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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-22563
PC411, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4463937
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
9800 S. LA CIENEGA BLVD.
INGLEWOOD, CA 90301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 645-1114
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PRECEDING 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
AS OF NOVEMBER 14, 1997, THERE WERE OUTSTANDING 2,972,500 SHARES OF THE
ISSUER'S COMMON STOCK, $.01 PAR VALUE.
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PC411, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE
<S> <C>
Item 1. Financial Statements (Unaudited):
Balance Sheets as of September 30, 1997 and
December 31, 1996 (Audited)................................... 3
Statements of Operations for the three months and
nine months ended September 30, 1997 and 1996................. 4
Statement of Stockholders' Equity for the
nine months ended September 30, 1997.......................... 5
Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996............................. 6
Notes to the Financial Statements................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds......................... 15
Item 5. Other Information................................................. 16
Item 6. Exhibits and Reports on Form 8-K.................................. 16
SIGNATURE........................................................................... 17
</TABLE>
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PC411, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
-------------- ---------------
September 30, December 31,
-------------- ---------------
1997 1996
-------------- ---------------
(Unaudited) (Audited)
-------------- ---------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents ............................... $ 228,258 $ 8,605
Short-term investments .................................. 4,748,862 --
Accounts receivable ..................................... -- 10,947
Prepaid expenses ........................................ 148,089 192,865
----------- -----------
Total current assets ............................... 5,125,209 212,417
----------- -----------
Property and equipment, net ................................. 133,033 132,972
----------- -----------
Total assets ....................................... $ 5,258,242 $ 345,389
=========== ===========
CURRENT LIABILITIES:
Accrued expenses ............................................ $ 133,818 $ 192,992
Deferred revenue ............................................ 57,254 25,387
Related party demand loan payable ........................... -- 327,065
----------- -----------
Total current liabilities .......................... 191,072 545,444
----------- -----------
Commitments and contingencies ............................... -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, Series A $.01 par value. Authorized
5,000,000 shares; issued and outstanding 0 and 1,820
shares at September 30, 1997 and December 31, 1996,
respectively, liquidation value of $550 per share ....... -- 18
Common Stock, $.01 par value. Authorized 25,000,000
shares; issued and outstanding 2,972,500 and 4,240 at
September 30, 1997 and December 31, 1996,
respectively ............................................ 29,725 42
Additional paid-in capital ................................ 7,409,809 1,406,427
Accumulated deficit ....................................... (2,372,364) (1,606,542)
----------- -----------
Net stockholders' equity (deficit) ................. 5,067,170 (200,055)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 5,258,242 $ 345,389
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
3
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PC411, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------- ----------------------------
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------- ----------- ----------------------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 20,619 $ 3,331 $ 112,660 $ 23,084
Cost and expenses:
Cost of revenues ......... 25,309 29,163 96,833 56,673
Research and development . 100,690 69,847 125,329 220,372
Sales and marketing ...... 80,076 3,780 146,252 23,085
General and administrative 237,029 92,502 523,675 305,494
----------- ----------- ----------- -----------
443,104 195,292 892,089 605,624
----------- ----------- ----------- -----------
Operating loss ................ (422,484) (191,961) (779,428) (582,540)
----------- ----------- ----------- -----------
Other income (expense):
Interest and other income 72,935 484 108,408 4,233
Interest expense ......... -- (84,656) (94,002) (84,656)
----------- ----------- ----------- -----------
Other income (expense) ... 72,935 (84,172) 14,406 (80,423)
----------- ----------- ----------- -----------
Income taxes .................. -- -- 800 800
----------- ----------- ----------- -----------
Net loss ...................... (349,549) (276,133) (765,822) (663,763)
Dividend requirements ......... -- -- (296,953) --
----------- ----------- ----------- -----------
Net loss to common stock ...... $ (349,549) $ (276,133) $(1,062,775) $ (663,763)
=========== =========== =========== ===========
Net loss per common share ..... $ (.12) $ (.38) $ (.44) $ (.91)
=========== =========== =========== ===========
Shares used in computing net
loss per share ........... 2,972,500 732,390 2,390,217 732,390
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements
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PC411, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Additional stockholders'
Preferred Common paid-in Accumulated equity
Stock Stock capital Deficit (deficiency)
----- ----- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996........ $ 18 $ 42 $1,406,427 $(1,606,542) $(200,055)
Net loss.......................... -- -- -- (765,822) (765,822)
Conversion of preferred stock
to common stock................ (18) 86 (68) -- --
Stock split....................... -- 22,096 (22,096) -- --
Contribution of common stock to
company........................ -- (6,324) 6,324 -- --
Issuance of stock to legal
counsel........................ -- 600 (600) -- --
Sale of common stock in
initial public offering........ -- 13,225 5,871,775 -- 5,885,000
Payment of preferred
dividend....................... -- -- (171,953) -- (171,953)
Sale of warrants to related
party.......................... -- -- 250,000 -- 250,000
Interest component of stock
option granted................. -- -- 70,000 -- 70,000
------ ------- ----------- -------------- -----------
Balance, September 30, 1997....... $ -- $29,725 $7,409,809 $(2,372,364) $5,067,170
====== ======= ========== =========== ==========
</TABLE>
See accompanying Notes to Financial Statements
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PC411, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------
Nine Months Ended
----------------- ----------------
September 30, September 30,
1997 1996
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (765,822) $ (663,763)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................................................ 30,011 28,433
Interest component of stock options granted................................. 70,000 --
Changes in assets and liabilities:
Accounts receivable...................................................... 10,947 (5,325)
Prepaid expenses......................................................... 44,776 (48,779)
Accrued expenses......................................................... (59,174) 90,877
Deferred revenues........................................................ 31,867 19,602
----------- -----------
Cash used in operating activities................................................ (637,395) (578,955)
----------- -----------
Cash flows from investing activities:
Purchase of short-term investments............................................ (4,847,779) --
Sale of short-term investments................................................ 98,917 --
Acquisition of property and equipment......................................... (30,072) (10,284)
----------- -----------
Cash used in investing activities................................................ (4,778,934) (10,284)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in loan payable........................................... (327,065) 319,779
Proceeds from common stock offering........................................... 5,885,000 --
Payment of preferred dividends................................................ (171,953) --
Sale of warrants.............................................................. 250,000 --
----------- -----------
Cash provided from financing activities.......................................... 5,635,982 319,779
----------- -----------
Net increase (decrease) in cash.................................................. 219,653 (269,460)
Cash and cash equivalents at beginning of period................................. 8,605 370,827
----------- -----------
Cash and cash equivalents at end of period....................................... $ 228,258 $ 101,367
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
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PC411, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BUSINESS AND ORGANIZATION
PC411, Inc. was incorporated in Delaware on December 29, 1993. The
Company provides an on-line service that transmits name, address,
telephone number and other related information digitally to users of
personal computers.
INITIAL PUBLIC OFFERING
On May 21, 1997, the Company completed an initial public offering ("IPO")
of 1,322,500 units (including 172,500 units from the exercise of the
Underwriter's over allotment option), each unit consisting of one share
of Common Stock and one Redeemable Class A Warrant to purchase a share of
Common Stock. The units were sold for $5.75 each and the Company
received, after expenses of the IPO, approximately $5.9 million in net
proceeds.
(2) PRINCIPLES OF REPORTING
The financial statements of the Company as of September 30, 1997
presented herein have been prepared by the Company and are unaudited. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position
as of September 30, 1997 and the results of operations and cash flows for
all periods presented have been made. Results for the interim periods are
not necessarily indicative of the results for the entire year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31,
1996 included in the Company's Registration Statement on Form SB-2, as
amended (No. 333-21545).
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
STOCK OPTIONS
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock options. In 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which, if fully adopted, changes the methods of
recognition of cost on certain stock options.
7
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PC411, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SHORT-TERM INVESTMENTS
The Company's short-term investments comprise readily marketable debt
securities with remaining maturities of more than 90 days at the time of
purchase. The Company has classified all of its short-term investments as
available for sale under the provisions of Statement of Financial
Accounting Standards 115, "Accounting for Certain Investments in Debt and
Equity Securities". Available for sale securities are stated at fair
value with unrealized gains and losses included in stockholders' equity.
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is
included in interest income.
As of September 30, 1997, the Company had approximately $1.9 million in
U.S. Government Obligations and approximately $2.8 million in commercial
paper and bonds. The fair value of these short-term investments
approximated their amortized costs and, accordingly, no unrealized gains
or losses are included in stockholders' equity.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). SFAS 128 specifies new standards designed to improve the
earnings per share ("EPS") information provided in financial statements
by simplifying the existing computational guidelines, revising the
disclosure requirements, and increasing the comparability of EPS data on
an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that
common stock equivalents (CSEs) are not considered in computing basic
EPS, (b) eliminating the modified treasury stock method and the three
percent materiality provision, and (c) revising the contingent share
provisions and the supplemental EPS data requirements. SAFS 128 also
makes a number of changes to existing disclosure requirements. SFAS 128
is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has not yet
determined the impact of the implementation of SFAS 128.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income". SFAS 130 establishes standards
for reporting and display of comprehensive income. The purpose of
reporting comprehensive income is to present a measure of all changes in
equity that result from recognized transactions and other economic events
of the period other than transactions with owners in their capacity as
owners. SFAS 130 requires that an enterprise classify items of other
comprehensive income by their nature in the financial statement and
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity
section of the balance sheet. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, with the earlier application
permitted. The Company has not yet determined the impact of the
implementation of SFAS 130.
(3) RELATED PARTY TRANSACTIONS
The Company entered into a Loan and Security Agreement, dated as of June
27, 1996, as amended (the "Loan Agreement"), with New Valley Corporation
("New Valley"), an indirect majority owner of the Company's shares of
Common Stock, pursuant to which New Valley agreed to provide the Company,
in its sole and absolute discretion, with up to $750,000 in financing.
Amounts advanced under the Loan Agreement were due on demand and bore
interest at 12% per annum. In May 1997, the Company issued to New Valley
1,000,000 Redeemable Class A Warrants at the IPO price of $.25 per
warrant in satisfaction of $250,000 of indebtedness under the Loan
Agreement and the remaining balance due under the Loan Agreement of
$447,064 was satisfied out of the net proceeds of the IPO.
In January 1997, the Company granted to Direct Assist Holding Inc., a
wholly-owned subsidiary of New Valley, options to acquire 500,000 shares
of Common Stock at $5.75 per share, which fully vested upon the
completion of the IPO. Such options were issued in connection with
services provided on behalf of the Company's IPO, for the Preferred Stock
private placement by New Valley, and for the Loan Agreement provided to
the Company by New Valley. For financial reporting purposes, the Company
has recorded $125,000 of the value assigned to these options as a
dividend on Preferred Stock for the period January 1, 1997 through May
22, 1997. In addition, the Company has recorded imputed interest expense
of $70,000 arising from the issuance of such options during the period
from January 1, 1997 through May 22, 1997.
(4) STOCK OPTION PLAN
The Company has a stock option plan, "1997 Stock Option Plan" (the "1997
Plan"). The 1997 Plan provides for the grant of options to purchase the
Company's stock to the employees and directors of the Company. Subject to
certain limitations under the 1997 Plan, the number of awards, the terms
and conditions of any award granted thereunder (including, but not
limited to, the exercise price,
8
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PC411, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
grant price or purchase price) are at the discretion of the Board of
Directors. The Board of Directors had set aside 750,000 shares of the
Company's common stock for issuance under the 1997 Plan. In January 1997,
the Company's Board of Directors authorized the grant of 404,000 stock
options at an exercise price of $4.40 under the 1997 Plan. One third of
such options vested upon the completion of the IPO and one third will
vest at the end of each of the first and second years thereafter. When
granted, the Company determined the fair market value of each of the
Company's shares to be $4.40, post-stock split; accordingly, no
compensation expense was recognized for these options. In April and May
1997, an aggregate of 102,000 stock options were granted at an exercise
price of $5.50 per share, of which 15,060 became exercisable on the
completion of the IPO. All stock options under the 1997 Plan are subject
to an eighteen month lock-up agreement with the underwriter of the IPO
which expires November 1998.
Stock options issued in 1995 and 1996 under a 1994 stock option plan
which was terminated in 1997, vest over a three-year period and have an
exercise price of $11.50 per share. At September 30, 1997, 3,455 of the
granted options were outstanding and exercisable.
Additionally, in connection with its IPO, the Company granted to the
underwriter of the offering options to purchase 73,600 units, at the
exercise price of $9.49 per unit. Each unit consists of one share of
Common Stock and one warrant to purchase an additional share at the price
of $6.10.
In addition to the options issued in connection with the stock option
plans, the Company has granted other parties certain stock options as
described in Note 3.
(5) PREFERRED STOCK
The Company has the authority to issue 5,000,000 shares of Preferred
Stock, which may be issued from time to time in one or more series. In
May 1995, the Company sold and issued 1,820 shares of Series A
Cumulative Convertible Preferred Stock, $.01 par value. Dividends at an
annual rate of $55 per share on the Series A Preferred Stock were
cumulative from the date of original issue and are payable annually in
arrears, when and as declared by the Company's Board of Directors.
On January 29, 1997, all 1,820 outstanding shares of Preferred Stock were
converted into 8,626 shares (1,490,000 shares after stock split) of
Common Stock, and the cumulative dividends on the Preferred Stock of
$171,953 were subsequently declared and paid on May 22, 1997 out of the
net proceeds of the IPO.
9
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PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Financial Condition and Results of
Operations of the Company should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and the notes thereto included in the
Company's Registration Statement on Form SB-2 (No. 333-21545) relating to its
initial public offering, which was completed in May 1997.
OVERVIEW
The Company currently provides an on-line electronic directory assistance
service that gives its customers access to over 110 million U.S. and Canadian
residence and business telephone numbers, addresses and ZIP codes. The PC411
service is available on a direct-dial basis with a personal computer, a modem,
and either the Company's proprietary, copyrighted software program, PC411 FOR
WINDOWS, or an Internet browser. The PC411 service is available over the
Internet at the address HTTP://WWW.PC411.COM. The Company is scheduled to
release its newest version of software (Release 3.0) in November 1997. Based on
a 32-bit architecture for optimized performance, the Company's software has been
enhanced to provide a quicker, easier to use search tool to find names and phone
numbers, along with street addresses of people and businesses anywhere in North
America.
Given its limited operating history, the Company and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the new and rapidly evolving markets for on-line and
internet services. To address these risks, the Company must, among other things,
continue to respond to competitive developments, attract, retain and motivate
qualified personnel, implement and successfully execute its sales and marketing
strategy, create and distribute a version of PC411 FOR WINDOWS for other
operating systems, develop relationships with third parties for purposes of
general distribution and specific industry penetration and upgrade its
technologies and services. There can be no assurance that the Company will be
successful in addressing such risks.
The limited operating history of the Company makes the prediction of future
results of operations difficult or impossible. The Company believes that period
to period comparisons of its operating results for any period should not be
relied upon as an indication of future performance. The Company currently
expects to significantly increase its operating expenses as it builds its sales
and marketing staff, increases product development spending, and invests in
infrastructure. As a result, the Company expects to continue to incur
significant losses on a quarterly and annual basis for the foreseeable future.
In addition, the Company does not have historical financial data for any
significant period of time on which to base planned operating expenses. The
Company's expense levels are based in part on its expectations concerning future
revenue and to a large extent are fixed. Quarterly revenues and operating
results depend substantially upon signing up new customers and retaining such
customers which are difficult to forecast accurately. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenue in relation to the Company's
expectations would have an immediate adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company
currently expects to increase significantly its operating expenses as it builds
its sales and marketing staff, increases product
10
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PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
development spending, and invests in infrastructure. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, results of operations and financial condition will be
materially and adversely affected.
The Company licenses its database and pays a percentage of revenues earned from
the display of the listing data, with a minimum annual payment. The Company
charges its customers an annual subscription fee. The Company has entered into
distribution agreements with the following companies: IBM (Aptiva), HP (Vector),
Multimedia Labs (representing 3Com), The Media Form (representing Hayes modems),
3Com/US Robotics and Silicom Multimedia (representing AST). PC411 FOR WINDOWS is
pre-installed on a computer's hard drive or copy of PC411 FOR WINDOWS is
included on a CD with the purchase of a modem. The Company pays distribution
fees to these equipment manufacturers for the distribution of PC411 FOR WINDOWS
either based upon the number of new customers that sign up for the PC411 service
or the revenues that such new customers generate. Although the Company has
experienced revenue growth in recent months due to these distribution
agreements, there can be no assurance that revenues of the Company will continue
to increase, that revenues will continue at their current level, that the
Company will be able to maintain these arrangements, or that the Company will
enter into additional bundling agreements with other third parties.
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's control.
These factors include the level of usage of the Internet, demand for Internet
advertising, the continued growth of private intranets, the amount and timing of
capital expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new products or services by the Company or its
competitors, pricing changes in the industry, technical difficulties with
respect to the use of the PC411 service, general economic conditions and
economic conditions specific to on-line services and the Internet. As a
strategic response to changes in the competitive environment, the Company may
from time to time make certain pricing, service or marketing decisions that
could have a material adverse effect on the Company's business, results of
operations and financial condition.
INITIAL PUBLIC OFFERING
On May 21, 1997, the Company completed an initial public offering ("IPO") of
1,322,500 units (including 172,500 units from the exercise of the Underwriter's
over-allotment option), each unit consisting of one share of Common Stock and
one Redeemable Class A Warrant to purchase a share of Common Stock. The units
were sold for $5.75 each and the Company received, after expenses of the IPO,
approximately $5.9 million in net proceeds.
RESULTS OF OPERATIONS
REVENUEs. The Company's revenues have been derived from registration fees and
usage charges for the modem dial-up PC411 service. Revenues are recognized over
the period in which the related services are to be provided. Revenues for the
three months and nine months ended September 30, 1997 were $20,619 and $112,660,
respectively, compared to $3,331 and $23,084 for the same periods in the prior
year. The increase in revenues were due primarily to the bundling arrangements
with IBM and U.S. Robotics.
11
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PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
COST OF REVENUES. Cost of revenues consists primarily of the cost of data and
the distribution fees paid to IBM and U.S. Robotics. The Company's contract for
the listing data provides for a specified percentage of revenues that the
Company generates from distributing the data, with minimum quarterly payments.
To date, the Company has been only required to pay the minimum quarterly
payments related to the cost of data. Cost of revenues for the three months and
nine months ended September 30, 1997 were $25,309 and $96,833, respectively, as
compared to $29,163 and $56,673 for the same periods in the prior year. The
increase is due primarily to the increase in revenues which increases the
distribution fees related to the distribution arrangements with IBM and U.S.
Robotics.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
employee compensation and consulting fees associated with the design,
programming, and testing of the PC411 service and its software upgrade. Research
and development expenses for the three months and nine months ended September
30, 1997 were $100,690 and $125,329, respectively, as compared to $69,847 and
$220,372 for the same periods in the prior year. The increase in research and
development for the three months ended September 30, 1997 was primarily
attributable to an increase in the number of programmer hours as a result of the
completion of the new version of the Company's software program. Research and
development will increase over the next six months as the Windows 95 compatible
version of the software is completed.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of
public relations, print advertising, and trade shows. Sales and marketing
expenses for the three months and nine months ended September 30, 1997 were
$80,076 and $146,252, respectively, as compared to $3,780 and $23,085 for the
same periods in the prior year. The increase in sales and marketing expenses is
due to the Company's effort in obtaining additional bundling arrangements.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
primarily of expenses for administration, office operations, and general
management activities, including legal, accounting, and other professional fees.
General and administrative expenses were $237,029 and $523,675 for the three
months and nine months ended September 30, 1997, respectively, as compared to
$92,502 and $305,494 for the same periods in the prior year. The increase in
general and administrative expenses is due to an increase in payroll and costs
associated with a public company.
OTHER INCOME (EXPENSE). Interest expense was $94,002 for the nine months ended
September 30, 1997. The interest expense was attributed entirely to the loan
from New Valley Corporation ("NVC"), an indirect majority owner of the Company.
Included in interest expense was $70,000 in imputed interest attributable to
stock options granted to Direct Assist Holding Inc. ("DAH"), a wholly-owned
subsidiary of NVC, on January 29, 1997. Interest income for the three months and
nine months ended September 30,1997 was $72,935 and $108,408, respectively,
which related to interest on the funds received on May 22, 1997 for the initial
public offering.
12
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PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
INCOME TAXES; NET OPERATING LOSS. The Company had no income and therefore made
no provision for federal or state income taxes other than the required
California state minimum tax of $800. At September 30, 1997, the Company had
approximately $1,950,000 of federal net operating loss carryforwards for tax
reporting purposes available to offset future taxable income, if any. The
amounts of and the benefits from net operating loss carryforwards are subject to
certain limitations and these net operating loss carryforwards expire in 2010.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has financed its operations primarily through
the sale of common stock, the private placement of Preferred Stock, and secured
short-term borrowings from NVC. The Company has not been able to generate
sufficient cash from operations and, as a consequence, additional financing has
been required to fund ongoing operations. Cash used in operations for the nine
months ended September 30, 1997 and 1996 was $637,395 and $578,955,
respectively. The increase in the cash used in operations in 1997 as compared to
1996 was due primarily to the increase in the net loss for the nine months ended
September 30, 1997 as compared to the same period in 1996.
Capital expenditures for the nine months ended September 30, 1997 were $30,072
as compared to $10,284 for the nine months ended September 30, 1996. These
expenditures were primarily for computer equipment.
Cash provided by financing activities for the nine months ended September 30,
1997 was $5,635,982, of which $5,885,000 related to proceeds from the initial
public offering. On May 22, 1997, the Company issued to NVC warrants in
satisfaction of $250,000 of indebtedness under the NVC loan agreement and net
proceeds from the IPO were used to repay NVC the then remaining outstanding
balance of the loan and accrued interest of $447,064. Financing for the cash
used in operations for the nine months ended September 30, 1996 was provided
through the sale of 1,820 shares of Preferred Stock to DAH for $1,001,000 on May
28, 1995 and through the NVC loan agreement. On January 29, 1997, the Company
converted the 1,820 shares of Preferred Stock into 8,626 shares of Common Stock
(1,490,000 shares after stock split) and paid the cumulative dividends thereon
of $171,953 on May 22, 1997 out of net proceeds from the IPO.
As noted above, the Company completed the sale of 1,322,500 units at a price of
$5.75 per unit and received net proceeds after IPO expenses of approximately
$5.9 million. After the repayment of the NVC loan, cumulative Preferred Stock
dividends, and an $80,000 consulting fee to the Underwriter of the IPO, the
Company had approximately $5.4 million to use to complete the introduction of
the PC411 service over the Internet, to expand marketing, sales and advertising,
to develop or acquire new services or databases, and for general corporate
purposes.
13
<PAGE> 14
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
The Company expects that its cash used in operating activities will increase in
the future. The timing of the Company's future capital requirements, however,
cannot be accurately predicted. The Company's capital requirements depend upon
numerous factors, principally the acceptance and use of the PC411 services and
the Company's ability to generate advertising revenue. If capital requirements
vary materially from those currently planned, the Company may require additional
financing, including, but not limited to the sale of equity or debt securities.
The Company has no commitments for any additional financing, and there can be no
assurance that any such commitments can be obtained. Any additional equity
financing may be dilutive to the Company's existing stockholders, and debt
financing, if available, may involve pledging some or all of the Company's
assets and may contain restrictive covenants with respect to raising future
capital and other financial and operational matters.
The Company believes that the net proceeds from the IPO will be sufficient to
meet the Company's operations and capital requirements for the next 12 months,
although there can be no assurance in this regard. Although there can be no
assurance, management believes that the Company will be able to continue as a
going concern for the next 12 months.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company and its representatives may from time to time make oral or written
"forward-looking statements" within the meaning of the Private Securities Reform
Act of 1995 (the "Reform Act"), including any statements that may be contained
in the foregoing "Management's Discussion and Analysis of Financial Condition
and Results of Operations", in this report and in other filings with the
Securities and Exchange Commission and in its reports to stockholders, which
represent the Company's expectations or beliefs with respect to future events
and financial performance. These forward-looking statements are subject to
certain risks and uncertainties and, in connection with the "safe-harbor"
provisions of the Reform Act, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by or on behalf of the Company.
The Company's plans and objectives are based, in part, on assumptions involving
the continued growth and expansion of the Internet, the Company's ability to
market successfully the PC411 service and related services to the SOHO (small
office/home office) market and to private intranets as a more convenient and
reliable alternative to current comparable and widely used services and that
there will be no unanticipated material adverse change in the Company's
business. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Results actually achieved may differ materially from expected results included
in these statements as a result of these or other factors particularly in light
of the Company's early stage operations. Due to such uncertainties and risks,
readers are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date on which such statements are made.
The Company does not undertake to update any forward-looking statement that may
be made from time to time on behalf of the Company.
14
<PAGE> 15
PC411, INC.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 21, 1997, the Company completed an initial public offering
("IPO") of 1,322,500 units (including 172,500 units from the exercise
of the Underwriter's over-allotment option), each unit consisting of
one share of Common Stock and one Redeemable Class A Warrant to
purchase a share of Common Stock. The units were sold for $5.75 each
and the Company received, after expenses of the IPO, approximately $5.9
million in net proceeds.
On August 14, 1997, the Company filed its initial report of sales of
securities and use of proceeds therefrom on Form SR. Form SR has been
discontinued and the Company will continue to report the following
information in the Company's quarterly and annual filings until the
proceeds have been fully used.
1. The offering commenced May 14, 1997 and all registered securities
were sold.
2. The managing underwriter was Biltmore Securities, Inc.
3. Title of Securities:
a. Units - Each Unit consists of one share of common stock and
one Redeemable Class A Warrant.
b. Common Stock - Common Stock included in Units, Par value $.01.
c. Redeemable Class A Warrants ("Warrants") - Each Warrant is
convertible into one share of Common Stock at an exercise
price of $6.10.
d. Common stock issuable upon conversion of the Warrants ("Other
Common Stock").
e. Underwriter's Options - The Underwriter's Options are
convertible into Units at an exercise price of $9.49.
4. The Amount and Aggregate Offering Price of Securities Registered
and Sold to Date For the Account of the Issuer:
<TABLE>
<CAPTION>
Aggregate Price Aggregate
Amount of Offering Amount Offering Price
Title of Security Registered Amount Registered Sold of Amount Sold
----------------- ---------- ----------------- ---- --------------
<S> <C> <C> <C> <C>
Units 1,322,500 $7,604,375 1,322,500 $7,604,375
Common Stock 1,322,500 -- -- --
Warrants 1,322,500 -- -- --
Other Common Stock 1,322,500 $8,067,250 -- --
Underwriter's Options 73,600 $1,147,424 -- --
</TABLE>
15
<PAGE> 16
PC411, INC.
PART II. OTHER INFORMATION
5. Expenses Incurred in Connection with Issuance of Securities:
Underwriting discounts and commissions $760,438
Expenses paid to underwriters $228,131
Other expenses (estimated) $730,880
(All expenses were direct or indirect to others)
6. Net offering proceeds after the total expenses above were
$5,885,000.
7. Amount of net offering proceeds used for each of the purposes
listed below:
Amounts paid to affiliates of the Company:
Repayment of Indebtedness $ 619,016
Amounts paid to others:
Temporary investments:
US Government Obligations $1,906,352
Commercial paper $1,969,570
Bankers acceptance $ 873,940
Purchase of equipment $ 27,250
Employee compensation - estimated $ 200,000
Other working capital - estimated $ 289,872
Item 5. OTHER INFORMATION
Effective as of July 31, 1997, the Company's Common Stock (symbol:
PCFR), Redeemable Class A Warrants (symbol: PCFRW), and Units (symbol:
PCFRU) began trading on the Nasdaq SmallCap Market. Such securities had
previously traded on the OTC Bulletin Board.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Distribution Agreement between the Company and The Media Farm
10.2 Distribution Agreement between the Company and Silicon
Multimedia Systems, Inc.
10.3 License Agreement with Acxiom Corporation
27. Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K
None
16
<PAGE> 17
PC411, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PC411, INC.
(Registrant)
Date: November 14, 1997 By: /s/ROBERT M. LUNDGREN
---------------------
Robert M. Lundgren
Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
17
<PAGE> 1
EXHIBIT 10.1
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT ("Agreement") is made this 16th day of September,
1997 by and between U.S. Robotics Access Corp. ("USR"), a Delaware corporation
with its principal place of business at 8100 N. McCormick Blvd., Skokie,
Illinois 60076, and PC411, Inc. ("PC411"), a Delaware corporation having its
principal place of business at 98000 La Cienega Blvd., Suite. 400, Inglewood, CA
90301-4440.
1. DEFINITIONS
1.1. PROGRAM. "Program" means the information, entertainment, communications
or other program(s) and any related materials, including computer
software programs and related documentation, described in Exhibit A,
attached hereto and incorporated herein, including any upgrades,
enhancements, new releases or new versions thereof that Vendor may
release.
1.2. CD-ROM DEVICE. "CD-ROM Device" means an optical disc storage device
containing Programs and using the technology commonly known as compact
disc read-only-memory ("CD-ROM") or any subset, format, enhancement or
other version of it, whether now known or developed in the future
(including but not limited to CDHD, CD-ROM-XA, CD-I, 3D-O, and CDTV).
1.3. PRODUCTS. "Products" means USR's "Sportster" line of modems and all
successor models to the "Sportster" line. "Products" also may include,
in USR's sole discretion, other USR product lines, such as "Courier,"
"Megahertz," telephony and other USR information access products.
1.4. TERRITORY. "Territory" means the United States and Canada.
2. GRANT OF RIGHTS
2.1. GRANT. Vendor grants to USR the non-exclusive, royalty-free rights,
under copyright and otherwise, to copy and duplicate, or have copied
and duplicated, in CD-ROM Devices the Program(s), to advertise those
CD-ROM Devices and to market and distribute those CD-ROM Devices in
packages of the Products, during the Term and in the Territory, and to
authorize USR subsidiaries and affiliates in the Territory to do so.
USR may also distribute those CD-ROM Devices to its customers who have
previously purchased its products. USR may use wholesalers,
distributors, value-added resellers or other third parties to
distribute the CD-ROM Devices, and is authorized to use distribution
methods including, without limitation, bulk orders, telephone orders,
and direct mail orders.
2.3. LIMITATION OF RIGHTS. USR's uses of the rights granted in this
Agreement will be subject to any restrictions imposed by Vendor's
agreements with its licensors and other third parties, as set forth on
Exhibit B, attached hereto and incorporated herein. Except as set forth
in Exhibit B, as between Vendor and USR, Vendor is the owner of all
right, title and interest in and to the Program.
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 1 of 10
<PAGE> 2
3. PAYMENTS
3.1. FEES. Vendor shall pay USR the fees set forth in Exhibit C, attached
hereto and incorporated herein, for the CD-ROM Devices distributed
during the Term, or after expiration or termination of this Agreement
pursuant to Section 5.1 herein. Such fees shall be paid to USR for so
long as Vendor receives revenues or advertising exposure arising out of
the distribution of such CD-ROM Devices, irrespective of the expiration
or termination of this Agreement.
3.2. PAYMENT. Vendor will compute and make all payments for fees due USR
according to Section 3.1 herein, accompanied by accounting statements,
within thirty (30) days after the end of each quarter for which
payments are due. USR will compute and issue invoices, accompanied by
accounting statements, for CD-ROM Device booklet advertisements to
Vendor within thirty (30) days after the beginning of each calender
quarter for shipments forecasted within that quarter. USR will also
compute and issue invoices or credits, accompanied by accounting
statements, that reconcile discrepancies between forecasted and actual
shipments of CD-ROM Device booklet advertisements to Vendor within
thirty (30) days after the end of each calender quarter. Payment for
such advertising invoices is due within thirty (30) days from date of
invoice. All payments shall be remitted to: Connections CD-ROM, U.S.
Robotics, 7770 No. Frontage Rd., Skokie, IL 60077.
3.3. RECORDS AND ACCOUNTING. Vendor shall maintain complete and accurate
records, in accordance with generally accepted accounting practices, of
all amounts payable to USR for three (3) years from the date such
amounts are paid to USR. USR or its authorized representative may, at
USR's expense and upon reasonable notice, examine Vendor's books and
records relating to amounts due to USR under this Agreement, during
Vendor's regular business hours and at the place where the books and
records are regularly kept, for the purpose of auditing such books and
records, for so long as such books and records are required to be
maintained. Such examination shall take place no more than once within
any consecutive twelve (12) month period.All information gained by USR
or its authorized representative from such audit shall be deemed
Confidential Information and used solely for the purpose of verifying
the accuracy of the payments made to USR hereunder. If USR asserts that
additional payment is due, USR will issue to Vendor a written demand
for such additional amount with supporting documentation. In the event
a dispute arises over amounts due to USR, both parties agree to work in
good faith toward a mutually agreeable resolution of the dispute.
3.4. MECHANICAL ROYALTIES AND OTHER THIRD PARTY PAYMENTS. Vendor will make
all payments to third parties, including without limitation payments to
holders of rights (including copyrights) in musical compositions,
master recordings, literary material, audio and audiovisual elements,
computer software programs, graphics, technology, artwork, photographs,
names and likenesses, required by reason of the use of the Program in
the duplication, modification or distribution of the CD-ROM Devices.
3.5. NO PAYMENTS BY USR. USR shall not be obligated to make any royalty or
other payments of any kind to Vendor under this Agreement.
4. DUPLICATION AND CONTENT
4.1. DUPLICATION MATERIALS. Vendor will furnish to USR, within ten (10)
business days of
USR's request and at Vendor's expense: (a) any master, duplicating or other
materials relating to the Program that USR may require for the manufacture of
first class quality CD-ROM Devices suitable for commercial distribution; and (b)
any technical assistance and information (including but not limited to
copyright, trademark, patent and credit information) that USR requires to
duplicate CD-ROM Devices.
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 2 of 10
<PAGE> 3
USR shall be responsible for all costs it incurs respecting such duplication.
Vendor will deliver a replacement master to USR within a reasonable period of
time after the commercial release of any upgrades, enhancements, new releases or
new versions of the Program, and USR will reproduce and distribute this later
version of the Program as soon as commercially practicable.
4.2. CONTENT OF PROGRAM. Vendor has the right to design and control the
content of the Program, subject only to USR's rights under Section 5.3
herein.
4.3. COMPATIBILITY. Vendor agrees to exert its best efforts to make the
Program compatible (a) with USR Products, (b) with Windows 3.11 and up
and Windows 95, as those computer programs may be updated in the
future, and (c) if Vendor desires that the Program shall be distributed
with USR Products for use with Macintosh computers, with System 7.0 and
up, as that computer program may be updated in the future.
4.4. ADDITIONAL MATERIALS. Upon agreement of the parties, Vendor may provide
additional materials for inclusion with the Programs distributed with
the Products. Such materials may include instructional, informational
or promotional matter, in printed or electronic media. Vendor shall be
responsible for duplication of such materials in sufficient quantities
to be included with all copies of the Program being distributed, and
shall bear all costs associated with the development and duplication of
such materials.
5. TERM AND TERMINATION
5.1. TERM, TERMINATION AND POST-TERMINATION SALES. The term of this
Agreement (the "Term") shall begin on the date set forth above and
shall expire one (1) year from that date. For six (6) months after the
end of the Term, USR may advertise and distribute CD-ROM Devices
duplicated or in the process of duplication by USR at the end of the
Term, except that USR shall have no such right in the event Vendor
terminates this Agreement for breach by USR pursuant to Section 5.2
below.
5.2. TERMINATION FOR BREACH. If either party materially defaults in the
performance of or compliance with any provision of the Agreement and
does not cure such default within thirty (30) days after receiving
written notice of such breach from the other party, the party giving
notice may then give further notice terminating this Agreement, and the
rights granted hereunder shall terminate on the date specified in such
further notice.
5.3. TERMINATION FOR DISAPPROVAL OF CONTENT. USR shall have the right to
disapprove the content of the Program if USR, in its sole discretion,
believes that the content violates the personal or property rights of
USR or a third party or is otherwise inconsistent with USR's business
policies. In the event USR so disapproves the content of the Program
and Vendor fails to make corrections to the Program reasonably
satisfactory to USR within five (5) days after notice from USR, then
USR shall have the right to terminate this Agreement immediately upon
further written notice to Vendor.
6. ADVERTISING, PROMOTION, SUPPORT
6.1. PERFORMERS. USR shall have the right to use and authorize others to use
the names, likenesses and voices of any performers and other persons
who have rendered services in connection with the Programs, and
biographical information about them, for advertising and purposes of
trade in connection with the CD-ROM Devices and in institutional
advertising for USR in all formats, markets and media now known or
hereafter devised.
6.2. SYNOPSES AND EXCERPTS. USR may use synopses and excerpts from the
Program and pre-existing advertising, publicity and promotional
materials for the Program, in advertising, promoting and
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 3 of 10
<PAGE> 4
publicizing the CD-ROM Devices in any medium and by any method, and may
authorize others to do so, without payment to Vendor.
6.3. TRADEMARKS. USR shall have the right to reproduce and use trademarks,
trade names, designs and artwork owned, controlled, or distributed by
Vendor on the CD-ROM Devices and in packaging, advertising and other
marketing materials for them.
6.4. PROMOTION BY VENDOR. Vendor may advertise and promote the Program at
its own expense in any manner it desires; provided, however, Vendor
shall provide USR with prior notice and copies of any such advertising
or promotional materials that relate specifically to USR, use of USR's
trademarks, trade names, designs and art work, or the distribution of
the Program with the CD-ROM Devices.
.
6.6. TRADE SHOWS; USR DEMO UNITS. Upon Vendor's request, USR may, in its
sole discretion, give to Vendor one or more modems for the purpose of
trade show demonstrations of the Program. Vendor shall take title to
the modems. USR will provide such modems, if at all, on an "AS IS"
basis, without any warranties whatsoever, either express or implied.
Vendor shall clearly display USR tent cards and/or collateral when
demonstrating Vendor products with the USR modems, and shall otherwise
use USR trademarks and trade names in accordance with USR's
instructions. USR shall have the right to require Vendor, at any time,
to cease using the USR trademarks and trade names.
6.7. CUSTOMER SUPPORT. Vendor will offer and provide "front-line" customer
support to end users of the Program. Vendor's customer support will be
available Monday through Friday, except customary holidays, during
normal business hours (8:00am to 5:00pm local time). Vendor will
prominently display its customer support telephone number(s) and
address(es) within the Program software and/or documentation. Vendor
also will provide, at USR's request, a reasonable amount of second-line
customer support training to USR support personnel, at no charge to
USR. USR shall pay its own expenses associated with such
training.Unless otherwise agreed, such training shall take place at
PC411's place of business USR may terminate this agreement Pusuant to
Section 5.2 if Vendor fails to provide reasonable customer support
services to end users or to USR.
6.8. USR BRANDING OF PROGRAM. Vendor agrees to modify the Program to include
the US Robotics logo embedded within the user interface for the version
distributed to US Robotics. Size, positioning, and location of the logo
shall be mutually agreed upon by the parties, which agreement shall not
be unreasonably withheld by either party. Vendor shall use the logo
according to the usage guidelines provided by USR from time to time,
and shall use the logo in no other manner except as set forth in this
paragraph.
6.9. REGISTRATION DATABASE. Vendor agrees to provide access to its database
of customers who purchase or subscribe to its products and/or services
as a result of the bundle with USR products hereunder. The information
to be made available to USR shall include the customers' names,
addresses, phone numbers, fax numbers, email addresses, and any other
customer data gathered during the Vendor's registration process. USR or
its authorized representative may, at USR's expense and upon reasonable
notice, obtain this information in a mutually agreed upon format on a
quarterly basis. All information obtained by USR or its authorized
representative shall be deemed Confidential Information and used solely
for the purpose of USR's marketing and research programs.
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 4 of 10
<PAGE> 5
7. WARRANTIES AND REPRESENTATIONS
7.1. RIGHT TO CONTRACT. Vendor warrants and represents that it has the right
and power to enter into and fully perform this Agreement.
7.2. INFRINGEMENT. Vendor warrants and represents that the Program and any
related materials, including computer software programs, technology,
graphics, dramatic, literary, musical, or artistic elements, ideas, or
other intellectual properties contained in or furnished by Vendor for
use in connection with the Program or the packaging, advertising,
promotion or marketing of CD-ROM Devices made from them, or any use of
them in accordance with this Agreement, will not violate any law or
infringe upon the rights of any person or entity.
8. INDEMNIFICATION
8.1. BREACH OF WARRANTY. Vendor will at all times indemnify and hold USR
harmless from and against any and all claims, losses, damages and costs
(including without limitation legal expenses and reasonable counsel
fees), arising out of any breach by Vendor of any warranty or
representation made by Vendor in this Agreement.
8.2. THIRD PARTIES. Vendor will at all times indemnify and hold USR harmless
from and against any and all claims, losses, damages and costs
(including without limitation legal expenses and reasonable counsel
fees), arising out of any claim of a third party (including Vendor's
licensors) respecting the content of the Program or intellectual
property rights or other rights or interest in the Program or revenues
generated by the distribution of the Program in the CD-ROM Devices.
9. CONFIDENTIALITY
9.1. CONFIDENTIALITY. Each party agrees that it will not permit the
duplication, use, publication or disclosure of any such Confidential
Information to any person (other than its own employees under this
Agreement), unless authorized in writing by the other party. Except as
specifically authorized herein, neither party shall use the name(s),
trademark(s) or trade name(s) of the other party in publicity releases
or advertising or in any other manner, including customer lists,
without the prior written approval of the other party, which shall not
be unreasonably withheld. "Confidential Information" means any terms of
this Agreement, any confidential information or data, either oral or
written, received from and designated as such by the other party, or
any proprietary information or data; but does not include information
that is already known by recipient, becomes publicly known through no
wrongful act of the recipient, or received from a third party without
similar restriction and without breach of this Agreement.
10. DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY
10.1. DISCLAIMER OF WARRANTIES. EXCEPT AS SPECIFICALLY SET FORTH ABOVE,
NEITHER PARTY MAKES ANY WARRANTIES, AND BOTH PARTIES HEREBY DISCLAIM
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
USE OR PURPOSE.
10.2. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA, OR USE, INCURRED BY
EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR
TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY OR ANY OTHER
PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 5 of 10
<PAGE> 6
11. MISCELLANEOUS
11.1. ASSIGNMENT. Vendor shall not transfer, delegate or assign this
Agreement or any of its rights or obligations hereunder without USR's
prior written consent, which shall not be unreasonably withheld. This
Agreement shall be binding upon and inure to the benefit of USR and
Vendor and their respective successors, permitted assigns and legal
representatives.
11.2. NOTICES. All notices, requests, demands or other communications
required or permitted to be made under this Agreement shall be in
writing and shall be either delivered personally, sent by fax (with
hard copy to follow), sent by guaranteed prepaid overnight delivery
service or mailed by U.S. mail, certified or registered, return receipt
requested, with appropriate postage prepaid, in each case to the
addressees and/or fax numbers on the first page of the Agreement, (and
with respect to items sent to USR, with a copy to U.S. Robotics
Corporation, 8100 N. McCormick Boulevard, Skokie, IL 60076, Attn. Legal
Department, Fax No. 847-933-5149), or to such other addresses as may be
designated in writing by notice given in the manner provided herein.
Such notices and communication shall be deemed given (i) upon actual
delivery thereof, if delivered by hand, (ii) one (1) business day
following overnight delivery service, if delivered by overnight
delivery service, (iii) one (1) business day following delivery, if
sent by fax and electronic confirmation of complete transmission to the
recipient's fax number is obtained by the sender, or (iv) three (3)
business days following deposit in the U.S. mail, if sent by mail,
whether or not delivery is accepted.
11.3. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Illinois, without
giving effect to its conflicts of law principles. Any suit arising out
of or relating to this Agreement shall be brought only in the state or
federal courts in Chicago, Illinois, unless USR shall select another
venue or shall otherwise consent in writing, and Vendor hereby submits
to the jurisdiction of such courts in any matter or proceeding arising
out of or relating to this Agreement and hereby waives any objections
to venue being in such courts.
11.4. FORCE MAJEURE. Any delay in or failure of performance by either party
under this Agreement (other than payment obligations) shall not be
considered a breach of this Agreement and shall be excused if and to
the extent caused by any occurrence, foreseeable or unforeseeable,
beyond the reasonable control of the party affected, including without
limitation: acts of God or the public enemy; fire; flood; embargoes;
governmental restrictions; strikes or labor difficulties; riots; wars
or other military action; civil disorders; shortages of labor, fuel,
power, materials, supplies, or transportation; delays in deliveries by
suppliers; or any other cause or causes beyond such party's reasonable
control.
11.5. INDEPENDENT CONTRACTORS. Neither party is the employee, partner, joint
venturer agent or legal representative of the other party for any
purpose. Neither party shall have the authority to enter into any
contracts in the name of or on behalf of the other party.
11.6. WAIVER. No term or provision hereof shall be deemed waived and no
breach excused unless such waiver or consent shall be in writing and
signed by the party claimed to have waived or consented.
11.7. SEVERABILITY. In the event that one or more of the terms, conditions or
covenants contained in this Agreement or any portion of them is
determined to be unenforceable or invalid, such unenforceability or
invalidity shall not affect the enforceability or the validity of the
remaining terms, conditions or covenants and portions thereof, and each
unenforceable or invalid term, condition or covenant or portion thereof
shall be severable from the remainder of this Agreement.
11.8. ATTORNEYS' FEES. In the event of any controversy, claim or dispute
between the parties hereto arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover from
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 6 of 10
<PAGE> 7
the non-prevailing party its reasonable expenses including, but not by
way of limitation, attorneys' fees.
11.9. REMEDIES CUMULATIVE. No remedy or election under this Agreement shall
be deemed exclusive but shall, wherever possible, be cumulative with
all other remedies at law or in equity.
11.10. SURVIVAL. The parties' obligations under this Agreement which by their
nature are intended to continue beyond the expiration or termination of
this Agreement shall survive the expiration or termination of this
Agreement, including Sections 3.1, 3.3, 5.1, 8.1, 8.2, 9.1, 10.1, 10.2
and 11.
11.11. ENTIRE AGREEMENT. This Agreement, together with Exhibits A through C,
constitutes the entire agreement between Vendor and USR and supersedes
all proposals, representations and agreements, oral and written,
between the parties on this subject. This Agreement may not be amended,
except by a writing signed by authorized representatives of each party.
VENDOR COMPANY NAME U.S. ROBOTICS ACCESS CORP.
By: By:
----------------------------- ---------------------------------
Name: DEAN EAKER Name: MICHAEL SEEDMAN
--------------------------- -------------------------------
Title: PRESIDENT/CEO Title: VP & GENERAL MANAGER
PERSONAL COMMUNICATIONS DIV
Date: Date:
--------------------------- -------------------------------
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 7 of 10
<PAGE> 8
EXHIBIT A
PROGRAM
The Program, as defined in Section 1.1 of the CD-ROM Distribution Agreement, is
described as follows:
The company's freely distributed electronic enrollment Program to activate
subscriptions to PC411 for Windows database using PC411 2.0 and or 3.0 client
application.
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 8 of 10
<PAGE> 9
EXHIBIT B
THIRD PARTY RIGHTS
The license grant set forth in section 2.1 of the CD-ROM Distribution Agreement
is subject to the following rights and restrictions of Vendor's licensors and
other third parties:
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 9 of 10
<PAGE> 10
EXHIBIT C
PAYMENTS TO USR
Pursuant to Section 3.1 of the Distribution Agreement, Vendor will pay USR the
following amount(s) for all New Customers. A New Customer is defined as an
individual or entity residing in the United States or Canada (a) who purchases
the product, license, subscription or service offered by Vendor through the
Program(s) distributed in the CD-ROM Deviceswho remains a paying customer for at
least ninety (90) consecutive days after the date of purchase; and (b) in the
case of a license, subscription or service purchased through recurring payments,
who remains a paying customer for at least sixty (60) consecutive days after the
date of renewal of original
1b. BOUNTY (ONE-TIME FEE). Vendor will pay USR a one-time fee of thirty
five percent (35%) of the gross amount due and owing by each New
Customer at the time of purchase.
2b. ANNUITY (COMMISSION). Vendor will pay USR a commission equal to thirty
five percent (_35_%) of the annual payments made by each New Customer
for so long as the New Customer makes annual payments for the license,
subscription or service, up to a maximum of three (_3_) years
3. UPGRADES. Vendor will pay USR a commission equal to thirty five percent
(35_%) of all gross revenues received by Vendor from each New Customer
who purchases or licenses upgrades, enhancements or new versions of the
Program for a period of _thirty six (_36) months from the date that
each such New Customer subscribes to the Program.
exhib 10-1 ** U.S. Robotics CONFIDENTIAL ** Page 10 of 10
<PAGE> 1
EXHIBIT 10.2
AFTERMARKET AND DIRECT DISTRIBUTION AGREEMENT
This Software Direct Marketing Agreement ("Agreement") is entered into effective
the 4th day of September, 1997 (the "Effective Date"), by and between PC411,
Inc., a Delaware corporation with its principal place of business at 9800 La
Cienega Blvd., Suite 411, Inglewood, CA 90301 ("Company"), and The Media Farm,
Inc., a Texas corporation with its principal place of business at 8409 Pickwick
Lane, #252, Dallas, TX. 75225 ("TMF").
RECITALS
WHEREAS, Company and TMF wish to enter into an agreement for which Company's
software products will be merchandised or promoted in electronic catalogs for
direct purchase by end users, and fulfillment may occur via physical or
electronic means.
NOW, THEREFORE, in consideration of the mutual promises herein, and other good
and valuable consideration, the adequacy and sufficiency of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Definitions.
1.1."Catalog" means a catalog in any medium, including without limitation
paper, CD-ROM or electronic form (including Internet or other on-line
access), to be developed by or for Catalog Developers for purposes of
advertising Company's software and the software products of other
software licensors to potential customers. Catalogs may include (a)
materials provided by Company and selected by each Catalog Distributor,
each Catalog Developer, and TMF, (b) Trial Versions of Company's
Products and of the software of other licensors (together with related
advertising materials), as selected by Catalog Distributors, and/or (C)
advertising and other materials relating to the Catalog Distributor and
other parties' products, including without limitation, computer related
hardware.
1.2."Catalog Content" means Product(s), Trial Versions, and advertising
material related to Products provided by Company for inclusion in
Catalogs (if selected by the Catalog Distributors, the Catalog
Developers, and TMF).
1.3."Catalog Developer" means a third party(ies) selected by TMF or the
Catalog Distributor for participation in the Program that is the
subject of this Agreement, who will develop Catalogs pursuant to
agreements with each Catalog Distributor.
1.4."Catalog Distributor" means a manufacturer of or assembler of computer
related hardware or peripherals, an Internet service provider, a print
publisher, an on-line publisher (or such other entities as TMF and
Company may agree upon). For the purpose of this Agreement, Hayes
Microcomputer Products is approved by Company.
1.5."Catalog Distributor Revenue Payments" means the revenue payments that
are due to Catalog Distributor in conjunction with subscriptions
derived by Company as a consequence of the distribution of its product
pursuant to the terms of this Agreement and are set forth in Exhibit B.
1.6."Deliverables" means the materials set forth on Exhibit A.
1.7."Documentation" means Company's standard End User operating
instructions, in either printed or electronic form, for the Products.
1.8."Electronic Software Distribution" or "ESD" means electronic
distribution of content via downloading from an on-line source, or
de-encrypting of encrypted content (including Trial Versions).
1.9."End User" means a person who obtains a Catalog or a Product for his or
her use and not for redistribution or resale.
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1.10."End User License Agreement" means Company's standard end user license
agreement that accompanies a Product.
1.11."Intellectual Property Rights" means copyrights, trade secrets,
current or future patent rights of any kind, rights of publicity,
know-how and other intellectual property rights of any kind owned by or
licensed to an entity, except Trademarks.
1.12."Products" means Company's freely distributed electronic enrollment
program to activate subscription services, including current versions
and any future updates thereto or new releases thereof (unless
otherwise agreed in writing as to a specific Product), and all
available translations thereof.
1.13."Replication Version" means an object code duplication disk with a
fully functional release of a Product.
1.14."Technical Support" means the standard technical support provided by
Company for Products distributed through standard retail channels
(which may include, as examples only, telephone support for problem
resolution for End Users, and support on how to use Products, and
updates or new releases thereof).
1.15."Trademarks" means Company's or its licensor's trademarks and trade
names listed in Exhibit C ("Trademarks"), and any additional trademarks
or trade names utilized by Company on a Product or Catalog Content.
1.16."Trial Version" means any of the following with regard to the Product
(a) a fully functional version which is either compressed and/or
encrypted in some manner to restrict its use, (b) a limited
edition version, (C) a demonstration version.
2. Marketing Program.
2.1.Description of Marketing Program. TMF and Company hereby agree to
participate in a marketing program pursuant to which TMF will obtain
licenses to the software products and advertising materials of multiple
licensors, and sublicense such rights to one or more Catalog
Distributors who elect to participate in the Program, and Catalog
Developers for the development and distribution of Catalogs. Each
Catalog Distributor may determine in its sole discretion whether to
select any of Company's Products to be featured in any of its Catalogs,
and if so, which Product(s) it wishes to include. TMF will provide
certain consulting services to Catalog Distributors with regard to the
selection and updating of content for Catalogs, including Company
Products and titles of other software licensors participating in the
Program, and shall be entitled to exercise its independent judgment
with regard thereto. TMF has contracted with a Catalog Developer to
provide certain services relating to Catalog development, order
processing services, and the payment of revenues by the Catalog
Developers for Product sales to software licensors participating in the
Program, and may contract with other Catalog Developers in the future.
The Catalog Developers may subcontract their obligations, so long as
they remain fully liable therefor, and are not in breach of this
Agreement or their Agreement with TMF. Catalogs will be developed by
each Catalog Developer in conjunction with each Catalog Distributor
participating in the Program, in accordance with each Catalog
Distributor's specifications. End Users will be entitled to purchase
Products in the Catalog from the Catalog Developers as set forth in
Section 3.
2.2.Threatened Claims. Notwithstanding anything else in this Agreement, if
TMF or any Catalog Developer or Catalog Distributor is threatened with,
or if any of the foregoing parties reasonably believes that it may be
threatened with, a claim or lawsuit based on an allegation that the use
or distribution of a Product (including a Trial Version) or the use of
any related Trademark infringes the rights of any third party, any such
party may withdraw the relevant Product(s) and all related materials
(including Trial Versions) from the Program until such claim or lawsuit
is resolved to its satisfaction.
2.3.Responsibilities. Nothing in this Agreement shall be construed to
obligate TMF, a Catalog Developer or a Catalog Distributor to achieve a
specific level of shipments of Catalogs, to achieve a specific level of
sales of Products, or to achieve a specific level of revenues or
revenue payments to Company. TMF is not responsible or liable (i) for
participation by any Catalog Distributor, (ii) for the performance of
the obligations or responsibilities of any Catalog Distributor or any
Catalog Developer under the Program.
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However, TMF will, on behalf of Company, take appropriate actions under
its agreements with Catalog Developer and Catalog Distributor to
promote compliance with the terms and conditions of those agreements.
Company agrees that each Catalog Developer and each Catalog Distributor
shall be deemed a third party beneficiary of this Agreement.
2.4.Catalog Development. TMF will contractually require each Catalog
Developer to develop or have developed Catalogs at no cost to Company,
except that Company shall be responsible for all costs of developing
and providing Catalog Content. Company will cooperate with each Catalog
Developer and each Catalog Distributor in the development of the
Catalogs. The Catalog Distributors shall have the final decision on all
matters regarding the development of Catalogs; provided, however, that
TMF shall contractually require that Company shall have a final right
of review and approval on all materials utilizing a Trademark,
including the placement and presentation thereof, which approval shall
not be unreasonably withheld and which shall be subject to the approval
procedure set forth in Section 6.
3. Sales. Order processing and End User fulfillment services (through ESD or
physical means) for Sales of Products will be as agreed upon by each
Catalog Distributor and each Catalog Developer in their sole discretion.
Company will consign inventory to the Catalog Developers for fulfillment of
sales orders (other than those fulfilled via ESD), unless Company and
Catalog Developer agree to manufacture Company's Products from a
Replication Version.
4. License Grants and Related Matters.
4.1.Catalog Content License. Company grants TMF a non-exclusive, worldwide,
non-transferable (except as set forth in Section 21.5) right and
license under Company's Intellectual Property Rights, with the right to
sublicense through multiple levels of sublicensees, to use, reproduce,
modify solely for the purposes of formatting, publicly and privately
display, publicly and privately perform and distribute the Catalog
Content as part of any Catalogs and on any web site maintained by a
Catalog Distributor. Distribution rights shall include the right to
electronically distribute, transmit and/or broadcast each Catalog, by
any means now known or later developed. Catalog Distributors may select
all or portions of the Catalog Content to utilize (i) as part of a
Catalog, (ii) on a stand-alone basis, or (iii) in combination with
other materials for posting on Catalog Distributors' web sites.
4.2.License Grants for Encryption and Fulfillment. Company grants TMF a
non-exclusive, worldwide, non-transferable (except as set forth in
Section 21.5) right and license under Company's Intellectual Property
Rights, with the right to sublicense through multiple levels of
sublicensees, to:
4.2.1. reproduce Products, only if Company agrees to provide TMF with a
Replication Version pursuant to Section 8.1.1, and (ii) distribute
Products ordered by End Users, solely for purposes of order
fulfillment as described in Section 3.
4.2.2. (a) compress and encrypt the Products in order to create Trial
Versions to be included in a Catalog, unless Company
provides Trial Versions as set forth in Section 8.1.2.
(b) decrypt and/or provide End Users with a mechanism for
decryption of Products included in the Catalog when a sale
is made.
4.3. Catalog Content License. Company grants TMF a non-exclusive,
worldwide, non-transferable (except as set forth in Section 21.5)
right and license under Company's Intellectual Property Rights, with
the right to sublicense through multiple levels of sublicensees, to
4.3.1. distribute the Catalog Content with Products and Catalogs
distributed in accordance with the license grants set forth in
this Agreement;
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4.3.2. reproduce, have reproduced, modify solely for the purpose of
formatting, distribute and publicly display the Catalog Content in
marketing, advertising and promoting the Products, the Catalog and
the Program.
4.4. Marketing Samples License. Company will deliver two (2) physical
copies of each Product in accordance with Exhibit A. Company grants
TMF a non-exclusive, worldwide, non-transferable (except as set forth
in Section 21.5) right and license under Company's Intellectual
Property Rights to distribute, publicly perform and publicly display
such copies of each Product for purposes of marketing, advertising and
promoting the Catalog, the Program, or any manufacturer's computer
products. In addition, at TMF's request, Company will promptly deliver
to TMF a reasonable number of additional copies of Products which TMF
may use for such purposes.
4.5. Related Matters. TMF will not, and will contractually require that the
Catalog Developers and Catalog Distributors will not copy or otherwise
reproduce, reverse engineer, decompile, disassemble or otherwise
modify the Products in whole or in part, except as provided in this
Agreement. With regard to any matter which TMF has made a
representation in this Agreement that it will impose a contractual
requirement on a Catalog Developer or Catalog Distributor, and the
associated rights may be sublicensed by the Catalog Developer and/or
Catalog Distributor to another party, TMF will require that the
Catalog Developer or Catalog Distributor entitled to sublicense such
rights will contractually impose the same requirements on the
sublicensees.
5. Trademark License and Related Matters.
5.1. Products. Company grants TMF a non-exclusive, worldwide,
non-transferable (except as set forth in Section 21.5) right and
license to use the Trademarks, with the right to sublicense through
multiple levels of sublicensees, in and on the Products, the packaging
(if any) for the Products, the Catalog Content, the Catalogs, Trial
Versions, and on materials for marketing, advertising and promoting
the Catalog and the Program.
1.2. Related Matters. TMF acknowledges that it shall not acquire any
rights in the Trademarks as a result of TMF's use thereof, and that all
use of the Trademarks shall inure to the benefit of Company. All rights
in the Trademarks, other than those specifically granted herein, are
retained by Company for its own use and benefit. TMF agrees to use the
appropriate trademark symbol (either "(TM)" or "(R)" as designated by
Company on Exhibit C) whenever a Trademark is first mentioned in any
advertisement, brochure or in any other manner. TMF shall not remove
trademark notices from any Product or Catalog Content. TMF's agreements
with Catalog Distributors and the Catalog Developers will contain
provisions substantially similar to this Section.
5.3. Marketing Collateral. Any marketing material developed by TMF's
sublicensees (other than marketing material using unmodified Catalog
Content) utilizing Trademarks will require Company's prior approval,
which shall not be unreasonably withheld and which shall be subject to
the approval procedure set forth in Section 6.
6. Approvals. If Company fails to notify a Catalog Developer, Catalog
Distributor or any sublicensee submitting a sample item for approval under
Section 5, in writing of its rejection of any sample submitted for approval
within five (5 ) business days of Company's receipt thereof, Company shall
be deemed to have approved the sample submitted. If Company rejects the
item, Company shall set forth the reasons for such rejection in sufficient
written detail to permit correction. The submitting party may resubmit
corrected samples to Company for approval in accordance with this Section.
Company will not unreasonably withhold its approval of any sample.
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7. Ownership and Assignment. Company retains ownership of (i) all Intellectual
Property Rights in the Products, the Catalog Content, and (ii) the
Trademarks. The Catalog Developers or the Catalog Distributors shall
(i) own all right, title and interest in each Catalog and all Intellectual
Property Rights therein (except the Catalog Content and other rights
licensed from third parties), and (ii) retain ownership of all of their
own trademarks and any subsequent trademarks used as a trademark under
which Catalogs are distributed (except those trademarks that are
licensed from third parties). Company hereby transfers and assigns any
interest it has in any and all Catalogs (other than in Catalog Content)
to the Catalog Developers.
8. Deliverables, Acceptance and Catalog Content.
8.1.Deliverables. Company will deliver the Deliverables to the Catalog
Developers on the dates and in conformity with the specifications set
forth in Exhibit A (or as otherwise agreed in writing between Company
and the applicable Catalog Developer with notice thereof to TMF.).
8.1.1. Replication Versions for Products. Only if Company and a Catalog
Developer mutually agree that the Catalog Developer will reproduce
any Products as set forth in Section 3, Company shall, within ten
(10) business days of such agreement, deliver to such Catalog
Developer a Replication Version in the form of a golden master for
each such Product. TMF will contractually require that, if the
Catalog Developer will reproduce any Product, the Catalog
Developer will provide Company with finished samples of the
applicable Products, for Company's approval as set forth in
Section 2.
8.1.2. Trial Versions. Only if agreed by TMF and Company, Company will
provide when and if available, Trial Versions to the Catalog
Developers, in accordance with the schedule set forth on Exhibit A
for inclusion in Catalogs (if selected by Catalog Distributors).
If Company does not provide a Catalog Developer with a Trial
Version of a Product, Catalog Developer may create or have created
Trial Versions of such Product(s), if agreed by Company. Any such
Trial Version shall be submitted to Company for approval in
accordance with Section 6.
9. Performance Warranties. Company warrants to TMF, the Catalog Developers and
the Catalog Distributors that to the best of its knowledge, the physical
media of the Replication Versions provided to each Catalog Developer shall
be free from defects in workmanship and materials. Company further warrants
to TMF, the Catalog Developers and the Catalog Distributors that the
Replication Versions will not contain any known programming errors that
materially affect the performance of the Products, as represented by
Company. Company further warrants and represents to TMF, the Catalog
Developers and the Catalog Distributors that the Product will perform in
accordance with the Documentation for a period of one (1) year after the
End User purchases the Product; provided, however, that if this warranty is
less than the standard warranty provided by Company to End Users for
Product, such standard warranty shall be deemed to have been granted to
TMF, the Catalog Developers and the Catalog Distributors as to such
Products. Company shall provide Company's standard End User warranty to End
Users of the Products. Company agrees that TMF, the Catalog Developers and
the Catalog Distributors shall be deemed third party beneficiaries of this
Section 9.
10. Revenue Participation Payments and Related Matters.
10.1.Revenue from Sales. Company shall pay Catalog Distributor the Catalog
Distributor Revenue Payments asset forth on Exhibit B.
10.2.Quarterly Payments and Reports. Company will, within thirty (30) days
after the end of each quarter, prepare a quarterly accounting and pay
to each Catalog Distributor the Catalog Distributor Revenue Payments on
paid subscribers pursuant to the distribution of Products during the
preceding quarter in accordance with Section 10.1. Company will include
with such payments a report setting forth the number of subscriptions
sold as a result of the distribution of Products pursuant to this
Agreement during the
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preceding calendar quarter. Company will submit payments and reports
for those calendar quarters following termination of this Agreement in
which paid subscriptions occur.
10.3.Records. Company will, and each Catalog Distributor will, maintain
records relating to the distribution of Products and Catalogs
respectively. Company will: (i) retain such records and (ii) make the
records available for inspection in connection with an audit as
provided in Section 10.5 for a period of one (1) year after the
termination of TMF's relationship with the Catalog Developers or
Catalog Distributor to which such records relate.
10.4.Audit. Company will allow an independent certified public accountant
chosen by TMF or Catalog Distributor and reasonably acceptable to the
Company to audit and analyze appropriate accounting records of the
audited party to ensure compliance with Section 10. Any such audit
shall be limited to no more often than once every twelve (12) months,
within thirty (30) days of the audited party's receipt of TMF or
Catalog Distributor's written request to audit, during normal business
hours, upon reasonable notice and at a mutually agreed upon time. The
independent certified public accountant shall maintain in confidence
all information reviewed during the audit except information directly
related to the amount of payments owed to Catalog Distributor and the
number of Catalogs including Products that have been distributed.
Audits shall not interfere unreasonably with the audited party's
business activities. TMF will contractually require that, in the event
the audit reveals that due to Company's intentional or willful acts,
the Catalog Distributor Revenue Payments were less than ninety percent
(90%) of what should have been paid during the applicable period, the
party being audited shall immediately reimburse TMF or Catalog
Distributor for the reasonable costs of the audit, as well as any
amounts due as result of such audit.
11. Technical Support by Company. Company shall provide Technical Support for
the Products to End Users as part of the agreed pricing at no additional
charge to TMF, the Catalog Developers or the Catalog Distributors, but
reserves the right to charge End Users for such support if that is or
becomes Company's standard practice with regard to a particular Product.
Company represents that it now has, and shall maintain for the term of this
Agreement, the capability to provide Technical Support for its Products.
12. Representations. TMF shall make and TMF will contractually require that the
Catalog Developers and Catalog Distributors shall make no representations
concerning a Product except for those in the Documentation for that
Product, or those that have been previously published by Company or
approved by Company prior to being published by TMF, a Catalog Developer or
a Catalog Distributor, which approval shall not be unreasonably delayed or
withheld. In the event Company fails to respond to a request for such
approval for more than ten (10) business days following Company's receipt
of a request for such approval, Company shall be deemed to have approved
the representations.
13. Customer Data. Any End User data TMF or the Catalog Developers acquires
from the purchase by End Users of Products ("Customer Data") will be owned
by the Catalog Distributor. Any End User information (i) obtained by
Company from End Users who have completed Company's product registration
process, or (ii) obtained by Company from performing Technical Support,
will be the property of Company.
14. Term; Termination; Obligations on Termination.
14.1. Term. The Initial Term of this Agreement is one year from the date
last signed below. This Agreement shall automatically renew at the end
of the Initial Term for an additional one (1) year term unless either
party elects to terminate the relationship by providing written notice
to the other party at least thirty (30) days prior to the end of the
then-current term.
14.2. Termination for Material Breach. In the event of a material breach of
this Agreement, the non-breaching party shall have, upon thirty (30)
days written notice specifying the nature of the breach and provided
that the breaching party has not commenced to sure such alleged breach
within ten (10) business days nor cured such breach within such thirty
(30) day period, the right to terminate this Agreement;
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provided, however, that if the material breach relates to only one
Product, the Agreement may be terminated only as to such Product, and
this Agreement may continue as to any remaining Products.
14.3. Termination for Business Reasons. Company acknowledges and agrees
that the success of the Program depends on the cooperation of each
software licensor participant, and upon the appeal of each software
licensor's products. Should Company fail to reasonably cooperate with
TMF, the Catalog Developers, or the Catalog Distributors in fulfilling
its obligations under this Agreement, or should TMF reasonably
determine that a Product is not sufficiently appealing to potential
customers, TMF may, upon thirty (30) days prior written notice,
terminate this Agreement; provided, however, that if the business
reasons relate to only one Product, the Agreement may be terminated
only as to such Product, and this Agreement may continue as to any
remaining Product.
14.4. Rights and Obligations on Termination. Upon any termination or
expiration of this Agreement, (i) all licenses and sublicenses granted
pursuant to this Agreement shall continue (a) for the purposes of
manufacturing and distributing Products for a period of six (6) months,
(b) for customer support purposes, and (ii) TMF will immediately
discontinue and TMF will contractually require the Catalog Developers
and the Catalog Distributors to immediately discontinue the use of the
Trademarks, except to exercise their rights under subsection (i). End
Users will be permitted continued use of any Product and Catalog
Content so long as they are not in breach of their End User License
Agreement.
15. Confidential Information. During the term of this Agreement, both parties
may be exposed to certain information of the other party concerning the
marketing program that is the subject of this Agreement and other
information which is the confidential and proprietary information of the
disclosing party and not generally known to the public (herein
"Confidential Information"). Both parties will either mark their materials
as Confidential Information or notify the other party, in writing, that
written or oral information is Confidential Information. Both parties agree
that during and after the term of this Agreement, they will not use or
disclose to any third party any of the other party's Confidential
Information for purposes other than set forth in this Agreement without the
prior written consent of the other party. Both parties hereby consent to
the disclosure of their Confidential Information to the employees of the
other party, to the Catalog Developers and to the Catalog Distributor as is
reasonably necessary in order to allow each party to perform under this
Agreement and to obtain the benefits hereof, subject to obtaining written
confidentiality agreements from said employees, Catalog Developer or
Catalog Distributor that are at least as protective as this Agreement This
section shall not apply to Confidential Information which: (a) becomes
generally known to the public by publication or by any means other than a
breach of duty on the party of the recipient hereunder; (b) is information
previously known to the recipient;(C) is information independently
developed by or for the recipient; or (d) is information released by the
owning party without restriction or released pursuant to a judicial or
governmental decree.
16. Representations and Warranties.
16.1. Company Representations and Warranties. Company represents and
warrants that:
16.1.1. Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. .
16.1.2. Company has all requisite corporate power and full legal right
to enter into this Agreement and to perform all of its agreements
and obligations under this Agreement in accordance with its terms.
This Agreement has been, and as of the Effective Date will be,
duly authorized, executed, and delivered by Company and
constitutes the legal, valid, and binding obligation of Company.
16.1.3. Neither the Products, the Catalog Content, nor the Trademarks
infringe any copyrights, trade secrets, trademarks or other
intellectual property or proprietary, privacy or publicity rights
of any third party, or, to the best of Company's knowledge, any
patent, and Company has not received any notice or claim of any
such alleged infringement.
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16.1.4. Company has good and marketable title to, or has the right to
license, all of the copyrights, patents, trade secrets, trademarks
and other intellectual property rights associated with the
Products, the Catalog Content, and the Trademarks, and warrants
that it has the right to grant all of the licenses set forth
herein.
16.1.5. None of the Intellectual Property Rights or Trademarks
associated with the Products, the Catalog Content, or the Catalog
Content are subject to any restrictions or to any liens,
mortgages, pledges, security interests, encumbrances, or any
rights of others of any kind or nature whatsoever that adversely
affect or could affect TMF's rights under this Agreement.
16.2. TMF Representations and Warranties. TMF represents and
warrants that:
16.2.1. TMF is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas.
16.2.2. TMF has all requisite corporate power and full legal right to
enter into this Agreement and to perform all of its agreements and
obligations under this Agreement in accordance with its terms.
This Agreement has been, and as of the Effective Date will be,
duly authorized, executed, and delivered by TMF and, constitutes
the legal, valid, and binding obligation of TMF.
16.2.3. TMF will contractually provide in TMF's agreement with the
Catalog Developers that Company shall be an express third party
beneficiary of the contractual provisions and obligations required
to be included in TMF's agreement with the Catalog Developers in
Sections 2.3, 4,5, 5.2, 8.1.1, 8.1.2, 9, 12, 21 and including
Exhibit B.
17. Limitation of Warranty. THE WARRANTIES SET FORTH IN SECTION 16 ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT
OF THIRD PARTY RIGHTS AND FITNESS FOR A PARTICULAR PURPOSE.
18. INDEMNIFICATION. COMPANY SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS
TMF, its officers, directors, employees, agents, and sublicensees, (including
any Catalog Developer and any Catalog Distributor and their officers, directors,
employees, agents, subcontractors and sublicensees of the foregoing
("Indemnified Parties"), against any claims, actions, demands, losses, and
liabilities (including reasonable attorneys' fees) alleging that (i) a Product
has failed to perform in accordance with the warranty provided in Section 9,
(ii) a Product has failed to perform in accordance with Company's standard end
user operating instructions (whether in printed or electronic form), or (ii) the
exercise of any right granted pursuant to this Agreement infringes or otherwise
violates any copyright, trademark, patent, trade secret, or other intellectual
property right or other proprietary right, including rights of privacy or
publicity, of any third party in any jurisdiction.
18.1.Procedure. The Indemnified Party agrees to (i) give prompt written notice
to Company of any such claim, action or demand, (ii) allow Company to
control the defense and related settlement negotiations and (iii) assist in
the defense so long as Company reimburses the Indemnified Party for its
reasonable expenses and employee time. The Indemnified Party will invoice
Company for such expenses and time on a calendar quarter basis and Company
shall pay such reimbursements within thirty (30) days after the invoice
from the Indemnified Party. The law firm used by Company to defend the
Indemnified Party shall be subject to the Indemnified Party's approval
which approval shall not be unreasonably withheld.. If Company does not or
cannot fulfill the indemnity obligation set forth above, TMF may defend
such suit itself with counsel of its choosing and may deduct the cost of
any such defense and any damage or settlement award from amounts due to
Company. Any settlement shall be subject to TMF's prior written approval
unless Company has obtained unconditional or reasonable release of all of
the Indemnified Parties named in the proceeding with respect to such
claims.
8
<PAGE> 9
18.2. Additional Remedies. Without limiting Company's other obligations under
this Agreement, Company may, at its expense, but without obligation to do
so, procure for TMF, the Catalog Developers and the Catalog Distributors
the right to continue to market, use, and have others use, in accordance
with the terms of this Agreement, any allegedly infringing Product(s), or
may replace or modify Product(s) to make them non-infringing. If Company
elects to replace or modify the Product(s), such replacement shall be
subject to all provisions, including acceptance provisions, of this
Agreement. Company agrees to reimburse TMF, the Catalog Developers and
the Catalog Distributors for any expenses and reasonable costs incurred
in connection with replacing an infringing version of Product(s) with a
non-infringing version of Product(s).
19. LIMITATION OF LIABILITY.
EXCEPT AS PROVIDED IN SECTION 18, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR ANY EXEMPLARY, INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL,
OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER
LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING NEGLIGENCE OR STRICT PRODUCT
LIABILITY) OR OTHERWISE, AND IRRESPECTIVE OF WHETHER SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE.
20. NO LIABILITY RE: ENCRYPTION. COMPANY ACKNOWLEDGES AND AGREES THAT TMF,
CATALOG DEVELOPERS, AND CATALOG DISTRIBUTORS MAKES NO REPRESENTATION OR WARRANTY
WITH REGARD TO THE ENCRYPTION SOFTWARE THAT MAY BE USED TO CREATE TRIAL VERSIONS
OR TO PROVIDE ESD FULFILLMENT FOR PURCHASED TITLES. Company covenants not to sue
TMF, Catalog Developer or any Catalog Distributor for any matter arising out of
or relating to the encryption software used to create Trial Versions or to
electronically fulfill orders for Products, and does and will release TMF,
Catalog Developer and each Catalog Distributor from any and all claims relating
thereto.
21. General.
21.1.Export Controls. TMF acknowledges that the laws and regulations of the
United States restrict the export and re-export of commodities and
technical data of United States origin, possibly including Products. TMF
agrees that it will not and TMF will contractually require the Catalog
Developers and the Catalog Distributors to agree that it will not export or
re-export any Product in any form, without the appropriate United States
and foreign governmental licenses.
21.2.Severability. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as possible
the same economic effect as the original provision and the remainder of
this Agreement will remain in full force.
21.3.No Waiver. No term or provision hereof will be considered waived by either
party, and no breach excused by either party, unless such waiver or consent
is in writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either
party, whether express or implied, will constitute a consent to, waiver of,
or excuse of any other, different, or subsequent breach by either party.
21.4.Relationship of the Parties. The parties are independent contractors under
this Agreement. No agency, partnership, joint venture or other joint
relationship is created hereby and, except as otherwise expressly provided
in this Agreement, neither party nor such party's agents have any authority
to bind the other party or to incur any obligations on its behalf.
21.5.Assignment. Either party may assign this Agreement to any person or entity
to whom it transfers all or substantially all of its rights (i) in
Company's case, to the Products, or (ii) in TMF's case, to those rights
granted
9
<PAGE> 10
under this Agreement, as part of a corporate reorganization, merger
or sale of all or substantially all of its assets or sale of its
distribution business. Otherwise, neither party may assign, voluntarily, by
operation of law, or otherwise, any rights or delegate any duties under
this Agreement (other than the right to receive payments) without the other
party's prior written consent, which shall not be unreasonably withheld.
This Agreement will bind and inure to the benefit of the parties and their
respective successors and permitted assigns.
21.6.Force Majeure. Neither party shall be responsible for any failure to
perform due to circumstances beyond its reasonable control. In the event of
such delay, any applicable period of time for action by said party shall be
extended for a period equal to amount such delay; provided, however, that
if the delay lasts more than sixty (60) days, either party may terminate
the Agreement upon written notice to the other party.
21.7.Notices. Notices under this Agreement shall be sufficient only if mailed
by certified or registered mail, return receipt requested, sent by
commercial overnight courier with written verification of receipt,
personally delivered to the parties, or by facsimile, the receipt of which
is confirmed by return facsimile or other written notice of receipt, to the
party to be notified at the address set forth below, or at such other place
of which the other party has been notified in accordance with the
provisions of this Section. Notice by mail will be treated as having been
received upon the earlier of actual receipt or five (5) days after posting.
Notices shall be addressed as follows:
<TABLE>
<CAPTION>
<S> <C>
For TMF: For Company:
The Media Farm, Inc. PC411, Inc.
ATTN: Steve Patti Attn: Dean Eaker
8409 Pickwick Lane, #252 9800 La Cienega Blvd. Suite 411
Dallas, TX 75225 Los Angeles, CA 90301
With copies to: With copies to:
Michael D. Scott, Esq. Neil P. Ritter, Esq.
Scott Technology Law Offices 400 Park avenue, 15th Floor
4 Arbolado Court New York, New York 10022
Manhattan Beach, CA 90266 (212)223-1700 (o) or (203) 531-4613 (fax)
</TABLE>
Either party may change the above address for purposes of this Section by giving
the other party written notice of the new address in the manner set forth above.
21.8.Choice of Law. This Agreement shall be construed and its performance
enforced in accordance with the laws of the United States and the State of
California, excluding its choice of law provisions. The parties agree that
the United Nations Convention on Contracts for the International Sale of
Goods is specifically excluded from application to this Agreement. The
parties consent and waive any objection to the non-exclusive personal
jurisdiction of the courts of California.
21.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
21.10. Survival. In addition to any provisions of this Agreement providing
for the continuation of rights or obligations after the termination of this
Agreement, the following Sections shall survive any termination of this
Agreement: 1, 7, 9, 10, 11, 14.1, 15, 16, 17, 18, 19, 20 and 21.
21.11. Mediation. Prior to either party commencing any litigation against the
other, the parties shall engage in at least one eight-hour day of
non-binding mediation under the auspices of a member or member group of the
National Mediation Association. The parties may, if they wish, select a
neutral mediator to participate in the mediation. One or more management
representatives of each party with knowledge of the claims and defenses and
with authority to dismiss, settle or otherwise resolve the claims shall
participate in the mediation. Such mediation shall take place within
thirty(30) days of a party's request therefor.
10
<PAGE> 11
21.12. Entire Agreement; Modifications. This Agreement, and the Exhibits
attached hereto, constitutes the entire understanding between the parties,
and supersedes all proposals, oral or written, and all prior or
contemporaneous communications between the parties relating to the subject
matter of this Agreement. This
Agreement may only be modified by a writing executed by both parties.
IN WITNESS WHEREOF, the authorized representatives of the parties have
executed this Agreement.
TMF: COMPANY:
THE MEDIA FARM, INC. PC411, INC.
- ------------------------------ -------------------------------------
Authorized Signature Authorized Signature
- ------------------------------- --------------------------------------
Name and Title Name and Title: Dean Eaker, President
11
<PAGE> 12
EXHIBIT A
DELIVERABLES, SPECIFICATIONS AND SCHEDULE
<TABLE>
<CAPTION>
Deliverables Delivery Date Delivery Location
<S> <C> <C>
* Electronic version of sell Ten (10) days after the Effective Instant Access, International
sheets for Products Date Attn: Greg Rice
The Technology Park
* Electronic file containing Colindeep Lane
Company's logo (e.g., a bitmap London NW9 6U
file) (or as otherwise instructed by TMF.)
</TABLE>
<TABLE>
<CAPTION>
Marketing Materials
<S> <C> <C>
* Listing of application size for Ten (10) days after the Effective Attn: Steve Patti
each Product (Mb) Date The Media Farm, Inc.
* Listing of key technologies 8409 Pickwick Lane #252
supported by each Product (e.g. Dallas Texas 75225
MMX, DVD, MPEG, 3D)
* Listing of operating system
compatibility for each Product
(e.g. DOS, Win 95 native, Win95
compatible)
2.DELIVERABLES OTHER THAN
CATALOG CONTENT.
Marketing Samples Ten (10 days after the Effective Attn: Steve Patti
Two (2) physical copies of each Date The Media Farm, Inc.
Product 8409 Pickwick Lane #252
Dallas Texas 75225
</TABLE>
12
<PAGE> 13
EXHIBIT B
REVENUE PARTICIPATION PAYMENTS AND TERRITORIES
Revenue payments Territories Languages
20% NA, LA, EMEA, APAC English
Calculated from the ninetieth (90th) day after a subscriber's initial
enrollment.
KEY
Territories
* NA - North America
* LA - Latin and South America
* EMEA - Europe, Middle East, and Africa
* APAC - Asia, Australia, New Zealand, Japan
13
<PAGE> 14
EXHIBIT C
TRADEMARKS
TRADEMARK(S) FEDERALLY REGISTERED? OWNER OF THE TRADEMARK(S)
YES/NO
PC411 YES PC411, INC.
14
<PAGE> 1
EXHIBIT 10.3
PC411 DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (the "Agreement"), dated as of July, 1997,
between PC411, Inc. ("PC411"), 9800 La Cienega Blvd. Ste. 411, Inglewood, CA
90301 and Silicom Multimedia Systems, Inc. (the "Distributor")located at 3335
Kifer Road, Santa Clara, CA 95051
WHEREAS, PC411(R) operates an on-line directory assistance service to
personal computer users (the "Service"), which is accessible through the use of
its PC411 for Windows software (the "Software");
WHEREAS, the Distributor manufactures and sells computer hardware and
software products such as personal computers ("PCs"), CD-ROM disks ("CRDs") and
other storage mediums ("OSMs", and together with PCs and CRDs sometimes
hereinafter referred to as the "Products"); and
WHEREAS, PC411 desires to grant to the Distributor a license to
distribute the Software with its Products, subject to the terms and conditions
of this Agreement, so as to make the Service available to end-users thereof (the
"Purchasers").
NOW, THEREFORE, the parties hereto agree as follows:
1. LICENSE
1.1 GRANT
Subject to the terms and conditions of this Agreement, PC411 hereby
grants to the Distributor a royalty-free, non-exclusive and non-transferable
license to distribute by Preloading (as defined herein) and Bundling (as defined
herein) the Software with its Products.
"Preloading" shall mean installing the Software on the hard drives of
PCs with the serial port, modem type, and modem speed of the PCs correctly
configured in the Software so that the Software can be used by a Purchaser
without any additional software or without the need to load any software from a
3.5" diskette, a CRD or OSM removable from the computer.
"Bundling" shall mean copying the Software onto either CRDs, 3.5"
diskettes or OSMs with the standard documentation or other software that
accompanies the Distributor's Products.
<PAGE> 2
1.2 LIMITATIONS
The Software constitutes licensed, copyrighted material and as such the
Distributor specifically agrees not to modify or alter, copy, reproduce or
publish in whole or in part, sell, rent, sublicense, distribute, or otherwise
transfer or commercially exploit or in any way generate income from the Software
except as specifically contemplated by this Agreement. Title and all ownership
in the Software shall at all times remain with PC411. All copies of the Software
made by the Distributor shall contain the following copyright notice:
"Copyright(C) 1996 PC411, Inc." The Distributor agrees not to export the
Software outside the United States, except as authorized and permitted by the
laws and regulations of the United States. PC411 hereby grants to the
Distributor the right to use the trademark and logo used by PC411 to identify
the Software in connection with the Distributor's marketing of the Software.
2. TERM AND TERMINATION
This Agreement is effective for a term of two (2) years from the date
hereof (the "Initial Term") and thereafter shall be extended for three (3) month
periods (the "Renewal Periods") unless terminated at the end of the Initial Term
or any Renewal Period by either party upon ninety (90) days' prior written
notice given to the other party (the Initial Term and any Renewal Periods shall
be referred to as the "Distribution Term"). Upon termination, the Distributor
will return all copies of the Software in its possession and cease and desist
from Preloading and/or Bundling the Software. Either party may terminate this
Agreement due to breach by the other party upon thirty (30) days' written
notice.
3. DUTIES OF PC411
3.1 DELIVERY OF SOFTWARE
During the Distribution Term, PC411 shall:
(1) provide the Distributor with three (3) "gold" copies of the
Software (and any upgrades thereto as soon as any such upgrades are released) on
3.5" diskettes;
(2) pre-configure the Software for the correct serial port, modem type
and modem speed based upon the Distributor's specifications;
(3) assist the Distributor in testing the Software on the [Products];
and
(4) provide the Distributor with descriptions, art work and text and
other material relating to the Service and the Software which may be copied by
the Distributor for use in the Distributor's promotional, marketing and
descriptive material.
Page 2
<PAGE> 3
The Software provided to the Distributor will be identifiable with one
or more serial numbers unique to the Distributor. Notwithstanding anything to
the contrary contained in this Agreement, the Distributor will be responsible
for any and all costs it incurs in connection with Preloading and/or Bundling
the Software with its Products.
3.2 SOFTWARE SUPPORT
During the Distribution Term and for a period of six (6) months after
termination of this Agreement, PC411 shall:
(1) if requested by Distributor, provide Distributor with a one-day
training session on the features, installation, use, marketing and support of
the Software (all travel and incidental costs for the training session shall be
paid for by the Distributor);
(2) provide Distributor's customers with PC411's normal complete
service support of the Software;
(3) support Distributor by maintaining a telephone number and
technicians to receive calls; and
(4) support Distributor by receiving bug, error and defect reports from
Distributor and promptly fixing or providing workarounds to such bugs, errors
and defects.
3.3 RECORDS
During the Distribution Term, PC411 shall maintain complete and
accurate records in accordance with generally accepted methods of accounting for
all transactions which are the subject of this Agreement. At Distributor's
expense and during regular business hours, Distributor or an accounting
organization retained by Distributor may examine such records for purposes of
auditing the amounts due under this Agreement. If Distributor determines that an
additional payment is due, Distributor will issue an invoice for such additional
amount with supporting documentation. If a dispute arises over such additional
amount, both parties agree to work in good faith toward a mutually agreeable
resolution of the dispute. Distributor may perform such audit once per calendar
year and will give PC411 15 days notice of its intention to perform an audit.
All information gained by Distributor or its authorized representative from such
audit shall be deemed confidential and used solely for the purpose of verifying
the amounts due under this Agreement.
Page 3
<PAGE> 4
4. DUTIES OF THE DISTRIBUTOR
4.1 DISTRIBUTION REQUIREMENT
During the Initial Term of this Agreement, the Distributor shall
distribute by Preloading and/or Bundling an aggregate of 20,000 copies (or such
other amount as the parties may mutually agree upon) of the Software with its
Products, and during any Renewal Period, as many copies of the Software as the
Distributor deems appropriate.
4.2 PROMOTION
During the Distribution Term, the Distributor will promote the Software
and the Service in its promotional and advertising material and will send copies
of such material to PC411 prior to publication for review by PC411 so that PC411
may suggest corrections or clarifying language.
5. PAYMENT
5.1 DISTRIBUTION FEE
During the Distribution Term, PC411 will pay to the Distributor a
distribution fee equal to 10% (the "Distribution Fee") of the $29.95
registration fee (or such other registration fee which may be applicable during
the Distribution Term) (the "Registration Fee") paid by each Purchaser that is
deemed to be a Registered Customer. A Purchaser is deemed to be a Registered
Customer if it (i) has registered with the Service, (ii) has paid the
Registration Fee and (iii) has remained registered with the Service for 90 days
without cancellation.
5.2 PAYMENT PERIOD
PC411 will commence the payment of the Distribution Fees at such time
as there are 1,000 Registered Customers. PC411 will pay the Distribution Fee
within 30 days of the end of each calendar quarter. Each quarterly payment will
include a written report calculating the number of Registered Customers and the
amounts due under this Agreement. Payment by check and supporting documentation
will be mailed to:
- -------------------------------------------------------
6. CONFIDENTIALITY
The terms of this Agreement and any non-public, proprietary information
marked as confidential and disclosed by one party to the other constitute
confidential information and neither party will disclose or disseminate any
confidential information without the permission of the other party.
Notwithstanding the foregoing, each party may disclose the existence of this
Agreement and descriptions of each party's products
Page 4
<PAGE> 5
or services in its marketing and advertising efforts except that PC411 is not
granted any right to use the Distributor's trademark or logo without the prior
written consent of the Distributor, which consent shall not be unreasonably
withheld.
7. LIMITATION ON LIABILITY
PC411 warrants the media on which the Products is provided to the
Distributor to be free from defects in materials and workmanship. PC411's entire
liability and the Distributor's exclusive remedy with respect to such materials
or workmanship defect will be the replacement of the media.
PC411 does not warrant that the Service or the Product will meet the
requirements of the Distributor or the Distributor's customers or that it will
operate in an error-free manner. Except as provided herein, PC411 makes no
warranty or representation, either express or implied, with respect to the
Service or the Product, including its quality, performance, merchantability, or
fitness for a particular purpose. In no event will either PC411 or the
Distributor be liable for indirect, special, incidental, punitive, exemplary, or
consequential damages arising out of the use or inability to use the Service or
the Software or the Products, whether based upon contract, negligence, strict
liability, or otherwise, even if advised of the possibility of such damages.
Specifically, neither PC411 nor the Distributor are responsible to each other
for any costs, including but not limited to those incurred as the result of lost
profits or revenue, loss of the use of the Software, loss of data, the cost of
recovering such Software or data, the cost of any substitute program, or for
other similar costs.
8. WARRANTIES
PC411 represents and warrants to the Distributor that:
(a) PC411 is the owner of the Software, or has all sufficient rights to
grant the license granted in this Agreement, and that the Software does not
infringe any patent, copyright, trademark, or other intellectual property or
similar rights;
(b) PC411 has no obligation or restriction that would interfere or be
inconsistent with or present a conflict of interest concerning its performance
under this Agreement;
(c) PC411 and the Software comply with all United States laws,
statutes, ordinances, administrative orders, rule or regulations that apply to
the Product; and
(d) the Software does not contain any encrypted code which is
prohibited by U.S. law for distribution outside the U.S.
Page 5
<PAGE> 6
9. INDEMNIFICATION
PC411 agrees to indemnify and hold harmless Distributor from and
against any and all damages incurred by Distributor which result from claims by
any third party based on any of the following:
(a) infringement by the Software of any patent, copyright, trademark,
trade name or other intellectual property or similar rights;
(b) unlawful or unfair trade practices or competition attributable to
PC411; and
(c) breach of any of PC411's warranties set forth in Section 8 above.
10. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of California, as applied to contracts made and performed
within the State of California, without regard to principles of conflicts of
law. The parties hereto agree to submit to the non-exclusive jurisdiction of the
courts of the State of California in any action or proceeding arising out of or
relating to this Agreement.
11. COMPLETE AGREEMENT
This Agreement constitutes the entire understanding between the parties
with respect to the Software and the Service and supersedes all prior or
contemporaneous understandings or agreements, written or oral, regarding such
subject matter. No amendment to or modification of the Agreement will be binding
unless in writing and signed by an officer of PC411 and the Distributor.
12. NOTICES
All notices and communications under this Agreement shall be in writing
and shall be deemed to have been duly given or made as of the date of receipt
and shall be delivered or mailed by registered or certified mail (postage
prepaid, return receipt requested), sent by overnight courier or sent by
telecopy, to the parties at the following
Page 6
<PAGE> 7
addresses or telecopy numbers (or at such other address or telecopy number for a
party as shall be specified by like notice).
Address of the parties:
PC411, Inc. Silicom Multimedia Systems, Inc.
9800 S. La Cienega Blvd., Suite 411 3335 Kifer Road
Inglewood, CA 90301-4440 Santa Clara, CA 95051
Attention: Dean R. Eaker Attention:
Telecopy No. ___________________
IN WITNESS THEREOF, the parties hereto agree to the foregoing as of the
date first written above.
PC411, INC. Silicom Multimedia Systems, Inc.
By: ________________________ By: ___________________________
Name: Dean R. Eaker Name: _______________________
Title: President
Title: _______________________
Page 7
<PAGE> 1
EXHIBIT 10.4
DATA LICENSE AGREEMENT
This Data License Agreement ("Agreement") is dated as of the 1st day of
September, 1997 ("Effective Date") by and between Acxiom Corporation ("Acxiom"),
a Delaware corporation, 301 Industrial Boulevard, Conway, Arkansas 72033-2000
and PC411, Inc. ("Licensee"), a Delaware corporation having its principle place
of business at 9800 La Cienega Blvd., Suite 411, Inglewood, CA 90301-4440.
WHEREAS, Acxiom procures, compiles and maintains a proprietary
computerized database composed, INTER alia, of names, addresses and telephone
numbers derived from white page telephone directories and other sources of
information more particularly described in Exhibit A attached hereto and made a
part hereof ("Data"); and
WHEREAS, Licensee desires to license the Data upon the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the premises set forth above and
the mutual promises, agreements and conditions stated herein, the parties agree
as follows:
1. LICENSE. Acxiom hereby grants and Licensee hereby accepts
a non-transferable, non-exclusive license to use the Data in accordance with the
terms and conditions hereof.
2. TERM. The initial term ("Initial Term") of the Agreement
shall be three (3) years and shall commence on the Effective Date.
3. RENEWAL/TERMINATION. (a) The Agreement shall be automatically
renewed at the end of the Initial Term for subsequent terms (the Initial Term
and any subsequent terms are collectively referred to herein as the "Term") of
one (1) year each and shall continue in effect thereafter until either party
shall give the other ninety (90) days prior written notice of termination.
Notwithstanding the foregoing, either party may terminate the Agreement
immediately in the event the other party is in default hereunder and fails to
cure such default within forty-five (45) days of written notice from the other
party specifying the nature of such default.
(b) Upon termination of this Agreement, the following shall occur:
(i) Acxiom shall cease to provide the Data to Licensee;
(ii) Licensee shall pay Acxiom for all sums, if any, due
hereunder within thirty (30) days of the effective
date of termination; and
(iii) Unless otherwise provided herein, Licensee shall
promptly return to Acxiom all tapes, copies, partial
copies and any other documentation, materials, or
other information evidencing the Data, together with
a written certification that all of the Data has been
returned or, in the alternative, destroyed.
(c) In the event that legislation, governmental regulations or judicial
rulings require that Acxiom cease providing the Data, Acxiom may terminate this
Agreement upon the effective date of such legislation, regulations or rulings.
<PAGE> 2
4. DELIVERY OF THE DATA. Acxiom shall deliver the Data to Licensee on
the type of media, in the format, on the delivery date and containing those data
elements specified in Exhibit A. In addition, Acxiom shall deliver to Licensee
periodic updates ("Updates") to the Data in accordance with the schedule set
forth on Exhibit A.
5. RESTRICTIONS UPON USE OF DATA. Licensee hereby agrees that it will
hold and use the Data strictly in accordance with the following conditions,
unless otherwise agreed in writing:
(a) Except as otherwise provided in Exhibit A, the Data shall be
received, held and possessed by Licensee only at the address set forth above,
and at no other location.
(b) Licensee shall not use the Data as part of any CD-ROM product or
resell the Data or technology in any way except as provided in this Agreement.
(c) The Data is licensed only to Licensee, and neither Licensee nor its
customers may distribute the Data, or any subset thereof, other than as provided
in Exhibit A.
(d) Licensee will not knowingly allow its customers to use the Data as
part of any interactive on-line, CD-ROM, or other derivative product. Licensee
will establish reasonable precautions to prevent such unauthorized use;
provided, however, Licensee shall not be in breach of this Agreement if it
promptly notifies Acxiom in writing any unauthorized use of which it becomes
aware and reasonably cooperates with Acxiom to prevent any further unauthorized
use.
6. PERMITTED USES OF DATA. The Data shall only be used by Licensee in
the ways set forth in Exhibit A, unless otherwise agreed in writing.
7. LICENSE FEES. Licensee agrees to pay license fees ("License Fees")
to Acxiom for the use of the Data in accordance with the terms set forth in
Exhibit A.
8. RIGHT TO AUDIT. Licensee agrees that at all times it shall maintain
current, accurate and complete books and records relating to its usage of the
Data and any payments due Acxiom derived therefrom. Licensee agrees that Acxiom,
or any designee of Acxiom, shall have the right at any time following the
Effective Date of this Agreement, but no more than once per six-month period, to
examine, inspect, audit, review and copy or make extracts from all such books,
records and any source documents used in the preparation thereof during normal
business hours upon written notice to Licensee at least ten (10) business days
prior to the commencement of any such examination, inspection, review or audit.
Such audit shall be strictly limited to those books and records which
specifically relate to information pertinent to the use of the Data.
9. TITLE TO DATA. The parties expressly acknowledge and agree that
title to the Data shall at all
times remain exclusively in Acxiom.
10. CONFIDENTIALITY. The parties agree that the terms and conditions of
this Agreement, including all Exhibits hereto, and any policies, business
practices, plans and methods not in the public domain which may be known or
disclosed by either party to the other as a result of this Agreement will be
held in confidence and not disclosed to any third party for any reason.
11. INJUNCTIVE RELIEF. Licensee hereby acknowledges that the Data has
been developed and created at great time and expense and that Acxiom has a
proprietary interest therein. Licensee further acknowledges that Acxiom may
suffer great harm if Licensee misappropriates the Data. Accordingly,
2
<PAGE> 3
Licensee agrees to take reasonable precautions to prevent the mis-use of the
Data. Licensee's obligations under this Section shall survive any termination of
this Agreement. Acxiom may seek injunctive or other equitable relief against the
breach or threatened breach of this Section in addition to any other legal
remedies which may be available.
12. WARRANTIES. (a) Acxiom warrants that the Data will be as current,
accurate and complete as possible using the source data, compilation and data
processing methods normally employed by Acxiom in the ordinary course of its
business; provided, however, there is no warranty that the Data is error-free.
Acxiom further warrants that the compilation of and transmittal of the Data to
Licensee is not in violation of any law, statute or other governmental
regulation; that the Data does not infringe upon any copyright, trade secret or
other proprietary right of any third party; and that Acxiom has full power and
authority to enter into this Agreement.
(b) Licensee represents and warrants to Acxiom that it has full power
and authority to enter into this Agreement; that the execution, delivery and
performance by Licensee of this Agreement will not violate any law, statute or
other governmental regulation; and that Licensee's use of the Data will comply
with all privacy, data protection, telemarketing and any other laws, statutes
and governmental regulations applicable to such use of the Data.
(c) EXCEPT AS STATED IN SUBSECTIONS (a) AND (b) ABOVE, THERE ARE NO
OTHER WARRANTIES, EXPRESS OR IMPLIED HEREUNDER, INCLUDING, BUT NOT LIMITED TO,
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
13. REMEDIES. Acxiom's sole obligation and Licensee's sole remedy under
the limited warranty set forth in Section 12(a) above is strictly and
exclusively limited to the prompt correction of any errors in the Data which are
made known to Acxiom by written notice from Licensee describing such errors in
sufficient detail; provided, however, Licensee acknowledges that some errors in
the Data may be the result of errors contained in the source data, in which case
Acxiom shall not be obligated to correct such errors. Notwithstanding the
foregoing, Acxiom reserves the right to satisfy its warranty obligations in full
by refunding a pro rata portion of the fee paid by Licensee for the particular
data which is in error.
14. THIRD-PARTY INDEMNITY. (a) Licensee agrees to indemnify and hold
Acxiom harmless from and against all direct costs, losses, damages, liabilities
and expenses, including reasonable attorneys' fees, attributable to any claim
made by a third party arising out of Licensee's use of the Data and/or its
performance of its obligations under this Agreement, provided that (i) Acxiom
gives Licensee prompt written notice of any such claim of which Acxiom has
knowledge; and (ii) Licensee is given full control over the defense of such
claim and receives the full cooperation of Acxiom in the defense thereof.
(b) Acxiom agrees to indemnify and hold Licensee harmless Acxiom shall
indemnify and hold Licensee harmless from and against all direct costs, losses,
damages, liabilities and expenses, including reasonable attorneys' fees,
attributable to any claim made by a third party that the use of the Data
infringes upon any proprietary right of such third party, provided that (1)
Licensee gives Acxiom prompt written notice of any such claim of which Licensee
has knowledge; and (2) Acxiom is given full control over the defense of such
claim and receives the full cooperation of Licensee in the defense thereof.
Acxiom shall have no obligation under this Section to indemnify or defend
Licensee against a lawsuit or claim of infringement to the extent any such
lawsuit or claim results from (1) other material,
3
<PAGE> 4
including information, data or software prepared by Licensee, which is combined
with or incorporated into the Data; or (2) any substantial changes or
alterations to the Data made by Licensee.
15. LIMITATION OF LIABILITY. ACCEPT AS OTHERWISE SET FORTH HEREIN,
NEITHER LICENSEE NOR ACXIOM SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, LOST BUSINESS
AND LOST PROFITS, WHETHER BASED IN CONTRACT, TORT OR ANY OTHER THEORY. Any cause
of action arising from or in connection with this Agreement shall be asserted
within one (1) year of the date upon which such cause of action accrued, or the
date upon which the complaining party should have reasonably discovered the
existence of such cause of action, whichever is later.
16. PUBLICITY. All media releases, public announcements and any form of
advertising or sales promotion by Licensee or its agents relating to this
Agreement or the use of the Data shall be subject to prior written approval of
Acxiom, which consent shall not be unreasonably withheld or delayed.
17. APPLICABLE LAW. The Agreement shall be governed and construed in
accordance with the laws of the State of Arkansas, and shall benefit and be
binding upon the parties hereto and their respective successors and assigns.
18. ENTIRE AGREEMENT. The Agreement, together with the Exhibit(s)
attached hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any and all written or oral
prior agreements and understandings between the parties, including that certain
License Agreement dated August 31, 1996 between PC411, Inc. and Pro CD, Inc.,
Acxiom's wholly-owned subsidiary ("Prior Agreement").
19. MODIFICATION/SEVERANCE/WAIVER. The Agreement, and any of the
Exhibit(s) attached hereto, may only be amended by a separate writing signed by
both parties. If any one or more of the provisions of the Agreement shall for
any reason be held to be invalid, illegal or unenforceable, the same shall not
affect any of the other portions of the Agreement. Failure or delay by either
party in exercising any right hereunder shall not operate as a waiver of such
right.
20. ASSIGNMENT. Licensee may not assign its rights and obligations
hereunder without the prior written consent of Acxiom.
21. FORCE MAJEURE. Neither party shall be liable for any losses arising
out of the delay or interruption of its performance of obligations under the
Agreement due to any act of God, act of governmental authority, act of public
enemy, war, riot, flood, civil commotion, insurrection, severe weather
conditions, or any other cause beyond the reasonable control of the party
delayed.
22. NOTICES. Any notice or other communication required hereunder shall
be made in writing and addressed to the parties at their addresses set forth
above.
[SIGNATURE PAGE TO FOLLOW]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the
Effective Date set forth above.
ACXIOM CORPORATION PC411, INC.
BY: BY:
----------------------- ---------------------------
(SIGNATURE) (SIGNATURE)
----------------------- ---------------------------
(PRINT OR TYPE NAME) (PRINT OR TYPE NAME)
----------------------- ---------------------------
(TITLE) (TITLE)
5
<PAGE> 6
EXHIBIT A
to the Data License Agreement
between Acxiom Corporation and
Licensee
A. DESCRIPTION OF DATA/DATA ELEMENTS:
SelectBase - The complete set of US and Canadian Business and
Residential listings maintained by Acxiom. Approximately 16,000,000 US
Business and 2,000,000 Canadian Business Listings; Data includes
Business name, address, city, state, province, zip code, postal code,
phone number, SIC code, latitude and longitude, date of last update and
unique record identifier. Approximately 85,000,000 US Residential ,
11,000,000 Canadian Residential listings; Data includes; address, city,
state, province, zip code, postal code, phone number, SIC code,
latitude and longitude, date of last update and unique record
identifier. Also includes the ATT 1-800 number listings.
B. TYPE OF MEDIA, FORMAT AND DATE OF DELIVERY:
MEDIA: Currently, the media on which the Data will be
provided will be Acxiom's SelectPhone for Networks
compact discs and/or magnetic tape. It is both
parties' understanding that Licensee desires to
receive Data electronically as soon as Acxiom can
provide this type of media delivery service.
FORMAT: Not applicable at this time. The format used in
delivery of the Data will be addressed as appropriate
and when applicable.
DELIVERY DATE: Within five (5) business days of execution of
the Agreement.
C. UPDATE DELIVERY SCHEDULE:
Monthly
D. PERMITTED USES OF DATA:
The Data will be provided to create a database of directory information
and distribute such information to end users over telephone lines or
the Internet. The Licensee is allowed to host the Data on mirror sites
to allow for the support of seven day, twenty-four hour coverage.
Licensee shall not use the Data for any CD-ROM product or any other
product or service.
Any other uses of the Data not specifically permitted by this Agreement
must be mutually agreed upon in writing by both parties.
E. LICENSE FEES:
For the first twelve months of the Initial Term, Licensee agrees to pay
Acxiom twelve (12%) percent of revenues generated from the sale or
display of Acxiom's Data as described in Section D above. The minimum
amount to be paid by Licensee to Acxiom shall be $75,000 due and
payable upon execution of this Agreement. Acxiom's percentage of
royalties due during the first
6
<PAGE> 7
twelve months of the Initial Term shall be credited against the amount
prepaid by Licensee for such period.
Licensee agrees to pay to Acxiom Fifteen Thousand ($15,000) Dollars as
final payment of fees owed to Acxiom by Licensee pursuant to the Prior
Agreement. Such payment is due and payable by Licensee no later than
March, 15 1998.
For the second twelve months of the Initial Term, Licensee agrees to
pay Acxiom twelve (12%) percent of revenues generated from the sale or
display of Acxiom's Data as described in Section D above. The minimum
amount to be paid by Licensee to Acxiom shall be $125,000 due and
payable upon the second anniversary of the Effective Date of this
Agreement. Acxiom's percentage of royalties due during the second
twelve months of the Initial Term shall be credited against the amount
prepaid by Licensee for such period. The parties agree that the minimum
amount and terms of payment for the second twelve months of the Initial
Term described above will be reviewed during the ninth month of the
Initial Term of the Agreement and any subsequent changes to such
minimum amounts and terms of payment will be mutually agreed upon in
writing by the parties.
For the third twelve months of the Initial Term of the Agreement,
Licensee agrees to pay Acxiom twelve (12%) percent of revenues
generated from the sale or display of Acxiom's Data as described in
Section D above. The minimum amount to be paid by Licensee to Acxiom
shall be $175,000 due and payable upon the third anniversary of the
Effective Date of this Agreement. Acxiom's percentage of royalties due
during the third twelve months of the Initial Term shall be credited
against the amount prepaid by Licensee for such period. The parties
agree that the minimum amount and terms of payment for the third twelve
months of the Initial Term described above will be reviewed during the
ninth month of the Initial Term of the Agreement and any subsequent
changes to such minimum amounts and terms of payment will be mutually
agreed upon in writing by the parties.
F. ADDITIONAL TERMS AND CONDITIONS:
When possible, Licensee will display an Acxiom Logo as demonstrated at
WWW.DATABYACXIOM.COM/TEMPLATE.HTM with hypertext reference to
http://www. DATABYACXIOM.com page or another site as determined by
Acxiom on the initial search and results page where the data is
displayed. When not possible the Customer will display a hypertext link
to this site on HTML pages that display the Data.
Licensee will provide Acxiom a quarterly report detailing the business
revenues. The format of the report shall be mutually agreed upon by
both parties prior to submission of such report.
Licensee agrees to include the following statement regarding copyright
and unauthorized use wherever Data provided by Acxiom is located. Said
statement shall be prominently displayed on any and all Web sites:
"This information is proprietary to Acxiom Corporation and is protected
under U.S. copyright law and international treaty provisions. This
information is licensed for your personal or professional use and may
not be resold or provided to others. You may not distribute, sell,
rent, sublicense, or lease such information, in whole or in part to any
third party; and you will not make such Acxiom information available in
whole or in part to any other user in any networked or time-sharing
environment, or transfer the information in whole or in part to any
computer other than the PC used to access this information."
7
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 228,258
<SECURITIES> 4,748,862
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<OTHER-SE> 5,037,445
<TOTAL-LIABILITY-AND-EQUITY> 5,258,242
<SALES> 0
<TOTAL-REVENUES> 112,660
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