-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wiyrv4ajFG3lng7NYwfBJZvXMGjcdaIKvp7IWF/xI4vUayBqIz/kUNRQSG6PcL4u KSOOfX9SUeURiaJnek7Wmw== 0001005150-01-000299.txt : 20010402 0001005150-01-000299.hdr.sgml : 20010402 ACCESSION NUMBER: 0001005150-01-000299 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001110 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TROYDEN CORP CENTRAL INDEX KEY: 0001108630 STANDARD INDUSTRIAL CLASSIFICATION: [9995] IRS NUMBER: 880346310 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-29929 FILM NUMBER: 1587466 BUSINESS ADDRESS: STREET 1: #360 220 CAMBLE ST STREET 2: 6TH FLOOR CITY: VANCOUVER BC V6E 4A6 STATE: A1 ZIP: 89502 BUSINESS PHONE: 6046892944 MAIL ADDRESS: STREET 1: 360 220 CAMBLE ST CITY: VANOURVER BC V6E 4A6 STATE: A1 ZIP: 89502 8-K/A 1 0001.txt FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest reported) November 10, 2000 ------------------------------------------------------------ Communicate.com Inc. -------------------- (Exact name of registrant as specified in its chapter) Nevada 000-29929 88-0346310 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) #360 - 220 Cambie Street, Vancouver, BC V6B 2M9 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (604) 687-2142 ----------------------------------------------------------------- (Former name or former address, if changed since last report) INFORMATION TO BE INCLUDED IN REPORT ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. (a) On November 10, 2000, Communicate.com Inc., a Nevada corporation (the "Company"), pursuant to a Purchase Agreement entered into on November 8, 2000 (the "Purchase Agreement"), acquired 11,714,080 shares, or approximately 52%, of the outstanding capital stock of Communicate.com Inc., an Alberta corporation ("Communicate Alberta"), from Bryan Liew. In consideration for the Communicate Alberta shares, the Company (i) issued an aggregate of 1,000,000 shares of its Common Stock to the Mr. Liew, (ii) made a cash payment of $400,000 to Mr. Liew, and (iii) agreed to either (a) make additional cash payments totaling an aggregate of $1,100,000 to Mr. Liew, or (b) if the Company is unable or fails to make such payments, to issue up to an additional 2,200,000 shares of Common Stock to Mr. Liew. The Company financed the acquisition through a loan (the "Loan") provided by Pacific Capital Markets Inc. ("PCMI") providing for up to $1,500,000 to be used solely for the acquisition of the shares from Mr. Liew. The Loan is due and payable on demand and is secured by substantially all of the assets of the Company, as evidenced by a Loan and Security Agreement dated November 10, 2000 between the Company and PCMI. The Company negotiated the purchase price and terms of payment through arms-length negotiations with Mr. Liew. The Company reviewed and analyzed Communicate Alberta's assets, liabilities, management and prospects in determining the amount of the consideration to pay for the shares of Communicate Alberta. On November 9, 2000 Mr. Liew resigned all positions held at Communicate Alberta and, as part of a Severance Agreement with Communicate Alberta, received payments and debt forgiveness totaling $13,000 and the rights to three domain names, formerly owned by Communicate Alberta. (b) On November 30, 2000 the Company made an offer to acquire all of remaining outstanding shares of Communicate Alberta not held by the Company by exchanging such shares for shares of the Company's common stock at a rate of one share of the Company's common stock for each 5.1470588 shares of Communicate Alberta common stock. The offer was terminated on December 29, 2000. During the period of the offer 7,079,039 shares, or 31%, of Communicate Alberta were exchanged for 1,375,339 shares of the Company's common stock. As a result of the above transactions Communicate owns 83% of Communicate Alberta's common stock. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS FINANCIAL STATEMENTS (a) Financial Statements of Communicate.com Inc. ("Communicate Alberta") as of June 30, 2000 and 1999 (audited). (b) Pro-Forma Financial Information: 2 1. Communicate Pro-Forma Condensed Consolidated Balance Sheet as of September 30, 2000 (unaudited). 2. Communicate Pro-Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1999 (unaudited). 3. Communicate Pro-Forma Condensed Consolidated Statement of Operations for the nine month period ended September 30, 2000 (unaudited). EXHIBITS 10.1 Purchase Agreement, dated November 8, 2000, between Communicate.com Inc. and Bryan Liew. (incorporated by reference from the Company's report on Form 10-QSB for the period ended June 30, 2000, filed November 14, 2000). 10.2 Loan and Security Agreement between Pacific Capital Markets, Inc. and Communicate.com Inc. (incorporated by reference from the Company's report on Form 10-QSB for the period ended June 30, 2000, filed November 14, 2000). 10.3 Form of Share Exchange Agreement, dated November 29, 2000, between Communicate.com Inc. the shareholders of Communicate.com Inc. (Alberta) 10.4 Letter Agreement, dated January 26, 2000, between Communicate.com Inc. (Communicate Alberta) and Sierra Systems Group Inc. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Communicate.com Inc. has duly caused this report to be signed on its behalf by the undersigned, who is duly authorized. COMMUNICATE.COM INC. Dated: March 30, 2001 By: /s/ Graham Heal ------------------------------------ Graham Heal, President Dated: March 30, 2001 By /s/ Cameron Pan ------------------------------------ Cameron Pan, Chief Financial Officer 4 COMMUNICATE.COM INC. Financial Statements JUNE 30, 2000 AND 1999 Auditors' Report Balance Sheets Statements of Operations Statements of in Shareholders' Equity Statements of Cash Flows Notes to the Financial Statements
LABONTE & CO. 1205 - 1095 WEST PENDER STREET - ------------------------------------------ VANCOUVER, B.C. CANADA C H A R T E R E D A C C O U N T A N T S V6E 2M6 - ------------------------------------------ TELEPHONE (604) 682-2778 FACSIMILE (604) 689-2778 EMAIL RJL@LABONTECO.COM
AUDITORS' REPORT - -------------------------------------------------------------------------------- TO THE DIRECTORS OF COMMUNICATE.COM INC. We have audited the balance sheets of Communicate.com Inc. as at June 30, 2000 and 1999 and the statements of operations, shareholders' equity and cash flows for the years then ended. 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 Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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, these financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2000 and 1999 and the results of its operations and its cash flows for the years then ended in accordance with generally accepted accounting principles in the United States. "LaBonte & Co." CHARTERED ACCOUNTANTS Vancouver, B.C. February 13, 2001 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES REPORTING DIFFERENCES - -------------------------------------------------------------------------------- In the United States, reporting standards for auditors' would require the addition of an explanatory paragraph following the opinion paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 1. Our report to the Directors dated February 13, 2001 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors' report when these are adequately disclosed in the financial statements. "LaBonte & Co." CHARTERED ACCOUNTANTS Vancouver, B.C. February 13, 2001 COMMUNICATE.COM INC. Balance Sheets JUNE 30, 2000 AND 1999 - --------------------------------------------------------------------------------
2000 1999 $ $ ASSETS CURRENT ASSETS Cash and cash equivalents 1,618,937 23,801 Accounts receivable (net of allowances of $284,555 and $19,656) 524,451 317,982 Due from shareholder (note 6) 69,410 -- Prepaid expenses 122,359 89,556 --------- -------- 2,335,157 431,339 FIXED ASSETS (note 4) 1,497,303 321,679 OTHER ASSETS 31,733 27,500 ---------- --------- 3,864,193 780,518 ========== ========= LIABILITIES CURRENT LIABILITIES Bank indebtedness -- 33,297 Accounts payable and accrued liabilities (note 5) 1,863,131 684,005 Due to shareholders 24,521 68,021 Current portion of lease obligation (note 5) 94,736 69,674 ---------- --------- 1,982,388 854,997 LEASE OBLIGATION (note 5) 84,182 124,889 ---------- --------- 2,066,570 979,886 ---------- --------- COMMITMENTS AND CONTINGENCIES (note 10) SUBSEQUENT EVENTS (note 11) SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY) CAPITAL STOCK (note 7) Authorized Unlimited (1999 - 2,000,000) Class A common shares, no par value Issued 22,454,238 (1999 - 16,542,750) Class A common shares, no par value 7,129,438 534,428 Subscriptions receivable (16,227) (25,000) ---------- --------- 7,113,211 509,428 DEFICIT (5,315,588) (708,796) ---------- --------- 1,797,623 (199,368) ---------- --------- 3,864,193 780,518 ========== =========
See accompanying notes to the financial statements COMMUNICATE.COM INC. Statements of Operations FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 - --------------------------------------------------------------------------------
2000 1999 $ $ REVENUE 2,143,016 1,441,210 --------- --------- EXPENSES General and administration 3,757,738 1,672,198 Sales and marketing 1,547,135 261,048 Depreciation and amortization 540,226 83,819 Stock-based compensation 708,989 -- ---------- ---------- 6,554,088 2,017,065 ---------- ---------- Operating loss (4,411,072) (575,855) ---------- ---------- INTEREST Expense (4,641) (20,082) Income 69,442 801 ---------- ---------- 64,801 (19,281) ---------- ---------- Loss before income taxes (4,346,271) (595,136) RECOVERY OF INCOME TAXES -- 13,326 ---------- ---------- NET LOSS FOR THE YEAR (4,346,271) (581,810) ---------- ---------- BASIC LOSS PER SHARE (0.22) (0.04) ---------- ---------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,554,186 16,152,901 ---------- ----------
See accompanying notes to the financial statements COMMUNICATE.COM INC. Statements of Operations FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 - --------------------------------------------------------------------------------
CLASS A COMMON SHARES --------------------------------------------- TOTAL SHAREHOLDER'S SUBSCRIBED (DEFICIENCY) NUMBER OF ISSUED AMOUNT DEFICIT EQUITY SHARES $ $ $ $ ------------------------------------------------------------------------ Balance - June 30, 1998 17,902,610 181,009 -- (112,018) 68,991 Issuance of 77,076 common shares at $0.26 per share 77,076 20,000 -- 20,000 Issuance of 600,649 common shares at $0.25 per share - net of issuance costs 600,649 136,452 -- 136,452 Issuance of 286,125 common shares at $0.30 per share 286,127 85,000 -- 85,000 Issuance of 135,235 common shares at $0.37 per share 135,235 50,000 -- 50,000 Issuance of 181,161 common shares at $0.43 per share - net of issuance costs 181,162 75,000 -- 75,000 Share subscription -- -- (25,000) -- (25,000) Repurchase of common shares (2,640,112) (13,033) (14,968) (28,001) Net loss for the year -- -- (581,810) (581,810) ------------ --------- ------- -------- -------- Balance - June 30, 1999 16,542,747 534,428 (25,000) (708,796) (199,368) Issuance of 257,058 common shares at $0.43 per share 257,058 110,000 -- 110,000 Issuance of 1,658,500 common shares on exercise of options at $0.0004 per share 1,658,500 for cash 717 -- 717 For stock-based compensation (note 7) 708,989 -- 708,989 Issuance of 40,191 common shares at $0.60 per share 40,191 24,006 -- 24,006 Issuance of 16,788 common shares at $0.60 per share 16,788 10,000 -- 10,000 Issuance of 342,922 common shares at $0.71 per share 342,922 245,000 -- 245,000 Issuance of 51,546 common shares at $1.16 per share 51,546 60,000 -- 60,000 Issuance of 500,000 common shares at $1.08 per share 500,000 540,550 -- 540,550 Issuance of 3,500,000 common shares at $1.45 (U.S. $1.00) per share - net of issuance costs 3,500,000 4,702,651 -- 4,702,651 Issuance of 181,750 common shares at $1.45 (U.S. $1.00) per share 181,750 263,475 -- 263,475 Issuance of 1,388 common shares from exercise of options 1,388 1,013 -- 1,013 Share subscription -- -- 15,000 -- 15,000 Share subscriptions -- -- (6,227) -- (6,227) Repurchase of shares (228,900) (71,391) (260,521) (331,912) Common shares returned to treasury and cancelled (409,752) -- -- -- Net loss for the year -- -- (4,346,271) (4,346,271) ------------ --------- ------- -------- -------- Balance - June 30, 2000 22,454,238 7,129,438 (16,227) (5,315,588) 1,797,623 ============ ========= ======= ========= =========
See accompanying notes to the financial statements COMMUNICATE.COM INC. Statements of Operations FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 - --------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN): 2000 1999 $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year (4,346,271) (581,810) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation 708,989 - Depreciation and amortization 540,226 83,819 Changes in operating working capital items Accounts receivable (206,469) (177,018) Due from shareholder (69,410) - Other (32,803) (74,964) Accounts payable and accrued liabilities 1,179,126 502,088 ---------- -------- (2,226,612) (247,885) ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of loan payable - (12,000) Bank indebtedness (33,297) 33,297 Lease obligation (15,645) 162,800 Advances to (from) shareholders (43,500) 50,000 Repurchase of capital stock during the year (331,912) (28,001) Proceeds from issuance of capital stock under stock option plans 1,730 - Share subscriptions received 15,000 - Proceeds from issuance of capital stock - net of issuance costs of $367,000 (1999 - $16,048) 5,949,454 341,452 ---------- -------- 5,541,830 547,548 ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (1,712,732) (319,265) Purchase of other assets (7,350) (27,500) ---------- -------- (1,720,082) (346,765) ---------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,595,136 (47,102) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 23,801 70,903 ---------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR 1,618,937 23,801 ========== ======== SUPPLEMENTAL CASH FLOW INFORMATION (note 3)
See accompanying notes to the financial statements COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 1. NATURE OF CONTINUED OPERATIONS Prior to June 30, 2000, the Company provided services as web design consultants to corporations in British Columbia, Canada. For the years ended June 30, 2000 and 1999, the consulting services provided the majority of the revenues. Communicate.com owns a large portfolio of simple, intuitive domain names. During the 2000 fiscal year the Company changed its focus to developing these domain names into an e-commerce network. Substantial costs were incurred in developing this business plan such that the Company was forced to change its focus again subsequent to year-end due to the lack of funds. The Company's current business strategy is to seek partners to develop its domain names to include content, commerce and community applications. Refer to note 11(d). At June 30, 2000, the Company has an accumulated deficit of $5,315,588 (1999 - $708,796) and has incurred significant losses since inception on February 7, 1994. These financial statements have been prepared on the going concern basis of accounting. The Company's ability to continue its operations is dependent upon the continued support of its shareholders, obtaining additional financing and/or settling its outstanding debts and generating future profitable operations. There is no assurance that the Company will be successful in achieving any or all of these objectives over the coming year. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements are presented in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States. CASH AND CASH EQUIVALENTS Cash and cash equivalents consists of cash on deposit and highly liquid short-term interest bearing securities with maturities at the date of purchase of three months or less. FIXED ASSETS Fixed assets are recorded at cost. Depreciation and amortization are computed at the following ratesover the estimated useful lives of the assets: Computer equipment 30% declining balance Automobiles 30% declining balance Furniture and fixtures 20% declining balance Office equipment 20% declining balance Leasehold improvements 4 years straight line Computer software 2 years straight line Intangible assets 1 - 10 years straight line One-half year depreciation and amortization is taken in the year of acquisition on certain capital assets. COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION To date the Company has derived the majority of its revenue from web consulting services agreements. The Company recognizes revenue on a completed time and materials basis upon issuance of the invoice. Domain name revenue consists primarily of commissions earned from the referral of visitors to the Company's sites to other parties. Collectibility of these referral commissions is subject to a high level of uncertainty; accordingly revenues are recognized only as received in cash. ADVERTISING EXPENSES The Company accounts for advertising expenses in accordance with AICPA Statement of Position 93-7, Reporting on Advertising Costs, whereby costs are expensed as incurred. Advertising expenses totalled $706,924 and $6,992 during the years ended June 30, 2000 and 1999 respectively. STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB No. 25") and complies with the disclosure provisions of Statement of Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25, compensation expense is recognized based on the difference, if any, on the date of grant between the estimated fair value of the Company's stock and the amount an employee must pay to acquire the stock. Compensation expense is recognized immediately for past services and pro-rata for future services over the option-vesting period. The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services" ("EITF 96-18"). Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18. INCOME TAXES The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize the future benefit, or if the future deductibility is uncertain. COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the periods that the financial statements are prepared. Actual amounts could differ from these estimates. FOREIGN CURRENCY TRANSACTIONS The Company's functional currency is the Canadian dollar. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars at the exchange rate prevailing at the balance sheet date. Revenue and expenses denominated in foreign currencies are translated at the exchange rate prevailing at the transaction date. Exchange differences are included in income as they arise. Material exchange differences arising on translation are included in a separate component of shareholders' equity. FINANCIAL INSTRUMENTS Financial instruments are initially recorded at historical cost. If subsequent circumstances indicate that a decline in fair value of a financial asset is other than temporary, the financial asset is written down to its fair value. Refer to Note 8. LOSS PER SHARE Basic loss per share is computed by dividing loss for the period by the weighted average number of common shares outstanding for the period. Fully diluted loss per share reflects the potential dilution of securities by including other potential common stock, including convertible preferred shares, in the weighted average number of common shares outstanding for a period and is not presented where the effect is anti-dilutive. The Company has no dilutive securities. COMPREHENSIVE INCOME Comprehensive income is defined as the change in equity from transactions, events and circumstances, other than those resulting from investments by owners and distributions to owners. Comprehensive income consists of net loss, as the Company has no other comprehensive income or loss. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews the carrying amount of capital assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The determination of any impairment would include a comparison of estimated future operating cash flows anticipated during the remaining life with the net carrying value of the asset. No impairment losses have been recorded through June 30, 2000. COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENT ACCOUNTING PRONOUNCEMENTS In March, 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25 ("FIN 44") which clarifies the application of APB 25 for certain issues. This interpretation is effective July 1, 2000, but certain conclusions in this interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. The Company has determined that this pronouncement will not have a material impact on the reporting and measurement of stock based compensation by the Company. In June 1998, The FASB issued Statement Number 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in fair value of the derivative depends on the intended use of the derivative and the resulting designation. The Company does not expect that the adoption of SFAS 133 will have a material impact on its financial statements. The Securities and Exchange Commission Staff Accounting Bulletin No. 101 and subsequent amendments and related releases ("SAB 101") released during the year ended September 30, 1999 provide guidance for the recognition of revenue in financial statements. The Company has considered the guidance presented therein and believes that the Company's practices for the recording of revenue are consistent with this guidance. 3. SUPPLEMENTAL CASH FLOW INFORMATION
2000 1999 $ $ Cash paid for interest 76,300 19,000 Supplemental non-cash investing and financing activities Share subscriptions receivable 6,227 25,000 Stock-based compensation 708,989 --
4. FIXED ASSETS
2000 1999 $ $ Property and equipment Computer equipment 1,484,538 347,447 Computer software 558,497 22,583 Automobiles 26,060 26,060 Furniture and fixtures 60,163 29,672 Office equipment 9,336 5,906 Leasehold improvements 39,667 33,860 ----------- --------- 2,178,261 465,528 Accumulated depreciation and amortization (680,958) (143,849) ----------- --------- 1,497,303 321,679 =========== =========
COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 4. FIXED ASSETS (CONTINUED) Equipment held under capital lease is included in property and equipment and at June 30, 2000 was $826,209 (1999 - $202,065). Accumulated amortization of leased equipment at June 30, 2000 was $181,973 (1999 - $39,616). As of June 30, 2000, future minimum annual lease payments under capital leases together with their present value were: $ 2001 115,487 2002 46,629 2003 22,688 2004 6,115 2005 2,652 ---------- Total minimum lease payments 193,571 Amount representing interest (14,653) ---------- Present value of minimum lease payments 178,918 ========== 5. ACCOUNTS PAYABLE 2000 1999 $ $ Trade payables 1,266,311 231,868 Financing fees payable 367,000 -- Accrued liabilities 229,820 452,137 ------------ ----------- -- 1,863,131 684,005 ============ =========== 6. RELATED PARTY TRANSACTIONS The amounts due to shareholders bear interest at 3% per annum and have no stated terms of repayment. The amount due from a shareholder is non-interest bearing and, at June 30, 2000 had no stated terms of repayment. Refer to note 11. 7. CAPITAL STOCK Holders of Class A common shares are entitled to one vote per share on all matters submitted to a vote of the shareholders of the Company. Upon the occurrence of a liquidation, dissolution or winding up of the assets of the Company, the holders of Class A common shares will be entitled to share pro-rata in the distribution of all assets remaining available for distribution after satisfaction of all liabilities. COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 7. CAPITAL STOCK (CONTINUED) As at June 30, 1999, the authorized common shares of the company consisted of 2,000,000 Class A common shares with no par value of which 715,362 pre-split shares were issued and outstanding. On February 29, 2000, the Board of Directors passed a resolution to adopt a forward stock split at a ratio of 1:23.125 with the effect that the total issued and outstanding shares increased to 18,500,000 shares. The stock split has been applied retroactively to all periods presented. On February 29, 2000, the Company's Articles of Incorporation were amended to increase the Company's authorized common shares to an unlimited number of common shares. STOCK OPTION PLAN The Company has a Share Award Plan that permits the grant of incentive stock options to employees and directors. A maximum of 25% of issued and outstanding Class A common shares may be subject to awards under the plan, which generally have a vesting period of two years. The stock options have terms expiring on or before December 31, 2004. On February 29, 2000, the company completed an option split at a ratio of 1:9.25 with the effect that the total options granted increased to 79,514. The option split has been applied retroactively to all periods presented. Stock option transactions were as follows:
WEIGHTED-AVERAGE NUMBER OF EXERCISE PRICE OPTIONS U.S. $ Balance - June 30, 1998 24,513 0.50 Options granted 55,001 0.50 Options cancelled -- -- Options exercised -- -- ---------- ---- Balance - June 30, 1999 79,514 0.50 Options granted 4,163,656 0.51 Options cancelled (377,103) 0.64 Options exercised (1,659,888) 0.01 ---------- ---- Balance - June 30, 2000 2,206,179 0.87 ========== =====
The following table summarizes information about stock options outstanding at June 30, 2000 (note 11(f)):
WEIGHTED RANGE OF NUMBER OF AVERAGE EXERCISE OPTIONS REMAINING OPTIONS PRICES OUTSTANDING AT CONTRACTUAL LIFE EXERCISABLE AT U.S. $ JUNE 30,2000 (YEARS) JUNE 30,2000 0.50 107,779 4.50 -- 0.70 1,808,000 4.50 210,500 1.00 90,400 4.75 -- 2.50 200,000 5.75 --
COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 7. CAPITAL STOCK (CONTINUED) STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees". This method recognizes compensation cost as the amount by which the fair value of the stock exceeds the exercise price at the date of grant. Had the company determined compensation costs based on fair value at the date of grant for its awards under the method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based Compensation" no additional pro forma compensation expense would have been reflected using the Black Scholes option-pricing model. Assumptions used in the pricing model included: a) Risk free interest rate of 7.5%; b) Expected volatility of 0.0% (private company); c) Expected dividend yield of $nil; and d) An estimated average life of 4.5 to 4.75 years. 8. INCOME TAXES The Company is subject to Canadian federal and British Columbia provincial taxes in Canada. The Company has accumulated net operating loss ("NOL") carryforwards totalling $4,790,000 that can be applied to reduce taxable income in future taxation years. The NOL expire as follows: $ 2006 474,000 2007 4,316,000 The potential tax benefit of these losses, if any, has not been recorded in these financial statements. Net deferred tax assets consist of the following:
2000 1999 $ $ Net operating loss carryforwards 4,790,000 474,000 Deferred tax asset valuation allowance (4,790,000) (474,000) -------------- ------------- Net deferred tax assets -- -- -------------- -------------
Based on a number of factors including, the lack of a history of profits, management believes that there is sufficient uncertainty regarding the realization of deferred tax assets such that a full valuation allowance has been provided. The income tax provisions for the years ended June 30, 2000 and 1999 do not differ materially from the amount obtained by applying the applicable statutory income tax rates to loss before income taxes. COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 9. FINANCIAL INSTRUMENTS INTEREST RATE RISK EXPOSURE The Company has limited exposure to any fluctuation in interest rates. FOREIGN EXCHANGE RISK The Company has limited exposure to any fluctuation in foreign exchange. CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and trade accounts receivable. The Company limits its exposure to credit loss by placing its cash and cash equivalents on deposit with high credit quality financial institutions. Receivables arising from sales to customers are generally not significant individually and are not collateralized; as a result, management continually monitors the financial condition of its customers to reduce the risk of loss. FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's financial instruments include cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, loan payable, due to shareholders and capital lease obligation. The fair values of these financial instruments approximate their carrying values. The fair value of the Company's capital leases are estimated based on market value of financial instruments with similar terms. Management believes that the fair value of the debt approximates its carrying value. 10. COMMITMENTS AND CONTINGENCIES COMMITMENTS As of June 30, 2000, future minimum annual lease payments for operating leases (excluding capitalized leases discussed in note 4) are as follows: $ 2001 160,263 2002 138,520 2003 138,520 2004 103,890 Rent expense for June 30, 2000 was $203,355 (1999 - $21,515). CONTINGENCIES The former Chief Executive Officer of Communicate.com has commenced a legal action on March 9, 2000 for wrongful dismissal and breach of contract. He is seeking, at minimum, 18.39% of the outstanding shares of Communicate.com, specific performance of his contract, special damages in an amount of $37,537, aggravated and punitive damages, interest and costs. On June 1, 2000, Communicate.com commenced an action against this individual claiming damages and special damages for breach of fiduciary duty and breach of his employment contract. The amount of loss, if any, resulting from this litigation is presently not determinable. COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 10. COMMITMENTS AND CONTINGENCIES (CONTINUED) Subsequent to year-end the Company has been threatened with legal action by Don King Productions ("DKP") for alleged infringements on a pay-per-view telecast in March 2000. DKP is seeking damages of $100,000 and rights to one of the Company's domain names. The Company denies any wrongdoing and will defend any action undertaken by DKP. 11. SUBSEQUENT EVENTS a. Acquisition Subsequent to June 30, 2000, the Company entered into a conditional purchase agreement to acquire the assets of Tourdex.com Inc., Cyberstore Systems Inc. and Whistler Networks Inc. for $1,750,000. The Company loaned $89,700 to these entities as part of the conditional purchase agreement. On October 3, 2000 the Company terminated negotiations and commenced seeking repayment of the $89,700 demand loan, which to date has not been repaid. b. Change in ownership On November 10, 2000, Communicate.com Inc. (Nevada) (formerly Troyden Corp) a U.S. publicly traded Company which shares are listed on the OTC Bulletin Board, purchased 11,714,080 shares of the Company from Brian Liew, President and CEO representing 52% of the outstanding shares of the Company. Concurrent with the purchase, Brian Liew resigned from the Company. As part of his Termination Agreement, he received severance payments and debt forgiveness totalling $19,410. The balance of his shareholder loan is being repaid by monthly installments commencing November 9, 2000. Also as part of his termination, he received the rights to three domain names owned by the Company. c. Offer to minority shareholders On November 30, 2000, Communicate.com Inc. (Nevada) made an offer to purchase all of the outstanding minority shareholdings in the Company on the basis of one share for each 5.1470556 shares held until December 29, 2000. A total of 7,079,039 shares were exchanged and effective December 29, 2000, Communicate.com Inc. (Nevada) owns 83% of the common stock of the Company. d. Minority Shareholder oppression action Subsequent to year-end certain minority shareholders threatened to take legal action in the Court of Queens Bench of Alberta pursuant to the Alberta Business Corporation Act to obtain remedies based on alleged shareholder oppression. These shareholders have also notified certain directors and investors of their intention to proceed with derivative claims that will be proceeded with in combination with the shareholder oppression action. As of the date of the auditors' report no statement of claim has been filed. Should a claim be started, the Company intends to vigorously defend this action. COMMUNICATE.COM INC. Notes to the Financial Statements JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 11. SUBSEQUENT EVENTS (CONTINUED) e. Change in operations and restructuring Due to financial constraints, the Company changed the nature of its operations from developing domain names into an e-commerce network to entering into strategic partnerships to develop domain names. As a result, all but three of the Company's employees were laid off between September 2000 and October 31, 2000. The Company also disposed of capital assets with a net book value of $469,684 for proceeds of $360,924. The Company has also renegotiated its office lease agreements, downsizing as a result of employee lay-offs. f. Cancellation of stock options As part of the restructuring described above, all 2,206,179 stock options outstanding at June 30, 2000 were cancelled in accordance with termination provisions in the Company's Stock Option Plan. The Company currently has no stock options outstanding. g. Sale of cricket.com Subsequent to year-end the Company entered into an agreement to sell one of its URL domain names for $1,000,000 US structured as follows: 1. $25,000 US, paid on closing, 2. Communicate.com will receive 90% of the net revenues to a maximum of $500,000 US, from Cricket.com Ltd. (a newly formed company of which Communicate.com will own 40%), and 3. Communicate.com will receive 50% of the net revenues from Cricket.com Ltd. until the balance of $500,000 US is paid. h. Sale of vietnam.com Subsequent to year-end the Company entered into an agreement to sell one of its URL domain names for $500,000 US structured as follows: 1. $200,000 US paid 10 days after closing 2. $300,000 US paid within 90 days following the transfer of the domain name, and 3. Communicate.com will receive ordinary shares equal to 20% of the new company, which holds the rights to the domain name. COMMUNICATE.COM INC. PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On November 10, 2000, Communicate.com Inc., a Nevada corporation (the "Company" or "CMNN") acquired approximately 52% of the issued and outstanding shares of the common stock of Communicate.com Inc. ("AlbertaCo") from Bryan Liew for (a) $400,000 cash, plus (b) $1,100,000 payable in $275,000 payments every thirty days over the 120 days following the acquisition in either cash or, if CMNN failed to pay or chose not to pay in cash, in shares of CMNN's $0.001 par value common stock at an agreed price of $0.50 per share, plus (c) one million shares of CMNN common stock. The one million shares were recorded at $0.50 per share that was the agreed price per share stated in the Purchase Agreement. The $400,000 cash was paid with the proceeds of a demand loan from Pacific Capital Markets, Inc. and the $1,100,000 payable has been recorded as an issuance of 2,200,000 shares which were recorded at $0.50 per share, as it is more likely than not the Company will repay the debt with shares of its common stock. Concurrently with the acquisition, AlbertaCo entered into a severance agreement with Mr. Liew, which includes forgiveness of debt of $13,000 and the rights to three domain names with an estimated fair value of $205,000. Following its acquisition of shares from Mr. Liew, between November 30 and December 29, 2000 CMNN acquired from minority shareholders an additional 31% of AlbertaCo by exchanging one share of CMNN's common stock for each 5.147058 shares of AlbertaCo's common stock tendered. CMNN issued 1,375,339 shares of its common stock in exchange for 7,078,950 shares of AlbertaCo's common stock. These shares have been recorded at $0.64 per share which was the average trading price of the Company's common stock during the share exchange discounted by 20%. In connection with the acquisition of AlbertaCo there was a change in business operations of AlbertaCo and all but three employees were laid-off and certain fixed assets were disposed of. The results of these non-recurring operations have been eliminated from the pro-forma condensed consolidated statements of operations. The acquisition of AlbertaCo will be accounted for as a purchase, with the assets acquired and liabilities assumed recorded at 83% of fair value and the results of AlbertaCo's operations included in CMNN's consolidated financial statements from the date of acquisition net of the allocation to the minority interest. Because AlbertaCo has a negative net book value on acquisition, no minority interest is recorded. The accompanying condensed consolidated financial statements illustrate the effect of the acquisition on the Company's financial position and results of operations. The condensed consolidated balance sheet as of September 30, 2000 is based on the historical balance sheets of the Company and AlbertaCo as of that date and assumes the acquisition took place on that date. The condensed consolidated statements of operations for the year ended December 31, 1999 and the nine months ended September 30, 2000 are based on the historical statements of operations of the Company and AlbertaCo for those periods. The pro-forma condensed consolidated statements of income assume the acquisition took place at the beginning of each period. The pro-forma condensed consolidated financial statements may not be indicative of the actual results of the acquisition. In particular, the pro-forma condensed consolidated financial statements are based on management's current estimate of the allocation of the purchase price, the actual allocation of which may differ. The accompanying condensed consolidated pro-forma financial statements should be read in connection with the historical financial statements of the Company and AlbertaCo. 22 COMMUNICATE.COM INC. PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (unaudited)1
Combined Adjustments Adj Pro-Forma AlbertaCo AlbertaCo CMNN Statements # Can$ US$0.673 of Operations Revenues $ 1,792,113 $1,428,876 $ -- $ 1,428,876 $ (1,392,876) 2 $ 36,000 ----------- ---------- -------- ----------- -------- Operating Expenses Administrative 2,714,968 1,827,173 25 1,827,198 (1,342,638) 3 484,560 Sales & marketing 904,092 608,454 -- 608,454 (572,454) 3 36,000 Depreciation and amortization 312,023 209,991 -- 209,991 (121,155) 3 88,836 Stock-based compensation 354,495 238,575 -- 238,575 (238,575) 3 - ----------- ---------- -------- ----------- -------- 4,285,578 2,884,194 25 2,884,219 609,396 ----------- ---------- -------- ----------- -------- Operating Loss 2,493,465 1,455,318 25 1,455,343 573,396 Interest & Other (Income) Expenses 22,760 15,317 2,103 17,420 (16,340) 4 33,760 ----------- ---------- -------- ----------- -------- Net operating loss for the year $ 2,516,225 $1,470,635 $ 2,128 $ 1,472,763 $607,156 =========== ========== ======== ============ ======== Loss per share $ 0.0002 $ 0.0438 ========= ======== Weighted average number of shares outstanding 9,300,000 4,575,339 1 13,875,339 ========= ========= ==========
See Notes to Pro-Forma consolidated Financial Statements 23 COMMUNICATE.COM INC. PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 (unaudited)
Combined Adjustments Ref Pro-Forma AlbertaCo AlbertaCo CMNN Statements # Can$ US$0.6795 of Operations Revenue $ 657,876 $ 447,027 $ -- $ 447,027 $ (420,027) 2 $ 27,000 ------------ ------------ ---------- ------------ ----------- Operating Expenses Administrative 3,536,648 2,403,152 12,462 2,415,614 (2,048,614) 3 367,000 Sales & marketing 1,397,719 949,750 -- 949,750 (922,750) 3 27,000 Depreciation and amortization 1,065,496 724,005 -- 724,005 (656,005) 3 68,000 Stock-based compensation 145,000 98,528 -- 98,528 (98,528) 3 -- ------------ ------------ ---------- ------------ ----------- 6,144,863 4,175,434 12,462 4,187,896 462,000 ------------ ------------ ---------- ------------ ----------- Operating Loss 5,486,987 3,728,408 12,462 3,740,870 435,000 Interest & Other (Income) Expenses (75,161) (51,072) 1,989 (49,083) 78,642 4 29,559 ------------ ------------ ---------- ------------ ----------- Net Operating Loss for the Period $ 5,411,826 $ 3,677,336 $ 14,451 $ 3,691,787 $ 464,559 ============ ============ ========== ============= ============ Loss per share from Continuing Operations $ 0.002 $ 0.033 ========== =========== Weighted average number of shares outstanding 9,300,000 4,575,339 1 13,875,339 ========= ========= ==========
See Notes to Pro-Forma Consolidated Financial Statements 24 COMMUNICATE.COM INC. PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET As at September 30, 2000 (Unaudited)
Combined Adjustments Ref Pro-Forma AlbertaCo AlbertaCo CMNN Balance # Can$ US$0.666 Sheets ASSETS Cash and equivalents $ 449,972 $ 299,681 $ -- $ 299,681 $ -- $ 299,681 Accounts receivable & other assets 371,029 247,105 -- 247,105 -- 247,105 ----------- ----------- --------- ----------- ----------- ---------- Total current assets 821,001 546,786 -- 546,786 -- 546,786 Intangibles, licenses and other 31,733 21,134 -- 21,134 3,400,975 1 3,422,109 Capital assets 781,808 520,684 -- 520,684 -- 520,684 ----------- ----------- --------- ----------- ----------- ---------- Total assets $ 1,634,542 $ 1,088,604 $ -- $ 1,088,604 $ 3,400,975 $4,489,579 =========== =========== ======= =========== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable & accrued liabilities $ 1,978,354 $ 1,317,583 $ 30,836 $ 1,348,419 $ -- $1,348,419 ----------- ----------- --------- ----------- ----------- ---------- Total current liabilities 1,978,354 1,317,583 30,836 1,348,419 -- 1,348,419 Demand loan -- -- -- -- 400,000 1 400,000 Lease & other long term liabilities 84,182 56,065 -- 56,065 -- 56,065 ----------- ----------- --------- ----------- ----------- ---------- Total liabilities 2,062,536 1,373,648 30,836 1,404,484 400,000 1,804,484 Common shares 7,256,136 4,832,586 310 4,832,896 (4,828,011) 1 4,885 Additional paid in capital -- -- 3,690 3,690 2,475,667 1 2,479,357 Deficit (7,684,130) (5,117,630) (34,836) (5,152,466) 5,353,319 1 200,853 ----------- ----------- --------- ----------- ----------- ---------- Total stockholders equity (427,994) (285,044) (30,836) (315,880) 3,000,975 2,685,095 ----------- ----------- --------- ----------- ----------- ---------- Total liabilities & stockholders' equity $ 1,634,542 $ 1,088,604 $ -- $ 1,088,604 $ 3,400,975 $ 4,489,579 =========== =========== ======= =========== =========== ===========
See Notes to Pro-Forma Consolidated Financial Statements 25 COMMUNICATE.COM INC. NOTES TO PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE (A) - The pro-forma adjustments to the condensed consolidated balance sheet are as follows: (1) To reflect the acquisition of 83% of AlbertaCo and the allocation of the purchase price on the basis of the fair values of the assets acquired and liabilities of AlbertaCo are as follow:
Components of purchase price: Cash advanced by Pacific Capital Markets Inc. and paid to Bryan Liew $ 400,000 1,000,000 Communicate Class A common shares issued to Bryan Liew 500,000 Conversion of Bryan Liew debt into 2,200,000 Communicate Class A common shares 1,100,000 1,375,339 Communicate Class A common shares issued to AlbertaCo minority shareholders 880,217 ------------- Allocation of purchase price: (a) 2,880,217 Stockholders' equity of AlbertaCo (b) 520,758 Increase in intangibles - domain names (7,526,618) ------------- Asset value in excess of cost (4,125,643) Intangibles (c) 4,125,643 ------------- Total $ -- =============
(a) Recorded at 83% (b) 100% of negative net book value of AlbertaCo (c) Asset value in excess of cost applied against carrying value of intangibles NOTE B - The pro-forma adjustments to the condensed consolidated statements of operations areas follows:
Year Ended Nine Months Ended December 31, 1999 September 30, 2000 (2) Adjustments to revenue Elimination of revenue from non-recurring operations $ 1,392,876 $ 420,027 ============== ============ (3) Adjustments to operating expenses Elimination of administrative expenses from non-recurring operations $ 1,342,638 $ 2,048,614 Elimination of sales & marketing expenses from non-recurring operations 572,454 922,750 Elimination of depreciation & amortization expenses from non-recurring operations 121,155 656,005 Elimination of stock-based compensation expenses from non-recurring operations 238,575 98,528 ------------- ------------ Total adjustments to operating expenses $ 2,274,823 $ 3,725,897 ============== ============
(4) Adjustments to interest & other (income) expenses Elimination of interest & other (income) expenses from non-recurring operations $ (17,420) $ 51,072 Interest on Pacific Capital Markets Inc. $400,000 demand loan at the Royal Bank of Canada average prime rate plus 2% which approximates 8.44% for the year ended December 31, 1999 and 9.19% for the nine months ended September 30, 2000 33,760 27,570 ------------- ----------- Total adjustments to interest & other (income) expenses $ 16,340 $ 78,642 ============== ============
26 EX-10.3 2 0002.txt EXHIBIT 10.3 EXHIBIT 10.3 SHARE EXCHANGE AGREEMENT THIS AGREEMENT dated for reference November 29, 2000, is between COMMUNICATE.COM INC., a Nevada corporation with an office at 360 - 220 Cambie Street, Vancouver, B.C., V6B 2M9 and fax (604) 687-2192 ("CMNN") and the UNDERSIGNED SHAREHOLDER (the "SHAREHOLDER"). WHEREAS: A. CMNN has acquired or has reached an agreement to acquire an aggregate 16,896,335 shares in the capital of Communicate.com Inc., an Alberta company (the "SUBSIDIARY") and wishes to acquire all of the remaining issued and outstanding shares of the Subsidiary pursuant to the terms and conditions of this agreement, B. the Shareholder is a registered shareholder of the Subsidiary owning the number of shares as set out in the Register of Shareholders of the Subsidiary (the "SHARES") as of the date of this agreement, C. CMNN has made the same share exchange offer to all of the existing shareholders of the Subsidiary, FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are acknowledged, the parties agree that: TERMS AND CONDITIONS OF THE SHARE EXCHANGE SHARE EXCHANGE 3. The Shareholder will transfer all of its shares in the Subsidiary to CMNN on the terms and conditions set out in this agreement. For every 5.1470588 shares in the Subsidiary held by the Shareholder CMNN will issue to the Shareholder one common share in the capital of CMNN (the "EXCHANGE SHARES") based on a value of US$0.34 per Share and a value of US$1.75 per Exchange Share. CMNN will deliver a certificate representing the Exchange Shares to the Shareholder within a reasonable time. 4. The Shareholder will tender a duly executed stock power of attorney for the transfer of the Shares to CMNN immediately after signing this agreement. 5. The obligations of each party are subject to the condition that each party's representations and warranties are true at the time of Closing and the covenants of the other party that were to be performed by the other party on or before the Closing have been performed. REPRESENTATIONS AND WARRANTIES 6. REPRESENTATIONS, WARRANTIES, COVENANTS AND ACKNOWLEDGMENTS OF THE SHAREHOLDER 1. SHARE OWNERSHIP. The Shareholder owns the Shares free of any claim or potential claim by any person and has the authority to transfer the Shares as described in this agreement. 2. ADDITIONAL RIGHTS. The Shareholder does not have any right to acquire additional shares of the Subsidiary. 3. INDEPENDENT INVESTIGATION. The Shareholder, in electing to exchange the Shares for Exchange Shares, relied upon an independent investigation made by it and its representatives, if any, and has been given access to and the opportunity to examine all books and records of CMNN, and all material contracts and documents of CMNN. The Shareholder has the experience in business and financial matters that make it capable of evaluating the risk of its investment and determining the suitability of its investment. 4. NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Shareholder understands that no United States federal or state agency, securities commission or regulatory authority has passed upon or recommended or endorsed CMNN, this transaction or the acquisition of the Exchange Shares. Furthermore, the foregoing authorities have not reviewed, confirmed or determined the accuracy or adequacy of this document. 5. NO REGISTRATION. The Shareholder understands that the Exchange Shares have not been registered under Share Exchange Agreement 2 / 4 the Securities Act of 1933 (the "ACT") or with the United States Securities and Exchange Commission or the securities commission of any state, and are being offered and sold pursuant to the provisions of the Act based in part upon the representations of the Shareholder, and that CMNN is relying on the truth and accuracy of the Shareholder's representations and warranties to determine whether the offer and sale of the Exchange Shares is exempt from registration under the Act. This agreement does not constitute an offer to sell nor a solicitation of an offer to buy the securities in any jurisdiction in which such offer or solicitation would be unlawful. The securities may not be resold or transferred except as permitted pursuant to registration under the Act or an exemption from it. 6. INVESTMENT INTENT. The Shareholder is acquiring the Exchange Shares for its own account (or a trust account if the Shareholder is a trustee) and not as a nominee. The Shareholder understands that the exchange of the Shares for Exchange Shares involves a high degree of risk and that the Shareholder must bear the economic risk of this investment indefinitely unless sale of the Exchange Shares is registered pursuant to the Act, or an exemption from registration for their sale is available. The Shareholder understands that, in the view of the SEC, the statutory basis for the exemption claimed for this transaction would not be present if the offering of the Exchange Shares, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the Act. The Shareholder is acquiring the Exchange Shares for investment purposes and has no present intention to sell the Exchange Shares to any person or for the account or benefit of any person. The Shareholder covenants that neither the Shareholder nor its affiliates nor any person acting on its or their behalf has the intention of entering or will enter before the expiration of one year from the Closing (the "RESTRICTED PERIOD"), into any put option, short position or other similar instrument or position or any other hedging transactions or arrangements with respect to CMNN's common stock, and neither the Shareholder nor any of its affiliates nor any person acting on its or their behalf will use at any time Exchange Shares acquired pursuant to this agreement to settle any put option, short position or other similar instrument or position or any other hedging transaction or arrangement that may have been entered into before the execution of this agreement or during the Restricted Period. 7. NO SALE IN VIOLATION OF THE SECURITIES LAWS. The Shareholder covenants that it will not knowingly sell transfer or otherwise dispose of the Exchange Shares in violation of the Act, the Securities and Exchange Act of 1934 (the "EXCHANGE ACT") or the rules and regulations of the Securities and Exchange Commission (the "COMMISSION"). The Shareholder will only offer and sell the Exchange Shares pursuant to an effective registration statement under the Act or an exemption from the registration provisions of the Act. The Shareholder will not, during the Restricted Period, offer or sell the Exchange Shares to any persons or for the account or benefit of any persons and will offer and sell the Exchange Shares only in compliance with the provisions of the Act. 8. AUTHORITY. The Shareholder has the full power and authority to execute, deliver and perform this agreement. This agreement, when executed and delivered by the Shareholder, constitutes a legal, valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with its terms. 9. NO RELIANCE ON TAX ADVICE. The Shareholder has reviewed with its own tax advisors the tax consequences of the transactions contemplated by this agreement. The Shareholder is relying solely on the advisors and not on any statements or representations of CMNN or any of its agents with respect to the tax consequences and understands that the Shareholder (and not CMNN) is responsible for the Shareholder's tax liability that may arise as a result of this investment or the transactions contemplated by this agreement. 10. NO LEGAL ADVICE FROM CMNN. The Shareholder acknowledges that it has had the opportunity to review this agreement and the transactions contemplated by it with its own legal counsel. The Shareholder is relying solely on its counsel and not on any statements or representations of CMNN or any of its agents for legal advice with respect to this investment or the transactions contemplated by this agreement except for the representations, warranties and covenants specifically stated. 11. RESALES. The Shareholder acknowledges and agrees that the Exchange Shares may only be resold pursuant to a registration statement under the Act or pursuant to an exemption from registration under the Act. Share Exchange Agreement 3 / 4 CMNN will not register any transfer of Exchange Shares that does not comply with this section 4(l). The Shareholder covenants that all offering materials and documents (other than press releases) used in connection with offers and sales of the Exchange Shares before the expiration of the Restricted Period must state that (i) the Exchange Shares have not been registered under the Act and may not be offered or sold to any person unless they are registered under the Act or an exemption from the registration requirements of the Act is available, and that (ii) hedging transactions involving the Exchange Shares may not be conducted unless they comply with the Act. These statements must appear on the cover or inside cover page and in the underwriting section of any prospectus or offering circular and must appear in any advertisement used in connection with the offer or sale of the Exchange Shares. 12. RESTRICTIONS ON TRANSFER OF SHARES AND LEGENDS ON CERTIFICATES. The Shareholder acknowledges that the certificates representing the Exchange Shares must bear the following legend and any other legend, if the legend or legends are reasonably required by CMNN, to comply with state, federal or foreign law: "THESE SECURITIES ARE RESTRICTED SECURITIES AS THAT TERM IS DEFINED IN RULE 144 UNDER THE U.S. SECURITIES ACT OF 1933 (THE "ACT"). AS RESTRICTED SECURITIES, THEY MAY BE RESOLD ONLY IN ACCORDANCE WITH THE ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM THE ACT." 7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF CMNN. 1. AUTHORIZED CAPITAL. CMNN represents and warrants that it is authorized to issue 50 million common shares of its capital stock, of which 10,300,000 common shares are issued and outstanding. It has no other classes of shares and no obligation to issue any additional shares for any reason including options, warrants or convertible instruments. 2. ORGANIZATION AND GOOD STANDING. CMNN is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. 3. AUTHORIZATION. CMNN has taken the corporate action that is necessary for the authorization, execution and delivery of this agreement, the performance of CMNN's obligations, and the authorization, issuance and delivery of the Exchange Shares, and this agreement constitutes a legal, valid and binding obligation of CMNN, enforceable against CMNN in accordance with its terms. 4. VALID ISSUANCE OF THE EXCHANGE SHARES. The Exchange Shares, when issued, sold and delivered in accordance with the terms hereof in exchange for the Shares will be duly and validly issued and outstanding, fully paid and nonassessable, and based in part on the representations and warranties of the Shareholder will be issued in compliance with all applicable federal, state and other applicable securities laws. OTHER PROVISIONS 8. Time is of the essence of this agreement. 9. This agreement is governed by the laws of British Columbia and must be litigated in the courts of British Columbia, except for matters arising under the Act or the Exchange Act which matters must be construed and interpreted in accordance with those laws 10. Any notice that must be given or delivered under this agreement must be in writing and delivered by hand to the address or transmitted by fax to the fax number given for the party on page 1 and is deemed to have been received when it is delivered by hand or transmitted by fax unless the delivery or transmission is made after 4:00 p.m. or on a non-business day where it is received, in which case it is deemed to have been delivered or transmitted on the next business day. Any payments of money must be delivered by hand or wired as instructed Share Exchange Agreement 4 / 4 in writing by the receiving party. Any delivery other than a written notice or money must be made by hand at the receiving party's address. 11. Neither the Shareholder nor CMNN may assign this agreement or any part of it to another party. 12. This agreement constitutes the entire understanding and agreement between the parties, and no party is liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically stated in this agreement. Except as expressly provided, neither this agreement nor any term of it may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of the amendment, waiver, discharge or termination is sought. 13. This agreement enures to the benefit of and binds the parties and their respective successors, heirs and permitted assignees. 14. No failure or delay of CMNN in exercising any right under this agreement operates as a waiver of the right. CMNN's rights under this agreement are cumulative and do not preclude CMNN from relying on or enforcing any legal or equitable right or remedy. 15. If any provision of this agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this agreement continues in full force and effect without the provision, except that the severability is not effective if it materially changes the economic benefit of this agreement to any party. 16. This agreement may be signed in counterparts and delivered to the parties by fax, and the counterparts together are deemed to be one original document. THE PARTIES' signatures below are evidence of their agreement. COMMUNICATE.COM INC. ---------------------------------------- - ---------------------------------- SIGNATURE OF SHAREHOLDER AUTHORIZED SIGNATORY ---------------------------------------- NAME OF SHAREHOLDER ---------------------------------------- ADDRESS OF SHAREHOLDER ---------------------------------------- EX-10.4 3 0003.txt EXHIBIT 10.4 SIERRA SYSTEMS GROUP INC. 1400 - 1177 West Hastings Street Vancouver BC V6E 2K3 January 26, 2000 Communicate.com Inc. 360 - 220 Cambie Street Vancouver, B.C. V6B 2M9 Attention: Bryan Liew, President and CEO (the "Vendor") Dear Sirs: The purpose of this letter is to set out the agreement between Sierra Systems Group Inc. (the "Purchaser") and the Vendor with respect to the purchase by the Purchaser and sale by the Vendor of certain business contacts of the Vendor. 1. REPRESENTATIONS OF THE VENDOR. The Vendor represents and warrants to the Purchaser that: (a) part of the Vendor's business is the development of internal and external web sites for clients, exclusive of integration into such of internal enterprise systems ("Web Site Development Services"); (b) the clients of the Vendor listed on Schedule A (the "Clients") have contracted with the Vendor for Web Site Development Services, all of which are performed on a time and materials basis, except for two which are on a retainer basis; and (c) all of the contracts between the Vendor and the Clients are in good standing. 2. AGREEMENT OF PURCHASE AND SALE. Relying upon the Vendor's representations and warranties provided in Section 1 and subject to the terms and conditions hereof, the Purchaser offers to pay the Vendor a referral fee (the "Fee") for each Client that agrees to terminate its relationship with the Vendor with respect to Web Site Development Services and to engage the Purchaser on terms satisfactory to it to provide Web Site Development Services. 3. FEES. The Fee to be paid by the Purchaser to the Vendor with respect to each Client who agrees to have its Web Site Development Services performed by the Purchaser will be as follows: (a) 15% of the gross revenue billed and collected by the Purchaser in respect of Web Site Development Services provided to the Client for the period of three months extending from the earlier of the commencement of the Purchaser providing Web Site Development Services to the Client and March 1, 2000 and 10% of gross revenue billed and collected for Web Site Development Services provided during the next four-month period; (b) the Fee will be calculated and paid monthly, within 30 days of the end of each month based upon gross revenue collected during the month; (c) each payment of the Fee will be accompanied by an unaudited statement indicating the calculation of the Fee in reasonable detail (a "Monthly Statement"); (d) the Vendor will have 15 days from the time of receipt of a Monthly Statement to question the accuracy thereof in writing and failing such objection the Monthly Statement will be deemed to be correct and unimpeachable thereafter; (e) if the Monthly Statement is questioned by the Vendor, and if such questions cannot be resolved between the Vendor and the Purchaser, the Vendor will have the Monthly Statement reviewed by its auditors, PricewaterhouseCoopers, who will be requested to provide their opinion on the calculation of the Fee for the month in question, such opinion to be final and determinative of the Fee payable during the month; and (f) the Fee payable by the Purchaser will be calculated based upon the actual gross revenue collected from a Client and the percentage payable will be based upon the period during which the bill representing such gross revenue was rendered, notwithstanding the time when a bill rendered to a Client is actually paid. 4. AGREEMENT BY VENDOR TO SOLICIT CLIENTS. Forthwith upon the execution of this Agreement, the Vendor will contact the Clients for the purpose of soliciting their consent to the termination of their agreement with the Vendor to provide Web Site Development Services and to have such services provided by the Purchaser on terms which are satisfactory to the Client and the Purchaser. 5. AGREEMENTS OF PURCHASER. The Purchaser hereby agrees to use its reasonable efforts to: (a) reach agreements with the Clients on terms satisfactory to the Purchaser pursuant to which the Purchaser will provide Web Site Development Services to the Clients; (b) to carry out Web Site Development Services for the Clients upon such agreed upon terms; and (c) to invoice the Clients on a timely basis for Web Site Development Services and to collect such. 6. MUTUAL AGREEMENT. The Vendor and the Purchaser agree to work together from the date hereof for the purpose of transitioning Clients from the Vendor to the Purchaser. -2- 7. INDEMNIFICATION OF PURCHASER. The Vendor agrees to indemnify and save the Purchaser harmless with respect to all claims and causes of action and costs (including lawyers' fees) which may arise due to Web Site Development Services provided to the Clients prior to the Client agreeing to have such services provided by the Purchaser. 8. NONSOLICITATION OF EMPLOYEES. For the period extending from the date of acceptance hereof by the Vendor to September 30, 2000, both parties undertake not to solicit for or initiate discussions to, hire or contract any of the employees or individual partners of the other party nor to, directly or indirectly, entice any of such employees or individual partners to terminate his or her employment with the other party. Breach of this clause will entitle the aggrieved party, as its only recourse, to claim from the breaching party, and the breaching party will pay to the aggrieved party upon demand, as liquidated damages and not as a penalty, an amount equal to the compensation paid to the hired employee or individual partner during the six months prior to being hired by the breaching party. The provisions of this Section 8 will not prevent a party from discussing employment or from hiring such an employee or individual partner where the party is first approached by the employee or individual partner in circumstances where the party is not in breach of the provisions hereof. 9. NOTICE. Any notice or other communication required or permitted to be given hereunder or for the purposes hereof will be sufficiently given if delivered to the party to whom it is given or sent by means of electronic transmission addressed to such party: (a) in the case of a notice or other communication to Purchaser, to it at: 1400 - 1177 West Hastings Street Vancouver, British Columbia V6E 2K3 Attention: Ted Stedman Fax: (604) 688-6482 (b) in the case of a notice or other communication to Vendor, to it at: 360 - 220 Cambie Street Vancouver, British Columbia V6B 2M9 Attention: Bryan Liew, President and CEO Fax: (604) 687-2192 or at such other address or number as the party to whom such notice or other communication is to be given has last notified the party giving the same in the manner provided in this Section 9. Any notice or other communication which is delivered or sent by means of electronic transmission will be deemed to have been given and received on the day after it is delivered or transmitted, provided that if such day is not a Business Day, the notice or other communication will be deemed to have been given and received on the next Business Day following such day. 10. ENUREMENT. All the terms and provisions of this Agreement will be binding upon and enure to the benefit of the parties hereto and their respective successors and assigns. -3- 11. ENTIRE AGREEMENT. This Agreement and the Schedules attached hereto set forth the entire agreement and understanding of the parties in respect of the transactions contemplated hereby and supersede all previous agreements and understandings, oral or written, among the parties or their respective representatives with respect to the matters herein and will not be modified or amended except by written agreement signed by the parties to be bound thereby. 12. ACCEPTANCE OF TERMS. If you agree with the terms of this letter kindly sign this letter where shown and return it to us. You may return the signed letter to us by facsimile transmission, which will be treated for all purposes as an original document. Upon such occurring, this letter will constitute a binding agreement between us in respect of the matters described herein. Yours truly, SIERRA SYSTEMS GROUP INC. By: ------------------------------- By: ------------------------------- Agreed to and accepted this day of January, 2000. COMMUNICATE.COM INC. By: ------------------------------- By: ------------------------------- -4- SCHEDULE A LIST OF CLIENTS 1. ACCPAC International 2. Amiga Telephony Corporation 3. BC Assessment Authority 4. BC Hydro Corporation 5. BC Library Association 6. Canaccord Capital Corporation 7. Certified Management Accountants of BC 8. Future Shop Ltd. 9. HSBC Bank USA 10. HSBC Securities (Canada) Ltd. 11. HSBC Bank Canada 12. HSBC InvestDirect (Canada) Inc. 13. HSBC Brokerage (USA) Inc. 14. Lifescan Canada 15. Natural Factors 16. PCSupport.com, Inc. 17. Tripeze Travel Inc. 18. Vancouver Hospital 19. Vancouver Hospital Foundation 20. Westminster Savings Credit Union -5- -----END PRIVACY-ENHANCED MESSAGE-----