-----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, OzWmMx/t8+eSET7B81e/xWkSxhOUsol2GFZyUIC5sMXFaRQ79L36OD0+YpvbS7fu XASC6Q3EIxc91xMH+AG8FQ== 0001005150-01-500892.txt : 20020410 0001005150-01-500892.hdr.sgml : 20020410 ACCESSION NUMBER: 0001005150-01-500892 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-29929 FILM NUMBER: 1790971 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 10QSB 1 form10qsb.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number 000-29929 COMMUNICATE.COM INC. (Exact name of small business as specified in its charter) Nevada 33-0786959 ----------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) #1300 - 1090 West Georgia Street, Vancouver, B.C. V6E 3V7 --------------------------------------------------------- (Address of principal executive offices) (604) 697-0136 -------------- (Issuer's telephone number) APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Common Stock 14,191,339 shares outstanding $.001 Par Value as of November 1, 2001 Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] Communicate.com Inc. -------------------- COMMUNICATE.COM INC. REPORT ON FORM 10-QSB QUARTER ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Item 1. Financial Statements 2 Balance sheets as of September 30, 2001 and December 31, 2000 Statements of Operations as of September 30, 2001 and September 30, 2000 Statements of Cash Flows as of September 30, 2001 Notes to the Financial Statements Item 2. Management's discussion and analysis of financial condition and results of operations 2 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 6 Item 2. Changes in Securities. 6 Item 3. Defaults Upon Senior Securities. 6 Item 4. Submission of Matters to a Vote of Security Holders. 6 Item 5. Other Information. 6 Item 6. Exhibits and Reports on Form 8-K. 7 Signatures 8
i Communicate.com Inc. -------------------- PART I ITEM 1: FINANCIAL STATEMENTS. - ----------------------------- The response to Item 1 has been submitted as a separate section of this Report beginning on page F-1. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS ------------- General - ------- Registrant, directly and through its subsidiary and through contractual arrangements, invests in and operates internet-related businesses. Pursuant to an acquisition in November 2000, Registrant acquired an 83% interest in Communicate.com Inc. (the "Subsidiary"), an Alberta corporation that markets and licenses a portfolio of domain names, 30 of which generate high amount of internet traffic because of their generic description of a specific product or services category. Registrant has in the past twelve months focused on developing revenue streams from its domain names and reducing the debt of the Subsidiary. Registrant generates revenues from a variety of sources, including the lease of domain names on a flat fee or variable basis, sales commissions from third-party products and services, "pay-per-click" revenue and the sale of domain name assets which Registrant have determined not to be part of Registrant's core assets. Registrant has negotiated with certain of Subsidiary's trade creditors and capital lessors to settle existing obligations for less than the principal amount owed. Registrant has applied cashflow generated, net of monthly operating expenses, to reduce debt and other obligations. Registrant anticipates that this debt management program shall continue for the foreseeable future. Registrant presently has 3 administrative employees employed by the Subsidiary. Registrant has relied on hourly-contractors to meet its technical needs and expects to continue the practice for the foreseeable future. (A) SELECTED FINANCIAL DATA The following selected financial data was derived from Communicate's unaudited financial statements. The information set forth below should be read in conjunction with the Company's financial statements and related notes included elsewhere in this report. 2 Communicate.com Inc. -------------------- For the Quarters Ended September 30, 2001 September 30, 2000 ------------------------------------------------------------------------------------------------------ Statements of Operations Data ----------------------------- Domain and Advertising Sales $ 37,520 -- General and Administrative $ (22,999) -- Professional Fees (42,553) $ (5,412) Depreciation (20,056) (25) Operating Loss $ (48,088) $ (5,437) Gain on Settlement of Debt 68,688 -- Interest (8,662) (450) Income Tax -- -- Net Income (Loss) $ 11,938 $ (5,887) Basic Earnings (Loss) per Share $ 0.0008 $ (0.0006) Weighted Average Shares Outstanding 14,191,339 9,300,000 Balance Sheet Data ------------------ As of September 30, 2001 As of December 31, 2000 Current Assets $ 110,697 $ 251,359 Fixed Assets 143,381 233,620 Intangible Assets 3,341,809 3,364,875 Total Assets $ 3,595,887 $ 3,849,854 Accounts Payable & Accrued Liabilities $ 666,339 $ 838,484 Loan Payable 494,953 405,399 Note Payable -- 825,000 Deferred Income 21,936 -- Lease Obligations 20,411 92,357 Total Liabilities $ 1,203,639 $ 2,161,240 Common Stock $ 5,201 $ 3,535 Additional Paid in Capital 2,772,016 1,928,682 Accumulated Deficit $ (408,186) $ (236,739) Accumulated Other Comprehensive Income (Loss) $ 23,217 $ (6,864)
(B) RESULTS OF OPERATION Registrant has not generated any significant revenues or expenses until the acquisition of the Subsidiary on November 10, 2000. Prior to that date, Registrant was a developing stage company in search of business acquisition. The results of operation discussed hereon describe the business activities of the Registrant since November 10, 2000. REVENUES. In the last quarter of 2000 Registrant entered into an agreement to 7sell a geographical category domain name from which Registrant had expected to generate revenues in the first and the second quarter of 2001. However, the purchaser of the geographical category domain name did not make the contracted payment. Management of Registrant exercised its remedy under the terms of the purchase agreement in July of 2001 and assumed control of the domain name. Management intends to seek other bids for the domain name in the coming months. During the second quarter of 2001, the Registrant entered into an agreement to lease one of its domain names for a ten-year period and received an advance of $33,000 against future revenue to be calculated at the end of each annual anniversary based on a percentage of gross revenue. The lessee also has the options to purchase the domain name prior to the fifth anniversary date and eighth anniversary date for specified amounts. 3 Communicate.com Inc. -------------------- During the second quarter of 2001, the Registrant entered into an agreement to sell one of its sports category domain name for GBP$100,000 payable in three equal annual installments and received additionally a 10% interest in the purchaser and a share of revenues generated from the site over the two-year period. Proceeds of the first annual installment net of costs amounted to $37,000. During the third quarter of 2001, the Registrant entered into an agreement to lease one of its sports category domain name for $25,000 for six months and to further lease for another six months at the option of the lessor. The revenue will be amortized over the lease period. Management will continue to market its portfolio of domain names in fiscal 2001 and identify potential purchasers who have adequate liquid assets to complete a transaction. Management believe that its portfolio of generic product or services category domain names will continue to generate interest from potential partners or purchasers despite a softened and depressed domain names aftersales market because of the intuitive and traffic-generating characteristics of Registrant's domain names. Registrant generated advertising and click-through revenues of $30,000 from the leasing of internet traffic from idle domain names redirected to potential partners and purchasers who would be interested in making an offer to acquire a domain name in Registrant's portfolio or would want to utilize a domain name to enhance internet traffic that were product or service category specific and would benefit any online business in or near the same product or service category. Management cannot reasonably forecast revenue generated by these agreements but expect revenue to remain consistent on a quarter over quarter basis. During the third quarter of 2001, Registrant has negotiated and settled with a number of creditors and lessors on debts and leases and has recorded a gain of $68,688. GENERAL AND ADMINISTRATIVE. Registrant's general and administrative expenses consist primarily of salaries and related costs for general and corporate functions, including all facilities fees. These expenses have been reduced substantially from the preceding quarters as a result of management's cost savings program implemented in the last quarter of 2000 and the change in business focus in the Subsidiary's business. PROFESSIONAL FEES. A substantial amount of the professional fees were for legal and auditing fees which were related to costs of regulatory filings and financial statement preparation. Registrant continues to seek ways to reduce these costs. (C) LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001 Registrant had current liabilities in excess of current assets resulting in a working capital deficit of $1,092,942. During the nine-months ended September 30, 2001 Registrant had a net loss of $171,447 and a decrease in working capital of $64,201, excluding the conversion of a note payable into stockholders' equity. The decrease in working capital was primarily due to the operating loss and to extinguishing certain capital leases and to settle debts, offset by the collection of certain receivables and add-back of non-cash related expenses. Registrant has accumulated a deficit of $408,186 since inception and has a stockholders' equity of $2,392,248 at September 30, 2001. Based on these factors, there is substantial doubt about Registrant's ability to continue as a going concern. 4 Communicate.com Inc. -------------------- Registrant will only be able to continue operations if it raises additional funds, either through operations or outside funding. Registrant cannot predict whether it will be able to do so. Registrant's revenue generating program comprises of (i) the leasing of domain names for a monthly flat-rate to third parties to conduct on-line businesses; (ii) the selling of products and services of third parties for commission fee; (iii) the earning of fees resulting from traffic click-throughs generated by the domain name assets; and (iv) the selling of non-core domain name assets. Registrant and the Subsidiary cannot satisfy its cash requirements for the next 12 months without having to raise additional funds. The Subsidiary's expected cash requirement for the next 12 months has been reduced from the original estimate of one million dollars to four hundred thousand dollars. Registrant expects to raise any additional funds by way of equity and/or debt financing, and through the sale of non-strategic domain name assets. However, Registrant may not be able to raise the required funds from such financings, particularly in light of existing market conditions and the perception by investors of those companies that, like the Registrant, engage in e-commerce and related businesses. In that case Registrant will proceed by approaching current shareholders for loans or equity capital to cover operating costs. Although the foregoing actions are expected to cover Registrant's anticipated cash needs for working capital and capital expenditures for at least the next twelve months, no assurance can be given that Registrant will be able to raise sufficient cash to meet these cash requirements. To that end, subsequent to the quarter ended September 30, 2001 Registrant has entered into a Promissory Note agreement with an existing shareholder to borrow $150,000 to pay off debts and leases and for working capital. Registrant has no current plans to purchase any plant or significant equipment. (D) UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS Management's discussion and analysis of Registrant's financial condition and the results of its operations and other sections of this report, contain forward looking statements, that are based upon the current beliefs and expectations of Registrant's management, as well as assumptions made by, and information currently available to, Registrant's management. Because these statements involve risks and uncertainties, actual actions and strategies and the timing and expected results may differ materially from those expressed or implied by the forward-looking statements. As well, Registrant's future results, performance or achievements could differ materially from those expressed in, or implied by, any forward-looking statements. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. 5 Communicate.com Inc. -------------------- PART II OTHER INFORMATION Item 1. Legal Proceedings. - -------------------------- During the quarter ended September 30, 2001, Registrant was not a party to any additional material pending legal proceedings and, to the best of its knowledge, no such action by or against Registrant has been threatened. Item 2. Changes in Securities. - ------------------------------ On October 10, 2001 pursuant to a promissory note with Siden Investments Ltd. ("Siden"), Registrant granted warrants to Siden to purchase up to 10,000,000 shares of its common stock at an exercise price of $0.02 per share. The exercise price of the share purchase warrants was determined by discounting the weighted average closing price of the Registrant's common shares for the month of October. Siden Capital Corp., an affiliate of Siden, holds 75,766 shares of common stock of the Registrant. The warrants may be exercised by Siden at any time prior to October 10, 2004 upon notice to Registrant and payment of the exercise price therefore. The number of shares subject to the warrants and the exercise price for the warrants are subject to adjustment in connection with certain issuances of equity securities by Registrant as stated in the warrant agreement. Registrant relied on an exemption from registration under Section 4(2) of the Securities Act of 1933 in issuing the warrants. No underwriter was involved in the issuance of these warrants. Item 3. Defaults Upon Senior Securities. - ---------------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the first nine months of the fiscal year covered by this report. Item 5. Other Information. - -------------------------- As noted in Item 2 above, on October 10, 2001, Registrant and its subsidiary entered into a loan transaction with Siden Investments Ltd pursuant to which Registrant and its subsidiary borrowed an aggregate of US$150,000. The borrowed funds will be used to pay outstanding debt and lease obligations and for general working capital. 6 Communicate.com Inc. -------------------- Item 6. Exhibits and Reports on Form 8-K. - ----------------------------------------- (A) Index to and Description of Exhibits. - ---------------------------------------------- EXHIBIT DESCRIPTION F-1 Financial Statements 10.1 Promissory Note Between Siden and Registrant and its Subsidiary 10.2 General Security Agreement in Favor of Siden 10.3 Escrow Agreement Between Siden and Registrant and its Subsidiary 10.4 Warrant Agreement Between Siden and Registrant 27 Financial Data Schedule.
(B) Reports on Form 8-K. - ----------------------------- There were no report on Form 8-K filed by Registrant during the quarter ending September 30, 2001. On November 6, 2001 Registrant filed a Form 8-K disclosing under Item 5 the loan agreement with Siden Investments Ltd. described in Item 2 and Item 5 above. 7 Communicate.com Inc. -------------------- PART II - SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMMUNICATE.COM INC. Date: November 14, 2001 By: /s/ Graham B. Heal ----------------- ----------------------------- Date: November 14, 2001 By: /s/ J Cameron Pan ----------------- ----------------------------- 8 Communicate.com Inc. -------------------- Exhibits Financial Statements...................................................................................F-1 Promissory Note Between Siden and Registrant and its Subsidiary........................................A-1 General Security Agreement in Favor of Siden...........................................................B-1 Escrow Agreement Between Siden and Registrant and its Subsidiary.......................................C-1 Warrant Agreement Between Siden and Registrant.........................................................D-1 Financial Data Schedule................................................................................E-1
9 Communicate.com Inc. -------------------- COMMUNICATE.COM INC. (FORMERLY TROYDEN CORPORATION) INTERIM CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (unaudited) Communicate.com Inc. -------------------- BALANCE SHEETS......................................................... F-2 INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS.......................... F-3 INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS.......................... F-4 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS..................... F-5 F-1 COMMUNICATE.COM INC. (FORMERLY TROYDEN CORPORATION) CONSOLIDATED BALANCE SHEETS September 30, December 31, 2001 2000 - --------------------------------------------------------------------------------------------------------------------- (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 14,768 $ 47,823 Prepaid expenses 28,547 40,043 Other receivables 67,382 163,493 - --------------------------------------------------------------------------------------------------------------------- 110,697 251,359 FIXED ASSETS (NOTE 4) 143,381 233,620 INTANGIBLE ASSETS HELD FOR RESALE (NOTE 3) 3,341,809 3,364,875 - --------------------------------------------------------------------------------------------------------------------- $ 3,595,887 $ 3,849,854 ===================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 666,339 $ 838,484 Loans payable (Note 5) 494,953 405,399 Note payable (Note 3) -- 825,000 Deferred revenue 21,936 -- Current portion of capital lease obligations 20,411 36,217 - --------------------------------------------------------------------------------------------------------------------- 1,203,639 2,105,100 CAPITAL LEASE OBLIGATIONS -- 56,140 - --------------------------------------------------------------------------------------------------------------------- 1,203,639 2,161,240 - --------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Notes 1 and 8) STOCKHOLDERS' EQUITY Capital stock (note 6) Authorized 50,000,000 Common shares, $.001 par value Issued and outstanding 14,191,339 (2000 - 12,525,339) Common shares 5,201 3,535 Additional paid in capital 2,772,016 1,928,682 Accumulated deficit (408,186) (236,739) Accumulated other comprehensive income (loss) 23,217 (6,864) - --------------------------------------------------------------------------------------------------------------------- 2,392,248 1,688,614 - --------------------------------------------------------------------------------------------------------------------- $ 3,595,887 $ 3,849,854 =====================================================================================================================
The accompanying notes are an integral part of these interim consolidated financial statements F-2 COMMUNICATE.COM INC. (FORMERLY TROYDEN CORPORATION) INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three months ended September 30 Nine months ended September 30 2001 2000 2001 2000 ========================================================================================================================= REVENUES Domain name revenue (net of cost) $ 37,520 $ -- $ 159,248 $ -- Other -- -- 13,551 -- - ------------------------------------------------------------------------------------------------------------------------- 37,520 -- 172,799 -- - ------------------------------------------------------------------------------------------------------------------------- EXPENSES General and administrative 22,999 -- 130,114 -- Professional fees 42,553 5,412 197,459 12,387 Depreciation and amortization 20,056 25 64,369 75 - ------------------------------------------------------------------------------------------------------------------------- 85,608 5,437 391,942 12,462 - ------------------------------------------------------------------------------------------------------------------------- OPERATING LOSS (48,088) (5,437) (219,143) (12,462) INTEREST EXPENSE (8,662) (450) (31,328) (1,189) GAIN ON SETTLEMENT OF DEBTS (NOTE 10) 68,688 -- 80,881 -- LOSS ON DISPOSAL OF ASSETS -- -- (1,857) -- - ------------------------------------------------------------------------------------------------------------------------- GAIN (LOSS) BEFORE INCOME TAX 11,938 (5,887) (171,447) (13,651) INCOME TAX -- -- -- (800) - ------------------------------------------------------------------------------------------------------------------------- NET GAIN (LOSS) FOR THE PERIOD $ 11,938 $ (5,887) $ (171,447) $ (14,451) ========================================================================================================================= BASIC EARNINGS (LOSS) PER SHARE $ 0.001 $ (0.001) $ (0.013) $ (0.002) ========================================================================================================================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,191,339 9,300,000 13,156,475 9,300,000 =========================================================================================================================
The accompanying notes are an integral part of these interim consolidated financial statements F-3 COMMUNICATE.COM INC. (FORMERLY TROYDEN CORPORATION) INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine months ended September 30 2001 2000 ===================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period $(171,447) $ (14,451) Adjustments to reconcile net loss to net cash used in operating activities - gain on settlement of debt (80,881) -- - loss on disposal of assets 1,857 -- - non-cash cost of revenue 42,360 -- - depreciation and amortization 64,369 75 - accrued interest 26,163 1,999 - other receivables 96,111 -- - prepaid expenses 11,496 -- - accounts payable (78,758) 6,902 - deferred revenue 21,936 -- - ----------------------------------------------------------------------------------------------------- CASH USED IN OPERATING ACTIVITIES (66,794) (5,475) - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES - proceeds on disposal of assets 4,720 -- - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES 4,720 -- - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES - lease obligation repayments (64,453) -- - loan advances 63,391 -- - advances from shareholders -- 5.475 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES (1,062) 5,475 - ----------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 30,081 -- - ----------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (33,055) -- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 47,823 -- - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,768 $ -- =====================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION During the period the Company issued 16,000 common shares in settlement of certain trade accounts payable of $20,000. During the period the Company issued 1,650,000 common shares in settlement of notes payable of $825,000. During the period the Company settled certain of its lease and accounts payable obligations resulting in a gain of $80,881. The accompanying notes are an integral part of these interim consolidated financial statements F-4 NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION - -------------------------------------------------------------------------------- The Company was incorporated October 10, 1995 under the laws of the State of Nevada and effective August 24, 2000 changed its name from Troyden Corporation to Communicate.com Inc. ("CMNN" or "the Company"). CMNN has previously been a development stage company seeking business acquisition opportunities. Effective November 10, 2000 the Company acquired a 52% controlling interest in Communicate.com Inc., an Alberta private company ("AlbertaCo") and during December 2000 acquired from minority shareholders an additional 31% of the outstanding shares of AlbertaCo. As a result, CMNN owns 83% of the outstanding shares of AlbertaCo. AlbertaCo owns a large portfolio of simple, intuitive domain names. AlbertaCo's current business strategy is to seek partners to develop its domain names to include content, commerce and community applications. AlbertaCo is generating revenues from the sale of interests in certain of its domain names and accordingly the Company is no longer considered to be in the development stage. The interim consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At September 30, 2001 the Company has a working capital deficiency of $1,092,942 and has incurred ongoing losses since inception raising substantial doubt as to the Company's ability to continue as a going concern. The Company's continued operations are dependent on its ability to obtain additional financing, settling its outstanding debts and ultimately to attain profitable operations. Unaudited Interim Financial Statements -------------------------------------- The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulation S-B. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim unaudited consolidated financial statements should be read in conjunction with those financial statements included in the Form 10-KSB. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------------------------------------- BASIS OF PRESENTATION The accompanying financial statements are presented in United States dollars and are prepared in accordance with accounting principles generally accepted in the United States. PRINCIPLES OF CONSOLIDATION The financial statements include the accounts of the Company and the 83% interest in its subsidiary AlbertaCo. All significant intercompany balances and transactions are eliminated on consolidation. 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 and capital lease obligations. 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. FIXED ASSETS Fixed assets are recorded at cost. Depreciation is computed at the following rates over the estimated useful lives of the assets: Computer equipment 30% declining balance Furniture and fixtures 20% declining balance Office equipment 20% declining balance Other intangibles 5 years straight-line One-half year depreciation is taken in the year of acquisition on certain capital assets. F-5 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) - -------------------------------------------------------------------------------- REVENUE RECOGNITION The Company generates revenues from the licensing, leasing and sale of the rights to its domain names and advertising revenue that consists primarily of commissions earned from the referral of visitors to the Company's sites to other parties. Collectibility of the proceeds in connection with these transactions is subject to a high level of uncertainty; accordingly revenues are recognized only as received in cash and are shown net of direct selling costs. The carrying amount of the domain names held for resale is charged against revenue on a proportionate basis concurrent with the recognition of the revenue. 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. 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 financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation", foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates that prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations. F-6 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) - -------------------------------------------------------------------------------- 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. 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. Because the Company does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share. 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 to date consists only of the net loss resulting from translation of the foreign currency financial statements of AlbertaCo. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews the carrying amount of capital assets and intangible assets held for resale 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 assets held. NOTE 3 - ACQUISITION OF ALBERTACO - -------------------------------------------------------------------------------- By agreement dated November 10, 2000 the Company acquired 11,714,080 Class A common shares of AlbertaCo, representing 52% of the outstanding shares of AlbertaCo, in consideration for 1,000,000 shares of the Company's common stock, a cash payment of $400,000 and an additional $1,100,000 payable in four equal amounts of $275,000 due 30, 60, 90 and 120 days following the acquisition or as otherwise agreed to by the parties. The Company may, at its option, satisfy the additional $1,100,000 payable by the issuance of 2,200,000 shares of the Company's common stock. In connection with this acquisition, the Company borrowed $400,000 from Pacific Capital Markets Inc. (refer to Note 5) On December 14, 2000, 550,000 shares of common stock were issued at an agreed value of $0.50 per share as settlement of $275,000 of the $1,100,000. On June 20, 2001, 1,650,000 shares of common stock were issued at an agreed value of $0.50 per share as settlement of the $825,000 balance of this agreement. In addition, effective November 30, 2000, the Company made an offer to purchase all of the remaining minority shareholdings of AlbertaCo on the basis of one share of the Company for each 5.1470556 shares of AlbertaCo. This offer remained in effect until December 29, 2000. In connection with this offer, the Company acquired an additional 7,079,039 shares of AlbertaCo, representing 31% of the outstanding shares of AlbertaCo, for consideration of 1,375,339 shares of the Company's common stock at a fair value of $0.64 per share. The Company owns 83% of the outstanding shares of common stock of AlbertaCo. F-7 NOTE 4 - FIXED ASSETS - -------------------------------------------------------------------------------- September 30, 2001 December 31, 2000 -------------------------------------- Computer equipment $ 196,322 $ 216,252 Furniture and fixtures 6,568 6,568 Office equipment 3,993 3,993 Other intangibles 20,160 20,160 -------------------------------- 227,043 246,973 Less: accumulated depreciation (83,662) (13,353) -------------------------------- $ 143,381 $ 233,620 ================================
As at September 30, 2001, computer equipment includes $57,541 of equipment held under capital lease. Accumulated depreciation of leased equipment at September 30, 2001 is $23,304. NOTE 5 - LOAN PAYABLE - -------------------------------------------------------------------------------- In connection with the acquisition of AlbertaCo, the Company entered into a Loan and Security Agreement dated November 10, 2000 with Pacific Capital Markets Inc. ("PCMI"), a British Columbia corporation. Under the terms of the agreement, PCMI agreed to loan the Company up to $1,500,000 to satisfy its obligation pursuant to the AlbertaCo purchase agreement dated November 10, 2000. Amounts loaned by PCMI are secured by a promissory note payable on demand and bearing interest at the Royal Bank of Canada prime rate plus 2%. In the event that the Company fails to repay the amounts due under this agreement, PCMI may, at its option, convert the balance of principal and interest due pursuant to this agreement into shares of the Company's common stock of at a price equal to 80% of the average selling price of the Company's common stock for the fifteen days prior to conversions. As at September 30, 2001, $400,000 has been loaned by PCMI to the Company and $31,562 of interest has been accrued. PCMI and certain of its officers and directors were also shareholders of AlbertaCo and sold their shareholdings in AlbertaCo to the Company in connection with the minority shareholder offer as described in Note 3, and as a result became shareholders of the Company. In order to negotiate settlements with certain creditors of AlbertaCo, AlbertaCo entered into a lending agreement with DMD Investments Ltd., dated September 19, 2001, for up to CAN$100,000 on a one-year term with interest calculated at the Royal Bank Prime Rate plus four percent (4%). As at September 30, 2001 $63,391 had been advanced in connection with the loan. This loan was retired subsequent to year end with proceeds from a loan agreement with Siden Investments Ltd.. Refer to Note 11. NOTE 6 - CAPITAL STOCK - -------------------------------------------------------------------------------- The authorized capital of the company consists of 50,000,000 Common Shares with a par value of $.001. During January 2001, the Company issued 16,000 shares of common stock in settlement of certain trade accounts payable of AlbertaCo in the amount of $20,000. During June 2001, the Company issued 1,650,000 shares of common stock in settlement of a note payable in the amount of $825,000. F-8 NOTE 6 - CAPITAL STOCK (cont'd) - -------------------------------------------------------------------------------- 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. The Company has no stock options outstanding as at September 30, 2001. Refer to Note 11. NOTE 7 - RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- During the period management fees and salaries totalling $19,658 were paid to two directors of the Company. Refer to Note 5. NOTE 8 -CONTINGENCIES - -------------------------------------------------------------------------------- FOREIGN EXCHANGE RISK The Company is subject to foreign exchange risk for sales and purchases denominated in foreign currencies. Foreign currency risk arises form the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar. The Company does not actively manage this risk. CONTINGENCIES The former Chief Executive Officer of AlbertaCo commenced a legal action against AlbertaCo on March 9, 2000 for wrongful dismissal and breach of contract. He is seeking, at minimum, 18.39% of the outstanding shares of AlbertaCo, specific performance of his contract, special damages in an amount of CAN$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. AlbertaCo has been threatened with legal action by Don King Productions ("DKP") for alleged infringements on a pay-per-view telecast in March 2000 on AlbertaCo's website, boxing.com. DKP is seeking damages of $100,000 and the rights to the boxing.com domain name. The Company denies any wrongdoing and will defend any legal action undertaken by DKP. Certain minority shareholders of AlbertaCo 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. To date no statement of claim has been filed and should a claim be started, the Company intends to vigorously defend this action. F-9 NOTE 9 - DOMAIN NAME REVENUE - -------------------------------------------------------------------------------- During the period the Company entered into a number of agreements related to the domain names included in intangible assets held for resale as follows: SALE OF CRICKET.COM AlbertaCo has entered into an agreement to sell one of its URL domain name (cricket.com) for proceeds of $25,000 which has been included in domain name revenue, 90% of the net revenues from Cricket.com Ltd. (a newly formed company of which AlbertaCo will own 40%) to a maximum of $500,000, and 50% of the net revenues from Cricket.com Ltd. until an additional $500,000 is paid. SALE OF RUGBY.COM AlbertaCo has entered into an agreement to sell its URL domain name (rugby.com) for proceeds of (pound)100,000 payable in three equal annual instalments starting in April 2001. Additionally the Company receives a 10% interest in Rugbee.com Ltd. and a share of revenues generated from the site over the two-year period. LEASE OF VANCOUVER.COM AlbertaCo entered into an agreement to lease its URL domain name (vancouver.com) for a ten year period for consideration of 2% of the gross revenue (exclusive of applicable taxes) generated by the lessee in respect of on-line revenues originating from the domain name URL and 1% of the gross revenue (exclusive of applicable taxes) generated by the lessee in respect of offline revenues originating from the domain name URL. The lessee has the right to purchase the domain name URL prior to the fifth anniversary date for CAN$400,000 less all amounts previously paid to AlbertaCo during the lease term. The lessee also has the right to purchase the domain name URL prior to the eighth anniversary date for CAN$800,000 less all amounts previously paid to AlbertaCo during the lease term. The lessee may cancel this agreement with 60 days notice of the annual anniversary date. LEASE OF BOXING.COM AlbertaCo entered into an agreement to lease its URL domain name (boxing.com) for a twelve-month period commencing September 14, 2001 for consideration of $55,000 to be recognized over the term of the lease. The lessee has the right to purchase the domain name URL prior to the first anniversary date for $250,000. The lessee also has the right to purchase the domain name URL prior to the eighteen-month anniversary for $275,000. The Company has received $25,000 relating to this agreement. NOTE 10 - DEBT SETTLEMENTS - -------------------------------------------------------------------------------- During the period the Company made settlement arrangements with certain creditors whereby the creditors agreed to take cash settlements in amounts that were less than the outstanding amount of debt, resulting in a gain on settlement of $80,881. F-10 NOTE 11 - SUBSEQUENT EVENTS - -------------------------------------------------------------------------------- Subsequent to year-end, the Company and its subsidiary signed a promissory note with Siden Investments Ltd. for $150,000. The proceeds of the loan were used to repay the loan from DMD Investments Ltd. in the amount of $65,000 and to further settle liabilities in the subsidiary. The loan will bear interest, calculated monthly, at the Royal Bank Prime Rate plus four percent (4%) commencing November 1, 2001. A General Security Agreement, a Promissory Note and the transfer of one of the Company's domain names into Escrow until the loan is fully repaid provide the security for the loan. As consideration for entering into the agreement the Company agreed to pay the lender a $15,000 set up fee and also granted the lender warrants to purchase 10,000,000 restricted shares of the Company's common stock at a price of $0.02 per share for a period of 3 years. The Company will account for these share purchase warrants in accordance with SFAS No. 123 by applying the fair value method using the Black-Scholes option pricing model assuming a dividend yield of 0%, a risk-free interest rate of 5%, an expected life of three years and an expected volatility of 175%. The fair value of these warrants will be recorded as a $176,000 finance fee in the fourth quarter. F-11 EX-10 3 ex10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 PROMISSORY NOTE October 10th, 2001 US$150,000.00 FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to pay to SIDEN INVESTMENTS LTD. the sum of ONE HUNDRED FIFTY THOUSAND (US$150,000.00) DOLLARS in lawful currency of the United States of America ON DEMAND. The undersigned further jointly and severally promise to pay interest on the aforesaid amount calculated from the date hereof at the Prime Rate plus four percent (Prime Rate + 4%) per annum, such interest to be calculated monthly, in arrears, and to accrue on overdue interest both before and after default. For the purposes of this Promissory Note, "Prime Rate" means the per annum rate of interest announced periodically by the Royal Bank of Canada at its main branch, Vancouver, British Columbia, as its "prime interest rate" and used by it as a reference rate for calculating rates of interest on Canadian dollar commercial loans made in Canada. A statement of an officer of said bank as to the amount of its Prime Rate shall be conclusive as between the parties. This Promissory Note shall be governed and construed by the laws of the Province of British Columbia, including the laws of Canada applicable thereto, but excepting any of its conflict of laws rules which would have the effect of applying the laws of any other jurisdiction. The parties further agree that the federal and provincial courts of British Columbia shall have exclusive jurisdiction over all disputes relating to this Promissory Note. The undersigned hereby waives, presentment, protest and notice of presentment, protest and dishonour. DATED at Vancouver, British Columbia this day of October, 2001. COMMUNICATE.COM, INC. (Alberta Corporation) Per: ----------------------------------------------- Authorized Signatory COMMUNICATE.COM, INC. (Nevada Corporation) Per: ----------------------------------------------- Authorized Signatory A-1 EX-10 4 ex10-2.txt EXHIBIT 10.2 EXHIBIT 10.2 GENERAL SECURITY INSTRUMENT This General Security Instrument granted the 10th day of October, 2001. BY: COMMUNICATE.COM, INC., a corporation incorporated under the laws of Alberta, Canada, and having its principal business office at 1300 - 1090 West Georgia Street, Vancouver, BC, V6E 3V7 ("Communicate Alberta") AND BY: COMMUNICATE.COM, INC., a corporation incorporated under the laws of Nevada, United States of America and having a business office at 1300 - 1090 West Georgia Street, Vancouver, BC, V6E 3V7 ("Communicate Nevada") (Communicate Alberta and Communicate Nevada are, hereafter, collectively referred to as the "Debtor") IN FAVOUR OF: SIDEN INVESTMENTS LTD., a company having its principal business office at 1729 Acadia Road, Vancouver, BC, V6T 1R2 (the "Secured Party") ARTICLE 1 - CREATION OF SECURITY INTEREST 1.1 The Debtor hereby grants to the Secured Party the security interests in the collateral referred to in Section 2.1 hereof, to secure the payment or performance of all obligations, indebtedness and liabilities of the Debtor to the Secured Party, whether incurred prior to, at the time of or subsequent to the execution hereof, including extensions or renewals, and all other liabilities of the Debtor to the Secured Party, direct or indirect, joint, several or both, wheresoever and howsoever incurred and any ultimate unpaid balance thereof, including, without restricting the generality of the foregoing, future advances to the Debtor under fixed or revolving credits established from time to time and letters of credit whether or not drawn upon, issued by the Secured Party with respect to the Debtor. ARTICLE 2 - COLLATERAL 2.1 The collateral subject to the security interests created herein are: 2.1.1 ALL OF THE DEBTOR'S PRESENT AND AFTER ACQUIRED PERSONAL PROPERTY AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING INCLUDES: B-1 (a) INVENTORY (i) the inventory of the Debtor, including all goods, merchandise, raw materials, work in progress, finished goods, and other tangible personal property now owned or hereafter acquired and held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in the Debtor's business; (hereinafter collectively referred to as "Inventory") (b) EQUIPMENT (i) all machinery, equipment and other tangible personal property now owned or hereafter acquired by the Debtor and not included in the aforesaid security interests described in subsection (a) above, (hereinafter collectively referred to as "Equipment"); (hereinafter collectively referred to as "Equipment") (c) ACCOUNTS RECEIVABLE (i) all debts, demands and choses in action which are now due, owing or accruing due or which may hereafter become due, owing or accruing due to the Debtor and all claims of whatsoever nature or kind which the Debtor now has or may hereafter have, including claims against the Crown and claims under insurance policies; (ii) all contracts, securities, bills, notes, lien notes, judgments, chattel mortgages, mortgages, and all other rights and benefits which now are or may hereafter be vested in the Debtor in respect of or as security for any of the said debts, demands, choses in action and claims; and (iii) all books, accounts, invoices, letters, papers and documents in any way evidencing or relating to any of the said debts, demands choses in action and claims; (hereinafter collectively referred to as "Accounts Receivable"); (d) INTANGIBLES (i) all intangible personal property now owned or hereafter acquired by the Debtor and not included in the aforesaid security interests, including without limitation all contractual rights, leasehold interests, goodwill, patents, trademarks, tradenames, domain names, copyrights, industrial designs and other industrial or intellectual property or rights therein, under license or otherwise; (hereinafter collectively referred to as "Intangibles"); B-2 (e) OTHER PERSONAL PROPERTY (i) all of the remaining personal property of the Debtor of every kind now owned or hereafter acquired by the Debtor (except such property as is validly and effectively subject to the foregoing security interests) including documents of title chattel paper, instruments, securities and money; (hereinafter collectively referred to as "Other Personal Property"); (f) PROCEEDS (i) all proceeds derived directly or indirectly therefrom including, without limiting the generality of the foregoing, proceeds of sale, lease or other dispositions of any property subject to all of the foregoing security interests, proceeds of a kind similar to the above described items, and money, cheques or deposit accounts in deposit taking institutions; (hereinafter collectively referred to as "Proceeds"); and 2.1.2 a floating charge in favour of the Secured Party of: (i) all the Debtor's presently owned or held and after acquired or held real, immovable, and leasehold property and all interests therein, and all easements, rights-of-way, privileges, benefits, licences, improvements, and rights whether connected therewith or appurtenant thereto or separately owned or held, including all structures, plant, and other fixtures (hereinafter collectively referred to as "Real Property"); and (ii) all property, assets, and undertakings of the Debtor, both present and future, of whatever nature or kind and wherever situate, and all Proceeds thereof and therefrom, other than any of the Debtor's property, assets, and undertakings otherwise validly and effectively subject to the charges and security interests in favour of the Secured Party created under Subsection 2.1.1 of this Agreement. This charge attaches immediately upon the Debtor acquiring any rights in any of that property. (All of the foregoing (namely Inventory, Equipment, Accounts Receivable, Intangibles, Other Personal Property, Proceeds and Real Estate) are collectively referred to as the "Collateral") 2.2 Notwithstanding anything else in this Instrument, the Collateral shall not include the last day of any term of years reserved by any lease, verbal or written, or any agreement herefrom, now held or hereafter acquired by the Debtor but the Debtor shall stand possessed of the reversion remaining in the Debtor of any leasehold premises, for the time being demised, as aforesaid, upon trust to assign and dispose thereof as the Secured Party shall direct; and upon any sale of the leasehold premises, or any part thereof, the Secured Party for the purpose of vesting the aforesaid reversion of any such term or any renewal thereof and any purchaser or purchasers thereof shall be entitled by deed or writing to appoint such purchaser or purchasers or any other person or persons a new trustee or trustees of the aforesaid reversion of any such term or any renewal thereof in the place of the Debtor and divest the same accordingly in the new trustee or trustees so appointed freed and discharged from any obligations respecting the same. B-3 2.3 The security interests shall be general and continuing security interests notwithstanding any dealing by the Secured Party with the Debtor or any other person claiming under or with respect to the Debtor or the Collateral, notwithstanding any other title retention agreement, commercial pledge, right of resale, security interest or other encumbrance whatsoever, and notwithstanding that the indebtedness of the Debtor to the Secured Party may be reduced to a nil balance or be repaid and further advances made from time to time. ARTICLE 3 - SALES IN ORDINARY COURSE OF BUSINESS 3.1 The Debtor shall have no right to sell, lease or dispose of any of the Collateral except for a sale of Inventory in the ordinary course of business upon customary sales terms for value received and then only upon the express condition that on or before delivery to a third party the Debtor shall secure full settlement of the entire purchase price for the Collateral so sold in cash, notes, chattel paper or other property in form satisfactory to the Secured Party. Until the Debtor shall have made settlement with the Secured Party of the full amount due to the Secured Party with respect to all such Collateral sold or disposed of by the Debtor, the Debtor shall aggregate such cash, notes, chattel paper or other property and hold the same in trust for the Secured Party and the Secured Party shall have a security interest therein. The Debtor shall be entitled to transfer such notes or chattel paper free of such trust if at or prior to the time of such transfer the payment due from the Debtor to the Secured Party shall be assured to the satisfaction of the Secured Party. ARTICLE 4 - WARRANTIES OF DEBTOR 4.1 The Debtor hereby warrants to the Secured Party that: (a) if it is a corporation then it is duly organized and validly existing under the laws of British Columbia and it is duly qualified to conduct its business in British Columbia, and the execution, delivery and performance hereto are within its corporate powers, have been duly authorized and do not contravene, violate or conflict with any law or the terms of its constating documents or any indenture or agreement to which it is a party; (b) except for the security interests granted hereby and any expressly permitted security interests having priority over the security interests granted hereby, the Debtor is or will be the owner of, or have an interest in, the Collateral free from any adverse liens, security interest or encumbrances, and agrees that it will defend the Collateral against all claims and demands of all persons, firms or bodies corporate at any time claiming the same or any interest therein; and (c) the security interests herein are given and taken as additional security for the payment of the monies payable under other security instruments between the Debtor and the Secured Party, and not in substitution therefor. ARTICLE 5 - UNDERTAKINGS OF DEBTOR 5.1 The Debtor hereby undertakes to: (a) promptly pay all obligations, indebtedness and liabilities owing to the Secured Party as they become due or are demanded; B-4 (b) maintain the Collateral in good condition and repair and provide adequate storage facilities to protect the Collateral and not permit the value of the Collateral to be impaired, reasonable wear and tear excepted; (c) not, without the consent in writing of the Secured Party, create any security interest, mortgage, hypothec, charge, lien or other encumbrance upon the Collateral or any part thereof ranking or purporting to rank in priority to or pari passu with the security interests created by this Instrument, except that the Debtor may create a purchase money security interest in Collateral hereafter acquired but only if such interest is perfected and notification thereof is given to the Secured Party pursuant to the provisions of the Personal Property Security Act of British Columbia; (d) defend the title to the Collateral against all persons, firms or bodies corporate claiming any interest in the Collateral or any part thereof; (e) not, without the prior written consent of the Secured Party remove the Collateral or any part thereof from the location where the Debtor carries on its business within the Province of British Columbia, except for rentals, machinery demonstrations, repairs and maintenance in the ordinary course of business which shall take place within the said Province; (f) pay all taxes, assessments, and levies or charges from any source which may be assessed against the Collateral or any part thereof or which may result in a lien against the Collateral or any part thereof and insure the Collateral for loss or destruction by fire, wind storm and such other perils stipulated by the Secured Party in an amount not less than the full insurable value of the Collateral or the amount from time to time hereby secured, whichever is lesser, with appropriate endorsement to secure the Secured Party as its interest shall appear. In the event the Debtor shall fail to provide adequate insurance when required to do so or to pay any of the said taxes, assessments, levies or charges the Secured Party may, without notice, at its option, but without any obligation or liability so to do, procure insurance and pay taxes or other charges and add said sums to the balance of the debt hereby secured or claim from the Debtor immediate reimbursement of such sums; (g) keep, at the principal place of business of the Debtor, accurate books and records of the Collateral and furnish at the request of the Secured Party from time to time, in writing, all information requested relating to the Collateral or any part thereof and the Secured Party shall be entitled from time to time to inspect the aforesaid Collateral and to take temporary custody of and make copies of all documents relating to Accounts Receivable and for such purposes the Secured Party shall have access to all premises occupied by the Debtor or where the Collateral or any of it may be found; (h) duly observe and conform to all valid requirements of a governmental authority relative to any of the Collateral and all covenants, terms and conditions upon or under which the Collateral is held; (i) do, make and execute, from time to time at the Secured Party' request, all such financing statements, further assignments, documents, acts, matters and things as may be reasonably required by the Secured Party of or with respect to the Collateral or any part thereof or as may be required to give effect to these presents, and the Debtor hereby constitutes and appoints the Secured Party or any receiver, manager or receiver-manager appointed by the Court or the Secured Party (all of whom are hereinafter referred to as the "Receiver") as hereafter set out, the true and lawful attorney of the Debtor irrevocably with full power of substitution to do, make and execute all such assignments, documents, act, matters or things with the right to use the name of the Debtor whenever and wherever it may be deemed necessary or expedient; B-5 (j) give immediate notice to the Secured Party in the event of a change of the corporate or trade name of the Debtor; and (k) pay, on demand of the Secured Party, all reasonable expenses, including solicitor's fees and disbursements and all the remuneration of any Receiver appointed hereunder, incurred by the Secured Party in the preparation , perfection and enforcement of this Instrument. ARTICLE 6 - MAINTAIN SECURITY INTERESTS 6.1 The Debtor shall pay all expenses and, upon request, take any action reasonably deemed advisable by the Secured Party to preserve the Collateral or to establish, determine priority of, perfect, continue perfected, terminate and/or enforce the Secured Party's interest in it or rights under this Instrument. If the Debtor fails to act as required by this Instrument, the Secured Party are authorized, in the Debtor's name, to take any such action, including without limitation, signing the Debtor's name or paying any amounts so required, and the cost thereof shall be one of the debts and liabilities secured hereunder. ARTICLE 7 - DEFAULT 7.1 The Secured Party may at its option, in writing, declare the Debtor to be in default under this Instrument and/or may declare the whole or any part of the unpaid balance of any obligations, indebtedness and liabilities secured by this Instrument immediately due and payable if any of the following events occurs: (a) the Debtor fails to pay when due any of the obligations, indebtedness or liabilities secured by this Instrument; (b) the Debtor fails to perform any term, condition, provision, covenant or undertaking of this Instrument or any other agreement between the Debtor and the Secured Party; (c) the Debtor ceases or threatens to cease to carry on its business, commits an act of bankruptcy, becomes insolvent, makes an assignment or bulk sale of its assets, or proposes a compromise or arrangements to its creditors; (d) any proceeding is taken with respect to a compromise or arrangement or to have the Debtor declared bankrupt or wound up or to have a receiver appointed of any part of the Collateral or if any encumbrancer takes possession of any part thereof; (e) any execution, sequestration or extent or any other process of any Court becomes enforceable against the Debtor or if any distress or analogous process is levied upon the Collateral or any part thereof; (f) the occurrence of loss, theft, damage or destruction of the Collateral not covered by adequate insurance containing a loss payable clause for the protection of the Secured Party as its interest may appear; (g) if the Secured Party in good faith believes upon commercially reasonable grounds, that the prospect of payment or performance on the part of the Debtor of any of its obligations is, or is about to be, impaired or that the Collateral, or any part thereof, is, or is about to be, in jeopardy including danger of being lost, damaged or confiscated. B-6 ARTICLE 8 - ENFORCEMENT AND REMEDIES 8.1 (a) Upon default the security interests granted hereby shall become enforceable and the Secured Party shall have all the rights and remedies available to it under the Personal Property Security Act of British Columbia as amended from time to time as well as any other applicable laws and, but so as not to restrict the generality of the foregoing, the following rights and remedies: (i) the Secured Party may appoint by instrument in writing a Receiver of all or any part of the Collateral and remove or replace such Receiver from time to time or may institute proceedings in any Court of competent jurisdiction for the appointment of such a Receiver. Any such Receiver or Receivers so appointed shall have power to take possession of the Collateral hereby charged or to carry on the business of the Debtor and to concur in selling any of such Collateral or any part thereof, and for such purposes to occupy and use any real or personal property of the Debtor without charge therefor for so long as may be necessary; (ii) the Secured Party may demand that the Debtor assemble the Collateral or part thereof, in any convenient place designated by the Secured Party and deliver possession of all of the Collateral or part thereof to the Secured Party; (iii) the Secured Party may take such steps as it considers necessary or desirable to obtain possession of all or any part of the Collateral, and to that end the Debtor agrees that the Secured Party may by its servants, agents or receiver at any time during the day or night enter upon lands and premises, and if necessary break into houses, buildings and other enclosures where the Collateral may be found for the purpose of taking possession of and removing the Collateral or any part thereof; (iv) the Secured Party may seize, collect, realize, borrow money on the security of, release to third parties or otherwise deal with the Collateral or any part thereof in such manner, upon such terms and conditions and at such time or times as may seem to it advisable and without notice to the Debtor (except as otherwise required by any applicable law); (v) the Secured Party may charge the Debtor for any expense incurred by the Secured Party (including taxes, insurance, legal, accounting and receiver fees) in protecting, seizing, collecting, realizing, borrowing on the security of, selling or obtaining payment of the Collateral or any part thereof and may add the amount of such sums to the indebtedness of the Debtor; (vi) the Secured Party may elect to retain all or any part of the Collateral in satisfaction of the obligations, indebtedness and liabilities of the Debtor to the Secured Party; (vii) the Secured Party may grant extensions of time and other indulgences, take and give up securities, accept compositions, grant releases and discharges, release any part of the Collateral to third parties and otherwise deal with the Debtor, debtors of the Debtor, sureties and others and with the Collateral and other securities as the Secured Party may see fit without prejudice to the liability of the Debtor or the Secured Party's right to hold and realize the Collateral; B-7 (viii) in the event of the Secured Party taking possession of the Collateral, or any part thereof in accordance with the provisions of this Instrument, the Secured Party shall have the right to maintain the same upon the premises on which the Collateral may then be situate and for the purpose of such maintaining shall be entitled to the free use and enjoyment of all necessary buildings, premises, housing, stabling, shelter and accommodation for the proper maintaining, housing and protection of the Collateral so taken possession of by the Secured Party as aforesaid, and for its servant or servants, assistant or assistants and the Debtor covenants and agrees to provide the same without cost or expense to the Secured Party until such time as the Secured Party shall determine in its discretion to remove, sell or otherwise dispose of the Collateral so taken possession of by it as aforesaid; (ix) to facilitate the realization of the Collateral, the Secured Party or its Receiver may carry on or concur in the carrying on of all or part of the business of the Debtor and may, to the exclusion of all others, including the Debtor, enter upon, occupy and use all or any of the premises, buildings, plant and undertaking of the Debtor or occupied or used by the Debtor, and use all or any of the tools, machinery and equipment of the Debtor for such time as the Secured Party or receiver sees fit, free of charge, to manufacture or complete the manufacture of any inventory and to pack and ship the finished product, and the Secured Party or Receiver shall not be liable to the Debtor for any neglect in so doing or in respect of any rent, rent charges, depreciation or damages in connection with such actions; (x) the Secured Party may, if it deems it necessary for the proper realization of all or any part of the Collateral, pay any encumbrance, lien, claim or charge that may exist or be threatened against the same and in every such case the amounts so paid together with costs, charges and expenses incurred in connection therewith shall be added to the obligations of the Debtor to the Secured Party at the date of payment thereof by the Secured Party; (xi) The Secured Party may sell, lease or otherwise dispose of all or any part of the Collateral, whether by public or private sale or lease or otherwise, in such manner, at such price as can be reasonably obtained therefore and on such terms as to credit and with such conditions of sale and stipulations as to title or conveyance or evidence of title or otherwise as to the Secured Party may seem reasonable, provided that if any sale is on credit the Debtor will not be entitled to be credited with the proceeds of any such sale, lease or other disposition until the monies therefor are actually received; and (xii) all monies collected or received by the Secured Party in respect of the Collateral may be applied on account of such parts of the indebtedness and liability of the Debtor as to the Secured Party seem best or may be held unappropriated in a Collateral account or in the discretion of the Secured Party may be released to the Debtor, all without prejudice to the Secured Party' claims upon the Debtor. (b) The rights and remedies herein conferred upon the Secured Party shall be cumulative and not alternative and shall be in addition to and not in substitution for or in derogation of rights and remedies conferred by the Personal Property Security Act of British Columbia and any other applicable laws. B-8 ARTICLE 9 - WAIVER 9.1 (a) The Secured Party may permit the Debtor to remedy any default without waiving the default so remedied, and the Secured Party may waive any default without having waived any other subsequent or prior default by the Debtor. A waiver shall only be binding on the Secured Party if it has been given in writing. (b) The Debtor shall not be discharged by any extension of time, additional advances, renewals and extensions, the taking of further security, releasing security, extinguishment of the security interests created herein as to all or any part of the Collateral, the failure to perfect the security or any other act except a release or discharge of the said security interests upon the full payment of the obligations, indebtedness and liabilities secured by this Instrument, including charges, expenses, fees, costs and interest; and (c) the Debtor waives the right to receive any verification statements or financing statements related to this Instrument. ARTICLE 10 - NON-LIABILITY OF THE SECURED PARTIES 10.1 The Secured Party shall not be liable or accountable for any failure to seize, collect, realize, sell or obtain payment of the Collateral or any part thereof and shall not be bound to institute proceedings for the purpose of seizing, collecting, realizing or obtaining possession or payments of the same or for the purpose of preserving any rights of the Secured Party, the Debtor, or any other person, firm or body corporate in respect of same. The Secured Party shall use reasonable care in the custody and presentation of Collateral it has taken into its possession and the Debtor hereby agrees that the Secured Party shall not be obliged to preserve any rights against other persons or take any steps to preserve any rights of the Debtor with respect to Other Personal Property including any instrument, security or chattel paper included in the Collateral. ARTICLE 11 - ADDITIONAL SECURITY 11.1 This Instrument is in addition to and not in substitution for any other agreement between the parties creating a security interest in all or part of the Collateral, and whether heretofore or hereafter made, and the terms of such other agreement or agreements shall be deemed to be continued unless expressly provided to the contrary in writing and signed by the parties. ARTICLE 12 - ATTACHMENT 12.1 Subject to Section 12.2 the Debtor warrants and acknowledges that value has been given and that the Debtor and the Secured Party intend the security interests created by this Instrument to attach upon the execution of this Instrument and that value has been given and that the Debtor has rights in the Collateral. 12.2 With respect to any part of the Collateral to be acquired by the Debtor after the date hereof, the Debtor warrants and acknowledges that the Debtor and the Secured Party intend the security interests created by this Instrument to attach as soon as the Debtor has rights therein. ARTICLE 13 - FUTURE ADVANCES 13.1 Nothing herein contained including the execution of this Instrument nor the perfection of any of the security interests contained herein shall obligate the Secured Party to make any advance or future advance or loan or renewal or extension of any indebtedness or liability of the Debtor whatsoever. B-9 ARTICLE 14 - NOTICES 14.1 Notwithstanding anything herein contained and whether or not expressly stipulated herein, every notice or other communication contemplated hereby or otherwise relating hereto shall be in writing. Every notice required or permitted to be communicated hereunder, may be: (a) served personally by leaving it with the party to whom it is to be communicated; (b) communicated by telecopy to the party to whom it is to be communicated; or (c) mailed by pre-paid registered mail (with acknowledgement of receipt requested) to the party to whom it is to be communicated. If a notice is served personally, it shall be deemed to have been validly communicated to and received by the party to whom it was addressed on the date on which it was delivered. If a notice is communicated by telecopy, it shall be deemed to have been validly communicated to and received by the party to whom it was addressed on the expiry of eight hours after it was transmitted or 9:00 o'clock a.m. (according to the time zone of the party to whom it was addressed) on the day following its transmission, whichever is later. If a notice is mailed as aforesaid, it shall be deemed to have been validly communicated to and to have been received by the addressee thereof on the earlier of the date of its receipt or the eleventh day following the mailing thereof in Canada, provided that no party shall mail any notice during any period during which Canadian postal workers, whether in the whole of Canada, or in any region thereof where a notice is to be communicated, are on strike, are withholding of services or lock-out is threatened or has just been terminated so that, in the result, it may be adversely affected. Any address as provided for in this Section may be changed by written notice as contemplated by this Section, and the respective addresses of the parties hereto for the communication of notice shall be as follows: As to the Debtors: 1300 - 1090 West Georgia Street Vancouver, BC V6E 3V7 Attention: As to the Secured Party: c/o Norton Stewart Business Lawyers 1200 - 1055 West Georgia Street Vancouver, BC V6E 3P3 Attention: Mr. John W. Norton ARTICLE 15 - HEADINGS 15.1 All headings used in this Instrument have been inserted for convenience of reference only and are not intended to assist in the interpretation of any of the provisions of this Instrument unless expressly referred to in the provisions of this Instrument. B-10 ARTICLE 16 - GENERAL 16.1 The invalidity or unenforceability of any provisions of this Instrument shall not affect the validity or enforceability of any other provision. 16.2 This Instrument shall be interpreted in accordance with the laws of the Province of British Columbia. ARTICLE 17 - RECEIPT OF COPY 17.1 The Debtor hereby acknowledges receipt of a copy of this Security Instrument. ARTICLE 18 - WAIVER 18.1 The Debtor hereby waives the right to receive a copy of any financing statement, financing change statement or verification statement filed or issued in respect of the security interests created by this Instrument. ARTICLE 19 - ENUREMENT 19.1 This Instrument benefits the Secured Party, its successors and assigns and binds the Debtor and its heirs, executors, personal representatives, successors and assigns. ARTICLE 20 - MULTIPLE DEBTORS 20.1 If the Debtor consists of more than one entity then the term "Debtor" shall apply to each such entity individually and to all such entities collectively and every covenant, obligation and agreement to be observed and performed by the Debtor in this instrument shall constitute joint and several covenants, obligations, and agreements of each and all of such entities. IN WITNESS WHEREOF the Debtor has executed this General Security Instrument this day of October, 2001. COMMUNICATE.COM, INC. (Alberta Corporation) Per: ------------------------------------ Authorized Signatory COMMUNICATE.COM, INC. (Nevada Corporation) Per: ------------------------------------ Authorized Signatory B-11 EX-10 5 ex10-3.txt EXHIBIT 10.3 EXHIBIT 10.3 ESCROW AGREEMENT ------------------------- THIS AGREEMENT is made the 10th day of October, 2001. AMONG: COMMUNICATE.COM, INC., a corporation incorporated under the laws of Alberta, Canada, having its principal business office at 1300 - 1090 West Georgia Street, Vancouver, British Columbia, Canada, V6E 3V7 ("Communicate") AND: SIDEN INVESTMENTS LTD., a company having its principal business office at 1729 Acadia Road, Vancouver, BC, Canada, V6T 1R2 ("SIDEN") AND: NORTON STEWART, a firm of barristers and solicitors having its principal business office at Suite 1200 - 1055 West Georgia Street, Vancouver, British Columbia, Canada, V6E 3P3 (the "Escrow Agent") WHEREAS: A. Pursuant to a Loan Agreement, SIDEN has, among other matters, agreed to provide a loan (the "Loan") to Communicate and its parent, Communicate.com, Inc. (a Nevada corporation); and B. SIDEN and Communicate have entered into this Agreement pursuant to the terms of the Loan Agreement; and C. As security for the Loan, Communicate has executed and delivered to SIDEN all necessary documents to transfer the domain name "Perfume.com" to SIDEN so that SIDEN appears as registrant in respect of such name with Network Solutions Inc. and SIDEN has agreed to enter into this Escrow Agreement with Communicate to provide for the retransfer of said domain name upon the fulfilment by Communicate of all of its obligations under the Loan. NOW THEREFORE WITNESSETH that in consideration of the premises and of the mutual covenants and agreements set forth herein, the parties hereto covenant and agree as follows: C-1 ARTICLE 1 DEFINITIONS AND INTERPRETATION ------------------------------ Definitions - ----------- 1.01 In this Agreement, including the recitals hereto, the following words and phrases shall have the following meanings: (a) "Agreement" means this escrow agreement made among Communicate, SIDEN and the Escrow Agent as the same may be amended from time to time; (b) "Business Day" means any day other than a day which is a Saturday, a Sunday or a statutory holiday in Vancouver, British Columbia; (c) "Domain Name" means the domain name "Perfume.com", which domain name is registered with Network Solutions, Inc. with SIDEN as registrant; (d) "Escrow Documents" means the documents deposited into escrow from time to time pursuant to Article 2; (e) "Default" means, in respect of the Loan Agreement, any circumstances in which constitute a default under the Loan Agreement or any security granted pursuant to it; (f) "Payments" means, in respect of the Loan Agreement and any and all payments, or transfers, to be made by Communicate to SIDEN pursuant to the Loan Agreement; (g) "Loan Agreement" means that certain Loan Agreement dated October 10th, 2001 between Communicate and SIDEN relating to a loan of US$150,000.00 and; any other capitalized term shall have the meaning ascribed to it in this Agreement. Captions and Section Numbers - ---------------------------- 1.02 The headings and section references in this Agreement are for convenience of reference only and do not form a part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof. Extended Meanings - ----------------- 1.03 The words "hereof", "herein", "hereunder" and similar expressions used in any clause, paragraph or section of this Agreement shall relate to the whole of this Agreement and not to that clause, paragraph or section only, unless otherwise expressly provided. Number and Gender - ----------------- 1.04 Whenever the singular or masculine or neuter is used in this Agreement, the same shall be construed to mean the plural or feminine or body corporate where the context of this Agreement or the parties hereto so require. Section References - ------------------ 1.05 Any reference to a particular "article", "section", "subsection" or other subdivision is to the particular article, section or other subdivision of this Agreement. Governing Law - ------------- 1.06 This Agreement and all matters arising hereunder shall be governed by, construed and enforced in accordance with the laws of the Province of British Columbia and all disputes arising under this Agreement shall be referred to the Courts of the Province of British Columbia, Canada. C-2 Severability of Clauses - ----------------------- 1.07 In the event that any provision of this Agreement or any part thereof is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Currency - -------- 1.08 All sums of money to be paid or calculated pursuant to this Agreement, such as fees and disbursements that are payable to the Escrow Agent, shall be paid or calculated in currency of Canada unless otherwise expressly stated. Statutes - -------- 1.09 Unless otherwise stated, any reference to a statute includes and is a reference to such statute and to the regulations made pursuant thereto, with all amendments made thereto and in force from time to time, and to any statute or regulations that may be passed which supplement or supersede such statute or such regulations. No Contra Proferentum - --------------------- 1.10 The language in all parts of this Agreement shall in all cases be construed as a whole and neither strictly for nor strictly against any of the parties. Action on Non-Business Day - -------------------------- 1.11 If by the terms of this Agreement any payment or delivery provided for herein is scheduled to take place at a time which falls on a day which is not a Business Day, such delivery or payment shall take place on the first Business Day next following. ARTICLE 2 ESCROW DEPOSIT AND RELEASE -------------------------- Escrow Deposit - -------------- 2.01 Subject to the terms and conditions of this Agreement, SIDEN shall deliver, or cause to be delivered to the Escrow Agent, concurrently with execution and delivery of this Agreement by all of the parties thereto, the following Escrow Documents: (a) a registrant name change agreement in the form currently specified by Network Solutions, Inc. transferring registration of the Domain Name from SIDEN to Communicate duly signed and dated by an authorized signatory of SIDEN and notarized by a notary public in British Columbia; and (b) such other documents as may from time to time be received by the Escrow Agent pursuant to the terms of this Agreement. Dealing With Escrow Documents - ----------------------------- 2.02 The Escrow Documents shall be held by the Escrow Agent in escrow at Suite 1200 - 1055 W Georgia Street, Vancouver, British Columbia, Canada, V6E 3P3 or at such other address in British Columbia as the Escrow Agent shall advise Communicate and SIDEN as follows. Unless then prohibited from doing so by a court of competent jurisdiction: C-3 (a) on the receipt by the Escrow Agent of a statutory declaration duly declared by a director of Communicate to the effect that all of the Payments have been made in full in accordance with the Loan Agreement, a copy of the statutory declaration will be delivered to SIDEN. Thereafter, if by the close of the 15th Business Day after delivery to the SIDEN: (i) SIDEN has delivered a written notice to the Escrow Agent that it disputes Communicate's claim of completing all such Payments, the Escrow Agent shall interplead the Escrow Documents into court or, if so instructed by both Communicate and SIDEN, continue to hold the Escrow Documents in escrow pending receipt of the joint instructions of Communicate and SIDEN as to their disposition; or (ii) SIDEN has not delivered a written notice in (i), above, the Escrow Agent shall release the Escrow Documents to Communicate; or (b) on the receipt by the Escrow Agent of a statutory declaration duly declared, and delivered by a director of SIDEN specifying that any of the Payments, has not been paid in full in accordance with the Loan Agreement, or that a Default has occurred, a copy of the statutory declaration will be delivered to Communicate. Thereafter, if, by the close of the 15th Business Day after delivery to Communicate: (i) Communicate has delivered a written notice to the Escrow Agent that it disputes that any of the Payments has not been paid in full, or that a Default has occurred, the Escrow Agent shall interplead the Escrow Documents into court or, if so instructed by both Communicate and SIDEN, continue to hold the Escrow Documents in escrow pending receipt of the joint instructions of Communicate and SIDEN as to their disposition; or (ii) Communicate has not delivered a written notice in (i), above, the Escrow Agent shall release the Escrow Documents to SIDEN, provided that if the Escrow Agent at any time receives a written request to do so signed by Communicate and SIDEN, it shall comply with the request and deliver up all of the Escrow Documents to Communicate or SIDEN according to the request. Deposit of Additional Documents in Escrow - ----------------------------------------- 2.03 If Network Solutions, Inc. or any of its successors or assigns specifies a new form of registrant name change agreement or requires and additional documents prior to release of the Escrow Documents as contemplated herein, SIDEN shall forthwith deliver, or cause to be delivered to the Escrow Agent, such new form of registrant name change agreement transferring registration of the Domain Name from SIDEN to Communicate and other documents duly signed and dated by an authorized signatory of SIDEN and notarized by a notary public in British Columbia. ARTICLE 3 THE ESCROW AGENT ---------------- Fees - ---- 3.01 The Escrow Agent shall be entitled to charge reasonable fees and disbursements in connection with acting in that capacity hereunder, which fees and disbursements shall be borne by Communicate. C-4 Indemnity - --------- 3.02 Each of Communicate and SIDEN jointly and severally covenants to indemnify and save harmless the Escrow Agent from and against any and all claims, actions, causes of action, damages, costs (including, without limitation, the costs of any interpleader action), expenses and liabilities arising from or in any way connected with the Escrow Agent acting in that capacity hereunder, provided that the Escrow Agent has not committed an act of gross negligence or wilful misconduct in carrying out its obligations hereunder. Duty of Care - ------------ 3.03 The Escrow Agent shall have no duties except those which are expressly set forth herein and shall have no responsibility in respect of loss of the Escrow Documents except the duty to exercise such care in the safekeeping thereof as it would exercise if the Escrow Documents were the property of the Escrow Agent. Other Rights and Duties 3.04 It is acknowledged and agreed that: (a) the duties and obligations of the Escrow Agent shall be determined solely by the express provisions of this Agreement. No implied covenants, duties, responsibilities or obligations shall be read into this Agreement in relation to the Escrow Agent and the Escrow Agent shall not be bound by the provisions of any other agreement between Communicate and SIDEN; (b) the Escrow Agent shall not be liable for any action taken, suffered or omitted by it in good faith and reasonably believed to be within its authority, rights, discretions or powers; (c) the Escrow Agent may act upon written notice, certificate, instructions or other document issued to it and executed by a party believed to be genuine and may assume that any person purporting to act on behalf of a party has been duly authorized to do so; (d) the Escrow Agent may act through its duly appointed agents and attorneys; (e) the Escrow Agent shall not be bound by any notice of claim or demand or any waiver, modification, amendment, termination or rescission of this Agreement; and (f) the Escrow Agent shall not be required to defend any legal proceedings which may be commenced with respect to, or arising out of, this Agreement or commence any legal proceedings unless it is indemnified against the cost and expense of such defence or action to its sole satisfaction including, without limitation, the posting of any security which the Escrow Agent may require. Advice of Counsel - ----------------- 3.05 The Escrow Agent may act herein on the advice of counsel but shall not be responsible for acting or failing act on the advice of counsel. Interpleader - ------------ 3.06 In the event of any dispute between the parties concerning their respective rights and obligations under this Agreement, the Loan Agreement or any document delivered pursuant hereto or thereto, or any claim by any third party related to the subject matter hereof, the Escrow Agent holder shall be entitled to interplead such dispute in a court of competent jurisdiction in Vancouver, British Columbia, and shall not represent Communicate or any other party in connection with such dispute. The Escrow Agent shall be entitled to comply with the order of any court of competent jurisdiction in British Columbia in relation to the holding and disposition of any and all documents and funds delivered to the Escrow Agent pursuant to the terms hereof, and shall not be liable in any way to Communicate and SIDEN as a result of such compliance. C-5 Removal - ------- 3.07 The Escrow Agent may be removed at any time by written direction of both Communicate and SIDEN. The Escrow Agent may at any time resign by written notice to Communicate and SIDEN, which notice shall specify the date upon which the resignation shall take effect. ARTICLE 4 GENERAL PROVISIONS ------------------ Notices - ------- 4.01 All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, telecopied or mailed postage prepaid addressed as follows: To Communicate: Communicate.com, Inc. 1300 - 1090 West Georgia Street Vancouver, BC V6E 3V7 Attention: Graham B. Heal Telecopier No.: (604) 697-0139 To SIDEN: Siden Investments Ltd. 1729 Acadia Road Vancouver, BC, V6T 1R2 Attention: David Sidoo Telecopier No: (604) 221-7075 To the Escrow Agent: Norton Stewart Suite 1200 - 1055 W Georgia Street PO Box 11104 Vancouver, BC V5E 3P3 Attention: John W. Norton Telecopier No.: (604) 689-1248 or to such other address as may be given in writing by the parties and shall be deemed to have been received, if delivered by hand, on the date of delivery, if telecopied to the telecopier numbers set out above, on the business day next following the date of transmission and if mailed as aforesaid to the addresses set out above then on the fifth business day following the posting thereof provided that if there shall be between the time of mailing and the actual receipt of the notice a mail strike, slowdown or other labour dispute which might affect the delivery of the notice by the mails, then the notice shall only be effective if actually delivered or telecopied to the telecopier numbers set out above. C-6 Time of Essence - --------------- 4.02 Time is hereby expressly made of the essence of this Agreement with respect to the performance by the parties of their respective obligations under this Agreement. Binding Effect - -------------- 4.03 This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Entire Agreement - ---------------- 4.04 This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous expectations, understandings, communications, representations and agreements whether verbal or written between the parties with respect to the subject matter hereof. Further Assurances - ------------------ 4.05 Each of the parties hereto hereby covenants and agrees to execute such further and other documents and instruments and do such further and other things as may be necessary or desirable to implement and carry out the intent of this Agreement. Assignment - ---------- 4.06 None of the parties may assign or transfer their respective rights under this Agreement. Amendments - ---------- 4.07 No amendment to this Agreement shall be valid unless it is evidenced by a written agreement executed by all of the parties hereto. Legal and Other Expenses ------------------------ 4.08 The parties will pay their respective legal, accounting and other professional fees and expenses, including applicable taxes, incurred by them in connection with the negotiation and settlement of this Agreement, the completion of the transactions contemplated hereby and the other matters pertaining hereto. No Waiver - --------- 4.09 The failure of any party to insist on the strict performance of any provision of this Agreement shall not constitute a waiver of the right of such party of redress with respect to such non-performance or to insist on future performance. Counterparts - ------------ 4.10 This Agreement may be executed in several counterparts each of which when executed by any party hereto shall be deemed to be an original and such counterparts shall together constitute one and the same instrument. C-7 Execution by Telecopy - --------------------- 4.11 This Agreement may be executed and transmitted by telecopy and if so executed and transmitted shall be for all purposes as effective as if the signing party had delivered executed originals thereof. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the day and year first above written. COMMUNICATE.COM, INC. Per: ------------------------------ Authorized Signatory SIDEN INVESTMENTS LTD. Per: ------------------------------ Authorized Signatory NORTON STEWART Per: ------------------------------ Authorized Signatory C-8 EX-10 6 ex10-4.txt EXHIBIT 10.4 EXHIBIT 10.4 WARRANT AGREEMENT BETWEEN: SIDEN INVESTMENTS LTD., a company having its principal business office at 1729 Acadia Road, Vancouver, BC, CANADA, V6T 1R2 (the "Warrant Holder") AND: COMMUNICATE.COM, INC., a corporation incorporated under the laws of the State of Nevada, the United States of America, having a business address at 1300 - 1090 West Georgia Street, Vancouver, BC, CANADA, V6E 3V7 (the "Company") RECITALS: A. As an inducement for the Warrant Holder to enter into a loan agreement (the "Loan Agreement") dated October 10th, 2001 with the Company and its subsidiary, Communicate.com Inc., a corporation incorporated under the laws of Alberta, Canada, the Company has agreed to grant the Warrant Holder a Warrant to subscribe for and purchase shares in its capital as set forth below. THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and for value received, the Company hereby grants the Warrant Holder the Warrant (the "Warrant") to subscribe for and purchase 10,000,000 fully paid and non-assessable common shares ("Common Shares") in the capital of the Company at a price calculated at the weighted average daily closing price the Company as recorded on the OTCBB for the month of October, or $_____ per share (the "Warrant Price") at any time prior to 4:30 p.m. (Vancouver Time) on October 10th, 2004, (the "Expiry Time") upon the terms and conditions hereinafter set forth. 1. This Warrant may be exercised by the Warrant Holder, in whole or in part (but not as to a fractional share) by delivery of a Notice of Exercise of Warrant in substantially the form set out in Schedule "A" hereto. Payment of the Warrant Price shall be tendered with the Notice of Exercise of Warrant and shall be (a) by certified cheque payable to or to the order of the Company; (b) by set-off of against the amount owed pursuant to the Loan Agreement; or (c) by a combination of the foregoing, as designated in the Notice of Exercise of Warrant. 2. In the event of any exercise of the rights represented by this Warrant, certificates for the Common Shares so purchased shall be delivered to the Warrant Holder within a reasonable time, not exceeding three business days after the rights represented by this Warrant shall have been so exercised and, unless this Warrant has expired, a new Warrant representing the number of Common Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Warrant Holder within such time. This Warrant will be void if not exercised prior to the Expiry Time. D-1 3. The Company covenants and agrees that all Common Shares which are issued upon the exercise of this Warrant will, upon issuance, be fully paid and non-assessable and free of all liens, charges and encumbrances. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, a sufficient number of Common Shares to provide for the exercise of the rights represented by this Warrant. 4. If the Company shall at any time while this Warrant is outstanding subdivide its outstanding common shares into a greater number of shares, the Warrant Price shall be proportionately reduced and the number of subdivided Common Shares entitled to be purchased proportionately increased, and conversely, in case the outstanding common shares of the Company shall be combined into a smaller number of shares, the Warrant Price shall be proportionately increased and the number of combined Common Shares entitled to be purchased hereunder shall be proportionately decreased. 5. If any capital reorganization, reclassification or consolidation of the capital stock of the Company, or the merger or amalgamation of the Company with another corporation shall be effected while this Warrant is outstanding, then as a condition of such reorganization, reclassification, consolidation, merger or amalgamation, adequate provision shall be made whereby the Warrant Holder shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the Common Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, or other securities as may be issued with respect to or in exchange for such number of outstanding Common Shares equal to the number of Common Shares purchasable and receivable upon the exercise of this Warrant had such reorganization, reclassification, consolidation, merger or amalgamation not taken place. The Company shall not effect any merger or amalgamation unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such merger or amalgamation shall assume by written instrument executed and mailed or delivered to the Warrant Holder of this Warrant the obligation to deliver to such Warrant Holder such shares of stock or securities in accordance with the foregoing provisions. 6. In case at any time while this Warrant is outstanding: (d) Company shall pay any dividend payable in stock upon its common shares or make any distribution to the holders of its Common Shares; (e) the Company shall offer for subscription pro rata to the holders of its Common Shares any additional shares of stock of any class or other rights; (f) there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger or amalgamation of the Company with, or sale of all or substantially all of its assets to another corporation; or (g) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, and in any one or more of such cases, the Company shall give to the Warrant Holder of this Warrant, at least twenty days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, or for determining rights to vote with respect to such reorganization, reclassification, consolidation, merger, or amalgamation, dissolution, liquidation or winding-up and in the case of any such reorganization, reclassification, consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up, at least twenty (20) days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause, shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Shares shall be entitled thereto, and such notice in accordance with the foregoing shall also specify the date on which the holders of Common Shares shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, amalgamation, sale, dissolution, liquidation or winding-up as the case may be. Each such written notice shall be given by first class mail, registered postage prepaid, addressed to the Warrant Holder of this Warrant at the address of such Warrant Holder, as shown on the books of the Company. 7. As used herein, the term "Common Shares" shall mean and include the Company's presently authorized common shares and shall also include any capital stock of any class of the Company hereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding-up of the Company. D-2 8. This Warrant shall not entitle the Warrant Holder hereof to any rights as a shareholder of the Company, including without limitation, voting rights. 9. Any notice or delivery or surrender of documents shall be valid and effective if delivered personally or if sent by registered letter, postage prepaid, or if electronically transmitted by facsimile transmission tested for reception prior to use, addressed to the party to its address set out at the beginning of this Agreement and shall be deemed to have been effectively given, received and made on the date of personal delivery or on the fourth business day after the time of mailing or upon actual receipt, whichever is sooner, or upon the day, other than Saturday, Sunday, or statutory holiday, after the time of facsimile transmission. In the case of disruption in postal services any notice, if mailed, shall not be deemed to have been effectively given until it is personally delivered. The Company or the Warrant Holder may from time to time notify the other in writing of a change of address. 10. All monetary references in this Agreement are in lawful currency of the United States of America and all payments made under this Agreement shall be made in such currency. 11. This Agreement shall be governed and construed by the laws of the Province of British Columbia, including the laws of Canada applicable thereto, but excepting any of its conflict of laws rules which would have the effect of applying the laws of any other jurisdiction. The parties further agree that the courts of British Columbia shall have exclusive jurisdiction over all disputes relating to this Agreement. 12. Time shall be of the essence hereof. IN WITNESS WHEREOF the Company has caused this Warrant to be signed by its duly authorized officers under its corporate seal, and this Warrant to be dated SIDEN INVESTMENTS LTD. COMMUNICATE.COM, INC. Per: Per: ----------------------------- ---------------------------- Authorized Signatory Authorized Signatory D-3 NOTICE OF EXERCISE OF WARRANT ----------------------------- TO: COMMUNICATE.COM, INC. 1300 - 1090 West Georgia Street Vancouver, BC V6E 3V7 THE UNDERSIGNED, the Warrant Holder of the within Warrant Agreement, subscribes for ________________ of the common shares referred to in the said Warrant Agreement at according to the conditions thereof, and herewith makes payment of $_________________________ as follows: (a) by set off against the amount owing under pursuant to the Loan Agreement (as described in the Warrant Agreement) in the amount of $_______________________________________________________; and (b) the sum of $____________________ by way of certified cheque enclosed herewith. All The undersigned hereby directs that the shares hereby subscribed for be issued and delivered as follows: - ---------------------------------------- NAME(S) IN FULL - ---------------------------------------- ADDRESS(ES) - ---------------------------------------- - ---------------------------------------- - ---------------------------------------- NO. OF SHARES DATED this ______ day of _________________, 200 __. D-4 -----END PRIVACY-ENHANCED MESSAGE-----