFICERS
--------
Section 1. NUMBER. The officers of the Corporation shall be: President,
Vice- President, Secretary, and Treasurer, and such assistant Secretaries as the
President shall determine.
Any officer may hold more than one (1) office, except that the offices of
President and Secretary shall not be held by the same person.
Section 2. ELECTION. All officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held immediately following
the meeting of stockholders, and shall hold office for the term of one (1) year
or until their successors are duly elected. Officers need not be members of the
Board of Directors.
The Board may appoint such other officers, agents and employees as it shall
deem necessary who shall have such authority and shall perform such duties as,
from time to time, shall be prescribed by the Board.
Section 3. DUTIES OF OFFICERS. The duties and powers of the officers of the
Corporation shall be as follows:
PRESIDENT
---------
The President shall preside at all meetings of the stockholders. He shall
present at each annual meeting of the stockholders and Directors a report of the
condition of the business of the Corporation. He shall cause to be called
regular and special meetings of these stockholders and Directors in accordance
with these By-Laws. He shall appoint and remove, employ and discharge,
5
<PAGE>
and fix the compensation of all agents, employees, and clerks of the Corporation
other than the duly appointed officers, subject to the approval of the Board of
Directors. He shall sign and make all contracts and agreements in the name of
the Corporation, subject to the approval of the Board of Directors. He shall see
that the books, reports, statements and certificates required by the statutes
are properly kept, made and filed according to law. He shall sign all
certificates of stock, notes, drafts, or bills of exchange, warrants or other
orders for the payment of money duly drawn by the Treasurer; and he shall
enforce these By-Laws and perform all the duties incident to the position and
office, and which are required by law.
VICE-PRESIDENT
--------------
During the absence or inability of the President to render and perform his
duties or exercise his powers, as set forth in these By-Laws or in the statutes
under which the Corporation is organized, the same shall be performed and
exercised by the Vice-President; and when so acting, he shall have all the
powers and be subject to all the responsibilities hereby given to or imposed
upon such President.
SECRETARY
---------
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the stockholders in appropriate books. He shall give and serve
all notices of the Corporation. He shall be custodian of the records and of the
corporate seal and affix the latter when required. He shall keep the stock and
transfer books in the manner prescribed by law, so as to show at all times the
amount of capital stock issued and outstanding; the manner and the time
compensation for the same was paid; the names of the owners thereof;
alphabetically arranged; the number of shares owned by each; the time at which
each person became such owner; and the amount paid thereon; and keep such stock
and transfer books open daily during the business hours of the office of the
Corporation, subject to the inspection of any stockholder of the Corporation,
and permit such stockholder to make extracts from said books to the extent
prescribed by law. He shall sign all certificates of stock. He shall present to
the Board of Directors at their meetings all communications addressed to him
officially by the President or any officer or stockholder of the Corporation;
and be shall attend to all correspondence and perform all the duties incident
to the office of Secretary.
TREASURER
---------
The Treasurer shall have the care and custody of and be responsible for all
the funds and securities of the Corporation, and deposit all such funds in the
name of the Corporation in such bank or banks, trust company or trust companies
or safe deposit vaults as the Board of Directors may designate. He shall exhibit
at all reasonable times his books and accounts to any Director or stockholder of
the Corporation upon application at the office of the Corporation during
business hours. He shall render a statement of the conditions of the finances of
the Corporation at each regular meeting of the Board of Directors, and at such
other times as shall be required of him, and a full financial report at the
annual meeting of the stockholders. He shall keep, at the office of the
Corporation, correct books of account of all its business and transactions and
such other books of account as the Board of Directors may require. He shall do
and perform all duties appertaining to the office of Treasurer. The Treasurer
shall, if required by the Board of Directors, give to the Corporation such
security for the faithful discharge of his duties as the Board may direct.
6
<PAGE>
Section 4. BOND. The Treasurer shall, if required by the Board of
Directors, give to the Corporation such security for the faithful discharge of
his duties as the Board may direct.
Section 5. VACANCIES, HOW FILLED. All vacancies in any office shall be
filled by the Board of Directors without undue delay, either at its regular
meeting or at a meeting specifically called for that purpose. In the case of the
absence of any officer of the Corporation or for any reason that the Board of
Directors may deem sufficient, the Board may, except as specifically otherwise
provided in these By-Laws, delegate the power or duties of such officers to any
other officer or Director for the time being; provided, a majority of the entire
Board concur therein.
Section 6. COMPENSATION OF OFFICERS. The officers shall receive such salary
or compensation as may be determined by the Board of Directors.
Section 7. REMOVAL OF OFFICERS. The Board of Directors may remove any
officer, by a majority vote, at any time with or without cause.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock
shall be numbered and registered in the order in which they are issued. They
shall be bound in a book and shall be issued in consecutive order therefrom, and
in the margin thereof shall be entered the name of the person owning the
shares therein represented, with the number of shares and the date thereof. Such
certificates shall exhibit the holder's name and number of shares. They shall be
signed by the President or Vice President, and countersigned by the Secretary or
Treasurer and sealed with the Seal of the Corporation.
Section. 2. TRANSFER OF STOCK. The stock of the Corporation shall be
assignable and transferable on the books of the Corporation only by the person
in whose name it appears on said books, his legal representatives or by his duly
authorized agent. In case of transfer by attorney the power of attorney, duly
executed and acknowledged, shall be deposited with the Secretary. in all cases
of transfer the former certificate must be surrendered up and cancelled before a
new certificate may be issued. No transfer shall be made upon the books of the
Corporation within ten (10) days next preceding the annual meeting of the
stockholders.
Section 3. LOST CERTIFICATES. If a stockholder shall claim to have lost or
destroyed a certificate or certificates of stock issued by the Corporation, the
Board of Directors may, at its discretion, direct a new certificate or
certificates to be issued, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed, and upon the
deposit of a bond or other indemnity in such form and with such sureties if any
that the Board may require.
7
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ARTICLE VI
SEAL
----
Section 1. SEAL. The seal of the Corporation shall be as follows:
NO SEAL IN USE AT THIS TIME
ARTICLE VII
DIVIDENDS
---------
Section 1. WHEN DECLARED. The Board of Directors shall by vote declare
dividends from the surplus profits of the Corporation whenever, in their
opinion, the condition of the Corporation's affairs will render it expedient for
such dividends to be declared.
Section 2. RESERVE. The Board of Directors may set aside, out of the net
profits of the Corporation available for dividends, such sum or sums (before
payment of any dividends) as the Board, in their absolute discretion, think
proper as a reserve fund, to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of the
Corporation, and they may abolish or modify any such reserve in the manner in
which it was created.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. Any person made a party to or involved in any civil, criminal or
administrative action, suit or proceeding by reason of the fact that he or his
testator or intestate is or was a Director, officer, or employee of the
Corporation, or of any corporation which he, the testator, or intestate served
as such at the request of the Corporation, shall be indemnified by the
Corporation against expenses reasonably incurred by him or imposed on him in
connection with or resulting from the exercise of such action, suit, or
proceeding and in connection with or resulting from any appeal thereon, except
vritt1 respect to matters as to which it is adjudged in such action, suit or
proceeding that such officer, Director, or employee was liable to the
Corporation, or to such other corporation, for negligence or misconduct in the
performance of his duty. As used herein the term "expense" shall include all
obligations incurred by such person for the payment of money, including without
limitation attorney's fees, judgments, awards, fines, penalties, and amounts
paid in satisfaction of judgment or in settlement of any such action, suit, or
proceedings, except amounts paid to the Corporation or such other corporation by
him.
A judgment of conviction whether based on plea of guilty or nolo contendere
or its equivalent, or after trial, shall not of itself be deemed an adjudication
that such Director, officer or employee is liable to the Corporation, or such
other corporation, for negligence or misconduct in the performance of his
duties. Determination of the rights of such indemnification and the amount
thereof may be made at the option of the person to be indemnified pursuant to
procedure set forth, from time to time, in the By-Laws, or by any of the
8
<PAGE>
following procedures: (a) order of the Court or administrative body or
agency having jurisdiction of the action, suit, or proceeding; (b) resolution
adopted by a majority of the quorum of the Board of Directors of the Corporation
without counting in such majority any Directors who have incurred expenses in
connection with such action, suit or proceeding; (c) if there is no quorum of
Directors who have not incurred expense in connection with such action, suit, or
proceeding, then by resolution adopted by a majority of the committee of
stockholders and Directors who have not incurred such expenses appointed by the
Board of Directors; (d) resolution adopted by a majority of the quorum of the
Directors entitled to vote at any meeting; or (e) Order of any Court having
jurisdiction over the Corporation. Any such determination that a payment by way
of indemnity should be made will be binding upon the Corporation. Such right of
indemnification shall not be exclusive of any other right which such Directors,
officers, and employees of the Corporation and the other persons above mentioned
may have or hereafter acquire, and without limiting the generality of such
statement, they shall be entitled to their respective rights of indemnification
under any By-Law, Agreement, vote of stockholders, provision of law, or
otherwise in addition to their rights under this Article. The provision of this
Article shall apply to any member of any committee appointed by the Board of
Directors as fully as though each person and been a Director, officer or
employee of the Corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1. HOW AMENDED. These By-Laws may be altered, amended, repealed or
added to by the vote of the Board of Directors of the Corporation at any regular
meeting of said Board, or at a special meeting of Directors called for that
purpose provided a quorum of the Directors as provided by law and by the
Articles of Incorporation, are present at such regular meeting or special
meeting. These By-Laws and any amendments thereto and new By-Laws added by the
Directors may be amended, altered or replaced by the stockholders at any annual
or special meeting of the stockholders.
ARTICLE X
FISCAL YEAR
-----------
Section 1. FISCAL YEAR. The fiscal year shall end on the 31st day of
DECEMBER.
ARTICLE XI
WAIVER OF NOTICE
----------------
Section 1. Whenever any notice is required to be given to any shareholders
or directors of the Corporation under the provisions of these By-Laws, under the
Articles of Incorporation or under the provisions of the Nevada Business
Corporation Act, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
9
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary\Treasurer of HOMEQUEST,
INC., A NEVADA CORPORATION: and
2. That the foregoing By-Laws, comprising Ten (10) pages, constitute the
By-Laws of said Corporation as duly adopted at a meeting of the Board of
Directors thereof duly held on the 29th day of March, 1995.
/s/ Kay F. Ruff
----------------------------------
Kay F. Ruff
Secretary\Treasurer
10
Exhibit 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
CUSIP NO. 934641 10 1
WarpRadio.com, Inc.
10,000,000 Authorized shares $0.001 Par Value Non-Assessable
This Certifies that
is the record holder of
Shares of WarpRadio.com, Inc. Common Stock transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Countersigned by:
Interwest Transfer Company
1981 E. Murray-Holladay Road
Salt Lake City, UT 84117
By
-------------------------------
Authorized Signature
/s/ Denise Sutton /s/ Gregory J. Liptak
- ---------------------- ---------------------------------
Secretary President
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according the applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian for
(Cust.) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act of
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For Value Received _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint__________________________________Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated:
----------------------------
NOTICE: SIGNATURES MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER AND MUST BE GUARANTEED BY A BANK, OR ANY OTHER ELIGIBLE GUARANTOR
INSTITUTION THAT IS AUTHORIZED TO DO SO UNDER THE SECURITIES TRANSFER AGENT.
Exhibit 10.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan") is made this ___day
of September, 1999, among HomeQuest, Inc., a Nevada corporation ("HomeQuest");
Web Audio & Radio Portal, Inc., a Colorado corporation ("WARP"); and the WARP
stockholders, all of whom are listed on Exhibit A hereto and who execute and
deliver a copy of the Plan (the "WARP Stockholders").
WITNESSETH:
RECITALS
--------
WHEREAS, the respective Boards of Directors of HomeQuest and WARP have
adopted resolutions pursuant to which HomeQuest shall acquire and the WARP
Stockholders shall exchange 100% of the outstanding common stock of WARP; and
WHEREAS, the sole consideration for 100% interest in WARP shall be the
exchange of $0.001 par value common stock of HomeQuest (which shares are all
"restricted securities" as defined in Rule 144 of the Securities and Exchange
Commission) as outlined in Exhibit A; and
WHEREAS, the WARP Stockholders shall acquire in exchange the "restricted
securities" of HomeQuest in a reorganization within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, it is agreed:
Section 1
Exchange of Stock
-----------------
1.1 Number of Shares. The WARP Stockholders agree to transfer to HomeQuest
at the closing (the "Closing") 100% of the outstanding securities of WARP,
listed in Exhibit A, which is attached hereto and incorporated herein by
reference (the "WARP Shares"), in exchange for 7,500,000 post-split shares (see
Section 1.4 below) of common stock of HomeQuest, pro rata, as outlined in
Exhibit A. The pre-Plan outstanding shares of HomeQuest's common stock will
amount to 1,500,000 shares, after taking into account the one for 7.2 reverse
split of the 37,200,000 presently outstanding shares of HomeQuest and the
cancellation of 3,666,667 post-split shares of HomeQuest, more or less, by its
sole director, executive officer and principal stockholder as outlined in
Section 1.4 below; accordingly, there will be approximately 9,000,000 post-split
and post-Plan outstanding securities of HomeQuest.
1.2 Delivery of Certificates by WARP Stockholders. The transfer of the WARP
Shares by the WARP Stockholders shall be effected by the delivery to HomeQuest
<PAGE>
at the Closing of stock certificate or certificates representing the transferred
shares duly endorsed in blank or accompanied by stock powers executed in blank
with all signatures witnessed or guaranteed to the satisfaction of HomeQuest and
with all necessary transfer taxes and other revenue stamps affixed and acquired
at the WARP Stockholders' expense.
1.3 Further Assurances. At the Closing and from time to time thereafter,
the WARP Stockholders shall execute such additional instruments and take such
other action as HomeQuest may request in order to exchange and transfer clear
title and ownership in the WARP Shares to HomeQuest.
1.4 Reverse Split and Cancellation of Shares by a Principal Stockholder .
At or simultaneous with the Closing, the outstanding common stock of HomeQuest
shall be reverse split on a basis of one for 7.2 shares, while retaining the
current authorized shares and par value, with a appropriate adjustments to the
capital accounts of HomeQuest, and with all fractional shares being rounded up
to the nearest whole share; and Ken Edwards, the sole director, executive
officer and the principal stockholder of HomeQuest shall have agreed to convey
to HomeQuest for cancellation approximately 3,666,667 post-split shares, more or
less, so that after rounding resulting from the reverse split, there will be
1,500,000 post-split and pre-Plan outstanding securities of HomeQuest.
1.5 Resignations of Present Directors and Executive Officers and
Designation of New Directors and Executive Officers. On Closing, the present
sole director and executive officer of HomeQuest, Ken Edwards, shall designate
the directors and executive officers nominated by WARP to serve in his place and
stead, until the next respective annual meetings of the stockholders and the
Board of Directors of HomeQuest, and until their respective successors shall be
elected and qualified or until their respective prior resignations or
terminations, who shall be: Denise Sutton, CEO, Secretary/Treasurer and
Director; Gregory J. Liptak, President and Director; and Jo Saari Hadley, Vice
President; and then, the current sole director and executive officer shall
resign.
1.6 Change of Name. At or simultaneous to the Closing of this Plan, the
Board of Directors of HomeQuest, with the written consent of Ken Edwards, its
majority stockholder, shall adopt the resolutions necessary to amend HomeQuest's
Articles of Incorporation to change its name to "WarpRadio.com, Inc."
1.7 Assets and Liabilities of HomeQuest at Closing. HomeQuest shall have no
material assets and no liabilities at Closing, and all costs incurred by
HomeQuest incident to the Plan shall have been paid or satisfied.
1.8 Closing. The Plan will be deemed to be completed on receipt of the
signatures of WARP Stockholders collectively owning not less than 80% of the
outstanding WARP Shares; and the remainder of the WARP Shares shall be acquired
under and pursuant to the terms and provisions of the Plan as soon as
practicable.
2
<PAGE>
Section 2
Closing
-------
The Closing contemplated by Section 1 shall be held at the offices of
Leonard W. Burningham, Esq., Suite 205 Hermes Building, 455 East 500 South, Salt
Lake City, Utah 84111, on or before ten days following the execution and
delivery of this Plan, unless another place or time is agreed upon in writing by
the parties. The Closing may be accomplished by wire, express mail or other
courier service, conference telephone communications or as otherwise agreed by
the respective parties or their duly authorized representatives.
Section 3
Representations and Warranties of HomeQuest
-------------------------------------------
HomeQuest represents and warrants to, and covenants with, the WARP
Stockholders and WARP as follows:
3.1 Corporate Status. HomeQuest is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is
licensed or qualified as a foreign corporation in all states in which the nature
of its business or the character or ownership of its properties makes such
licensing or qualification necessary (Nevada only). HomeQuest is a publicly held
company, having previously and lawfully offered and sold a portion of its
securities in accordance with applicable federal and state securities laws,
rules and regulations. HomeQuest's common stock is nominally quoted on the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. (the
"NASD") under the symbol "HOMQ." Presently, pursuant to rules and regulations
adopted by the NASD on January 4, 1999, unless HomeQuest files a 10-SB
Registration Statement with the Securities and Exchange Commission which becomes
effective and all comments of the Securities and Exchange Commission have been
satisfied by December, 1999, quotations of HomeQuest's common stock on the.OTC
Bulletin Board of the NASD will cease.
3.2 Capitalization. The current pre-Plan authorized capital stock of
HomeQuest consists of 50,000,000 shares of $0.001 par value common voting stock,
of which approximately 37,200,000 shares are issued and outstanding, all fully
paid and non-assessable; and 7,000,000 shares of $0.001 par value preferred
stock, of which no shares are issued and outstanding. Except as otherwise
provided herein, there are no outstanding options, warrants or calls pursuant to
which any person has the right to purchase any authorized and unissued common or
preferred stock of HomeQuest;
3.3 Financial Statements. The financial statements of HomeQuest furnished
to the WARP Stockholders and WARP, consisting of audited financial statements
for the years ended December 31, 1998 and 1997, and unaudited financial
statements for the period ended June 30, 1999, attached hereto as Exhibit B and
incorporated herein by reference, are correct and fairly present the financial
condition of HomeQuest at such dates and for the periods involved; such
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statements were prepared in accordance with generally accepted accounting
principles consistently applied, and no material change has occurred in the
matters disclosed therein, except as indicated in Exhibit C, which is attached
hereto and incorporated herein by reference. Such financial statements do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
3.4 Undisclosed Liabilities. HomeQuest has no liabilities of any nature
except to the extent reflected or reserved against in its balance sheets,
whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities and interest due or to become due, except as set
forth in Exhibit C.
3.5 Interim Changes. Since the date of its balance sheets, except as set
forth in Exhibit C, there have been no (1) changes in financial condition,
assets, liabilities or business of HomeQuest which, in the aggregate, have been
materially adverse; (2) damages, destruction or losses of or to property of
HomeQuest, payments of any dividend or other distribution in respect of any
class of stock of HomeQuest, or any direct or indirect redemption, purchase or
other acquisition of any class of any such stock; or (3) increases paid or
agreed to in the compensation, retirement benefits or other commitments to its
employees.
3.6 Title to Property. HomeQuest has good and marketable title to all
properties and assets, real and personal, reflected in its balance sheets, and
the properties and assets of HomeQuest are subject to no mortgage, pledge, lien
or encumbrance, except for liens shown therein or in Exhibit C, with respect to
which no default exists.
3.7 Litigation. There is no litigation or proceeding pending, or to the
knowledge of HomeQuest, threatened, against or relating to HomeQuest, its
properties or business, except as set forth in Exhibit C. Further, no officer,
director or person who may be deemed to be an "affiliate" of HomeQuest is party
to any material legal proceeding which could have an adverse effect on HomeQuest
(financial or otherwise), and none is party to any action or proceeding wherein
any has an interest adverse to HomeQuest.
3.8 Books and Records. From the date of this Plan to the Closing, HomeQuest
will (1) give to the WARP Stockholders and WARP or their respective
representatives full access during normal business hours to all of HomeQuest's
offices, books, records, contracts and other corporate documents and properties
so that the WARP Stockholders and WARP or their respective representatives may
inspect and audit them; and (2) furnish such information concerning the
properties and affairs of HomeQuest as the WARP Stockholders and WARP or their
respective representatives may reasonably request.
3.9 Tax Returns. HomeQuest has filed all federal and state income or
franchise tax returns required to be filed or has received currently effective
extensions of the required filing dates.
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3.10 Confidentiality. Until the Closing (and thereafter if there is no
Closing), HomeQuest and its representatives will keep confidential any
information which they obtain from the WARP Stockholders or from WARP concerning
the properties, assets and business of WARP. If the transactions contemplated by
this Plan are not consummated by October 1, 1999, HomeQuest will return to WARP
all written matter with respect to WARP obtained by HomeQuest in connection with
the negotiation or consummation of this Plan.
3.11 Corporate Authority. HomeQuest has full corporate power and authority
to enter into this Plan and to carry out its obligations hereunder and will
deliver to the WARP Stockholders and WARP or their respective representatives at
the Closing a certified copy of resolutions of its Board of Directors through
its sole director authorizing execution of this Plan by HomeQuest's officers
through its sole officer and performance thereunder, and that the director
adopting and delivering such resolutions is the duly elected and incumbent sole
director of HomeQuest.
3.12 Due Authorization. Execution of this Plan and performance by HomeQuest
hereunder have been duly authorized by all requisite corporate action on the
part of HomeQuest, and this Plan constitutes a valid and binding obligation of
HomeQuest and performance hereunder will not violate any provision of the
Articles of Incorporation, Bylaws, agreements, mortgages or other commitments of
HomeQuest.
3.13 Environmental Matters. HomeQuest has no knowledge of any assertion by
any governmental agency or other regulatory authority of any environmental lien,
action or proceeding, or of any cause for any such lien, action or proceeding
related to the business operations of HomeQuest or HomeQuest's predecessors. In
addition, to the best knowledge of HomeQuest, there are no substances or
conditions which may support a claim or cause of action against HomeQuest or any
of HomeQuest' current or former officers, directors, agents or employees,
whether by a governmental agency or body, private party or individual, under any
Hazardous Materials Regulations. "Hazardous Materials" means any oil or
petrochemical products, PCB's, asbestos, urea formaldehyde, flammable
explosives, radioactive materials, solid or hazardous wastes, chemicals, toxic
substances or related materials, including, without limitation, any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" under any applicable
federal or state laws or regulations. "Hazardous Materials Regulations" means
any regulations governing the use, generation, handling, storage, treatment,
disposal or release of hazardous materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act and the Federal Water Pollution Control
Act.
3.14 Access to Information Regarding WARP. HomeQuest acknowledges that it
has been delivered copies of what has been represented to be documentation
containing all material information respecting WARP and WARP's present and
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contemplated business operations, potential acquisitions, management and other
factors; that it has had a reasonable opportunity to review such documentation
and discuss it, to the extent desired, with its legal counsel, directors and
executive officers; that it has had, to the extent desired, the opportunity to
ask questions of and receive responses from the directors and executive officers
of WARP, and with the legal and accounting firms of WARP, with respect to such
documentation; and that to the extent requested, all questions raised have been
answered to HomeQuest's complete satisfaction.
Section 4
Representations, Warranties and Covenants of WARP
and the WARP Stockholders
--------------------------------------------------
WARP and the WARP Stockholders represent and warrant to, and covenant with,
HomeQuest as follows (providing that WARP Stockholders owning less than 5% of
the WARP Shares make only those representations and warranties contained in
Sections 4.1, 4.11, 4.12 and 4.16:
4.1 Ownership. WARP Stockholders own the WARP Shares, free and clear of any
liens or encumbrances of any type or nature whatsoever, and each has full right,
power and authority to convey the WARP Shares owned without qualification.
4.2 Corporate Status. WARP is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado and is
licensed or qualified as a foreign corporation in all states or foreign
countries and provinces in which the nature of WARP's business or the character
or ownership of WARP properties makes such licensing or qualification necessary.
4.3 Capitalization. The authorized capital stock of WARP consists of
50,000,000 shares of common stock, no par value per share, of which 3,281,249
shares are issued and outstanding, all fully paid and non-assessable. Except as
otherwise provided herein or in promissory notes convertible into WARP Shares
which would be equal to 500,000 post-split shares of HomeQuest under the Plan,
if the notes had been converted prior to the completion of the Plan, there are
no outstanding options, warrants or calls pursuant to which any person has the
right to purchase any authorized and unissued common stock of WARP.
4.4 Financial Statements. The financial statements of WARP furnished to
HomeQuest, consisting of an unaudited trial balance sheet and income statement
for the period ended June 30, 1999, attached hereto as Exhibit D and
incorporated herein by reference, are correct and fairly present the financial
condition of WARP as of these dates and for the periods involved, and such
statements were prepared by management in good faith from the books and records
of WARP, and no material change has occurred in the matters disclosed therein,
except as indicated in Exhibit E, which is attached hereto and incorporated
herein by reference. These financial statements do not contain any untrue
6
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statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading.
4.5 Undisclosed Liabilities. WARP has no material liabilities of any nature
except to the extent reflected or reserved against in the trial balance sheet,
whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities and interest due or to become due, except as set
forth in Exhibit E attached hereto and incorporated herein by reference.
4.6 Interim Changes. Since the date of the trial balance sheet, except as
set forth in Exhibit E, there have been no (1) changes in the financial
condition, assets, liabilities or business of WARP, in the aggregate, have been
materially adverse; (2) damages, destruction or loss of or to the property of
WARP, payment of any dividend or other distribution in respect of the capital
stock of WARP, or any direct or indirect redemption, purchase or other
acquisition of any such stock; or (3) increases paid or agreed to in the
compensation, retirement benefits or other commitments to their employees.
4.7 Title to Property. WARP has good and marketable title to all properties
and assets, real and personal, proprietary or otherwise, reflected in the trial
balance sheet, and the properties and assets of WARP are subject to no mortgage,
pledge, lien or encumbrance, except as reflected in the trial balance sheet or
in Exhibit E, with respect to which no default exists.
4.8 Litigation. There is no litigation or proceeding pending, or to the
knowledge of WARP, threatened, against or relating to WARP or its properties or
business, except as set forth in Exhibit E. Further, no officer, director or
person who may be deemed to be an affiliate of WARP is party to any material
legal proceeding which could have an adverse effect on WARP (financial or
otherwise), and none is party to any action or proceeding wherein any has an
interest adverse to WARP.
4.9 Books and Records. From the date of this Plan to the Closing, the WARP
Stockholders will cause WARP to (1) give to HomeQuest and its representatives
full access during normal business hours to all of its offices, books, records,
contracts and other corporate documents and properties so that HomeQuest may
inspect and audit them; and (2) furnish such information concerning the
properties and affairs of WARP as HomeQuest may reasonably request.
4.10 Tax Returns. WARP has filed all federal and state income or franchise
tax returns required to be filed or has received currently effective extensions
of the required filing dates.
4.11 Confidentiality. Until the Closing (and continuously if there is no
Closing), WARP, the WARP Stockholders and their representatives will keep
confidential any information which they obtain from HomeQuest concerning its
properties, assets and business. If the transactions contemplated by this Plan
are not consummated by October 1, 1999, WARP and the WARP Stockholders will
return to HomeQuest all written matter with respect to HomeQuest obtained by
them in connection with the negotiation or consummation of this Plan.
4.12 Investment Intent. The WARP Stockholders are acquiring the shares to
be exchanged and delivered to them under this Plan for investment and not with a
view to the sale or distribution thereof, and the WARP Stockholders have no
commitment or present intention to liquidate the Company or to sell or otherwise
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dispose of the HomeQuest shares. The WARP Stockholders shall execute and deliver
to HomeQuest on the Closing an Investment Letter attached hereto as Exhibit F
and incorporated herein by reference, acknowledging the "unregistered" and
"restricted" nature of the shares of HomeQuest being received under the Plan in
exchange for the WARP Shares; receipt of certain material information regarding
HomeQuest; waiver and compromise of any pre-emptive rights relating to the prior
issuance of shares of any of the WARP Shares; and whereby each is compromising
and/or waiving any claims each has or may have against WARP by reason of the
purchase of any securities of WARP by each or any of them prior to the
Closing of the Plan.
4.13 Corporate Authority. WARP has full corporate power and authority to
enter into this Plan and to carry out its obligations hereunder and will deliver
to HomeQuest or its representative at the Closing a certified copy of
resolutions of its Board of Directors authorizing execution of this Plan by its
officers and performance thereunder.
4.14 Due Authorization. Execution of this Plan and performance by WARP
hereunder have been duly authorized by all requisite corporate action on the
part of WARP, and this Plan constitutes a valid and binding obligation of WARP
and performance hereunder will not violate any provision of the Articles of
Incorporation, Bylaws, agreements, mortgages or other commitments of WARP.
4.15 Environmental Matters. WARP and the WARP Stockholders have no
knowledge of any assertion by any governmental agency or other regulatory
authority of any environmental lien, action or proceeding, or of any cause for
any such lien, action or proceeding related to the business operations of WARP
or its predecessors. In addition, to the best knowledge of WARP, there are no
substances or conditions which may support a claim or cause of action against
WARP or any of its current or former officers, directors, agents, employees or
predecessors, whether by a governmental agency or body, private party or
individual, under any Hazardous Materials Regulations. "Hazardous Materials"
means any oil or petrochemical products, PCB's, asbestos, urea formaldehyde,
flammable explosives, radioactive materials, solid or hazardous wastes,
chemicals, toxic substances or related materials, including, without limitation,
any substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," " hazardous materials" or "toxic substances"
under any applicable federal or state laws or regulations. "Hazardous Materials
Regulations" means any regulations governing the use, generation, handling,
storage, treatment, disposal or release of hazardous materials, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, the Resource Conservation and Recovery Act and the Federal Water
Pollution Control Act.
4.16 Access to Information Regarding HomeQuest. WARP and the WARP
Stockholders acknowledge that they have been delivered copies of what has been
represented to be documentation containing all material information respecting
HomeQuest and its present and contemplated business operations, potential
acquisitions, management and other factors; that they have had a reasonable
opportunity to review such documentation and discuss it, to the extent desired,
with their legal counsel, directors and executive officers; that they have had,
to the extent desired, the opportunity to ask questions of and receive responses
from the directors and executive officers of HomeQuest, and with the legal and
accounting firms of HomeQuest, with respect to such documentation; and that to
the extent requested, all questions raised have been answered to their complete
satisfaction.
8
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Section 5
Conditions Precedent to Obligations of WARP
and the WARP Stockholders
-------------------------------------------
All obligations of WARP and the WARP Stockholders under this Plan are
subject, at their option, to the fulfillment, before or at the Closing, of each
of the following conditions:
5.1 Representations and Warranties True at Closing. The representations and
warranties of HomeQuest contained in this Plan shall be deemed to have been made
again at and as of the Closing and shall then be true in all material respects
and shall survive the Closing.
5.2 Due Performance. HomeQuest shall have performed and
complied with all of the terms and conditions required by this Plan to be
performed or complied with by it before the Closing.
5.3 Officers' Certificate. WARP and the WARP Stockholders shall have been
furnished with a certificate signed by the President of HomeQuest, in such
capacity, attached hereto as Exhibit G and incorporated herein by reference,
dated as of the Closing, certifying (1) that all representations and warranties
of HomeQuest contained herein are true and correct; and (2) that since the date
of the financial statements (Exhibit B hereto), there has been no material
adverse change in the financial condition, business or properties of HomeQuest,
taken as a whole.
5.4 Opinion of Counsel of HomeQuest. WARP and the WARP Stockholders shall
have received an opinion of counsel for HomeQuest, dated as of the Closing, to
the effect that (1) the representations of Sections 3.1, 3.2 and 3.11 are
correct; (2) except as specified in the opinion, counsel knows of no inaccuracy
in the representations in 3.5, 3.6 or 3.7; and (3) the shares of HomeQuest to be
issued to the WARP Stockholders under this Plan will, when so issued, be validly
issued, fully paid and non-assessable.
5.5 Assets and Liabilities of HomeQuest. Unless otherwise agreed, HomeQuest
shall have no assets and no liabilities at Closing, and all costs, expenses and
fees incident to the Plan shall have been paid.
5.6 Reverse Split and Cancellation of Shares by a Principal Stockholder. At
or simultaneous with the Closing, the outstanding common stock of HomeQuest
shall be reverse split on a basis of one for 7.2 shares, while retaining the
current authorized shares and par value, with a appropriate adjustments to the
capital accounts of HomeQuest, and with all fractional shares being rounded up
to the nearest whole share; and Ken Edwards, the sole director, executive
officer and the principal stockholder of HomeQuest shall have agreed to convey
to HomeQuest for cancellation of 3,666,667 post-split shares, more or less, so
that depending upon rounding resulting from the reverse split, that there will
be 1,500,000 post-split and pre-Plan outstanding securities of HomeQuest.
9
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5.7 Resignations of Present Directors and Executive Officers and
Designation of New Directors and Executive Officers. On Closing, the present
sole director and executive officer of HomeQuest, Ken Edwards, shall designate
the directors and executive officers nominated by WARP to serve in his place and
stead, until the next respective annual meetings of the stockholders and the
Board of Directors of HomeQuest, and until their respective successors shall be
elected and qualified or until their respective prior resignations or
terminations, who shall be: Denise Sutton, CEO, Secretary/Treasurer and
Director; Gregory J. Liptak, President and Director; and Jo Saari Hadley, Vice
President; and then, the current sole director and executive officer shall
resign.
5.8 Change of Name. At or simultaneous to the Closing of this Plan, the
Board of Directors of HomeQuest, with the written consent of Ken Edwards, its
majority stockholder, shall adopt the resolutions necessary to amend HomeQuest's
Articles of Incorporation to change its name to "WarpRadio.com, Inc."
5.9 Stockholders' Consent. Persons owing not less than 80% of the
outstanding WARP Shares shall have executed and delivered the Plan.
5.10 Representations of Former Director and Officer. Howard Ruff, a former
director and executive officer of HomeQuest, shall have executed and delivered
Exhibit H attached hereto and incorporated herein respecting limitations on the
sale of shares of HomeQuest owned by him and the dissemination of written
materials respecting HomeQuest following the completion of the Plan.
5.11 Indemnification Agreement. HomeQuest shall have provided WARP and the
WARP Stockholders with satisfactory evidence of the indemnification of HomeQuest
by Phoenix Ink, LLC of all prior indebtedness of HomeQuest as of March 1, 1998.
Section 6
Conditions Precedent to Obligations of HomeQuest
------------------------------------------------
All obligations of HomeQuest under this Plan are subject, at HomeQuest's
option, to the fulfillment, before or at the Closing, of each of the following
conditions:
6.1 Representations and Warranties True at Closing. The representations and
warranties of WARP and the WARP Stockholders contained in this Plan shall be
deemed to have been made again at and as of the Closing and shall then be true
in all material respects and shall survive the Closing.
6.2 Due Performance. WARP and the WARP Stockholders shall have performed
and complied with all of the terms and conditions required by this Plan to be
performed or complied with by them before the Closing.
6.3 Officers' Certificate. HomeQuest shall have been furnished with a
certificate signed by the President of WARP, in such capacity, attached hereto
as Exhibit I and incorporated herein by reference, dated as of the Closing,
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certifying (1) that all representations and warranties of WARP and the WARP
Stockholders contained herein are true and correct; and (2) that since the date
of the financial statements (Exhibit D), there has been no material adverse
change in the financial condition, business or properties of WARP, taken as a
whole.
6.4 Books and Records. The WARP Stockholders or the Board of Directors of
WARP shall have caused WARP to make available all books and records of WARP,
including minute books and stock transfer records; provided, however, only to
the extent requested in writing by HomeQuest at Closing.
6.5 Stockholders' Consent. Persons owing not less than 80% of the
outstanding WARP Shares shall have executed and delivered the Plan.
Section 7
Termination
-----------
Prior to Closing, this Plan may be terminated (1) by mutual consent in
writing; (2) by either the directors of HomeQuest or WARP and the WARP
Stockholders if there has been a material misrepresentation or material breach
of any warranty or covenant by the other party; or (3) by either the directors
of HomeQuest or WARP and the WARP Stockholders if the Closing shall not have
taken place, unless adjourned to a later date by mutual consent in writing, by
the date fixed in Section 2.
Section 8
General Provisions
------------------
8.1 Further Assurances. At any time, and from time to time, after the
Closing, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out the intent
and purposes of this Plan.
8.2 Waive. Any failure on the part of any party hereto to comply with any
its or their obligations, agreements or conditions hereunder may be waived in
writing by the party to whom such compliance is owed.
8.3 Brokers. Each party represents to the other parties hereunder that no
broker or finder has acted for it in connection with this Plan, 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 he/she/it.
8.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person or sent by
prepaid first-class registered or certified mail, return receipt requested, as
follows:
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If to HomeQuest: 1703 Wasatch Drive
Ogden, Utah 84403
With a copy to: Leonard W. Burningham, Esq.
455 East 500 South, #205
Salt Lake City, Utah 84111
If to WARP: 6535 South Dayton Street, Suite 3000
Glenwood Village, Colorado 80111
With a copy to: Gary A. Agron, Esq.
5445 DTC Parkway, Suite 520
Englewood, Colorado 80111
If to the WARP
Stockholders: To the addresses listed on Exhibit A
8.5 Entire Agreement. This Plan constitutes the entire agreement between
the parties and supersedes and cancels any other agreement, representation or
communication, whether oral or written, between the parties hereto relating to
the transactions contemplated herein or the subject matter hereof.
8.6 Headings. The section and subsection headings in this Plan are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Plan.
8.7 Governing Law. This Plan shall be governed by and construed and
enforced in accordance with the laws of the State of Nevada, except to the
extent pre-empted by federal law, in which event (and to that extent only),
federal law shall govern.
8.8 Assignment. This Plan shall inure to the benefit of, and be binding
upon, the parties hereto and their successors and assigns.
8.9 Counterparts. This Plan may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10 Default. In the event of any default hereunder, the prevailing party
in any action to enforce the terms and provisions hereof shall be entitled to
recover reasonable attorney's fees and related costs.
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of
Reorganization effective the latest date hereof.
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HOMEQUEST, INC.
Date: ____________________. By /s/ Ken Edwards
------------------------------------
Ken Edwards, President
WEB AUDIO & RADIO PORTAL, INC.
Date: ____________________. By /s/ Denise Sutton
------------------------------------
Denise Sutton, President
13
Exhibit 10.2
BMI WEB SITE.
MUSIC PERFORMANCE AGREEMENT
AGREEMENT, made on June 1, 1999, by and between BROADCAST MUSIC, INC.
("BMI"), a New York corporation with its principal offices at 320 West 57th
Street, New York, New York 10019 and Web Audio & Radio Portal, Inc.
("LICENSEE"), a Colorado (State)
(check one) [ X ] corporation
[ ] partnership
[ ] limited liability company
[ ] individual d/b/a/ (complete if applicable)
with its principal offices at 6535 S. Dayton St. #3000
--------------------------------------------------
Greenwood Village, CO 80111 (the "Agreement").
- ---------------------------
IT IS HEREBY AGREED AS FOLLOWS:
1. Definitions
-----------
As used this Agreement, the following terms shall have the following
respective meanings:
(a) The "Term" of this Agreement shall mean the period from June 1,
1999 through June 30, 2000 and continuing on a year-to-year basis thereafter;
provided, however, that either party may terminate the Agreement upon 60 days'
prior written notice at the end of June of any year beginning with June 30,
2000.
(b) "Web Sire" shall mean an Internet computer service currently
registered with Internic and known as WARPRADIO that LICENSEE produces and/or
packages and then transmits or causes to be transmitted either directly or
indirectly to persons who receive the service from the URL
http://www.warpradio.com over the Internet by means of a personal computer or by
means of another device capable of receiving Internet transmissions. LICENSEE
agrees that this Agreement covers only transmissions originating from this Web
Site and URL within the Territory. LICENSEE may list additional Web Sites owned,
operated and/or controlled by LICENSEE on Exhibit A hereto. LICENSEE must comply
separately with all reporting requirements under this Agreement for each Web
Site listed on Exhibit A. References herein to Web Site shall include those
additional sites listed on Exhibit A.
(c) "Territory" shall mean the United States, its territories,
commonwealths and possessions.
(d) "Online Service" shall mean a commercial computer online
information and/or entertainment programming packaging service (including, but
not limited to, America Online, Microsoft Network, CompuServe and Prodigy) which
may offer consumers, for a fee, access to proprietary centralized databases as
well as remote sources of audio and video programming and which may provide
Internet access.
(e) "Web page" shall mean a set of associated files transferred
sequentially to and rendered more or less simultaneously by a browser.
(f) "Page impression" shall mean a transfer request for a single web
page.
(g) "Music page" shall mean a web page which presents an icon that may
be clicked on to access music or at which music is played upon loading the web
page.
(h) "Music impression" shall mean a page impression of a music page
multiplied by the number of music file titles on that page either visible by
means of an icon on that page or otherwise (e.g., a music page with five (5)
music file titles would yield 5 music impressions whenever that page is
requested).
(i) "Gross Revenues" shall mean all revenues, including all billings
on behalf of, and all payments made to, LICENSEE, or as authorized by LICENSEE,
its employees, representatives, agents or any other person acting on LICENSEE'S
behalf, and all billings on behalf of. and payments made to, any person,
company, firm or corporation under the same or substantially the same ownership,
management and control as LICENSEE for: (1) access to and/or use of the Web Site
or portions thereof, including online time, subscriptions, payments from
Internet Service Providers
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and other transactional charges, including commissions from third parties on
transactions; (2) advertising (including sponsor "hot links") on the Web Site,
including billings to and payments received from sponsors less advertising
agency commissions not to exceed 15% actually incurred to a recognized
advertising agency not owned or controlled by LICENSEE; (3) the provision of
time or space on the Web Site to any other person; (4) donations; (5) the fair
market value of merchandise, services or any thing or service of value which
LICENSEE may receive in lieu of cash consideration for the use of the Web Sire
(i.e. trade and barter); and (6) LICENSEE's proprietary software used to access
the Web Site, or download any aspect thereof. Gross Revenues shall include such
payments as set forth in (1) through (6) above to which LICENSEE is entitled but
which are paid to a parent, subsidiary, or division of LICENSEE or any third
party, in lieu of payment to LICENSEE, for LICENSEE's Web Site.
(j) "Music Area Revenues" shall mean Gross Revenues multiplied by a
fraction the numerator of which is the total number of music impressions for the
Web Site and the denominator of which is the total number of page impressions
for the Web Site.
2 Grant of Rights
---------------
(a) BMI hereby grants to LICENSEE, for the Term of this Agreement, a
non-exclusive license to perform publicly within the Territory, in and as part
of LICENSEE's Web Site transmitted or caused to be transmitted either directly
or indirectly by LICENSEE over the Internet all musical works, the rights to
grant public performance licenses of which BM1 controls. This license shall
include only public performances by transmissions originating from a server
within the Territory and received by listeners via personal computers or by
means of another device capable of receiving the Internet through streaming
technologies as well as those transmissions that are downloaded by persons on
personal computers or otherwise. This license shall not include dramatic rights
or the right to perform dramatico-musical works in whole or in substantial part.
In no event shall this license include transmissions to any commercial premises
where LICENSEE's Web Site is used as a commercial music service (as that term is
currently understood in the industry) or is performed publicly; such
performances of BMI music shall be subject to appropriate separate BMI
license(s).
(b) Nothing herein shall be construed as the grant by BMI of any
license in connection with any transmission which is not part of LICENSEE's Web
Site transmitted or caused to be transmitted by LICENSEE and nothing herein
shall be construed as authorizing LICENSEE to grant to others (including, but
not limited to, online services, cable television system operators and open
video systems (acting as other than Internet service providers)) any license or
right to reproduce or perform publicly by any means, method or process
whatsoever, any of the musical compositions licensed hereunder.
(c) The transmission by LICENSEE of a public performance licensed
hereunder may originate at any place within the Territory whether or not such
place is licensed by BMI.
(d) This Agreement grants only public performing rights to LICENSEE,
and does not grant any reproduction, distribution, performance right in sound
recordings or any other intellectual property right(s) in any musical
compositions to any person or entity that may receive and/or download or
otherwise store the transmission of musical works.
(e) This Agreement only grants to LICENSEE the right to publicly
perform musical works in which and to the extent BMI has been granted the public
performing rights.
(f) LICENSEE represents and warrants that it shall not offer
LICENSEE's Web Site for resale by a third party as a pay or premium audio
service, and that LICENSEE's Web Site shall not be packaged or included on a
tier of services for additional revenues either independently or with other Web
Sites by third parties. The license granted hereunder shall not extend to any
such use of the Web Site.
3. License Fee
-----------
In consideration of the license granted herein, LICENSEE shall pay to BMI
for each quarter year of the Term a license fee equal to either of the following
amounts the choice between which shall be LICENSEE's;
(a) Gross Revenues Calculation
--------------------------
LICENSEE shall pay to BMI 1.75% of LICENSEE's Gross Revenues generated
by LICENSEE's Web Site during each quarter year of the Term according to the
Payment Schedule set forth below ("Payment Schedule"); or
2
<PAGE>
(b) Music Area Revenues Calculation
---------------------------------
LICENSEE shall pay to BMI the greater of 2.5% of LICENSEE's Music
Area Revenues or 0.25% of LICENSEE's Gross Revenues generated by LICENSEE's Web
Site during each quarter year of the Term according to the Payment Schedule.
LICENSEE shall select either the Gross Revenues Calculation or the
Music Area Revenues Calculation at the time LICENSEE submits its first report
pursuant to Paragraph 5 herein. LICENSEE may elect to change between the Gross
Revenues Calculation and Music Area Revenues Calculation at the end of any
quarter according to the Payment Schedule below:
Quarter Period Ending Payment Due Date
------- ------------- ----------------
First March 31 April 30
Second June 30 July 31
Third September 30 October 31
Fourth December 31 January 31
4. Minimum Fee
-----------
Upon signing this Agreement, LICENSEE shall pay to BMI an initial minimum
fee of $500.00 multiplied by a fraction the numerator of which is the number of
months remaining in the current year (including the current month) and the
denominator of which is 12. Thereafter, LICENSEE shall pay the annual $500.00
minimum fee at the beginning of each calendar year by no later than January 31.
The minimum fee payment will be credited against any additional fees LICENSEE
shall owe to BMI above the minimum fee in the same year to which the minimum
fee shall apply. Web Sites paying only the minimum fee must still furnish
financial reports under Paragraph 5 per the schedule set forth above.
5. Financial Reports and Audit
----------------------------
(a) LICENSEE shall submit to BMI separate reports as to all Gross
Revenues generated by LICENSEE's Web Site as follows:
(i) For each quarter year to which this Agreement applies, a
quarterly report, certified by an authorized representative of LICENSEE, for the
Web Site, in the form substantially the same as the Web Site Music Performance
License Quarterly Report Form annexed to this Agreement as Exhibit B, due at the
same time as the applicable quarterly license fee on or before the thirtieth
(30th) day after the end of the quarter year in accordance with the Payment
Schedule set forth above in Paragraph 3. LICENSEE agrees to use software which
BMI may provide to LICENSEE to prepare and deliver such reports electronically.
(ii) In the absence of timely filed quarterly reports as set
forth above, BMI shall have the right to estimate the fees due for a given
quarter year on the basis of the highest quarterly fee during the previous
twelve (12) months and bill LICENSEE therefor. However, neither BMI's estimation
of the fee for a reporting period nor anything else shall relieve LICENSEE of
the obligation to report and make appropriate actual fee payment for the
reporting period. If said quarterly estimate in the absence of a timely
completed report reflects that LICENSEE's total estimated license fee for said
quarter year was less than the actual license fee, LICENSEE shall pay BMI, at
the time the report is rendered, the difference between the actual fee due and
the estimated fee paid. If said report reflects that the actual fee for said
quarter year was less than the estimated fee paid, BMI shall credit the
overpayment to LICENSEE's account. If LICENSEE has submitted all contractually
required prior reports and payments to BMI and this Agreement is no longer in
effect, BMI shall refund the overpayment to LICENSEE.
(b) BMI shall have the right to require that LICENSEE provide BMI with
data or information as may be necessary to ascertain the license fee due
hereunder.
(c) BMI shall have the right, once with respect to each year of the
Term (or portion thereof), by its duly authorized representatives, at any time
during customary business hours and upon thirty (30) days' advance written
notice, to examine the books and records of account of LICENSEE necessary to
verify any and all statements, accounting and reports rendered arid/or required
by this Agreement and in order to ascertain the license fee due BMI for any
unreported period. BMI shall treat as confidential all data and information
coming to its attention as a result of any such examination of books and
records.
3
<PAGE>
(d) In the event that BMI conducts an audit under Paragraph 5(c). and
such audit reveals that LICENSEE has underpaid license fees to BMI, LICENSEE
shall immediately pay the amount LICENSEE owes BMI and, in addition, if such
underpayment amounts town percent (10%) or more of LICENSEES annual fees for the
audited period LICENSEE shall pay BMI a late payment charge in the amount of
one and one-half percent (1 1/2%) per month of all monies owed commencing on the
actual date such monies were due.
6. Late Payment Charge
--------------------
BMI may impose a late payment charge of one and one-half percent (1
1/2%) per month from the date payment was due on any payment that is received
by BMI more than thirty (30) days after the due date,
7. Music Use Reports
-----------------
Upon BMI's request, LICENSEE shall provide BMI with separate detailed
information in electronic form from LICENSEE's log and statistics about the
transmission of all musical works on LICENSEE's Web Site. Such information shall
identify the musical works by title, composer/writer, author, artist, record
label, length, type of use (i.e., theme, background or feature performance) and
manner of performance (i.e. instrumental Or vocal) (or any other methodology
agreed to by BMI and LICENSEE) and specify the number of times each musical work
is transmitted and whether such transmission is streamed or downloaded. LICENSEE
shall request reports from its licensors or outside producers with respect to
all content provided by others and transmitted by LICENSEE as part of LICENSEE's
Web Site. LICENSEE shall deliver to BMI all reports with respect to such data
covering programs transmitted by LICENSEE during each calendar quarter year on
or before the thirtieth day following the end of such quarter pursuant to the
schedule set forth in Paragraph 3 herein. LICENSEE agrees to use software which
BMI may provide to LICENSEE to prepare and deliver such reports electronically.
8. Indemnification
---------------
BMI shall indemnify, save and hold harmless and defend LICENSEE and
its officers and employees from and against any and all claims, demands and
suits that may be made or brought against them or any of them with respect to
the public performance within the Territory of any Works licensed under this
Agreement; provided, however, that such indemnity shall be limited to those
claims, demands or suits that are made or brought within the Territory, and
provided further that such indemnity shall be limited to works which are BMI
affiliated works at the time of LICENSEE's performance of such works. This
indemnity shall not apply to transmissions of any musical work performed by
LICENSEE after written request from BMI to LICENSEE that LICENSEE refrain from
performance thereof. BMI shall, upon reasonable written request, advise LICENSEE
whether particular musical works are available for performance as part of BMI's
repertoire. LICENSEE shall provide the title and the writer/composer of each
musical composition requested to be identified. LICENSEE agrees to give BMI
immediate notice of any such claim, demand, or suit, to deliver to BMI any
papers pertaining thereto, and to cooperate with BMI with respect thereto, and
BMI shall have full charge of the defense of any such claim, demand, or suit;
provided, however, that LICENSEE may retain counsel on its behalf and at its own
expense and participate in the defense of such claim, demand or suit.
9. Warranty; Reservation of Rights
--------------------------------
(a) LICENSEE shall use its best efforts to ensure that its
transmissions of musical works by means of LICENSEE's Web Site are digitally
encoded to prevent the recipient of the transmission from digitally copying or
transmitting the works to others.
(b) This Agreement is experimental in nature and both parties reserve
the right to reevaluate the appropriateness of the fees and terms herein for
periods following the expiration of the Term.
10. Breach or Default
-----------------
Upon any breach or default of the terms and conditions of this
Agreement by LICENSEE, BMI shall have the right to cancel this Agreement, but
any such cancellation shall only become effective if such breach or default
continues thirty (30) days after LICENSEE's receipt of written notice thereof.
The right to cancel shall be in addition to any and all other remedies which BMI
may have. No waiver by BMI of full performance of this Agreement by LICENSEE iii
any one or more instances shall be a waiver of the right to require full and
complete performance of this Agreement thereafter or of the right to cancel this
Agreement in accordance with the terms of this Paragraph.
4
<PAGE>
11. Arbitration
-----------
All disputes of any kind, nature or description arising in connection
with the terms and conditions of this Agreement (except for matters within the
jurisdiction of the BMI rate court) shall be submitted to arbitration in the
City, County, and State of New York under the then prevailing rules of the
American Arbitration Association by an arbitrator or arbitrators to be selected
as follows: Each of the parties shall, by written notice to the other, have the
right to appoint one arbitrator. If, within ten (10) days following the giving
of such notice by one party the other shall not, by written notice, appoint
another arbitrator, the first arbitrator shall be the sole arbitrator. If two
arbitrators are so appointed, they shall appoint a third arbitrator. If ten (10)
days elapse after the appointment of the second arbitrator and the two
arbitrators are unable to agree upon the third arbitrator, then either party
may, in writing, request the Americaii Arbitration Association to appoint the
third arbitrator. The award made in the arbitration shall be binding and
conclusive on the parties and judgment may be, but need not be, entered in any
court having jurisdiction. Such award shall include the fixing of costs,
expenses, and attorneys' fees of arbitration, which shall be borne by the
unsuccessful party.
12. Withdrawal of Works
-------------------
BMI reserves the right at its discretion to withdraw from the License
granted hereunder any musical work as to which legal action has been instituted
or a claim made that BMI does not have the right to license the performing
rights in such work or that such work infringes another composition.
13 Notice
------
All notices and other communications between the parties hereto shall
be in writing and deemed received (i) when delivered in person; (ii) upon
confirmed transmission by telex or facsimile device; or (iii) five (5) days
after deposited in the United States mails, postage prepaid. certified or
registered mail, addressed to the other party at the address set forth below (or
at such other address as such other party may supply by written notice):
BMI: 320 West 57th Street
New York, New York: 10019
Attn: John Shaker
Senior Vice President Licensing
with a separate copy to;
Marvin L. Berenson, Esq.
Senior Vice President and General Counsel.
LICENSEE: Web Audio & Radio Portal, Inc.
6535 S. Dayton St #3000
Greenwood Village, CO 80111
with a separate copy to:
14. Assignment
----------
This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns, but no
assignment shall relieve the parties hereto of their respective obligations
hereunder.
15. Entire Agreement
----------------
This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof. This Agreement cannot be
waived, added to or modified orally and no waiver, addition or modification
shall be valid unless in writing and signed by the parties. This Agreement, its
validity, construction,
5
<PAGE>
and effect, shall be governed by the laws of the State of New York. The fact
that any provisions herein are found by a court of competent jurisdiction to be
void or unenforceable shall not affect the validity or enforceability of any
other provisions.
BROADCAST MUST, INC. Web Audio & Radio Portal, Inc.
------------------------------------
(Licensee)
By: /s/ Richard Conlon By: /s/ Denise Sutton
---------------------------- -------------------------------
(Signature) (Signature)
Richard Conlon
Vice President
Marketing & Business Development
Media Licensing Denise Sutton
---------------------------------- ------------------------------
(Print Name of Signer) (Print Name of Signer)
---------------------------------- ------------------------------
(Title of Signer) (Title of Signer)
PLEASE COMPLETE SHADED AREA ONLY
Please return signed agreement together with minimum fee to:
BMI
320 West 57th Street
New York, NY 10019
ATTN: Web Site Licensing
6
<PAGE>
EXHIBIT A
WEB SITE NAME URL
- --------------------------------------------------------------------------------
WARPRADIO http://www.warpradio.com
- --------------------------------------------------------------------------------
Exhibit 10.3
ASCAP EXPERIMENTAL LICENSE AGREEMENT
FOR INTERNET SITES ON THE WORLD WIDE WEB - RELEASE 2.1
1. Parties: This is an agreement between the American Society of Composers,
authors and Publishers ("We,""Us" or "ASCAP"), located at One Lincoln Plaza,
New York, New York 10023 and
Web Audio & Radio Portal, Inc. ("You" or "Licensee"), located at
- -------------------------------------------
Licensee Name
6535 S. Dayton St. #3000 Greenwood Village Co 80111
- --------------------------------------------------------------------------------
Street Address or P.O. Box City State Zip Code
2. Experimental Agreement: This is an experimental agreement which applies for
its term only and is entered into without prejudice to any position you or we
may take for any period subsequent to its termination.
3. Definitions:
(a) Your "Web Site" is the Internet site on the World Wide Web generally
known as
WARPRADIO
------------------------------------------------------------------
with the principal Universal Resource Locator (URL) of:
http://www.warpradio.com
-----------------------------------------------------------
(b) "Web Site Transmissions" are all transmissions of content to Web Site
Users from or through your Web Site, or from any other web site
pursuant to an agreement between you and the operator of the other web
site, when accessed by means of ant' connection from your \Web Site.
(c) "Web Site Users" are all those who access Web Site Transmissions.
(d) Our "Repertory" consists of all copyrighted musical compositions
written or published by our members or by the members of affiliated
foreign performing rights societies, including compositions written or
published during the term of this agreement, and of which we have the
right to license non-dramatic public performances.
4. Grant of license: We want you a license to publicly perform, by means of Web
Site Transmissions, non-dramatic renditions of the separate musical compositions
in our Repertory.
5. Term of License: The license granted by this agreement commences on June 1,
1999 ("Effective Date"), and ends on December 31 of the same calendar year, and
continues after that for additional terms of one year each unless you or we
terminate it by giving the other party notice at least thirty days prior to end
of a calendar year.
<PAGE>
6. Limitations on License:
(a) This license extends only to you and your Web Site and is limited to
performances presented by means of Web Site Transmissions, and by no
other means; provided, however, that (i) nothing in this agreement
authorizes such performances when transmitted from your Web Site
pursuant to an agreement between you and any other web site operator,
when accessed by means of a connection from that other web site, even
if such performances fall within the definition of Web Site
Transmissions; and provided further, that (ii) if you are an Internet
access provider, nothing in this agreement authorizes such
performances when transmitted from or through any homepage(s) hosted
on your Web Site for those for whom you provide the service of
Internet access.
(b) This license may not be assigned without our written consent.
(c) This license is limited to the United States, its territories and
possessions, and the Commonwealth of Puerto Rico.
(d) Nothing in this agreement grants you, or authorizes you to grant to
any Web Site User, or to anyone else, any right to reproduce, copy or
distribute by any means, method or process whatsoever, any of the
musical compositions licensed by this agreement, including, but not
limited to, transferring or downloading any such musical composition
to a computer hard drive, or otherwise copying the composition onto
any other storage medium.
(e) Nothing in this agreement grants, or authorizes you to grant, to any
Web Site User, or to anyone else, any right to perform publicly by any
means, method or process whatsoever, any of the musical compositions
licensed under this agreement, including, but not limited to, any
transmission, retransmission, or further transmission of any of those
compositions.
(f) This license is limited to non-dramatic performances, and does not
authorize any dramatic performances; nor does it extend to or include
the public performance of any opera, operetta, musical comedy, play,
or like production, as such, in whole or in part.
7. License Fees: For each year during the term of this agreement you agree to
pay us the license fee applicable to your "Amount Subject to Fee" as defined in
the Rate Schedules applicable for that year.
8. Rate Schedules: There are three alternative Rate Schedules attached to and
made a part of this agreement. The annual license fee under Rate Schedule "A" is
based on "Total Value Derived": that under Rate Schedule "B" is based on "Value
Attributable to Performances of Music" and that under Rate Schedule "C" is based
on "Value Attributable to Performances of ASCAP Music." For each year, you may
choose any of three rate schedules we offer and for which you qualify. Rate
Schedules "B" or "C" may only he used if: (a) you employ technology which
enables you to furnish the required information; (b) your Annual License Fee
Report is submitted when clue; and (c) you are current in payment of license
fees. In all other instances. Rate Schedule "A" applies.
2
<PAGE>
9. Reports and Payments: You agree to furnish license fee reports and payments
to us as follows:
(a) Annual License Fee Reports. You will submit an Annual License Fee
Report for each year of this agreement, by the first day of April of
the following year on the Report Form we will provide you free of
charge.
(b) Initial License Fee Report. Upon entering into this agreement, you
will submit an Initial License Fee Report based on a good faith
estimate of your Web Site's "Amount Subject to Fee" for the first full
year of operation of your Web Site from the Effective Date of this
agreement.
(c) License Fee Payments. You will submit license fee payments quarterly
on or before January 1, April 1, July 1 and October 1 of each year.
The payments due by April 1, July 1 and October 1 of each year, and by
January 1 of the following year, are each equal to one-fourth of the
license fee for the preceding calendar year (annualized for any
reported period less than a year); provided, however, that in any year
for which your estimated license fee is less than $1,000, you will
submit payments of $250 each, or the balance of the license fee due
for that year, whichever is less.
(d) Late Report Payments. If we do not receive your Annual License Fee
Report when due, you will submit quarterly license fee payments that
are 24% higher than the quarterly payments due for the preceding year,
and payments will continue at that increased rate until we receive the
late report.
(e) Annual Adjustment. With each Annual License Fee Report you will submit
payment of any license fees due over and above all amounts that you
paid for the year to which the report pertains. If the fee due is less
than the amount you paid, we will apply the excess to the next
quarterly payment due under this agreement. If the excess is greater
than one quarterly payment, we will refund the excess over and above
the amount of one quarterly payment to you at your written request.
(f) Late Payment Charge. You will pay a finance charge of 1-1/2% per
month, or the maximum rate permitted by the law of the state in which
your Web Site is located, whichever is less, from the date due, on any
required payment that is not made within thirty days of its due date.
(g) Music Use Reports. You agree to provide us with reports, as we may
from time to time request, regarding the musical compositions
contained in your Web Site Transmissions. Your reports shall be in the
form and contain the information specified in our requests. Any such
request(s) we make of you shall be in writing and sent to you at least
thirty days prior to commencement of the period to be covered by the
report. You will not be obligated to provide us with such reports for
a period or periods which in the aggregate exceed one week in each
calendar quarter in any one calendar year during the term of this
agreement.
10. Report Verification:
(a) We have the right to examine your books and records, and you agree to
obtain for us the right to examine the books and records of any partner in, or
co-publisher of, your Web Site, in order to verify any required report. We may
exercise this right by giving you thirty days notice of our intention to conduct
an examination. We will consider all data and information derived from our
examination as completely confidential. You agree to furnish all pertinent books
and records, including electronic records, to our authorized representatives,
during customary business hours.
3
<PAGE>
(b) If our examination shows that you underpaid license fees, you agree to
pay a license charge of: 1-1/2% per month, or the maximum rate
permitted by the law of the state in which your Web Site is located,
whichever is less, on the license fees due from the date we bill you
for that amount or, if the underpayment is 5% or more, from the date
or dates that the license fees should have been paid.
(c) You may dispute all or part of our claim for additional fees. You may
do so by advising us in writing within thirty days from the date we
bill the additional fees to you of the basis for your dispute, and by
paying the undisputed portion of our claim with the applicable finance
charges. If there is a good faith dispute between us concerning all or
part of our claim, we will defer finance charges on the disputed
amount until sixty days after we have responded to you, and will
pro-rate finance charges based on our resolution of the dispute.
11. Breach or Default: If you fail to perform any of the terms or conditions
required of you by this agreement, we may terminate your license by giving you
thirty days notice to cure your breach or default. If you do not do so within
that thirty day period, your license will automatically terminate at the end of
that period without any further notice from us.
12. Interference With ASCAP's Operations: We have the right to terminate this
license effective immediately, if there is any major interference with, or
substantial increase in the cost of, our operation as a result of any law in the
state, territory, dependency, possession or political subdivision in which you
or your Web Site is located which is applicable to the licensing of performing
rights.
13. Indemnification: We will indemnify you from any claim made against you with
respect to the non- dramatic performance licensed under this agreement of any
composition(s) in our Repertory, and will have full charge of the defense
against the claim. You agree to notify us immediately of any such claim, furnish
us with all the papers pertaining to it, and cooperate fully with us in its
defense. If you wish, you may engage your own counsel, at your expense, who may
participate in the defense. Our liability under this paragraph is strictly
limited to the amount of license fees that you actually paid us under this
agreement for the calendar year(s) in which the performance(s) which are the
subject of the claim occurred.
14. Covenant Not to Sue:
(a) ASCAP, on its own behalf and on behalf of our members, covenants not
to make any claim against you for unauthorized public performances of
any of our members' compositions in our Repertory which would have
been licensed under this agreement except for the limitation set forth
in subparagraph 6(a)(i), provided that the agreement between you and
the operator of the other web site referred to in subparagraph 6(a)(i)
expressly requires that the operator of the other web site obtain
needed authorization for performances of copyrighted musical
compositions on or through its web site. and provided further, that
within 24 hours of receipt of notice from us that the operator of the
other web site does not have such needed authorization, you will
remove or block the connection from that other web site to your Web
Site.
(b) ASCAP, on its own behalf and on behalf of our members, covenants not
to make any claim against you for unauthorized public performances of
any of our members compositions in our Repertory which would have been
licensed under this agreement except fur the limitation set forth in
subparagraph 6(a)(ii), provided that the agreement between you and the
owner of the homepage referred to in subparagraph 6(a)(ii) expressly
requires that that owner obtain needed authorization for performances
of copyrighted musical compositions on or through its homepage, and
provided
4
<PAGE>
RATE SCHEDULE "A"
================================================================================
REPORT FORM
ASCAP EXPERIMENTAL LICENSE AGREEMENT
FOR INTERNET SITES ON THE WORLD WIDE WEB -- RELEASE 2.1
================================================================================
PART I. ACCOUNT INFORMATION
REPORT PERIOD: June 1999 THRU June 2000
LICENSEE NAME: Web Radio and Audio Portal, Inc.
----------------------------------------------------------------
POSTAL ADDRESS: 6535 S. Dayton St., Suite 3000, Greenwood Village, CO 80111
---------------------------------------------------------------
WEB SITE URL: http:// www.warpradio.com E-MAIL: [email protected]
------------------------- ------------------
FACSIMILE NUMBER: 303-790-8543 PHONE NUMBER: 303-799-9118
-------------------- -------------
PART II. TOTAL VALUE DERIVED
NOTE 1: The terms Web Site, Web Site Transmissions and Web Site Users are
defined in subparagraphs 2(a), (b), I (c) of the license agreement.
NOTE 2: Total Value Derived is the greater of Web Site Revenue or Operating
Expenditures. All Web Site venue and Operating Expenditures definitions include
all specified payments and expenditures whether made directly to or by you, any
entity under the same or substantially the same ownership, management or control
as you, or to or by any other person, firm or corporation including, but not
limited to, any partner or co-publisher of your Web Site, pursuant to an
agreement or as directed or authorized by you or any of your agents or
employees.
NOTE 3: If Total Value Derived exceeds $8,700,000 per year, or if you choose not
to report Web Site Revenue or Operating Expenditures, your annual Maximum
License Fee is S140,OOO.
WEB SITE REVENUE
1. Web Site Users Revenue means all payments made by
or on behalf of Web Site Users to access Web Site
Transmissions including, but not limited to,
subscriber fees, connect tine charges, and any
other access fees ................................... $ 0
2. Net Sponsor Revenue (from line 6) .................... $ 0
3. Web Site Revenue (add lines 1 and 2) ................ $ 0
A-I
<PAGE>
NET SPONSOR REVENUE
4. Sponsor Revenue means all payments made by or on behalf
of sponsors, advertisers, program suppliers, content
providers, or others for use of the facilities of your
Web Site including, but not limited to, payments
associated with syndicated selling, on-line franchising
and associate programs. Sponsor Revenue also means all
payments from whatever source derived upon your sale or
other disposition of goods or services you received as
barter for use of the facilities of your Web Site
including, but not limited to, payments for the sale of
advertising time or space .................................. $ 0
5. Adjustment to Sponsor Revenue means advertising agency
commissions not to exceed 15% actually allowed to an
advertising agency that has no direct or indirect
ownership or managerial connection with you or your Web
Site ....................................................... $ 0
6. Net Sponsor Revenue (subtract line 5 from line 4) .......... $ 0
OPERATING EXPENDITURES
7. Annual Operating Expenditures means all expenditures,
whether direct or indirect, made in connection with
operation of your Web Site including, but not limited
to salaries, supplies, lease payments, payments to
Internet service providers, payments to Internet access
providers, and depreciation ................................ $300,000
TOTAL VALUE DERIVED
8. Enter line 3 or line 7, whichever is greater ............... $ 0
PART III. LICENSE FEE CALCULATION FOR RATE SCHEDULE "A"
9. Total Value Derived/Amount Subject to Fee
(from Part II, line 8) .................................... $ 0
10. Rate ....................................................... x .01615
11. License Fee (multiply line 9 by line 10) ................... $ 0
12. Minimum License Fee ........................................ $ 250.00
13. Maximum License Fee ........................................ $140,000.00
14. LICENSE FEE DUE (enter amount from line 11, or line 12,
or line 13, whichever is greater - see Note 3 above) $ 250.00
PART IV. CERTIFICATION
We certify that this report is true and correct and that all books and records
necessary to verify this report are now and will continue to be available for
your examination in accordance with the terms of the license agreement.
/s/ Denise Sutton 5/12/99
- ---------------------------------- ------------------------------
Signature Date
Denise Sutton - owner
- --------------------------------------------------------------------------------
Print Name and Title
A-2
<PAGE>
further, that within 24 hours of receipt of notice from us that the owner
of the homepage does not have such needed authorization, you will remove
that homepage from your Web Site.
15. Notices: We or you may give any notice required by this agreement by sending
the notice to the other party's last known address by United States Mail or by
generally recognized same-day or overnight delivery service. We each agree to
inform the other in writing of any change of address.
IN WITNESS WHEREOF, this Agreement has been duly executed by ASCAP and Licensee
this _____ day of ,19____
- --------------------------------------------------------------------------------
AMERICAN SOCIETY OF COMPOSERS,
AUTHORS AND PUBLISHERS Web Audio & Radio Portal, Inc.
------------------------------------
Licensee Name
By: By: /s/ Denise Sutton
----------------------------- ------------------------------
Signature
Denise Sutton
- -------------------------------- ------------------------------
Title Print Your Name
Owner
------------------------------
Title
(Fill in capacity in which
signed: (a) If corporation,
state corporate office held:
(b) If partnership, write word
"partner" under printed name
of signing partner; (c) If
individual owner, write
"individual owner" under
printed name.)
A-3
Exhibit 10.4
Web Audio & Radio Portal, Inc.
WarpRadio.COM
Service Agreement
This Service Agreement is entered into on this _________ of_____________ 1999,
by Web Audio & Radio Portal, Inc., a Colorado Corporation, hereinafter referred
to as WarpRadio.com, and
____________________________________ ,hereinafter referred to as Buyer.
WarpRadio.com will provide the Buyer the BASIC PACKAGE consisting of:
1) Up-to-date, searchable listing
2) Functional web page
3) 24-hour, 7-day-week live streaming
4) Coverage of ASCAP and BMI FEES
In Exchange, Buyer agrees to provide WarpRadio.com the following:
1) Two (2) minutes of promotional announcements per day between the hours
of 6:00AM - 7:00PM,Monday through Sunday
2) Provide a Traffic Report/Schedule and affidavits for proof of performance.
3) Place a visible WarpRadio.com logo next to the streaming link on buyer's
web-page, should they have one.
Terms and Conditions
Term: The term of this Agreement shall commence on the Effective Date and shall
continue for the period of 12 (twelve months). The Term shall automatically
renew for the term set forth herein at expiration of the initial Term unless
notice by either party to amend the Agreement is received by the other party at
least 30 days in advance of expiration date of the contract. If Buyer terminates
contract prior to expiration date, buyer is liable for 50% of the remaining
Promotional Announcements for the remaining contract period.
Definitions: Whereas up-to-date, searchable listing will be a listing on
WarpRadio.com including the following profile information: call letters, format,
frequency, power, business address, market city and state, city and state of
license, business phone, business fax, general manager, program director, sales
manager, news director, owner, alias and streaming link. If applicable, listing
will also include the Buyer's external website address. The buyer hereby
understands that the password given by WarpRadio.com will grant access to the
Buyer's information on WarpRadio.com and must be self-administered by the Buyer
to maintain the Buyer's accurate listing. Any further development, variations
and/or requirements for the up-to-date, searchable listing shall warrant an
amendment to this agreement and the exchange herein.
Whereas functional web page will be limited to the profile information, the
Buyer's logo, provided by the Buyer, a 200-word paragraph of promotional text,
provided by the Buyer, and a pre-made template, provided by WarpRadio.com. Any
further development, variations and/or requirements for the functional web page
shall warrant an amendment to this agreement and the exchange herein. Any
production, programming and/or design requested by the Buyer will result in $1
40/hour contracting fees and/or additional minutes of promotional announcements.
Whereas 24-hour, 7-day-week live streaming includes the understanding between
the Buyer and WarpRadio.com that the 24-hour, 7-day-week streaming will be
available as long as the Buyer's encoded stream is provided to WarpRadio.com's
server(s) 24-hour, 7-day-week. There currently is no arbitrary limit to the
number of simultaneous listeners receiving the Buyer's encoded stream from the
WarpRadio.com server(s). If the Buyer already has a website, they must include
the Warpradio.com logo on that such site. Any further development, variations
and/or requirements for 24-hour, 7-day-week live streaming shall warrant an
amendment to this agreement and the exchange herein. Any production, programming
and/or design requested by the Buyer will result in $1 40/hour contracting fees
and/or additional minutes of promotional announcements.
Revised 10/15/99
Page 1
<PAGE>
Web Audio & Radio Portal, Inc.
WarpRadio.COM
Service Agreement
Whereas coverage of ASCAP and BMI fees shall mean WarpRadio.com will have sole
responsibility for any or all ASCAP and BMI fees. This is only applicable when
the streaming access is from WarpRadio.com's server(s).
Whereas 2 minutes of Promotional Announcements per Day between the hours of
6:00AM - 7:00PM, Monday through Sunday shall mean the Buyer allocates a minimum
of two (2) minutes of promotional announcements to WarpRadio.com between the
hours of 6:00 a.m. to 7:00 p.m., Monday through Sunday, every week for the
length of this agreement. Any variation in time or allocation shall warrant an
amendment to this agreement and the exchange herein.
Whereas Provide a Traffic Report/Schedule and affidavits for proof of
performance shall mean the Buyer will be responsible with supplying the
necessary reports, schedules and affidavits required to prove the allocation of
the two (2) minutes of promotional announcements.
Effective Date of Service: The effective date of the Service shall be the date
on which the Buyer is able to transmit broadcasting to WarpRadio.coin servers.
The date shall be no later than 60 days from the date of this Agreement. If
after 90 days the Buyer is unable to transmit audio, the Buyer may terminate the
Service for inactivity with no penalty.
Service Usage Restriction: The service may not be used in violation of any
community standards, accepted Internet policy, laws or regulations of local,
state, or Federal governments or Agencies thereof, or international treaty.
Actions such as, but not limited to, misuse of copyrighted, patented or
protected materials, use of the service for defamatory, threatening or obscene
purposes, and the mass distribution of any message on an intrusive basis to
users of the Internet, is prohibited and any such violations may be grounds for
termination of the service.
Network Security: The Internet is not a secure network. Confidential or
sensitive information should not be transmitted over the Internet. WarpRadio.com
does not assume responsibility for loss or theft of information transmitted over
the Internet.
Telecom Charges not included: The service provided herein is exclusive of all
other telecommunications services which may be required to establish connection
for the Buyer to WarpRadio.com. All such costs and associated terms and
conditions required by the telecommunications company are in addition to
WarpRadio.com and shall be directly between the Buyer and the telecommunications
provider.
Equipment: All guarantees and warrantees for hardware and software products are
those provided by the manufacturer. WarpRadio.com provides no guarantees or
warrantees beyond that offered by the manufacturer unless explicitly stated in
writing. In no case shall WarpRadio.com be liable for consequential damages from
hardware or software problems, not excluding the Buyer's computer, internet
connection as well as any technical difficulties the Buyer has with encoding the
stream.
Liability: In no event shall WarpRadio.com be liable for the quality or content
of the Buyer's encoded stream. In no event shall either party be liable to the
other party for any incidental or consequential damages of any nature
whatsoever, including lost profits or revenues regardless of the foreseeability
thereof, occasioned by either party's inability to perform its obligations
hereunder. The Buyer shall indemnify and hold harmless WarpRadio.com for loss,
damage or injury to property supplied by Buyer or injury to employees of Buyer
provided as talent, helpers or workers, arising out of or incident to
performance of services under this contract.
Revised 10/15/99
Page 2
<PAGE>
Web Audio & Radio Portal, Inc.
WarpRadio.COM
Service Agreement
The Buyer authorizes WarpRadio.com to use the buyer's directory listing
Web-site, which is provided by WarpRadio.com, at no cost for promotional and
marketing purposes to further the business goals of WarpRadiocom.
Termination: Failures of Service by the local exchange, or the interexchange
carrier, or any other third party' or by strikes, labor disturbances, Acts of
God, or any event or force of nature which prevents commencement of the Service
or continuation of the Service under this Agreement shall give both
WarpRadio.com and the Buyer the right to terminate this Agreement without
penalty, provided 10 days written notice is given.
Assignment: This Agreement shall be binding upon and incur to the benefit of
both parties hereto and their respective successors. It is non-assignable
without written consent, except to entities completely controlling or controlled
by the party. Each Party will require written notice, however, in the event of
any assignment.
Non-disclosure policy: The Buyer will not disclose to any other party any
Confidential Information regarding any proprietary or intellectual property
developed during the course of the contract. The term "Confidential Information"
shall include any and all information disclosed to the Buyer or known by Buyer
as a consequence of or conceived or originated, discovered or developed by
WarpRadio.com, not generally known in the industry in which WarpRadio.com is or
may become engaged, about WarpRadio.com products, processes and services,
including, but not limited to, information related to research, development,
techniques, pricing and cost policies, financial information, internal
operations and any other trade secrets.
General policies: The failure by either party to exercise in any respect any
right provided for in this agreement shall not be deemed a waiver of any further
right under this Agreement. Neither party shall have the right to use the
other's name, trademark or trade name without the prior consent of the other
party for any uses not contemplated by this Agreement. This agreement represents
the complete agreement and understanding of the parties with respect to the
subject matter herein. In the event of a dispute to this agreement, the
prevailing party is entitled to recover expenses including reasonable attorneys
fees. This Agreement may be modified only in writing signed by both parties.
This Agreement shall be governed by the substantive law of the State of
Colorado.
I understand and agree to all of the above terms & conditions.
Company Name/Station: (print)
---------------------------------------------------
Call Letters: (print)
----------------------------------------------------------
Name: (print)
------------------------------------------------------------------
Signature:
---------------------------------------------------------------------
Date:
----------------------------------------------------------
WarpRadio.com Representative:
--------------------------------------------------
Date:
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Revised 10/15/99
Page 3
Exhibit 10.5
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is entered into effective
as of July 23, 1999 between Merham Partners, LLC, a Missouri Limited Liability
Corporation, Landlord and Webster Audio Products, Inc., a Colorado Corporation,
Tenant.
RECITALS
--------
A. Landlord and Tenant are parties the Lease dated September 16, 1998, for
the lease of the Premises known as Suite 3000, located at 6535 South Dayton
Street, Greenwood Village, Colorado 80111.
B. Landlord and Tenant desire to amend the Lease in accordance with the
following provisions.
AGREEMENT
---------
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged by the parties, the parties agree as follows:
1. Tenant. Web Audio & Radio Portal, Inc., a Colorado Corporation shall be
added to the Lease as Tenant.
2. Reaffirmation of Lease. Except as otherwise expressly modified herein,
the terms of the Lease are hereby affirmed by Landlord and Tenant and such terms
shall remain in full force and effect.
3. Capitalized Terms. Unless otherwise defined herein, capitalized terms
used in this First Amendment shall have the same meaning as defined in the
Lease.
4. Conflict. In the event of conflict between the terms of this First
Amendment and the terms of the Lease, the terms of this First Amendment shall
control.
The parties have executed this First Amendment as of the date first written
above.
LANDLORD
Merham Partners, LLC
a Missouri Limited Liability Corporation
By: /s/ Daniel Bruce Strong
-----------------------------------
Name: Daniel Bruce Strong
Title: Vice President
TENANT
Webster Audio Products, Inc.
a Colorado Corporation
By: /s/ John Sutton 7-23-99
-------------------------
Name: John Sutton
Title: Principle
TENANT
Web Audio & Radio Portal, Inc.
a Colorado Corporation
By: /s/ Denise Sutton
--------------------------
Name: Denise Sutton
Title: CEO
<PAGE>
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment') is entered into
effective as of July 30 1999 between Merham Partners, LLC, a Missouri Limited
Liability Corporation, Landlord and Webster Audio Products, Inc., a Colorado
Corporation and Web Audio & Radio Portal, Inc., a Colorado Corporation, Tenant.
RECITALS
--------
A. Landlord and Tenant are parties the Lease dated September 16, 1998 and
it's First Amendment dated July 23, 1999, for the lease of the Premises known as
Suite 3000, located at 6535 South Dayton Street, Greenwood Village, Colorado
80111.
B. Landlord and Tenant desire to amend the Lease in accordance with the
following provisions.
AGREEMENT
---------
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged by the parties, the parties agree as follows:
1. Expansion Premises. The Premises shall be expanded (~Expansion
Premises") pursuant to Exhibit A, attached, to include the Expansion Premises
located at 6535 South Dayton Street, Suite 3675, Greenwood village, Colorado
80111.
2. Base Rent. Pursuant to paragraph 3.1 of the Lease, base Rent Shall be
paid according to the schedule below:
Lease Year Monthly Payment Sub Total
9/1/99 -- 10/31/99 $5,671.00 $11,342.00
11/1/99 -- 10/31/00 $5,671.00 $68,052.00
11/1/00 -- 10/31/01 $5,761.00 $69,132.00
3. Security Deposit. Pursuant to paragraph 7.1 of the Lease, Security for
Performance of Lease, the amount shall be increased to five thousand, seven
hundred sixty-one dollars ($5,761.00), with two thousand, one hundred forty-nine
dollars ($2,149.00) being carried forward from the Lease.
3. Telephone Lines. Landlord shall grant to Tenant, subject to
availability, a maximum of eight (8) additional pairs of telephone wire, for use
through the Term.
4. Reaffirmation of Lease. Except as otherwise expressly modified herein,
the terms of the Lease are hereby affirmed by Landlord and Tenant and such terms
shall remain in full force and effect.
5. Capitalized Terms. Unless otherwise defined herein, capitalized terms
used in this Second Amendment shall have the same meaning as defined in the
Lease.
6. Conflict. In the event of conflict between the terms of this Second
Amendment and the terms of the Lease, the terms of this Second Amendment shall
control.
The parties have executed this Second Amendment as of the date first written
above.
LANDLORD
Merham Partners, LLC
a Missouri Limited Liability Corporation
By: /s/ Daniel Bruce Strong
-----------------------------------
Name: Daniel Bruce Strong
Title: Vice President
<PAGE>
TENANT
Webster Audio Products, Inc.
a Colorado Corporation
By: /s/ John Sutton 8-2-99
------------------------
Name: John Sutton
Title: Principle
Web Audio & Radio Portal, Inc.
a Colorado Corporation
By: /s/ Denise Sutton 8-2-99
--------------------------
Name: Denise Sutton
Title: CEO
Rules and Regulations
It is further agreed that the following Rules and Regulations shall be and are
hereby made a part of this Lease and Tenant agrees that Tenant and it's agents,
servants, employees, invitees, licenses, visitors and/or any other persons
entering the Building under the express or implied invitation of Tenant or any
others permitted by Tenant to occupy or enter the Building and Premises
(collectively referred to herein as "Tenant's Associates"), will at all times
abide by said Rules and Regulations, to wit:
1. Landlord reserves the right to refuse admittance to the Building at any time
other than between the hours of 7:00 a.m. 7:00 p.m. Monday through Friday and
9:00 a.m. Saturday to any person not producing both a key to the Leased Premises
and/or a pass issued by Landlord. in case of invasion, riot, public excitement
or other commotion, Landlord also reserves the right to prevent access to the
Building during the continuance of same. Landlord shall in no case be liable for
damages for the admission or exclusion of any person to or from the Building.
2. For the purpose of providing utilities and services, the Building hours of
operation are from 7:00 a.m. to 7:00 p.m. Monday through Friday and 9:00 a.m. to
1:00 p.m. Saturday, except legal holidays.
3. Landlord will furnish to each Tenant two (2) keys to each entry door lock to
the Premises and the toilet rooms, if locked by Landlord and two (2) Building
keys. Tenant and Tenants Associates shall not have any duplicate keys made.
Landlord may make a reasonable charge for any additional keys and/or access
cards requested by Tenant. Tenant shall not alter any lock end no locksmith
services may be performed or new or additional locks or bolts installed on any
door, without the prior written consent of Landlord. If a lock alteration or
installment is made, the new lock must accept the master key for the Building or
Tenant must provide Landlord with duplicate pass keys for all such locks and
bolts. Tenant, upon the expiration or termination of its Lease, shall deliver to
Landlord all keys and access cards in Tenant a possession, for all locks and
bolts to the Building and Premises.
4. Tenant shall insure that all entry doors of the Premises are closed and
locked and observe strict care and caution that all water faucets and apparatus
are entirely shut off before Tenant or Tenant's Associates leave the Building.
All electricity shall likewise be shut off. All expenses, damages or injuries
resulting from the violation of this rule shall be born by the Tenant who, or
whose Tenant's Associates era found to be negligent under this rule.
5. The sidewalks, entries, corridors, stairways, and elevators of the Building
and/or Common Areas shall be kept clear of debris end trash and not be
obstructed by Tenant or Tenants Associates, or used for storage or any purpose
other than ingress and egress to and from the Premises, it being understood and
agreed that such access may be obtained only via the elevators, if applicable,
in the lobby of the Building. No furniture shall be placed in, on, or about the
exterior or common areas of the Building or in any lobby or corridor or used for
storage or as a waiting or lounging place by Tenant or Tenant's Associates,
without the prior written consent of Landlord. Landlord shell have the right to
remove all non-permitted items, without notice to Tenant, at the expense of
Tenant.
6. The landscaped grounds and common areas adjacent to the Building shall be
used for the enjoyment of Tenant and Tenant's Associates without restriction, so
long as such parties conduct themselves in a manner so as not to disturb,
destroy, or litter said grounds and common areas. All parties using the grounds
and common areas shall comply with all laws and ordinances of federal, state and
local authorities and these Rules and Regulations.
<PAGE>
7. Furniture, equipment, or supplies will be moved in or out of the Building
only upon the elevator, if applicable, designated by Landlord, and then only
during such hours and in such manner as may be prescribed by Landlord. The
Landlord shall have the right to approve or disapprove the movers or moving
company employed by Tenant, and Tenant shall cause said movers to use only the
loading facilities end elevator, if applicable, designated by Landlord. All
damage done to the Building or it's equipment by Tenant or it's jobbers during
the delivery or removal of such items, or by reason of theIr presence in the
Building, shall be paid for upon demand, to the Landlord, by the Tenant, through
or under whom the damage was done. There shall not be used in any space or in
the common halls of the Building, either by Tenant or by jobbers or others in
the delivery or receipt of merchandise, any hand-trucks, except those equipped
with rubber tires.
8. No safe or article, the weight of which may in the opinion of Landlord,
constitute a hazard or damage to the Building or it's equipment, shall be moved
into the Premises, Safes or other equipment, the weight of which is not
excessive, shall be moved into, from, or about the Building only during such
hours and in such manner as shall be prescrIbed by Landlord, and Landlord shall
have the right to designate the location of such articles in the Premises.
9. Tenant shall not do or permit anything to be done in the Premises or bring or
keep anything therein which would In any way increase the rate of hazard or
liability insurance on the Building or on personal property kept therein,
constitute a nuisance or waste, obstruct or interfere with the rights of other
tenants or in any way injure or annoy other tenants, or conflict with the laws
relating to fire safety or with any regulations of the fire department, fire
insurance underwriters or with any insurance policy upon the Building or any
pert thereof, or conflict with any of the rules or ordinances of the department
of health in the jurisdiction where the Building is located.
10. Tenant shall not use any portion of the Premises for the storage of
merchandise for sale to the general public, or for the selling or display of any
goods, items or merchandise, either at wholesale or retail.
11. Canvassing, soliciting, peddling, distribution of hand bills or other
written material in or about the Building and common Areas is prohibited. Tenant
shall cooperate with Landlord in prevention and summation of same.
12. Tenant shall not employ any person or persons other than the janitor of
Landlord for the purpose of cleaning or taking care of the Premises without the
prior written consent of Landlord. Landlord shall be in no way responsible to
Tenant for any loss of property from the Premises, however occurring, or for any
damage done to Tenant's furniture or equipment by the janitor or any of the
janitor's staff, or by any other person or parsons whomsoever. The janitor of
the Building may at all times keep a passkey and other agents of Landlord shall
at all time be allowed admittance to the PremIses. No Tenant shall cause any
unnecessary labor by reason of such Tenants carelessness or indifference In the
preservation of good order and cleanliness of the Leased Premises. In the event
Tenant must dispose of crates, boxes. etc., which will not fit into office waste
paper baskets, it with be the responsibility of Tenant, at Tenant's expense, to
dispose of same. No trash may be placed in the common areas of the Building.
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than for those for which they were constructed or
intended. No clogging objects or damaging substances and no sweepings, rubbish,
chemicals or other inappropriate or unsuitable substances or objects shall be
thrown, placed or disposed of therein. Water shall not be wasted by tying back
or wedging the faucets in any other manner. All costs of any flooding damages,
breakage or stoppage resuiting from the violation of this rule shall be born by
the Tenant who, or who's Tenant's Associates are found to be negligent under
this rule.
14. Tenant and Tenant's Associates shall not disturb other tenants of the
Building, Premises or adjoining buildings by the use of any radio, sound
equipment, or musical instrument or by the making of loud or Improper noises.
Tenant shall not permit the operation of any musical or sound producing
instruments or devices which may be heard outside the Premises, Building or
parking faculty, or which may emit electrical waves which will impair radio or
television broadcast or reception from or into the Building.
<PAGE>
15. Except as permitted by Landlord, Tenant shall not mark upon, paint signs
upon, cut or drill into, drive nails or screws into, or in any way deface the
wells, ceilings, partitions or floors of the Premises or of the Building. Any
defacement, damage or injury caused by Tenant or Tenant's Associates, shall be
paid for by Tenant.
16. No sign, advertisement, or notice shall be inscribed, painted or affixed on
any part of the inside or outside of the Building unless of such color, size and
style and in such place upon or in the Building as shall be first designated by
Landlord in writing, but there shall be no obligation or duty on Landlord to
allow any sign, advertisement or notice to be inscribed, painted or affixed on
any part of the inside or outside of the Building. A directory in a conspicuous
place, with names of tenants, not to exceed one (1) name par one thousand
(1,000) rentable square feet of space contained in the respective premises, will
be provided by Landlord. Any revision in the directory will be made by Landlord
at Tenant's expense within a reasonable time after notice from Tenant, in
writing, of the specifications of the revision. Landlord shall have the right to
remove all non-permitted signs, without notice to Tenant, at the expense of
Tenant.
17. Tenant shall not allow anything to be placed on the outside of the Building
nor shall anything be thrown by Tenant or Tenant's Associates out of the windows
or doors, or down the corridors, elevator shafts, or ventilating ducts or shafts
of the Building. Tenant, except In case of fire or other emergency, shall not
open any outside window.
18. No window shades, blinds, screens, draperies, or other window coverings wIll
be attached or detached by Tenant without Landlord's prior written consent.
Tenant egress to abide by Landlord's rules with respect to maintaining uniform
curtains, draperies, and linings or blinds at all windows and hallways. The
walls, partitions, skylights, windows, doors and transoms that reflect or admit
light into passageways or into any other part of the BuIlding shall not be
covered or obstructed by Tenant.
19. Tenant and Tenant's Associates shall not go upon the roof of the Building,
install any radio or television antennae or any other device or item on the
roof, exterior walls, windows or window sills of the Building, place objects
against glass partitions, doors or windows which would be unsightly from the
interior or exterior of the Building
20. No signaling, telegraphic, or telephonic instruments or devices, or other
wires, instruments or devices, other than phone outlets normally provided by
Landlord as part of the Lease, shall be installed in connection with any
Premises without the prior written approval of Landlord, if Tenant desires
telegraphic, telephonic or other electrical connections, Landlord or it's agents
will direct the electricians as to where and how wiring may be introduced,
without such directions, no boring or cutting of wires will be permitted. Such
installations, and the boring or cutting for wires, shall be made at the sole
cost and expense of Tenant and under the control and direction of Landlord.
Landlord retains in all cases the right to require (a) Installation and use of
such electrical protection devices that prevent the transmission of excessive
currents of electricity into or through the Building, (b) the changing of wires
and of their installation and arrangements underground or otherwise as Landlord
may direct, and (c) compliance on the part of sit using or seeking access to
such wires with such rules as Landlord may establish relating thereto. All such
wires used by Tenant must be clearly tagged at the distribution boards, chases
and junction boxes and elsewhere In the Building as directed by Landlord, with
the suits number of the Premises to which said wires lead, the purpose for which
said wires are used, and the name of the company operating same. Tenant shall
pay all engineering, consulting and design costs incurred by Landlord,
attributable to Tenant's requested alterations and shall pay to obtain all
necessary governmental permits and certificates required for any alterations to
which Landlord has consented end shall cause all such alterations to be
completed in compliance therewith and with all applicable requirements of
Landlord's insurance carrier. Landlords consent to or approval of any
alterations shall create no responsibility on the part of the Landlord for their
design, sufficiency or compliance with any laws, rule or regulations of
governmental agencies or authorities.
<PAGE>
21. Tenant shall not install or operate any steam or gas engine or boiler, or
carry on any mechanical business in the Premises. Tenant shell not store or use
oil, gas and inflammable or explosive liquids, gases or substances for heating,
lighting, or any other purpose expressly prohibited. Explosives, articles or
substances deemed hazardous or offensively odoriferous, shall not be brought
into the Building. The term ("Hazardous Substances") shall mean: (a) Hazardous
Substances as defined in the "Comprehensive Environmental Response, Compensation
and Liability Act, as from time to time amended, (b) or, 'POBs" as defined in 43
C.F.R. 761, et. seq. and 'TCDD' as defined in 43 C.F.R. 775, et. seq., or, in
either case, analogous regulations promulgated under the 'Toxic Substances
Control Act', from time to time amended, (c) 'asbestos' as defined in '29 C.F.R.
1910.1001', et. seq., or analogous regulations promulgated under the
'Occupational Health and Safety Act of 1970, as from time to time amended, (d)
oil and petroleum based products; (5) 'hazardous wastes' as defined in 'Resource
Conservation and Recovery Act', as from time to time amended; and (f) any other
substances identified as hazardous or toxic or otherwise regulated under any of
said statutes or regulations or under any other federal, slate or local laws or
regulations. Tenant covenants with Landlord to generate and store hazardous
substances (as defined above) at the Premises only in amounts as are incident to
and necessary for the normal operation of Tenant's business as permitted by this
Lease, to comply with all obligations imposed by applicable law upon the
generation, storage and disposal of hazardous substances, to prohibit any
generation, storage or disposal of hazardous substances at the Premises except
as permitted above, to deliver promptly to Landlord true and complete copies of
all notices received by Tenant from any govenmental authority with respect to
the generation, storage or disposal by Tenant of hazardous substances, to notify
Landlord of any spills or accidents involving a hazardous substance and to
permit reasonable entry onto the Premises by Landlord for verification of
Tenant's compliance with this covenant. Tenant also agrees to indemnity and
defend Landlord with legal counsel (reasonably acceptable to Landlord) from and
against any costs, fees or expenses (including, without limitation, clean-up
expenses, third party claims and environmental impairment expenses and
reasonable attorneys fees and expenses) incurred by Landlord in connection with
Tenant's generation, storage or disposal of hazardous substances. This
indemnification by Tenant shall survive termination or expiration of this Lease.
22. Any painting or decorating as may be agreed to be done by and at the expense
of Landlord shall be done during regular weekday working hours. Should Tenant
desire such work on Saturdays, Sundays, Legal Holidays, or outside of regular
working hours, Tenant shall pay for the extra cost thereof.
23. During the entire Term of this Lease, Tenant shall, at Tenant's expense,
install and maintain under each and every caster chair, a chair pad to protect
the carpeting.
24. Smoking is not permitted in the Building, at its entrances, doorways or
grounds except in areas designated by Landlord, if any.
25. No cooking shall be done or permitted by Tenant on Premises, except that the
use by any Tenant of Underwriters Laboratory approved equipment, for brewing
coffee, tea and similar beverages for the use of by Tenant and of similarly
approved microwave ovens snail be permitted, provided trial such cooking
produces no offensive odors, in the sole determination of Landlord.
26. Premises shall not be used for lodging or for any improper, objectionable or
immoral purpose.
27. No animals shall be allowed in the Building, Premises or Buildings common
areas.
26. Should Premises or Building become Infested with vermin, as a result of
Tenant's activities, Tenant, at its sole cost end expense, shall cause the
Premises and/or Building to be exterminated from time to time to the
satisfaction of Landlord and shall employ such exterminators as shall be
approved by Landlord.
29. Tenant shall at all times comply with all Building security and life safety
procedures as may from time to time be implemented by Landlord.
30. Bicycles motorcycles or other vehicles shall not be permitted in the
Building, Premises or Building elevators and common areas, nor shall an
obstruction of sidewalks or entrances of the Building be permitted. Bicycles
motorcycles or vehicles other than automobiles shall be permitted to perk only
in areas designated by Landlord.
<PAGE>
31. Parking is provided for the non-exclusive use of tenants. Parking is not
allowed in covered parking areas or any areas specifically designated or leased
for the exclusive use of others. Only passenger vehicles are allowed in or on
Building's parking areas. No trucks or equipment are allowed to park. No
overnight or extended parking is allowed without the written permission of the
Landlord. Tenant agrees not to overburden the parking facilities and agrees that
Landlord in if a sole discretion shall determine whether parking facilities are
becoming overburdened and, in such event, reserves the right lo allocate
Specific parking spaces among tenants or to take any other steps necessary to
correct such condition. Landlord reserves the right to police the parking areas
and have vehicles towed at their owner's expense. Landlord shall be entitled to
charge the portion of the costs associated with reconfiguring the Building's
parking areas to any tenant or tenants which Landlord shall reasonably determine
to be overburdening the Building's parking areas, by failure of tenant and to
use the parking in compliance with the Lease and these Rules and Regulations.
Landlord may, at ifs discretion, change the location and nature of the reserved
and non-reserved parking spaces syllable to tenants.
32. Tenant shall give Landlord prompt notice of all accidents to, or defects in,
HVAC equipment, plumbing, electrical facilities, or any pert or appurtenances of
the Building or Premises, or common areas.
33. Landlord reserves the right to make reasonable amendments, modifications,
additions and deletions to the Rules and Regulations heretofore set forth, and
to make additional reasonable rules and regulations, as in Landlords sole
judgment may from time to time be needed for the safety, care, cleanliness, and
the preservation of good order of the Building Premises and Common Areas. Tenant
agrees to comply with all such rules and regulations upon notice to Tenant from
Landlord thereof. In the event of any breach of any rules and regulations herein
set forth or any amendments modifications, or additions thereto, Landlord shall
have all remedies in this Lease provided for in the event of default by Tenant.
<PAGE>
LEASE
CONTENTS
MERHAM PARTNERS, LLC.
A Missouri Limited Liability Corporation
(as Landlord)
and
WEBSTER AUDIO PRODUCTS, INC.
A Colorado Corporation
(as Tenant)
Paragraph.
1.1 Premises
2.1 Term
3.1 Rent
4.1 Late Charges
5.1 Additional Rent
6.1 Operating Expenses
7.1 Security for Performance of Lease
8.1 Improvement and Finish
9.1 Possession
10.1 Acceptance of Premises
11.1 Use
12.1 Services
13.1 Use of Electricity
14.1 Alterations
15.1 Tenant Repairs
16.1 Trade and Other Fixtures
17.1 Lien Protection
18.1 Insurance
19.1 Waiver of Subrogation
20.1 Casualty Damage
21.1 Eminent Domain
22.1 Indemnification and Waiver of Certain Claims
23.1 Right of Entry
24.1 Surrender of Premises
25.1 Default by Tenant
26.1 Remedies of Landlord
27.1 Landlord's Right to Cure Tenant's Default
28.1 Assignment and Sublease
29.1 Subordination, Estopple Letter and Attornment
30.1 Quiet Enjoyment
31.1 Holding Over
32.1 Substitute Premises
33.1 Notices
34.1 Definition of Landlord
35.1 Waiver
36.1 Successor
37.1 Corporate Resolution
38.1 Enforcement of Lease - Attorney's Fees
39.1 Invalidity of Particular Provisions
40.1 Miscellaneous
41.1 Paragraph Headings
42.1 Governing Law
43.1 Time
44.1 Recording of Lease
45.1 Exculpation
46.1 Brokers
47.1 Entire Agreement
48.1 Exhibits
<PAGE>
5.2 The term, ("Tenant's Pro Rata Share") means the ratio of the net rentable
square feet of floor space of the Premises to the total net rentable square feet
of floor space in the Building and is agreed to be five and forty nine
hundredths percent (5.49%).
5.3 Landlord shall provide to Tenant a Statement of Tenant's projected Pro Rata
Share of Operating Expenses at the beginning of the second quarter of the
calendar year, and Tenant shall pay the entire amount due and owing in twelve
(12) equal monthly installments, the first payment shall include the monthly
installments from the previous months of the calendar year, together with the
Base Rent payments, to the Landlord's Address of Notice. In the event Tenant's
Pro Rata Share of the actual Operating Expenses for such calendar year shall
exceed the aggregate of the projected Operating Expenses installments actually
collected by the Landlord from Tenant, Tenant shall pay to Landlord within
thirty (30) days following Tenant's receipt of a statement, the amount of such
excess. However, if Tenant's Pro Rata Share of the actual Operating Expenses for
such calendar year is less than the aggregate of the projected Operating
Expenses installments actually collected by Landlord from Tenant, Landlord shall
rebate as reduced Additional Rent or Base Rent, to Tenant, the amount of the
overpayment of the projected Operating Expenses installments on a pro rata basis
for the balance of the calendar year or Lease. If the expiration or termination
of this Lease occurs other than on the last day of a calendar year. the amount
to be paid by Tenant or reimbursed to Tenant hereunder shall be a pro rata
amount, paid or rebated monthly, based on the ratio of the number of days of the
Term of this Lease in such last Calendar year to 365 days.
5.4 The obligation of Tenant for the payment of Base Rent and Additional Rent
shall survive the termination of this Lease. Failure or delay of Landlord in
connection with this paragraph shall not constitute a waiver or renunciation of
its rights therein.
Operating Expenses.
6.1 For the purpose of this Lease, Operating Expenses shall mean the total
amounts incurred or paid by Landlord in connection with the ownership,
management, maintenance, repair, replacement and operation of the Building. Such
expenses shall include, but shall not be limited to: janitorial and cleaning
contracts; cleaning supplies and equipment; all management costs; heating and
air conditioning; electricity (other than additional electricity supplied to and
paid by individual tenants); maintenance or repair of the exterior and interior
of the Building including the roof and parking surface; insurance premiums;
landscaping services; leasing or amortization of capital improvements made to
the Building after the date of the execution of this Lease that reduce the
operating or energy expenses, improve life safety or security systems, or are
required under any govenmental law or regulation that was not applicable at the
time the Building was constructed, such cost to be amortized over such
reasonable period as determined at Landlord's sole discretion, together with
interest on the unamortized balance at a rate equal to twelve percent (12%) per
annum at the time such capital improvement is put into service; and taxes.
Taxes, for the purposes of this paragraph, shall mean: personal property taxes
on property and equipment used in the operation and maintenance of the
Building; all real estate taxes including state equalization factor, if any,
payable (adjusted after protest or litigation, if any) for any part of the term
of this Lease, exclusive of penalties or discounts, on the property; any taxes
which shall be levied in lieu of any such taxes on the gross rentals of the
Building; any special assessments against the Property which shall be required
to be paid during the calendar year in respect to which taxes are being
determined; and the expense of contesting the amount or validity of any such
taxes, charges, or assessments, including tax consultant fees, such expense to
be applicable to the period of the item contested.
Security for Performance of Lease.
7.1 Tenant, concurrently with the execution of this Lease shall deposit with
Landlord and will keep on deposit at all times during the Term of this Lease,
the sum of two thousand, one hundred forty nine dollars ($2,149.00), three
hundred forty five dollars seventy five cents (345.75) being carried forward
from Tenant's previous leasehold at 6635 South Dayton Street, Suite 290,
Greenwood Village, Colorado 80111, as security for the payment by Tenant of all
rent and other amounts herein agreed to be paid and for the faithful performance
of all the terms, conditions and covenants of this Lease. If at any time during
the Term of this Lease, Tenant shall be in default in the performance of any
provision of this Lease, Landlord shall have the right to use said deposit, or
so much thereof as necessary, in payment of any rent or other amounts in default
as aforesaid, reimbursement of any expense incurred by Landlord, and in payment
<PAGE>
of any damages incurred by Landlord by reason of Tenant default. In such event,
Tenant shall, on written demand of Landlord, forthwith remit to Landlord a
sufficient amount, in cash, to restore said deposit to its original amount. In
the event said deposit has not been utilized as aforesaid, said deposit, or as
much thereof as has not been utilized for such purposes, shall be refunded to
Tenant, or to whomever is then the holder of Tenant's interest in this Lease,
without interest, upon full performance of this Lease by Tenant. Landlord shall
have the right to commingle said deposit with other funds of Landlord. Landlord
may deliver the funds deposited herein by Tenant to the purchaser of Landlord's
interest in the Premises in the event such interest be sold and thereupon,
Landlord shall be discharged from further liability with respect to such
deposit. If claims of Landlord exceed said deposit, Tenant shall remain liable
for the balance of such claims.
7.2 To secure the payment of all Base Rent and Additional Rent due and to become
due hereunder and the faithful performance of all the other covenants of this
Lease required to be performed by Tenant, Tenant hereby gives to Landlord an
express contract lien (a "Lien for Rent") on and security interest in and to all
of Tenant's furniture, equipment, computers, programs, supplies and materials
which may be placed in the Premises and also upon all proceeds to any insurance
which may accrue to Tenant by reason of damage to, or destruction of any such
property. All exemption laws are hereby waived by Tenant. This Lien is given in
addition to any statutory lien which may exist and shall be cumulative thereto.
This Lien may be foreclosed with or without court proceedings or notice, by
public or private sale and Landlord shall have the right to become purchaser,
upon being the highest bidder at such sale. Upon request of Landlord, Tenant
agrees to execute a Uniform Commercial Code financial statement relating to the
aforesaid security interest. If requested hereafter by Tenant, Landlord shall
also execute and deliver to Tenant Uniform Commercial Code Financing Statement
change instruments in sufficient form to reflect any proper amendment or
modification in or extension of the aforesaid contract lien and security
interest herein granted. Tenant shall, in addition to all of its rights
hereunder, also have all of the rights and remedies of a security party under
the Uniform Commercial Code as adopted in Colorado.
Improvements and Finish.
8.1 Landlord shall construct and finish the interior of the Premises pursuant to
the Tenant Finish Allowance, attached hereto as Exhibit"D", and the Plans and
Specifications mutually approved in writing by Landlord and Tenant, attached
hereto as Exhibit"E". Any work in addition to any of the items specifically
enumerated in the Plans and Specifications shall be performed by Tenant at
Tenant's cost and expense. Any equipment or work other than those items
specifically enumerated in Plans and Specifications which Landlord installs or
constructs on the Premises on Tenant's behalf shall be paid for by Tenant within
fifteen (15) days after receipt of a statement thereof. Any additional work
requested by Tenant shall be commenced only if approved by written change orders
signed by both Landlord and Tenant.
Possession.
9.1 If Landlord, for any reason whatsoever, cannot deliver possession of the
Premises to Tenant on or before the Commencement Date set forth in paragraph
2.1,this Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting therefrom. In such event, the rent as
set forth herein shall not commence until possession of the Premises is made
available to Tenant. If the Premises are ready for occupancy prior to the
Commencement Date set forth in paragraph 2.1, and Tenant takes early occupancy,
the Term of the Lease shall commence on such occupancy date and shall continue
through the ending date set forth in paragraph 2.1, and Tenant shall pay rental
for such early period of occupancy at a rate proportionate to the rental
reserved herein during the first Lease Year.
9.2 Possession of the Premises shall be deemed delivered when tendered for
occupancy and the tenant improvements, agreed to between Landlord and Tenant,
have been substantially completed. Tenant agrees to take possession upon
substantial completion. If only minor or insubstantial details of construction,
decoration, or mechanical adjustments remain to be completed on the Premises,
then the commencement of the Term of the Lease shall not be delayed and the
payment of rent under the Lease will commence on the Commencement Date set forth
in the Lease regardless of any contrary provisions of the Lease, If a delay in
substantial completion shall be due to special work, changes, alternations, or
additions to the Premises required by or made by Tenant; or if such delay is due
to Tenant's delay or default in submitting plans, supplying information,
approving plans or specifications, or authorizing changes or otherwise; or if
such delay is caused by any other delay or default of Tenant, then the Premises
shall be deemed substantially complete and ready for occupancy on the
Commencement Date.
<PAGE>
Acceptance of Premises.
10.1 By occupying the Premises, Tenant accepts the same and acknowledges that
the Premises are in the condition called for hereunder, unless Tenant furnishes
Landlord with a notice in writing specifying any defect in the Premises within
ten (10) days after taking possession thereof.
Use.
11.1 Tenant will occupy the Premises for general business offices or radio
production studio and for no other purpose. Tenant will not use or permit in the
premises anything that will increase the rate of fire insurance thereon or which
would prevent Landlord from obtaining reduced rates for long term insurance
policies, or maintain anything that may be dangerous to life or limb, or in any
manner, deface, injure or commit waste in, on, or about said Building or any
portion thereof, or overload the floors, or permit any objectionable noise or
odor to escape or be emitted from said Premises, or permit anything to be done
upon the Premises in any way tending to create a nuisance or to disturb any
other tenants of the Building, or to injure the reputation of the Building or to
use or permit the use of the Premises for lodging or sleeping purposes, or for
any immoral or illegal purposes. Tenant will comply, at Tenant's own cost and
expense, with all orders, notices, regulations or requirements of any
municipality, state or other governmental authority respecting the use of the
Premises.
Services.
12.1 Landlord shall furnish elevator service, adequate water, heating
ventilating and air conditioning ("HVAC") and janitorial services during normal
business hours as set forth in the Rules and Regulations, paragraph 1., attached
hereto as Exhibit "B". Such HVAC shall be furnished in accordance with said
rules and regulations. The business hours may be changed to other reasonable
hours, as prescribed by any applicable policies or regulations adopted by any
utility or govenmental agency having jurisdiction. Except in the event of force
majure. Building hours shall be no less than 7:00 a.m. to 7:00 p.m. Monday
through Friday and 9:00 a.m. to 1:00 p.m. Saturday, except legal holidays.
Landlord shall not be liable for the stoppage or interruption of any said
services or utilities caused by riots, invasion, strikes, labor disputes,
accidents, necessary repairs or any conditions beyond Landlord's control.
Landlord shall reasonably determine as to the amount and kind of services and
utilities to be provided under the provisions hereof, and any additional
services or utilities required by Tenant shall be at Tenant's sole cost and
expense. Tenant agrees not to connect to or alter any utilities or equipment
provided by Landlord without obtaining Landlord's prior written consent.
Use of Electricity.
13.1 Tenant's use of electricity in the Premises shall be for the operation of
Building standard lighting, electrical fixtures, typewriters, personal
computers, other small office machines, lamps and radio studio equipment and
shall not at any time exceed the capacity of any of the electrical conductors
and equipment in or serving the Premises.
13.2 In order to ensure that such capacity is not exceeded and to avert possible
adverse effect on the Building's electrical service, Tenant shall not, without
Landlord's prior written consent in each instance, connect any additional
fixtures, appliance or equipment (other than normal office electrical fixtures
and copying machinery, lamps, typewriters, and similar small office machines and
radio studio equipment) to the Building's electric system of the Premises
existing at the commencement of the Term hereof. If Landlord grants such
consent, the cost of all additional risers and other equipment required
therefore shall be paid as Additional Rent by Tenant to Landlord upon demand.
Furthermore, Tenant shall pay on demand as Additional Rent to Landlord the cost
of any electric current or other energy used and consumed by Tenant for any
other purpose. including, without limitation, the operation of heavy duty
accounting equipment, copy equipment and computer equipment.
Alterations.
14.1 Tenant will make no alterations in, or additions to, the Premises without
obtaining the prior written consent of Landlord. Landlord may impose such
conditions on its consent as Landlord deems appropriate.
<PAGE>
Tenant Repair.
15.1 If any of the elevators, or other apparatus, or elements of the Building
used for the purpose of climate control or operating the elevators, or if the
water pipes, drainage pipes, electric lighting of the Premises or outside walls
of the Building or parking facilities of Landlord become damaged or destroyed
through the negligence, carelessness or misuse of Tenant and it's agents,
servants, employees, invitees, licenses, visitors and/or any other persons
entering the Building under the express or implied invitation of Tenant or any
others permitted by Tenant to occupy or enter the Building and Premises
(collectively referred to herein as "Tenant's Associates") then the cost of the
necessary repairs, replacements or alterations shall be borne by Tenant, who
shall pay the same on demand to Landlord as Additional Rent.
15.2 Tenant shall keep the Premises in as good order, condition and repair as
when they were entered upon, loss by fire (unless caused by the negligence of
Tenant or Tenant's Associates), ordinary wear and tear excepted. If Tenant fails
to keep the Premises in such good order, condition and repair as required
hereunder to the reasonable satisfaction of Landlord, as soon as reasonably
possible after written demand, Landlord may restore the Premises to such good
order and condition and make such repairs without liability to Landlord and upon
completion thereof, Tenant shall pay to Landlord, as additional rent, upon
demand, the cost of restoring the Premises to such good order and condition.
Trade and Other Fixtures.
16.1 Any and all installations, alterations, changes, additions, partitions,
fixtures or improvements to the Premises, other than Tenant's trade fixtures,
including, but not limiting the generality of the foregoing, all fixtures,
lighting fixtures, cooling equipment, built-ins, partitions, wail coverings,
tile, linoleum and power wiring shall be the property of the Landlord upon any
termination of this Lease. Notwithstanding anything herein contained, Landlord
shall be under no obligation to repair, maintain, or insure such Installation,
changes, alterations, additions, partitions, fixtures, or improvements made or
installed by or on behalf of Tenant. Upon termination of the Lease, or within
thirty (30) days thereof, Landlord, at its sole discretion, may
<PAGE>
remove all installations or alterations made by or on behalf of Tenant pursuant
to this paragraph and Landlord may elect to have the Premises restored to their
original condition, ordinary wear and tear expected. Tenant agrees to pay to
Landlord all costs and expenses of such removal and restorations within five (5)
days of receipt from Landlord of notice of said expenses or costs incurred. The
obligation to pay such expenses or costs shall survive the termination of the
Lease.
Lien Protection.
17.1 Tenant agrees that at no time during the Term of this Lease will Tenant
permit a lien or encumbrance of any kind or nature to come into existence
against the Premises or the Building. If at any time a lien or encumbrance is
filed against the Premises, Tenant agrees it will deposit with Landlord. in
cash, an amount equal to one hundred fifty percent (150%) of the amount of the
lien and shall leave the same on deposit with Landlord until said lien is
discharged. Landlord shall have the option, but not the responsibility, to
satisfy any such lien or encumbrance, and if Landlord pays any such lien or
encumbrance, Tenant shall pay to Landlord as Additional Rent, the amount of such
payment on the next following day when monthly installments of rent are due
hereunder. If Landlord satisfies any such lien or encumbrance, it may make such
payment without inquiry into the accuracy of the amount of such lien or
encumbrance or the validity of the lien or encumbrance.
Insurance.
18.1 In addition to Tenant's obligation to pay its Pro Rata Share of the cost of
insurance pursuant to paragraph 6.1 hereof, Tenant shall pay all premiums due in
connection with the insurance Tenant is required to carry under the terms of
this Lease and shall furnish Landlord with copies of Certificate of Insurance
evidencing the payment thereof. All such policies shall be written with
companies satisfactory to the Landlord and authorized to do business in the
State of Colorado. Landlord shall not unreasonably withhold it's consent to the
placement of insurance with companies proposed by Tenant, so long as the
proposed companies have a rating of at least B XIII in the 'Best's Key Rating
Guide'.
18.2 During the Term of this Lease, Tenant shall keep the Premises Insured for
the protection of Landlord and Landlord's assignees who shall be so named as
additional insured in any such policies, by maintaining bodily injury and
property damage insurance including blanket contractual liability broad form
property damage, completed operations products commercial general liability
form. Such insurance shall be written on a combined single limit basis in an
amount of not less than One Million Dollars ($1,000,000.00) and such higher
limits as the Landlord may reasonably require from time to time. Tenant shall
maintain at its sole cost and expense, any other form or forms of insurance in
amounts and for such risks as Landlord may reasonably require from time to time
including but not limited to, insurance for the full replacement cost of
Tenant's personal property and fixtures located on the Premises on an open
perils basis insuring against "all risks of direct physical loss." Workman's
Compensation Insurance as required by statute including employers liability
insurance in the limits of $100,000/$500,000/$100,000. All policies of insurance
required shall name Landlord as additional insured and Tenant as insureds and
provide that the proceeds of such insurance shall be payable to Landlord and
Tenant, as their interests may appear. Tenant shall deliver to Landlord not more
than thirty (30) days after execution of this Lease and thereafter at least
thirty (30) days prior to expiration of such policy, Certificates of Insurance
evidencing the above coverage which shall expressly provide that at least thirty
(30) days prior written notice shall be given to Landlord in the event of a
material alteration or cancellation of the coverage.
18.3 If Tenant shall at any time fail, neglect, or refuse to provide and
maintain such insurance, Landlord shall have the option, but shall not be
required, to pay for such insurance and any amounts paid therefore by Landlord
shall be deemed additional rent due Landlord and shall be paid by Tenant to
Landlord at the next rental payment date after any such payment, with interest
thereon at the rate of eighteen percent (18%) per annum from the time that such
insurance is obtained.
<PAGE>
18.4 Tenant agrees to pay any increase in premiums of insurance carried by
Landlord if, in the reasonable determination of Landlord, such increase is
reasonably and directly related or caused by Tenant's use of the Premises.
Waiver of Subrogation.
19.1 Notwithstanding anything to the contrary contained herein, Landlord and
Tenant hereby mutually waive and release their respective rights of recovery
against each other for (a) any loss on its property actually insured against by
"all risk of direct physical lOss" insurance coverage, said waiver and release
shall not apply to any deductible amount relating to such a claim; and (b) all
loss, cost, damage or expense arising out of or due to any interruption of
business (regardless of the cause thereof), increased or additional costs of
operation of business or other costs or expenses whether similar or dissimilar
which are actually insured against under business interruption insurance, said
waiver and release shall not apply to any deductible amount relating to such
claim. Each party shall apply to their insurers to obtain said waivers and
obtain any special endorsements, if required by their insurer, to evidence
compliance with the aforementioned waiver, and shall bear the cost thereof.
Casualty Damage.
20.1 In the event of fire or other casualty, against which Landlord is insured,
and which is not caused by the negligence of Tenant, Base Rent shall abate in
the proportion that the unusable portion of the Premises as reasonably
determined by Landlord is to the total area of the Premises, until the Premises
are rebuilt and upon receipt by Landlord of such insurance proceeds. Landlord
agrees that it will with reasonable diligence, repair the Premises, unless
Tenant is obligated to repair under the terms hereof, or unless this Lease is
terminated as hereinafter provided, subject to the provisions of paragraphs 20.2
and 20.3.
20.2 If the Premises are damaged or destroyed by any cause whatsoever, and if,
in the reasonable opinion of Landlord, the Premises cannot be rebuilt or made
fit for the purposes of Tenant within one hundred twenty (120) days of the
damage or destruction, Tenant at its option may terminate this Lease upon 30
days written notice, or Landlord, instead of rebuilding or making the Premises
fit for Tenant, may at its option terminate this Lease by giving Tenant within
sixty (60) days after such damage and destruction, written notice of
termination, and thereupon rent and any other payments for which Tenant is
liable under this Lease shall be apportioned and paid to the date of such damage
and Tenant shall immediately deliver up possession of the Premises to Landlord
provided, however, that those provisions of this Lease which are designated to
cover matters of termination and thereafter, shall survive the termination
hereof.
<PAGE>
20.3 Irrespective of whether the Premises are damaged or destroyed, in the event
that fifty percent (50%) or more of the area in the Building is damaged or
destroyed by any cause whatsoever, and if. in the reasonable opinion of
Landlord, the said area cannot be rebuilt or made fit for the purpose of the
tenants of such space within one hundred eighty (180) days after the damage or
destruction, Tenant at its option may terminate this Lease upon 30 days written
notice, or Landlord may at its option terminate this Lease by giving to Tenant
within sixty (60) days after such damage, written notice of termination
requiring it to vacate the Premises sixty (60) days after delivery of the notice
of termination and thereupon rent and any other payments shall be apportioned
and paid to the date on which possession is relinquished and Tenant shall
deliver up possession of the Premises to Landlord in accordance with such notice
or termination.
Eminent Domain.
21.1 If the Premises or a substantial part thereof, shall be taken in eminent
domain, or conveyed under threat of condemnation proceedings, then this Lease
shall forthwith terminate and end upon the taking hereof as if the original Term
provided in said Lease expired at the time of such taking. If only such part or
portion of the Premises is taken which would not substantially and materially
interfere with or adversely affect the business of the Tenant conducted at the
Premises; then Landlord, at Landlord's option to be exercised in writing within
thirty (30) days after the taking thereof, may repair, rebuild or restore the
Premises, and this Lease shall continue in effect. If, however, because of such
taking, the Premises should be rendered untenantable or partially untenantable,
then the rents, or a portion thereof, shall abate until the Premises shall have
been restored.
21.2 In the event that an award is made for taking of such property and parcels
of the Premises or the Building in condemnation proceedings, Landlord shall be
entitled to receive and retain the amounts awarded or paid for such taking or
conveyance; provided, however, that Tenant shall be entitled to receive and
retain such amounts as are specifically awarded to it in such proceedings
because of the taking of its furniture, or fixtures, and its leasehold
improvements which have not become a part of the Building or Premises. It is
understood and agreed that any amounts specifically awarded in any such taking
for the damage to the business of Tenant, done on the Premises and awarded to it
as a result of interference with the access to the Premises or for any other
damage to said business and trade done at the Premises shall be the property of
Tenant, provided said award does not reduce the award to Landlord.
21.3 It is understood and agreed that in the event of the termination of this
Lease as provided under this paragraph, Tenant shall have no claim against
Landlord for the value of any unexpired Term of this Lease and no right or claim
to any part of the award made on account thereof.
Indemnification and Waiver of Certain Claims.
22.1 Tenant hereby agrees to indemnify and hold harmless Landlord, its
subsidiaries, Directors, Officers, Agents, Attorneys and Employees from and
against any and all damage, loss, liability, or expense including, but not
limited to, attorney's fees and legal costs suffered by same directly or by
reason of any claim, suit or judgment brought by or in favor of any person or
persons for damage, loss, or expense due to, but not limited to, bodily injury,
including death resulting anytime therefrom, and property damage sustained by
such person or persons which arises out of, is occasioned by, or is in any way
attributable to the use or occupancy of the Premises and adjacent areas by
Tenant, the acts or omissions of Tenant, Tenant's Associates or any contractors
brought onto the Premises by Tenant. Tenant agrees that the obligations assumed
herein shall survive this Leases.
<PAGE>
22.2 Landlord shall not be liable for any damage or injury including business
interruption, either proximate or remote, occurring through or caused by the
carelessness, negligence or improper conduct on the part of any co-tenant, or
for any damage to person or property resulting from any condition of the
Premises or other cause including, but not limited to damage occasioned by
defective electric wiring, breaking or stoppage of plumbing or sewer, whether
said breakage or stoppage resulted from freezing or otherwise. Tenant shall give
Landlord prompt notice of any defects in the Premises.
Right of Entry.
23.1 Landlord may, upon reasonable prior notice to Tenant, exhibit the Premises
to prospective tenants during the last twelve (12) months of the Term, and to
any prospective purchaser, mortgagee, or assignee of any mortgage on the
property and to others having a legitimate interest at any time. In the event of
an emergency, and otherwise at reasonable times, to take any and all measures,
including inspections, repairs, alterations, additions and improvements to the
Premises or the Building, as may be necessary or desirable for the safety,
protection, or the preservation of the Premises, of the Building and of the
Landlord's possessive interest therein, or as may be necessary or desirable in
the operation or improvement of the Building or in order to comply with all
laws, orders, and requirements of governmental or other authority. Tenant,
pursuant to this paragraph 23.1, hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, occupancy or
quiet enjoyment of the Premises.
Surrender of Premises.
24.1 Tenant agrees to deliver, at the expiration of the Term hereof, or earlier
termination, the Premises in good repair and in a state of broom cleanliness,
subject to ordinary wear and tear.
Default by Tenant
25.1 The occurrence of any one or more of the following events shall constitute
a breach of the Lease and default by Tenant;
25.2 Failure by Tenant to pay when due any payment of rent, taxes, or any other
sum required to be paid by Tenant hereunder and such failure to pay continues
for a period of three (3) days from the date that such sum became due and
payable;
25.3 Vacation or abandonment of the Premises without the prior written consent
of Landlord;
25.4 Failure of Tenant to perform any one or more of its covenants and
agreements under this Lease within ten (10) days after written notice to Tenant
specifying the duties or covenants Tenant has failed to perform; provided,
however, that Tenant shall not be deemed to be in default under this paragraph
if Tenant shall, within said ten-day period, commence the cure of such default
and diligently prosecute the same to completion.
25.5 If Tenant or any guarantor of Tenant's obligations under this Lease shall
file a voluntary petition in bankruptcy or shall be adjudicated bankrupt or
insolvent; or shall take the benefit of any relevant legislation that may be
enforced for bankrupt or insolvent debtors; or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief for statute, law, or regulation; or if any
proceeding shall be taken by Tenant or any guarantor hereof under relevant
bankruptcy act in force in any jurisdiction available to Tenant or any
guarantor; or if Tenant or any guarantor hereof shall seek, consent, or
acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or
any guarantor of all or any substantial part of his properties or of the
Premises, or shall make any general assignment for the benefit of creditors; or
if petition shall be filed against Tenant or any guarantor seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future federal, state or other statute,
law or regulation and shall remain undismissed for an aggregate of sixty (60)
days; or if any trustee, receiver, or liquidator of Tenant or any guarantor
hereof or of all or any substantial part of its properties or of the Premises
shall be appointed without the consent or acquiescence of Tenant or any
guarantor and such appointment shall remain unvacated for an aggregate of sixty
(60) days.
<PAGE>
Remedies to Landlord.
26.1 All rights and remedies of Landlord enumerated herein shall be cumulative,
and none shall exclude any other right or remedy allowed by law. In addition to
other remedies in this Lease provided, the Landlord shall be entitled to the
restraint by injunction of the violation or attempted violation of any of the
covenants, agreements, or conditions of this Lease.
26.2 Landlord shall have the right, as it's election, in the event of default by
Tenant and upon giving prior written notice if required in paragraph 25.4
herein, to:
26.2.1 Institute suit against Tenant to collect each installment of rent or
other sum as it becomes due or to enforce any obligation under this Lease;
26.2.2 Re-enter and take possession of the Premises and all personal property
therein and remove Tenant and Tenant's Associates therefrom, and either (a)
terminate this Lease and sue Tenant for damages or breach and default under the
Lease; (b) or, without terminating the Lease, relet, assign, or sublet the
Premises and personal property as the agent and for the account of Tenant in the
name of Tenant or otherwise on such terms and conditions and for such rent as
Landlord may deem best, and collect (i) the rent therefrom, provided Landlord
shall, in no way, be responsible or liable for any failure to collect any rent
due upon any such re-letting, end (ii) an amount equal to the then present value
of the Base Rent and Additional Rent provided in this Lease for the remainder of
the Term, less the present rental value of the Premises for the remainder of the
Term. In so acting, Landlord shall not be deemed to have trespassed in any
manner, nor shall Landlord's actions be construed to be a waiver or
relinquishment of any of Landlord's rights or remedies. In this event, the rents
received on any such re-letting shall be applied first to the expenses of
reletting and collecting including, without limitation, all repossession costs,
attorney's fees, court costs, brokers commissions, alteration casts, and
expenses of preparing the Premises for re-letting, and thereafter for payment of
rents and any other amounts payable by Tenant to Landlord. If the sum realized
shall not be sufficient to pay such rents and other charges, Tenant agrees to
pay Landlord within three (3) days after demand any such deficiency as It
accrues.
26.3 In the event Landlord elects to re-enter or take possession of the
Premises, Tenant agrees to quit and peaceably surrender the Premises to
Landlord, and Landlord may enter upon and re-enter the Premises and possess and
repossess itself thereof, by force, summary proceedings, ejectment or otherwise,
and may dispossess and remove Tenant and may have, hold, and enjoy the Premises
and the right to receive all rental income of and from the same. No such
re-entry and taking of possession by Landlord shall be construed as an election
on Landlord's part to terminate or surrender this Lease, unless Landlord gives
notice to Tenant specifically terminating the Lease or unless a written notice
of such intention is served on Tenant, notwithstanding the service of Demand for
the Payment of Rent and Possession. Landlord and Tenant expressly agree that the
service of posting of such demand will not constitute an election on the part of
the Landlord to terminate this Lease.
26.4 If Landlord elects to terminate this Lease in accordance with the
provisions herein, Landlord shall be entitled to recover as damages attorneys'
fees and costs, the cost of removing Tenant, all costs of refurbishing and
repairing the Premises for re-letting, all sums due Landlord by Tenant.
Landlord's Right to Cure Tenant's Default
27.1 If Tenant shall default in the performance of any covenant or provision of
this Lease to be performed on Tenant's part, Landlord may, after ten (10) days
written notice to Tenant, or without notice if in Landlord's option an emergency
exists, perform the same for the account and at the expense of Tenant. If
Landlord shall incur any expense, including reasonable attorney's fees, in
instituting, prosecuting, or defending any action of Tenant, Tenant shall
reimburse Landlord for the amount of such expense with interest at the rate of
eighteen percent (18%) per annum from the date of Landlord's advance or advances
therefore. Should Tenant, pursuant to this Lease, become obligated to reimburse
or otherwise pay Landlord one or more sums of money pursuant to this paragraph
<PAGE>
27.1, the amount thereof shall be paid by Tenant to Landlord within three (3)
days of Landlord's written demand thereof, and if Tenant fails to make such
payment, such failure shall be deemed an event of default as set forth is
paragraphs 25.1 through 25.5 hereof. The provisions hereof shall survive the
termination of this Lease. The provisions hereof shall neither impose a duty on
Landlord nor excuse any failure on Tenant's part to perform or observe any
covenant or condition in this Lease to be performed or observed by Tenant.
Assignment and Sublease.
28.1 Tenant shall not voluntarily or by operation of law assign, license,
transfer, mortgage or otherwise transfer or encumber all or any part of Tenant's
interest in this Lease or in the Premises, shall not sell or otherwise transfer
more than 50% of either the capital stock of Tenant or the value of the assets
of Tenant, and shall not sublet or license all or any part of the Premises,
without the prior written consent of Landlord in each instance, and any
attempted assignment, sale, transfer, mortgage, encumbrance or subletting
without such consent shall be wholly void. If Landlord shall consent to a
subletting, the difference, if any, between the Base Rent and Additional Rent as
stated herein and the rent paid by the sub-lessee shall be paid to the Landlord
monthly, in advance, during the remaining Term or options of the Lease. Without
in any way limiting Landlord's right to refuse to give consent for any other
reason or reasons, Landlord reserves the right to refuse to give such consent if
in Landlord's sole discretion and opinion the quality of business operation of
the Building is or may be in any way adversely affected during the Term of the
Lease or the financial worth and credit worthiness of the proposed sub-lessee is
less than that of Tenant executing this Lease.
28.2 No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its obligation to pay the Base Rent and Additional Rent and to
perform all of the other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any subletting, assignment, or other transfer. Consent to
one assignment, subletting or other transfer shall not be deemed to constitute
consent to any subsequent assignment, subletting or other transfer.
Subordination, Estoppel Letter and Attainment.
29.1 This Lease is subject and subordinate to all mortgages or deeds of trust
which now or hereafter may affect the Premises or the Building. Tenant shall
execute and deliver upon demand of Landlord any and all instruments
subordinating this Lease, in the manner requested by Landlord, to any new or
existing mortgage or deed of trust. In the event that Tenant's interest is
subordinated, said mortgagee shall agree that it shall not disturb Tenant's
possession, provided that Tenant is not in default under the terms and
conditions of this Lease. Further, Tenant shall at any time and from time to
time, upon not less than three (3) days prior written notice from Landlord,
execute, acknowledge, and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect or, if modified,
stating the nature of such modification and certifying that this Lease as so
modified, is in full force and effect and the dates to which rent and other
charges are paid in advance, if any, and acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of the Landlord hereunder,
or specifying such default, if any are claimed, acknowledging to any mortgagee
that Tenant will not modify or amend this Lease without consent of such
mortgagee, and certifying as to such other matters Landlord may reasonably
request. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that: (a) this Lease is in full force and effect, without
modification except as may be represented by Landlord; (b) there are no uncured
defaults in Landlord's performance; and (c) not more than one (1) months rent
has been paid in advance. In addition, Tenant agrees to provide such other
information as Landlord may require from time to time. Further, upon request,
Tenant will supply to Landlord a corporate or partnership resolution, as the
case may be, certifying that the party signing said statement of Tenant is
properly authorized to do so.
<PAGE>
29.2 In the event that Landlord or its principal sells, conveys, transfers or
grants the Building or the Premises to any person, firm, corporation, company,
or entity during the term hereby demised, Tenant agrees to attorn to such new
owner, and Landlord and its principal shall be released from performance
hereunder.
Quiet Enjoyment.
30.1 So long as Tenant shall observe and perform the covenants and agreements
binding on it hereunder, Tenant shall at all times during the Term herein
granted, peacefully and quietly have and enjoy possession of the Premises
without any encumbrance or hindrance by, from or through Landlord.
Holding Over.
31.1 Unless otherwise agreed to in writing by Landlord and Tenant, if Tenant
retains possession of the Premises or any part thereof after the expiration of
the Term, such holding over shall be deemed to be tenancy from month-to-month at
a monthly rental equal to two hundred percent (200%) of the monthly installment
of Base Rent due under the terms of the Lease from the month next preceding the
commencement of the holdover period, and Tenant shall remain liable for all
other payments provided for hereunder, and such holding over shall be subject to
all of the other terms and conditions of the Lease. In addition to rent, Tenant
agrees to pay the Landlord for all damages, consequential as well as direct,
sustained by Landlord resulting or arising from Tenant's possession. No such
holding over shall be deemed to constitute a renewal or extension of the Term of
the Lease.
Substitute Premises.
32.1 Landlord shall have the right at any time during the term hereof, upon
giving Tenant no less than sIxty (60) days prior written notice, to provide and
furnish Tenant with space elsewhere in the Building, designated by Landlord, of
approximately the same size as the Premises and remove and place Tenant in such
space (the "Substitute Premises"), with Landlord to pay all reasonable costs and
expenses incurred as a result of such removal of Tenant, including the cost of
the physical move, relocating the phones, and a reasonable amount of new
stationery and business cards. Should Tenant refuse to permit Landlord to move
Tenant to such new space at the end of said sixty (60) day period, Landlord
shall have the right to cancel and terminate this Lease effective ninety (90)
days from the date of original notification by Landlord. If Landlord moves
Tenant to such new space, this Lease and each and all of its terms, covenants,
and conditions shall remain in full force and effect and be deemed applicable to
the Substitute Premises as though Landlord and Tenant had entered into an
express written amendment of this Lease with respect thereto.
Notices.
33.1 Any notice required or permitted hereunder or which any party elects to
give shall be in writing and delivered either personally to the other party or
the other party's authorized agent set forth below (or as changed by written
notice), or by depositing such notice in the United States Certified Mail,
Return Receipt Requested, postage fully prepaid, to the person at the address
set forth below, or to such other address as either party may later designate in
writing:
<PAGE>
Landlord: Merham Partners, L.L.C.
12075 East 45th Avenue, Suite 200
Denver, Colorado 80239
Tenant: Webster Audio Products, Inc.
6535 South Dayton Street, Suite 3000
Greenwood Village, Colorado 80111
Definition of Landlord.
34.1 The term "Landlord" as used in this Lease, so far as covenants or
agreements on the part of the Landlord are concerned, shall be limited to mean
and include only the owner or owners of the Landlord's interest in this Lease at
the time in question, and in the event of any transfer or transfers of such
interest, the Landlord herein named (and in case of any subsequent transfer, the
then transferor) shall be automatically freed and relieved, after the date of
such transfer, of all liability as respects the performance of any covenants or
agreements on the part of the Landlord contained in this Lease, thereafter to be
performed.
Waiver.
35.1 No waiver of any breach of any one of the agreements, terms, conditions, or
covenants of this Lease by Landlord or Tenant shall be deemed to imply or
constitute a waiver of any other agreement, term, condition, or covenant of this
Lease. The failure of either party to insist on strict performance of any
agreement, term, condition, or covenant, herein set forth, shall not constitute
or be construed as a waiver of the rights of either or of the other thereafter
to enforce any other default of such agreement, term, condition, or covenant;
neither shall such failure to insist upon strict performance be deemed
sufficient grounds to enable either party hereto to forego or subvert or
otherwise disregard any other agreement term, condition, or covenant of the
Lease.
Successor.
36.1 Except as herein specifically set forth, all terms, conditions, and
covenants to be observed and performed by the parties hereto shall be applicable
to and binding upon their respective heirs, administrators, executors, and
assigns. The terms, conditions and covenants hereof shall also be considered to
be covenants running with the land to the fullest extent permitted by law.
Corporate Resolution.
37.1 Tenant and the party executing this Lease on behalf of Tenant represent to
Landlord that such party is authorized to do so by requisite action of the board
of directors, partners, managers or members, as the case may be, and agree to
provide, concurrent with the Tenants execution of the Lease, to Landlord, a
corporate resolution or similar document or opinion of counsel to that effect.
Enforcement of Lease Attorney's Fees.
38.1 Except as otherwise provided below, all disputes arising under this Lease
shall be resolved by arbitration in the City and County of Denver, and judgment
upon the award rendered may be entered in any court having jurisdiction thereof.
Except as provided herein, the arbitration shall proceed in accordance with the
laws of the State of Colorado: (a) Either party may request arbitration of any
dispute by serving written demand for arbitration on the other party by
registered or certified mail. The demand shall set forth a statement of the
nature of the dispute, an estimate of the amount involved, if such an estimate
is then feasible and a brief description of the remedies sought. No later than
twenty (20) calendar days after a demand for arbitration is served, the parties
shall jointly select and appoint a retired judge of the District Court of the
City and County of Denver, or another person acceptable to both parties, to act
as the arbitrator. If the parties do not agree on the selection of an
arbitrator, the party seeking the arbitration shall apply to the District Court
of the City and County of Denver for the appointment of an arbitrator. No later
than ten (10) calendar days after the appointment of an arbitrator, the parties
shall jointly prepare and submit to the arbitrator a set of rules for the
arbitration. If the parties cannot agree on the rules for the arbitration, the
arbitrator shall adopt the rules of the American Arbitration Association then in
effect. No later than ten (10) calendar days after the arbitrator is appointed,
the arbitrator shall schedule the arbitration for a hearing to commence on a
mutually convenient date. The hearing shall commence no later that one hundred
twenty (120) days after the arbitrator is appointed and shall continue from day
to day until completed. The arbitrator shall issue his award no later than
twenty (20) calendar days after the conclusion of the hearing. The arbitration
shall be final and binding regardless of whether one of the parties fails or
refuses to participate in the arbitration. The arbitrator is empowered to hear
and determine all disputes between Landlord and Tenant, as well as any guarantor
under this Lease, if applicable, concerning the subject matter of this Lease.
Without limiting the generality of the foregoing, the arbitrator may award
actual monetary damages, injunctive relief, and costs. Further, the arbitrator
shall, as part of the arbitration decree, award to the substantially prevailing
<PAGE>
party all reasonable costs and expenses, including reasonable attorneys fees,
expended or incurred by the substantially prevailing party in connection with
the dispute giving rise to the arbitration proceeding; (b) if either party
serves a proper demand for arbitration under this agreement, both parties may
pursue discovery under the Colorado Rules of Civil Procedure, the provisions of
which are incorporated herein by reference, with the following exceptions: (i)
any party may conduct all discovery, including depositions for discovery
purposes, with leave of the arbitrator~ and (ii) all discovery shall be
completed no later than the Commencement Date of the arbitration hearing or one
hundred twenty (120) calendar days after the date that a proper demand for
arbitration is served, whichever occurs earlier, unless upon a showing of good
cause, the arbitrator extends or shortens that period; (c) the arbitrator shall
not have the power to amend this Lease in any respect; (d) Notwithstanding any
provision to the contrary contained herein, the foregoing arbitration shall not
apply to any forcible entry and detainer action or any other actions or
proceedings to determine the party entitled to possession and occupancy of the
Premises or any other portion of the Real Property, all of which actions shall
be brought by appropriate action before a court with jurisdiction over same, nor
shall same apply to any right of Landlord to recover possession of the Premises
by means of self-help or other non-judicial remedy authorized by law upon the
occurrence of an event of default under this Lease.
38.2 In the event that either Landlord or Tenant commences any action, aside
from arbitration, for the enforcement of or arising out of a breach of the terms
of this Lease, the then substantially prevailing party in such action shall be
awarded, in addition to any other award made thereof, an amount to be fixed by
the Court for court costs and reasonable attorney's fees.
38.3 Landlord and Tenant hereby waive (to the extent allowed by law) any and all
rights to a trial by jury in lawsuits brought to enforce any provision of this
Lease.
Invalidity of Particular Provisions.
39.1 if any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws effective during the Term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid, or unenforceable, there be added as a
part of this Lease a clause or provision as similar in terms to such illegal,
invalid, or unenforceable clause or provision as may be possible and legal,
valid, and enforceable.
Miscellaneous.
40.1 Termination or mutual cancellation shall, at the option of Landlord, either
terminate all subleases and subtenancies or operate as an assignment to Landlord
of any or all such subleases or subtenancies.
40.2 If there are more than one entity or person which or who is Tenant under
this Lease, the obligations imposed upon Tenant under this Lease shall be joint
and several.
40.3 Notwithstanding anything to the contrary in this Lease, whenever the Lease
provides for Landlord to consent or approve any action or documents, it is
understood and agreed that such consent or approval shall be in the Landlords
sole and absolute discretion, except where specifically provided that such
consent or approval shall not be unreasonably withheld and shall be effective
only if provided in writing, signed by an authorized agent of Landlord.
40.4 Submission of this instrument for examination or signature by Tenant does
not constitute a reservation or an option for lease and is not effective as a
lease or otherwise until execution and delivery by both Landlord and Tenant.
40.5 Tenant shall not use the name and/or mark of Merham Partners, L.L.C.,
Merham 1/2/3, Dayton Plaza, or other mark, name or logo belonging to Landlord,
alone or in conjunction with any words or symbols as a trade name, corporate
name, trade mark, service mark or otherwise, without the prior written agreement
of Merham Partners, L.L.C., or it's successor-in-interest. Any use of such name
in the designation of Tenant's business shall constitute a default under this
Lease.
40.6 Landlord agrees to warrant and defend Tenant in the quite enjoyment and
possession of the Premises during the Term of this Lease, so long as Tenant
complies with the provisions hereof.
40.7 This Lease shall be construed as though the covenants herein between
Landlord and Tenant are independent and not dependent and Tenant shall not be
entitled to any setoff of the rent or other amounts owing hereunder against
Landlord if Landlord fails to perform it's obligations set forth herein;
provided however, the foregoing shall in no way impair the right of Tenant to
commence a separate action against Landlord for any violation by Landlord of the
provisions hereof, so long as notice is first given to Landlord and an
opportunity granted to Landlord to correct such violation as provided in
paragraph 40.4, below.
<PAGE>
40.8 No act or thing done by Landlord or Landlord's agents during the Term
hereof, including but not limited to any agreement to accept surrender of the
Premises or to amend or modify this Lease shall be deemed to be binding on
Landlord unless such act or thing shall be by a partner or officer of Landlord,
as the case may be, or a party designated in writing by Landlord as so
authorized to act. The delivery of keys to Landlord or Landlord's agents,
employees or officers shall not operate as termination of this Lease or a
surrender of the Premises. No payment by Tenant of a lesser amount that the
monthly rent and all other amounts owing as herein stipulated, shall be deemed
to be other than on account of the earliest stipulated rent or other amounts.
Nor shall any endorsement or statement on any check or any letter accompanying
any check or payment as rent be deemed an accord and satisfaction and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance of such rent or pursue any other remedy available to
Landlord.
40.9 In the event of an alleged default on the part of Landlord hereunder,
Tenant shall give written notice to Landlord in the manner herein set forth and
shall afford Landlord a reasonable opportunity to cure any such default. In no
event will Landlord be responsible for any consequential damages incurred by
Tenant as a result of any default, including but not limited to lost profits or
interruption of business as a result of any alleged default by Landlord
hereunder.
40.10 Landlord shall have the right at any time to change to name of the
Building, to increase the size of the Building and/or common areas. In any
event, such additional buildings are constructed of Landlord increases the size
of the Building and/or common areas, Landlord and Tenant shall execute an
amendment to the Lease which incorporates such modifications, additions and
adjustments to Tenant's Pro Rata Share, if necessary.
40.11 Tenant covenants and agrees that no diminution of light, air or view by
any structure that may hereafter be erected shall entitle Tenant to any
reduction of rent or other changes under this Lease, result in any liability of
Landlord to Tenant, or in any other way affect this Lease or Tenant's
obligations hereunder.
40.12 Tenant agrees that for the purposes of completing or making repairs or
alterations in any part of the Building, Landlord may use one or more of the
street entrances, halls, passageways and elevators of the Building.
40.13 Tenant shall pay all sales and use taxes imposed as a result of Tenant's
business conducted on the Premises an all personal property taxes assessed
against personal property of Tenant situated therein during the Term hereof.
Paragraph Headings.
41.1 The caption of each paragraph is added as a matter of convenience only and
shall be considered of no effect in the construction or meaning of any provision
or provisions of this Lease.
Governing Law.
42.1 This Lease shall be deemed to have been made and shall be construed in
accordance with the laws of the State of Colorado.
Time.
43.1 Time is of the essence hereof.
Recording of Lease.
44.1 Tenant shall not record this Lease or any memorandum of this Lease. Any
attempt to record this Lease or any memorandum of this Lease shall be an event
of default (subject to no grace period or notice) and shall entitle Landlord to
pursue any and all remedies available as a result thereof.
Exculpation.
45.1 Not withstanding anything to the contrary contained herein, Landlord's
liability under this Lease shall be limited strictly to its interest in the
Building.
Brokers.
46.1 Daniel Bruce Strong shall hereinafter be referred to as ("Broker of
Record").
46.2 As part of the consideration for the granting of this Lease, Tenant
represents and warrants to Landlord that no broker or agent negotiated or was
instrumental in the negotiation or consummation of this Lease except the Broker
of Record, and Tenant agrees to indemnify Landlord against any loss, expense,
cost or liability incurred by Landlord as a result of a claim by any broker or
finder claiming through Tenant.
<PAGE>
Entire Agreement.
47.1 Tenant acknowledges and agrees that it has not relied upon any statements,
representations, agreements or warranties by Landlord, its agents or employees,
except such as are expressed herein and no amendment or modification of this
Lease shall be valid or binding unless expressed in writing and executed by the
parties hereto, in the same manner as the execution of this Lease.
<PAGE>
48.1 Exhibits.
Exhibit A - Legal Description, Building and Premises
Exhibit B - Rules and Regulations
Exhibit C - Additional Provisions
Exhibit D - Tenant Finish Allowance
Exhibit E - Plans and Specifications
<PAGE>
In witness whereof, the Parties hereto execute this Lease the day and year first
above written.
LANDLORD:
MERHAM PARTNERS, L.L.C.
By: /s/ Daniel Bruce Strong
---------------------------------
Daniel Bruce Strong
Title: Vice President
TENANT:
WEBSTER AUDIO PRODUCTS, INC.
By: /s/ John W. Sutton
---------------------------------
John W. Sutton
Title: Principal
ATTEST:
/s/ Denise Sutton
- --------------------------------------
- --------------------------------------
- --------------------------------------
<PAGE>
EXHIBIT A
Legal Description, Building and Premises
6535 - A portion of Tract A and Tract C, DAYTON PLAZA situated in the Southwest
quarter of Section 22, Township 5 South, Range 67 West of the 6th principal
Meridian, Arapahoe County, State of Colorado.
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT B
Rules and Regulations
It is further agreed that the following Rules and Regulations shall be and are
hereby made a part of this Lease and Tenant agrees that Tenant and it's agents,
servants, employees, invitees, licenses, visitors and/or any other persons
entering the Building under the express or implied invitation of Tenant or any
others permitted by Tenant to occupy or enter the Building and Premises
(collectively referred to herein as "Tenant's Associates"), will at all times
abide by said Rules and Regulations, to wit:
1. Landlord reserves the right to refuse admittance to the Building at any time
other than between the hours of 7:00 a.m. to 7:00 p.m. Monday through Friday and
9:00 a.m. to 1:00 p.m. Saturday to any person not producing both a key to the
Leased Premises and/or a pass issued by Landlord. In case of invasion, riot,
public excitement or other commotion, Landlord also reserves the right to
prevent access to the Building during the continuance of same. Landlord shall in
no case be liable for damages for the admission or exclusion of any person to or
from the Building.
2. For the purpose of providing utilities and services, the Building hours of
operation are from 7:00 a.m. to 7:00 p.m. Monday through Friday and 9:00 a.m. to
1:00 p.m. Saturday, except legal holidays.
3. Landlord will furnish to each Tenant two (2) keys to each entry door lock to
the Premises and the toilet rooms, if locked by Landlord and two (2) Building
keys. Tenant and Tenant's Associates shall not have any duplicate keys made.
Landlord may make a reasonable charge for any additional keys and/or access
cards requested by Tenant. Tenant shall not alter any lock and no locksmith
services may be performed or new or additional locks or bolts installed on any
door, without the prior written consent of Landlord. If a lock alteration or
installment is made, the new lock must accept the master key for the Building or
Tenant must provide Landlord with duplicate pass keys for all such locks and
bolts. Tenant, upon the expiration or termination of its Lease, shall deliver to
Landlord all keys and access cards in Tenant's possession, for all locks and
bolts to the Building and Premises.
4. Tenant shall insure that all entry doors of the Premises are closed and
locked and observe strict care and caution that all water faucets and apparatus
are entirely shut off before Tenant or Tenant's Associates leave the Building.
All electricity shall likewise be shut off, except that which services such
equipment which Tenant, in it's reasonable discretion, determines must remain in
operation in the absence of Tenant. All expenses, damages or injuries resulting
from the violation of this rule shall be born by the Tenant who, or whose
Tenant's Associates are found to be negligent under this rule.
5. The sidewalks, entries, corridors, stairways, and elevators of the Building
and/or Common Areas shall be kept clear of debris and trash and not be
obstructed by Tenant or Tenant's Associates, or used for storage or any purpose
other than ingress and egress to and from the Premises, it being understood and
agreed that such access may be obtained only via the elevators, if applicable,
in the lobby of the Building. No furniture shall be placed in, on, or about the
exterior or common areas of the Building or in any lobby or corridor or used for
storage or as a waiting or lounging place by Tenant or Tenant's Associates,
without the prior written consent of Landlord. Landlord shall have the right to
remove all non-permitted items, without notice to Tenant, at the expense of
Tenant.
6. The landscaped grounds and common areas adjacent to the Building shall be
used for the enjoyment of Tenant and Tenant's Associates without restriction, so
long as such parties conduct themselves in a manner so as not to disturb,
destroy, or litter said grounds and common areas. All parties using the grounds
and common areas shall comply with all laws and ordinances of federal, state and
local authorities and these Rules and Regulations.
7. Furniture, equipment, or supplies will be moved in or out of the Building
only upon the elevator, if applicable, designated by Landlord, and then only
during such hours and in such manner as may be prescribed by Landlord. The
Landlord shall have the right to approve or disapprove the movers or moving
company employed by Tenant, and Tenant shall cause said movers to use only the
loading facilties and elevator, if applicable, designated by Landlord. All
damage done to the Building or it's equipment by Tenant or it's jobbers during
the delivery or removal of such items, or by reason of their presence in the
Building, shall be paid for upon demand, to the Landlord, by the Tenant, through
or under whom the damage was done. There shall not be used in any space or in
the common halls of the Building, either by Tenant or by jobbers or others in
the delivery or receipt of merchandise, any hand-trucks, except those equipped
with rubber tires.
8. No safe or article, the weight of which may in the opinion of Landlord,
constitute a hazard or damage to the Building or it's equipment, shall be moved
into the Premises. Safes or other equipment, the weight of which is not
excessive, shall be moved into, from, or about the Building only during such
hours and in such manner as shall be prescribed by Landlord, and Landlord shall
have the right to designate the location of such articles in the Premises.
<PAGE>
9. Tenant shall not do or permit anything to be done in the Premises or bring or
keep anything therein which would in any way increase the rate of hazard or
liability insurance on the Building or on personal property kept therein,
constitute a nuisance or waste, obstruct or interfere with the rights of other
tenants or in any way injure or annoy other tenants, or conflict with the laws
relating to fire safety or with any regulations of the fire department, fire
insurance underwriters or with any insurance policy upon the Building or any
part thereof, or conflict with any of the rules or ordinances of the department
of health in the jurisdiction where the Building is located.
10. Tenant shall not use any portion of the Premises for the storage of
merchandise for sale to the general public, or for the selling or display of any
goods, items or merchandise, either at wholesale or retail.
11. Canvassing, soliciting, peddling, distribution of hand bills or other
written material in or about the Building and Common Areas is prohibited. Tenant
shall cooperate with Landlord in prevention and elimination of same.
12. Tenant shall not employ any person or persons other than the janitor of
Landlord for the purpose of cleaning or taking care of the Premises without the
prior written consent of Landlord. Landlord shall be in no way responsible to
Tenant for any loss of property from the Premises, however occurring, or for any
damage done to Tenant's furniture or equipment by the janitor or any of the
janitor's staff, or by any other person or persons whomsoever. The janitor of
the Building may at all times keep a passkey and other agents of Landlord shall
at all time be allowed admittance to the Premises. No Tenant shall cause any
unnecessary labor by reason of such Tenant's carelessness or indifference in the
preservation of good order and cleanliness of the Leased Premises. In the event
Tenant must dispose of crates, boxes, etc., which will not fit into office waste
paper baskets, it will be the responsibility of Tenant, at Tenant's expense, to
dispose of same. No trash may be placed in the common areas of the Building.
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than for those for which they were constructed or
intended. No clogging objects or damaging substances and no sweepings, rubbish,
chemicals or other inappropriate or unsuitable substances or objects shall be
thrown, placed or disposed of therein. Water shall not be wasted by tying back
or wedging the faucets in any other manner. All costs of any flooding damages,
breakage or stoppage resulting from the violation of this rule shall be born by
the Tenant who, or who's Tenant's Associates are found to be negligent under
this rule.
14. Tenant and Tenant's Associates shall not disturb other tenants of the
Building, Premises or adjoining buildings by the use of any radio, sound
equipment, or musical instrument or by the making of loud or improper noises.
Tenant shall not permit the operation of any musical or sound producing
instruments or devices which may be heard outside the Premises, Building or
parking facility, or which may emit electrical waves which will impair radio or
television broadcast or reception from or into the Building.
15. Except as permitted by Landlord, Tenant shall not mark upon, paint signs
upon. cut or drill into, drive nails or screws into, or in any way deface the
walls, ceilings, partitions or floors of the Premises or of the Building. Any
defacement, damage or injury caused by Tenant or Tenant's Associates, shall be
paid for by Tenant.
16. No sign, advertisement, or notice shall be inscribed, painted or affixed on
any part of the inside or outside of the Building unless of such color, size and
style and in such place upon or in the Building as shall be first designated by
Landlord in writing, but there shall be no obligation or duty on Landlord to
allow any sign, advertisement or notice to be inscribed, painted or affixed on
any part of the inside or outside of the Building. A directory in a conspicuous
place, with names of tenants, not to exceed one (1) name per one thousand
(1,000) rentable square feet of space contained in the respective premises, will
be provided by Landlord. Any revision in the directory will be made by Landlord
at Tenant's expense within a reasonable time after notice from Tenant, in
writing, of the specifications of the revision. Landlord shall have the right to
remove all non- permitted signs, without notice to Tenant, at the expense of
Tenant.
17. Tenant shall not allow anything to be placed on the outside of the Building
nor shall anything be thrown by Tenant or Tenant's Associates out of the windows
or doors, or down the corridors, elevator shafts, or ventilating ducts or shafts
of the Building. Tenant, except in case of fire or other emergency, shall not
open any outside window.
18. No window shades, blinds, screens, draperies, or other window coverings will
be attached or detached by Tenant without Landlord's prior written consent.
Tenant agrees to abide by Landlord's rules with respect to maintaining uniform
curtains, draperies, and linings or blinds at all windows and hallways. The
walls, partitions, skylight, windows, doors and transoms that reflect or admit
light into passageways or into any other part of the Building shall not be
covered or obstructed by Tenant.
<PAGE>
19. Tenant and Tenant's Associates shall not go upon the roof of the Building,
install any radio or television antennae or any other device or item on the
roof, exterior walls, windows or window sills of the Building, place objects
against glass partitions, doors or windows which would be unsightly from the
interior or exterior of the Building.
20. No signaling, telegraphic, or telephonic instruments or devices, or other
wires, instruments or devices, other than phone outlets normally provided by
Landlord as part of the Lease, shall be installed in connection with any
Premises without the prior written approval of Landlord. If Tenant desires
telegraphic, telephonic or other electrical connections, Landlord or it's agents
will direct the electricians as to where and how wiring may be introduced,
without such directions, no boring or cutting of wires will be permitted. Such
installations, and the boring or cutting for wires, shall be made at the sole
cost and expense of Tenant and under the control and direction of Landlord.
Landlord retains in all cases the right to require (a) installation and use of
such electrical protection devices that prevent the transmission of excessive
currents of electricity into or through the Building, (b) the changing of wires
and of their installation and arrangements underground or otherwise as Landlord
may direct, and (c) compliance on the part of all using or seeking access to
such wires with such rules as Landlord may establish relating thereto. All such
wires used by Tenant must be clearly tagged at the distribution boards, chases
and junction boxes and elsewhere In the Building as directed by Landlord, with
the suite number of the Premises to which said wires lead, the purpose for which
said wires are used, and the name of the company operating same. Tenant shall
pay all engineering, consulting and design costs incurred by Landlord,
attributable to Tenant's requested alterations and shall pay to obtain all
necessary govenmental permits and certificates required for any alterations to
which Landlord has consented and shall cause all such alterations to be
completed in compliance therewith and with all applicable requirements of
Landlord's insurance carrier. Landlords consent to or approval of any
alterations shall create no responsibility on the part of the Landlord for their
design, sufficiency or compliance with any laws, rule or regulations of
govenmental agencies or authorities.
21. Tenant shall not install or operate any steam or gas engine or boiler, or
carry on any mechanical business in the Premises. Tenant shall not store or use
oil, gas and inflammable or explosive liquids, gases or substances for heating,
lighting, or any other purpose expressly prohibited. Explosives, articles or
substances deemed hazardous or offensively odoriferous, shall not be brought
into the Building. The term ("Hazardous Substances") shall mean: (a) Hazardous
Substances as defined in the 'Comprehensive Environmental Response, Compensation
and Liability Act', as from time to time amended, (b) or, 'PCBs" as defined in
40 C.F.R. 761, et. seq. and 'TCDD' as defined in 40 C.F.R. 775, et. seq., or, in
either case, analogous regulations promulgated under the 'Toxic Substances
Control Act', from time to time amended, (c) 'asbestos' as defined in 29 C.F.R.
1910.1001', et. seq., or analogous regulations promulgated under the
'Occupational Health and Safety Act of 1970', as from time to time amended, (d)
oil and petroleum based products; (e) 'hazardous wastes' as defined in 'Resource
Conservation and Recovery Act', as from time to time amended; and (f) any other
substances identified as hazardous or toxic or otherwise regulated under any of
said statutes or regulations or under any other federal, state or local laws or
regulations. Tenant covenants with Landlord to generate and store hazardous
substances (as defined above) at the Premises only in amounts as are incident to
and necessary for the normal operation of Tenant's business as permitted by this
Lease, to comply with all obligations imposed by applicable law upon the
generation, storage and disposal of hazardous substances, to prohibit any
generation, storage or disposal of hazardous substances at the Premises except
as permitted above, to deliver promptly to Landlord true and complete copies of
all notices received by Tenant from any governmental authority with respect to
the generation, storage or disposal by Tenant of hazardous substances, to notify
Landlord of any spills or accidents involving a hazardous substance and to
permit reasonable entry onto the Premises by Landlord for verification of
Tenant's compliance with this covenant. Tenant also agrees to indemnify and
defend Landlord with legal counsel (reasonably acceptable to Landlord) from and
against any costs, fees or expenses (including, without limitation, clean-up
expenses, third party claims and environmental impairment expenses and
reasonable attorneys' fees and expenses) incurred by Landlord in connection with
Tenant's generation, storage or disposal of hazardous substances. This
Indemnification by Tenant shall survive termination or expiration of this Lease.
22. Any painting or decorating as may be agreed to be done by and at the expense
of Landlord shall be done during regular weekday working hours. Should Tenant
desire such work on Saturdays, Sundays, Legal Holidays, or outside of regular
working hours, Tenant shall pay for the extra cost thereof.
23. During the entire Term of this Lease, Tenant shall, at Tenant's expense,
install and maintain under each and every caster chair, a chair pad to protect
the carpeting.
24. Smoking is not permitted in the Building, at its entrances, doorways or
grounds except in areas designated by Landlord, if any.
<PAGE>
25. No cooking shall be done or permitted by Tenant on Premises, except that the
use by any Tenant of Underwriters Laboratory approved equipment, for brewing
coffee, tea and similar beverages for the use of by Tenant and of similarly
approved microwave ovens shall be permitted, provided that such cooking produces
no offensive odors, in the sole determination of Landlord.
26. Premises shall not be used for lodging or for any improper, objectionable or
immoral purpose.
27. No animals shall be allowed in the Building, Premises or Buildings common
areas.
28. Should Premises or Building become infested with vermin, as a result of
Tenant's activities, Tenant, at its sole cost and expense, shall cause the
Premises and/or Building to be exterminated from time to time to the
satisfaction of Landlord and shall employ such exterminators as shall be
approved by Landlord.
29. Tenant shall at all times comply with all Building security and life safety
procedures as may from time to time be implemented by Landlord.
30. In Premises' containing HVAC closets, as may be indicated on Exhibit A, said
closets shall be kept empty of Tenant's personal property and of any and all
items whatsoever. Tenant agrees to cooperate fully to this end and in so doing
shall; (a) agree that an easement is created on the Premises for the purpose of
HVAC maintenance access to. in and around said HVAC closets, (b) and assent to
Landlords right to lock said HVAC closets to the exclusion of Tenant.
31. Bicycles motorcycles or other vehicles shall not be permitted in the
Building, Premises or Building elevators and common areas, nor shall an
obstruction of sidewalks or entrances of the Building be permitted. Bicycles
motorcycles or vehicles other than automobiles shall be permitted to park only
in areas designated by Landlord
32. Parking is provided for the non-exclusive use of tenants. Parking is not
allowed in covered parking areas or any areas specifically designated or leased
for the exclusive use of others. Only passenger vehicles are allowed In or on
Building's parking areas. No trucks or equipment are allowed to park. No
ovenight or extended parking is allowed without the written permission of the
Landlord. Tenant agrees not to overburden the parking facilities and agrees that
Landlord in it's sole discretion shall determine whether parking facilities are
becoming overburdened and, in such event, reserves the right to allocate
specific parking spaces among tenants or to take any other steps necessary to
correct such condition. Landlord reserves the right to police the parking areas
and have vehicles towed at their owners expense. Landlord shall be entitled to
charge the portion of the costs associated with reconfiguring the Building's
parking areas to any tenant or tenants which Landlord shall reasonably determine
to be overburdening the Building's parking areas, by failure of tenant and to
use the parking in compliance with the Lease end these Rules and Regulations.
Landlord may, at it's discretion, change the location and nature of the reserved
and non-reserved parking spaces available to tenants.
33. Tenant shall give Landlord prompt notice of all accidents to, or defects in,
HVAC equipment, plumbing, electrical facilities, or any part or appurtenances of
the Building or Premises, or common areas.
34. Landlord reserves the right to make reasonable amendments, modifications,
additions and deletions to the Rules and Regulations heretofore set forth, and
to make additional reasonable rules and regulations, as in Landlord's sole
judgment may from time to time be needed for the safety, care, cleanliness, and
the preservation of good order of the Building Premises and Common Areas. Tenant
agrees to comply with all such rules and regulations upon notice to Tenant from
Landlord thereof. In the event of any breach of any rules and regulations herein
set forth or any amendments modifications, or additions thereto, Landlord shall
have all remedies in this Lease provided for in the event of default by Tenant.
<PAGE>
EXHIBIT C
Additional Provisions
1. Pursuant to paragraph 12.1 of the Lease and paragraph 2. of Exhibit B,
Landlord shall furnish electrical services, elevator service, adequate
water and HVAC to the Premises, twenty four (24) hours a day, seven (7)
days a week.
2. Provided Tenant is not in default of the terms and conditions of this
Lease, during the first eighteen (18) months of the Term, Tenant shall have
the first right of refusal on 6535 South Dayton Street, Suites 3050 and
3550, Greenwood Village Colorado 80111, subject to the same terms and
condItions that a third party is prepared to lease said suites. Tenant
shall have three (3) calendar days from Landlord's written notice to Tenant
to accept such terms, in writing.
<PAGE>
EXHIBIT D
Tenant Finish Allowance
1. Landlord and Tenant agree that the Premises shall be initially improved
and/or finished substantially in accordance with Exhibit E attached hereto and
the work to be completed shall be referred to herein as (the "Tenant Finish").
The work and materials specifically identified on Exhibit E (the 'Standard
Tenant Finish') shall be at Landlord's cost and expense. All work and materials
required to complete Tenant Finish not specifically identified on said Exhibit E
shall be at Tenant's sole cost and expense, and shall be referred to herein as
(the "Above Standard Tenant Finish"). The approved space plan for the Premises
is set forth on said Exhibit E. Landlord shall be responsible for performance of
all tenant finish work, and shall promptly cause the contractor to commence and
proceed with due diligence to complete the shell and core of the Building (if
applicable) and the Tenant Finish substantially in accordance with Exhibit E,
subject to delays arising as a result of circumstances beyond the control of
Landlord or Landlord's contractor, and to deliver possession of the Premises to
Tenant, ready for occupancy, pursuant to paragraphs 8.1 and 9.2. If Tenant
modifies, alters or makes any modifications or changes to such space plan and/or
construction documents, all costs and expenses arising as a result thereof shall
be Tenant's responsibility and shall be paid promptly by Tenant upon receipt of
billing therefor. Landlord and Tenant acknowledge that the approved space plan
and approved Tenant Finish schedule for the Premises has been reviewed and
approved by Tenant.
2. All costs for Tenant Finish in excess of Standard Tenant Finish shall be
promptly paid to Landlord by Tenant from time to time as work on Tenant Finish
progresses, upon Tenant's receipt of a written invoice therefore accompanied by
a statement from Landlord supporting said charges. All construction work shall
be performed in a good and workmanlike manner, in compliance with all applicable
laws, rules and regulations. If Tenant fails to pay the amount payable to
Landlord in accordance with any invoice within ten (10) days after Landlord
provides such invoice, together with Landlord's statement supporting said
charges to Tenant, Landlord immediately shall have the right, without further
notice, (a) to order Landlord's contractor to cease any and all further work
until such time as Tenant has provided Landlord with payment in full for all
amounts due and payable for the Tenant Finish, together with such security for
any and all future Tenant Finish payments as Landlord may require; and (b) to
pursue any and all other rights and remedies available to Landlord under this
Lease or applicable law arising upon the occurrence of an event of default.
Further, if Tenant fails to make any required payment as previously referenced
in a timely manner, Tenant shall be responsible for any costs, expenses, losses
and liabilities incurred by Landlord as a result thereof, including without
limitation any damages or other amounts payable to Landlord's contractor arising
as a result of the failure to provide such payment If any such amount is paid by
Landlord, Tenant shall promptly reimburse Landlord for such payment promptly
upon Landlord's demand therefore, and Landlord may, without notice or demand,
reimburse itself from Tenant's security deposit in the amount of such payment.
3. The term ("Ready for Occupancy") as used herein, is defined to mean
substantial completion of the Tenant Finish to be completed by Landlord pursuant
to the final plans and specifications therefor. The determination of when the
Premises are, Ready for Occupancy, shall be evidenced by a certificate of the
architect or other representative of Landlord, In charge of supervising
completion of the Premises and/or issuance of a temporary or permanent
certificate of occupancy, or equivalent, by appropriate governmental officials
for the Premises. The Term shall commence on the actual date on which the
Premises are ready for occupancy, as determined in accordance with the
provisions above. It is anticipated that the Commencement Date will occur on or
about November 1, 1998, (the 'Estimated Completion Date'). Landlord shall have
no responsibility or liability if the Commencement Date is later than the
Estimated Completion Date and the postponement of the Commencement Date and the
commencement of Tenant's obligation to pay rent hereunder shall be in full
settlement of all claims which Tenant may otherwise have by reason of said
Premises not being Ready for Occupancy. If as a result of such delay the
Commencement Date would otherwise occur on a day other than on the first day of
the month, the Commencement Date, and the beginning of the Term shall be further
delayed until the first day of the following month, but Tenant shall pay
proportionate rent at the same monthly rate set forth herein, in advance for
such partial month. In this event, the expiration of the Term hereof shall also
be extended so that the Term will continue for the full period set forth in
Paragraph 2.1 hereof. If the Premises are not Ready for Occupancy on the
Estimated completion Date, or such later date as contemplated herein, as a
result of delays which are the fault of Tenant, including but not limited to
delays in Tenant submittal of the preliminary space plan for the Premises,
Tenant approval of the final plans and specifications and cost estimates for the
Tenant Finish, Tenant failure to make any required payment to Landlord or Tenant
selection of Tenant Finish Items with long-lead delivery times (Landlord agrees
to notify Tenant of any such long-lead items of which Landlord has actual
knowledge) (herein "Tenant Delays"), then, the Commencement Date shall be the
date the Premises would have been Ready for Occupancy but for the Tenant delays
as reasonably determined by Landlord's architect, and the Term and all of
Tenant's obligations hereunder will be measured from said date.
<PAGE>
EXHIBIT E
Plans and Specifications
Landlord shall provide the Standard Tenant Finish, listed below and illustrated
on subsequent pages of this Exhibit, pursuant to Exhibit !3.
1. Landlord to construct two (2) 36" X 48" double pane windows, per sketch
details, attached; a. in the south wall of the middle production studio and
b. In the west wall of the south east corner production studio.
2. Landlord to construct a wall and a building standard six-panel door at this
location in the manner indicated.
3. Landlord to install a building standard, six-panel door at this location,
in the manner indicated.
4. Landlord to shampoo carpet.
5. Landlord to paint standard finish after Tenant has completed its various
technical Installations and then only to the extent of exposed building
standard walls and before Tenant has occupied the Premises.
[GRAPHIC OMITTED]
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use, in this Registration Statement on Form 10-SB,
of our report dated September 21, 1999, except for the last paragraph of Note 5
as to which the date is September 30, 1999, relating to the financial statements
of Web Audio & Radio Portal, Inc. for the period from March 16, 1999 (inception)
to August 31, 1999 contained in said Registration Statement.
Angell & Deering
Certified Public Accountants
Denver, Colorado
November 12, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form 10-SB for
WARPRADIO.COM, INC., of our report dated January 26, 1999, relating to the
December 31, 1998 and 1997 financial statements of HOMEQUEST, INC. (now known as
WARPRADIO.COM, INC.), which appears in such registration statement.
PRITCHETT, SILER & HARDY, P.C.
Salt Lake City, Utah
November 12, 1999
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