SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 1999
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
_____________________ to _____________________
Commission file number 000-22611
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MyTurn.com, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 11-3344575
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
960 Atlantic Avenue, Alameda, California 94501
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(Address of Principal Executive Offices) (Zip Code)
(510) 814-4288
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock ($.01 par value per share)
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(Title of Class)
333 North First Street, Jacksonville, Florida 32250
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(Former Address)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
As of February 29, 2000, the aggregate market value of the shares held by
non-affiliates was approximately $268,843,031.
The issuer's revenues for the fiscal year ended December 31, 1999 were $233,660.
APPLICABLE ONLY TO CORPORATE REGISTRANTS.
The number of shares outstanding of each of the issuer's classes of common
equity as of February 29, 2000 is 8,575,408 shares of Common Stock, $.01 par
value per share.
Transitional Small Business Disclosure Format (check one): Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
None
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INDEX Page No.
Forward Looking Statements ...................................................1
PART I
Item 1. Description of Business..........................................2
Item 2. Description of Property..........................................23
Item 3. Legal Proceedings................................................24
Item 4. Submission of Matters to a Vote of Security Holders..............24
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.........26
Item 6. Management's Discussion and Analysis or Plan of Operation........28
Item 7. Financial Statements.............................................37
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................37
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................38
Item 10. Executive Compensation...........................................45
Item 11. Security Ownership of Certain Beneficial Owners and Management...53
Item 12. Certain Relationships and Related Transactions...................56
PART IV
Item 13. Exhibits and Reports on Form 8-K.................................57
Signatures
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FORWARD LOOKING STATEMENTS
Certain information contained in this Annual Report are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and is subject to the safe harbor created by that act. MyTurn.com
cautions readers that certain important factors may affect MyTurn.com's actual
results and could cause such results to differ materially from any
forward-looking statements which may be deemed to have been made in this Annual
Report or which are otherwise made by or on behalf of MyTurn.com.
For this purpose, any statements contained in this Annual Report that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate,"
"plan" or "continue" or the negative variations thereof or comparable
terminology are intended to identify forward-looking statements. Factors which
may affect MyTurn.com's results include, but are not limited to, the risks and
uncertainties associated with the Internet and Internet-related technology and
products, new technology developments, developments and regulation in the
telecommunications industry, the competitive environment within the Internet and
telecommunications industries, the ability to enter into agreements with mass
merchandise retailers and develop other sales outlets for its products, the
ability of MyTurn.com to partner with a hardware manufacturer to produce the
GlobalPC personal computing device, the ability of MyTurn.com to secure
agreements with content providers for its Internet portal, the ability of
MyTurn.com to finalize a network services agreement with a national Internet
Service Provider (ISP) to provide network access, the ability of MyTurn.com to
secure licenses for all software applications it plans to embed, bundle or
otherwise include in its products, the ability of MyTurn.com to expand its
operations, the level of costs incurred in connection with MyTurn.com's planned
expansion efforts, unascertainable risks related to possible acquisitions, the
competence required and experience of management, the risk of loss of management
and personnel, economic conditions, and the ability of MyTurn.com to raise
additional capital which will be required within the next six months to continue
to develop and sustain its business at current levels and to implement
MyTurn.com's business plan and generate revenue.
MyTurn.com is also subject to other risks detailed herein or detailed from
time to time in MyTurn.com's Securities and Exchange Commission ("SEC") filings.
Readers are also urged to carefully review and consider the various disclosures
made by MyTurn.com which attempt to advise interested parties of the factors
which affect MyTurn.com's business, including, without limitation, the
disclosures made under the captions "Business - Certain Risks Relating to the
Implementation of MyTurn.com's Business Plan" in Item 1, and "Management's
Discussion and Analysis or Plan of Operation" in Item 6, of this Annual Report.
All references to a fiscal year are to MyTurn.com's fiscal year which ends
December 31.
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PART I
Item 1. Description of Business
Introduction
MyTurn.com is a provider of Internet related computing products and
services. Through its wholly owned operating subsidiary, MyTurn.com is planning
to introduce a low cost, easy-to- use personal computer system, known as the
GlobalPC(TM), targeting the first-time user market. The GlobalPC is based on the
time-tested, robust GEOS(R) operating system which MyTurn.com licenses from
Geoworks Corporation. MyTurn.com has made or acquired significant improvements
to this operating system. The fully integrated software application suite
includes word processing, spreadsheet, desktop publishing, presentation,
database, a web browser, e-mail, games and chat capability, all comparable in
functionality to the most popular Microsoft Windows(R)-based programs. The
GlobalPC will be sold primarily through mass merchant retailers. MyTurn.com has
scheduled an initial five-market rollout to commence during the summer of 2000.
Based on the current pricing model for the GlobalPC, consumers will have
access to a fully functional, non-subsidized computer system for approximately
$299.95. The system is compatible with television sets as the display medium;
however, computer monitors will provide superior resolution. System printers,
monitors and additional software, all branded with the Global PC name through
third party license arrangements, may be made available as profit- generating
accessory offerings. Also, an unlimited anticipated $19.95 month-to-month
Internet access will be "hard-coded" during the manufacturing process to
maintain a "captive" online audience. MyTurn.com expects to garner significant
additional sources of revenue from an array of e-commerce oriented partnerships.
MyTurn.com is prepared to manufacture systems exclusively under the
GlobalPC brand name during the initial product launch in order to secure
valuable retail shelf space while simultaneously establishing the product as a
viable non-Windows computer system.
Prior to the planned retail launch, a limited number of roughly 1,000 units
may be sold utilizing the Internet or other direct marketing methods. The
purpose of this interim project is to ensure that both Internet connectivity and
MyTurn.com's customer care operations are operating at maximum effectiveness,
and to glean "real world" experience regarding basic system integrity and
functionality. Discerning attention and timely reaction to early consumer
feedback will help to maintain market momentum.
MyTurn.com further expects to migrate towards a pure third-party hardware
reference design and operating/application software-licensing model as early as
possible to capitalize on well-established consumer electronics and personal
computer brand names.
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History and Recent Developments
MyTurn.com, Inc. was incorporated under the name of Coastal Computer
Systems, Inc. in New York on March 31, 1983 and was reincorporated in Delaware
under the name Compu- DAWN, Inc. on October 18, 1996. The name was changed to
MyTurn.com, Inc. on January 21, 2000.
In October 1996, MyTurn.com undertook a pre-initial public offering bridge
financing selling 77 units, each consisting of a $10,000 Promissory Note (the
"Bridge Note") and Common Share Purchase Warrant (the "Bridge Warrant") to
acquire 5,600 Common Shares of MyTurn.com (the "Bridge Financing Transaction").
The Bridge Warrants are exercisable at a price of $3.00 per share. The Bridge
Notes were repaid upon the closing of MyTurn.com's initial public offering (the
"IPO") in June 1997, as discussed below. The terms of the Bridge Warrants
provide for an exercise period which expires in June 2002. As of February 29,
2000 Bridge Warrants to purchase 61,600 Common Shares remained unexercised.
In June 1997, MyTurn.com completed an IPO of 1,380,000 Common Shares at a
price of $5.00 per share, for aggregate net proceeds, after expenses, of
$5,625,874.
In June 1998, MyTurn.com undertook a private placement issuing to JNC
Strategic Fund Ltd. ("Strategic") and JNC Opportunity Fund Ltd. for an aggregate
purchase price of $5,000,000:
o units, consisting of 327,103 Common Shares (the "Issued Shares") and
five-year warrants to acquire 32,710 Common Shares, and
o units, consisting of 3,250 Series A Preferred Shares and five-year
warrants to acquire 57,497 Common Shares.
In September 1998, MyTurn.com issued to Strategic 1,750 Series B Preferred
Shares in exchange for the Issued Shares.
The warrants to acquire an aggregate of 90,207 Common Shares (the "JNC
Warrants") are exercisable at a price of $8.025 per share, subject to adjustment
as provided for in the Warrants.
The JNC Warrants were convertible or exercisable by any holder only to the
extent that the number of Common Shares purchased together with the number of
Common Shares owned by such holder and its affiliates would not exceed 4.99% of
the then outstanding Common Shares as determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. Such restriction was
subject to waiver by the respective security holder upon not less than 61 days
notice. See Item 6 - "Management's Discussion and Analysis or Plan of Operation
- - Liquidity and Capital Resources."
As of February 29, 2000, all of the Series A Preferred Shares and all of
the Series B Preferred Shares had been converted into 650,000 and 327,103 Common
Shares, respectively, and all warrants to acquire 90,207 Common Shares have been
exercised.
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On January 8, 1999, MyTurn.com's wholly owned subsidiary e.TV Commerce,
Inc. ("e.TV")acquired certain assets of LocalNet Communications, Inc. The
LocalNet assets were acquired pursuant to a peaceful surrender to satisfy
$750,000 in principal of a $1,800,000 secured loan previously made by MyTurn.com
to LocalNet (the "Loan"). The Loan was secured by all of the assets of LocalNet.
From 1983 to July 1999 MyTurn.com was engaged in the business of designing,
developing, licensing, installing and servicing computer software products and
systems predominantly for public safety and law enforcement agencies (the
"Public Safety Software Business").
Also, from January 8, 1999 to July 1999 MyTurn.com, through e.TV, operated
in the Internet, e-commerce and telecommunications business (the "e.TV
Business"), marketing products and services primarily using a person to person
sales approach with the services of commissioned sales representatives in a
relationship-based, referral marketing organization.
In July 1999 MyTurn.com sold primarily all of the assets which made up its
Public Safety Software Business division to an unrelated third party.
Also in June 1999, MyTurn.com decided it was in its and its stockholders'
best interest to cease the e.TV Business and instead acquire Global PC, Inc.'s
assets and focus on its current business. The GlobalPC asset acquisition closed
on December 22, 1999. See Item 6 - "Management's Discussion and Analysis or Plan
of Operation - Introduction" for a description of the GlobalPC asset
acquisition.
In October and November 1999, MyTurn.com undertook two private placements
through its placement agent, Hornblower & Weeks. In the first offering
MyTurn.com sold 740,000 Common Shares for $1,017,500 in gross proceeds. In the
second offering MyTurn.com sold Units for $1,350,000 in gross proceeds. The
units consisted of an aggregate of 675,000 Common Shares and Warrants to
purchase an aggregate of 337,500 Common Shares (the "H&W" Warrants"). The H&W
Warrants are exercisable for five years at $3.00 per share. Hornblower & Weeks
received a commission of 10% and a non-accountable allowance of 3% in each
offering. Additionally, financial consultants were issued 99,050 Common Shares
as a finder's fee, valued at 7% of the gross amount raised in the private
offerings. MyTurn.com also issued 400,000 Common Shares to Hornblower & Weeks
under a related investment banking agreement. See Item 6 - "Management'
Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources".
Industry Background
Mass America is constantly being bombarded with Internet mania. It is
nearly impossible to listen to the radio, watch television, or read a newspaper
without encountering numerous references to "something.com". Many parents view
the Internet in the same way previous generations viewed encyclopedias. Without
home access to the Internet, children are academically disadvantaged. Television
and radio programs are continually directing their audiences to an associated
website, making the Internet a powerful entertainment vehicle and information
resource. And, an explosion in online shopping is making the Internet the
largest superstore on the planet.
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Currently less than half of American homes have Internet access. This
"disconnect" between the benefits of the Internet and home access directly
relates to home personal computer, or PC, penetration. The PC is the automobile
of the information highway and roughly half of US homes own a PC. In a large
portion of homes without PCs, Internet penetration is nearly non- existent.
MyTurn.com believes that Internet appliances such as WebTV have yet to achieve
any significant penetration. MyTurn.com's mission is to bring Internet access to
this large, untapped market by addressing the primary impediment: PC ownership.
See Item 1 - "Business - Competition."
MyTurn.com has extensively researched non-Internet homes. The majority of
these homes have huge pent up demand for both the Internet and personal
computers. The PC "have- nots"cite three primary reasons for lack of ownership:
o ease-of-use - PCs are perceived as too hard to use,
o distribution - they are not sold where mass America shops, and
o price - they cost too much.
MyTurn.com is addressing all of these issues:
o Ease-of-Use. Through extensive new user interface development and
continuous testing with novice and new users, MyTurn.com has developed
a personal computer so simple to use it will expand the market to the
segment of the population who are either intimidated by PC's and
computers in general or feel they have no use for a PC. MyTurn.com
provides one button access to the Internet.
o Distribution. Shopping for a PC is an intimidating experience.
Traditional PCs are sold through specialty stores like CompUSA and
Computer City where novice consumers are intimidated by technical
jargon. MyTurn.com expects to distribute its GlobalPC where America
shops - through mass retailers such as Wal-Mart, Kmart, Target and
Sears. Currently, MyTurn.com has indications of interest from certain
of these mass retailers but does not have any agreements with them.
Although MyTurn.com expects agreements or purchase orders to develop,
it cannot assure that this will happen. The product will have little
or no technical jargon associated with its packaging, marketing and
positioning. See Item 1 "Business-Marketing" and "Business-Sales and
Distribution Strategy."
o Price. As a vertically integrated hardware, operating system and
applications provider and Internet service provider (ISP), MyTurn.com
is in a unique position to offer a fully functional Internet PC at the
price anticipated to be $299.95.
Internet penetration amongst the larger universe of non-PC owners is
insignificant. Alternative access devices such as WebTV and other Internet
appliances have simply not caught on in this large untapped market. The lack of
success of these Internet appliances is largely due to their "newness" and a
lack of understanding of the user interface needed for these devices. However,
there is also a real and justifiable perception that a PC is needed to get full
use of the Internet. For example, for a student, local productivity software
that allows a topic to be
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researched on the web and turned into a report is an essential usage model not
supported by a web appliance such as WebTV. Independent research supports that
consumers want a "total solution", i.e. a fully functional PC. There is a large
pent-up demand for PCs, however price, ease-of-use, and an intimidating retail
environment have slowed penetration into this large, untapped market.
The computer "have-nots" are a different category of consumer than those
catered to by the current PC industry. They are more representative of "Middle
America" than most current PC users; most do not use computers at work. Their
average income is $27,000 a year, versus the current PC household average income
of $47,000 a year. Some analysts also predict that more than half of first time
PC buyers over the next 3 years will be women.
MyTurn.com's research and focus groups have shown that while a majority of
non- computer owners feel left out by not owning a computer or having Internet
access, their own lack of experience is the major barrier to purchase.
Perceived costs are high and many fear that much more than the advertised
price must be spent to make a computer useful. Intimidating visits to computer
center stores such as CompUSA, Fry's, and Computer City further compound
concerns. Sales personnel often lack patience or empathy for computer neophytes.
Worse yet, low cost PCs often carry minimal margins and commissioned sales
people often attempt to up-sell consumers with a blizzard of technical jargon
and fears of obsolescence.
While this phenomenon is well understood, the computer industry seems to be
locked on a treadmill where a baffling array of technical jargon is used to
promote and sell PCs. While this is very effective in selling to the existing
customer looking to upgrade, it intimidates and delays the first time consumer.
Another important factor for non-computer owners is ease-of-use. Since
computers are notorious for having all kinds of external cables and wires,
consumers fear they will not be able to properly set up or use a PC. And, once
set up, system errors and crashes create a new set of fears. With the Internet
becoming one of the primary motivators for PC purchase, consumers are also
unclear on how they will "get on" to the Internet once they purchase a PC. How
do they select an ISP? Often several Internet access solutions are bundled on a
PC, which one should they choose?
MyTurn.com believes that the market opportunity exists for affordable,
easy-to-use personal computer with bundled Internet access. We plan to price our
GlobalPC at $299.95 and sell it through mass retailers. We believe MyTurn.com
will open up personal computing and the Internet to millions of Middle American
homes.
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Products and Services
The GlobalPC
MyTurn.com's first product is the GlobalPC. The GlobalPC is an integrated
personal computer and comes pre-loaded with an Internet browser, email, an
office productivity suite including word processor, spreadsheet, database, and
graphics program as well as several other programs, including games and the
exclusive MyTurn.com online access software.
The initial GlobalPC product offering incorporates an Intel compatible
microprocessor (AMD or National/Cyrix); floppy drive; hard disk; a built-in 56K
industry standard V90 modem and connectors for other peripherals including a PC
keyboard and mouse included with the unit. New video processing technology
allows the GlobalPC to drive a television with reasonable display quality. A
standard super video graphics array, or SVGA, monitor is supported and will be
offered separately to consumers who want a crisper, higher resolution screen.
In addition to MyTurn.com's own product offering, we are currently in the
process of developing formal alliances with major computer peripheral
manufacturers such as Canon and ProView to supply compatible printers and
monitors respectively. These companies will provide a co-branded product in
order to complete the hardware product offering. These relationships are
currently in negotiation and no agreements exist yet. We cannot assure that
formal agreements will be reached with any of these companies.
MyTurn.com licenses the GEOS operating system and suite of productivity
applications from Geoworks Corporation. MyTurn.com has also recruited an
experienced team of software engineers to further enhance GEOS and integrate the
software into the hardware design. The development team has focused on four
major areas: ease-of-use, the online service and Internet access, performance,
and Windows/Office software compatibility. See Item 1 "Business - Intellectual
Property" and Item 1 "Business - Employees and Consultants."
Ease-of-use is the central focus for MyTurn.com. This is achieved through a
proprietary user interface, or UI, technology that allows a GlobalPC to take on
the personality of the user from a simple task-oriented interface for novices to
an advanced industry-standard interface (similar to Microsoft's Windows). The
software is designed to allow the user to learn gradually with applications
scaling up as users improve their computer skills. The entry-level user
interface -- The GlobalPC Desktop -- provides intuitive access to the system.
Only one application runs at a time in this mode. Users can access the Internet,
word processor, or other applications with one button click. Our research
demonstrates that new users find the practice of double clicking oddly
repetitive. In the GlobalPC Desktop mode, applications automatically run a
simplified interface with fewer features and options. Within applications,
wizards and templates help the user quickly accomplish tasks without
frustration. For consumers with prior computer experience or novice users who
develop proficiency, the GlobalPC offers an advanced interface that is very
similar to Microsoft's Windows. This interface also allows parents to feel
comfortable that children are learning the computer literacy skills necessary
for the high-tech workplace.
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The bundled office productivity suite includes a word processor,
spreadsheet, database, graphics program and personal finance. Each application
offers four levels of usability, enabling the user to grow their skills at their
own pace. For example, the word processor scales from a simple text editor to a
full desktop publishing application. Additionally, each application has file
import and export support for Microsoft Office. This will allow users to share
files with other PC owners via e-mail attachment or floppy disk. Users can take
files from work or school where they may be using a PC running Windows or other
software, make changes on their GlobalPC, save and take them back.
MyTurn.com Online Services
MyTurn.com's focus is developing and growing its online business. As a
result of selling GlobalPC hardware which is "hard coded" to achieve Internet
access through MyTurn's portal, MyTurn.com expects to acquire subscribers for
MyTurn.com's portal services. Specialized web browser and e-mail software
coupled with account management and access software provide the client side of
the MyTurn.com online offering.
MyTurn.com's portal is powered by Inktomi Corp.'s suite of portal services
pursuant to a portal services agreement. Inktomi's suite of portal services are
designed to give users the most comprehensive data on the Internet. Inktomi's
suite of portal services is highly integrated, delivering comprehensive and
highly accurate Internet results, an intuitive topic-based Web guide, and access
to hundreds of merchants and millions of products, with product and price
comparisons and expert recommendations. We believe that Inktomi's search,
directory and commerce technologies will enable our subscribers to easily and
quickly locate the sites on the World Wide Web which meet their search and
shopping needs.
Users will automatically be taken through a Internet service registration
process when they first click on the MyTurn.com online button. The system will
dial an 800 number and download local access numbers transparently. Sign up and
log in details will be handled automatically for the user. While access to
MyTurn.com's portal will be through standard Internet protocols, MyTurn.com has
created a number of innovative features that improve the entire Internet
experience, especially for first time users.
MyTurn.com's focus on ease-of-use will continue with the online service,
allowing users to quickly take advantage of the Internet's resources such as
news, weather and sports through MyTurn.com's contractual affiliation with CNN.
For example, web searching has always been a trial and error process. MyTurn.com
is developing an enhanced front end to traditional search engines to allow users
to find and quickly access useful websites. Additionally, a general tutorial on
the Internet will help users find the most useful sites on topics such as
health, family, finance and job opportunities to name a few.
Through this site, a sense of MyTurn.com community will be created. This
will be accomplished through sections such as to "how to get maximum use from
the capabilities of your MyTurn.com system", tutorials on accessing the Internet
and other topics of interest to our customer segment. We expect to sponsor
discussion groups with other MyTurn.com users along
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with scheduled chat rooms that will focus on a particular topic or theme.
Additionally, there will be access to technical support with FAQ's, software
updates, fixes and solutions.
MyTurn.com's Web-Site is hosted by Digex, Inc., which provides MyTurn.com's
Web- Site with rapid scalability, security, system backup and monitoring and
support 24 hours a day, seven days a week.
Local Point of Presence Strategy
While MyTurn.com's Portal will appear as the online service and Internet
access provider to the consumer, MyTurn.com will partner with an established
network infrastructure company to provide local points of presence. MyTurn.com
is currently conducting preliminary negotiations with appropriate partners.
MyTurn.com cannot assure it will enter into agreements with any of these
companies, or if it does it cannot assure it will be on terms as favorable as
MyTurn.com would like. MyTurn.com expects to receive a percentage of the monthly
Internet access service fee charged to subscribers.
E-Commerce
MyTurn.com's portal provides an excellent opportunity for MyTurn.com to
sell software and services to its customers. Because the GlobalPC system will
run DOS software, MyTurn.com is currently negotiating with major vendors of DOS
game and entertainment software to license and repackage its titles for sale as
MyTurn.com approved titles to MyTurn.com customers. While some of these titles
are outdated in the mainstream personal computer market, they will, in all
likelihood, be new to the MyTurn.com customer base. These software titles will
be sold on- line to the MyTurn.com customer base through MyTurn.com's portal.
MyTurn.com has not entered into agreements with any of these vendors and it
cannot assume that it will in the future. Additionally, MyTurn.com will sell
GlobalPC peripheral products such as monitors, printers and carrying cases,
among other things. These efforts will allow MyTurn.com to sell a wider variety
of products than would be possible through its retail distribution channel.
MyTurn.com will provide a royalty payment to our retailers for those products
sold via the e-commerce site and traced to customers that purchased their
hardware from specific retail partners.
MyTurn.com also expects to derive revenue by providing links to other
Internet e- commerce sites for products such as books, CDs and financial
services, among other things.
Internet Advertising
MyTurn.com believes that consumers will be attracted to the MyTurn.com
Portal in the next several years. MyTurn.com further believes this will provide
an excellent opportunity to derive advertising revenue from the site. While
MyTurn.com anticipates this could represent a significant revenue stream, it
cannot predict if this will ultimately prove to be successful.
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Hot Buttons
In order to maximize the value of keyboard "real estate," MyTurn.com plans
to effectively "rent" space in the form of "Hot Category Buttons" that will
point end users directly to a small group of sites of category-dominant
e-commerce merchants. The buttons have been assigned to four categories:
o personal finance,
o health and information,
o shopping, and
o fun.
These category buttons will each open a page that contains 4 to 5 links to
dominant e- commerce partners. Assignment of these spots on our hot category
page will be leased for a finite period of time, most likely in annual
increments, so as to provide simple access directly to their online sites with
minimum keystrokes. The category keys dedicated to this valuable source of
revenue will be located where the "function keys" (F5 - F8) are normally
situated on a standard keyboard.
Certain brand leaders in their respective market niches have been
identified as prospective licensees, and introductory dialogue has been
initiated with some of them. MyTurn.com cannot, however, assure agreements with
these companies or others will be reached. Furthermore if any of these
agreements are reached, MyTurn.com cannot predict if they will prove to be
successful. In addition to the annual Hot Button "rental" charges, it is
anticipated that a percentage of all e-commerce transactions initiated through
MyTurn.com systems will be paid to MyTurn.com in the form of standard online
sales commissions.
Marketing
Positioning
MyTurn.com plans to market the GlobalPC personal computer through:
o television advertising,
o print advertising,
o online advertising and web-site marketing,
o a broad-based public relations and promotions program,
o direct marketing,
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o consumer products packaging,
o extensive retail merchandising, and
o channel marketing.
Additionally, MyTurn.com has retained two consumer marketing companies and
an advertising agency to develop strategic and targeted marketing and publicity
programs for the initial launch and national rollout in the U.S.: Smith Public
Relations, Inc. of Los Angeles and Planned Marketing Solutions, Inc. of Portland
and the Los Angeles advertising firm of Suissa Miller Advertising.
In addition to traditional advertising, MyTurn.com will develop "guerilla"
marketing campaigns that communicate the GlobalPC's ease-of-use through a series
of compelling non- traditional activities. Wild postings, outdoor and other
consumer marketing techniques will be employed to make awareness of the GlobalPC
and MyTurn.com universal.
MyTurn.com plans to develop an integrated and persuasive communication
strategy. Our goal is to establish the GlobalPC brand as distinct and unique
from current PC offerings and to clearly articulate its revolutionary attributes
of price, ease-of-use, and distribution through mass merchandisers.
Public Relations
Public relations will play a key role in MyTurn.com achieving its sales
goals. To meet these goals, MyTurn.com is preparing a highly targeted and
intrusive public relations program in order to communicate the cost/value of the
product, which will drive purchases as well as support the development of the
GlobalPC brand. In addition, the aim of the public relations plan is to fuel the
fire of media interest in "the revolution of low cost computing for the mass
market" that the GlobalPC personal computer launch will ignite. Public relations
efforts will be focused on the following targets:
o families in our demographic and psychographic customer profile,
o decision makers within school districts,
o designated retailers,
o technology influencers and analysts,
o consumer and friends and family "advice givers",
o seniors,
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o retirees, and
o key consumer and trade media.
The public relations program will address both the significant promise of
the broad consumer market for PCs and the pent up desire of a large number of
computer-less people wanting to access the Internet, send and receive e-mails,
run computer applications and help educate their children. The key "media
message points" differentiating MyTurn.com from all of its competitors will be:
o ease-of-use,
o usefulness,
o ease of set up,
o mass merchant availability, and
o price.
Merchandising Strategy
MyTurn.com, with one of its marketing consultants, is planning, designing
and implementing a multi-faceted, consumer-oriented and coordinated packaging
and merchandising campaign. This program is being designed to achieve optimum
results through targeted retail channels. Since consumers shopping in these
retail stores do not expect any significant sales help, it is very important
that the packaging and point of purchase materials help complete the selling
job.
Advertising Strategy
If our five-market launch is successful, we plan a comprehensive television
and printadvertising campaign to roll out the GlobalPC personal computer
nationwide in the fall of 2000. This campaign, integrated with a major public
relations effort and a dynamic merchandising program, is designed to achieve
consumer awareness and market success. The current advertising positioning
targets the largest portion of the U.S. population that continues to sit on the
sidelines, waiting for the computer industry to address their concerns. The
advertising campaign highlights the fact that the industry has failed to address
consumer needs until now. The GlobalPC is touted as "The Computer You've Been
Waiting For."(TM)
Product Roll Out
MyTurn.com plans to introduce its product in five markets in the summer of
2000. Indianapolis, Tampa, Minneapolis and Portland were selected based on
traditional packaged goods test market criteria. Also, New York City will
provide a major public relations
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opportunity that we believe may be extended on a national basis. The five-market
rollout will enable MyTurn.com to refine its positioning and messages prior to
the national launch and will create a media "buzz" about the product in the
months leading up to the national product launch.
In order to test optimal advertising spending levels as well as to measure
consumer demand for its product, MyTurn.com will test varying media spending
levels in the test markets.
Sales and Distribution Strategy
MyTurn.com intends to put GlobalPC personal computers into major and
secondary mass retailers by addressing each of the issues that have caused PCs
to lose mass distribution. From the consumer's perspective, these issues include
an expectation of high prices, technical intimidation and fear or obsolescence.
From the mass retailers' perspective, these issues include inventory risks
resulting from high prices, low margins, complexity and rapid obsolescence.
Instead of hundreds of products, add-ons and programs, MyTurn.com will offer one
computer and three to four peripherals. All of MyTurn.com's price points will be
under $300. The ease-of- use and ease of set up, useful bundled software
applications, packaging, merchandising, and marketing campaign will eliminate
the need for dedicated salespeople to sell our product.
MyTurn.com's primary target customer shops at these retail locations
frequently as opposed to the computer super stores and office supply warehouse
locations. This makes the GlobalPC product a natural fit for these merchants.
These retailers would like to capture a portion of the multi-billion dollar PC
market. To support these retailers, MyTurn.com is designing a mass market - mass
retail product and program from the ground up. Advertising, packaging,
merchandising and public relations are all being developed to specifically
support the mass retailer.
Sales Plan
MyTurn.com is currently exploring the engagement of manufacturers'
representative organizations to serve as its primary sales force for 2000. These
independent third party contractors have long-standing top-level relationships
with all the major target accounts and they offer the fastest method of getting
in front of the key decision-makers at each account. We believe that these local
representatives have the ability to move our product presentation quickly from
the buyer level through to senior management at each of our key target accounts.
MyTurn.com expects to compensate manufacturers' representatives on a variable
commission basis of a few percentage points of net product shipments; their
financial remuneration and industry reputations will be tied directly to
MyTurn.com's market success. MyTurn.com cannot assure that arrangements with
these manufacturer's representative organizations will be secured.
Distribution Plan
The primary method of distribution to MyTurn.com's target customer base
will be through the mass merchant channel. The mass merchant channel consists of
large, multi-outlet, regional and national retailers such as Wal-Mart, Target,
K-Mart, Sears, Meyer, Toys R Us,
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Montgomery Wards, Ames, Hills, Bradlee's, and Fred Meyer. In addition to mass
merchants, GlobalPC's will be sold in electronic superstores like Best Buy and
the electronic mall stores like Babbages and Electronics Boutique. Currently,
MyTurn.com has no agreements with these companies or other retailers. Although
it expects to receive purchase orders from certain of these companies starting
in the summer of 2000 in connection with its market roll out and after that, no
assurance can be given that this will happen.
Some of these accounts represent a very non-traditional method of bringing
computing solutions to mass consumers. The MyTurn.com target customer has echoed
a serious level of frustration in trying to purchase a computer from the more
traditional super stores like CompUSA and Circuit City. While these remain as
possible account targets for MyTurn.com, they will not be at the forefront of
our launch strategy. The GlobalPC personal computer will be positioned where our
customers already shop. It is believed that a vast portion of the U.S.
population visit Wal-Mart and K-MART several times per month. This high traffic,
high visibility environment is perfectly suited for the consumer positioning
that defines MyTurn.com.
The GlobalPC, as a low priced solution that is easy to use will also open
secondary targets for MyTurn.com. Wholesale Clubs such as Sam's Club, Costco and
B.J.'s will be involved as the GlobalPC reaches a higher level of consumer
penetration. MyTurn.com will market specific bundles to this channel in order to
protect the perceived value of the product.
An entirely different channel is also open to MyTurn.com. MyTurn.com has
targeted on air shopping channels and the infomercial circuit with accounts like
QVC and Home Shopping Network. Both have expressed high interest in helping
MyTurn.com introduce this product, although no agreement with either has been
reached, nor can we assure that we will enter into an agreement with any of
them. The significant value in this channel is in the television exposure.
MyTurn.com is exploring the possibility of running infomercials that will
generate excitement about the GlobalPC in its consumer target. The real value
will be in the heavy exposure and targeted selling message toward our customer
base. For every person that decides to purchase off the air, we will educate a
multitude that will have the option to purchase in the retail environment. This
television coverage will be a cost-effective and powerful complement to our own
advertising campaign.
Channel Marketing
MyTurn.com will support its retail environment with a highly targeted
channel marketing effort. Market development funds will be accrued as a
percentage of revenues and these funds will be made available to MyTurn.com's
major retailers under the MyTurn.com Co-op and Market Development Fund programs.
The funds will used to support several different programs, such as point of
purchase displays, merchandising and training support.
Several different "point of purchase" displays will be available to
MyTurn.com's key accounts. They include: a "flip book" display that provides
valuable consumer information; a "video" display that provides a continuous loop
presentation of the MyTurn.com experience; a "demo unit" display that includes a
product mockup with a self-running demonstration of the
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product itself. Each of these display concepts will be tested during the rollout
phase to determine which are best suited to which accounts and thus enable
MyTurn.com to fine tune its display strategy.
In-store merchandising efforts and training will be employed for building
consumer awareness. These efforts will include store visits by outsource
merchandisers to install additional point of purchase materials, such as
shelf-talkers, posters and brochures and ensure full compliance with
MyTurn.com's end-cap and display programs. In-store merchandisers will also
provide front line training to the store personnel.
Training will also be made available in the form of videotapes, sales
brochures and MyTurn.com's own extranet. This extranet will make training
materials, advertising materials, quizzes, promotions and other support
materials available to our retailers through a password protected web site. All
of these materials will be used to enhance the sales knowledge of our retail
store personnel and make it easy for the retailers to develop their own
"MyTurn.com approved" marketing activities.
International Strategy
MyTurn.com plans to expand into international markets following a
successful launch in the United States. Home PC penetration is much lower in
most other countries than in the United States. MyTurn.com expects price
elasticity to be even greater in international markets where disposable income
is lower. Also, while most of the same purchase criteria apply like ease-of-
use, price and availability, the worldwide ownership of home PC's is far below
that of the U. S. home PC market.
To achieve its international business goals, MyTurn.com will pursue
strategic partnerships to enter markets quickly and efficiently, while building
a consistent global brand identity that will exploit economies of scale but be
locally implemented. By entering into strategic marketing and equity
partnerships with leading consumer-marketing companies in each international
market, MyTurn.com will be able to select and access opportunities to quickly
become a leading "consumer" PC globally. We cannot assure that we will enter
into these strategic partnerships and if we do, we cannot predict if they will
be successful.
MyTurn.com will focus initially on three major geographic targets in its
international marketing efforts:
o mature/established English language markets with appropriate parallel
distribution channels and infrastructure, such as Canada, Australia and the
United Kingdom,
o key growth markets, such as the other western European countries, Japan
and Latin American countries, and,
o emerging and developing markets, such as China and India.
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<PAGE>
In order to prepare the software platform and applications for these
markets, MyTurn.com will, in parallel with market development and partnering
activities, engage the services of software and Internet localization outsource
companies for the European and Far East markets. The software localization
efforts are expected to commence in late fourth quarter of 2000 with a Spanish
language suite, including appropriate variations for Mexico, Spain and South
American countries. In the second quarter of 2001, MyTurn.com plans to develop
systems for certain Asian markets based on its double byte character scheme
feature which is already incorporated in the GEOS operating system.
As noted, our timing of our foreign marketing efforts hinge on the success
of the launch of our GlobalPC product in the United States. Therefore, the
timing of international operations could be delayed or suspended if we do not
meet our domestic marketing goals are not met or are met over a longer time
period than we anticipate.
Intellectual Property Rights and Licenses
MyTurn.com's GlobalPC system and operating and application software are
based on internally developed and owned technology, software licensed from third
parties, and enhancements to certain third party software which is permitted
under MyTurn.com's licenses for such technology. MyTurn.com's technology is not
patented, nor has MyTurn.com obtained or applied for, copyright registration for
its software. The configuration and specifications of our products and
integration, bundling or embedding of the technology which comprises our
products are protected as a trade secret.
MyTurn.com relies substantially on its Technology License Agreement with
Geoworks Corporation for a non-transferable license for the GEOS operating
software embedded in GlobalPC personal computer. This license is for a term
expiring on December 31, 2004 but may be renewed for at least one year terms on
mutually agreeable terms if MyTurn.com meets certain royalty payment thresholds.
Also, the license for the GEOS software, specifically for use in personal
computers like the GlobalPC Device, will be exclusive to MyTurn.com so long as
MyTurn.com maintains certain royalty payment and other performance thresholds.
MyTurn.com cannot assure it will be able to meet the thresholds and perform its
obligations to obtain and maintain exclusivity or even to keep the license.
If MyTurn.com loses the license for the GEOS software, it will be unable to
manufacture or sell the GlobalPC Device. If MyTurn.com loses the exclusive right
to use GEOS software in GlobalPC Devices, it could face intense competition from
substantially the same type of products which could contain the GEOS software.
MyTurn.com also has a non-transferable, exclusive sublicense from NewDeal,
Inc., also a Geoworks licensee, for the GEOS operating system for use in hard
disk or other non-solid state mass storage devices. The sublicense does not
cover certain markets which MyTurn.com believes will not meaningfully compete
with MyTurn.com. The sublicense is for a term expiring on December 31, 2003, but
may be renewed for successive one-year terms if certain conditions for
exclusivity are met. The sublicense will be exclusive so long as MyTurn.com
maintains certain royalty payments and other performance thresholds. MyTurn.com
cannot assure it will
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be able to meet the thresholds of, and perform its obligations under, the
sublicense, or maintain the exclusivity of, or even keep the sublicense. The
sublicense is also subject to the license between Geoworks and that third party
being in effect during the term of the sublicense. If MyTurn.com were for some
reason to lose the sublicense, the roll out of the GlobalPC Device could be
delayed until approximately the end of 2000. This estimated delay would be
related to the time necessary to develop a solid-state product which would
bypass the NewDeal sublicense and rather fall under MyTurn.com's existing
license directly with Geoworks.
MyTurn.com requires that every employee and consultant sign an agreement of
non- disclosure and assignment of development rights. MyTurn.com believes the
complexity and total technology integration of MyTurn.com's products best
protects its trade secrets. MyTurn.com cannot assure that the intellectual
property and contractual rights on which it relies to protect its intellectual
property and confidential and proprietary information will provide it with
meaningful protections.
Additionally, MyTurn.com cannot assure that it will continue to maintain or
renew its existing application software licenses. In such case, MyTurn.com may
have to change certain software applications contained in the GlobalPC and in
its Web-Site. This may adversely effect the competitive advantage of
MyTurn.com's products, which ultimately could have a material adverse effect on
its business and prospects.
OEM Strategy and Business Development
The primary hardware product is designed to take full advantage of the
advances in the Internet and to provide OEM partners and suppliers the
opportunity to share in the downstream revenue from the e-commerce that the
GlobalPC system and the MyTurn.com Web portal is expected to generate.
A key feature is the inclusion of four "hot button" keys on the GlobalPC
keyboard dedicated to direct Internet access. These keys will be licensed to the
major e-commerce players, and will thus point the new users directly to these
sites. See Item 1 - "Business-Products and Services - Hot Buttons."
OEM Products
The GlobalPC product suite of MyTurn.com includes two separate systems
internally referred to as the "Classic" and the "Solid-state", both with a set
of four hard-wired web buttons per system that point to pre-configured web sites
and/or portals, and the MyTurn.com portal program. It is expected that a major
share of MyTurn.com revenue and the ongoing revenue stream potential for OEM
partners will be generated through the use of the hard-wired buttons and the
MyTurn.com portal. See Item 1 "Business-Products and Services - MyTurn.com
Online Services."
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OEM Target Customers
The scope of potential OEM customers for MyTurn.com comes from the
following traditional business sectors:
o Consumer Electronics.
o Traditional PC vendors.
o Cable TV operators.
o Set top box/cable providers.
o Telecommunications companies.
o Wireless telecommunications companies.
Competition
MyTurn.com's portal is not alone in pursuing the large untapped potential
of U.S. homes that are not connected to the Internet. America Online and other
major ISPs have initiatives underway to attack this market. These competing
services have two vehicles for expanding their home subscriber base:
o low cost Windows-based PCs, and
o Internet appliances.
These devices are competitive with the GlobalPC and MyTurn.com's portal.
However, the market is very large - as many as 60 million homes - and for the
reasons outlined below, MyTurn.com believes it has an attractive product
offering for new users and it will be in the forefront of new subscriber
acquisition.
Low Cost PCs
In the near term, MyTurn.com expects that leading and established
technology and telecommunication companies will primarily acquire customers in
MyTurn.com's target market through bundling operating and application software
with low cost PCs. While sub-$1000 PCs are primarily selling to existing PC
owners who are upgrading, some new market penetration is occurring.
We believe GlobalPC has four significant competitive advantages over
traditional PCs in selling to the non-PC household:
o ease-of-use,
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o price,
o distribution outlets and
o reliability.
The market targeted by the GlobalPC is mainly comprised of very price
sensitive consumers and price advantage is a competitive edge. A significant
factor driving the GlobalPC price advantage is that the license fees we pay for
the operating system and any bundled office applications and the microprocessor
- - which accounts for a substantial cost in manufacturing and selling lower
priced personal computers - is not significant. In sub- $500 PCs these license
fees tend to be one of the largest cost-of-goods-sold item. MyTurn.com licenses
the Geoworks GEOS operating system and productivity suite exclusively for use in
personal computers like the GlobalPC devices at a relatively low cost.
MyTurn.com has made or acquired significant improvements to this operating
system. The performance of the GEOS software as enhanced by MyTurn.com software
drives the second price advantage. We believe this operating system is much more
efficient than those of our competitors, allowing us to use a less expensive
microprocessor and less random access memory than our competitors do, yet
deliver higher performance to the consumer. See Item 1 "Business-Intellectual
Property."
Distribution is another significant advantage MyTurn.com will have in
signing up new subscribers. The highly competitive PC hardware business has led
to narrow retail margins for over $1000 PCs. The margins are even thinner in the
sub-$500 category. As a result, most mass retailers are not carrying PCs in
their outlets. For example Wal-Mart only carries PCs in about one-quarter of its
stores. However, through the cost advantages outlined above, MyTurn.com will
sell its unit to retailers at a cost which will allow the retailers a much more
meaningful mark- up. See Item 1- "Business-Sales and Distribution Strategy."
Internet Appliances
While traditional PCs are not in many of the stores where our target
customer shops, a new class of devices called Internet Appliances might prove to
be more significant competition. From WebTV to Internet phones, manufacturers
and service providers have a number of initiatives to bring Internet access to
consumers through a variety of new devices. While MyTurn.com believes that these
devices will meet with a certain measure of success, we believe they will not
significantly curtail MyTurn.com's success in the market segments MyTurn.com is
targeting. One of MyTurn.com's major advantages over traditional PCs - ease of
use - is diminished with this category, but the PC functionality becomes a major
competitive advantage. Current Internet appliance designs do not provide local
productivity software (i.e. word processor, spreadsheet, etc). In homes with
school age children, productivity software is essential. For example, students
need to create papers and reports with the information they glean from the
Internet, including e-mail messages containing file attachments which otherwise
could not be opened or read.
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Internet appliances also have a significant marketing communications
challenge. It is difficult and expensive to educate the consumer on an entirely
new device category. MyTurn.com is able to leverage nearly 20 years of product
awareness and pent-up demand for personal computers. Personal computers and
their benefits are well understood by the target market.
Finally, most Internet appliances offer no additional software. Since the
GlobalPC can easily run DOS titles, MyTurn.com expects to offer hundreds of
after-market games and educational titles to its customers over time. This large
library of DOS titles creates incremental revenue opportunities for MyTurn.com
and a more compelling value proposition for the consumer. We cannot predict how
many of DOS titles we will offer nor the timing as to when they will be
available.
General Competitive Factors
It is important to note that many of our competitors have much greater name
recognition and financial resources than we do. Our product offerings in each of
our product categories are also relatively small compared to the wide variety of
products offered by many other Internet service providers and hardware and
software manufacturers. There can be no assurance that our business and results
of operations will not be affected materially by market conditions and
competition in the future.
Many of the our current and potential competitors in all of our markets
have longer operating histories, larger customer bases, and significantly
greater financial, marketing, technical and other resources than we do.
Furthermore, some of these competitors enjoy greater brand recognition than we
do. In addition, certain of our competition may be acquired by, receive
investments from, or enter into, other commercial relationships with larger,
well-established and well-financed companies as use of the Internet and other
online services increases. We cannot assure you that we will be able to compete
successfully against current and future competitors.
Technical Support
Initially, technical support is being outsourced to an experienced third
party technical support vendor, National Service Center L.L.C.. NSC was selected
for their vast experience supporting modem products for 3Com and will provide
MyTurn.com with up-to-date systems to manage response times, call loads, problem
and knowledge bases. NSC will provide technical support services via telephone
and e-mail, process product warranty registrations, and provide assistance in
maintaining the technical support area of our portal with up-to-date
information. MyTurn.com expects its technical support to be fully operational by
the end of April 2000 to support the initial market roll out of the GlobalPC.
The MyTurn.com user will be able to access technical support through the
MyTurn.com network, e-mail or a toll free telephone number. It is currently
planned that under the agreement with NSC customer care technicians will be
available on a 24 hours/seven days a week basis. The agreement with NSC is for
one year with successive one-year extensions unless either party notifies the
other of its intention not to renew the agreement 60 days for the initial or any
renewal term. The agreement may also by terminated by
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NSC during any renewal term upon 30 days notice for any reason. Additionally,
each party may terminate this agreement if the other breaches it and it is not
cured as provided in the agreement. NSC's compensation under the agreement is
based on time spent on certain services and volume of certain services.
Operations, Manufacturing and Facilities
Our underlying operational strategy is to utilize outsource services where
possible and where it makes economic and business sense. This variable cost
strategy allows MyTurn.com to leverage specific and specialized expertise in
these areas, and to concentrate MyTurn.com's resources on the development and
marketing of our products. MyTurn.com intends to utilize turnkey contract
manufacturers to source sub-components and manufacture finished product to our
specifications. MyTurn.com will provide overall production planning and
manufacturing logistical coordination. While MyTurn.com will leverage our
manufacturing partners' component buying power, MyTurn.com will also assist in
the procurement of long lead-time and specialty components.
MyTurn.com intends to partner with existing suppliers of certain peripheral
products who will OEM their existing products to MyTurn.com. These products will
undergo minimal cosmetic modifications to MyTurn.com specifications. Certain
products, although packaged under the GlobalPC or brand name, may be co-branded
where it is felt that positive brand image transfer will enhance MyTurn.com's
market position and acceptance.
MyTurn.com maintains a central design and development facility located at
its headquarters in Alameda, California. The bulk of system manufacturing will
be handled by manufacturing partners located in the U.S. as well as partners in
Asia. MyTurn.com is currently negotiating relationships with manufacturing
partners, but no agreements have been reached.
Our GlobalPC product will be manufactured for us by a third party
manufacturer against purchase orders, under general terms of a 36 month
agreement which is renewable for additional one year terms upon mutual
agreement. An initial purchase order has been proposed for 100,000 units
deliverable over a 20 week span commencing in May 2000. The purchase order is
yet to be accepted by the manufacturer which is a condition to its
effectiveness. Additionally, the purchase order is conditioned upon MyTurn.com
obtaining a letter of credit of $100,000,000 by April 25, 2000 on terms
satisfactory to MyTurn.com to secure payment of this and future purchase orders.
No assurance can be given that the purchase order will be accepted by the
manufacturer such a letter of credit will be available to MyTurn.com on a timely
basis or at all. If such a letter of credit is not obtained, the purchase order
is null and void. We believe that if we lose such manufacturer for any reason
and have to secure another manufacturer, which we believe will be readily
available, to manufacture the GlobalPC Device to our specifications, we could
experience a delay of approximately 90 days in replenishing inventory. If
inventory levels are low, this could delay the filling of orders. This in turn,
could erode customer and relationships and confidence, and cause us to lose
customers and orders from customers.
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Currently MyTurn.com does not have any orders for the GlobalPC, although it has
received indications of interest. MyTurn.com cannot assure these indications of
interest will become orders or that it will obtain orders from any other
sources.
Employees and Consultants
MyTurn.com and its operating subsidiary currently have 45 employees in the
following departments: Software Development, Hardware Development, Marketing,
Sales, Business Development, Operations, Finance and Administration.
We believe that our relationship with our employees and consultants is
satisfactory.
Certain Risks Relating to the Implementation of MyTurn.com's Business Plan.
Our success is based on our ability to implement our business plan
described throughout Item 1 - "Business" above.
As noted in the "History and Recent Developments" section above, until
January 1999, we were engaged primarily in the business of designing,
developing, licensing, installing and servicing computer application software
systems for law enforcement and public safety agencies, and in January 1999 we
commenced our e.TV Business of selling Internet, e-commerce, and
telecommunications products and services through a referral network marketing
system of independent representatives. In July, 1999 we sold the public safety
software business, closed our network marketing sales activities and assigned
our rights to receive long distance revenues from UniDial to an unaffiliated
third party. As also noted above, we are currently developing and marketing the
GlobalPC which we expect to roll out in the summer of 2000. However we have no
operating history with respect to the development and sale of the GlobalPC on
which to base an evaluation of our business and prospects.
Our prospects in the business of developing and selling the GlobalPC and
related products and services must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of a new line of business, particularly companies in new and
rapidly evolving markets such as development and the sale of high technology and
telecommunications products and services, and online e-commerce. To address
these risks and uncertainties, we must, among other things:
o enhance our brand-name recognition for the GlobalPC,
o establish and maintain active business relationships with mass
merchandise retailers and obtain significant orders from them
regularly,
o implement and execute our business plan and marketing strategy
successfully,
o continue to develop, upgrade and enhance our technology and
information-processing systems,
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o maintain current and acquire new licenses for technology from third
parties,
o provide superior customer service,
o respond to competitive developments,
o protect our intellectual property rights, and
o raise adequate capital to fund initial manufacture of the
GlobalPC, to fund marketing activities, and to hire employees
and engage consultants.
There can be no assurance that we will be successful in accomplishing all of
these things, and the failure to do so could have a material adverse effect on
our business, results of operations and financial condition.
Additionally, we believe that our growth and our achieving profitability
will depend in large part on our ability to:
o gain retailer and user acceptance of the GlobalPC,
o obtain significant orders from mass merchandise retailers for the
GlobalPC,
o establish a market for the GlobalPC and then increase our market
share, and
o provide our customers with superior Internet services and on-line
commerce experiences through the use of the GlobalPC.
Item 2. Description of Property
MyTurn.com's executive offices are located at 960 Atlantic Avenue, Alameda,
California where it currently subleases approximately 9,350 square feet of space
from Geoworks. The premises are held pursuant to a sublease that expires on
April 30, 2000 and provides for a base monthly rental of approximately $18,700.
The sublease provides that MyTurn.com and Geoworks may renew the sublease on a
month-to-month basis by mutual agreement, however MyTurn.com has signed a new
sublease with TCSI Corporation for a larger facility and anticipates moving by
April 15, 2000. The new space is located at 1080 Marina Village Parkway,
Alameda, California and includes 18,463 square feet. The lease term is 4 1/2
years at a base rent of $55,389 per month.
MyTurn.com also leases 2,258 square feet of administrative office space at
333 North First Street, Jacksonville, Florida. The lease for this office space
is for five years which expires in March 2005. The base annual rent for this
space is $48,766.
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Additionally, MyTurn.com is under a lease agreement for office space it
previously occupied in Cedarhurst, New York. Although MyTurn.com is no longer
using this space, the lease does not expire until September 30, 2001. MyTurn.com
has sublet the majority of space to an unaffiliated third party. The remaining
obligation to the Company under this lease, including the subtenants'
allocation, is $55,534.00.
MyTurn.com believes that its premises are adequate for its needs for the
foreseeable future.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
At MyTurn.com's annual meeting of stockholders held on January 20, 2000,
the stockholders of MyTurn.com
o elected R.E. (Teddy) Turner, IV and Louis Libin as Class III Directors,
o approved an amendment to the 1996 Stock Option Plan (the "Plan") to
increase the number of Common Shares issuable under the Plan to
10,000,000 Common Shares,
o approved an amendment to the Certificate of Incorporation to change the
corporate name to MyTurn.com, Inc.,
o approved an amendment to the Certificate of Incorporation to increase
the number of authorized Common Stock to 60,000,000 shares, and
o approved and ratified the appointment of PricewaterhouseCoopers, LLP as
MyTurn.com's independent auditors for the year ended December 31, 1999.
The number of votes with regard to the foregoing was as follows:
o Election of Directors
<TABLE>
<CAPTION>
Voted for Vote Withheld in
Nominee Election Vote for Election
- ------- -------- -----------------
<S> <C> <C> <C>
R.E. (Teddy) Turner, IV Class III Director 4,918,449 27,121
Louis Libin Class III Director 4,918,449 27,121
</TABLE>
o Approval of Amendment to 1996 Stock Option Plan to Increase Number of
Common Shares Issuable Under the Plan.
For: 2,717,154 Against: 191,340 Abstain: 23,100
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o Approval of Amendment to Certificate of Incorporation to Change
Corporate Name to MyTurn.com, Inc.
For: 4,912,753 Against: 5,040 Abstain: 27,777
o Approval of Amendment to Certificate of Incorporation to Increase
Number of Authorized Shares of Common Stock to 60,000,000.
For: 4,767,363 Against: 159,357 Abstain: 18,850
o Approval and Ratification of PricewaterhouseCoopers LLP as Independent
Auditors for the Year Ended December 31, 1999.
For: 4,919,460 Against: 9,285 Abstain: 16,825
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Market Information
Upon completion of the Company's IPO on June 10, 1997, the Company's Common
Shares began trading under the symbol "CODI" on the Nasdaq SmallCap Market. On
March 5, 1999, the Company changed its symbol to "ETVC." On November 26, 1999,
the Company changed its symbol to "MYTN", and on January 21, 2000 the Company
changed its name to MyTurn.com, Inc. See Item 4 - "Submission of Matters to a
Vote of Security Holders." The following table sets forth, for the periods
indicated, the range of high and low bid prices of the Company's Common Shares
as furnished by The Nasdaq Stock Market, Inc. The quotations set forth below
reflect interdealer prices without retail mark-up, mark-down or commissions and
may not necessarily represent actual transactions.
1998 High Low
First Quarter .............................$ 9.75 $ 5.81
Second Quarter .............................$ 15.13 $ 4.50
Third Quarter .............................$ 6.25 $ 1.00
Fourth Quarter .............................$ 6.50 $ 1.13
1999 High Low
First Quarter...............................$ 11.19 $ 2.56
Second Quarter..............................$ 7.25 $ 2.06
Third Quarter.............................. $ 5.50 $ 1.94
Fourth Quarter............................. $ 7.00 $ 2.00
On June 8, 1999, the Company's stock began trading on the Berlin Stock
Exchange and the Frankfurt Stock Exchange under the Symbol "CUD". The following
table sets forth, for the periods indicated, the range of high and low bid
prices of MyTurn.com's shares as furnished by Dow Jones & Company, Inc.
1999 High Low
Berlin Stock Exchange
---------------------
Second Quarter (1)..........................$ 6.80 $ 4.20
Third Quarter ..............................$ 5.20 $ 2.00
Fourth Quarter .............................$ 7.40 $ 1.90
Frankfurt Stock Exchange
------------------------
Second Quarter (1) .........................$ 6.20 $ 4.20
Third Quarter...............................$ 5.20 $ 2.00
Fourth Quarter..............................$ 7.20 $ 1.80
-----------
(1) Commencing on June 8, 1999
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Holders
The Company has been advised by its transfer agent (American Stock Transfer
& Trust Co.) that the approximate number of record holders of the Common Shares
as of February 29, 2000 was 123.
Dividend Policy
Holders of the Company's Common Shares are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. The Company has not declared or paid any dividends in the past and
does not currently anticipate declaring or paying any dividends in the
foreseeable future. The Company intends to retain earnings, if any, to finance
the development and expansion of its business. Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent upon
future earnings, if any, the Company's financial condition, capital
requirements, general business conditions, and other factors. Therefore, there
can be no assurance that any dividends of any kind will ever be paid.
Recent Sales of Unregistered Securities
In addition to the sales of unregistered securities disclosed in
MyTurn.com's Quarterly Reports on Form 10-QSB for the periods ended March 31,
June 30 and September, 1999, MyTurn.com sold the following unregistered
securities during the period covered by this report.
In May 1999 MyTurn.com issued to Union Atlantic LC warrants to purchase
30,000 Common Shares at an exercise price of $5.22 per share which vest at the
rate of 5,000 Common Shares per month starting in June 1999 and are exercisable
for a three-year period expiring on May 31, 2002. The warrants were issued
pursuant to a consulting agreement relating to corporate finance advisory
services.
In October 1999, MyTurn.com issued 25,000 Common Shares to Harvey Weinstein
pursuant to a settlement agreement in connection with the action encaptioned
Rugby National Corp., Harvey Weinstein and Credomaka Corp. v. Compu-DAWN, Inc.,
- --------------------------------------------------------------------------------
Rugby Acquisition Corp. and Mark Honigsfeld.
- --------------------------------------------
In November 1999 MyTurn.com issued 50,000 Common Shares to its corporate
counsel in connection with services rendered.
In November 1999, MyTurn.com issued to eight designees of Joseph Charles &
Associates, Inc. warrants to purchase an aggregate of 60,000 Common Shares at an
exercise price of $1.50 per share, vesting upon the date of issuance and
exercisable for five years. These warrants were issued pursuant to an investment
banking agreement.
On December 16, 1999, MyTurn.com issued 500 Common Shares to a holder of a
Bridge Warrant. The resale of such Common Shares is covered by MyTurn.com's Post
Effective Amendment No. 1 to Registration Statement on Form SB-2 on Form S-3,
which was declared effective by the SEC on June 21, 1999.
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In December 1999, MyTurn.com issued to Geoworks Corporation warrants to
purchase 250,000 Common Shares at an exercise price of $4.50 per share, in cash
or pursuant to a net issue exercise, vesting on the date of issuance and
exercisable for five years. These warrants were issued pursuant to a license
agreement for the GEOS operating system. See Item 1 - "Business - Intellectual
Property."
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof. MyTurn.com determined that the persons who
were issued the above securities were sophisticated investors. Such issuances of
securities were without the use of an underwriter, and the certificates
evidencing such securities bear restrictive legends permitting the transfer
thereof only upon registration of such securities or pursuant to an exemption
under the Securities Act.
In December 1999, MyTurn.com issued an aggregate of 740,000 Common Shares
at a price of $1.375 per share to nine persons who MyTurn.com determined were
accredited investors within the meaning of Rule 501(a) promulgated under the
Securities Act.
This transaction was a private transaction not including a public offering
and was exempt from the registration provisions of the Securities Act.
MyTurn.com determined that the investors in this offering were sophisticated.
This offering was undertaken through MyTurn.com's placement agent Hornblower &
Weeks, Inc. The certificates representing the Common Shares issued in this
private placement bear restrictive legends permitting the transfer thereof only
upon registration of such securities or pursuant to an exemption under the
Securities Act.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following management discussion and analysis of MyTurn.com's financial
condition and results of operations should be read in connection with
MyTurn.com's Consolidated Financial Statements and notes thereto, included in
this Annual Report on Form 10-KSB starting on page F-1.
Introduction
MyTurn.com was incorporated in the State of New York on March 31, 1983
under the name Coastal Computer Systems, Inc. On October 18, 1996, MyTurn.com
was reincorporated in the State of Delaware under the name Compu-DAWN, Inc. In
an effort to more directly identify the organization with its new vision, the
corporate name was changed to MyTurn.com, Inc. on January 21, 2000.
During the first two quarters of fiscal 1999, MyTurn.com was engaged in two
separate lines of business. In one, MyTurn.com engaged in the designing,
developing, licensing, installing and servicing of computer software products
and systems predominantly for public safety and law enforcement agencies. In its
other line of business, MyTurn.com, through its wholly owned subsidiary e.TV,
operated in the Internet, e-commerce and telecommunications business marketing
products and services primarily using a relationship-based, referral marketing
organization of independent representatives.
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In May 1999, MyTurn.com decided to divest itself of its public safety
software business. On July 2, 1999, MyTurn.com consummated the sale of the
public safety software business division to an unaffiliated third party. In the
transaction, MyTurn.com received $500,000 in cash, and is entitled to receive
quarterly software royalty payments ranging from 6.25% to 10% from future sales
of products containing MyTurn.com's technology or to former customers of
MyTurn.com's public safety software business. The royalty is based on the funds
actually received by the public safety software business buyer from those orders
it receives during the five years subsequent to the closing of the sale. To
date, royalty payments have been inconsequential.
On June 29, 1999, MyTurn.com discontinued its relationship-based, referral
marketing operations, e.TV. This decision was made after MyTurn.com determined,
among other things, that e.TV would not meet its revenue projections in 1999.
Additionally, it was determined that a substantial capital infusion would have
been required to sustain the business at current levels and to have been able to
achieve future growth. Even with a substantial capital infusion, the growth in
e.TV's revenues would not have been assured in the short or long term.
In July 1999, MyTurn.com sold its independent representative database and
assigned its UniDial Communications, Inc. ("UniDial") long distance business to
another network marketer of telecommunication products for $250,000 in cash.
On July 30, 1999 MyTurn.com signed an asset purchase agreement pursuant to
which MyTurn.com, through its wholly owned subsidiary GPC Acquisition Corp.,
agreed to acquire substantially all tangible and intangible assets of Global PC,
Inc. of Alameda, California. Global PC, Inc. had developed enhancements to GEOS,
a simplified, user friendly, low cost computer operating system owned by
Geoworks, Inc. The GlobalPC technology, the GEOS software and other software,
offers a complete hardware and integrated software solution including the
operating system and a set of applications such as: an Internet browser, e-mail
capabilities, word processing, spreadsheet functionality and gaming. The GEOS
operating software is to be embedded in a low cost "easy to use" GlobalPC
personal computer, along with the application software developed by Global PC,
Inc.
On December 22, 1999, MyTurn.com and GPC Acquisition Corp. closed the
Global PC, Inc. asset acquisition. Contemporaneously, MyTurn.com entered into a
Technology License Agreement with Geoworks for a non-transferable license for
the GEOS operating software embedded in the GlobalPC personal computer. See Item
1 - "Business - Intellectual Property Rights and Licenses."
MyTurn.com plans to continue to recruit, train and maintain an experienced
team of software and hardware engineers to support the development of its
expected GlobalPC business. This development team will be largely responsible
for any future modifications, enhancements and/or changes to the operating
system. The "team" will also focus on the following major areas:
o ease-of-use,
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o the online service and Internet access,
o performance, and
o software integration compatibility.
In the near-term, MyTurn.com intends to manufacture a limited number of
GlobalPC Devices to be sold on a direct basis to consumers through its Internet
site commencing second quarter of 2000. MyTurn.com's long-term objective is to
be a sublicensor of the GEOS operating system and hardware reference designs
with its integrated suite of productivity applications to national brand-name
consumer-oriented hardware manufacturers. Currently, no such relationship is in
place. Accordingly, in order to meet the anticipated first quarter 2000 direct
sales and second quarter retail sales demand, MyTurn.com is outsourcing its
manufacturing efforts on a contract basis to an unaffiliated third party. See
Item 1 - "Business - Operations, Manufacturing and Facilities."
The GlobalPC asset acquisition provides MyTurn.com with the opportunity to
generate revenue from five key areas:
o Monthly online subscription fees - Internet subscription revenue
bundled with the sale of the GlobalPC appliance.
o Banner advertising - the sale of advertising.
o Keyboard real estate "Hot-Buttons" sales - MyTurn.com will have a
unique opportunity to sell individual keys on its proprietary PC
keyboard to category specific vendors. These "Hot-Buttons" will
immediately launch the user to that vendor's web site.
o License royalties - revenue derived from potential manufacturing
partners who will manufacture the GlobalPC product on an OEM basis.
o Residuals from online shopping - as a full service Internet Service
provider, MyTurn.com intends to seek residual commissions and overrides
associated with third-party online e- commerce sales transacted through
its portal.
o Aftermarket sales - MyTurn.com intends to sell comparable aftermarket
hardware and software through its portal.
See Item 1 - "Business - Products and Services."
In consideration for the assets and the assumption of certain liabilities
from GlobalPC MyTurn.com has agreed to issue 634,284 shares of common stock, and
Class A Warrants to purchase up to 2,269,284 Common Shares, Class B Warrants to
purchase up to 1,901,400 Common Shares and Class C Warrants to purchase up to
383,000 Common Shares. All the warrants have an exercise price of $2.50 per
share.
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<PAGE>
The Class A Warrants are exercisable until June 30, 2004 to the extent of
50%, 75% or 100% of the underlying Common Shares provided MyTurn.com reaches
certain performance milestones. The milestones require that there are 150,000 to
200,000, 200,001 to 250,000, or 250,001 or more subscribers to MyTurn.com's
Internet services who access the Internet through the GlobalPC Device by no
later than March 30, 2002 respectively. If there are less than 150,000 of such
subscribers by March 30, 2002, the Class A Warrants will not be exercisable and
shall be automatically canceled.
The Class B Warrants are exercisable: (a) to the extent of 30% of the
underlying Common Shares during the period commencing 90 days after the issuance
of the Class B Warrant and ending on the day before the fifth anniversary of the
issuance date (the "Expiration Date"), (b) to the extent of 23 1/3% of the
underlying Common Shares from each of the first, second and third anniversary of
the issuance date and ending on the Expiration Date.
The Class C Warrants are exercisable from the first anniversary of the date
of issuance to the Expiration Date.
The vesting of the Class A, B and C warrants are accelerated in the event
of a change in control of MyTurn.com. A change in control for this purpose is:
o Any transfer of 50% of MyTurn.com's outstanding Common Shares or voting
power except in connection with any acquisition of Common Shares by
certain members of MyTurn.com's management.
o The approval by MyTurn.com's stockholders of a merger or consolidation
in which the pre-merger or pre-consolidation stockholders of MyTurn.com
do not own more than 50% of the voting power of the merged or
consolidated entity.
o The transfer of more than 50% of MyTurn.com's assets.
o A change in the composition of the Board of Directors of MyTurn.com
where those persons who were directors at the beginning of a calendar
year and those persons elected as directors during such calendar year
with the approval of a majority of directors then still in office cease
to constitute a majority of the directors.
Furthermore, notwithstanding the foregoing, the exercise of the warrants is
also subject to stockholder approval to the extent that the number of Common
Shares to be issued upon the exercise of the warrants and otherwise in
connection with the transaction are more than 20% of MyTurn.com's' outstanding
Common Shares as of December 22, 1999, unless the exercise of warrants for more
than that number of Common Shares would not violate applicable Nasdaq Stock
Market Rules.
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Results of Operations
Revenues
Revenues from continuing operations, for the twelve months ended December
31, 1999, were $233,660 which consisted primarily of interest income in the
amount of $203,155. This compared to revenues of $336,955, for the twelve months
ended December 31, 1998, which consisted primarily of interest income of
$236,271 and consulting fees of $100,000.
Costs and Expenses
Costs and expenses increased $7,048,244 for the twelve months ended
December 31, 1999, from the same period in 1998. The increase was primarily
attributable to the following:
o an increase in general and administrative costs of $6,951,938 resulting
from,
- the inclusion of only a half-year of general and
administrative expense in the loss from discontinued
operations for 1999 as compared to inclusion of a
full year of general and administrative expense in
1998,
- a stock bonus of $1,761,550 awarded to officers and
directors during 1999,
- the repricing of options previously granted to non-
employees resulting in charges of $58,451;
o an increase in depreciation and amortization of $111,872 resulting
primarily from amortization of goodwill and licenses acquired in 1999,
in the amounts of $73,630 and $24,188, respectively;
o an increase in interest expense of $93,574 resulting primarily from a
loss on investment in the amount of $91,629; and
o an increase in costs in excess of internet subscription fees of
$116,812 related to the Internet e.TV Business acquired in January
1999.
The consolidated loss from continuing operations, for the twelve months
ended December 31, 1999, was $7,128,995 compared to income from continuing
operations of $22,544 for the same period in 1998. This is attributable
primarily to the increase in costs and expenses from 1998 to 1999, as discussed
above.
The consolidated loss from discontinued operations, for the twelve months
ended December 31, 1999, was $6,792,222 compared to loss from discontinued
operations of $2,806,096 for the same period in 1998. The increase in loss from
discontinued operations of $3,986,126 is primarily attributable to e.TV, which
began operating in the Internet access, e-
32
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commerce and telecommunications business in January 1999. Such discontinued
operations included, among other things:
o the 1999 issuance of 75,000 common shares valued at $389,063 to an
unaffiliated party in consideration of such party's agreement to
provide certain support and administrative services to e.TV;
o the write-off of the remaining loan balance of $592,318 from LocalNet
in connection with the surrender of assets by LocalNet to e.TV, in
January 1999; and
o the mutually agreed upon termination of MyTurn.com's former President,
Chief Executive Officer and Secretary, Mark Honigsfeld during 1999, Mr.
Honigsfeld received $167,000 in cash and 137,500 shares (valued at
$678,125) resulting in a compensation charge of $845,125 in 1999.
Income (Loss)
For the twelve months ended December 31, 1999, MyTurn.com reflected a net
loss of $13,383,485 or a $3.29 loss per basic share as compared to a net loss of
$2,783,552 or a $.95 loss per basic share for the same period in 1998. Net loss
per diluted share was $3.29 per share and $.73 per share for 1999 and 1998,
respectively. This increase in losses is primarily the result of the increase in
loss from discontinued operations of $3,986,126 and the increase in costs and
expenses of $7,048,244 from 1998 to 1999.
Cash Flows
For the twelve months ended December 31, 1999, MyTurn.com utilized cash for
continuing operations of $2,721,277 as compared to cash provided by operations
of $52,412 in 1998 as a result of MyTurn.com's change in business strategy to
exit certain businesses and focus on fund raising for the GlobalPC acquisition.
Net cash used in discontinued operations for the twelve months ended
December 31, 1999 was $3,312,121 as compared to $1,330,626 in 1998 as a result
of the inclusion in 1999 of the e.TV business for six months and the effects of
decisions made to exit certain businesses in 1999.
Cash provided by investing activities of $1,047,001 for the twelve months
ended December 31, 1999, was primarily the result of proceeds of $1,963,182 from
the sale of marketable securities, and proceeds of $750,000 from the sale of
discontinued operations, offset by capital expenditures of $124,935 from
discontinued operations and advances of $1,541,246 made to Global PC, Inc. prior
to MyTurn.com's acquisition of certain assets of Global PC, Inc. This compares
to cash used in investing activities of $3,913,517 for the twelve months ended
December 31, 1998 which was attributable to the purchase of $2,000,000 of
marketable securities and capital expenditures of discontinued operations of
$1,913,517.
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<PAGE>
Cash provided by financing activities of $3,912,418 for the twelve months
December 31, 1999, was primarily the result of proceeds from the exercise of
stock options and warrants which aggregated $1,791,484 and proceeds from private
placement of common and preferred stock aggregating $2,177,468. This compares to
cash provided by financing activities of $4,638,878 for the twelve months ended
December 31, 1998 which was primarily attributable to net proceeds of $4,723,146
from private placements of securities.
Liquidity and Capital Resources
At December 31, 1999, MyTurn.com had a working capital deficit of $504,199,
a current ratio of (.77):1 and a debt to net worth ratio of .001:1. At its year
ended December 31, 1998, MyTurn.com had working capital of $5,297,920, a current
ratio of 1:0 and a debt to net worth ratio of 0:1. The erosion of MyTurn.com's
working capital is primarily attributable to losses experienced during the year
related to the discontinued operations as well as, the advances made to Global
PC, Inc., prior to MyTurn.com's acquisition of certain assets of Global PC, Inc.
In October and November 1999, MyTurn.com undertook a private placement of
its Common Shares through its placement agent, Hornblower & Weeks, Inc.
("Hornblower"). This offering was for a minimum of 370,000 Common Shares and a
maximum of 2,960,000 Common Shares, at a price of $1.375 per share. Investors
are entitled to "piggy-back" registration rights for Common Shares purchased in
the offering. Furthermore, investors are entitled to an additional number of
Common Shares if the five day average trading price of the Company's Common
Shares prior to the effective date of the registration statement covering the
resale of those Common Shares is less than $1.375 per share (the "Adjustment
Price"). The number of additional common shares to which an investor would be
entitled to in that event would be calculated as follows. First, the percentage
of the shortfall of the Adjustment Price per share from $1.375 per share, with
an Adjustment Price floor of $1.00 per share, is calculated. Because of the
Adjustment Price floor, the calculated percentage will be no more than 27.3%.
The shortfall percentage is then multiplied by the number of Common Shares the
investor received in the offering to arrive at the number of additional shares
he is entitled to.
In its private offering, MyTurn.com raised gross proceeds of $1,017,500 for
740,000 Common Shares, and the offering was then terminated by mutual agreement
of MyTurn.com and Hornblower.
On November 3, 1999, MyTurn.com commenced a private placement of units,
each consisting of 25,000 Common Shares and 12,500 common stock purchase
warrants through its placement agent Hornblower, at a price of $2.00 per unit.
Each warrant is exercisable for a period of five years to purchase one common
share at a price of $3.00 per share. Investors are entitled to "piggy-back"
registration rights for Common Shares and underlying the warrants purchased in
the offering. MyTurn.com raised gross proceeds of $1,350,000 from the sale of 27
units in such offering.
With respect to each of these offerings, Hornblower received a 10%
commission and 3% non-accountable expense allowance of the gross proceeds of
these offerings.
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At December 31, 1999, MyTurn.com had stock options outstanding to purchase
4,922,591 Common Shares at exercise prices ranging from $1.00 per share to $6.38
per share, with vesting periods of 1 to 5 years and having remaining lives
ranging from 4 to 7 years. The number of options reflected as granted during
1999 and the number of options reflected as outstanding at December 31, 1999 in
the Consolidated Financial Statements differ from those reflected here, by the
number of options granted in 1999 to purchase in excess of the 2,000,000 Common
Shares authorized for issuance under the 1996 Stock Option Plan (the "Plan").
Under Generally Accepted Accounting Principles, the options granted to purchase
Common Shares in excess of the Plan were not recorded until January 20, 2000,
when the stockholders approved an increase in the number of shares authorized
for issuance upon the exercise of options granted under this Plan to 10,000,000.
During 1999, MyTurn.com received $1,485,784 from the exercise of options to
purchase 701,847 Common Shares. At December 31, 1999 options to purchase
1,212,237 Common Shares were fully vested and exercisable. Although MyTurn.com
hopes the options will be exercised, if the market price of MyTurn.com's
publicly traded Common Shares is less than exercise price of the options, it is
unlikely the options would be exercised. Even if the market price of
MyTurn.com's publicly traded stock is above the exercise price of exercisable
options, there can be no assurance any of the options will be exercised, and if
any are exercised, MyTurn.com cannot predict the number of options that would be
exercised or when the options would be exercised.
At December 31, 1999, MyTurn.com had stock purchase warrants outstanding to
purchase 3,666,307 Common Shares at exercise prices ranging from $1.50 per share
to $13.62 per share, with vesting periods of 24 days to 27 months and having
remaining lives ranging from 3 to 5 years. During 1999, MyTurn.com received
$305,700 from the exercise of warrants to purchase 101,900 Common Shares. At
December 31, 1999, warrants to purchase 1,230,007 Common Shares were fully
vested and exercisable. Subsequent to December 31, 1999, MyTurn.com issued
warrants to purchase 1,640,000 Common Shares at exercise prices ranging from
$5.00 per share to $20.25 per share. Although MyTurn.com hopes the warrants will
be exercised, if the market price of MyTurn.com's publicly traded Common Shares
is less than exercise price of the warrants, it is unlikely the warrants would
be exercised. Even if the market price of MyTurn.com's publicly traded stock is
above the exercise price of vested warrants, there can be no assurance any of
the warrants will be exercised, and if any are exercised, MyTurn.com cannot
predict the number of warrants that would be exercised or when the warrants
would be exercised.
MyTurn.com anticipates it will need additional capital in approximately 90
days to continue to develop and sustain its business at current levels.
MyTurn.com believes obtaining additional funding is essential to the successful
implementation of both its short-term and long- range business plans, and this
is one of the focuses of management. MyTurn.com is continuing to explore sources
of capital, including debt and equity investments. There can be no assurance
that any investor will make a debt or equity investment in MyTurn.com. If future
investments are made, MyTurn.com cannot assure that they will be made on terms
as favorable as MyTurn.com would like nor can MyTurn.com predict at this time
the size of such an investment. If MyTurn.com is unable to secure additional
financing within 90 days, it will not be able to continue to develop its current
business plan. Consequently, MyTurn.com will have to scale back its operations.
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In March 2000, MyTurn.com received a financial commitment from Michael
Fuchs, its recently appointed Chairman of the Board and Interim Chief Executive
Officer to fund working capital deficits of up to $500,000 per month for the 12
months beginning April 2000 if proceeds from operations or other fund raising
efforts are not sufficient to meet MyTurn.com's working capital needs. Fund
raising opportunities are being explored but no assurance can be given that any
offerings will be undertaken or any agreements to raise capital will be reached.
Additionally, MyTurn.com received a commitment from certain members of
management who hold options to purchase up to 3,159,405 Common Shares that they
will exercise these options on or prior to June 30, 2000. That exercise would
generate proceeds of up to approximately $8,100,000.
See Note 15 "Subsequent Events" to the Consolidated Financial Statements
about a discussion of a non-cash stock compensation charge that MyTurn.com is
required to recognize pursuant to generally accepted accounting principles
relating to certain stock options granted in 19999 under MyTurn.com's 1996 Stock
Options Plan. MyTurn.com will recognize the non-cash stock compensation charge
of approximately $85,000,000 commencing in the first quarter of 2000 and
extending over the vesting period of those options. This non-cash earnings
charge will not impact MyTurn.com's cash flow or net stockholders' equity.
Year 2000 Issues
The Year 2000 ("Y2K") problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year. Any
of MyTurn.com's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. MyTurn.com instituted a Y2K compliance
program, the objective of which was to determine and assess the risks of the Y2K
issue, and plan and institute mitigating actions to minimize those risks.
MyTurn.com's standard for compliance requires that, for a computer system or
business process to be Y2K compliant, it must be designed to operate without
error in date and date-related data. MyTurn.com believes it is fully Y2K
compliant with respect to all significant business systems.
MyTurn.com's Y2K plan consisted of four phases:
o assessment and analysis of "mission critical" systems and equipment;
o remediation of systems and equipment, through strategies that include
the enhancement of new and existing systems, upgrades to operating
systems already covered by maintenance agreements and modifications to
existing systems;
o testing of systems and equipment; and
o contingency planning which will address possible adverse scenarios and
the potential financial impact to MyTurn.com's results of operations,
liquidity or financial position.
All four phases of MyTurn.com's Y2K plan have been implemented, and, to date,
MyTurn.com has not experienced any Y2K problems. However, management believes it
is prudent to maintain its contingency plans in the event any problems should
arise in the future.
Contingency Plans
MyTurn.com's management developed a "worst-case scenario" with respect to
Y2K non- compliance and to develop contingency plans designed to minimize the
effects of such scenario. Although MyTurn.com believes that it is very unlikely
that any of these worst-case scenarios will occur, contingency plans have been
developed and address both IT system and non-IT system
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failure.
If suppliers of services that are critical to MyTurn.com's operations were
to experience business disruptions as a result of their lack of Y2K readiness,
their problems could have a material adverse effect on the financial position
and results of operations of MyTurn.com. Although MyTurn.com has not experienced
any Y2K problems of any suppliers. However, due to the change in focus of its
business at the end of 1999, MyTurn.com's suppliers are changing and no
assurance can be given that MyTurn.com's suppliers will not have any Y2K
problems. The impact of a failure of readiness by critical suppliers cannot be
estimated with confidence, and the effectiveness of contingency plans to
mitigate the effect of any such failure is largely untested. Management cannot
provide an assurance that there will be no material adverse effects to the
financial condition or results of operations of MyTurn.com as a result of Y2K
issues. The statement contained under the "Year 2000 issues" heading is subject
to protection under the Year 2000 Information and Readiness Disclosure Act.
Forward Looking Statements
Except for historical information contained herein, the matters set forth
above contain forward looking statements that involve certain risks and
uncertainties that could cause actual results to differ from those in the
forward looking statements. Potential risks and uncertainties include such
factors set forth on page 1 of this Annual Report on Form 10-KSB under "Forward
Looking Statements."
Item 7. Financial Statements
The audited financial statements of MyTurn.com as at December 31, 1999 and
1998 and for the years then ended are included in this Annual Report on Form
10-KSB following Item 13 hereof.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The disclosure called for by this Item was previously reported in a Current
Report on Form 8-K filed with the SEC on October 18, 1999.
37
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors and Executive Officers.
The names and ages of, and the positions held by, the executive officers
and directors of MyTurn.com are set forth below.
<TABLE>
<CAPTION>
Class of
Name Age Positions Held Directorship
<S> <C> <C> <C>
Michael Fuchs 54 Chairman of the Board,
Interim Chief Executive Officer
and Director II
Rudy C. Theale, Jr. 25 Vice Chairman of the Board and
Director II
Robert E. (Teddy) Turner, IV 36 Director III
Mark Bradlee 50 Director I
Brian Dougherty 43 Director I
Joseph Antonini 58 Director III
Jeffrey Coats 42 Director III
Harold Lazarus, Ph.D. 72 Director II
Christopher Liston 39 Director I
Paul Danner 42 Executive Vice President,
Office of the President -
David Greenspan 34 Chief Financial Officer, -
Treasurer and Secretary
Mike Nelson 53 Chief Marketing Officer -
Denis Squeri 41 Vice President, Corporate -
Communications
Bob Lyells 47 Vice President Manufacturing -
Don Reeves 32 Vice President Software Development -
Dave Durran 39 Vice President Hardware Development -
</TABLE>
38
<PAGE>
Michael Fuchs
Michael Fuchs has served as a director of MyTurn.com since January 2000.
Since November 1995, Mr. Fuchs has been an investor and a consultant in the
media business. Mr. Fuchs was Chairman and Chief Executive Officer of Home Box
Office, a division of TimeWarner Entertainment Company, LP from October 1984
until November 1995, and Chairman and Chief Executive Officer of Warner Music
Group, a division of TimeWarner, Inc., from May 1995 to November 1995. Mr. Fuchs
is Chairman of Autobytel.com, Inc. and he also has served as a Director of Wink
Communications Inc. since June 1998. Mr. Fuchs holds a BA Degree from Union
College and a JD Degree from the New York University School of Law.
Rudy C. Theale, Jr.
Mr. Theale was named Vice Chairman of the Board of MyTurn.com on April 4,
2000. He served as Executive Vice President of MyTurn.com from January 1999
until November 19, 1999, when he was elected President. He held that position
until April 4, 2000. He also served as the Vice Chairman of the Board of
MyTurn.com from June 8, 1999 until July 27, 1999, and has served as a director
since March 21, 1999. Mr. Theale has served as President and a director of
LocalNet since April 1997, where he was primarily responsible for sales and
marketing efforts, and the general oversight of daily operations. From February
1996 until January 1997, Mr. Theale served as President of SDI, Inc. where he
was primarily responsible for sales and marketing management as well as the
general oversight of daily operations. At age seventeen Mr. Theale founded
ReCom, a cellular phone refurbishing company, which grew to $3 million in sales
the first two years. Afterwards, he formed SmartPhone America, a prepaid
cellular business, which achieved sales of more than $12 million in 1996.
SmartPhone was a pioneer in providing cellular telephone service to the market
segment that was unable to meet stringent credit requirements of early cellular
providers.
Robert E. (Teddy) Turner, IV
Mr. Turner joined MyTurn.com in January 1999 as Chairman of the Board, a
position in which he served until January 4, 2000. He was elected as a director
of MyTurn.com in March 1999. Mr. Turner served as MyTurn.com's principal
executive officer from May 1999 until November 1999. Mr. Turner served from
December 1997 until September 1998 as Chairman of the Board and President of,
Zekko Corp. ("Zekko"). Zekko operated predominantly in the areas of technology
acquisition, development and marketing. From October 1996 until December 1997,
Mr. Turner served as the President of Turner Telecommunication, an organization
which concentrated in the acquisition and development of telecommunication
products. Mr. Turner specialized in the research and analysis of potential
telecommunication product acquisitions. From June 1993 until October 1996, Mr.
Turner was a manager with Turner Home Entertainment, a domestic home video
company where he was responsible for the Southeastern United States sales and
promotional divisions. Mr. Turner has been a director of All Seasons Vehicles,
Inc., a publicly traded manufacturer of track driven all season vehicles, since
April 1997, and Chairman of the Board of U.S. Bison Co., LLC an Atlanta,
Georgia-based bison products marketing company. Mr. Turner sits on the Boards of
several foundations including
39
<PAGE>
The Turner Foundation, Inc., Jane Smith Turner Foundation, the Georgia Chapter
of Juvenile Diabetes Foundation, the North Florida Chapter of the Nature
Conservancy and the City of Jacksonville Commission on Television and Film. He
also sits on the Board of Trustees of St. Mary's College of Maryland. Mr. Turner
holds a Bachelor of Science Degree in Business Administration from The Citadel.
Mark Bradlee
Mr. Bradlee became a director and the Executive Vice President - World-Wide
Sales and Business Development of MyTurn.com in December 1999. Mr. Bradlee was a
founder of Global PC, Inc. and has served as the President and Chief Executive
Officer of Global PC, Inc. since April of 1998, the time of Global PC, Inc's
inception. From October of 1992 to October of 1997, Mr. Bradlee was the
Executive Vice-president of YES! Entertainment, a toy manufacturer. In or about
June, 1999, a bankruptcy petition was filed with respect to YES! Entertainment.
In his 28 year career he also, among other things, managed the launch and sales
of Nintendo from 1985 to 1987 and managed Atari's video game business in the
U.S. in 1981. Mr. Bradlee holds a Bachelor's Degree in Marketing from Boston
College.
Brian Dougherty
Mr. Dougherty became a director of MyTurn.com in January 2000. Since
January 1997 until presently, Mr. Dougherty has been Chairman and Chief
Technology Officer of Wink Communications ("Wink") publicly traded interactive
television software designer and provider of interactive television services.
From October of 1994 until January of 1997, Mr. Dougherty was Chairman and Chief
Executive Officer of Wink. Mr. Dougherty was one of the founders of Global PC,
Inc. and has been Global PC, Inc.'s Chairman and Chief Technology Officer.
Joseph Antonini
Mr. Antonini's successful career began in 1964 as a management trainee in
the stockroom of a Pennsylvania Kmart store from where he successfully worked
his way up to be named Chairman & CEO of Kmart Corporation, the nation's second
largest retailer. Mr. Antonini is credited with expanding the company into a
global retailer and diversifying into other retail businesses. During his time
as Chairman of Kmart, Mr. Antonini's accomplishments included updating 70
percent of the 2,350 stores, introducing the prototype Super Kmart Center
concept, and opening new markets in Alaska, Hawaii, Long Island, New York City,
Guam and the Caribbean. Mr. Antonini is credited with engineering the expansion
and growth of Kmart Specialty Division, the largest multi-specialty group in the
world. Consisting of Sports Authority, Office Max, Builders Square,
Borders/Walden Book Group, Warehouse Clubs and drug stores, this group generated
annual revenues of more than $24 billion. During his tenure as Chairman & CEO,
Mr. Antonini set company records for net profit of $941 million and market value
of $13 billion. With an understanding of the mass markets, Mr. Antonini helped
establish successful branding programs with names such as Jaclyn Smith, Martha
Stewart, Kathy Ireland, Fuzzy Zoeller and the Andretti Racing Team. He currently
serves as a Director of American Speedy Printing, Shell Oil Company, Ziebart,
Inc. and Andretti Wine Group Ltd. and previously served on numerous other boards
including NBD Bank and Chrysler Corporation. He prides himself with his
dedication to community service and volunteerism as displayed by the long list
40
<PAGE>
of Antonini beneficiaries which include the Michigan Cancer Foundation, Boys and
Girls Club of Michigan, Leukemia Society of America and United Way, and others.
He has received numerous awards including induction into the prestigious Horatio
Alger Association of Distinguished Americans along with Oprah Winfrey. Mr.
Antonini holds Honorary Degrees from Detroit College of Law, Central Michigan
College and Kent College. Mr. Antonini, a graduate of West Virginia University,
received the most Distinguished Alumni Award from his Alma Mater.
Jeffrey H. Coats
Jeffrey H. Coats has served as a Director of MyTurn.com since April 4,
2000. Since July 1999, Mr. Coats has served as a Founder and Managing Director
of the T. H. Lee, Putnam Internet Fund. From April 1996 to July 1999, Mr. Coats
served as Managing Director of the GE Capital Equity Capital Group, Inc., a
wholly owned subsidiary of General Electric Capital Corporation. From September
1991 to April 1993, Mr. Coats was also a Managing Director of GE Capital
Corporate Finance Group, Inc., a wholly owned subsidiary of General Electric
Capital Corporation. From February 1994 to April 1996, Mr. Coats served as
President of Maverick Capital Equity Partners, LLC, and from May 1993 to January
1994, Mr. Coats was a Managing Director with Veritas Capital, Inc., both of
which are investment firms. Mr. Coats is the Chairman of the Board of the
Hastings Group, Inc., which filed for Chapter 11 bankruptcy in October 1995 and
confirmed a plan of liquidation in December 1997. Mr. Coats is a director of
Krause's Furniture, Inc., autobytel.com, Inc., The Museum Company, Inc. and Wink
Communications, Inc. Mr. Coats holds a B.B.A. in Finance from the University of
Georgia and an M.A. in International Management in Finance from the American
Graduate School of International Management.
Harold Lazarus, Ph.D
Dr. Lazarus joined MyTurn.com as a director in March 1997. He is presently
the Mel Weitz Distinguished Professor of Management at the Hofstra University
Frank G. Zarb School of Business (the "Hofstra Business School") since 1980.
From 1973 to 1980, Dr. Lazarus served as Dean of the Hofstra Business School.
Dr. Lazarus is an organization development consultant who lectures in Europe,
Asia, North America and South America on leadership, time management, total
quality management, managing change, effective meetings, problem solving,
decision making, mission statements, management by objectives, and
communications. Dr. Lazarus was Professor of Management at the New York
University Leonard N. Stern School of Business for ten years, and he also taught
at Columbia University Graduate School of Business and Harvard University
Business School. Dr. Lazarus has served on several boards of directors of public
companies in the past, including Ideal Toy Corporation, Superior Uniform Group,
Inc., Facelifters Home Systems, Inc., Stage II Apparel Corporation, Diplomat
Electronics Corporation and Graham-Field Health Products, Inc. Dr. Lazarus has
published seven books and 65 articles on business management. He also chairs the
board of Phi Beta Kappa Alumni of Long Island (New York). Dr. Lazarus received a
Masters of Science Degree and a Doctor of Philosophy Degree in Management and
Marketing from Columbia University's Graduate School of Business.
41
<PAGE>
Christopher Liston
Mr. Liston was elected a director of MyTurn.com in March 1999. From
December 1998 until July 27, 1999 he was the Vice President, Business
Development of LocalNet. From May 1993 to September 1998, Mr. Liston was a Vice
President of Osprey Capital, Inc., an investment banking company. Mr. Liston
received a Bachelor of Arts Degree in Political Science from the College of
Charleston in South Carolina.
Paul Danner
Paul Danner served as President of MyTurn.com from June, 1999 until
November 19, 1999 and Chief Executive Officer from November 1999 to April 4,
2000 He is currently Executive Vice President, Office of the President. From
January 1999 until June 1999, Mr. Danner served as Chief Operating Officer of
e.TV Commerce, Inc., MyTurn.com's referral network marketing subsidiary, which
ceased operations in July 1999, and from September 1998 until December 1998
served in the same position for LocalNet. In this position he was responsible
for the oversight and direction of, among other things, LocalNet's network sales
operations, supervising approximately 30 employees. From December of 1997 until
August of 1998, Mr. Danner was the Vice President - Operations of Zekko Corp.,
which operated predominantly in the areas of technology acquisition, development
and marketing, and supervised the research and development, finance and
operations staff. From April 1997 to December 1997, he was the sole principal of
Technology Ventures, Inc., a provider of strategic planning, financial and other
consulting services. From 1991 to 1996, Mr. Danner was Vice president of Command
Communications, Inc., a designer, manufacturer and distributor of communications
products. After earning a BS Degree from Colorado State University in 1979, Mr.
Danner went on to serve with the United States Navy flying the F-14 Tomcat.
Following separation from active duty, Mr. Danner completed the MBA program at
Old Dominion University. He also currently serves with the Naval Reserves and is
presently assigned to the Naval Air Warfare Center in Orlando, Florida.
David Greenspan
Mr. Greenspan has served as Chief Financial Officer of Compu-DAWN since
December 1998. He was elected Secretary and Treasurer of Compu-DAWN on May 17,
1999. From December 1997 until February 1999, Mr. Greenspan served as Chief
Financial Officer and a director of LocalNet. From March 1997 to December 1997,
Mr. Greenspan served as the Chief Operating Officer of PGA Tour Radio Network, a
national sport broadcasting company based in Atlanta, Georgia. From August 1996
to March 1997, he was the Vice President, Business Affairs of Turner Media
Consultants, a broadcast consulting company. From March 1994 to August 1996, Mr.
Greenspan served as a project manager for Atlanta Olympic Broadcasting, with
responsibility for planning and coordinating all television and radio operations
for the 1996 Summer Olympic games. Mr. Greenspan holds a Bachelor of Science
Degree in Accounting from Troy State University in Alabama.
42
<PAGE>
Mike Nelson
Mr. Nelson joined MyTurn.com as its Chief Marketing Officer in March 2000.
From March 1996 to June 1999 he worked for GTE Corporation where he held the
position of Chief Marketing Officer for GTE Satellite Entertainment and Vice
President Marketing for GTE Interactive Media. While there his Internet
marketing strategy increased product-driven Web site traffic from 63,000 to over
1,000,000 visitors per month. Before that, from June 1993 to February 1996, he
was the Chief Operating Officer of Velocity, Inc. Prior to this position, from
June 1990 to March 1993, Mr. Nelson was Chief Operating Officer for Spectrum
Holobyte, Inc. where he introduced 23 new products including Tetris, Falcon and
Star Trek with revenues eventually exceeding $250 million. During his career,
Mr. Nelson has developed and introduced over 30 interactive software brand
lines, ten major packaged goods brands including Clorox II, and launched a
satellite television service from DirecTV. His unique combination of packaged
goods brand building, technology innovations and Internet strategy experience is
a valuable new addition. Mr. Nelson holds an MBA degree from the University of
California at Berkely.
Denis Squeri
Mr. Squeri joined MyTurn.com in December 1999 and serves as Vice President
Corporate Communications. From September 1998 to December 1999 he served as Vice
President Sales of Global PC, Inc. From January 1998 to September 1998 Mr.
Squeri served as Vice President, Worldwide Sales for Quantum3D, where he played
a key role in establishing Quantum3D as the premier graphics board supplier.
Previously, from October 1995 to January 1998 Mr. Squeri held the position of
Vice President of Sales and Marketing for MySoftware Company, where he
established a major presence at retail and ultimately helped guide the company
into the Internet service sector. Between July 1990 and March 1995 Mr. Squeri
was the Vice President Sales and Marketing of Complete PC. During his career
before that he was Vice President of Sales and Marketing for The Learning
Company, establishing them as the leading children's software company and helped
pioneer the use of consumer marketing models in the software industry. Mr.
Squeri headed the division of Worlds of Wonder where he was responsible for the
launch of the Nintendo Entertainment System and its rise to #1 in the video game
industry with an 85% market share and $1.5 billion in sales in its second year.
He graduated from the University of California at Berkeley with a Bachelor of
Arts Degree.
Robert Lyells
Bob Lyells joined MyTurn.com in March 2000 as its Vice President -
Manufacturing. From December 1997 to March 2000 he was the Senior Director
Product Assurance and Technology Center of 3D Systems, Inc. At 3D Systems he
played a leadership roll in reducing field repairs by 70%, improving
manufacturing yields to all time record levels and leading the efforts for
Design for Manufacturability. Inc. From October 1994 to December 1997 he was a
principal of Quality Systems, a quality assurance consulting company. Before
that he had over 11 years of quality and manufacturing management experience in
other high-technology companies such as Amdahl Corp., Hewlett Packard Co.,
Harris Corp., Apple Computer, Quantum Corp., Micropolis Corp., and Maxtor. He
was a key member of the Quantum
43
<PAGE>
manufacturing management team that brought the first volume manufacturing
facility online in Japan. At Micropolis Corp., he was responsible for improving
the manufacturing yields from 76% to over 95% in less than 7 weeks. Mr. Lyells
also ran a successful consulting practice that focused on Supply Chain
Management, Design for Manufacturability, Process Control and Yield Improvement
programs. His consulting practice had clients that ranged from Fortune 100
corporations to start-up companies. Mr. Lyells earned his Bachelor of Science
Degree in Physics from Illinois Institute of Technology.
Donald Reeves
Don Reeves joined MyTurn.com in December 1999 and serves as Vice President
Software Development. From August 1998 to December 1999 he served as Vice
President Software Engineering for Global PC, Inc. Prior to that, from December
1990 to August 1998 he served as Vice President of Engineering at Geoworks.
There he was responsible for software development at Geoworks' four Design
Centers, overseeing the development of all Geoworks' operating systems, wireless
data service, and device products. Previously he worked as Director of
Engineering at Geoworks' Alameda Design Center, which included managing both
Wireless Content and Services and GEOS Operating System product groups. Mr.
Reeves participated in software design and implementation for several key
Geoworks projects, including the Casio Z- 7000 Personal Digital Assistant,
Geoworks' first handheld device. Mr. Reeves also contributed to GEOS versions
1.0 and 2.0, and managed the GEOS 2.1 and 3.0 operating system releases. Mr.
Reeves obtained a Bachelor of Sciences Degree in Electrical Engineering and
Computer Science from the University of California at Berkely.
David Durran
David Durran joined MyTurn.com in December 1999 and serves as Vice
President Hardware Development. From July 1998 to December 1999 he served as
Vice President Hardware Engineering for Global PC, Inc. Mr. Durran was a
Co-Founder of Geoworks, and served as Hardware Architect there from 1983 to
1998. As Hardware Architect, Mr. Durran worked as the liaison between the key
hardware suppliers to the smart-phone market, Geoworks software design teams,
and Geoworks customers, such as Nokia and Ericsson, developing the platforms
that served as the basis for each product. Mr. Durran also served as Program
Manager for Enhanced Phones at Geoworks. He was responsible for the introduction
of a new software product for wireless mobile hardware. Past projects at
Geoworks also include: designing the printing system for GEOS (PC, Apple, and
Commodore versions), designing in circuit development systems and peripherals
for Commodore and Apple, and designing a mobile computer/game system for
airliners. In 1981, Mr. Durran was a Co-Founder and Designer at Imagic, where he
designed the development systems used to create video games for the
Intellivision console, and designed system software for the video games. Between
1978, and 1981, he worked at Mattel, where he was involved in the design of the
Intellivision game and peripheral hardware.
MyTurn.com's Certificate of Incorporation provides for three classes of
directors, each having a three year term. Each director will hold office until
the next annual meeting of stockholders during the year in which the term of his
class of directorship expires and until his
44
<PAGE>
successor is elected and qualified. The terms of the Class I, Class II and Class
III directorships expire at MyTurn.com's annual meetings in 2002, 2001 and 2000,
respectively. Executive officers serve at the pleasure of the Board of
Directors.
There is no family relationship among any of MyTurn.com's executive
officers and directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended ("Section
16"), requires that reports of beneficial ownership of capital stock and changes
in such ownership be filed with the Securities and Exchange Commission (the
"SEC") by Section 16 "reporting persons," including directors, certain officers,
holders of more than 10% of the outstanding Common Shares and certain trusts of
which reporting persons are trustees. MyTurn.com is required to disclose in this
Annual Report on Form 10-KSB each reporting person whom it knows to have failed
to file any required reports under Section 16 on a timely basis during the
fiscal year ended December 31, 1999.
To MyTurn.com's knowledge, based solely on a review of copies of Forms 3, 4
and 5 furnished to it and written representations that no other reports were
required, during the fiscal year ended December 31, 1999, MyTurn.com's officers,
directors and 10% stockholders complied with all Section 16(a) filing
requirements applicable to them except that Mr. Turner filed his Form 3, which
was due on January 18th, one day late; Mr. Theale filed his Form 3, which was
due January 18th, four days late; Mr. Bradlee filed his Form 3, which was due
January 13th, one day late; Mr. Turner filed a Form 4 (reporting two
transactions) for March 1999 two days late; Mr. Theale filed a Form 4 (reporting
four transactions) for October 1999 30 days late; Mr. Libin filed a Form 5
(reporting a transaction in 1999) 44 days late; and Dr. Lazarus filed a Form 4
(reporting one transaction) for December 1999 one day late.
Item 10. Executive Compensation
The following table provides summary information concerning cash and
certain other compensation paid or accrued by MyTurn.com to, or on behalf of,
Mr. Danner, MyTurn.com's former Chief Executive Officer, Mr. Turner, a member of
the Board of Directors and MyTurn.com's former Chairman of the Board and former
Chief Executive Officer, Mark Honigsfeld, MyTurn.com's former Chief Executive
Officer and former President, Mr. Theale, a member of the Board of Directors,
MyTurn.com's Vice Chairman of the Board and MyTurn.com's former President, Mr.
Liston, a member of the Board of Directors and the Company's Vice President
Investor Relations, Mr.Greenspan, MyTurn.com's Chief Financial Officer, and
Louis Libin, MyTurn.com's former Chief Technology Officer, during the last three
fiscal years. No other executive officer of MyTurn.com had a combined salary and
bonus in excess of $100,000 for the year ended December 31, 1999.
45
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
Other Annual Restricted Stock Securities LTIP All Other
Name and Year Salary Bonus Compensation Award(s) Underlying Options Payout Compensation
Principal Position
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Turner(1) 1999 $140,500 478,125(6) - - 861,575 - -
1998 - - - - - - -
1997 - - - - - - -
Paul Danner 1999 $143,884 255,000(6) - - 660,000 - -
1998 - - - - - - -
1997 - - - - - - -
Rucy C. Theale(3) 1999 $178,000 478,125(6) - - 1,803,000 - -
1998 - - - - - - -
1997 - - - - - -
David Greenspan 1999 $100,753 - - - 275,000 - -
Chief Financial Officer 1998 - - - - - - -
Treasurer and Secretary 1997 - - - - - -
Louis Libin(4) 1999 $102,580 63,750(6) - - 489,600 - -
1998 $223,699 - - - 65,000(7) - -
1997 $178,651 - - - 100,000 - -
Christopher Liston
VP Investor Relations 1999 $102,753 223,125(6) - - 384,030 - -
1998 - - - - - - -
1997 - - - - - - -
Mark Honigsfeld(5) 1999 $ 98,880 - - - 200,000 -
1998 $251,847 - - - 125,000 -
1997 $250,000 - - - 100,000 -
</TABLE>
- --------------------
(1) Mr. Turner acted as MyTurn.com's principal executive officer from May
1999 until Mr. Danner was elected as Chief Executive Officer in November
1999.
(2) Mr. Danner served as MyTurn.com's Chief Executive Officer from November
1999 to April 2000 when Michael Fuchs was elected Interim Chief Executive
Officer.
(3) Mr. Theale served as Executive Vice President from January to November
1999, President from November 1999 to April 2000 and Vice Chairman of the
Board from June 8 to July 27, 1999, which position he was re-elected to in
April 2000.
(4) Mr. Libin served as Chief Technology Officer and Senior Executive Vice
President from January 1997 and January 1999 respectively to July 31,
1999.
(5) Mr. Honigsfeld was elected Chief Executive Officer as of October 1,
1996, served as Chairman of the Board from August 1996 until January 8,
1999, and as President from January 8, 1999 until May 11, 1999. Mr.
Honigsfeld and MyTurn.com mutually terminated their employment
relationship by agreement dated May 11, 1999.
(6) Bonus was paid in Common Shares valued at $6.375 per share pursuant to
MyTurn.com's
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<PAGE>
1999 Bonus Pool Plan. Pursuant to the 1999 Bonus Pool Plan the following named
executives were awarded the following number of Common Shares:
Number of
Name Common Shares
---- -------------
Robert E. Turner 75,000
Paul Danner 40,000
Rudy C. Theale 75,000
David Greenspan 32,000
Louis Libin 10,000
Christopher Liston 35,000
MyTurn.com registered these Common Shares for resale on February 14, 2000.
(7) Includes 50,000 options granted to replace options to purchase a like
number of Common Shares which were canceled in order to effectuate a
repricing.
Each non-employee director of the Company is entitled to receive a
director's fee of $1,000 per meeting (other than telephonic meetings for which
the fee is $500), and options to purchase 5,000 Common Shares of MyTurn.com each
year, which options will be exercisable for a period of ten years from the date
of grant, at an exercise price equal to the market price of the Common Shares on
the date of the grant. Additionally, each non-employee director is reimbursed
for reasonable out-of-pocket expenses incurred in attending meetings of the
Board of Directors of the Company. The members of the Board of Directors meet
regularly, as needed.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number of Common Percentage of Total
Shares Underlying Options Granted To
Name Options Granted Employees in Fiscal Year Exercise Price Expiration Date
<S> <C> <C> <C> <C>
Robert E. Turner 200,000 3.8% $2.50(1) January 8, 2004
33,250 .6% $2.50(2) May 7, 2004
150,000 2.8% $2.50(3) June 8, 2004
350,000 6.6% $2.50(4) July 20, 2004
50,000 .9% $1.00 October 7, 2004
78,325 1.5% $5.00 December 2, 2004
Paul Danner 25,000 .5% $2.50(1) January 8, 2004
200,000 3.8% $2.50(3) June 8, 2004
225,000 4.3% $2.50(4) July 20, 2004
150,000 2.8% $1.00 October 7, 2004
60,000 1.1% $5.00 December 2, 2004
Rudy C. Theale 650,000 12.3% $2.50(1) January 8, 2004
100,000 1.9% $2.50(3) June 8, 2004
750,000 14.2% $2.50(4) July 20, 2004
150,000 2.8% $1.00 October 7, 2004
153,500 2.9% $5.00 December 2, 2004
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<PAGE>
David Greenspan 35,000 .7% $2.50(1) January 8, 2004
65,000 1.2% $2.50(3) June 8, 2004
100,000 1.9% $2.50(4) July 20, 2004
50,000 .9% $1.00 October 7, 2004
25,000 .5% $5.00 December 2, 2004
Louis Libin 200,000 3.8% $2.50(1) January 8, 2004
50,000 .9% $2.50(3) June 8, 2004
50,000 .9% $2.50(4) July 20, 2004
100,000 1.9% $5.00 December 2, 2004
50,000 .9% $1.00 October 7, 2004
39,600 .9% $5.00 December 2, 2004
Christopher Liston 50,000 .9% $2.50(1) January 8, 2004
100,000 1.9% $2.50(3) June 8, 2004
150,000 2.8% $2.50(4) July 20, 2004
50,000 .9% $1.00 October 7, 2004
34,030 .6% $5.00 December 2, 2004
Mark Honigsfeld 200,000 3.8% $3.25(5) January 8, 2004
</TABLE>
- ---------------------
(1) These options were initially granted in 1999 at an exercise price
of $5.81 per share and later repriced to market of $2.50 per share.
See Item 10 - "Executive Compensation - Report on Repricing of
Options."
(2) These options were intially granted in 1999 at an exercise price
of $3.37 per share and later repriced to market of $2.50 per share.
See Item 10 - "Executive Compensation - Report on Repricing of
Options."
(3) These options were initially granted in 1999 at an exercise price
of $6.25 per share and later repriced to market of $2.50 per share.
See Item 10 - "Executive Compensation - Report on Repricing of
Options."
(4) These options were initially granted in 1999 at an exercise price
of $5.25 per share and later repriced to market of $2.50 per share.
See Item 10 - "Executive Compensation - Report on Repricing of
Options."
(5) These options were initially granted in 1999 at an exercise price
of $5.00 per share and later repriced to market of $3.25 per share.
See Item 10 - "Executive Compensation - Report on Repricing of
Options."
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
ENDED DECEMBER 31, 1999 AND FISCAL YEAR-END OPTION VALUES
Number of Shares
Underlying Unexercised Value of Unexercised
Number of Options at In-the-Money Options
Shares Acquired Value December 31, 1999 at December 31, 1999
Name On Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert E. Turner - - 125,000/736,575 $559,375/$2,658,416
Paul Danner - - 155,000/505,000 $825,625/$1,806,875
Rudy C. Theale 15,000 $ 15,000 150,000/1,538,500 $768,750/$5,592,938
David Greenspan - - 55,000/220,000 $288,125/$790,000
48
<PAGE>
Louis Libin 205,000 $512,500 260,000/139,600 $780,000/$441,950
Christopher Liston 9,700 $ 9,700 83,633/290,697 $384,528/$1,041,376
Mark Honigsfeld 330,300 $556,250 94,770/0 $308,656/$0
</TABLE>
Employment Contracts, and Termination of Employment and Change-in-Control
Arrangements
Employment Agreements
Robert E. (Teddy) Turner
MyTurn.com is a party to an Employment Agreement with Robert E. (Teddy)
Turner, IV for a term of three years commencing as of January 8, 1999, which is
subject to continuing, annual, automatic one-year extensions. Pursuant to the
Employment Agreement Mr. Turner serves as the Company's Chairman of the Board.
Mr. Turner's Employment Agreement was extended an additional two years in
December 1999.
The Employment Agreement provides for base annual compensation of $208,000
per annum, although Mr. Turner and MyTurn.com mutually agreed, as of May 7,
1999, to reduce his annual salary to $100,000; simultaneously, Mr. Turner was
granted five-year options to purchase 33,250 Common Shares at an exercise price
of $3.25 per share (these options were subsequently repriced to $2.50 per
share). Mr. Turner is entitled to be granted five-year options to purchase
33,250 each year at market price for each one year period that his salary
remains at the reduced rate. Mr. Turner's Employment Agreement does not require
Mr. Turner to devote all of his time to MyTurn.com's business and allows him to
participate in other activities which do not prevent Mr. Turner from fulfilling
his obligations to MyTurn.com. In addition to such base compensation Mr. Turner
is entitled to receive a sales and marketing bonus, which will allow him to earn
a bonus of up to 50% of his base compensation each year, based on certain
performance thresholds.
Mr. Turner also receives an expense allowance of up to $500 per month and
an automobile allowance in the amount of $1,000 per month. He is also entitled
to reimbursement of accountable customary business expenses.
Mr. Turner's employment agreement provides that, notwithstanding the
rolling three-year term thereof, it can be terminated prior to the expiration
date under the following circumstances: (i) death; (ii) total disability (as
provided for in the Employment Agreement); (iii) termination by MyTurn.com for
"cause" (as defined in the Employment Agreement); (iv) termination by MyTurn.com
at any time upon written notice to Mr. Turner; (v) termination by Mr. Turner at
any time for "good reason" (as defined in the Employment Agreement); or (vi)
termination by the Company at any time within 12 months after a "change in
control" (as defined in the Employment Agreement).
Mr. Turner's employment agreement provides for compensation under certain
circumstances upon termination of employment (in addition to accrued but unpaid
compensation) as follows: (i) in the event of Mr. Turner's death, his estate or
spouse would be entitled to receive
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<PAGE>
an amount equal to his monthly salary as of the date of death multiplied by the
number of full years that he had been an employee of MyTurn.com or a subsidiary
or a predecessor in interest thereof; (ii) in the event of termination of the
employment agreement due to disability, Mr. Turner is entitled to receive an
amount equal to his monthly salary as of the date of termination of the
employment agreement, multiplied by the number of full years that he had been an
employee of MyTurn.com or a subsidiary or a predecessor in interest thereof
(but, in no event, would he be entitled to an amount equal to less than three
months of salary); and (iii) in the event of termination of employment by
MyTurn.com following a "change of control" or for any reason other than death,
disability or "cause," or in the event of termination of the employment
agreement by Mr. Turner for "good reason," he is entitled to receive his full
salary for the unexpired term of such agreement, without mitigation of damages
based upon employment obtained elsewhere.
Mr. Turner's employment agreement provides for a restriction on the
solicitation of customers of MyTurn.com for a period of two years following
termination thereof, and a covenant not to compete with MyTurn.com for a period
of twelve months following termination of employment for cause.
Rudy C. Theale, Jr.
Effective January 8, 1999, MyTurn.com and Rudy C. Theale, Jr. entered into
a three-year employment agreement which provided for Mr. Theale to serve as
MyTurn.com's Executive Vice President on a full-time basis. On June 8, 1999 Mr.
Theale was appointed MyTurn.com's Vice- Chairman of the Board. Mr. Theale and
MyTurn.com subsequently agreed that in November 1999 that Mr. Theale would serve
as MyTurn.com's President, in lieu of the aforementioned positions. He held this
position until April 4, 2000 when he was re-elected as Vice Chairman of the
Board. Mr. Theale's employment agreement provides for a salary of $208,000 per
annum, although Mr. Theale and MyTurn.com mutually agreed, as of May 7, 1999, to
reduce his annual salary to $160,000. In addition to salary, Mr. Theale is
entitled to receive a sales and marketing bonus upon the same terms and
conditions as are applicable to Mr. Turner's bonus. Other terms of Mr. Theale's
employment agreement conform in structure to the material provisions that are
applicable to Mr. Turner's, such as renewal, benefits, restrictive covenants and
termination without any requirement to mitigate damages. Mr. Theale's employment
agreement was extended an additional two years in December 1999.
Paul K. Danner
Effective September 1, 1999 MyTurn.com and Paul K. Danner entered into a
three year employment agreement providing for Mr. Danner to serve as
MyTurn.com's Chief Executive Officer commencing as of November 19, 1999. When
Michael Fuchs became Interim Chief Executive Officer in April 2000, Mr. Danner
became Executive Vice President, Office of the President, however the terms of
his Employment Agreement did not change. Pursuant to the employment agreement he
served as MyTurn.com's President and Chief Operating Officer from September 1,
1999 to November 18, 1999. Mr. Danner's employment agreement provides for an
annual salary of $250,000. Additionally, Mr. Danner's employment agreement
provides for a restriction on the solicitation
50
<PAGE>
of customers of MyTurn.com and a covenant not to compete with MyTurn.com for a
period of one year following the termination or expiration of the agreement.
Mr. Danner's employment agreement provides that it may be terminated prior
to the expiration date (i) by MyTurn.com for "cause", as that term is defined in
the employment agreement; (ii) by Mr. Danner upon thirty (30) days written
notice in the case of a "change in control" (as defined in the employment
agreement); and (iii) by MyTurn.com at any time within twelve months after a
change in control upon written notice, in which case MyTurn.com is responsible
to pay Mr. Danner an amount equal to the salary which would have been payable to
him for the remaining term of the employment agreement. Further, if Mr. Danner
becomes disabled for a period of three months he shall receive his full salary
and for the next three months he shall receive 50% of his salary. If he is
disabled for a continuous period of at least six months or 150 business days
during a nine month period MyTurn.com has the right to terminate Mr. Danner's
employment under the employment agreement.
Mark Honigsfeld
Effective October 1, 1996, MyTurn.com and Mark Honigsfeld entered into a
three year Employment Agreement. Mr. Honigsfeld's Employment Agreement provided
for base annual compensation of $250,000. Additionally, Mr. Honigsfeld's
Employment Agreement allowed him to devote up to 10% of his working time to
other endeavors that were not in competition with MyTurn.com. Other terms of Mr.
Honigsfeld's Employment Agreement conformed in structure to the material
provisions that are applicable to Mr. Turner's such as renewal, benefits,
termination without any requirement to mitigate damages and restrictive
covenants (except that the period of Mr. Honigsfeld's restrictive covenant was
six months, not twelve).
MyTurn.com and Mr. Honigsfeld entered into a Termination Agreement as of
May 11, 1999 (the "Honigsfeld Termination Agreement"); simultaneously, Mr.
Honigsfeld and MyTurn.com entered into a Consulting Agreement. Both such
Agreements were terminated pursuant to an Amended and Restated Termination
Agreement and Termination of Consulting Agreement, dated as of July 2, 1999 (the
" Amended and Restated Agreement"). Pursuant to the Honigsfeld Termination
Agreement, and the Amended and Restated Agreement, MyTurn.com paid Mr.
Honigsfeld $100,000 in cash and issued 75,000 Common Shares to him. Such shares
have not been registered under the Securities Act of 1933, as amended, and
MyTurn.com is not under any obligation to register them at any time in the
future. Additionally, pursuant to the Consulting Agreement MyTurn.com issued
62,500 Common Shares to Mr. Honigsfeld out of treasury and paid him $66,666 in
cash. Furthermore, pursuant to the Amended and Restated Agreement, MyTurn.com is
obligated to pay to Mr. Honigsfeld an amount equal to eighty percent (80%) of
the royalty payable by Admit Computer Services, Inc. ("Admit") to MyTurn.com;
such royalty is based on revenues derived by Admit from the sale or licensing of
products and/or assets acquired by Admit from MyTurn.com in connection with its
purchase of MyTurn.com's Public Safety Business. Mr. Honigsfeld also entered
into certain restrictive covenants, which prohibit him from disclosing certain
information about customers of MyTurn.com or soliciting any such customers, and
prohibit him from revealing any of MyTurn.com's trade secrets. In addition, all
51
<PAGE>
unexercised options held by Mr. Honigsfeld became immediately vested as of the
date of the Amended and Restated Agreement in accordance with their respective
terms.
Furthermore, pursuant to the Amended and Restated Agreement, MyTurn.com
registered the resale of 62,500 Common Shares that had been issued to Mr.
Honigsfeld in connection with the Consulting Agreement.
Louis Libin
Effective January 6, 1997, MyTurn.com and Louis Libin entered into a
three-year Employment Agreement which provided for a salary of $200,000,
$225,000, and $250,000 per annum in the first, second and third years,
respectively. Additionally, Mr. Libin's Employment Agreement allowed him to
devote up to one day each week to other endeavors that were not in competition
with MyTurn.com. Other terms of Mr. Libin's Employment Agreement generally
conformed in structure to the material provisions of Mr. Honigsfeld's, such as
with respect to bonuses, benefits, restrictive covenants and termination.
Effective January 7, 1999, Mr. Libin was also granted options to purchase
200,000 Common Shares upon the same terms and conditions as those granted to Mr.
Honigsfeld prior to the repricing and vesting acceleration described above.
Mr. Libin entered into a Termination Agreement with MyTurn.com effective as
of July 31, 1999 (the "Libin Termination Agreement"). Pursuant to the Libin
Termination Agreement, MyTurn.com paid to Mr. Libin an aggregate of $107,500 in
six monthly installments which commenced in August, 1999. In addition, a stock
option to purchase 50,000 Common Shares previously granted to Mr. Libin became
immediately exercisable and the exercise price was subsequently repriced to
$2.50 per share. Furthermore, MyTurn.com granted Mr. Libin a stock option to
purchase 50,000 Common Shares, vesting in one-third increments on July 31, 2000,
2001, and 2002, at an exercise price of $5.25 per share, which options the Board
of Directors subsequently repriced to $2.50 and declared fully vested. See Item
10. "Executive Compensation - Report on Repricing of Options".
Report on Repricing of Options
At a meeting of the Board of Directors on May 7, 1999, the Board of
Directors approved a repricing of options covering an aggregate of 200,000
Common Shares held by Mr. Honigsfeld to $3.25 per share, the market price on
that date, in connection with the termination of MyTurn.com's and Mr.
Honigsfeld's employment relationship. Additionally, on such date, options held
by Mr. Libin covering an aggregate of 315,000 Common Shares were repriced to
market of $3.25 per share in connection with Mr. Libin's agreement to take a
voluntary reduction in annual salary from $225,000 to $160,000.
At a meeting of the Board of Directors held on September 1, 1999, the Board
of Directors approved the repricing of certain existing employee and
non-employee director stock options, including options covering an aggregate of
450,000 Common Shares held by Mr. Danner, 733,250 Common Shares held by Mr.
Turner, 1,400,000 Common Shares held by Mr. Theale, 200,000 Common Shares held
by Mr. Liston, 200,000 Common Shares held by Mr. Greenspan, 315,000
52
<PAGE>
Common Shares held by Mr. Libin, and options covering 290,950 Common Shares held
by other persons. The Board discussed that the purpose of granting options to
employees was to provide incentive for the employees to align their interest
with the stockholders of the Company as well as to engender employee loyalty to
the Company. It was noted that many of the options were granted at a time when
the price of the Company's Common Shares was substantially higher than the
current market price at such date, and that those options currently did not and
would not provide incentive to those employees to remain with the Company if
they received competing offers for their services. Accordingly, the options were
repriced from various exercise prices to market at September 1, 1999, or $2.50
per share, to incentivise, motivate and retain certain of its employees and
non-employee directors. See Note 7 to MyTurn.com's Consolidated Financial
Statements (starting on page F-1) regarding accounting treatment of certain of
the options.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, to the knowledge of MyTurn.com based solely
upon records available to it, certain information as of February 29, 2000
regarding the beneficial ownership of MyTurn.com's Common Shares (i) by each
person who MyTurn.com believes to be the beneficial owner of more than 5% of its
outstanding Common Shares, (ii) by each current director, (iii) by each person
listed in the Summary Compensation Table under "Executive Compensation" and (iv)
by all current executive officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address
of Beneficial Owner Number Percent
- ------------------- ------ -------
<S> <C> <C>
Robert E. (Teddy) Turner, IV 727,053(1)(12) 7.91 %
333 First North Street
Jacksonville Beach, Florida 32250
Rudy C. Theale, Jr. 1,273,999(2)(12) 13.06%
333 First North Street
Jacksonville Beach, Florida 32250
Paul K. Danner 494,666(3)(12) 5.48%
333 First North Street
Jacksonville Beach, Florida 32250
Christopher Liston 302,429(4)(12) 3.42%
333 First North Street
Jacksonville Beach, Florida 32250
David Greenspan 233,666(5)(12) 2.66%
333 First North Street
Jacksonville Beach, Florida 32250
53
<PAGE>
Mark Bradlee 132,810(6)(12) 1.52%
960 Atlantic Avenue
Alameda, California 94501
Brian Dougherty 84,510(7) .9%
960 Atlantic Avenue
Alameda, California 94501
Michael Fuchs 500,000(8) 5.51%
9 West 57th Street - Suite 4220
New York, New York 10019
Joseph Antonini 50,000(9) *
1800 Westmaple Road
Troy, Michigan 48084
Harold Lazarus 34,667(10) *
134 Hofstra University
Hempstead, New York
Louis Libin 389,068(11) 4.36%
949 Greenfield Road
Woodmere, New York 11598
Mark Honigsfeld 29,330 *
969 East End
Woodmere, New York 11598
All executive officers and directors
as a group (16 persons) 3,833,800(1-11), (13) 31.72%
</TABLE>
- -------------------
* Less than 1%
(1) Includes 616,029 shares issuable to Mr. Turner upon the exercise of
options currently exercisable or exercisable within 60 days.
(2) Includes 1,178,999 shares issuable to Mr. Theale upon the exercise of
options currently exercisable or exercisable within 60 days.
(3) Represents (i) 451,666 shares issuable to Mr. Danner upon the exercise
of options currently exercisable or exercisable within 60 days and
(ii) 3,000 shares held by Mr. Danner as custodian for his children.
(4) Represents 267,429 shares issuable to Mr. Liston upon the exercise of
options currently exercisable or exercisable within 60 days.
54
<PAGE>
(5) Includes 201,665 shares issuable to David Greenspan, the Chief
Financial Officer, Treasurer and Secretary of MyTurn.com, upon the
exercise of options currently exercisable or exercisable within 60 days.
(6) Represents 132,810 Common Shares issuable upon the exercise of
currently exercisable Class B Warrants. Does not include up to
299,500 Common Shares issuable to Mr. Bradlee and an aggregate of
150,000 Common Shares issuable to the Timothy James Bradlee Trust
December 22, 1999, Christine Michelle Bradlee Trust December 22, 1999
and the Bradlee Family Education Trust December 22, 1999 underlying
Class A Warrants, which are exercisable upon MyTurn.com reaching
certain business milestones, the timing of which, if reached, cannot
presently be determined.
(7) Represents 84,510 Common Shares issuable upon the exercise of currently
exercisable Class B Warrants. Does not include up to 224,700 Common
Shares issuable to Mr. Dougherty and 44,196 Common Shares issuable
to Anna Lijphart and Mr. Dougherty, underlying Class A Warrants,
which are exercisable upon MyTurn.com reaching certain business
milestones, the timing of which, if reached, cannot presently be
determined.
(8) Represents 500,000 Common Shares issuable upon exercise of
currently exercisable warrants. Does not include up to 500,000 Common
Shares underlying a Warrant dated January 21, 2000 which are
exercisable upon the happening of certain events, the timing of which,
if they occur, cannot presently be determined.
(9) Represents 50,000 Common Shares issuable upon exercise of currently
exercisable warrants. Does not include up to 100,000 Common Shares
underlying a Warrant dated January 21, 2000 which are exercisable upon
the happening of certain events, the timing of which, if they occur,
cannot presently be determined.
(10) Includes 24,667 shares issuable to Dr. Lazarus upon the exercise of
options currently
exercisable or exercisable within 60 days.
(11) Includes 353,068 shares issuable to Mr. Libin upon the exercise of
currently exercisable options.
(12) The options referred to in footnotes (1), (2), (3), (4), (5) and (6)
are subject to accelerated vesting. In the event there is a change in
control in MyTurn.com, such options shall become exercisable to
purchase 100% of the Common Shares thereunder on the date preceding the
change in control. For this purpose, "change in control" means
o any transfer of 50% of MyTurn.com's outstanding
Common Shares or voting power, except in
connection with any acquisition of Company Common
Shares by certain members of MyTurn.com's
management;
o the approval by MyTurn.com's stockholders of a
merger or consolidation in which the pre-merger
or pre-consolidation stockholders of MyTurn.com
do not own more than 50% of the voting power of
the merged or consolidated entity;
o the transfer of more than 50% of MyTurn.com's
assets; or
o a change in the composition of the Board of
Directors of MyTurn.com where those persons who
were directors at the beginning of a calendar
55
<PAGE>
year and those persons elected as directors
during such calendar year with the approval of a
majority of directors then still in office cease
to constitute a majority of the directors.
(13) Does not include up to 100,000 Common Shares issuable to Denis Squeri,
Vice-President Corporate Communications, an aggregate of up to 62,000
Common Shares issuable to the David Hunter Squeri 2000 Custodial Trust
and the Richard Lawson Squeri 2000 Custodial Trust, up to 175,000
Common Shares issuable to Donald Reeves, Vice-President - Software
Development, and up to 175,000 Common Shares issuable to David Durran,
Vice-President - Hardware Development, underlying Class A Warrants,
which are exercisable upon MyTurn.com reaching certain business
milestones, the timing of which, if reached, cannot presently be
determined.
Item 12. Certain Relationships and Related Transactions
MyTurn.com is a party to an Indemnification Agreement dated January 8, 1999
(the "Indemnification Agreement") with Rudy C. Theale, Jr., the Vice Chairman of
the Board and a Director of MyTurn.com. Pursuant to the Indemnification
Agreement, MyTurn.com agreed to indemnify Mr. Theale up to $170,000 for any
liability incurred by Mr. Theale in the action encaptioned James B. Palmer v.
LocalNet Communications, Inc., Rudy C. Theale, et al. In January 2000,
MyTurn.com performed its indemnification obligations and also agreed to loan Mr.
Theale $82,256.74 to be utilized in addition to the amount under the
Indemnification Agreement to resolve the law suit. Mr. Theale delivered a
promissory note to MyTurn.com in such principal amount, bearing interest at the
rate of 10% per annum, which interest is due and payable together with the
principal on or before February 3, 2002. The note may be prepaid by Mr. Theale
at any time.
MyTurn.com entered into the Indemnification Agreement with Mr. Theale in
connection with his employment. In connection with the Indemnification Agreement
and the loan to Mr. Theale, MyTurn.com determined it would be in the best
interests of MyTurn.com and its stockholders to enter into the Indemnification
Agreement and provide the loan to Mr. Theale in order to eliminate distractions
caused by the Palmer law suit on Mr. Theale and management.
See Item 6 - "Management's Discussion or Plan of Operations - Liquidity and
Capital Resources" for a discussion of Michael Fuch's commitment to fund
MyTurn.com's working capital deficits of up to $500,000 per month for 12 months
beginning in April 2000, his posting of $3,500,000 to secure MyTurn.com's
manufacturing line of credit and the commitment of certain members of management
to exercise options to purchase up to 3,254,405 Common Shares on or prior to
June 30, 2000.
To the extent that MyTurn.com may enter into any agreements with related
parties in the future (of which none are presently contemplated), the Board of
Directors of MyTurn.com has determined that the terms of such agreements must be
commercially reasonable and no less favorable to MyTurn.com than it could obtain
from unrelated third parties. Additionally, the Board of Directors of MyTurn.com
has further determined that such agreements must be approved by a majority of
the disinterested directors of MyTurn.com.
56
<PAGE>
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits Description of Exhibit
2 Agreement of Merger between MyTurn.com and Coastal Computer
Systems, Inc., a New York corporation.*
3.1 Articles of Incorporation of MyTurn.com.*
3.2 Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock, filed with the
Secretary of State of the State of Delaware on June 5,
1998.**
3.3 Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock, filed with the
Secretary of State of the State of Delaware on September 2,
1998. ***
3.4 Amendment to the Certificate of Incorporation filed with
the Secretary of State of the State of Delaware on January
21, 2000.
3.5 Amended and Restated By-Laws of MyTurn.com.
4.1 Specimen Common Share Certificate.*
4.2 Form of Underwriter's Common Share Purchase Warrant.*
10.1 Form of Warrant between MyTurn.com and each of the Bridge Lenders.*
10.2 1996 Stock Option Plan.*
10.3 Form of Indemnification Agreement between MyTurn.com and
MyTurn.com's directors and officers.*
10.4 Employment Agreement dated January 6, 1997 between MyTurn.com and
Louis Libin.*
10.5 Loan and Security Agreement dated as of October 6, 1998
between MyTurn.com and LocalNet Communications, Inc.****
10.6 Amendment No. 1 to Loan and Security Agreement dated as of October
23, 1998 between MyTurn.com and LocalNet Communications, Inc.****
57
<PAGE>
10.7 Amendment No. 2 to Loan and Security Agreement dated as of November
12, 1998 between MyTurn.com and LocalNet Communications, Inc.****
10.8 Peaceful Surrender Agreement dated January 8, 1999 between e.TV
Commerce, Inc. and LocalNet Communications, Inc. *****
10.9 Amendment No. 1 to Employment Agreement dated as of January 8, 1999
between MyTurn.com and Louis Libin.****
10.10 Employment Agreement dated as of January 8, 1999 between MyTurn.com,
e.TV Commerce, Inc. and Robert E. (Teddy) Turner, IV.****
10.11 Employment Agreement dated as of January 8, 1999 between MyTurn.com,
e.TV Commerce, Inc. and Rudy C. Theale, Jr.****
10.12 Termination Agreement dated May 11, 1999 between MyTurn.com and Mark
Honigsfeld.******
10.13 Consulting Agreement dated May 11, 1999 between MyTurn.com and Mark
Honigsfeld.******
10.14 Amended and Restated Termination Agreement dated July 2,
1999 between MyTurn.com and Mark Honigsfeld.******
10.15 Assets Purchase Agreement dated July 2, 1999 between MyTurn.com and
Admit Computer Systems, Inc.******
10.16 Purchase Agreement dated July 15, 1999 between MyTurn.com and the
Free Network, Inc.******
10.17 Asset Purchase Agreement dated July 30, 1999 (the "Asset Purchase
Agreement") between MyTurn.com, GPC Acquisition Corp., Global PC,
Inc., Mark Bradlee and Brian Dougherty.*******
10.18 Amendment to Asset Purchase Agreement dated September 24,
1999.*******
10.19 Second Amendment to Asset Purchase Agreement dated September 26,
1999.*******
10.20 Amendments to Asset Purchase Agreement dated November 23, 1999.
10.21 Amendments to Asset Purchase Agreement dated December 22, 1999.
58
<PAGE>
10.22 Stock Transfer and Technology Rights Agreement between Geoworks
Corporation, MyTurn.com and GPC Acquisition Corp. dated December 22,
1999.
10.23 Portal Services Agreement dated as of February 2, 2000 between
Inktomi Corporation and GPC Acquisition Corp.
10.24 Cross License and Distribution Agreement dated as of February 12,
2000 between NewDeal, Inc. and MyTurn.com.
23.1 Consent of Lazar, Levine & Felix LLP, independent auditors.
23.2 Consent of PricewaterhouseCoopers LLP, independent auditors.
27 Financial Data Schedule.
- ------------
*Previously filed as an exhibit to MyTurn.com's Registration Statement
of Form SB-2, Registration No.333-18667. ** Previously filed as an
exhibit to MyTurn.com's Quarterly Report on Form 10-QSB for the period
ended June 30, 1998.
*** Previously filed as an exhibit to MyTurn.com's Quarterly Report on
Form 10-QSB for the period ended September 30, 1998. ****Previously
filed as an exhibit to MyTurn.com's Annual Report on Form 10-KSB for
the year ended December 31, 1998.
*****Previously filed as an exhibit to MyTurn.com's Current Report on
Form 8-K for an event dated January 8, 1999. ******Previously filed as
an exhibit to MyTurn.com's Quarterly Report on Form 10-QSB for the
period ended June 30, 1999.
*******Previously filed as an exhibit to MyTurn.com's Quarterly Report
on Form 10- QSB for the period ended September 30, 1999
(b) Current Reports on Form 8-K
A Current Report on Form 8-K was filed by MyTurn.com during the last
quarter of the fiscal year ended December 31, 1999 as follows:
Date Filed: October 18, 1999
Items Reported: 4
59
<PAGE>
MyTurn.com, Inc and Subsidiaries FOR
THE YEARS ENDED DECEMBER 31, 1999 AND 1998
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
(PricewaterhouseCoopers, LLP) F - 2
Independent Auditor's Report (Lazar, Levine, & Felix, LLP) F - 3
Consolidated Balance Sheet F - 4
Consolidated Statements of Operations F - 5
Consolidated Statements of Shareholders' Equity F - 6
Consolidated Statements of Cash Flows F - 8
Notes to the Financial Statements F - 9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of MyTurn.com, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of MyTurn.com,
Inc. and its subsidiaries at December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Tampa, Florida
March 24, 2000, except for
Note 15 for which the date
is April 4, 2000
F - 2
<PAGE>
LAZAR LEVINE & FELIX LLP
Certified Public Accountants & Business Consultants
350 Fifth Avenue - Suite 6820 629 Parsippany Road
New York, NY 10118-0170 Parsipanny, NJ 07054
(212) 736-1900 (973) 428-3200
Fax (212) 629-3219 Fax (973) 428-6868
www.lazarcpa.com
INDEPENDENT AUDITORS' REPORT
To the Shareholders
MyTurn.com, Inc.
formerly Compu-DAWN, Inc.
We have audited the statements of operations, shareholders' equity and cash
flows of Compu-Dawn, Inc., now known as MyTurn.com, for the year ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Compu-Dawn,
Inc., now known as MyTurn.com, for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/S/ LAZAR LEVINE & FELIX LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
February 25, 1999
F - 3
<PAGE>
MyTurn.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1999
----
Current Assets:
Cash and cash equivalents $ 1,454,421
Interest receivable 8,889
Prepaid expenses 8,689
Inventory 222,394
Other assets 3,307
---------
Total Current Assets 1,697,700
Fixed assets, net 214,500
Goodwill, net of accumulated amortization of $73,630 10,751,200
Software development costs 2,391,338
Licenses 1,901,984
Web-site development costs, net of accumulated
amortization of $24,188 609,459
Security deposits 38,319
---------
Total Assets $ 17,604,500
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,682,582
Current portion of note payable 7,120
Net liabilities of discontinued operations 512,197
----------
Total Current Liabilities 2,201,899
Non-Current Liabilities:
Note payable, non-current portion 15,288
Other non-current liabilities 3,633
----------
Total Liabilities 2,220,820
Commitments and Contingencies (Note 13)
F - 4
<PAGE>
Shareholders' Equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized:
Series A Convertible Preferred -
Series B Convertible Preferred;
1,370 shares issued and outstanding 14
Common stock, $.01 par value, 20,000,000 shares authorized,
7,786,905 shares issued and outstanding 77,868
Additional paid-in capital 37,265,511
Accumulated deficit (21,004,206)
Less: treasury stock, 352,544 shares at cost (955,507)
------------
Total Shareholders' Equity 15,383,680
------------
Total Liabilities and Shareholders' Equity $ 17,604,500
=============
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
MyTurn.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1999 1998
---- ----
Revenue:
<S> <C> <C>
Interest and other income $ 233,660 $ 336,955
--------- ---------
Costs and Expenses:
Cost in excess of Internet subscription fees 116,812 -
General and administrative expenses 6,951,938 -
Depreciation and amortization 111,872 -
Interest expense 111,033 17,459
Loss on investment transaction 71,000 296,952
--------- ---------
Total Costs and Expenses 7,362,655 314,411
--------- ---------
Income (Loss) From Continuing Operations (7,128,995) 22,544
--------- ---------
Discontinued Operations:
Loss from discontinued operations (6,792,222) (2,806,096)
Gain on sale of discontinued operations 537,732 -
---------- ----------
Net Loss $(13,383,485) $ (2,783,552)
============ ===========
Basic Income (Loss) Per Common Share:
Continuing operations $ (1.75) $ .01
Discontinued operations (1.67) ( .96)
Gain on sale of discontinued operation .13 -
---------- ---------
Basic Loss per Common Share $ (3.29) $ ( .95)
========== ===========
Diluted Income (Loss) Per Common Share:
Continuing operations $ (1.75) $ .01
Discontinued operations (1.67) (.74)
Gain on sale of discontinued operations .13 -
--------- ---------
Diluted Loss per Common Share $ (3.29) $ (.73)
========== ===========
Weighted Average Number of Basic Common
Shares Outstanding 4,074,061 2,937,724
========== ==========
Weighted Average Number of Diluted
Common Shares Outstanding 4,074,061 3,814,259
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
MyTurn.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Other Total
Preferred Stock Common Stock Additional Accumulated Comprehensive Treasury Shareholders'
--------------- ------------ Paid-in
Shares Amount Shares Amount Capital Deficit Income(Loss) Stock Equity
------ ------ ------ ------ ----- ------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - - 2,838,450 $28,385 8,061,443 $(4,837,169) - $(47,085) $3,205,574
Exercise of stock options - - 24,895 248 68,339 - - (47,085) 21,502
Private offering of shares
Preferred Series A 3,250 33 327,103 3,271 4,719,842 - - 4,723,146
Exchange of common
shares for Preferred
Series B 1,750 17 - - 531,525 - - (531,542) -
Share issued for professional
fees - - 75,000 750 280,500 - - 281,250
Unrealized loss on investment - - - - - (150,000) - (150,000)
Net loss - - - - - (2,783,552) - - (2,783,552)
-------- ------ --------- -------- --------- ---------- -------- ------ ----------
Balance at December 31, 1998 5,000 50 3,265,448 32,654 13,661,649 (7,620,721) (150,000) (625,712) 5,297,920
Exercise of stock options - - 701,847 7,018 1,983,264 - - (504,498) 1,485,784
Grant of stock options for
consulting services - - - - 212,800 - - - 212,800
Exercise of warrants - - 101,900 1,019 304,681 - - - 305,700
Issue of warrants for
consulting services - - - - 1,691,408 - - - 1,691,408
Shares issued for
professional fees - - 797,398 7,974 2,965,598 - - 174,703 3,148,275
Sale of stock in private
placements - - 1,565,000 15,650 2,252,506 - - - 2,268,156
Change in unrealized loss
on investment - - - - - - 150,000 - 150,000
Conversion of Series A
Preferred Stock (3,250) (33) 650,000 6,500 (6,467) - - - -
F - 7
<PAGE>
Conversion of Series B
Preferred Stock (380) (3) 71,028 710 (707) - - - -
Common Shares granted
for GlobalPC acquisition - - 634,284 6,343 2,761,038 - - - 2,767,381
Class B Warrants issued for
GlobalPC acquisition - - - - 6,845,040 - - - 6,845,040
Class C Warrants issued for
GlobalPC acquisition - - - - 1,378,800 - - - 1,378,800
Warrants issued for
Geoworks license - - - - 1,395,900 - - - 1,395,900
Stock bonus to
officers and directors - - - - 1,761,550 - - - 1,761,550
Repricing of non-employee
options - - - - 58,451 - - - 58,451
Net loss - - - - - (13,383,485) - - (13,383,485)
------ ------- --------- -------- ------------ ------------ ---------- ----------- -----------
Balance at December 31, 1999 1,370 $ 14 7,786,905 $ 77,868 $37,265,511 $(21,004,206) $ - $(955,507) $15,383,680
======= ======= ========= ======== ============ ============ ========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 8
<PAGE>
MyTurn.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
-------------------
1999 1998
---- ----
Cash Flows from Operating Activities:
Net loss $(13,383,485) $(2,783,552)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss from discontinued operations 6,792,222 1,656,096
Gain on sale of discontinued operations (537,732) -
Write-off of impaired loan - 1,150,000
Common Stock issued for consulting services 590,573 -
Warrants issued for consulting services 1,691,408 -
Stock bonus to officers and directors 1,761,550 -
Repricing of non-employee options 58,451 -
Depreciation and amortization 111,872 -
Loss on settlement of legal claim 71,000 -
Loss on sale of short-term investments 36,818 -
(2,807,323) 22,544
========== ========
Changes in assets and liabilities net of
effects from acquisitions and dispositions:
Increase in interest receivabl (8,889) -
Decrease in tax refund receivable - 29,868
Decrease in prepaid expenses and other assets 111,464 -
Increase in inventory (165,394) -
Increase in security deposits (25,569) -
Increase in accounts payable and accrued expenses 192,748 -
Decrease in other payable (18,314) -
--------- -------
86,046 29,868
--------- -------
Net cash provided by (used in) continuing operations (2,721,277) 52,412
----------- ------
Net cash used in discontinued operations (3,312,121) (1,330,626)
----------- -----------
Net cash used in operating activities (6,033,398) (1,278,214)
----------- ----------
Cash Flows from Investing Activities:
Capital expenditures of discontinued operations (124,935) (1,913,517)
Purchase of marketable securities - (2,000,000)
Proceeds from sale of marketable securities 1,963,182 -
Advances to Global PC (1,541,246) -
Proceeds from sale of public safety division 500,000 -
Proceeds from sale of network marketing customer lists 250,000 -
-------- ---------
Net cash provided by (used in) investing activities 1,047,001 (3,913,517)
--------- -----------
Cash Flows from Financing Activities:
Net cash used in discontinued operations (6,534) (105,770)
Proceeds from exercise of stock options and warrants 1,791,484 21,502
Net proceeds from private placements of common stock 2,177,468 4,723,146
Loan repayment to former officer (50,000) -
Net cash provided by financing activities 3,912,418 4,638,878
--------- ----------
Net Decrease in Cash and Cash Equivalents: (1,073,979) (552,853)
Cash and Cash Equivalents at Beginning of Year 2,528,400 3,081,253
Cash and Cash Equivalents at End of Year $ 1,454,421 $2,528,400
=========== ===========
See accompanying notes to consolidated financial statements.
F - 9
<PAGE>
NOTE 1 - DESCRIPTION OF COMPANY AND BUSINESS ACQUISITION
Coastal Computer Systems, Inc., a New York company, was formed on March
31,1983. On October 18, 1996 Coastal Computer Systems, Inc. was reincorporated
in Delaware under the name Compu-DAWN, Inc. On January 20, 2000 Compu-DAWN, Inc.
changed its name to MyTurn.com, Inc. (the "Company"). From 1983, until January
1999, the Company was primarily engaged in the business of designing,
developing, licensing, installing and servicing computer software products and
systems predominantly for public safety and law enforcement agencies.
On January 8, 1999, the Company's wholly-owned subsidiary, e.TV Commerce,
Inc. ("e.TV") acquired certain assets of LocalNet Communications, Inc.
("LocalNet") pursuant to a surrender of collateral to satisfy secured loans made
by the Company to LocalNet (see Note 3). From January 8, 1999 through June 1999,
the Company, through e.TV, operated in the Internet, e-commerce and
telecommunications business, marketing products and services primarily using a
person to person sales approach with the services of commissioned sales
representatives in a relationship-based referral marketing organization (see
Note 9).
In May 1999, the Company adopted a plan to dispose of the assets which made
up the public safety software division and ceased selling products and services
through network marketing activities. In July 1999, the Company sold primarily
all of the assets which made up its public safety software division to an
unrelated third party (see Note 9).
From July 1999 through December 1999, the Company derived revenues
primarily from Internet subscription fees, while focusing on fund raising
efforts and on finalizing the asset purchase transaction with Global PC, Inc.
On December 22, 1999 the Company acquired substantially all the tangible
and intangible assets of Global PC, Inc.("Global PC"). Global PC has developed
enhancements to GEOS, a simplified, user friendly, computer operating system
owned by Geoworks, Inc. In addition, Global PC has developed a series of
software applications. The GEOS operating software is to be embedded in a low
cost "easy to use" personal computer (the "GlobalPC Device"), along with the
application software developed by Global PC.
The purchase price consisted of 634,284 shares of Common Stock, warrants to
purchase 2,284,400 shares of Common Stock at an exercise price of $2.50 per
share, the assumption of certain liabilities, as well as $1,541,246 of cash,
previously provided to Global PC in the form of loans. The Company may be
required to provide additional contingent consideration in the form of warrants
to purchase up to 2,269,284 shares of Common Stock at a price of $2.50 per share
if certain milestones for registered users of Internet access service utilizing
the Global PC Device are achieved by March 31, 2002 (see Note 8).
F - 10
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The acquisition was accounted for as a purchase and the related net assets
were included in the financial statements at their estimated fair values at the
date of acquisition. The excess of the purchase price over fair value of the net
assets acquired and liabilities assumed has been recorded as goodwill and is
being amortized over three years. The results of the acquired business have been
included in the consolidated financial statements since the December 22, 1999
acquisition date. The aggregate purchase price of $12,600,467, including fees
and expenses, was allocated as follows:
Software development costs $ 2,115,000
Inventory 57,000
Property, plant and equipment 113,772
Goodwill 10,824,830
Liabilities assumed (95,662)
Other liabilities (414,473)
---------
$ 12,600,467
============
Following are the Company's unaudited pro forma results for 1999 and 1998
assuming the acquisition occurred on January 1, 1998:
1999 1998
---- ----
Revenues $ 344,513 $ 342,199
Net loss $(20,544,289) $(8,758,980)
Basic loss per share $ (4.36) $ (2.45)
Diluted loss per share $ (4.36) $ (1.97)
The pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used in the preparation of the
accompanying financial statements follows:
(a) Principles of Consolidation:
The accompanying financial statements have been prepared on a consolidated
basis to include the accounts of the Company and its wholly-owned subsidiaries,
GPC Acquisition Corp., Inc., e.TV Commerce, Inc., and e.Tel, Inc. All
significant inter-company accounts and transactions have been eliminated.
(b) Use of Estimates:
In preparing financial statements in accordance with generally accepted
accounting principles, management makes certain estimates and assumptions, that
affect the reported amounts of assets and
F - 11
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statement, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(c) Financial Instruments:
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents.
At times, the Company maintains deposits in federally insured financial
institutions in excess of federally insured limits. Management monitors the
soundness of these financial institutions and feels the Company's risk is
negligible.
As of December 31,1999, the fair value of cash equivalents, receivables,
accounts payable and debt instruments approximate their carrying value.
(d) Marketable Securities:
At December 31, 1998, marketable securities have been categorized as
available for sale and, as a result, are stated at fair value in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Unrealized gains and losses are
included in shareholders' equity as other comprehensive income (loss). There
were no unrealized gains or losses at December 31, 1999.
(e) Inventories:
Inventories consist of computer components and subassemblies and are stated
at the lower of cost, as determined using the first-in first-out (FIFO) method,
or market.
(f) Fixed Assets:
Fixed assets are recorded at cost. Depreciation is provided on the
straight-line method over the following estimated useful lives:
Computer equipment 5 years
Software 5 years
Furniture and fixtures 7 years
Additions and major renewals are capitalized. Maintenance and repairs are
expensed as incurred. Leasehold improvements are amortized over the useful life
of the asset or the lease, whichever is shorter.
F - 12
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(g) Goodwill:
Cost in excess of fair value of net assets acquired (Goodwill) is being
amortized on the straight- line method over three years. If it became probable
that the projected future undiscounted cash flows associated with the acquired
assets were less than the carrying value of the goodwill, the Company would
recognize an impairment loss in accordance with the provisions of Statement of
Financial Accounting Standards No.121, Accounting for the Impairment of Long
Lived Assets to be Disposed of. "
(h) Intangibles:
The Company's intangible assets include software development costs,
licenses and certain web- site development costs. Software development costs
will be amortized on the units-of-production method based on the number of
computer devices manufactured. Amortization calculated under the
units-of-production method may be less than, equal to, or greater than
depreciation expense calculated under the straight-line method in any period.
Licenses are being amortized on the straight-line method over the life of the
license agreement of 5 years. Web-site development costs are being amortized on
the straight-line method over their estimated useful life of 2 years.
The Company will review the carrying value of their intangible assets on a
quarterly basis to determine if there has been an impairment. Should the review
indicate that an intangible asset is not recoverable, the Company's carrying
value of that intangible asset will be reduced. No impairment was recognized in
1999.
(i) Software Development Costs:
The Company reflects costs incurred in establishing the technological
feasibility of computer software to be leased or sold, as research and
development costs, and expenses such costs in the period incurred. Research and
development costs for the years ended December 1999 and 1998 aggregated $ 0 and
$ 515,788, respectively, and are included in the loss from discontinued
operations (Note 9).
The Company's policy is to capitalize software development costs after
technological feasibility of a product has been established. Capitalization of
computer software costs is discontinued when the product is available to be sold
or leased.
(j) Revenue Recognition:
Through July 1999, the Company generated revenues primarily from the
granting of non- exclusive, non-transferable and non-assignable licenses to use
software it has developed, through fixed price contracts. Revenues from such
fixed price contracts were recognized using the percentage of completion method
of accounting. The Company retained title to the software and warrants that it
will provide technical support and repair any defects in the software at no
charge. The warranty period for each contract was negotiated individually, for
periods ranging from 90 days to three years. To date, repair costs have been
minimal and therefore the Company has not established a reserve for such
F - 13
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
warranty costs. Additionally, the Company provided post-contract customer
support to licensees of its software. Revenues from such services were
recognized ratably over the period of performance. Fees billed and/or received
prior to performance of service were reflected as deferred revenue. For the
years ended December 31, 1999 and 1998, all such revenues and warranty costs
have been included in the loss from discontinued operations (See Note 9). In
connection with the July 1999, sale of the company's public safety software
business, the obligations associated with contracts to install, service and
maintenance of these software systems were assigned to the purchaser.
Subsequent to July 1999, revenue is being generated solely from monthly
Internet subscription fees. The Company collects monthly fees from subscribers
and currently remits 50% to a third party Internet service provider ("ISP"). For
the year ended December 31, 1999, gross revenues from subscribers totaled
$372,291 and costs to the ISP were $489,103.
(k) Advertising Costs:
Advertising costs, are expensed as incurred. For the years ended December
31, 1999 and 1998, advertising costs aggregated $21,032 and $19,449,
respectively.
(l) Income Taxes:
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, and to net operating loss and tax
credit carry forwards, measured by enacted tax rates for years in which taxes
are expected to be paid or recovered. A valuation allowance is provided against
the future benefit of deferred tax assets if it is determined that it is more
likely than not that the future tax benefits associated with the deferred tax
asset will not be realized.
(m) Stock-Based Compensation:
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting For Stock
Issued to Employees." Accordingly, no compensation expense is recorded for
options issued to employees in fixed amounts and with fixed exercise prices at
least equal to the fair market value of the Company's Common Stock at the date
of grant. The Company discloses certain pro-forma information as if the Company
used the fair value method to account for employee stock based compensation. All
stock based awards to non-employees are accounted for using the fair value
method.
On March 31, 1999, the FASB issued an Exposure Draft, "Accounting for
Certain Transactions Involving Stock Compensation". This Exposure Draft will
have an impact on the Company's accounting for certain stock option repricings
and acceleration of vestings that occurred during 1999. It is expected that the
FASB will issue a final Interpretation on these topics in the second quarter of
2000. The effects of applying the Interpretation will be recognized on a
prospective basis upon
F - 14
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
issuance of the final interpretation.
(n) Earnings (Loss) Per Share:
Basic net loss per share is computed using the weighted average number of
Common Shares outstanding for the period. For 1999, diluted net loss per share
is the same as basic net loss per share as the effects of including potentially
dilutive securities in the computation is anti-dilutive. Common Stock equivalent
shares consist of convertible Preferred Stock, stock options and warrants. For
the year ended December 31, 1999, options and warrants to purchase 4,529,148
shares of Common Stock and Preferred Stock convertible into 256,075 shares of
Common Stock were excluded from the calculation of earnings per share since
inclusion would be anti-dilutive.
(o) Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
(p) Comprehensive Loss:
The components of comprehensive loss were as follows:
1999 1998
---- ----
Net loss $ (13,383,485) $ (2,783,552)
Unrealized holding losses
on marketable securities - (150,000)
------------- ------------
Comprehensive loss $ (13,383,485) $ (2,933,552)
============= =============
NOTE 3 - LOAN RECEIVABLE
Through December 1998, the Company loaned an aggregate of $1,900,000 to
LocalNet, an unaffiliated Florida corporation in the telecommunications and
Internet services marketing business. LocalNet entered into 12%, collateralized
promissory notes due in one year, at which time all interest and principle was
payable. The notes were collateralized by an interest in all of LocalNet's
tangible and intangible assets and a pledge of the Common Stock owned by its
Chief Executive Officer and the Chairman of its Board, which represented a 63.1%
ownership interest in LocalNet, in the aggregate.
F - 15
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
At December 31, 1998, the Company determined that the fair value of the
assets collateralizing the loan was $736,318. Accordingly the loan receivable
was written down by $1,150,000 in 1998. On January 8, 1999, LocalNet surrendered
the assets representing the collateral underlying this loan. In March 1999, the
Company determined that the fair value of the assets received by LocalNet was
$244,000 and accordingly wrote-off the remaining loan balance of $592,318 in
1999 which included additional advances of $100,000 made to LocalNet in 1999
prior to the surrender of assets. The write off of the loan balance in 1999 and
1998 is included in discontinued operations in the respective year.
NOTE 4 -FIXED ASSETS
Fixed assets consist of the following at December 31, 1999:
1999
----
Computer equipment $ 183,962
Furniture and fixtures 31,269
Software 11,772
Leasehold improvements 1,551
-----
228,554
Less: accumulated depreciation (14,054)
-------
$ 214,500
=========
Depreciation expense for the years ended December 31, 1999 and 1998 aggregated
$14,054 and $82,674, respectively. Depreciation expense for the year ended
December 31, 1998 is included in the loss from discontinued operations (Note 9).
NOTE 5 - NOTE PAYABLE
In April 1997, the former Chairman of the Board of the Company agreed to
extend the Company a $500,000 credit line for a period of two years,
collateralized by all the assets of the Company. At December 31, 1998 the
balance outstanding on this credit line was $50,000, which was payable in
quarterly installments of $25,000 plus interest at 10% per annum. This credit
line was paid in full during 1999.
In January 1999, the Company assumed a LocalNet note payable to a bank as
part of the surrender of certain assets by LocalNet (see Note 3). At December
31, 1999, the balance outstanding on this note payable was $22,408 with
principle and interest payable monthly at an interest rate of 11.13% per annum.
For the years ended December 31, 1999 and 1998, the interest expense
relating to these loans aggregated $4,760 and $10,208, respectively.
F - 16
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Annual maturities of the note payable are as follows at December 31, 1999:
2000 $ 7,120
2001 7,954
2002 7,334
----------
$ 22,408
==========
NOTE 6 - CAPITAL STOCK
The Company's capital stock consists of Common Shares ("Common Stock") with
a $.01 par value and Convertible Preferred Shares ("Preferred Stock") with a
$.01 par value. Holders of Common Stock have one vote per Common Share and are
entitled to receive dividends when, and if declared by the Board of Directors.
The Company has not declared or paid dividends to date.
The Preferred Stock consists of:
(a) Series A Preferred Stock which are convertible in whole or in part, at
the option of the holders thereof, into shares of Common Stock at a conversion
price which is determined at the date of conversion as 85% of the average of the
five lowest closing bid prices of the Company's Common Stock for the 25
consecutive trading days immediately preceding the date of determination not to
exceed $8.025 per share. The number of Common Shares issuable upon conversion is
determined by a formula based on the market price at the time of conversion.
Holders of Series A Preferred Stock have no voting rights and are not entitled
to receive dividends. During 1999, all shares of Series A Preferred Stock were
converted into shares of Common Stock.
(b) Series B Preferred Stock which are convertible in whole or in part, at
the option of the holders thereof, into 327,103 shares of Common Stock at a
conversion price of $5.35 per Common Share, subject to certain adjustments.
Holders of Series B Preferred Stock have no voting rights and are not entitled
to receive dividends unless, dividends are declared on the Common Stock. During
1999, 380 shares of Series B Preferred Stock were converted into shares of
Common Stock.
On June 5, 1998, the Company completed a private offering of its
securities, whereby it sold to the purchasers the following:
(a) 3,250 shares of the Company's Series A Preferred Stock;
(b) 327,103 Common Shares of the Company; and
(c) warrants to acquire an aggregate of 90,207 Common Shares at an
exercise price of $8.025 per share, subject to adjustment
under certain circumstances.
The aggregate purchase price for the foregoing securities was $5,000,000;
net proceeds from this private placement aggregated approximately $4,723,000.
F - 17
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
On September 26, 1998, pursuant to a Securities Exchange Agreement between
the Company and the purchasers, the Company issued to the purchasers 1,750
shares of Series B Preferred Stock, par value $.01 per share, in exchange for
the 327,103 shares of Common Stock previously issued.
During 1998, options were exercised to acquire 24,895 shares of Common
Stock, for which the Company received $21,502 in cash proceeds and 4,380 shares
of Company Common Stock with a fair market value of $47,085.
In January 1999, holders of 1,575 Series A Preferred Stock and 270 Series B
Preferred Stock, converted such shares into 315,000 and 50,467 common shares,
respectively.
In February 1999, the Company issued the following:
(a) 10,000 shares of Common Stock to a consultant for services
rendered in October 1998. The value of these services, $15,000, was
accrued at December 31, 1998;
(b) 117,398 shares of Common Stock to a supplier of inventory to e.TV
as an inducement to enter into a contract with the Company. These
shares were valued at the market price at the date of issuance, for an
aggregate of $606,815; and
(c) 30,000 shares of Common Stock in connection with a consulting
contract. These shares were valued at $168,750, the aggregate market
value at the date of issuance.
In May 1999, the Company issued 62,500 shares of Common Stock to a former
officer out of the Company's treasury as consideration for consulting services
valued at $312,500. In June 1999, in connection with an amended and restated
termination agreement, this former officer received an additional 75,000 shares
of Common Stock, valued at $365,625.
In May and June 1999, options and warrants were exercised to purchase
97,500 and 8,000 shares of Common Stock, respectively for which the Company
received $384,000 in cash proceeds.
In June 1999, holders of 600 Series A Preferred Stock converted such shares
into 120,000 shares of Common Stock.
In July 1999, the Company issued 75,000 shares of Common Stock, valued at
$389,063, to an unaffiliated party in consideration of such party's agreement to
provide certain support and administrative services to the Company after the
acquisition of the e.TV business.
In July and August 1999, options and warrants were exercised to purchase
9,250 and 18,100 shares of Common Stock, respectively for which the Company
received $87,050 in cash proceeds.
In August 1999, the Company issued 62,500 shares of Common Stock in a
private placement for cash proceeds of $96,875.
F - 18
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
In October 1999, the Company issued the following:
(a) 10,000 shares of Common Stock to option holders, upon exercise,
for which the Company received $10,000 in cash proceeds;
(b) 50,000 shares of Common Stock, valued at $109,375, to a consultant
for services rendered in 1999;
(c) 25,000 shares of Common Stock, valued at $71,000, as part of a
litigation settlement (See Note 14); and
(d) 740,000 shares of Common Stock for proceeds of $844,345, net of
offering costs, in connection with a private placement.
In November 1999, the Company issued the following:
(a) 260,200 and 22,400 shares of Common Stock to option and warrant
holders, respectively, upon exercise, for which the Company received
$626,150 in cash proceeds;
(b) 15,000 shares of Common Stock valued at $43,125, plus $10,000 in
cash, to an entity in consideration for all rights, title, interest,
and trademark for "MyTurn" and the domain name "MyTurn.com";
(c) 675,000 shares of Common Stock and warrants to purchase 337,500
shares of Common Stock, at an exercise price of $3.00 per share, for
the investment of $1,100,623 net of offering costs, in connection with
a private offering;
(d) 400,000 shares of Common Stock issued to investment advisers, for
investment banking services rendered in 1999, valued at approximately
$950,000; and
(e) 200,000 shares of Common Stock in connection with the development
of the web-site, valued at approximately $804,000.
In December 1999, the Company issued the following:
(a) 324,897 and 53,400 shares of Common Stock to option and warrant
holders, respectively, upon exercise, for which the Company received
$684,284 in cash proceeds;
(b) 32,954 shares of Common Stock, valued at $205,960, to a vendor for
extinguishment of $187,237 of debt;
(c) 87,500 shares of Common Stock issued in a private offering for the
investment of $135,625; and
F - 19
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(d) 634,284 shares of Common Stock in connection with the net assets
acquired from Global PC (See Note 1).
In December 1999, the Board approved a stock bonus of 277,000 shares to be
issued out of the Company's treasury stock, valued at $1,761,550.
In December 1999, holders of 1,075 Series A Preferred Stock converted such
shares into 215,000 shares of Common Stock and holders of 110 Series B Preferred
Stock converted such shares into 20,561 shares of Common Stock.
NOTE 7 - STOCK OPTIONS
In October 1996, the Company established a Stock Option Plan under which
options to purchase 2,000,000 Common Shares may be granted to eligible persons.
Options under this plan expire in ten years and vest over service periods
ranging from immediately to ten years. A summary of the activity in the
Company's stock option plan, excluding options granted in 1999 in excess of the
Plan, is presented below:
Number Weighted Average
of Exercise Price
Shares Per Share
Balance at January 1, 1997 491,950 $ .45
Options granted 278,311 4.04
Options exercised (410,417) .32
Options canceled/forfeited (55,000) 1.69
- -------------------------------------------------------------------
Balance at December 31, 1997 304,844 3.69
Options granted 490,100 5.82
Options exercised (24,895) 2.76
Options canceled/forfeited (265,083) 6.65
- -------------------------------------------------------------------
Balance at December 31, 1998 504,966 4.22
Options granted 1,059,722 2.64
Options exercised (701,847) 2.12
Options canceled/forfeited - -
- ------------------------------------------------------------------
Balance at December 31, 1999 862,841 $ 2.97
======= ============
In 1998, no compensation expense related to the options was recorded since
the options were granted at an exercise price equal to or greater than the
market value of the Common Stock on the grant date.
In 1999, certain employee stock options, granted in 1999, were repriced to
a price equal to the market price on the day of repricing. Additionally, in
1999, vesting periods related to certain stock
F - 20
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
options previously granted were accelerated. As a result of a recent FASB
Exposure Draft, "Accounting for Certain Transactions Involving Stock
Compensation", the Company expects to recognize a significant stock compensation
charge, beginning July 1, 2000, in connection with these modifications to the
extent the options have not been exercised.
During 1999, the Company granted 4,058,083 options in excess of the
2,000,000 options grantable under the 1996 Stock Option Plan. The measurement
date for these options is January 20, 2000, the date the Shareholders approved
an increase in the number of shares available for granting under the Plan to
10,000,000. Accordingly, no compensation expense associated with these options
was recognized in 1999. During 1999, 220,700 of these options were exercised and
146,500 were canceled/forfeited (see Note 15).
A summary of stock options outstanding and exercisable, excluding options
granted in excess of the Plan, as of December 31, 1999 follows:
Number Weighted Average Number
Outstanding Remaining Exercisable at
Exercise at December 31, Contractural December 31,
Price 1999 Life (years) 1999
----- ---- ------------ ----
$2.00 1,666 7 1,666
2.50 669,605 5 297,250
3.00 63,500 7 60,168
3.25 44,770 4 44,770
5.00 83,300 6 84,968
------ ------
862,841 488,822
======= =======
In January 1999, the Company granted options to purchase 70,000 shares of
Common Stock to a non-employee for consulting services at an exercise price of
$3.25, valued at $212,800. These options were subsequently repriced to the
market price of $2.50.
On January 8, 1999, the Company granted options to employees to purchase
989,722 shares of Common Stock, at market, with an exercise price of $3.25, of
which 934,555 shares were subsequently repriced to the market price of $2.50.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method prescribed by that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999 and 1998, respectively: risk-free interest rates of 6.46%
and 5.0%; dividend yields of 0% and 1.5%; volatility factors of the expected
market price of the Company's Common Stock of 107% and 60%; and a
weighted-average expected life of the options of seven years.
F - 21
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The Company's pro forma information for the years ended December 31, 1999
and 1998, prepared in accordance with SFAS 123 is provided below. For purposes
of pro-forma disclosures, stock-based compensation is amortized to expense on a
straight-line basis over the vesting period.
1999 1998
- ---------------------------- ---------------------- --------------------------
Net Loss:
As reported $ (13,383,485) $ (2,783,552)
Pro forma $ (17,147,216) (3,140,736)
- ---------------------------- ---------------------- --------------------------
Basic loss per share
As reported $ (3.29) $ (0.95)
Pro forma $ (4.21) (1.07)
- ---------------------------- ---------------------- --------------------------
NOTE 8 - STOCK WARRANTS:
In 1998, the Company completed a private offering of its securities,
whereby it sold warrants to acquire an aggregate of 90,207 shares of Common
Stock at an exercise price of $8.025 per share.
In June 1999, the Company entered into a consulting agreement, whereby upon
execution of the agreement, the Company issued warrants valued at $108,030 to
purchase 30,000 Shares of Common Stock at a price of $5.219 per share. The
warrants were fully vested in 1999 and will expire May 31, 2002. The holder is
entitled to additional warrants to purchase 45,000 Common Shares if it
introduces the Company to a source of funding. These warrants will have an
exercise price equal to the sale price per share in such funding and will be
exercisable for three years from the date of issuance. The Company recorded the
expense in 1999.
In November 1999, the Company issued warrants to purchase 337,500 shares
of Common Stock at an exercise price of $3.00 per share in connection with a
private offering. These warrants expire on November 5, 2004 and vested on the
date of the agreement.
In November 1999, the Company entered into an investment banking agreement
pursuant to which warrants to purchase 60,000 shares of Common Stock at a price
of $1.50 per share, valued at $156,840, were issued. These warrants expire on
November 12, 2004 and vested on the date of the agreement. The Company recorded
the expense in 1999.
In December 1999, the Company entered into a consulting agreement, whereby
the Company issued warrants to purchase 100,000 shares of Common Stock at a
price of $6.50 per share, valued at $505,200. These warrants expire on December
14, 2004 and vested on the date of the agreement. The Company recorded the
expense in 1999. The Company agreed to issue additional warrants upon reaching
certain performance goals.
In December 1999, the Company entered into a consulting agreement, whereby
the Company issued warrants to purchase 75,000 shares of Common Stock at a
price of $3.187, valued at $410,400. These warrants
F - 22
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
expire on December 14, 2004 and vested on the date of the agreement. The Company
recorded the expense in 1999.
In December 1999, the Board authorized warrants to purchase 50,000 Common
Shares at a price of $13.62 to be issued on January 24, 2000 for consulting
services performed in 1999. These warrants, valued at $510,938, will expire on
January 23, 2005 and fully vest on January 24, 2000. The Company recorded the
expense in 1999.
In December 1999, the Company entered into a license agreement, whereby the
Company agreed to pay $541,084 in cash and issued warrants to purchase 250,000
shares of Common Stock at a price of $4.50, valued at $1,360,900 in exchange for
a license to certain technology to be embedded in the GlobalPC device. These
warrants expire on December 21, 2004 and vested on the date of the agreement.
In connection with the December 1999, Global PC acquisition (Note 1), the
Company agreed to issue warrants to purchase Common Stock of the Company as
follows:
1. exercisable into 2,269,284 shares of Common Stock at a price of $2.50
per share exercisable from April 1, 2002 through June 30, 2004
contingent upon the Company achieving certain milestones for
registered users of Internet access service utilizing the GlobalPC
Device by March 31, 2002.
2. exercisable into 1,901,400 shares of Common Stock at $2.50 per share.
The Class B warrants may be exercised through June 30, 2004 as
follows: (a) up to 30% of the shares underlying the Class B warrants
on and after 90 days from the date of grant and (b) another 23 1/3% of
the shares underlying the Class B warrants on and after each of the
first, second, and third anniversary of the date of grant.
3. Class C Common Stock purchase warrants exercisable into 383,000
shares of Common Stock at a price of $2.50 per share. The Class C
warrants may be exercised at any time one year from the date of grant
through June 30, 2004.
The Class A, B and C warrants become exercisable to purchase all of the
shares under warrant upon a change in control event, as defined.
Notwithstanding the foregoing, the Class A, B and C Warrants are only
exercisable to the extent they would not violate the rules of the Nasdaq Stock
Market relating to the requirement for stockholder approval for the issuance of
securities in certain instances.
The Class A, B, and C warrants provide for adjustments of the exercise
price and the number of shares issuable in the event of future dilution.
F - 23
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
A summary of the status of the Company's stock purchase warrants as of December
31, 1999 is presented below:
<TABLE>
<CAPTION>
Weighted Number
Number Average Exercisable
Outstanding Remaining at
at December Contractual December Weighted Average
Exercise Price 31, 1999 Life (years) 31, 1999 Exercise Price
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1.50 60,000 5 60,000 $1.50
2.50 2,284,400 5 - 2.50
3.00 726,700 3 624,800 3.00
3.19 75,000 5 75,000 3.19
4.50 250,000 5 250,000 4.50
5.22 30,000 3 30,000 5.22
6.50 100,000 5 100,000 6.50
8.03 90,207 4 90,207 8.03
13.62 50,000 5 - 13.62
------ ---------
3,666,307 1,230,007
========= =========
</TABLE>
NOTE 9 - DISCONTINUED OPERATIONS
In May 1999, the Company decided to divest itself of its public safety
software business and on July 2, 1999 the Company consummated the sale of this
division to Admit Computer Services, Inc. The Company received $500,000 in cash,
for a net gain of $287,732, and is entitled to receive software royalty payments
for five years ranging from 6.25% to 10% from future sales of products
containing the Company's technology or former customers of the Company's public
safety software business. To date, royalty payments have been inconsequential.
On June 29, 1999, the Company discontinued its network referral marketing
operations, the e.TV subsidiary. In July 1999, the Company sold its independent
representative database and assigned its long distance business to another
network marketer of telecommunication products for $250,000 in cash.
As a result of the events and transactions described above, the financial
statements of the Company have been restated to report separately the net assets
(liabilities) and operating results of the discontinued businesses. Components
of amounts reflected in the statements of operations, balance sheets and cash
flow statements are presented in the following table.
F - 24
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C>
Income statement data 1999 1998
- ----------------------------------------------------------- ----------------------------- -----------------------------
Revenues $ 2,774,949 $ 911,534
- ----------------------------------------------------------- ----------------------------- -----------------------------
Cost and expenses (9,567,171) (3,717,630)
------------ -----------
- ----------------------------------------------------------- ----------------------------- -----------------------------
Loss from discontinued operations before
income tax expense (benefit) $ (6,792,222) $ (2,806,096)
- ----------------------------------------------------------- ----------------------------- -----------------------------
Income tax expense (benefit) - -
------------- -------------
- ----------------------------------------------------------- ----------------------------- -----------------------------
Loss from discontinued operations $ (6,792,222) $ (2,806,096)
============ ============
- ----------------------------------------------------------- ----------------------------- -----------------------------
Balance sheet data December 31, 1999
$ (512,197)
==========
- -----------------------------------------------------------
Net liabilities of discontinued operations
- ----------------------------------------------------------- ----------------------------------------------------------
December 31,
- ----------------------------------------------------------- ------------------------------------------------------------
Cash flow data 1999 1998
- ----------------------------------------------------------- ----------------------------- -----------------------------
Loss from discontinued operations $ (6,792,222) $ (2,806,096)
- ----------------------------------------------------------- ----------------------------- -----------------------------
Gain on sale 537,732 -
- ----------------------------------------------------------- ----------------------------- -----------------------------
Stock options granted for consulting services 212,800 -
- ----------------------------------------------------------- ----------------------------- -----------------------------
Common Stock issued for consulting services 1,919,315 -
- ----------------------------------------------------------- ----------------------------- -----------------------------
Change in net assets of discontinued
operations 810,254 1,475,470
------- ---------
- ----------------------------------------------------------- ----------------------------- -----------------------------
Net cash used in operations (3,312,121) (1,330,626)
- ----------------------------------------------------------- ----------------------------- -----------------------------
Net cash used in investing activities (124,935) (1,913,517)
- ----------------------------------------------------------- ----------------------------- -----------------------------
Net cash used in financing activities (6,534) (105,770)
------ --------
- ----------------------------------------------------------- ----------------------------- -----------------------------
Net cash used in discontinued operations $ (3,443,590) $ (3,349,913)
============ ============
- ----------------------------------------------------------- ----------------------------- -----------------------------
</TABLE>
F - 25
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 10 - SUPPLEMENTAL STATEMENTS OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------ ------------------- ------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during year for interest $12,930 $17,459
Income tax refund received - 29,868
- ------------------------------------------------------------------------ ------------------- ------------------
Supplemental schedule of non-cash investing and
financing activities:
Acquisition of GlobalPC assets in exchange for
Common Stock and warrants 10,991,221 -
Liabilities assumed in connection with the acquisition
of Global PC assets (510,135) -
Purchase of Geoworks license agreement through
issuance of warrants 1,395,900 -
Liability in connection with purchase of Geoworks
license agreement 506,084 -
Amount capitalized in connection with development of
the Company's web-site through issuance of Common
Stock 580,522 -
Amount capitalized in connection with purchase of
web-site domain through issuance of stock 43,125 -
Common Stock issued to investment advisors for
investment banking services 950,000 -
- ------------------------------------------------------------------------ ------------------- ------------------
</TABLE>
NOTE 11 - TERMINATION OF INVESTMENT TRANSACTION:
On April 22, 1998, the Company entered into an agreement to acquire an
indrect 50% beneficial interest in Press-Loto, a Russian company which has the
right to operate the first national on-line lottery in Russia pursuant to a
license from the Russian Ministry of Finance to the Union of Journalists of
Russia (the "Union"). The agreement provided that, at the closing, 40% of
Press-Loto was to be owned by the Union and its charity with a private group
holding a minority interest.
On On September 1, 1998, the Company terminated the aforementioned
agreement after conditions to close, were not satisfied. In connection with the
termination of the agreement, the Company forgave a loan in the amount of
$297,000 in 1998.
Also see Note 14 - Litigation.
F - 26
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 12 - INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." A reconciliation between the provision for income
taxes and the expected tax benefit using the federal statutory rate of 34% for
the year ending December 31, 1999 is as follows:
1999
- ---------------------------------- --------------------
Tax benefit at statutory rate $(4,550,385)
State tax benefit (485,821)
Increase in valuation allowance 5,017,290
Other 18,916
------
Total $ -
===========
- ---------------------------------- --------------------
The Company's deferred tax assets and liabilities relate to the following
sources and differences between financial accounting and the tax bases of the
Company's assets and liabilities at December 31, 1999:
1999
- ---------------------------------- --------------------
Current deferred taxes:
Current deferred tax assets:
Vacation accrual $ 26,981
Accrued settlement costs 107,622
Depreciation 8,787
-----
143,390
Less valuation allowance (143,390)
--------
Total current deferred tax assets $ -
==========
- ---------------------------------- --------------------
Non-current deferred taxes:
Non-current deferred tax assets:
Net operating loss carry forward $7,204,640
Research and development credit 152,163
-------
Less: valuation allowance 7,356,803
Total noncurrent deferred tax assets (7,356,803)
----------
$ -
==========
- ---------------------------------- --------------------
The Company has recorded a valuation allowance to state its deferred tax
assets at estimated net realizable value due to the uncertainty related to
realization of these assets through future taxable income.
F - 27
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
At December 31, 1999, the Company has net operating loss carry forwards for
1999 and 1998 for income tax purposes of approximately $12,952,000, which expire
beginning in 2011. The Company also has research and development tax credits of
$152,163 that expire beginning in 2011. The Company's ability to benefit from
the net operating loss carry forwards and general business credit could be
limited under certain provisions of the Internal Revenue Code if ownership of
the Company changes by more than 50%, as defined.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
On December 28, 1999, the Company entered into a lease agreement, for
executive office space in Florida, which provides for base annual rental
payments of approximately $49,000. This lease, which is for a term of five
years, has scheduled annual increases of 3% and is renewable. No rent expense
associated with this lease was recorded for the year ended December 31, 1999.
In conjunction with the acquisition of Global PC on December 22, 1999, the
Company assumed an existing office lease agreement, for office space in
California, which provides for monthly lease payments of $10,000. This lease
agreement is on a month-to-month basis.
In October 1996, the Company entered into a lease, for executive office
space in New York, which provides for base annual rental of $85,000. This lease,
which is for a term of five years, is being subleased. The present value of the
future monthly minimum lease payments has been accrued and charged to the loss
on discontinued operations. Rent expense for the years ended December 31, 1999
and 1998, aggregated $86,590 and $78,354, respectively, is included in
discontinued operations.
At December 31, 1999, future minimum rentals for office space are as
follows:
2000 $ 49,000
2001 50,470
2002 51,984
2003 53,544
2004 55,150
------
$ 260,148
=========
Effective October 1, 1996, the Company entered into a three-year employment
agreement with the Chief Executive Officer ("CEO") of the Company. This
agreement provided for annual compensation of $250,000 and a performance bonus.
On May 11, 1999 the Company and the CEO entered into a termination agreement
while simultaneously entering into a consulting agreement. Pursuant to the terms
of the consulting agreement, the Company paid the CEO $66,666 in cash and issued
him 62,500 Common Shares out of treasury stock. On July 2, 1999, both such
agreements were terminated. In connection with the termination of these
agreements, the Company paid the CEO $100,000 in cash and issued 75,000 Common
Shares to him. Such shares have not been
F - 28
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
registered under the Securities Act of 1933, as amended, and the Company is
under no obligation to register them at any time in the future. The Company is
obligated to pay the CEO eighty percent (80%) of the royalty payable by Admit
Computer Services, Inc., ("Admit") to the Company. Such royalty is based upon
the revenues derived by Admit from the sale or licensing of products and/or
assets acquired by Admit from the Company in connection with its purchase of the
public safety business (See Note 9 ).
Effective October 1, 1996, the Company entered into a three-year employment
agreement with its President and Chief Operating Officer. This agreement
provided for annual compensation of $125,000 and a signing bonus of $15,000. On
March 17, 1998 the Company and this officer entered into an agreement
terminating his employment agreement. Under the termination agreement, the
officer received severance pay of approximately $216,000.
In January 1997, the Company entered into a three-year Employment Agreement
with an employee to serve as the Company's Chief Technology Officer ("CTO"). The
agreement provided for an annual base salary of $200,000, $225,000 and $250,000
in the first, second and third years, respectively. On July 31, 1999, the CTO
and the Company entered into a Termination Agreement. Pursuant to the terms of
the Termination Agreement, the Company paid the CTO $107,500 in cash and granted
stock options to purchase 50,000 Common Shares. The former CTO resigned as
Class III Director of the Company on April 4, 2000.
As of December 31, 1999, the Company maintained employment agreements with
four officers of the Company. The employment agreements contain provisions
requiring each of the officers to receive full salary for the unexpired term of
such agreement, in the event of termination for any reason other then death,
disability or cause. The maximum payments under these agreements in such event
is approximately $1,593,000. The employment agreements also provide for
severance benefits as well as disability and death benefits. Two of the
employment agreements provide for a bonus up to 50% of base annual compensation
each year if certain performance thresholds are met. One of the employment
agreements provides for the future granting of five year stock options to
purchase 33,250 common shares each year at market price for each one year period
that the officer's salary remains at a reduced rate.
In December 1999, the Company purchased exclusive rights to the GEOS
license, from Geoworks Corporation for $541,084 in cash and 250,000 warrants to
purchase Common Stock at $2.50 per share, valued at $1,360,900. GEOS is a
simplified, user friendly, low cost computer operating system owned by Geoworks,
Inc. Pursuant to the conditions of the licensing agreement, the Company is
obligated to pay royalties on a per unit basis over the term of the licensing
agreement which expires December 31, 2004.
Future minimum royalty payments required to maintain the right of
exclusivity under the licensing agreement, at December 31, 1999, are as follows:
F - 29
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
2000 $ 75,000
2001 1,275,000
2002 1,200,000
2003 2,250,000
2004 3,000,000
---------
$7,800,000
==========
In connection with the 1999 Private Placement of Common Stock and warrants,
the Company committed to file a Registration Statement for the shares issued in
this offering with an effective date for the Registration Statement no later
than February 1, 2000. As the Company has not yet undertaken to file a
Registration Statement for these shares, the Company is subject to pay a penalty
of approximately $95,000 per month until this requirement is met.
NOTE 14 - LITIGATION:
In July 1999, the Company was notified of a claim for amounts allegedly
owed to a third party manufacturer of products previously sold by its
discontinued subsidiary, e.TV. The Company disputes this claim. If an action is
ultimately brought against the Company, the Company believes it has meritorious
defenses and will vigorously defend itself against such an action. The Company
has accrued for potential settlement costs estimated to be sufficient to cover
the resolution of this claim.
The Company is a party to an indemnification agreement dated January 8,
1999 (the "Indemnification Agreement") with the Company's President. Pursuant to
the Indemnification Agreement, the Company agreed to indemnify this officer up
to $170,000 for any liability incurred by him out of an action brought against
him and LocalNet. During 1999, the Company paid $21,000 in legal fees pursuant
to this Indemnification Agreement. At December 31, 1999, the Company has accrued
a liability in the discontinued business caption for $149,000. On January 4,
2000, the Company paid $232,000 on the officer's behalf in settlement of this
legal action. In connection with the January 4, 2000 payment in excess of the
cap, the officer signed a note payable to the Company for $83,000, bearing
interest at 10% per annum with interest and principal payable in one balloon
payment due on February 3, 2002.
On October 27, 1999, the Company settled litigation associated with the
failed Press-Loto investment transaction (Note 11). As part of the settlement
agreement, the Company issued 25,000 Common Shares, valued at $71,000, and
forgave a $297,000 loan to Rugby National Corp., an unrelated third party, which
the Company had written off in 1998. Both charges are reported in continuing
operations.
F - 30
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 15 - SUBSEQUENT EVENTS
During 1999, the Company granted options to purchase 4,058,083 Common
Shares in excess of the 2,000,000 Common Shares authorized for issuance upon the
exercise of options grantable under the Company's 1996 Stock Option Plan. These
options, 68,000 of which were granted to non- employee consultants, had exercise
prices ranging from $1.00 per share to $6.38 per share. Options to purchase
3,508,083 Common Shares were granted at the then market price, and the remainder
were non-qualified options granted at below market price. Substantially all of
these options vested on April 4, 2000.
On January 1, 2000, the Company granted options to purchase 2,072,500
Common Shares at an exercise price of $2.50 per share, to certain employees who
were retained in connection with the acquisition of assets of Global PC which
closed on December 22, 1999. These options were also for shares in excess of the
2,000,000 shares originally authorized for issuance under the Company's 1996
Stock Option Plan. These employees were former employees of Global PC who the
Company determined were integral to the Company's development, enhancement and
sale of the Global PC and related products and services. These options vest in
one-third increments in July 2000, January 2001 and January 2002.
On January 20, 2000, the shareholders approved an amendment to the 1996
Stock Option Plan which increased the number of options available to be granted
to 10,000,000. In accordance with generally accepted accounting principles, the
Company is required to recognize a non-cash compensation charge measured by the
difference between the exercise price of the options granted to purchase such
excess 6,133,583 Common Shares, and the then market price of the Company's
Common Shares on January 20, 2000. As a result, the Company will recognize a
non-cash stock compensation charge commencing in the first quarter of 2000 and
extending over the vesting period of those options of approximately $85,000,000.
This non-cash earnings charge will not impact the Company's cash flows or net
stockholders' equity.
On January 21, 2000, the Company issued warrants to purchase 1,000,000
Common Shares to a Director who subsequently became the Company's Interim Chief
Executive Officer and Chairman of the Board. The Warrants to purchase 500,000
Common Shares vested immediately and the warrants for the remaining 500,000
Common Shares were vested on April 4, 2000. Of these warrants, 500,000 were
issued below market with an exercise price of $5.00 per share and 500,000 were
issued below market at various prices ranging from $5.00 to $15.00. The Company
will recognize a stock compensation charge in the first and second quarters of
2000 related to the warrants which vested on January 21, 2000 and April 4, 2000
of approximately $5,300,000 and $4,600,000, respectively. On April 4, 2000, the
Company issued warrants to purchase 500,000 Common Shares at market with an
exercise price of $20.25 per share to this Director at the time he became the
Company's Interim Chief Executive Officer and Chairman of the Board. The 500,000
warrants issued on April 4, 2000, which vested immediately, were granted in
connection with the individual's acceptance of the positions of Interim Chief
Executive Officer and Chairman of the Board and to commit his time and resources
to the Company, his personal commitment to provide the Company up to $6,000,000,
to support ongoing capital requirements of the Company, if necessary, and his
F - 31
<PAGE>
MyTurn.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
posting of $3,500,000 as security for the Company's line of credit with a
manufacturer. All 1,500,000 warrants described above are exercisable for a
period expiring 5 years from the date of issuance.
In the opinion of the Company's management, the funding committed to by the
Interim Chief Executive Officer and Chairman of the Board, and the funds that
would be generated from the exercise of options which certain members of
management have committed to, will be sufficient to meet the Company's working
capital needs, and allow it to meet its obligations on a timely basis, for the
next 12 months.
F - 32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MYTURN.COM, INC.
April 14, 2000 By:/s/ Michael Fuchs
-------------------------------
Interim Chief Executive Officer
<PAGE>
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.
Signature Capacity Date
/s/ Michael Fuchs
- -------------------------
Michael Fuchs Chairman of the Board, April 14, 2000
Interim Chief Executive
Officer and Director
/s/ Rudy C. Theale
- -------------------------
Rudy C. Theale, Jr. Vice Chairman of the Board April 14, 2000
and Director
/s/ R.E. (Teddy) Turner, IV
- ---------------------------
R. E. (Teddy) Turner, IV Director April 14, 2000
/s/ Christopher Liston
- ---------------------------
Christopher Liston Director April 14, 2000
/s/ Harold Lazarus, Ph.D
- ---------------------------
Harold Lazarus, Ph.D Director April 14, 2000
/s/ Mark Bradlee
- ---------------------------
Mark Bradlee Director April 14, 2000
/s/ Brian Dougherty
- ---------------------------
Brian Dougherty Director April 14, 2000
/s/ Joseph Antonini
- ---------------------------
Joseph Antonini Director April 14, 2000
- ---------------------------
Jeffrey H. Coats Director
/s/ David Greenspan
- ---------------------------
David Greenspan Chief Financial Officer and April 14, 2000
Secretary (Principal Accounting
Officer)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
COMPU-DAWN, INC.
(Pursuant to Section 242 of the
General Corporation Law of Delaware)
COMPU-DAWN, INC., a corporation organized and existing under the Delaware
General Corporation Law (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended to change the name of the Corporation and to increase the number of
Common Shares that the Corporation shall be authorized to issue.
SECOND: Article I of the Certificate of Incorporation of the Corporation is
hereby amended to read in its entirety as follows:
"ARTICLE I
The name of the corporation is "MyTurn.com, Inc." (hereinafter referred to
as the "Corporation")."
THIRD: Paragraph (a) of Article IV of the Certificate of Incorporation of
the Corporation is hereby amended to read in its entirety as follows:
(a) The aggregate number of shares of stock which the Corporation
shall have authority to issue is 61,000,000, of which 60,000,000 are
shares of Common Stock, with a par value of $.01 per share, and
1,000,000 are shares of Preferred Stock, with a par value of $.01 per
share."
<PAGE>
FOURTH: The foregoing amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the President of the Corporation has hereunto set his
hand to this Certificate this 20th day of January, 2000.
COMPU-DAWN, INC.
By: /s/ Paul K. Danner
---------------------------------
Paul K. Danner
Chief Executive Officer
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
COMPU-DAWN, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. - The registered office shall be established
and maintained at c/o United Corporate Services, Inc., 15 East North Street,
Dover, Delaware 19901 and United Corporate Services, Inc. shall be the
registered agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. - The corporation may have other offices, either
within or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of meeting. To be properly
brought before an annual meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by, at the direction of or upon
authority granted by the Board of Directors, (b) otherwise brought before the
meeting by, at the direction of or upon authority granted by the Board of
Directors, or (c) subject to Article VII hereof, otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that, in the event that less than 70 days' notice of the date
of the meeting is given to stockholders and public disclosure of the meeting
date, pursuant to a press release, is either not made or is made less than 70
days prior to the meeting date, then notice by the stockholder to be timely must
be so received not later than the close of business on the tenth day following
the earlier of (a) the day on which such notice of the date of the annual
meeting was mailed to stockholders or (b) the day on which any such public
disclosure was made.
A stockholder's notice to the Secretary must set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting, and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder
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proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, and (d) any material interest
of the stockholder in such business. Notwithstanding anything in the By-Laws to
the contrary, but subject to Article II, Section 8 hereof, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 1,
and, if he should so determine, he shall so declare to the meeting, and any such
business not properly brought before the meeting shall not be transacted.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. SPECIAL MEETINGS. - Special meetings of stockholders for any
purpose or purposes may be called by the President or the Chairman of the Board
of the corporation and such meetings may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING. - Except as otherwise provided in the Certificate of
Incorporation, each stockholder entitled to vote in accordance with the terms of
the Certificate of Incorporation and in accordance with the provisions of these
By-Laws shall be entitled to one vote, in person or by proxy, for each share of
stock entitled to vote held by such stockholder, but no proxy shall be voted
after three years from its date unless such proxy provides for a longer period.
If the Certificate of Incorporation provides for more or less than one vote for
any share, on any matter, every reference in these By-Laws to a majority or
other proposition of stock shall refer to such majority or other proportion of
the votes of such stock. Upon the demand of any stockholder, the vote for
directors and the vote upon any question before the meeting, shall be by ballot.
All elections for directors shall be decided by plurality vote; all other
questions shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
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SECTION 4. QUORUM . - Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote the meeting.
SECTION 5. NOTICE OF MEETINGS. - Written notice, stating the place, date
and time of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given to each stockholder
entitled to vote thereat at his address as it appears on the records of the
corporation, not less than ten nor more than sixty days before the date of the
meeting. No business other than that stated in the notice shall be transacted at
any meeting without the unanimous consent of all the stockholders entitled to
vote thereat.
SECTION 6. ACTION WITHOUT MEETING. - Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - The number of directors shall be fixed from
time to time by the Board of Directors of the corporation. The directors shall
be elected as provided below and each director shall be elected to serve until
his successor shall be elected and shall qualify. A director need not be a
stockholder.
Unless otherwise provided in the Certificate of Incorporation, directors
shall be elected in three classes. The number of directors in each class shall
be fixed from time to time by the Board of Directors of the corporation;
provided, however that the number of directors in any class shall not exceed the
number of directors in any other class by more than one. The initial term
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<PAGE>
of office of the first class of directors shall expire at the first annual
meeting of stockholders after their election, the initial term of office of the
second class of directors shall expire at the second annual meeting of
stockholders after their election and the initial term of office of the third
class of directors shall expire at the third annual meeting of stockholders
after their election. At each annual meeting of stockholders after 1999, the
directors elected to succeed those whose terms have expired shall be identified
as being of the same class as the directors they succeed and shall be elected to
hold office until the third succeeding annual meeting of stockholders after
their election. Notwithstanding the foregoing, however, each director shall hold
office until his successor shall have been duly elected and qualified, unless he
shall resign, become disqualified, disabled or shall otherwise be removed.
If the number of directors is changed, any increase or decrease in
directors shall be apportioned among the classes so as to maintain all classes
as equal in number as possible, and any additional director elected to any class
shall hold office for a term which shall coincide with the term of the other
directors in such class. No increase in the number of directors shall shorten
the term of any incumbent director.
Any vacancy occurring in the Board of Directors caused by the death,
resignation, or removal of a director, and any newly created directorship
resulting from an increase in the number of directors, may be filled by a
majority of the directors then in office, although less than a quorum. Each
director chosen to fill a vacancy or newly created directorship shall hold
office until the next election of the class for which such director shall have
been chosen and until his successor shall be duly elected and qualified.
Notwithstanding the foregoing paragraphs of this Section, whenever the
holders of any preferred stock issued by the corporation shall have the right,
voting as a class or otherwise, to elect directors, the then authorized number
of directors of the corporation shall be increased by the number of the
additional directors so to be elected, and the holders of such preferred stock
shall be entitled, as a class or otherwise, to elect such additional directors.
Any directors so elected shall hold office until the next annual meeting of
stockholders or until their rights to hold such office shall terminate pursuant
to the provisions of such preferred stock, whichever is earlier.
SECTION 2. RESIGNATIONS. - Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES - If the office of any director, member of a committee
or other officer becomes vacant, the remaining directors in office, though less
than a quorum by a majority vote, may appoint any qualified person to fill such
vacancy, who shall hold office for the unexpired term and until his successor
shall be duly chosen.
4
<PAGE>
SECTION 4. REMOVAL. - Any director or directors may be removed either for
or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote at an
election of directors (notwithstanding the classification of the Board into
members having staggered terms), at a special meeting of the stockholders called
for the purpose and the vacancies thus created may be filled, at the meeting
held for the purpose of removal, by the affirmative vote of a majority in
interest of the stockholders entitled to vote, except that any director elected
by the holders of preferred stock may only be removed by the holders of a
majority of the shares of that class or series thereof entitled to vote at an
election of such director.
SECTION 5. INCREASE OF NUMBER. - The number of directors may be increased
by amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or, by the affirmative vote of a majority
in interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be chosen
at such meeting to hold office until the next annual election and until their
successors are elected and qualify.
SECTION 6. POWERS. - The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. - The Board of Directors may designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member or
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power of authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. - The newly elected Board of Directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present,
5
<PAGE>
immediately after the annual meeting of the stockholders; or the time and place
of such meeting may be fixed by consent, in writing, of all the directors.
Unless restricted by the Certificate of Incorporation or elsewhere in these
By-laws, members of the Board of Directors or any committee designated by such
Board may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at such meeting.
Regular meetings of the Board of Directors may be scheduled by a resolution
adopted by the Board. The Chairman of the Board or the President or Secretary
may call, and if requested by any two directors, must call a special meeting of
the Board and give five days' notice by mail, or 24 hours notice personally or
by telephone, telecopier or e-mail to each director. The Board of Directors may
hold an annual meeting, without notice, immediately after the annual meeting of
Stockholders.
SECTION 9. QUORUM. - A majority of the directors shall constitute a quorum
for the transaction of business. If at any meeting of the board there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be so adjourned.
SECTION 10. COMPENSATION. - Directors shall not receive any stated salary
for their services as directors or as members of committees, but by resolution
of the board a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. - Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of the board, or of such committee as the case
may be, and such written consent is filed with the minutes of proceedings of the
board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, a Chief
Executive Officer, a Chief Financial Officer, a Chief Operating Officer, one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at
6
<PAGE>
the first meeting of the Board of Directors after each annual meeting. More than
two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. - The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. - Unless a chief executive officer or other officer
is elected and has been assigned the powers and the duties of supervision and
management by the Board of Directors, the President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation, subject to the control of the Board of Directors. Except as the
Board of Directors shall authorize the execution thereof in some other manner,
he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT. - Each Vice-President shall have such powers and
shall perform such duties as shall be assigned to him by the directors.
SECTION 6. TREASURER. - The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered
by the Board of Directors, or the President, taking proper vouchers for such
disbursements. He shall render to the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his transactions as Treasurer and of the financial condition of
the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY. - The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by the law or by these By-Laws, and in case of his absence or refusal
or neglect so to do, any such notice may be given by any person thereunto
directed by the President, or by the directors, or stockholders, upon whose
requisition the meeting is called as provided in these By-Laws. He shall record
all the proceedings
7
<PAGE>
of the meetings of the corporation and of the directors in a book to be kept for
that purpose, and shall perform such other duties as may be assigned to him by
the directors or the President. He shall have the custody of the seal of the
corporation and shall affix the same to all instruments requiring it, when
authorized by the directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. - Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - A certificate of stock, signed by the
Chairman or Vice-Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or Assistant Secretary, shall be issued to each stockholder certifying
the number of shares owned by him in the corporation. When such certificates are
countersigned (1) by a transfer agent other than the corporation or its
employee, or, (2) by a registrar other than the corporation or its employee, the
signatures of such officers may be facsimiles.
SECTION 2. LOST CERTIFICATES. - A new certificate of stock may be issued in
the place of any certificate theretofore issued by the corporation, alleged to
have been lost or destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal representatives, to
give the corporation a bond, in such sum as they may direct, not exceeding
double the value of the stock, to indemnify the corporation against any claim
that may be made against it on account of the alleged loss of any such
certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation
shall be transferrable only upon its books by the holders thereof in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be canceled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. - (a) In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of
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directors. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
b) In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record is adopted by the board of directors.
(c) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted.
SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. - The corporate seal shall be circular in form and shall
contain the name of the corporation, the year of its creation and the words
"Corporate Seal, Delaware, 1996". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. - The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. - All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is required
by these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage, prepaid, addressed to
the person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by Statute.
9
<PAGE>
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation of these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal of By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
ARTICLE VII
INDEMNIFICATION
No director shall be liable to the corporation or any of its stockholders
for monetary damages for breach of fiduciary duty as a director, except with
respect to (1) a breach of the director's duty of loyalty to the corporation or
its stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) liability which may be
specifically defined by law or (4) a transaction from which the director derived
an improper personal benefit, it being the intention of the foregoing provision
to eliminate the liability of the corporation's directors to the corporation or
its stockholders to the fullest extent permitted by law. The corporation shall
indemnify to the fullest extent permitted by law each person that such law
grants the corporation the power to indemnify.
ARTICLE VIII
NOTICE AND QUALIFICATION OF STOCKHOLDER
NOMINEES TO BOARD
Only persons who are nominated in accordance with the procedures set forth
in this Article VIII shall be qualified for election as directors. Nominations
of persons for election to the Board of Directors of the corporation may be made
at a meeting of stockholders by or at the direction of the Board of Directors or
by any stockholder of the corporation entitled to vote for the election of
Directors at the meeting who complies with the procedures set forth in this
Article VIII. In order for persons nominated to the Board of Directors, other
than those persons nominated by or at the direction of the Board of Directors,
to be qualified to serve on the Board of Directors, such nomination shall be
made pursuant to timely notice in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however,
10
<PAGE>
that, in the event that less than 70 days' notice of the date of the meeting is
given to stockholders and public disclosure of the meeting date, pursuant to a
press release, is either not made or is made less than 70 days prior to the
meeting date, then notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the earlier of
(a) the day on which such notice of the date of the meeting was mailed to
stockholders or (b) the day on which such public disclosure was made.
A stockholder's notice to the Secretary must set forth (a) as to each
person whom the Stockholder proposes to nominate for election or re-election as
a director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitation of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended from time to time
(including, without limitation, such documentation as is required by Regulation
14A to confirm that such person is a bona fide nominee); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
corporation's books, of such stockholder and (ii) the class and number of shares
of the corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be qualified for
election as a Director of the corporation unless nominated in accordance with
the procedures set forth in this Article VIII. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with procedures prescribed by the By-Laws,
and, if he should so determine, he shall so declare to the meeting, and the
defective nomination shall be disregarded.
11
<PAGE>
AMENDMENTS TO ASSET PURCHASE AGREEMENT
November 23, 1999
The following amendments dated November 23, 1999 are made to the Asset Purchase
Agreement among Compu-Dawn, Inc., GPC Acquisition Corp., Global PC, Inc., Mark
Bradlee and Brian Dougherty, dated July 30, 1999, as amended on September 24,
1999 and September 26, 1999.
<TABLE>
<CAPTION>
_____________________________________________________________________
SECTION AMENDMENT
________________________________________________________________________
<S> <C> <C>
1. Heading Change "Kevin" Dougherty to "Brian" Dougherty.
2. Section 2 Change paragraph to read "Seller is engaged in the business of
Recitals, First developing and marketing certain proprietary user interface and
Paragraph application computer and Internet software (the "Business"), including
a Graphical Operating System called GEOS(R) ("GEOS(R)") which,
together with user interface and application software is utilized in a low
cost Internet and computing appliance (the "Global PC Device") and
associated web portal ("Global PC Online")".
3. Section 2.3.1 The following sentence is added at the end of the Section:
Additionally, the Purchaser or Compu-DAWN shall pay Seller an
amount not to exceed the total tax liability amount set forth on
Schedule 3.9 plus $10,000 (the "Cash Purchase Price"), which proceeds
shall be used by Seller only and specifically to satisfy the tax liabilities
set forth on Schedule 3.9.
4. Section 2.3.2(b) Reference to delivery of Common Shares and/or Warrants at Closing
shall be changed to delivery of Common Shares and/or Warrants within
thirty (30) days after Closing.
5. Section 2.3.2 A new Section 2.3.2(c) is added as follows: 2.3.2(c) the Cash Purchase
Price shall be delivered to the Seller at the Closing.
6. Section 3.10.1 December Balance Sheet refers to December 1998 in all cases.
7. Section 3.11 and Insurance Schedule is complete, but policies have lapsed due to the
Section 5.1(c) length required to close the asset purchase agreement amendments.
Cancelled insurance policies and lapsed policies are listed in Schedule
3.11.
8. Section 3.23(a) Change the phrase "To the best of Sellers' and/or either Principal
Shareholder respective knowledge, Seller is in compliance" to "To the
1
best of Seller's and/or either Principal Shareholder's
respective knowledge, except as set forth in Schedule
3.9, Seller is in compliance".
9. Section 5.1(i) Change the opening phrase from "For as long as this Agreement shall
remain in effect and until terminated in accordance with its terms" to
"for as long as this Agreement and any amendments thereto shall
remain in effect and until the earlier of (A) the closing of this
Agreement as amended and as may be amended, or (B) it is terminated
in accordance with its terms".
10. Section 8.5 Change reference from "without limitation the GEOS(R) License
Agreement" to "without limitation a new GEOS(R) License Agreement".
11. Section 8.9 Change phrase from "Seller shall be satisfied with the amounts" to
"Except as set forth in Schedule 3.9, Purchaser shall be satisfied with
the amounts".
12. Section 8.12 Paragraph should be changed to read "Seller shall have agreements
with a sufficient number of its creditors such that its total trade and
accounts payable and other liabilities can be liquidated by the amount
approved by Compu-DAWN.
13. Section 8.23 Paragraph should be changed to read:
Escrow Agreement. Seller and the Representative shall have executed
and tendered to Compu-DAWN an escrow agreement (the "Escrow
Agreement") in the form and substance reasonably acceptable to
Compu-DAWN, Purchaser, Seller and the Principal Shareholders,
providing for, among other things, that the Common Shares and
Warrants of Compu-DAWN issuable to the Persons set forth on
Schedule 8.23 on account of a portion of the Purchase Price as provided
in Section 2.3.2(a) hereof, as provided for below (the "Escrow
Securities"), will be placed in escrow with an escrow agent satisfactory
to Compu-DAWN and held in accordance with the terms set forth
below and shall be held as security for the indemnification obligations
of the Principal Shareholders pursuant to Section 12.2.1 hereof for a
period of eleven (11) months from the Closing Date.
14. Section 10.1 Change the date September 30, 1999 (as amended to November 30,
1999) to December 31, 1999.
2
15. Section 10.3 (b) These sections are deleted (because the Closing Common Shares and
and (c) Closing Warrants will be delivered within thirty (30) days after
Closing).
16. Section 10.3(e) Replace the reference to "Schedule 10.3(e)" with "Schedule 9.7".
17. Section 11.4 Paragraph should be changed to read:
Board Position. The Board of Directors of Compu-DAWN shall be
comprised of seven (7) directors following the Closing. The two (2)
vacancies currently on the Board shall be filled by Brian Dougherty
and Mark Bradlee at the Closing. Compu-DAWN will use best efforts
to cause seat to be vacated by a current Compu-DAWN employee
board member and cause such seat to be filled by a new qualified and
valuable outside board member in the future which would thereafter
make the composition of the board two Compu-DAWN employees, two
former Global PC employees and three outside board members.
18. Section 11.5(ii)(A) For the purposes of this restrictive clause, a Competitive Business will
be defined as any Business developing and/or selling a non
Windows/Macintosh PC combined with Internet Portal connectivity
that targets the home market.
For the purposes of this restrictive clause and all other restrictive
clauses in this Agreement, the definition of Competitive Business will
exclude Wink Communications and PlanetWeb. It was disclosed prior
to the signing of the Letter of Intent that Brian Dougherty is currently
on the Board of Directors and has active participation in both Wink
Communications and PlanetWeb.
19. Section 11.5(B) Change restrictive period from "two (2) years" to "one (1) year".
20. Section 11.7 Change the phrase "fund the pre-rollout market to "rollout market".
21. Section 15.1 The term "Subscription Agreement" in this Section and where
referenced throughout the Agreement is changed to "Subscription and
Registration Rights Agreement".
22. Section 16.7 Change Compu-DAWN address to read:
333 North 1st Street, Suite 200
Jacksonville, Florida 32250
Attention: Chairman of the Board
Telecopier: (904) 249-7599
3
23. New Article XVII A new Article XVII is added to the Asset Purchase Agreement, which
shall read in its entirety as follows:
Registration Rights. The Subscription and Registration Rights
Agreements shall have the following provisions relating to registration
of the Common Shares and Warrant Shares in, or substantially in, the
form annexed hereto as Schedule 23.
24. Schedule 2.3.2(a)(i) Replace original Schedule 2.3.2(a)(i) with Schedule 2.3.2(i) dated Nov.
23, 1999.
25. Schedule 2.3.2(a)(ii) Replace original Schedule 2.3.2(a)(ii) with Schedule 2.3.2(a)(ii) dated
Nov. 23, 1999.
26. Schedule 2.4.1 Replace original Schedule 2.4.1 with Schedule 2.4.1 dated Nov. 23, 1999.
27. Schedule 3.1 Replace original Schedule 3.1 with Schedule 3.1 dated Nov. 23, 1999.
28. Schedule 3.2 Replace original Schedule 3.2 with Schedule 3.2 dated Nov. 23, 1999.
29. Schedule 3.3 Replace original Schedule 3.3 with Schedule 3.3 dated Nov. 23, 1999.
30. Schedule 3.5 Replace original Schedule 3.5 with Schedule 3.5 dated Nov. 23, 1999.
31. Schedule 3.6 Replace original Schedule 3.6 with Schedule 3.6 dated Nov. 23, 1999.
32. Schedule 3.7 Replace original Schedule 3.7 with Schedule 3.7 dated Nov. 23,1999.
33. Schedule 3.8 Replace original Schedule 3.8 with Schedule 3.8 dated Nov. 23, 1999.
34. Schedule 3.9 Replace original Schedule 3.9 with Schedule 3.9 dated Nov. 23, 1999.
35. Schedule 3.10.1 Replace original Schedule 3.10.1 with Schedule 3.10.1 dated Nov. 23,
1999.
36. Schedule 3.10.2 Replace original Schedule 3.10.2 with Schedule 3.10.2 dated Nov. 23,
1999.
37. Schedule 3.11 Replace original Schedule 3.11 with Schedule 3.11 dated Nov. 23,
1999.
4
38. Schedule 3.12 Replace original Schedule 3.12 with Schedule 3.12 dated Nov. 23,
1999.
39. Schedule 3.13 Replace original Schedule 3.13 with Schedule 3.13 dated Nov. 23,
1999.
40. Schedule 3.14 Replace original Schedule 3.14 with Schedule 3.14 dated Nov. 23,
1999.
41. Schedule 3.16 Replace original Schedule 3.16 with Schedule 3.16 dated Nov. 23,
1999.
42. Schedule 3.19 Replace original Schedule 3.19 with Schedule 3.19 dated Nov. 23,
1999.
43. Schedule 3.23 Replace original Schedule 3.23 with Schedule 3.23 dated Nov. 23,
1999.
44. Schedule 3.25 Replace original Schedule 3.25 with Schedule 3.25 dated Nov. 23,
1999.
45. Schedule 4.3 Replace original Schedule 4.3 with Schedule 4.3 dated Nov. 23, 1999.
46. Schedule 8.11 Replace original Schedule 8.11 with Schedule 8.11 dated Nov. 23,
1999.
47. Schedule 8.23 Replace original Schedule 8.23 with Schedule 8.23 dated Nov. 23,
1999.
48. Schedule 9.7 Replace original Schedule 9.7 with Schedule 9.7 dated Nov. 23, 1999.
49. Exhibit 2.3.1(a) Replace original Exhibit 2.3.1(a) with revised Exhibit 2.3.1(a) (Form of
Class A Warrant) attached hereto.
50. Exhibit 2.3.1(b) Replace original Exhibit 2.3.1(b) with revised Exhibit 2.3.1(b) (Form of
Class B Warrant) attached hereto.
51. Exhibit 2.3.1(c) Replace original Exhibit 2.3.1(c) with revised Exhibit 2.3.1(c) (Form of
Class C Warrant) attached hereto.
52. All other terms of the Asset Purchase Agreement as amended on September
24,1999 and September 26, 1999 shall remain and continue in full force and
effect as amended hereby.
</TABLE>
5
WITNESS the execution of these Amendments as of the date first above
written.
COMPU-DAWN, INC.
By: /s/ Rudy C. Theale
----------------------
GPC ACQUISITION CORP.
By: /s/ Rudy C. Theale
----------------------
GLOBAL P.C.
By: /s/ Mark Bradlee
--------------------
/s/ Mark Bradlee
----------------
MARK BRADLEE
/s/ Brian Dougherty
-------------------
BRIAN DOUGHERTY
6
AMENDMENTS TO ASSET PURCHASE AGREEMENTS
November 23, 1999
SCHEDULE 23
5.1 Registration Rights
(a) Compu-DAWN Obligations.
i. Registration.
A. If at any time after the date hereof Compu-DAWN shall
file with the Securities and Exchange Commission (the
"SEC") a registration statement (a "Piggy-back
Registration Statement") under the Securities Act
relating to an offering for its own account or the
account of others under the Securities Act of any of
its equity securities (other than on Form S-4 or Form
S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any
acquisition of any entity or business or equity
securities issuable in connection with stock option or
other employee benefit plans), Compu-DAWN shall send to
the Subscribers written notice of such determination
and, if within fifteen (15) days after the date of such
notice, any Subscriber shall so request in writing,
Compu-DAWN shall include in such Piggy-Back
Registration Statement all or any part of the Common
Shares and/or Warrant Shares (collectively the
"Registrable Securities") such Subscriber requests to
be registered, except that if, in connection with any
underwritten public offering, the managing
underwriter(s) thereof shall impose a limitation on the
number of Registrable Securities which may be included
in the Piggy-Back Registration Statement (the
"Underwriter Cutback") because, in such underwriter(s)'
judgment, marketing or other factors dictate such
limitation is necessary to facilitate public
distribution, then Compu-DAWN shall be obligated to
include in such Piggy-Back Registration Statement only
such limited portion of the as the underwriter shall
permit (limited to zero if necessary).
B. The provisions of Section 5.1(a)(i)(a) notwithstanding,
if Compu- DAWN has not previously filed one or more
Piggy-back Registration Statements covering the resale
of all of the Registrable Securities then, if (I)
Compu-DAWN receives a request from Subscribers who are
holders of at least 100,000 Registrable Securities, or
(II) if all the Subscribers hold in the aggregate less
than 199,999 Registrable Securities, Compu-DAWN
receives a request from Subscribers who are holders of
a majority of the Registrable Securities, Compu-DAWN
7
shall on no more than two (2) occassions in each
calendar year, commencing on May 15, 2000, prepare
and file with the SEC a registration statement (a
"Mandatory Registration Statement" and singly and
collectively with any Piggyback Registration
Statement(s) sometimes referred to as the "Registration
Statement") covering the resale of the Registrable
Securities. The Company may register the resale of any
other of its securities on any such Mandatory
Registration Statement. The Company shall use
reasonable best efforts to cause the Mandatory
Registration Statement to become effective as soon as
is practicable after the filing thereof, but in no
event later than the one hundredth and twentieth
(120th) day following the date of the filing thereof,
provided however, that in no event shall Compu-DAWN be
required to file a Mandatory Registration Statement if
it is undertaking an underwritten public offering which
has not closed, and in such case, the date that
Compu-DAWN is required to file the Mandatory
Registration Statement hereunder shall be extended
until the thirtieth (30th) day after the underwritten
offering is closed and the distribution of the
securities in such underwritten public offering is
complete.
C. If an offering in connection with which an Subscriber
is entitled to registration under this Section
5.1(a)(i) is an underwritten offering, then such
Subscriber shall, unless otherwise agreed by
Compu-DAWN, offer and sell such Registrable Securities
in an underwritten offering using the same underwriter
or underwriters and, subject to the provisions of the
Subscription and Registration Rights Agreement relating
to the applicable Subscriber, on the same terms and
conditions as other like securities included in such
underwritten offering.
ii. Amendments and Supplements; Maintain Effectiveness.
Compu-DAWN shall prepare and file with the SEC such
amendments (including post-effective amendments) and
supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at
all times for a period of six (6) months following the
effective date thereof (the "Registration Period"), except
during any Disclosure Delay Period (as defined in Section
5.1(a)(iii), and, during such period, comply with the
provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by the
Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the Subscriber
who is the holder thereof (for the purposes of this Section
5 each a "Holder") as set forth in the Registration
Statement.
iii. Disclosure Delay Period. If, at any time prior to the
expiration of the
8
Registration Period, in the good faith reasonable judgment
of Compu-DAWN's Board of Directors, the disposition of
Registrable Securities would require the premature
disclosure of material non-public information which may
reasonably be expected to have an adverse effect on
Compu-DAWN, then Compu-DAWN shall not be required to
maintain the effectiveness of or amend or supplement the
Registration Statement for a period (a "Disclosure Delay
Period") expiring upon the earlier to occur of (A) the date
on which such material information is disclosed to the
public or ceases to be material or (B) subject to Section
5.1(a)(iv) hereof, up to sixty (60) calendar days after the
date on which Compu-DAWN provides a notice to the Holders
under Section 5.1(a)(iv) hereof stating that the failure to
disclose such non-public information causes the prospectus
included in the Registration Statement, as then in effect,
to include an untrue statement of a material fact or to omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
iv. Notice of Disclosure Delay Period. Compu-DAWN will give
prompt written notice, to each Holder of each Disclosure
Delay Period. Each Holder agrees that, upon receipt of such
notice prior to such Holder's disposition of all such
Registrable Securities will forthwith discontinue
disposition of such Registrable Securities pursuant to the
Registration Statement, and will not deliver any prospectus
forming a part thereof in connection with any sale of such
Registrable Securities until the expiration of such
Disclosure Delay Period. Notwithstanding anything in this
Section 5.1 to the contrary, there shall not be more than an
aggregate of One Hundred Twenty (120) calendar days in any
twelve (12) month period during which Compu-DAWN is in a
Disclosure Delay Period.
v. Copies of Filings and Correspondence. Compu-DAWN shall
furnish to Holder (A) promptly after the same is prepared
and publicly distributed, filed with the SEC, or received by
Compu-DAWN, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto, and
each item of correspondence from the SEC or the staff of the
SEC which comments upon or requests information relating to
such Holder and/or the Registrable Securities (including,
without limitation, the resale and plan of distribution
hereof), in each case relating to such Registration
Statement (other than any portion, if any, thereof which
contains information for which Compu-DAWN has sought
confidential treatment), (B) on the date of effectiveness of
the Registration Statement or any amendment thereto, a
notice stating that the Registration Statement or amendment
has been declared effective, and (C) such number of copies
of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents
as such Holder may reasonably
9
request in order to facilitate the disposition of the Common
Shares by Holder.
vi. Blue Sky. Compu-DAWN shall use its best efforts to (A)
register and qualify the Registrable Securities covered by
the Registration Statement under such other securities or
"blue sky" laws of such jurisdictions in the United States
as Holders of a majority of the Registrable Securities
reasonably request, (B) prepare and file in those
jurisdictions such amendments (including post- effective
amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (C)
take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times
during the Registration Period, and (D) take all other
actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions;
provided, however, that Compu-DAWN shall not be required in
connection therewith or as a condition thereto to (A)
qualify to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section
5.1(a)(vi), (B) subject itself to general taxation in any
such jurisdiction, (C) file a general consent to service of
process in any such jurisdiction, (D) provide any
undertakings that cause Compu-DAWN undue expense or burden,
or (E) make any change in its charter or bylaws, which in
each case the Board of Directors of Compu-DAWN determines to
be contrary to the best interests of Compu-DAWN and its
stockholders.
vii. Events Affecting Prospectus. As promptly as practicable
after becoming aware of such event, Compu-DAWN shall notify
the Holders of the happening of any event, of which
Compu-DAWN has knowledge, as a result of which the
prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact
or omission to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and if such Registration Statement is
supplemented or amended to correct such untrue statement or
omission, to deliver such number as such Holders may
reasonably request.
viii.Notification of Amendment or Supplement. Compu-DAWN shall,
as promptly as practical after becoming aware of such event
described in Section 5.1(vii), notify the Holders of the
issuance of such order and the resolution thereof (and if
such Registration Statement is supplemented or amended,
deliver such number of copies of such supplement or
amendment to such Holders as they may reasonably request).
ix. Review by Holders' Counsel. Compu-DAWN shall permit a single
firm of counsel designated by the Holders holding a majority
of the Registrable Securities to review the Registration
Statement and all amendments and
10
supplements thereto a reasonable period of time prior to
their filing with the SEC.
x. Holders' Due Diligence; Confidentiality of Compu-DAWN
Information. Compu-DAWN shall make available for inspection
by (A) the Holders, (B) one firm of attorneys and one firm
of accountants or other agents retained by the Holders
holding a majority of the Registrable Securities
(collectively, the "Inspectors") all pertinent financial and
other records, and pertinent corporate documents and
properties of Compu-DAWN (collectively, the "Records"), as
shall be reasonably deemed necessary by each Inspector to
enable each Inspector to exercise its due diligence
responsibility, and cause Compu- DAWN's officers, directors
and employees to supply all information which the Holders
holding a majority of the Registrable Securities may
reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to the
Holders) of any record or other information which Compu-DAWN
determines in good faith to be confidential, and of which
determination the Inspector so notified, unless (A) the
disclosure of such records is necessary to avoid or correct
a misstatement or omission in any Registration Statement,
(B) the release of such records is ordered pursuant to a
subpoena or other order from a court or government body of
competent jurisdiction, or (C) the information in such
records has been made generally available to the public
other than by disclosure in violation of this or any other
agreement. Compu- DAWN shall not be required to disclose any
confidential information in such records to any Inspector
until and unless such Inspector shall have entered into a
confidentiality agreements with Compu-DAWN with respect
thereto, substantially in the form of this Section
5.1(a)(x). ATS agrees that it shall, upon learning that
disclosure of such records is sought in or by a court or
governmental body of competent jurisdiction or through other
means, give prompt notice to Compu-DAWN and allow
Compu-DAWN, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order
for, the records deemed confidential. Nothing herein shall
be deemed to limit the Holder's ability to sell Common
Shares in a manner which is otherwise consistent with
applicable laws and regulations.
xi. Confidentiality of the Holder's Information. Compu-DAWN
shall hold in confidence and not make any disclosure of
information concerning any Holder provided to Compu-DAWN
unless (A) disclosure of such information is necessary to
comply with federal or state securities laws, (B) the
disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration
Statement, (C) the release of such information is ordered
pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction, (D) such
information has been made generally
11
available to the public other than by disclosure in
violation of this or any other agreement, or (E) the
applicable Holder consents to the form and content of any
such disclosure. Compu-DAWN agrees that it shall, upon
learning that disclosure of such information concerning such
holder is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt
notice to such Holder prior to making such disclosure, and
allow such Holder, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective
order for, such information.
xii. Compliance with Laws. Compu-DAWN shall comply with all
applicable laws related to a Registration Statement and
offering and sale of securities and all applicable rules and
regulations of governmental authorities in connection
therewith (including, without limitation, the Securities Act
and the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC.)
(b) Obligations of the Holders. In connection with a registration
of the Registable Securities the Holders shall have the following
obligations:
i. Holder's Information. It shall be a condition precedent to the
obligations of Compu-DAWN to complete the registration pursuant
to Section 5.1 that each Holder shall furnish to Compu-DAWN such
information regarding itself, the Registrable Securities and the
intended method of disposition of the as shall be required to
effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as
Compu- DAWN may reasonably request. At least five (5) business
days prior to the first anticipated filing date of the
Registration Statement, Compu-DAWN shall notify the Holders of
the information Compu-DAWN requires from the Holders.
ii. Cooperation. Each Holder agrees to cooperate with Compu-DAWN as
requested by Compu-DAWN in connection with the preparation and
filing of the Registration Statement hereunder, unless such
Holder does not include any of his, hers or its Registrable
Securities in the Registration Statement.
iii. Underwritten Offering. In the event a Holder determines to engage
the services of an underwriter, such Holder agrees to enter into
and perform its obligations under an underwriting agreement, in
usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions
as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities.
12
iv No Disposition of Registable Securities. Each Holder agrees that,
upon receipt of any notice from Compu-DAWN of the happening of
any event of the kind described in Sections 5.1(a)(vii) or
5.1(a)(viii), such Holder will immediately discontinue
disposition of Registrable Securities pursuant to the
Registration Statement covering the resale of such Registrable
Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Sections
5.1(a)(vii) or 5.1(a)(viii) and, if so directed by Compu-DAWN,
each Holder shall deliver to Compu-DAWN or destroy (and deliver
to Compu-DAWN a certificate of destruction) all copies in such
Holder's possession, of the prospectus covering such Common
Shares current at the time of receipt of such notice.
v. Method of Underwritten Distribution. Each Holder may not
participate in any underwritten distribution of the Common Shares
unless such Holder (A) agrees to sell the Common Shares on the
basis provided in any underwriting arrangements in usual and
customary form entered into by Compu-DAWN, (B) completes, in a
manner reasonably acceptable to Compu-DAWN, and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the
terms of such underwriting arrangements, and (C) agrees to pay
its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by Compu-DAWN
pursuant to Section 5.1(c) below.
(c) Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications, relating to two (2)
Registration Statements pursuant to Section 5.1, except that if a
portion of ATS Shares are not permitted to be included in two (2)
Registration Statements by an underwriter as provided in Section
5.1(a)(i), then relating to the least number of Registration
Statements which will cover the resale of all the Registrable
Securities, including all registration, listing and qualifications
fees, printers and accounting fees, the fees and disbursements of
counsel for Compu-DAWN hereof, shall be borne by Compu-DAWN.
(d) Indemnification. In the event any Registrable Securities are
included for resale in a Registration Statement under this Agreement:
i. Compu-DAWN Indemnification. To the extent permitted by law,
Compu- DAWN will indemnify, hold harmless and defend (A) the
Holder and (B) the directors, officers, partners, members,
employees, agents and each person who controls any non-individual
holder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, if any, (each, an "Indemnified
Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory
organization, whether
13
commenced or threatened, in respect thereof, "Claims") to which
any of them may become subject insofar as such Claims arise out
of or are based upon: (A) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or the
omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein
not misleading, (B) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if Compu-DAWN files any amendment
thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances
under which the statements therein were made, not misleading, or
(C) any violation or alleged violation by Compu-DAWN of the
Securities Act, the Exchange Act, any other applicable securities
law, including, without limitation, any state securities law, or
any rule or regulation thereunder relating to the offer or sale
of the Common Shares (the matters in the foregoing clauses (A)
through (C) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 5.1(d)(iii) with respect to the
number of legal counsel, Compu-DAWN shall reimburse the Holder
and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees
or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification
agreement contained in this Section 5.1(d)(i): (A) shall not
apply to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information
furnished in writing to Compu-DAWN by such Indemnified Person
expressly for use in the Registration Statement or any such
amendment thereof or supplement thereto; (B) shall not apply to
amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of Compu-DAWN; and (C)
with respect to any preliminary prospectus, shall not inure to
the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then
amended or supplemented, if such corrected prospectus was timely
made available by Compu-DAWN pursuant to Section 5.1(a)(v)
hereof, and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use
giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain
in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the
transfer of the Registrable Securities by the Holder.
14
ii. Holder's Indemnification. In connection with any Registration
Statement in which the Holder is participating, each Holder
agrees to indemnify, hold harmless and defend, to the same extent
and in the same manner set forth in Section 5.1(d)(i),
Compu-DAWN, each of its directors, each of its officers who signs
the Registration Statement, its employees, agents and each
person, if any, who controls Compu-DAWN within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act, and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any
person who controls such stockholder within the meaning of the
Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "Indemnified Party"), against any
Claim to which any of them may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such
Claim arises out of or is based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information
furnished to Compu- DAWN by such Holder expressly for use in
connection with such Registration Statement, and subject to
Section 5.1(d)(iii), such Holder will reimburse any legal or
other expenses (promptly as such expenses are incurred and are
due and payable) reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 5.1(d)(ii)
shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of
such Holder, which consent shall not be unreasonably withheld.
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable
Securities by such Holder.
iii. Procedure. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 5.1(d) of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to made against any indemnifying party under
this Section 5.1(d), deliver to the indemnifying party a written
notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and, to the extent the
indemnifying party so desires, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying
party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party
shall not be entitled to assume such defense and an Indemnified
Person or Indemnified Party shall have the right to retain its
own counsel with the reasonable fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the
indemnifying party would be inappropriate due to actual or
potential conflicts of interest between
15
such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include
both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified
Party reasonably determines that there may be legal defenses
available to such Indemnified Person or Indemnified Party which
are different from or in addition to those available to such
indemnifying party. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall
be selected by such Holder, if such Holder or any Indemnified
Person is entitled to indemnification hereunder, or by
Compu-DAWN, if Compu-DAWN or an Indemnified Party is entitled to
indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 5.1(d), except to the extent
that the indemnifying party is actually prejudiced in its ability
to defend such action. The indemnification required by this
Section 5.1(d) shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as
such expense, loss, damage or liability is incurred and is due
and payable.
(e) Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying
party agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 5.1(d) to
the fullest extent permitted by law; provided, however, that no
contribution shall be made under circumstances where the indemnifying
party would not have been liable for indemnification under the fault
standards set forth in Section 5.1(d).
(f) Exemption from Registration. The provisions of Section 5.1(a)
through (e) notwithstanding, Compu-DAWN shall have no obligation to
register the resale of the Common Shares to the extent the Common
Shares may be resold without registration without violating Section 5
of the Securities Act pursuant to Rule 144 promulgated thereunder or
any other exemption or exception from registration under the
Securities Act.
16
AMENDMENTS TO ASSET PURCHASE AGREEMENT
December 22, 1999
The following amendments dated December 22, 1999 are made to the Asset Purchase
Agreement among Compu-Dawn, Inc., GPC Acquisition Corp., Global PC, Inc., Mark
Bradlee and Brian Dougherty, dated July 30, 1999, as amended on September 24,
1999, September 26, 1999 and November 23, 1999.
- --------------------------------------------------------------------------------
SECTION AMENDMENT
- --------------------------------------------------------------------------------
1. 2.3.1 The sentence which was added at the end of Section 2.3.1 in
the Amendment to Asset Purchase Agreement dated November 23,
1999, paragraph 3, which read: "Additionally, the purchaser
or Compu- DAWN shall pay Seller an amount not to exceed the
total tax liability amount set forth on Schedule 3.9 plus
$10,000 (the "Cash Purchase Price"), which proceeds shall be
used by Seller only and specifically to satisfy the tax
liability set forth on Schedule 3.9.", is amended to read in
its entirety as follows: "Additionally, the Purchaser or
Compu- DAWN shall pay Seller an amount equal to the total
tax liability amount finally negotiated by Seller and the
taxing authorities set forth on Schedule 3.9, but in no
event shall such amount exceed the total tax liability
amount set forth on Schedule 3.9 plus $10,000 (collectively,
the "Cash Purchase Price"), which proceeds shall be used by
the Seller only and specifically to satisfy the tax
liabilities finally negotiated with such taxing
authorities."
2. Section 2.3.2(b) The following sentence is added to Section 2.3.2(b): The
persons listed on Schedule 2.3.2(a)(i) may deliver
subscription agreements to Compu- DAWN up to the fifteenth
day following the Closing (which shall occur on the date
hereof). A determination as to who the accepted subscribers
will be, shall be made by Compu-DAWN up to that time.
3. Section 2.3.2(c) Section 2.3.2(c), which was added by paragraph 5 of the
Amendments to Asset Purchase Agreement dated November 23,
1999, is amended to read in its entirety as follows: The
Cash Purchase Price shall be delivered to the Seller at such
time as the tax liabilities to the taxing authorities set
forth on Schedule 3.9 as finally negotiated between the
Seller and such taxing authorities become absolutely due
pursuant to agreements reached between the Seller and each
of such taxing authority, but in no event prior to the
Closing.
All other terms of the Asset Purchase Agreement as amended on September 24,
1999, September 26, 1999 and November 23, 1999 shall remain and continue in full
force and effect as amended hereby.
1
<PAGE>
WITNESS the execution of these Amendments as of the date first above
written.
COMPU-DAWN, INC.
By: /s/ Rudy C. Theale
----------------------
GPC ACQUISITION CORP.
By: /s/ Rudy C. Theale
----------------------
GLOBAL P.C., INC.
By: /s/ Mark Bradlee
--------------------
/s/ Mark Bradlee
-----------------------------
MARK BRADLEE
/s/ Brian Dougherty
-----------------------------
BRIAN DOUGHERTY
2
<PAGE>
GEOWORKS - MYTURN
STOCK TRANSFER AND TECHNOLOGY LICENSE AGREEMENT
This Agreement is entered and effective as of December 22, 1999 (the "Effective
Date"), by and among GEOWORKS CORPORATION, a Delaware corporation ("GEOWORKS"),
and Compu- DAWN, Inc., dba MYTURN.com, a Delaware corporation ("Compu-DAWN"),
and GPC Acquisition Corp., a Delaware corporation that is a wholly-owned
subsidiary of Compu-DAWN ("GPC"; sometimes Compu-DAWN and GPC are collectively
referred to herein as "MYTURN").
RECITALS
1. MYTURN is entering into an Asset Purchase Agreement (the "APA"), of even
date herewith, for the purchase of certain tangible and intangible assets and
the assumption of cer tain liabilities of GLOBAL PC, Inc., a California
corporation ("GLOBAL"). Compu-DAWN agrees to guarantee all debts and obligations
of GPC due, owing, and pertaining to GEOWORKS;
2. MYTURN desires to license certain technology from GEOWORKS (the
"Licensed Technology") and develop and market a low cost personal computer
("MYTURN PC Device");
3. GEOWORKS is the developer, publisher, and sole worldwide licensor of a
proprietary graphical operating system and environment ("GEOS") and a set of
applications running on top of GEOS ("Applications");
4. GEOWORKS is willing to grant to MYTURN the right to embed GEOS and the
Applications into MYTURN PC Devices; and
5. With GEOWORKS' consent, GLOBAL has developed certain enhancements to
GEOS and the Applications ("Enhancements"), which GLOBAL will transfer to MYTURN
in conjunction with the APA;
NOW THEREFORE, in consideration of these presents and for such other good
and valu able consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
1.1 DEFINITIONS.
1.1a "Authorized Personnel" means employees of Compu-DAWN, GPC, or GLOBAL
who are authorized by GEOWORKS and Compu-DAWN or GPC to have access to
the source code to the Licensed Technology.
PAGE 1
<PAGE>
1.1b "Derivative Work" means (i) for material subjec to copyright
protection, any work that is based upon any of the Licensed
Technology, such as a revision, modification, translation,
abridgment, condensation, expansion, collection, compilation or any
other form in which such pre-existing work may be recast, transformed
or adapted; (ii) for patentable or patented materials, any adaptation,
subset, addition, improvement or combination of the Licensed
Technology; and (iii) for material subject to trade secret protection,
any new material, information or data relating to and derived from the
Licensed Technology.
1.1c "Distributor of MYTURN" means any person or entity to whom MYTURN or
any Affiliate grants the right to distribute MYTURN PC Devices. The
term "Distributor of MYTURN" does not include OEMs of MYTURN.
1.1d "Embedded" means reproduced in solid state media (e.g., Read Only
Memory (ROM)) in a hardware device, and physically integrated into the
device.
1.1e "End User" means any person or entity that acquires a copy of a MYTURN
PC Device for its own use, and not for resale.
1.1f "Initial License Fee-- Cash" means a non-refundable license fee of
$541,083.56, payable in the manner set forth hereinbelow.
1.1g "Intellectual Property Rights" means patents, design patents, and
designs (whether or not capable of registration), chip topography
rights and other like protection, copyrights, trademarks, and any
other form of statutory protection of any kind, and applications for
any of the foregoing respectively, all moral rights, including rights
of paternity and integrity, Confidential Information, know-how and
trade secrets.
1.1h "Licensed Technology" means the GEOWORKS software, software
development tools, and documentation described in Exhibit A.
1.1i "Licensee of GEOWORKS" means (i) any licensee to whom GEOWORKS has, on
or before March 31, 1999, granted a right to reproduce and/or
distribute copies of the Licensed Technology, and (ii) any licensee to
whom GEOWORKS, following the Effective Date of this Agreement, grants
a right to manufacture and distribute any products based on the
Licensed Technology, but excluding a MYTURN PC Device.
1.1j "Manufacturer of MYTURN" means any person or entity to whom MYTURN or
any Affiliate grants the right to manufacture units of MYTURN PC
Devices in accordance with this Agreement.
1.1k "MYTURN PC Device(s)" means low-cost, general-purpose personal
computers for the domestic and international markets, built on the
Intel x86 microprocessor architecture, or similar architecture, in
which the Licensed Technology is Embedded. MYTURN PC Devices shall not
be capable of or include wireless data transfer or voice reception or
transmission other than an IrDA
PAGE 2
<PAGE>
connection for keyboard input, mouse, track ball or pointing stick;
have a physical PC keyboard and mouse; and have either no monitor (for
use with television), a CRT of at least 14" diagonal, or an LCD of at
least 10" diagonal. If mutually agreed in writing by the Parties
during the initial term of this Agreement, a MYTURN PC Device may have
a CRT or LCD of less than 10" diagonal.
1.1l "MYTURN Product Shipment" means a shipment of a unit of any MYTURN PC
Device by MYTURN, or by a Manufacturer of MYTURN or OEM of MYTURN, to
a Distributor, End User or other customer.
1.1m "OEM of MYTURN" means any person or entity to whom MYTURN or any
Affiliate grants the right to manufacture and distribute MYTURN PC
Devices, or any devices, which contain copies of the Licensed
Technology Embedded therein.
1.1n "Party" and "Parties" means GEOWORKS, Compu-DAW and GPC. "Affiliate"
means any person or entity in any form of business relationship with
either or both of Compu-DAWN or GPC, including GLOBAL; and any
subsidiaries of, or successors to, Compu-DAWN, GPC, GLOBAL and their
respective affiliates.
1.1o "Shares" shall mean up to 320,000 registered, unrestricted,
non-dilutive, freely-tradeable shares of the common stock of
Compu-DAWN, or any successor entity, issuable to GEOWORKS pursuant to
Section 3.6 of this Agreement.
1.1p "Third Party Technology" means software, hardware, documentation or
other technologies that are licensed to GEOWORKS by third parties and
sub-licensed to MYTURN under this Agreement.
1.1q "Warrant" shall mean the warrant for 250,000 shares of common stock of
Compu-DAWN issued to GEOWORKS pursuant to Section 7.1(b) of this
Agreement.
1.2 WARRANT. This Agreement has the following Appendix that is incorporated
herein and forms an integral part herein:
Appendix 1 -- Form of Warrant for the purchase of up to 250,000 shares of
Compu-DAWN Common Stock to be issued to GEOWORKS, attached hereto.
1.3 REPRESENTATIONS AND WARRANTIES OF MYTURN.
MYTURN hereby represents and warrants to GEOWORKS as of the date of this
Agreement as follows:
1.3a Organization. Each of Compu-DAWN and GPC is a corporation duly
incorporated, validly existing and in good standing under the laws of
the State of Delaware. To the extent required by laws, each of
Compu-DAWN and GPC shall promptly qualify as a foreign corporation to
transact business in the State of California. Each of Compu-DAWN and
GPC has all requisite corporate power and authority to own, operate
and lease its property and to carry on its respective business as now
being conducted and as contemplated by the provisions of the APA and
this Agreement. Each of Compu-DAWN and GPC is duly qualified as a
foreign corporation to do business and is in good standing in each
jurisdiction in which the character of properties occupied, owned or
held under lease by such entities, or the nature of the conduct of
their respective business, makes such qualification necessary, except
where the failure to be so qualified would not have a material adverse
effect on the business, operations, assets, liabilities or condition
(financial or otherwise) of MYTURN, taken as a whole.
1.3b Valid Issuance of Warrants and Common Stock. The Warrants, when
granted and delivered in accordance with this Agreement, will be duly
authorized, validly issued, fully paid, non-assessable, and issued in
compliance with all applicable federal and state securities laws. The
shares of Common Stock underlying the Warrants (the "Warrant Shares"),
when issued and delivered in accordance with this Agreement, will be
duly authorized, validly issued, fully paid, non-assessable, free of
pre-emptive rights, and issued in compliance with all applicable
federal and state securities laws. The Warrant Shares have been
reserved pursuant to a resolution of the Board of Directors of
Compu-DAWN. As a condition precedent to any obligation of GEOWORKS
under this Agreement, Compu-DAWN will deliver a certified copy of said
board resolution to GEOWORKS, together with a signed original of this
Agreement.
1.3c Authority; No Conflict; Required Filings and Consents.
(i) Each of Compu-DAWN and GPC has all requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
by this Agreement have been duly authorized by the respective Boards of
Directors of Compu-DAWN and GPC. As a condition precedent to any
obligation of GEOWORKS under this Agreement, a certified copy of each
said resolution has been delivered to GEOWORKS together with a signed
original of this Agreement. All necessary corporate action required by
this Agreement on the part of each of Compu-DAWN and GPC has been
secured and is complete. This Agreement has been duly executed and
delivered by each of Compu-DAWN and GPC, and constitutes the valid and
binding obligation of each of Compu-DAWN and GPC, enforceable in
accordance with its terms, except to the extent that enforceability may
be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting the enforcement of creditors' rights
generally and by general principles of equity.
(ii) The execution and delivery by each of Compu-DAWN and GPC of this
Agreement does not, and consummation of the transactions contemplated
by this Agreement will not, (i) conflict with, or result in any
violation or breach of any provision of, the respective Certificate of
Incorporation or Bylaws of either of Compu-DAWN or GPC, (ii) result in
any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of
any material benefit) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which either of Compu-DAWN or
GPC is a party or by which any of its respective properties or assets
may be bound, or (iii) to the best knowledge of each of Compu-DAWN and
GPC, conflict or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to either or both of Compu-DAWN or GPC or any of their
respective properties or assets, except in the case of any such
conflicts, violations, defaults, terminations, cancellations or
accelerations which would not have a material adverse effect on
Compu-DAWN and its subsidiaries, taken as a whole.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect
to each of Compu-DAWN and GPC in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws.
1.3d Commission Filings; The Nasdaq Stock Market SmallCap Listing.
(i) Compu-DAWN has filed with the Securities and Exchange Commission
(the "Commission") all forms, reports and documents required to be
filed with the Commission by Compu-DAWN pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since January 1,
1999 (collectively, the "Compu-DAWN Commission Reports"). Each of the
Compu-DAWN Commission Reports (i) complies in all material respects
with the applicable requirements of the Exchange Act, (ii) at the time
of filing with the commission, did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
and (iii) no amendment to any of the Compu-DAWN Commission Reports is
required to correct any statement of a material fact or omission to
state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading as a result of any
subsequent events related to either or both of Compu-DAWN or GPC.
(ii) The shares of Compu-DAWN Common Stock are listed on The Nasdaq
Stock Market SmallCap.
1.3e Corporate Charters. Each of Compu-DAWN and GPC has furnished to the
Purchaser true and complete copies of their respective Certificates of
Incorporation and Bylaws as currently in effect, including all
amendments thereto.
1.3f Stockholders' Consents. No consent or approval of the stockholders of
either or both of Compu-DAWN and GPC is required or necessary for such
parties to enter into this Agreement or to consummate the transactions
contemplated hereby. If any such stockholder consent shall have been
required, written proof thereof shall be delivered to GEOWORKS
immediately prior to the Effective Date.
1.3g Irrevocable Instructions to Issue Warrant. MYTURN has delivered to its
counsel and transfer agent, as applicable, irrevocable instructions to
issue the Warrant to GEOWORKS within three business days of the
Effective Date.
1.4 REPRESENTATIONS AND WARRANTIES OF GEOWORKS.
GEOWORKS hereby represents and warrants to MYTURN as of the date of
this Agreement as follows:
1.4a Authority. GEOWORKS has all requisite legal and corporate power to
enter into this Agreement and to perform its obligations under the
terms of, or contemplated by, this Agreement.
1.4b Authorization. All corporate action on the part of GEOWORKS necessary
for the purchase of the Warrant and the performance of GEOWORKS'
obligations hereunder has been taken. This Agreement, when executed
and delivered by GEOWORKS, will constitute a valid and legally binding
obligation of GEOWORKS, enforceable in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally and by
general principles of equity.
1.4c Purchase of Warrant and Warrant Shares Entirely for Own Account. The
Warrant and the Warrant Shares will be acquired for investment for
GEOWORKS' own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and GEOWORKS has no
present intention of selling, granting any participation in, or
otherwise distributing the same, although it is free to formulate such
an intention in the future after the expiration of any applicable
holding period under the federal and state securities laws and
regulations promulgated thereto. Any future disposition of the Warrant
or the Warrant Shares will occur in compliance with all applicable
federal and state securities laws and regulations.
1.4d Investment Experience. GEOWORKS is an "accredited investor" as defined
in Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act"). GEOWORKS is or will become prior to the Effective
Date, aware of MYTURN's business affairs and financial condition and
has been provided access to and has acquired sufficient information
about MYTURN, including a review of the Compu-DAWN Commission Reports,
to reach an informed and knowledgeable decision to acquire the
Warrant. GEOWORKS has such business and financial experience as is
required to give it the capacity to protect its own interests in
connection with the purchase of the Warrant, and GEOWORKS acknowledges
there is presently no public market for the Warrant. GEOWORKS is not a
"broker" or a "dealer" as defined in the Exchange Act.
1.4e Restricted and Unrestricted Securities. GEOWORKS understands that the
Warrant and the Warrant Shares are characterized as "restricted
securities" under applicable U.S. federal and state securities laws,
inasmuch as they are being, or will be, acquired from Compu-DAWN in a
transaction not involving a public offering and that, pursuant to
these laws and applicable regulations, GEOWORKS must hold the Warrant,
and, upon the execution thereof, the Warrant Shares indefinitely
unless they are registered with the Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. GEOWORKS understands that the Shares, if,
when, and as issued, are not intended to be restricted securities and,
as such, its representations and warranties set forth above are not
applicable to the Shares.
1.4f Legends. GEOWORKS understands that the Warrant, the Warrant Shares,
and the Deficient Shares and the Deficient Penalty Shares (as those
terms are defined in Section 3.6, below) will bear a legend
substantially similar to the following:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE LAW, AND NO
INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED
OR OTHERWISE TRANSFERRED UNLESS (a) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING ANY SUCH TRANSACTION INVOLVING THESE
SECURITIES OR (b) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL,
ACCEPTABLE TO THE COMPANY, FOR THE HOLDER OF THESE SECURITIES STATING
THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR THE COMPANY
OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION.
1.5 COVENANT OF MYTURN.
1.5a Listing of Compu-DAWN's Securities on The Nasdaq Stock Market
SmallCap. Upon the Warrant Shares becoming publicly tradable pursuant
to the registration requirements of applicable U.S. securities laws or
exemptions therefrom, Compu-DAWN, or its successor, shall take all
reasonable action to list the Warrant Shares, the Shares, the
Deficient Shares, and the Deficient Penalty Shares on The Nasdaq Stock
Market SmallCap.
2. TECHNOLOGY LICENSE.
2.1 Technology License and Exhibits. This Agreement include a Technology
License and the following Exhibits that are incorporated herein and form an
integral part hereof:
Exhibit A Identification of the License Technology and Third Party
Technology. This Exhibit is a description of all Licensed
Technology licensed to MYTURN on a conditional, exclusive basis
under this Agreement, as well as the Third Party Technology made
available to MYTURN.
Exhibit B Development and Support Services.
Exhibit C Commercial Terms. This Exhibit specifies royalties, NRE,
additional equity, and other commercial terms of this Agreement.
Exhibit D Form of End User License Agreement.
2.2 Modification and Interpretation of Exhibits. The Exhibits shall be kept
up-to-date and modifications and additions thereto shall be executed as and
effective only upon mutual agreement evidenced in writing and signed by
authorized officers of the Parties. All Exhibits shall be subject to the
terms and conditions of this Agreement, unless otherwise provided in any
such Exhibit. In the event of a conflict between the terms of an Exhibit
and the terms of this Agreement, the terms of each Exhibit shall be given
effect only for the subject matter covered by that Exhibit.
2.3 Entire Agreement. This Agreement and the Exhibits hereto state the entire
agreement between the Parties and supersede all prior communications,
written or oral, between the Parties. No terms in any purchase order or
other forms shall modify the terms of this Agreement, even if such purchase
order or other forms are accepted by either Party.
2.4 Severability. If any provision contained in this Agreement is determined to
be invalid or unenforceable, in whole or in part, the remaining provisions
and any partially enforceable provision will, nevertheless, be binding and
enforceable, and the Parties agree to substitute for the invalid provision
a valid provision which most closely approximates the intent and economic
effect of the invalid provision.
2.5 Writing. No amendment or modification of this Agreement including the
exhibits, may be made except by an instrument in writing signed by
authorized officers of the Parties
3. GRANT OF CONDITIONAL LICENSES; CONDITIONS AND REMEDIES. Subject to Section
3.5 (Reserved Rights), GEOWORKS grants the following conditional licenses
to MYTURN: ---------------
3.1 License Fee. The License Fee shall consist of an Initia License Fee --
Cash, the Warrant, and the royalty payments set forth in Exhibit C.
3.2 Reproduction.
3.2a a non-transferable (except as provided in Section 16.1 (Assignment)),
conditional exclusive worldwide license to reproduce copies of the
object code of the Licensed Technology, and of the object code of
Derivative Works, Embedded in MYTURN PC Devices, and, with consent of
GEOWORKS, the right to sub-license such reproduction rights to
Manufacturers of MYTURN and to OEMs of MYTURN, all such sub-licenses
to be in writing and subject to the terms, conditions and limitations
of this Agreement; and
3.2b a non-transferable (except as provided in Section 16.1 (Assignment)),
and conditional exclusive worldwide license to reproduce copies of the
object code and source code of the Licensed Technology and of
Derivative Works, for internal use only by MYTURN in carrying out its
rights and obligations under this Agreement.
3.3 Modification; Derivative Works. a conditional exclusive non-transferable
(except as provided in Section 16.1 (Assignment)), worldwide license to
modify the source code to the Licensed Technology, and to create Derivative
Works; provided that any warranty against infringement, indemnity
obligation, or maintenance or support obligation given by GEOWORKS under
the provisions of this Agreement shall not apply to modifications or
Derivative Works made by or for MYTURN, or to portions of the Licensed
Technology affected by such modifications or Derivative Works. For purposes
of this Modification license, GEOWORKS grants to MYTURN a non-exclusive,
non-transferable (except as provided in Section 16.1 (Assignment))
conditional internal license to use the software development tools and
documentation included in the Licensed Technology.
3.4 Distribution.
3.4a a non-transferable (except as provided in Section 16.1 (Assignment)),
conditional worldwide license to distribute the Licensed Technology
and Derivative Works, Embedded in MYTURN PC Devices, in object code
form only, and, with consent of GEOWORKS, the right to sublicense such
distribution rights to OEMs of MYTURN, Manufacturers of MYTURN and
Distributors of MYTURN, all such sublicenses to be in writing and
subject to the terms, conditions and limitations of this Agreement.
MYTURN and its sublicensees will distribute the Licensed Technology
and Derivative Works to End-Users only under the terms of an End User
license substantially in the forms provided as Exhibit D.
3.4b GEOWORKS shall grant to MYTURN the right to distribute the software
development tools and documentation included within the Licensed
Technology, upon mutual agreement as to commercial terms and
conditions of the proposed distribution arrangement.
3.5 Reserved Rights.
3.5a MYTURN may not distribute, or authorize its Distributors to
distribute, Licensed Technology or Derivative Works in any form that
is not Embedded; provided, however, that MYTURN may distribute
software upgrades to the Licensed Technology and/or to Derivative
Works to its customers on diskettes, CD-ROM, or other media, and such
upgrades may be loaded into memory in the MYTURN PC Device.
3.5b MYTURN's rights hereunder shall be subject to rights granted by
GEOWORKS to Licensees of GEOWORKS.
3.5c GEOWORKS reserves to itself and its licensees the exclusive right to
manufacture and distribute the Licensed Technology in all devices
other than MYTURN PC Devices.
3.6 Exclusivity.
3.6a Subject to Section 3.5 (Reserved Rights) and Section 3.6(b)
(Conditions of Exclusivity), and provided that MYTURN is in full
compliance with all payment obligations, provisions, terms, and
conditions in this Agreement, the rights granted to MYTURN in Sections
3.1 (Reproduction) and 3.3 (Distribution) shall be conditionally
granted to MYTURN, and not to any PC device competitors of MYTURN,
during the term of this Agreement.
3.6b Conditions of Exclusivity. The rights granted to MYTURN in Sections
3.1 (Reproduction) and 3.3 (Distribution) are conditional. If MYTURN
timely makes all payments in accordance with their terms, including
GEOWORKS' deferral of remedies terms, and complies with all other
terms and conditions in this Agreement, meets all the performance
requirements set forth hereinbelow, and timely makes all the royalty
payments set forth in Exhibit C, MYTURN shall obtain conditional
rights, subject to meeting said performance requirements continuously
and making said royalty payments. With respect to royalty payments due
based on units shipped under the performance requirements set forth
below, and only such royalty payments, MYTURN may also maintain
conditional rights by paying to GEOWORKS, no later than the last day
of each applicable period, a cash amount equal to the number of units
(cash equivalent) by which it is short of the performance requirements
set forth below, multiplied by the minimum royalty for North American,
International, and School units as set forth in Exhibit C. Royalties
are due, payable and fully earned by GEOWORKS upon shipment by MYTURN.
3.6c Performance Requirements:
First commercial MYTURN PC Device Product Shipment December 31, 2000;
At least 25,000 royalty-bearing units of MYTURN PC Devices shipped by
December 31, 2000;
At least 450,000 cumulative total royalty-bearing units of MYTURN PC
Devices shipped by December 31, 2001;
At least 850,000 cumulative total royalty-bearing units of MYTURN PC
Devices shipped by December 31, 2002;
At least 1,600,000 cumulative total royalty-bearing units of MYTURN PC
Devices shipped by December 31, 2003; and
At least 2,600,000 cumulative total royalty-bearing units of MYTURN PC
Devices shipped by December 31, 2004.
3.7 Remedies.
3.7a MYTURN agrees to perform all obligations herein, comply with all terms
and conditions herein, timely pay all money due GEOWORKS as indicated
herein, and timely pay all per unit royalties for the Licensed
Technology as indicated herein. If MYTURN defaults in respect of its
performance of any or all of its requirements set forth in this
Agreement, then, without the requirement of notice, GEOWORKS will be
entitled to exercise any and all of its legal and equitable remedies,
including those outlined in this Section 3.7.
3.7b In addition to all other remedies herein arising from any breach of
any provision in this Agreement (including the Recitals), in the event
MYTURN fails to meet any of the payment obligations, terms, or
conditions of this Agreement, or fails to meet the shipment and/or
payment performance requirements in this Agreement, and said failure
remains uncured for a net total cure period of sixty (60) calendar
days, then, without the requirement of notice, the conditional
exclusive license to the Licensed Technology granted herein shall
immediately become non-exclusive.
Separately, and in addition the licenses granted herein becoming
non-exclusive, if MYTURN fails to pay in full the Initial License Fee
-- Cash due GEOWORKS on or before March 30, 2000 (or the subsequent
due dates set forth immediately below), or within two days of the date
on which Compu-DAWN, or any of its affiliates or subsidiaries, shall
have received any funds or financing from any source in excess of
$3,000,000 prior to March 28, 2000, then, in order to continue the use
of the Licensed Technology, MYTURN shall be obligated to deliver to
GEOWORKS as separate consideration for its agreement to defer (i)
collection action, (ii) termination of MYTURN's rights to the Licensed
Technology and the Enhancements, and (iii) acquisition of all
Derivative Works on an exclusive basis, the following:
(i) 80,000 of the Shares on March 31, 2000 or such earlier, analogous
date if Compu-DAWN, or any of its affiliates or subsidiaries,
shall have failed to pay the Initial License Fee -- Cash in full
within two days of its receipt of any funds or financing from any
source in excess of $3,000,000 prior to March 28, 2000;
(ii) an additional 80,000 of the Shares, if the Initial License Fee --
Cash is still unpaid on April 29, 2000, which additional Shares
shall be delivered on April 30, 2000, or such earlier,
appropriate date if Compu-DAWN, or any of its affiliates or
subsidiaries, shall have failed to pay the Initial License Fee --
Cash in full within two days of its receipt of any funds or
financing from any source in excess of $3,000,000 prior to March
28, 2000;
(iii)an additional 80,000 of the Shares, if the Initial License Fee
-- Cash is still unpaid on May 29, 2000, which additional Shares
shall be delivered on May 30, 2000, or such earlier, appropriate
date if Compu-DAWN, or any of its affiliates or subsidiaries,
shall have failed to pay the Initial License Fee -- Cash in full
within two days of its receipt of any funds or financing from any
source in excess of $3,000,000 prior to March 28, 2000; and
(iv) an additional 80,000 of the Shares, if the Initial License Fee--
Cash is still unpaid on June 29, 2000, which additional Shares
shall be delivered on June 30, 2000, or such earlier, appropriate
date if Compu-DAWN, or any of its affiliates or subsidiaries,
shall have failed to pay the Initial License Fee -- Cash in full
within two days of its receipt of any funds or financing from any
source in excess of $3,000,000 prior to March 28, 2000.
If any of the Shares, upon their issuance, shall not be
registered with the Commission and unrestricted, and freely-tradable,
then Compu-DAWN, or any successor entity, if applicable (the
"Deficient Shares"), shall immediately issue and addition quantity of
shares of its common stock equivalent to 10% of the number of such
Deficient Shares (the "Deficient Penalty Shares"). In addition, all of
the registration rights granted to GEOWORKS in respect of the Warrant
Shares shall also attach to the Deficient Shares and to the Deficient
Penalty Shares.
Notwithstanding the issuance of the Shares (and, if applicable,
the Deficient Shares and the Deficient Penalty Shares), and
separately, and in addition to all other remedies available to
GEOWORKS, if, as of July 1, 2000, or such earlier, appropriate date if
Compu-DAWN, or any of its affiliates or subsidiaries, shall have
failed to pay the Initial License Fee -- Cash in full within two days
of its receipt of any funds or financing from any source in excess of
$3,000,000 prior to March 28, 2000, MYTURN has failed to pay the
Initial License Fee -- Cash in full, including interest due to
GEOWORKS, then, in addition to continuing to remain liable to GEOWORKS
for all said money, and without requirement of notice, all of MYTURN's
rights in and to the Licensed Technology shall cease immediately and
the Enhancements and all Derivative Works shall immediately become the
sole property of GEOWORKS.
Not later than January 10, 2000, and on the 10th day of each
month thereafter, MYTURN shall deliver the source code for the
Enhancements and all Derivative Works then extant on a CD-ROM to an
escrow agent reasonably acceptable to Compu-DAWN and GEOWORKS for
safekeeping. The terms of such escrow shall provide, among other
items, that the escrow agent shall deliver such CD-ROMs to GEOWORKS at
the time it is entitled thereto pursuant to the terms hereof, or shall
deliver such CD-ROMs to MYTURN at the time it is entitled thereto
pursuant to the terms hereof. In no event shall GEOWORKS be entitled
to utilize such source code information except as permitted in
accordance with the terms and conditions of this Agreement and
pursuant to the transactions contemplated hereby.
4. MANUFACTURERS AND OEMS. Each Manufacturer of MYTURN and each OEM of MYTURN
that is granted sublicense rights under Section 3 (GRANT OF LICENSES) must
agree in writing:
4.1a to accept that no ownership rights to the Licensed Technology or to
Derivative Works are transferred to the Manufacturer or OEM;
4.1b to include on all copies of the Licensed Technology and Derivative
Works, and on all related packaging, manuals and promotional
materials, all proprietary, copyright, trade secret and other notices
in accordance with Section 8.1 (Acknowledgment of GEOWORKS) hereof;
4.1c not to decompile or reverse engineer the Licensed Technology or
Derivative Works;
4.1d to keep records showing the number of copies of the Licensed
Technology and Derivative Works manufactured, and the number of copies
distributed;
4.1e to furnish to MYTURN, within 30 days from the end of each calendar
quarter, a signed statement showing the number of copies so made and
the number of copies so distributed, and to allow MYTURN or GEOWORKS
to have such statements examined and audited by an independent auditor
to the extent necessary to verify such statements, subject to the
audit conditions set forth in Section 7.7 (Audits); and
4.1f to be bound by the provisions of this agreement, and to permit
GEOWORKS to enforce such provisions against such Manufacturers,
provided that the appointment of Manufacturers and OEMs by MYTURN
shall not in any respect create any relationship between GEOWORKS and
such persons.
5. INTELLECTUAL PROPERTY RIGHTS.
5.1 THE LICENSED TECHNOLOGY. GEOWORKS and its licensors are and shall remain
the sole owners of all Intellectual Property Rights in and to the Licensed
Technology.
5.2 THE MYTURN PC DEVICES. MYTURN is and shall remain the owner of all
Intellectual Property Rights in and to the MYTURN PC Devices (excluding the
Licensed Technology, and excluding any Derivative Works owned by GEOWORKS
as set forth below).
5.3 DERIVATIVE WORKS.
5.3a GEOWORKS shall own the Intellectual Property Rights in and to any
Derivative Works made by GEOWORKS during the course of this Agreement.
Derivative Works made by GEOWORKS pursuant to this Agreement at the
request of MYTURN shall automatically be included within the licenses
granted in Section 3 (GRANT OF LICENSES) of this Agreement. Other
Derivative Works made by GEOWORKS during the term of this Agreement
shall be treated as set forth in Section 6 (UPDATED AND NEW LICENSED
TECHNOLOGY).
5.3b MYTURN shall conditionally own the Intellectual Property Rights in and
to any Derivative Works made by MYTURN during the course of this
Agreement or made for MYTURN by third parties other than GEOWORKS
(hereafter referred to as "made by or for MYTURN").
5.3c MYTURN's Intellectual Property Rights in Derivative Works shall not
extend to the underlying Licensed Technology or underlying Derivative
Works owned by GEOWORKS, as set forth above, but only to the
modifications thereto made by or for MYTURN.
5.3d GEOWORKS may independently develop and own the Intellectual Property
Rights to Derivative Works that are functionally equivalent to those
made by or for MYTURN, provided that it does so without copying the
source code to any MYTURN-owned Derivative Works. For this purpose,
the Parties understand that MYTURN may provide GEOWORKS with access to
the source code to the MYTURN-owned Derivative Works, so that GEOWORKS
may assist MYTURN in its development activities. The Parties agree
that GEOWORKS' development of equivalent GEOWORKS-owned Derivative
Works shall be considered "independent" despite such access.
5.3e Where the contributions of GEOWORKS and MYTURN to the creation of a
Derivative Work are so interlinked that it is not possible to
determine separate ownership, then each of the Parties shall have an
undivided one-half ownership interest in any Intellectual Property
Rights therein; provided however, that such jointly-owned Intellectual
Property Rights shall not extend to the underlying Licensed Technology
or underlying Derivative Works owned by either Party, as set forth
above, but only to the modifications thereto made jointly.
5.3f Each Party shall take all actions and execute all documents that are
necessary to assign to the other its one-half ownership interest in
any jointly-owned Intellectual Property Rights. Neither Party shall be
required to obtain the consent of, or account to, the other Party for
the exploitation of the rights covered by any such jointly-owned
Intellectual Property Rights, except that neither Party shall have the
authority to grant an exclusive license under any such rights without
the prior written consent of the other Party.
5.3g For purposes of this Section 5.3 (DERIVATIVE WORKS), a Party shall be
considered to have "made" or made a "contribution" to a Derivative
Work by substantially participating in the design and coding of the
software. MYTURN accepts that no jointly owned Intellectual Property
Rights is created merely because MYTURN supplies to GEOWORKS a
specification of features which GEOWORKS then creates.
6. UPDATED AND NEW LICENSED TECHNOLOGY. Upon mutual agreement as to terms and
conditions, GEOWORKS may create updates and upgrades to the Licensed
Technology during the term of this Agreement. Further, the licenses granted
in Section 3 (GRANT OF LICENSES) shall, at MYTURN's election, extend to all
updates and revisions to the Licensed Technology that GEOWORKS generally
releases to all of its OEM customers, if and when such updates are released
by GEOWORKS.
7. PAYMENTS.
6.1 Initial License Fee. MYTURN agrees to pay GEOWORKS the non-refundable
Initial License Fee Initial License Fee -- Cash of $541,083.56, of which
$35,000 shall be paid upon execution of this Agreement and the balance
shall be paid not later than the dates set forth in this Agreement, with
interest accruing on the unpaid Initial License Fee -- Cash at the rate of
10% per annum.
The Initial License Fee -- Cash, including interest accrued thereon, shall
be payable in full by MYTURN to GEOWORKS not later than two days after
Compu-DAWN, or any of its affiliates or subsidiaries, receives any funds or
financing from any source in excess of $3,000,000 prior to March 28, 2000.
If Compu-DAWN, or any of its affiliates or subsidiaries, shall not have
received any funds or financing from any source in excess of $3,000,000
prior to March 28, 2000, the Initial License Fee -- Cash, and interest
accrued thereon, shall be payable in full not later than March 30, 2000,
subject to the deferrals by GEOWORKS of the exercise of its remedies in
accordance with the terms of Section 3.7b, above, the Initial License Fee
-- Cash, and interest accrued thereon, shall be payable in full not later
than March 30, 2000.
Compu-DAWN shall grant to GEOWORKS the Warrant for the purchase of 250,000
shares of Compu-DAWN's Common Stock at the market price on the day this
Agreement is executed.
6.2 Royalty Payments. MYTURN agrees to pay to GEOWORKS the royalty payments set
forth in Exhibit C. Royalty payments are due and payable within thirty (30)
days after the calendar quarter in which any MYTURN PC Device Product
Shipment occurs.
6.3 Not For Resale Units. MYTURN will not incur any royalty payments (except
for reimbursement to GEOWORKS for third-party technologies as identified in
Exhibit C) for a limited number of promotional, "not for resale" units of
MYTURN PC Devices, not to exceed 20 units, provided free of charge to End
Users or to MYTURN Distributors, or for units used by MYTURN solely for
demonstration purposes and/or for customer support; provided, however, that
a royalty payment will become due if and when MYTURN receives a payment or
other compensation for any such units or uses such units for internal use
other than as set forth in this Section.
6.4 Currency. All payments under this Agreement are to be made in U.S. Dollars.
6.5 Records. MYTURN shall maintain complete and accurate records of all MYTURN
PC Device Product Shipments and records identifying the amount of royalties
and other payments due hereunder.
6.6 Reports. No later than thirty (30) days after the end of each calendar
quarter, MYTURN shall send to GEOWORKS a report detailing for such quarter:
7.6a The number of units of MYTURN PC Device Product Shipment, including a
breakdown as applicable by MYTURN PC Device and Product, version and
country; and
7.6b A detailed account of all royalty and other amounts due and the basis
for calculation.
6.7 Audits. During the term of this Agreement and for twelv (12) months after
the expiration or any termination of this Agreement, an independent
third-party representative of GEOWORKS, reasonably acceptable to MYTURN,
upon reasonable notice and during MYTURN's normal business hours, shall
have the right to conduct an audit of the relevant portions of MYTURN's
books of account to verify compliance with this Agreement. MYTURN shall
immediately pay any overdue payments revealed by such audit(s), together
with interest thereon at the rate of 1.5% per month (or the maximum
permitted by applicable law, if less) from the due date until paid. Except
as set forth below, such audit(s) may be conducted no more than once in any
six-month period. GEOWORKS shall bear the costs of the audit; provided,
however, if the audit reveals overdue payments in excess of five percent
(5%) of the total royalty payable for any six-month period, MYTURN shall
pay the costs of such audit and for each such audit GEOWORKS shall have the
right to conduct another audit during the same six-month period. All
information obtained by GEOWORKS' independent third party representative
during any such audit shall be treated as Confidential Information as
defined in Section 14 (Nondisclosure and Restricted Use).
6.8 Interest. MYTURN shall pay GEOWORKS interest at the rat of 1.5% per month,
or the maximum rate allowed by law, whichever is less, on any payments that
are overdue by more than thirty (30) days, which interest shall be applied
from the date said sum was originally first due until the date the entire
payment and applicable interest is due.
8. ADVERTISING, TRADEMARK USAGE/PROTECTION AND PUBLICITY.
8.1 Trademark, Copyright, and Proprietary Markings. MYTURN acknowledges that
GEOWORKS is the sole owner and sole worldwide licensor of GEOS and the
Applications. MYTURN will not lay claim, or make or advertise any claim to
ownership or licensing capacity to GEOS or the Applications in any
publication or communication. Any time MYTURN uses the GEOS name or mark it
will be identified with the registered trademark and copyright marks, and
with credit and reference to GEOWORKS as sole owner and licensor appearing
on the same page in typeface and font no smaller than 10 point. Any press
release or presentation referring to or pertaining to GEOWORKS or GEOS in
any way shall be sent to the office of General Counsel of GEOWORKS for
review and prior written approval in advance of any distribution, use, or
release. MYTURN agrees not to alter or remove any of GEOWORKS' proprietary
notices on copies of Licensed Technology without GEOWORKS' prior written
permission.
8.2 Acknowledgments. Each Party shall be entitled to use th other Party's name
and the name of its products in promotional literature and marketing
materials, upon receipt of prior approval from the other Party, such
approval not to be unreasonably withheld or delayed. Such approval may be
given only by the office of General Counsel of GEOWORKS. Each Party shall
promptly review (within five (5) business days) all such requests made
under this Subsection.
8.3 Public Relations Upon first commercial launch of a MYTURN PC Device, and at
other reasonable times upon mutual agreement of the Parties, each Party
will create and issue a mutually agreeable press release, printed on its
own letterhead, announcing the Parties' relationship as established by this
Agreement.
9. GEOWORKS' INDEMNITIES.
9.1 Indemnity. GEOWORKS will indemnify, defend, and hold harmless MYTURN
against, and pay any resulting awards and settlements arising from, any
claim, demand, suit or action to the extent it alleges that the Licensed
Technology as supplied by GEOWORKS infringes upon any United States patent
issued as of the Effective Date of this Agreement, (or, with respect to
updates, as of the date that any update is supplied to MYTURN by GEOWORKS),
or any copyright or trade secret of any third party, provided that (1)
MYTURN promptly informs GEOWORKS in writing of any such claim, demand,
action or suit, (2) GEOWORKS is given control over the defense thereof and
MYTURN cooperates in the defense, at GEOWORKS' expense, and (3) MYTURN will
not agree to the settlement of any such claim, demand, action or suit prior
to a final judgment thereon without the prior written consent of GEOWORKS,
which consent will not be unreasonably withheld. MYTURN shall have the
right to select its own counsel to participate in any such defense, at
MYTURN's expense. GEOWORKS' indemnity obligations do not apply to (1)
modifications to the Licensed Technology specified by MYTURN, (2)
modifications made to the Licensed Technology by anyone other than
GEOWORKS, (3) use of a superseded version of the GEOWORKS Licensed
Technology after release of an update by GEOWORKS in accordance with
Section 6 hereof, (4) use of a superseded infringing version of the
Licensed Technology by MYTURN after release of a non-infringing version by
GEOWORKS in accordance with Section 9.2 hereof (GEOWORKS' Options), and (5)
any use or combination of the Licensed Technology with any technology,
software or hardware not supplied by GEOWORKS, if such alleged infringement
would be avoided by use of the Licensed Technology alone or with other
technology, software or hardware.
9.2 Response to Infringement Claim. If a claim, demand, suit or action alleging
infringement is brought, or if GEOWORKS reasonably believes one may be
brought (based upon the opinion of independent counsel), GEOWORKS shall
have the option at its expense to (1) modify the Licensed Technology to
avoid the allegation of infringement, (2) obtain for MYTURN a license to
continue reproducing and distributing the Licensed Technology, or (3) if
neither (1) nor (2) is reasonably practicable in GEOWORKS' discretion,
terminate this Agreement as to the affected Licensed Technology, as to a
portion thereof, or as to a specific MYTURN Product or Products, upon
written notice.
9.3 Limitations. This Section 9 (GEOWORKS' INDEMNITIES) set forth GEOWORKS'
entire liability to MYTURN for any actual or alleged infringement or
misappropriation of any third party's intellectual property rights arising
out of the Licensed Technology. In no event shall GEOWORKS' aggregate
liability to defend and indemnify under Section 9 (GEOWORKS' INDEMNITIES)
exceed an amount equal to the lesser of (a) the total of all amounts that
have been paid by MYTURN to GEOWORKS under this Agreement, plus the fair
market value of any equity of MYTURN granted to GEOWORKS pursuant to this
Agreement, or (b) two times the total of all amounts that have been paid by
MYTURN to GEOWORKS under this Agreement, not including the value of such
equity. The foregoing amounts and value shall be determined as of the date
that the infringement claim is finally settled or, if there is no
settlement, as of the date that a final decision is made by a court or
arbitrator in the infringement action.
10. MYTURN'S INDEMNITIES.
10.1 Indemnity. MYTURN and its Affiliates will defend GEOWORKS against, and pay
any resulting awards and settlements arising from any claim, demand, suit
or action to the extent it alleges that a MYTURN PC Device or any
modification to the Licensed Technology made by or for MYTURN infringes
upon any United States patent issued as of the Effective Date of this
Agreement, or any copyright or trade secret of any third party provided
that (1) GEOWORKS promptly informs MYTURN in writing of any such claim,
demand, action or suit, (2) MYTURN is given control over the defense
thereof and GEOWORKS cooperates in the defense at MYTURN's expense, and (3)
GEOWORKS will not agree to the settlement of any such claim, demand, action
or suit prior to a final judgment thereon without the written consent of
MYTURN, which consent will not be unreasonably withheld. GEOWORKS shall
have the right to select its own counsel to participate in any such defense
at GEOWORKS' expense. MYTURN's indemnity obligations do not apply to (1)
modifications to a MYTURN PC Device specified by GEOWORKS, and (2) any use
or combination of a MYTURN PC Device with any technology, software or
hardware not supplied by MYTURN, if such alleged infringement would be
avoided by use of such MYTURN PC Device alone or with other technology,
software or hardware.
10.2 Limitations. This Section 10 (MYTURN'S INDEMNITIES) set forth MYTURN's
entire liability to GEOWORKS for any actual or alleged infringement or
misappropriation of any third party's intellectual property rights arising
out of a MYTURN PC Device. In no event shall MYTURN's aggregate liability
to defend and indemnify under Section 10 (MYTURN'S INDEMNITIES) exceed an
amount equal to the lesser of (a) the total of all amounts to be paid by
MYTURN to GEOWORKS under this Agreement, plus the fair market value of any
equity of MYTURN granted to GEOWORKS pursuant to this Agreement, or (b) two
times the total of all amounts to be paid by MYTURN to GEOWORKS under this
Agreement, not including the value of such equity. The foregoing amounts
and value shall be determined as of the date that the infringement claim is
finally settled or, if there is no settlement, as of the date that a final
decision is made by a court or arbitrator in the infringement action.
11. COMBINATION CLAIMS. Any infringement claim arising solely out of the use or
combination of the Licensed Technology with any MYTURN technology or
product shall be defended cooperatively by both Parties, and the cost of
such defense and any settlements or liabilities shall be shared equitably
by the Parties. If the Parties cannot agree as to the equitable
arrangement, then the settlements or liabilities shall be shared pursuant
to the determination by the arbitrator (or court, if the claim was filed in
a court by a third party) of each Party's percentage of fault.
12. WARRANTIES.
11.1 Disclaimer of Express Warranties. Subject to Section 9 (GEOWORKS'
INDEMNITIES), all Licensed Technology, Third Party Technology, Confidential
Information and other products or technologies provided by GEOWORKS are
provided "AS IS," without a warranty of any kind. NO REQUEST FOR PROPOSAL,
PROPOSAL, CORRESPONDENCE, ADVERTISEMENT, BID OR VERBAL REPRESENTATION
CONCERNING THE LICENSED TECHNOLOGY, THIRD PARTY TECHNOLOGY, GEOWORKS
CONFIDENTIAL INFORMATION, OR SERVICES PROVIDED BY GEOWORKS UNDER THIS
AGREEMENT SHALL CONSTITUTE A WARRANTY OR GUARANTY.
11.2 Disclaimer Of Implied Warranties. SUBJECT TO SECTION 9 (GEOWORKS'
INDEMNITIES), TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL IMPLIED
WARRANTIES WITH RESPECT TO THE LICENSED TECHNOLOGY, INCLUDING BUT NOT
LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE HEREBY EXCLUDED.
11.3 Limited Warranty For Third Party Technology. WITH RESPECT TO ANY THIRD
PARTY TECHNOLOGY, GEOWORKS WILL PASS THROUGH TO MYTURN ANY WARRANTY THAT
GEOWORKS IS AUTHORIZED BY ITS SUPPLIER SO TO PASS THROUGH. GEOWORKS EXTENDS
NO OTHER WARRANTY, STATUTORY, EXPRESS, IMPLIED OR ARISING FROM A COURSE OF
DEALING, USAGE OR TRADE PRACTICE, REGARDING ANY HARDWARE, SOFTWARE, CONTENT
OR SERVICES PURCHASED OR LICENSED BY MYTURN FROM THIRD PARTIES, EVEN IF
SUCH ITEMS WERE SELECTED OR RECOMMENDED FOR MYTURN BY GEOWORKS. ALL
WARRANTIES, IF ANY, ARE PROVIDED SOLELY BY THE THIRD PARTY PROVIDERS.
13. TERM OF AGREEMENT AND TERMINATION.
13.1 Term. This Agreement shall begin on the Effective Date. The initial term of
the Agreement will expire on December 31, 2004, and may be extended by
mutual agreement if MYTURN has met the Conditions of Exclusivity set forth
in Section 3.5 (3.5(b)) (Conditions of Exclusivity). Thereafter, the
Agreement will be eligible for renewal for successive one-year terms
provided that MYTURN meets performance requirements to be determined by
mutual agreement.
13.2 Termination For Breach (Limited Cure Period). Each Party shall have the
right to terminate this Agreement upon written notice to the other Party
that other Party is in breach of any material term of this Agreement. Any
notice of termination shall indicate the first date of the breach and
calculate 60 days forward as the effective date of the termination.
Accordingly, the Parties agree that the breaching party has only 60 days
from the breach to cure.
13.3 Bankruptcy. Each Party shall have the right to terminate this Agreement
immediately upon written notice in the event that the other Party becomes
insolvent, files for any form of bankruptcy, makes any assignment for the
benefit of creditors, or ceases to conduct business (other than in
connection with an assignment permitted under Section 16.1 (Assignment)).
Each Party acknowledges that if it is a debtor-in-possession or if a
trustee in bankruptcy in a case under the United States Bankruptcy Code
rejects this Agreement or any agreement supplementary hereto, the other
Party may elect to retain its rights under this Agreement and/or any
supplementary agreement as provided in Section 365(n) of the Bankruptcy
Code. Upon written request of the other Party to the bankrupt Party or the
Bankruptcy Trustee, the bankrupt Party or such Bankruptcy Trustee shall not
interfere with the rights of the other Party as provided in this Agreement
and any supplementary agreement.
13.4 Termination for MYTURN Breach (Limited Cure Period). If the Agreement is
terminated due to breach by MYTURN, all the following shall occur and
apply: (1) MYTURN shall immediately discontinue the manufacture and
distribution of MYTURN PC Devices and all use, copying, embedding and
production of any additional copies of the Licensed Technology, and will
cause any third parties who obtained from it the right to manufacture units
of MYTURN PC Devices to do likewise; (2) any such termination or expiration
shall not affect any End User's rights to use MYTURN PC Device units and
shall further not affect the right of any non-affiliated third party who
purchased units of MYTURN PC Devices from MYTURN to sell such units to its
customers; (3) immediately upon termination, MYTURN shall return all copies
of the Licensed Technology, including without limitation all master
diskettes and tapes, and user manuals. MYTURN may retain only such copies
of the Licensed Technology as it may reasonably require for its internal
use in providing continued first level customer support to its End-User
customers; (4) each Party shall destroy or return to the other all
Confidential Information provided by the other Party, except that each
Party may retain one copy for archival purposes only, as a record of the
confidential disclosures made to it under this Agreement; (5) within thirty
(30) days of such termination or expiration MYTURN shall pay to GEOWORKS
any and all sums due under this Agreement; and (6) within thirty (30) days
of such termination or expiration, MYTURN shall confirm in writing to
GEOWORKS that all of the foregoing have occurred or been completed.
14. NONDISCLOSURE AND RESTRICTED USE.
14.1 Confidential Information. In the course of performing this Agreement, each
Party (the "Disclosing Party") may disclose to the other Party ("the
Receiving Party") trade secrets and confidential and proprietary
information of the Disclosing Party, clearly marked or, in the case of
verbal communications, clearly confirmed in writing as "CONFIDENTIAL" or
any other similar legend ("Confidential Information"). Such Confidential
Information includes without limitation the terms and conditions of this
Agreement, technical and/or internal specifications of the Disclosing
Party's products, non-public marketing plans, future products and other
non-public business information, the trade secrets and technology embodied
in the Licensed Technology, the trade secrets and technology embodied in
any MYTURN Product, each Party's sales data, customer lists and other
non-public information. All Confidential Information shall remain the sole
property of the Disclosing Party and the Receiving Party shall have no
interest in or right to such Confidential Information except as expressly
set forth in this Agreement. Both Parties agree that all Confidential
Information of the other Party shall be held in strict confidence, will not
be disseminated or disclosed to any third party and will not be used by the
Receiving Party for any purpose other than performing its rights under this
Agreement without the express written consent of the Disclosing Party for
three (3) years from the date of disclosure (five (5) years for technical
information). Both Parties agree to use at least the degree of diligence to
protect the other Party's Confidential Information as a reasonably prudent
technology company would normally use to protect any of its own trade
secrets and other confidential information. The provisions of this Section
shall not apply to any information or materials:
14.1a which are in the public domain at the time of disclosure to the
Receiving Party or which thereafter enter the public domain through no
action or inaction by the Receiving Party or its employees; or
14.1b which the Receiving Party can establish and document were in the
possession of, or known by, the Receiving Party prior to its receipt from
the Disclosing Party; or
14.1c which are rightfully disclosed to the Receiving Party by another
person not in violation of the proprietary or other rights of the
Disclosing Party, or any other person or entity; or
14.1d which are shown by written record to have been independently
developed by the Receiving Party, provided that the persons developing the
same have not had access to the Confidential Information furnished to the
Receiving Party by the Disclosing Party hereunder; or
14.1e which are required to be disclosed pursuant to law, provided,
however, that a minimum of ten (10) days written notice shall be provided
by the Party intending to disclose in order to permit the other Party to
take such action as it deems appropriate to prevent or limit such
disclosure.
13.2 Restricted Use. Without prejudice to the generality of the foregoing, each
Party agrees not to use any of the Confidential Information or Licensed
Technology of the other Party for any use or purposes except those
expressly specified herein.
13.3 Licensed Technology Source Code Restrictions.
14.3a MYTURN acknowledges that GEOWORKS considers the Licensed Technology
source code to be Confidential Information and to contain proprietary and
trade secret information of GEOWORKS. MYTURN agrees not to provide,
disclose, reproduce in any form, or give access to such source code to any
third party or employee other than the Authorized Personnel. MYTURN agrees
that Authorized Personnel shall be informed of and abide by the terms and
conditions of this Agreement.
14.3b MYTURN shall hold the source code in strict confidence. MYTURN shall
investigate all unauthorized attempts to gain access to the source code of
which it becomes aware, and immediately notify GEOWORKS concerning any
breach of source code confidentiality, whether or not such breach was
inadvertent.
14.3c The source code shall be placed on secure computer systems located at
MYTURN's principal place of business. MYTURN shall implement sufficient
security procedures to limit access to the source code to Authorized
Personnel. The secure computer systems area or room shall be available for
inspection by GEOWORKS.
14.3d MYTURN agrees to take all reasonable precautions and to implement
procedures to minimize the risk of theft or unauthorized copying of the
source code, and to take appropriate action by instruction, agreement, or
otherwise with the Authorized Personnel.
15. LIMITATION OF LIABILITY. REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN
FAILS OF ITS ESSENTIAL PURPOSE, NEITHER PARTY TO THIS AGREEMENT SHALL BE
LIABLE TO THE OTHER PARTY FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
OR THE LOSS OF ANTICIPATED PROFITS ARISING FROM ANY PERFORMANCE OR BREACH
OF THIS AGREEMENT BY SUCH PARTY EVEN IF NOTICE IS GIVEN OF THE POSSIBILITY
OF SUCH DAMAGES.
16. GENERAL.
16.1 Assignment. This Agreement may be not be assigned in whole or in part by
MYTURN, except to a direct subsidiary of Compu-DAWN, the equity and voting
control of which subsidiary shall be not less than 80% in favor of
Compu-DAWN, without the prior written consent of GEOWORKS, which may
withhold or delay consent in its sole, reasonable discretion. GEOWORKS may
assign this Agreement in its sole discretion without any consent from
MYTURN.
16.2 Governing Law. This Agreement will be governed and interpreted in
accordance with the laws of the state of California, except for that body
of law pertaining to conflicts of law, but excluding the Convention on
Contracts for the International Sale of Goods. All disputes arising in
connection with this Agreement shall, unless amicably settled by the
parties, be finally settled by arbitration under the commercial arbitration
rules of the American Arbitration Association by a panel of three (3)
arbitrators appointed in accordance with such Rules. The place of
arbitration shall be, unless otherwise agreed between the parties, the
county in which the respondent resides and the city in which the respondent
has its principal place of business. Judgment upon the award rendered may
be entered in any Court having jurisdiction or application may be made to
such Court for a judicial acceptance of the award and an order of
enforcement, as the case may be. Notwithstanding the foregoing, either
party may request injunctions, seizure orders, writs of attachment, and
other extraordinary remedies from any court having jurisdiction in the case
of an actual or threatened infringement of such party's patents,
copyrights, trademarks, trade secrets or other intellectual property rights
by the other party. The filing of a proceeding for such extraordinary
remedies shall not constitute a waiver by the filing party of the right to
compel arbitration of all demands for other remedies.
16.3 Independent Contractors. Each Party will be deemed to have the status of an
independent contractor towards the other Party, and nothing in this
Agreement will be deemed to place the Parties in the relationship of
employer-employee, principal-agent, partners or joint venturers.
16.4 Waiver. The failure of either Party to enforce any provision of this
Agreement shall not be deemed a waiver of that or any other provision of
this Agreement.
16.5 ForceMajeure. Neither Party will be deemed in default of this Agreement to
the extent that performance of its obligations is delayed or prevented by
reason of any act of God, fire, natural disaster, accident, act of
government, or any other cause beyond the control of such Party ("Force
Majeure"), provided that such Party gives the other Party written notice
thereof promptly and uses its good faith efforts to cure the breach. In the
event of such a Force Majeure, the time for performance or cure will be
extended for a period equal to the duration of the Force Majeure but not in
excess of six (6) months.
16.6 Notices. Notices to either Party shall be in writing and shall be deemed
delivered when served in person, one business day after being transmitted
by fax, or two business days after being dispatched by an internationally
recognized express courier service, and delivered to the addresses set
forth at the beginning of this Agreement. A Party may change its address
for purposes of receiving notices by giving notice of the change to the
other Party.
16.7 Survival. The rights and obligations under Sections 5 (Intellectual
Property Rights), 7 (PAYMENTS), 9 (GEOWORKS' INDEMNITIES), 10 (MYTURN'S
INDEMNITIES), 11 (COMBINATION CLAIMS), 12.1 (Disclaimer of Express
Warranties), 12.2 (Disclaimer Of Implied Warranties), 14 (NONDISCLOSURE AND
RESTRICTED USE), 15 (LIMITATION OF LIABILITY), and 16 (GENERAL) shall
survive the expiration and any termination of this Agreement.
16.8 Export. MYTURN agrees that MYTURN will not knowingly export or reexport the
Licensed Technology, directly or indirectly, to any country to the extent
export to such country at the time of export requires an export license or
other governmental approval, without first obtaining such license or
approval.
16.9 Rental Payments. Upon execution of this Agreement, MYTURN will begin paying
all monthly rent ($11,600)and expenses due for space and facilities costs
used by GLOBAL at the GEOWORKS facility in Alameda, California.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
GEOWORKS CORPORATION MYTURN, INC.
By: /s/ Donald G. Ezzell By: /s/ Rudy C. Theale
- --- -------------------- ----------------------
Signature Signature
/s/ Donald G. Ezzell Rudt C. Theale
- -------------------- --------------
Print Name Print Name
Chief Operating Officer President
- ----------------------- ---------
Title Title
GPC ACQUISITION CORP.
By: /s/ Rudy C. Theale
--- ------------------
Signature
Rudy C. Theale
--------------
Print Name
President
---------------------------------
Title
<PAGE>
EXHIBIT A
IDENTIFICATION OF THE LICENSED TECHNOLOGY
AND THIRD PARTY TECHNOLOGY
Operating System
- ----------------
The double-byte version of GEOS 3.0 operating system, in source code and object
code form (English language, single-byte and double-byte, with included drivers)
Applications
- ------------
Ensemble Application suite, in source code and object code form (English
language, single-byte & double- byte)
For purposes of this Agreement, the term "Ensemble Applications" means
GeoBrowser, GeoCalc, GeoWrite, Calculator, Clock, GeoManager, GeoPlanner,
Scrapbook, Preferences, Solitaire, GeoBanner, GeoComm, GeoDex, GeoDraw, GeoFile,
and Text File Editor
The object code and source code to games for the GEOS 3.0 operating system
developed by or for Geoworks and which are owned by Geoworks (separate list to
be identified by the Parties).
(Third Party Technology is included only to the extent and only for the time
period that GEOWORKS' current in-bound licenses provide. Additional rights and
additional time periods are to be obtained directly from the Third Party
Technology suppliers by MYTURN. GIF and TIFF file formats are not warranted and
not subject to indemnification by GEOWORKS under this Agreement unless MYTURN
obtains a license to LZW compression from Unisys).
Note: all application names are to be changed.
All existing Ensemble help files are also included.
Tools
- -----
Software developers kit and LEGOS tool set (Object Code, Sample source code
Files)
(Licensed to MYTURN for internal use only, and not for distribution or resale
except upon mutual agreement and commercial terms, including all terms and
conditions governing same.).
The source code to the tools listed herein for MYTURN's internal use only.
GEOWORKS also grants MYTURN a limited right to distribute the object code
version of the GEOWORKS Software Developers Kit (SDK) under the terms and
conditions of the GEOWORKS SDK License Agreement applicable at the time of
distribution. GEOWORKS will provide MYTURN with available GEOWORKS-created
localization materials to assist MYTURN in developing localized versions of the
Licensed Technology.
Documentation
- -------------
English-language
End User documentation in electronic form
Third Party Technologies (object code)
- ------------------------
DOS
---
Datalight ROM-based disk operating system Version 5.0, and updates
provided by Datalight (for sale only with bundled with GEOS; may not
be sold separate from GEOS)
Fonts: URW fonts and rasterizer, for use with the GEOWORKS Ensemble
Application Suite only. Not to be sold as a separate wholesale or
retail product. MYTURN will pay GEOWORKS $. per copy shipped to End
Users and 1.25% of all Software Revenues when shipped to OEMS.
PPP Stack: The GEOWORKS Point-to-Point protocol product. MYTURN will
pay GEOWORKS $.50 per MYTURN Product Shipment.
Classs 1 Fax Drivers: Class 1 fax drivers for use with GEOS 3.0 only.
Not to be sold as a separate wholesale or retail product. MYTURN will
pay GEOWORKS $.50 per MYTURN Product Shipment that includes this
driver.
PAGE 4
<PAGE>
EXHIBIT B
DEVELOPMENT AND SUPPORT SERVICES
CUSTOMER SUPPORT
First Level Customer Support
MYTURN (directly or through its Distributors) shall provide
customer support for End Users who acquire MYTURN Devices and
Product units. In the event that End Users first call GEOWORKS
directly for technical support, GEOWORKS may refer such customers
to MYTURN.
0.1 Second Level Customer Support
GEOWORKS shall not be required to provide Second Level Customer
Support to MYTURN.
1. EXCLUSIVE PROVIDER SUPPORT
During the term of the Agreement, GEOWORKS shall be the exclusive provider
of support to all applicable parties concerning the Licensed Technology. In
consideration for the Fees set forth in Exhibit B to this Agreement, subject to
availability, GEOWORKS will offer to provide MYTURN with development, consulting
and support services, if requested by MYTURN in the following:
1.1 Development Assistance
GEOWORKS will provide reasonable technical assistance to MYTURN in
connection with MYTURN'S development activities using the Licensed
Technology. GEOWORKS and MYTURN will create a written, mutually
agreeable specification for any modifications or extensions to the
Licensed Technology to be created by GEOWORKS.
1.2 Assistance With Development Environment
GEOWORKS will provide reasonable assistance to MYTURN personnel in the
use of the software development environment and other tools.
1.3 Error Investigation
GEOWORKS will provide reasonable assistance to MYTURN in connection
with the identification and correction of errors in the Licensed
Technology.
1.4 On-Site Support
GEOWORKS will primarily provide its support services from GEOWORKS'
place of business. Upon reasonable (approximately two weeks) advance
notice, the GEOWORKS Support Engineers will provide support services
at MYTURN's place of business, for a maximum period of one (1) week
for any given on-site visit and a maximum of two (2) weeks per
calendar quarter. The amount of on-site support in a given quarter may
be extended by mutual agreement. All travel and living expenses for
such on-site service will be paid by MYTURN.
1.5 Personnel; Primary Contact; Employee Non-Solicitation
MYTURN shall at all times ensure that its personnel are properly
trained in the operation and use of the Licensed Technology. MYTURN
will designate one (1) person properly trained in the use of the
Licensed Technology to serve as MYTURN's primary contact with GEOWORKS
for support services. MYTURN shall provide written notice to GEOWORKS
giving the name and contact information for such designated persons.
During any Term of this Agreement, any one year thereafter, MYTURN
agrees not to solicit any GEOWORKS employee or consultant without the
prior written consent of GEOWORKS.
1.6 Access
MYTURN shall provide GEOWORKS a direct Internet connection, FTP
capabilities and other capabilities, as appropriate, to remotely
perform any support services.
1.7 NO WARRANTIES
The intent of GEOWORKS' services in support of this Agreement is to
provide assistance to MYTURN, leading to MYTURN's self-sufficiency in
dealing with the source code. This Agreement does not create a
warranty of any kind. GEOWORKS DISCLAIMS ALL WARRANTIES, STATUTORY,
EXPRESS, IMPLIED OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE
PRACTICE, WITH RESPECT TO THE LICENSED TECHNOLOGY AND SERVICES
PROVIDED UNDER THIS EXHIBIT, INCLUDING BUT NOT LIMITED TO, ANY
WARRANTY OF DESIGN, MERCHANTABILITY OR FITNESS.
1.8 Conditions Not Covered
GEOWORKS will render reasonable technical assistance and consultation,
but shall not be responsible for: (i) maintaining or supporting
modifications made by MYTURN or portions of the Licensed Technology
affected by MYTURN modifications; (ii) problems caused by the improper
use of the Licensed Technology by MYTURN; (iii) maintaining hardware,
software, or documentation provided to MYTURN by third parties; or
(iv) correcting problems caused by conditions beyond its reasonable
control.
2. TERM AND TERMINATION OF SUPPORT SERVICES
2.1 Term
This term of any development and support services under this Exhibit B
shall be the same as the term of the Agreement, as set forth in
Section 13 (TERM OF AGREEMENT AND TERMINATION) of the Agreement,
except as set forth below.
2.2 Early Termination
If MYTURN has not delivered the Licensed Technology and a MYTURN PC
Device to the manufacturing process by December 31, 2000, then
GEOWORKS may terminate any commitment to provide development and
support services under this Exhibit B by written notice to MYTURN.
PAGE 1
<PAGE>
EXHIBIT D
FORMS OF END USER LICENSE AGREEMENT
IMPORTANT: READ THIS NOTICE BEFORE USING THE SOFTWARE
GEOWORKS Software License Agreement
This is a legal agreement between you (the end user), GEOWORKS Corporation
("GEOWORKS") and MYTURN PC, or Compu-Dawn dba MYTURN, or any successor to
Compu-Dawn or MYTURN thereto. Please read it.
Your MYTURN PC Device contains software created by GEOWORKS. The GEOWORKS(R)
software program (the "SOFTWARE") is licensed by GEOWORKS and MYTURN PC to the
original customer and any subsequent transferee of the MYTURN PC Device for use
only on the terms set forth here.
GEOWORKS AND MYTURN PC ARE WILLING TO LICENSE THE SOFTWARE TO YOU ONLY UPON THE
CONDITION THAT YOU ACCEPT ALL THE TERMS CONTAINED IN THIS END USER LICENSE
AGREEMENT. PLEASE READ THE TERMS CAREFULLY BEFORE USING THE MYTURN PC DEVICE, AS
USING THE DEVICE WILL INDICATE THAT YOU ACCEPT THE TERMS. IF YOU DO NOT AGREE TO
THESE TERMS, THEN GEOWORKS AND MYTURN ARE UNWILLING TO LICENSE THE SOFTWARE TO
YOU, IN WHICH EVENT YOU SHOULD RETURN THE MYTURN PC DEVICE IN ITS ORIGINAL
PACKAGING WITH PROOF OF PURCHASE TO THE DEALER FROM WHICH IT WAS ACQUIRED WITHIN
THIRTY (30) DAYS OF PURCHASE FOR A FULL REFUND.
GRANT OF LICENSE: GEOWORKS and MYTURN PC grant you the right to use the software
on the MYTURN PC Device.
COPYRIGHT: The SOFTWARE is owned by GEOWORKS or its suppliers and is protected
by United States copyright laws and international treaty provisions. You may not
copy the SOFTWARE or the written materials accompanying the SOFTWARE.
OTHER RESTRICTIONS: You may not rent or lease the SOFTWARE, but you may transfer
the SOFTWARE and accompanying written materials on a permanent basis provided
you retain no copies. You may not reverse engineer, decompile, disassemble, or
create derivative works from the SOFTWARE.
U.S. GOVERNMENT RESTRICTED RIGHTS: The U.S. Government acknowledges GEOWORKS'
representation that the SOFTWARE and its documentation were developed at private
expense and no part of them is in the public domain. The SOFTWARE is "Restricted
Computer Software" as that term is defined in Clause 52.227-19 (FAR) and is
"Commercial Computer Software" as that term is defined in Subpart 227.471
(DFARS).
RESTRICTED RIGHTS LEGEND
If this product is acquired under the terms of a government contract,
use, duplication, and disclosure are subject to the terms of this
license agreement and the following restrictions: subdivision
(c)(1)(ii) of the Rights in Technical Data and Computer Software
clause at 252.227-7013 (DOD contracts); subdivisions (a) through (d)
of 52.227-19 (Civilian agency contract); and the applicable ADP
Schedule Contract (GSA contract).
EXPORT LAW ASSURANCES: You agree that neither the SOFTWARE nor any direct
product thereof is being or will be acquired, shipped, transferred or
re-exported, directly or indirectly, into any country prohibited by the United
States Export Administration Act and the regulations thereunder.
LIMITED MONEY-BACK WARRANTY: To the original purchaser only, MYTURN PC provides
the following warranties for purchases made in the United States of America or
Canada. IF YOU ARE NOT SATISFIED WITH THE SOFTWARE FOR ANY REASON, YOU MAY
RETURN THE COMPLETE PRODUCT, WITHIN THIRTY (30) DAYS FROM THE DATE OF RECEIPT
FOR A FULL REFUND. Return the product directly to the U.S. or foreign dealer you
purchased it from. If you are unable to return the product to your dealer,
please call MYTURN PC at XXX-XXX-XXXX to obtain an authorization number to
accompany the returned product. Please do not return products to MYTURN PC
directly without first calling, as MYTURN PC will refuse acceptance of packages
that do not have a Return Authorization number written on the outside.
MYTURN PC also warrants that, within the first ninety (90) days from the date of
receipt, the media on which the software is furnished and the accompanying
documentation will remain free from defects in materials and construction with
normal use. In the case of a defect, so long as the defect did not result from
misuse, abuse, or accident, MYTURN PC at its option will repair or replace the
defective item and return it to you by pre-paid post.
MYTURN PC and GEOWORKS do not warrant that the SOFTWARE will meet your
requirements, that operation of the SOFTWARE will be uninterrupted or
error-free, or that all SOFTWARE errors will be corrected.
THE ABOVE WARRANTIES ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN
BY GEOWORKS OR MYTURN PC, THEIR EMPLOYEES, DISTRIBUTORS, DEALERS OR AGENTS SHALL
INCREASE THE SCOPE OF THE ABOVE WARRANTIES OR CREATE ANY NEW WARRANTIES. SOME
STATES AND COUNTRIES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE
ABOVE EXCLUSION MAY NOT APPLY TO YOU. IN THAT EVENT, ANY IMPLIED WARRANTIES ARE
LIMITED IN DURATION TO SIXTY (60) DAYS FROM THE DATE OF DELIVERY OF THE
SOFTWARE. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHER
RIGHTS, WHICH VARY FROM STATE TO STATE AND COUNTRY TO COUNTRY.
LIMITATION OF LIABILITY: REGARDLESS OF WHETHER ANY REMEDY SET FORTH IN THE
LIMITED WARRANTY FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT WILL GEOWORKS OR
MYTURN PC BE LIABLE TO YOU FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT OR SIMILAR
DAMAGES, INCLUDING ANY LOST PROFITS OR LOST DATA ARISING OUT OF THE USE OR
INABILITY TO USE THE SOFTWARE OR ANY DATA SUPPLIED THEREWITH. THIS IS TRUE EVEN
IF GEOWORKS OR MYTURN PC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN
NO CASE SHALL THE LIABILITY OF GEOWORKS OR MYTURN PC EXCEED THE PURCHASE PRICE
PAID FOR THE SOFTWARE.
SOME STATES AND COUNTRIES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY
FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OF LIABILITY
MAY NOT APPLY TO YOU.
GENERAL: This Agreement will be governed by the laws of the State of California,
U.S.A., except for that body of law dealing with conflict of laws.
Should you have any questions concerning this Agreement, or if you desire to
contact GEOWORKS for any reason, please write to us at: GEOWORKS END USER
LICENSING, 960 Atlantic Avenue, Alameda, CA 94501-1074, U.S.A.
- 2 -
<PAGE>
PORTAL SERVICES AGREEMENT
This Portal Services Agreement (this "Agreement") is entered into as of
February 3, 2000 (the "Effective Date"), by and between Inktomi Corporation, a
Delaware corporation with its principal place of business at 4100 East Third
Avenue, Foster City, California 94404 ("Inktomi") and GPC Acquisition Corp. with
its principal place of business at 960 Atlantic Avenue, Suite 200, Alameda,
California 94501 ("Customer").
RECITALS
A. Inktomi utilizes its technology to provide a variety of services
including without limitation those described on exhibits to this Agreement.
B. Customer desires to retain Inktomi to provide certain of Inktomi's
services to Customer in accordance with the terms and conditions of this
Agreement.
NOW THEREFORE, Inktomi and Customer agree as follows:
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
the parties agree as follows:
1. Definitions. For purposes of this Agreement, in addition to the other
terms defined elsewhere in this Agreement, the following terms shall have the
meanings set forth below:
1.1. "Intellectual Property Rights" means any and all rights existing
from time to time under patent law, copyright law, semiconductor chip
protection law, moral rights law, trade secret law, trademark law, unfair
competition law, publicity rights law, privacy rights law, and any and all
other proprietary rights, and any and all applications, renewals,
extensions and restorations thereof, now or hereafter in force and effect
worldwide.
1.2. "Inktomi Icon" means an icon to be provided by Inktomi from time
to time that indicates that Inktomi's technology is being used.
1.3. "Inktomi Technology" means the computer software, technology
and/or documentation which is supplied by Inktomi for use in or in
connection with delivery of a Service, including without limitation all
source code and object code therefor and all algorithms, ideas and
Intellectual Property Rights therein. The definition of "Inktomi
Technology" shall include any supplemented definition set forth in an
Exhibit for a Service.
1.4. "Services" means the various services to be provided by Inktomi
for Customer under this Agreement, as more fully described on the Exhibits
attached to this Agreement.
1.5. "Site" means a Web site and/or sites established and maintained
by Customer or other authorized entity (to the extent permitted) through
which end-users may access a Service as set forth in the Exhibit for such
Service.
1.6. "Term" shall have the meaning indicated in Section 9.
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1.7. "Web" means the World Wide Web, containing, inter alia, pages
written in hypertext markup language (HTML) and/or any similar successor
technology.
1.8. "Web page" means a document on the Internet which may be viewed
in its entirety without leaving the applicable distinct URL address.
1.9. "Web site" means a collection of inter-related Web pages.
2. Provision of Services.
2.1. Services. Subject to the terms and conditions of this Agreement,
Inktomi shall provide each Service substantially in accordance with the
functionality specifications, performance criteria and limitations
specified in the Exhibit applicable to such Service.
2.2. Additional Services. Upon request, and provided that Customer is
current with service fees due under this Agreement, Inktomi may provide
Customer additional services in addition to the Services set forth in the
applicable Exhibit. Such additional service shall be mutually agreed upon
by the parties and shall be set forth, in Inktomi's reasonable discretion,
on a written work authorization or an additional Exhibit to this Agreement
which upon execution, shall become binding between the parties. Such
additional service, if provided pursuant to: (i) a written work
authorization shall be provided at Inktomi's then applicable consulting
rates and charges, and shall be deemed rendered pursuant to and in
accordance with the terms of this Agreement; or (ii) an additional Exhibit
shall be provided in accordance with the rates, charges, terms and
conditions of such Exhibit and the terms of this Agreement. Any work
authorizations issued under this Agreement shall be sequentially numbered.
2.3. End-User Support. Inktomi shall provide technical support for a
Service to the extent set forth in the Exhibit applicable to such Service.
Except as set forth in such Exhibit, Customer, at its own expense, shall
provide all support of the Site.
2.4. Nonexclusive Services. Customer understands that Inktomi will
provide the Services on a nonexclusive basis. Customer acknowledges that
Inktomi has customized and provided, and will continue to customize and
provide, its software and technology to other parties for use in connection
with a variety of applications, including, without limitation, search
engine, e-commerce and communication applications. Nothing in this
Agreement will be deemed to limit or restrict Inktomi from customizing and
providing its software and technology to other parties for any purpose or
in any way affect the rights granted to such other parties. Inktomi
reserves the right to notify other customers of the signing of this
Agreement but agrees not to provide such notice before a public
announcement by Customer of its business relationship with Inktomi or
before commercial launch of a Service provided by Inktomi under this
Agreement, whichever is earlier. Customer may not make any public
announcement involving Inktomi without Inktomi approval, provided however,
Customer may disclose information concerning this Agreement in order to
comply with a valid order by a court or other governmental body, or as
otherwise required by law, rule, or regulation.
3. Intellectual Property Licenses/Ownership.
3.1. Trademark Licenses. Inktomi hereby grants Customer a
nontransferable, nonexclusive license to display the Inktomi Icon solely as
required in order to comply with its attribution obligations for each
Service. Customer hereby grants to Inktomi a nontransferable, nonexclusive
license under Customer's trademarks during the Term to advertise that
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Customer is using Inktomi's services. Promptly following the Effective
Date, each party will provide to the other party its trademark usage
guidelines, as such guidelines may be amended from time to time. All uses
of trademarks as set forth above shall be in accordance with such
guidelines. For uses outside of such guidelines, a party will submit all
materials of any kind containing the other party's nonconforming trademarks
to the other party before release to the public for inspection, and such
other party will have the right to approve or disapprove such material
prior to its distribution. Except as set forth in this Section, nothing in
this Agreement shall grant or shall be deemed to grant to one party any
right, title or interest in or to the other party's trademarks. All use of
Customer trademarks by Inktomi shall inure to the benefit of Customer, and
all use of Inktomi trademarks by Customer shall inure to the benefit of
Inktomi. At no time during or after the Term shall one party challenge or
assist others to challenge the trademarks of the other party (except to the
extent such restriction is prohibited by applicable law) or the
registration thereof or attempt to register any trademarks, marks or trade
names confusingly similar to those of the other party.
3.2. Inktomi Technology. As between Customer and Inktomi, Customer
acknowledges that Inktomi owns all right, title and interest in and to the
Inktomi Technology (except for any software licensed by third parties to
Inktomi), and that Customer shall not acquire any right, title, and
interest in or to the Inktomi Technology, except as expressly set forth in
this Agreement. Customer shall not modify, adapt, translate, prepare
derivative works from, decompile, reverse engineer, disassemble or
otherwise attempt to derive source code from any Inktomi Technology, except
and only to the extent that such activity is expressly permitted by
applicable law notwithstanding this limitation. Customer will not remove,
obscure, or alter Inktomi's copyright notice, trademarks, or other
proprietary rights notices affixed to or contained within any Inktomi
software or documentation.
4. Warranties and Disclaimer. Each party agrees as follows:
4.1. Inktomi Warranties. Inktomi warrants that: (i) it has full power
and authority to enter into this Agreement; and (ii) it owns all right,
title and interest in and to the Inktomi Technology, and any portions and
components thereof, including but not limited to, copyrights, patents,
trade secrets and trademarks; and (iii) it has not previously and will not
grant any rights in the Inktomi Technology to any third party that are
inconsistent with the rights granted to Customer hereunder; and (iv)
throughout the Term, each Service provided for Customer and the Inktomi
Technology provided in connection with each such Service shall be free of
material errors and defects and shall perform substantially in accordance
with the performance criteria set forth on the applicable Exhibit for such
Service. Inktomi does not warrant that the Services will meet all of
Customer's requirements or that performance of the Services will be
uninterrupted or error-free. INKTOMI MAKES NO OTHER WARRANTY OF ANY KIND,
WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR USE, AND
NONINFRINGEMENT. IN PARTICULAR, INKTOMI MAKES NO WARRANTIES WHATSOEVER
REGARDING THE NATURE OF THE MATERIAL CONTAINED IN THE DATABASE AND TO THE
MAXIMUM EXTENT PERMITTED BY LAW DISCLAIMS ANY RESPONSIBILITY OR LIABILITY
FOR SUCH MATERIAL.
4.2. Inktomi Obligations. Inktomi's sole obligation under the
foregoing warranties is to use reasonable efforts to correct any portion of
the Inktomi Technology or its business practices that does not meet the
foregoing warranties within a reasonable period of time. If Inktomi fails
to do so, then Customer shall have the right to immediately terminate this
Agreement. In addition, Customer may receive as a sole
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remedy, a refund of all amounts actually paid by Customer under that
Exhibit for Services of this Agreement giving rise to Inktomi's failure to
meet the foregoing warranty.
4.3. Customer Warranties. Customer warrants that: (i) it has full
power and authority to enter into this Agreement; (ii) it will seek all
necessary governmental approvals required to effectuate this Agreement; and
(iii) it shall perform the online services provided by Customer through the
Site in accordance with all federal, state and local laws, including all
professional registration requirements related thereto. CUSTOMER MAKES NO
OTHER WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR USE, AND NONINFRINGEMENT.
5. Payments.
5.1. Fees. Customer shall pay Inktomi fees for each of the Services in
accordance with the applicable Schedule.
5.2. Records. To the extent applicable for each Service and solely to
the extent each party has obligations to make payments to the other party
in connection with such Service each party shall: (i) maintain all records
relevant to calculating service fees and/or revenues for a Service for a
two (2) year period following the year in which any payments pertaining to
such service fees and/or revenues were due; and (ii) have the right to
examine the other party's records from time to time but no more than once
every six (6) months to determine the correctness of any payment made under
this Agreement. Such examination shall be conducted at reasonable times
during the audited party's normal business hours and upon at least ten (10)
business days' advance notice and in a manner so as not to unreasonably
interfere with the conduct of the audited party's business. If any such
examination indicates that the audited party has underpaid by more than
five percent (5%) of the aggregate payments due for the period subject to
such examination, the audited party shall reimburse the other party for
reasonable costs of such examination.
5.3. Taxes. Customer shall be responsible for all sales taxes, use
taxes, withholding taxes, value added taxes and any other similar taxes
imposed by any federal, state, provincial or local governmental entity on
the transactions contemplated by this Agreement, excluding taxes based upon
Inktomi's net income. When Inktomi has the legal obligation to pay or
collect such taxes, the appropriate amount shall be invoiced to and paid by
Customer unless Customer provides Inktomi with a valid tax exemption
certificate authorized by the appropriate taxing authority.
5.4. Payment. All fees quoted and payments made hereunder shall be in
U.S. Dollars. Customer shall pay all amounts due under this Agreement to
Inktomi at the address indicated at the beginning of this Agreement or such
other location as Inktomi designated in writing.
6. Confidentiality.
6.1. Definition of Confidential Information. All information and
documents disclosed or produced by either party in the course of this
Agreement which are disclosed in written form and identified by a marking
thereon as proprietary, or oral information which is defined at the time of
disclosure and confirmed in writing as confidential information within ten
(10) business days of its disclosure, shall be deemed the "Confidential
Information" of the disclosing party. Notwithstanding the above, the
parties agree that any information (in any form, whether in tangible or
intangible) relating to the Inktomi Technology is considered Confidential
Information of Inktomi.
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6.2. Treatment of Confidential Information. Each party agrees to
protect the other party's Confidential Information in the same manner as
such party protects its own Confidential Information of substantially
similar proprietary value, but in no case less than with reasonable care.
Each party agrees that it will use the Confidential Information of the
other party only for the purposes of this Agreement and that it will not
divulge, transfer, sell, license, lease, or otherwise disclose or release
any such information or documents except to release to: (i) its employees
or subcontractors who require access to such for purposes of carrying out
such party's obligation hereunder; and (ii) persons who are employed as
auditors by a public accounting firm or by a federal or state agency; and
(iii) a governmental body or in response to a valid court order or as
otherwise required by law, rule, or regulation. Each party will use
reasonable efforts to advise any person obtaining Confidential Information
that such information is proprietary and to obtain a written agreement
obligating such person to maintain the confidentiality of any Confidential
Information belonging to the party or its suppliers.
6.3. No Other Confidential Information. Neither party shall have any
obligation under this Section 6 for information of the other party which
the receiving party can substantiate with documentary evidence that has
been or is: (i) developed by the receiving party independently and without
the benefit, use of, or reference to information disclosed hereunder by the
disclosing party; (ii) lawfully obtained by the receiving party from a
third party without restriction and without breach of this Agreement; (iii)
publicly available without breach of this Agreement; or (iv) known to the
receiving party prior to its receipt from the disclosing party.
7. Indemnification.
7.1. Inktomi Indemnification. With regard to each Service, Inktomi
shall indemnify Customer solely as set forth on the applicable Exhibit for
such Service.
7.2. Customer Indemnification. Customer shall defend and/or settle,
and pay damages awarded pursuant to, any third party claim brought against
Inktomi: (i) related to the services provided by Customer through the Site
or representations, claims or statements pertaining thereto; and (ii)
which, if true, would constitute a breach of any warranty, representation
or covenant made by Customer under Section 4.3; provided, that, Inktomi
promptly notifies Customer in writing of any such claim and promptly
tenders the control of the defense and settlement of any such claim to
Customer at Customer's expense and with Customer's choice of counsel.
Inktomi shall cooperate with Customer, at Customer's expense, in defending
or settling such claim and Inktomi may join in defense with counsel of its
choice at its own expense. Customer shall not reimburse Inktomi for any
expenses incurred by Inktomi without the prior written approval of
Customer.
8. Limitation of Liability. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE
LAW, IN NO EVENT WILL THE TOTAL LIABILITY OF INKTOMI AND ITS LICENSORS AND
SUPPLIERS ARISING OUT OF THIS AGREEMENT EXCEED EITHER THE TOTAL ANNUAL FEES PAID
BY CUSTOMER FOR THE YEAR IN WHICH THE LIABILITY ARISES, OR IN THE FIRST YEAR
$125,000, THE SECOND YEAR $150,000, AND THE THIRD YEAR $175,000, WHICHEVER IS
GREATER. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, INKTOMI AND ITS
LICENSORS AND SUPPLIERS SHALL NOT BE LIABLE FOR ANY LOST PROFITS OR COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOST DATA, HOWEVER
CAUSED AND UNDER ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO CONTRACT,
PRODUCTS LIABILITY, STRICT LIABILITY AND NEGLIGENCE, AND WHETHER OR NOT IT WAS
OR SHOULD HAVE BEEN AWARE OR ADVISED OF THE POSSIBILITY OF SUCH
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DAMAGE. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
9. Term and Termination.
9.1. Term. The term of this Agreement (the "Term") shall commence on
the Effective Date and shall continue in force as specified in Schedule 2.
9.2. Termination for Breach. Either party may suspend performance of
and/or terminate this Agreement if the other party materially breaches any
term or condition of this Agreement and fails to cure such breach within
thirty (30) days after receiving written notice of the breach or if such
breach cannot be cured within thirty (30) days, and such party fails to
commence and continue meaningful steps to cure such breach within thirty
(30) days.
9.3. Termination due to Insolvency. Either party may suspend
performance and/or terminate this Agreement if the other party becomes
insolvent or makes any assignment for the benefit of creditors or similar
transfer evidencing insolvency, or suffers or permits the commencement of
any form of insolvency or receivership proceeding, or has any petition
under bankruptcy law filed against it, which petition is not dismissed
within one hundred and twenty (120) days of such filing, or has a trustee
or receiver appointed for its business or assets or any party thereof.
9.4. Effect of Termination. Upon the termination of this Agreement for
any reason: (i) all license rights granted under this Agreement shall
terminate; (ii) Customer shall immediately pay to Inktomi all amounts due
and outstanding as of the date of such termination; and (iii) each party
shall return to the other party, or destroy and certify the destruction of,
all Confidential Information of the other party.
9.5. Survival. In the event of any termination or expiration of this
Agreement for any reason, Sections 1, 3, 4, 5.2, 6, 7 (to the extent
designated to survive in the applicable Exhibit), 8, 9 and 10 shall survive
termination or expiration of this Agreement. Neither party shall be liable
to the other party for damages or equitable remedies of any sort resulting
solely from terminating this Agreement in accordance with its terms.
9.6. Remedies. Each party acknowledges that its breach of the
confidentiality or service/license restrictions contained herein may cause
irreparable harm to the other party, the extent of which would be difficult
to ascertain. Accordingly, each party agrees that, in addition to any other
remedies to which the non-breaching party may be legally entitled, the
non-breaching party shall have the right to seek immediately injunctive
relief in the event of a breach of such confidentiality or service/license
restrictions by the other party or any of its officers, employees,
consultants or other agents.
10. Miscellaneous.
10.1. Understanding. Each party acknowledges that it has read this
Agreement, understands it and agrees to be bound by it. Each party
acknowledges that it has not been induced to enter into such agreements by
any representations or statements, oral or written, not expressly contained
herein or expressly incorporated by reference.
10.2. Notice. Any notice required under or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed
given as indicated: (i) by personal delivery when delivered personally;
(ii) by overnight courier upon written verification of receipt; (iii) by
telecopy or
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facsimile transmission when confirmed by telecopier or facsimile
transmission report; or (iv) by certified or registered mail, return
receipt requested, upon verification of receipt. All notices must be sent
to the addresses first described above or to such other address that the
receiving party may have provided for the purpose of notice in accordance
with this Section.
10.3. Assignment. Neither party may assign its rights or delegate its
obligations under this Agreement without the other party's prior written
consent, except to the surviving entity in a merger or consolidation in
which it participates or to a purchaser of all or substantially all of its
assets, so long as such surviving entity or purchaser shall expressly
assume in writing the performance of all of the terms of this Agreement.
Notwithstanding the above, Customer may assign its rights and delegate its
obligations under this Agreement to MyTurn.com or any other entity in which
Customer controls at least eighty percent (80%) or more of the outstanding
securities, provided however, that MyTurn.com or any successor company
thereto and such entity or any successor company thereto shall be held
liable under the terms and conditions of this Agreement for any breach
thereof by any assignee.
10.4. No Third Party Beneficiaries. All rights and obligations of the
parties hereunder are personal to the party that holds the rights or has
the obligation. This Agreement is not intended to benefit, nor shall it be
deemed to give rise to, any rights in any third party.
10.5. Governing Law. This Agreement will be governed and construed, to
the extent applicable, in accordance with United States law, and otherwise,
in accordance with California law, without regard to its conflict of law
principles. Except for claims relating to a breach of confidentiality under
Section 6 or involving Intellectual Property Rights, any dispute or claim
arising out of or in connection with this Agreement shall be finally
settled by binding arbitration in San Mateo County, California under the
Commercial Rules of the American Arbitration Association by one arbitrator
appointed in accordance with said rules. Judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. In
connection with any litigation between the parties hereto arising out of or
relating to this Agreement, each party hereto irrevocably consents to the
exclusive jurisdiction and venue in the federal and state courts located in
San Francisco and/or San Mateo County.
10.6. Independent Contractors. The parties are independent
contractors. Neither party shall be deemed to be an employee, agent,
partner or legal representative of the other for any purpose and neither
shall have any right, power or authority to create any obligation or
responsibility on behalf of the other.
10.7. Force Majeure. Neither party shall be liable hereunder by reason
of any failure or delay in the performance of its obligations hereunder
(except for the payment of money) on account of strikes, shortages, riots,
insurrection, fires, flood, storm, explosions, earthquakes,
telecommunications outages, acts of God, war, governmental action, or any
other cause which is beyond the reasonable control of such party.
10.8. Compliance with Laws and Export Regulations. Each party shall be
responsible for compliance with all applicable laws, rules and regulations,
if any, related to the performance of its obligations under this Agreement.
Customer acknowledges that Inktomi is not the originator or exporter of any
information the Services return as the result of queries submitted by any
user of Customer's system. Customer is responsible for ensuring that the
export of any information provided by the Services is exported in
accordance with all applicable U.S. laws and regulations, including U.S.
export control laws. Additionally, Customer acknowledges that Inktomi is
not the exporter of any products or information sold by Customer through
the Services. Customer is responsible for ensuring that the export of any
products
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facilitated for sale through the Services are exported in accordance with
all applicable U.S. laws and regulations, including U.S. export control
laws. Customer agrees to provide adequate safeguards including on line
disclaimers on Customer's site to ensure compliance with these provisions.
10.9. Waiver. The failure of either party to require performance by
the other party of any provision shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either
party of a breach of any provision hereof be taken or held to be a waiver
of the provision itself.
10.10. Conflicts. In the event of a conflict between the terms of this
Agreement and an Exhibit attached hereto, the terms of the Exhibit shall
prevail.
10.11. Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be contrary to law, the parties agree
that such provision shall be changed and interpreted so as to best
accomplish the objectives of the original provision to the fullest extent
allowed by law and the remaining provisions of this Agreement shall remain
in full force and effect.
10.12. Headings. The section headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or extent of such paragraph, or in any way
affect such agreements.
10.13. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which will be considered an original, but
all of which together will constitute one and the same instrument.
10.14. Entire Agreement. This Agreement, Exhibits, Attachments and
Schedules hereto, constitute the entire agreement between the parties with
respect to the subject matter hereof. This Agreement supersedes, and the
terms of this Agreement govern, any other prior or collateral agreements
with respect to the subject matter hereof. Any amendments to this Agreement
must be in writing and executed by an officer of the parties.
IN WITNESS WHEREOF, the parties have caused this Portal Services Agreement
to be signed by their duly authorized representatives.
GPC ACQUISITION CORP. INKTOMI CORPORATION
By: /s/ Paul Danner By: /s/ Jerry Kennelly
- ------------------- ----------------------
Name: Paul Danner Name: Jerry Kennelly
- ----------------- --------------------
Title: CEO Title: Chief Financial Officer
- ---------- ------------------------------
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EXHIBIT A-1
TO THE
PORTAL SERVICES AGREEMENT
GENERAL SEARCH SERVICES
Customer Site or Sites ("Site") shall be designated as follows: www.myturn.com
or any another site as Customer may determine in its sole discretion.
This Exhibit to the Portal Services Agreement (this "Exhibit"), in conjunction
with the terms of the Portal Services Agreement (the "Agreement") shall
constitute the terms and conditions pursuant to which Inktomi shall provide
General Search Services to Customer at the Site set forth above:
1. Definitions. In addition to any terms defined in this Exhibit, the
following terms shall have the meanings set forth below. Any other terms not
otherwise defined in this Exhibit shall have the meanings prescribed to them in
the Agreement.
1.1. "Affiliate" means with respect to any person or entity, any other
person or entity directly or indirectly controlling or controlled by or
under direct or indirect common control with such person or entity.
"Control" means the possession of beneficial ownership of more than 50% of
the stock or other similar interest entitled to vote for election of the
Board of Directors or similar managing authority.
1.2. "Database" means Inktomi's full text index database of Web pages
accessible by end users of the Site at any given time. The Database
includes the "General Search Database."
1.3. "General Search Database" is the database maintained as part of
the General Search Services described on Attachment A to this Exhibit.
1.4. "General Search Services" means the Internet Search Engine
services to be provided by Inktomi for Customer under this Exhibit, as more
fully described on Attachment A to this Exhibit.
1.5. "Inktomi Data Protocol" means the written specification on how an
Interface communicates and interacts with the Inktomi Search Engine.
1.6. "Inktomi Search Engine" means Inktomi's current Search Engine as
of the Effective Date as the same may be: (i) updated as provided on
Schedule 1 to the Agreement; and (ii) otherwise updated, upgraded,
modified, changed, or enhanced by Inktomi from time to time at its sole
discretion. The Inktomi Search Engine does not and will not include
features, options and modules developed and customized specifically for
third parties and provided to such third parties on an exclusive basis, or
features, options, modules and future products which Inktomi licenses or
provides separately.
1.7. "Inktomi Technology" means the Inktomi Search Engine, the Inktomi
Data Protocol, the Interface Construction Tools and all other computer
software, technology and/or documentation which is supplied by Inktomi for
use in or in connection with delivery of the General Search Services,
including, without limitation, all source code and object code therefor and
all algorithms, ideas and Intellectual Property Rights therein.
1.8. "Interface" means the editorial and graphical content, and
functionality (which is not otherwise Inktomi Technology hereunder), of the
Web and other pages served to end users of Customer,
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including without limitation all Search Pages, Inktomi Results Pages,
instruction pages, frequently asked questions pages and any site end user
terms and guidelines.
1.9. "Interface Construction Tools" means all software tools, if any,
in object code form, provided by Inktomi to assist Customer to build the
Interface to the Inktomi Search Engine, including without limitation
Inktomi's application server currently known as Forge.
1.10. "Results Pages" means all Web pages displaying search results
presented to end- users directly as a result of accessing the query
mechanisms of the Inktomi Search Engine or indirectly through a cache
controlled or influenced by Customer.
1.11. "Results Set" means a set of results consisting of between zero
and one hundred records presented in response to a search query.
1.12. "Search Engine" means computer software which crawls the
Internet, downloads and analyzes text and other data, sorts and organizes
the data, creates an index of accessible data, and, after receiving a
particular search request (in the form of a word query), locates material
accessible in the database, and presents the results of the search.
1.13. "Search Pages" means all Web pages which enable end users of the
Site to initiate and send search queries to the Inktomi Search Engine.
1.14. "Usage Data" means the demographic, psychographic, statistical
and other end user data generated by operation of the Inktomi Search Engine
in connection with the search services provided by Customer to end users of
the Site, including without limitation all end user "click through"
information, but excluding Web usage data generated by the Database.
2. Provision of General Search Services; Site Implementation.
2.1. General Search Services and Site Implementation. Subject to the
terms and conditions of this Exhibit and the Agreement, Inktomi shall
provide the General Search Services to Customer for use in the Site, such
services to be provided substantially in accordance with the functionality
specifications, performance criteria and limitations specified on
Attachment A to this Exhibit. Inktomi, at its own expense, shall provide
all data transmission capacity (bandwidth), disk storage, server capacity
and other hardware and software required to run the Inktomi Search Engine
and maintain the Database. Customer, at its own expense, shall create the
Interface to the Inktomi Search Engine for the Site, and shall provide all
disk storage, server capacity and other hardware and software required to
run and maintain the Site and the Interface, and to serve advertisements on
the Interface. Inktomi shall provide reasonable assistance (through
telephone, e-mail, the Web, or fax) to Customer during regular business
hours regarding development of the Interface and integration of the same
with the Inktomi Search Engine. Customer, at its own expense, shall provide
all data transmission capacity (bandwidth) required to connect to and
receive information from the Inktomi Search Engine. Customer may only
utilize the General Search Services in conjunction with search services
provided by Customer to end users of the Site, and Customer shall have no
right to provide, distribute, resell or provide services based on the
General Search Services or any information (including Results Sets)
generated therefrom to any other third party. Customer may not cache
Results Sets or any other information obtained from the Inktomi databases
without the prior written consent of Inktomi, which will not be
unreasonably withheld or delayed; and if Customer wishes to begin such
caching, Inktomi and Customer will first agree on appropriate Customer
reporting requirements to ensure proper accounting of payments hereunder.
AA1-10
<PAGE>
2.2. Test Cluster. During the development period for the Interface,
Customer shall only have access through the Inktomi Data Protocol to a
non-production version of the Inktomi Search Engine (the "Test Cluster").
Upon completion of the Interface and all desired testing against the Test
Cluster, Customer shall present the Interface to Inktomi for review and
testing against the production version of the Inktomi Search Engine.
Inktomi shall promptly notify Customer of any problems or issues discovered
by Inktomi regarding the Interface. Once cleared by Inktomi, Inktomi shall
provide access to Customer to the production version of the Inktomi Search
Engine. Customer may run reasonable tests against the Test Cluster and the
production version of the Inktomi Search Engine, provided however that
Customer may not conduct any load testing (prior to commercial launch of
its search service) without the prior consent of Inktomi. Load testing as
used herein means the generation and delivery of more than five queries per
second. There shall no service fee payable by Customer for searches run
against the Test Cluster.
2.3. Delivery of Materials. Promptly following execution of this
Exhibit, Inktomi shall provide the Inktomi Data Protocol and the Interface
Construction Tools to Customer, which Customer may use solely in strict
compliance with the terms of Section 4.
2.4. Technical Support. Inktomi, at its own expense, shall provide
technical support services to Customer regarding the operation of the
Inktomi Search Engine. Such support services will be provided as set forth
on Schedule 1 of the Agreement.
3. Customer Obligations.
3.1. Technical Support. Except as set forth in Section 2.4, Customer
at its own expense shall provide all support including, without limitation,
first level customer support services to end-users of the Site.
3.2. Attribution. All Search Pages and Results Pages shall
conspicuously display an icon to be provided by Inktomi (the "Inktomi
Icon") that indicates that Inktomi's technology is being used. The Inktomi
Icon shall measure at least 50 x 160 pixels and shall provide a link to a
page of Inktomi's choice on Inktomi's Web site located at www.inktomi.com.
The Inktomi Icon shall be visible "above the fold" and shall be in the form
found at the Inktomi Icon site, currently located at
http://www.inktomi.com/logo/PowByInkMed.gif.
4. Intellectual Property Licenses/Ownership.
4.1. Inktomi Data Protocol. Inktomi grants to Customer a
nontransferable, nonexclusive license during the Term (as defined below) to
use the Inktomi Data Protocol and the Interface Construction Tools solely
to create and maintain the Interface to the Inktomi Search Engine for the
Site. The license granted hereunder shall include the right to use the
Interface Construction Tools or to develop an Interface to the Inktomi
Search Engine for use on Sites of Service Recipients.
4.2. Interface. As between Inktomi and Customer, Inktomi acknowledges
that Customer owns all right, title and interest, including without
limitation all Intellectual Property Rights, in and to the Interface
(except for any software licensed by third parties to Customer and except
for editorial content regarding the use and functionality of the Inktomi
Search Engine provided by Inktomi to Customer for incorporation into the
Site, which content shall be and remain Inktomi Technology), and that
Inktomi shall not acquire any right, title or interest in or to the
Interface, except as expressly set forth in this Exhibit or the Agreement.
AA1-11
<PAGE>
4.3. Usage Data. Inktomi and Customer shall jointly own the Usage
Data, excluding the Web index data which shall remain the sole property of
Inktomi. Usage Data shall constitute Confidential Information (as defined
below) of the parties hereunder; provided, that advertiser-specific Usage
Data may be provided to advertising clients under non-disclosure agreements
in connection with Customer's provision of advertising sales services; and
provided further that Inktomi may use Usage Data (without separately
identifying the source of the Usage Data) in providing search services to
its customers. Customer shall cooperate with Inktomi to develop and
implement procedures to capture Usage Data. Additional uses of the Usage
Data shall require the mutual consent of the parties.
5. Payments.
5.1. Service Fees. Customer shall pay Inktomi service fees in the
amount and on terms specified on Schedule 2 of the Agreement.
5.2. Records. For purposes of fulfilling its obligations under this
Section 5.2, Customer shall keep complete and accurate records pertaining
to the number of Results Sets served during the applicable period.
6. Indemnification. Inktomi shall defend and/or settle, and pay damages
awarded pursuant to, any third party claim brought against Customer alleging the
software comprising the Inktomi Search Engine improperly includes any third
party copyrighted subject matter, third party U.S. patented subject matter or
third party trade secrets; provided that Customer promptly notifies Inktomi in
writing of any such claim and promptly tenders the control of the defense and
settlement of any such claim to Inktomi at Inktomi's expense and with Inktomi's
choice of counsel. Customer shall cooperate with Inktomi, at Inktomi's expense,
in defending or settling such claim and Customer may join in defense with
counsel of its choice at its own expense. Inktomi shall not reimburse Customer
for any expenses incurred by Customer without the prior written approval of
Inktomi. The indemnification obligation set forth in this Section 6 shall
terminate upon the expiration or termination of the General Search Services
provided pursuant to this Exhibit.
IN WITNESS WHEREOF, the parties have caused this Exhibit to the Agreement
to be signed by their duly authorized representatives.
GPC ACQUISITION CORP. INKTOMI CORPORATION
By:/s/ Paul Danner By: /s/ Jerry Kennelly
- ------------------ ----------------------
Name:Paul Danner Name: Jerry Kennelly
- ---------------- --------------------
Title: CEO Title: Chief Financial Officer
- ------ --- ------------------------------
AA1-12
<PAGE>
ATTACHMENT A
TO
EXHIBIT A-1
GENERAL SEARCH SERVICES
Capitalized terms not otherwise defined in this Attachment shall have the
meanings prescribed to them in the corresponding Exhibit to which this
Attachment is attached or the Portal Services Agreement to which such Exhibit
and Attachment are attached.
General Search Services
Inktomi will use the Inktomi Search Engine and its own editorial discretion
to crawl the Internet, download and analyze text and other data, sort and
organize the data, create an index of accessible data, and, after receiving a
particular search request from an end user (in the form of a word query), locate
material accessible in the General Search Database, and present the results of
the search to the end user. Inktomi will serve end user search queries out of
one or more of its search engine data centers at Inktomi's discretion. The
functionality specifications and performance criteria applicable to such
services are as follows:
Functionality Specifications:
Inktomi will operate the Inktomi Search Engine so as to enable end users of
the Site to run queries against the General Search Database with the following
functionality:
- Ability to search by keyword, file type, domain (up to three levels),
document title, modification dates, document contents, depth and
metaword
- Ability to search by full text and phrase, and search with Boolean
operators (including AND, NOT and OR). Default search, barring user
modification at query time by the end user, will be AND.
- Search on included object, covering the following objects: Acrobat,
java applets, active x controls, audio, plugins, Flash, form, frame,
image, script, Shockwave, table, video and vrml
- Search on included file type, by file extension
- Search on specific script language, covering Javascript and Vbscript
- Limit search to pages containing links to a specified domain
- Limit search to words in the HTML "title" field
- Grammatical stemming
- Search by language
- Case sensitivity support
- Pornography filtration
- Ability to selectively control the size of each Results Set (0-10
records, 11-20 records, 21-30 records, 31-50 records, 51-75 records,
76-100 records)
Performance Criteria
- Size of Database - MInimum 54 million documents for all queries and a
minimm of 110 million documents that may be accessed for up to 20% of
daily queries
AA1-1
<PAGE>
- Database Freshness - Objective is minimum 13 updates per year
(approximately every 4 weeks, may vary depending on operational
circumstances
- Uptime / Downtime - Minimum 99% uptime (1% downtime) over monthly
windows. Downtime = any 1 minute period in which Inktomi Search Engine
processes no requests.
- Query / Response Speed - Average speed < = 750 milliseconds
Production Schedule
Customer will begin work on constructing the Interface, and Inktomi
will begin work on tuning its Search Engine to provide the services set forth
herein promptly upon execution of the Exhibit. Both parties will use
commercially reasonable efforts so that the General Search Services are
available to Customer for use in the Site within thirty (30) days following the
Effective Date.
<PAGE>
EXHIBIT A-3
TO THE
PORTAL SERVICES AGREEMENT
GENERAL DIRECTORY SERVICES
Site or Sites ("Site"): www.myturn.com or any other site as Customer may
determine in its sole discretion.
This Exhibit to the Portal Services Agreement (this "Exhibit"), in conjunction
with the terms of the Portal Services Agreement (the "Agreement") shall
constitute the terms and conditions pursuant to which Inktomi shall provide
General Directory Services to the Site set forth above:
1. Definitions. In addition to any terms defined in this Exhibit, the
following terms shall have the meanings set forth below. Any other terms not
otherwise defined in this Exhibit shall have the meanings prescribed to them in
the Agreement.
1.1. "Directory" means Inktomi's Taxonomy and associated database of
Web pages accessible by end users of the Site at any given time. The
Directory includes the Inktomi version of Netscape Open Directory ("Open
Directory").
1.2. "General Directory Services" means the Internet Directory Engine
services to be provided by Inktomi for Customer under this Exhibit, as more
fully described on Attachment A to this Exhibit.
1.3. "Inktomi Data Protocol" means the written specification on how an
Interface communicates and interacts with the Inktomi Directory Engine.
1.4. "Inktomi Directory Engine" means Inktomi's current Directory
Engine as of the Effective Date as the same may be: (i) updated as provided
on Schedule 1 to the Agreement; and (ii) otherwise updated, upgraded,
modified, changed, or enhanced by Inktomi from time to time at its sole
discretion. The Inktomi Directory Engine does not and will not include
features, options and modules developed and customized specifically for
third parties and provided to such third parties on an exclusive basis, or
features, options, modules and future products which Inktomi licenses or
provides separately.
1.5. "Inktomi Technology" means the Inktomi Directory Engine, the
Inktomi Data Protocol, the Interface Construction Tools and all other
computer software, technology and/or documentation which is supplied by
Inktomi for use in or in connection with delivery of the General Directory
Services, including, without limitation, all source code and object code
therefor and all algorithms, ideas and Intellectual Property Rights
therein.
1.6. "Interface" means the editorial and graphical content and design
of the Web pages served to end users of the Site, including without
limitation any and all Default Category Pages, Search Page, Directory
Results Pages, instruction pages, frequently asked questions pages and any
Site end user terms and guidelines.
1.7. "Interface Construction Tools" means all software tools, if any,
in object code or source code form, provided by Inktomi to assist Customer
to build the Interface to the Inktomi Directory Engine, including without
limitation Inktomi's application server currently known as Forge.
A3-1
<PAGE>
1.8. "Default Category Page" means the default first page of the
Inktomi Directory Engine that is generated without a query to the Inktomi
Directory Engine.
1.9. "Directory Results Pages" means all Web pages displaying
categories and/or results presented to end-users directly as a result of
accessing the query mechanisms of the Inktomi Directory Engine. "Directory
Results Pages" shall not include the Default Category Page.
1.10. "Directory Results Set" means a set of results consisting of
between zero (0) and ten (10) records presented in response to a query to
the Inktomi Directory Engine.
1.11. "Directory Engine" means computer software which crawls the
Internet, downloads and analyzes text and other data, sorts and organizes
the data in accordance with Inktomi's Taxonomy, creates an index of
accessible data, and, after receiving a particular request, locates
material accessible in the database, and presents the corresponding
categories and/or results of the search.
1.12. "Search Pages" means all Web pages which enable end users of the
Site to initiate and send search queries to the Inktomi Directory Engine,
including the Default Category Page and Directory Results Pages.
1.13. "Taxonomy" means the series of categories developed by Inktomi
that sets forth an organizational structure for categorizing, searching and
accessing Web pages.
1.14. "Usage Data" means the demographic, psychographic, statistical
and other end user data generated by operation of the Inktomi Directory
Engine in connection with the search services provided by Customer to end
users of the Site, including without limitation all end user "click
through" information, but excluding Web usage data generated by the
Directory.
2. Provision of General Directory Services; Site Implementation.
2.1. General Directory Services and Site Implementation. Subject to
the terms and conditions of this Exhibit and the Agreement, Inktomi shall
provide the General Directory Services to Customer for use in the Site,
such services to be provided substantially in accordance with the
functionality specifications, performance criteria and limitations
specified on Attachment A to this Exhibit. Inktomi, at its own expense,
shall provide all data transmission capacity (bandwidth), disk storage,
server capacity and other hardware and software required to run the Inktomi
Directory Engine and maintain the Directory. Customer, at its own expense,
shall create the Interface to the Inktomi Directory Engine for the Site,
and shall provide all disk storage, server capacity and other hardware and
software required to run and maintain the Site and the Interface, and to
serve advertisements on the Interface. Inktomi shall provide reasonable
assistance (through telephone, e-mail, the Web, or fax) to Customer during
regular business hours regarding development of the Interface and
integration of the same with the Inktomi Directory Engine. Customer, at its
own expense, shall provide all data transmission capacity (bandwidth)
required to connect to and receive information from the Inktomi Directory
Engine. Customer may only utilize the General Directory Services in
conjunction with search services provided by Customer to end users of the
Site, and Customer shall have no right to provide, distribute, resell or
provide services based on the General Directory Services or any information
(including the Default Category Page or Directory Results Sets) generated
therefrom to any other third party. Customer may not cache the Default
Category Page or Directory Results Sets or any other information obtained
from the Inktomi databases without the prior written consent of Inktomi,
which will not be unreasonably withheld or delayed; and if Customer wishes
to begin such caching, Inktomi and
AA3-2
<PAGE>
Customer will first agree on appropriate Customer reporting requirements to
ensure proper accounting of payments hereunder.
2.2. Test Cluster. During the development period for the Interface,
Customer shall only have access through the Inktomi Data Protocol to a
non-production version of the Inktomi Directory Engine (the "Test
Cluster"). Upon completion of the Interface and all desired testing against
the Test Cluster, Customer shall present the Interface to Inktomi for
review and testing against the production version of the Inktomi Search
Engine. Inktomi shall promptly notify Customer of any problems or issues
discovered by Inktomi regarding the Interface. Once cleared by Inktomi,
Inktomi shall provide access to Customer to the production version of the
Inktomi Search Engine. Customer may run reasonable tests against the Test
Cluster and the production version of the Inktomi Search Engine, provided
however that Customer may not conduct any load testing (prior to commercial
launch of its search service) without the prior consent of Inktomi. Load
testing as used herein means the generation and delivery of more than five
queries per second. There shall be no service fee payable by Customer for
searches run against the Test Cluster.
2.3. Delivery of Materials. Promptly following execution of this
Exhibit, Inktomi shall provide the Inktomi Data Protocol and the Interface
Construction Tools to Customer, which Customer may use solely in strict
compliance with the terms of Section 4.
2.4. Technical Support. Inktomi, at its own expense, shall provide
second level technical support services to Customer regarding the operation
of the Inktomi Directory Engine. Such support services will be provided as
set forth on Schedule 1 of the Agreement.
3. Customer Obligations.
3.1. Technical Support. Except as set forth in Section 2.4, Customer
at its own expense shall provide all support including, without limitation,
first level customer support services to end-users of the Site.
3.2. Attribution. All Default Category Pages, Search Pages and Results
Pages shall conspicuously display an icon to be provided by Inktomi (the
"Inktomi Icon") that indicates that Inktomi's technology is being used. The
Inktomi Icon shall measure at least 50 x 160 pixels and shall provide a
link to a page of Inktomi's choice on Inktomi's Web site located at
www.inktomi.com. The Inktomi Icon shall be visible "above the fold" and
shall be in the form indicated on the Inktomi Icon website, currently
located at http://www.inktomi.com/logo/PowByInkMed.gif.
3.3. Open Directory License Agreement. Customer agrees to comply with
all terms of the Netscape Open Directory License Agreement found at
http://www.dmoz.org/license and attached hereto as Attachment B to Exhibit
A-3.
4. Intellectual Property Licenses/Ownership.
4.1. Inktomi Data Protocol. Inktomi grants to Customer a
nontransferable, nonexclusive license during the Term (as defined below) to
use the Inktomi Data Protocol and the Interface Construction Tools solely
to create and maintain the Interface to the Inktomi Directory Engine for
the Site.
4.2. Interface. As between Inktomi and Customer, Inktomi acknowledges
that Customer owns all right, title and interest, including without
limitation all Intellectual Property Rights, in and to the Interface
(except for any software licensed by third parties to Customer and except
for editorial content
AA3-3
<PAGE>
regarding the use and functionality of the Inktomi Directory Engine
provided by Inktomi to Customer for incorporation into the Site, which
content shall be and remain Inktomi Technology), and that Inktomi shall not
acquire any right, title or interest in or to the Interface, except as
expressly set forth in this Exhibit or the Agreement.
4.3. Usage Data. Inktomi and Customer shall jointly own the Usage
Data, excluding the Web index data which shall remain the sole property of
Inktomi. Usage Data shall constitute Confidential Information (as defined
below) of the parties hereunder; provided, that advertiser-specific Usage
Data may be provided to advertising clients under non-disclosure agreements
in connection with Customer's provision of advertising sales services; and
provided further that Inktomi may use Usage Data (without separately
identifying the source of the Usage Data) in providing search services to
its customers. Customer shall cooperate with Inktomi to develop and
implement procedures to capture Usage Data., Additional uses of the Usage
Data shall require the mutual consent of the parties.
5. Payments.
5.1. Service Fees. Customer shall pay Inktomi service fees in the
amount and on terms specified on Schedule 2 of the Agreement.
5.2. Records. For purposes of fulfilling its obligations under Section
5.2 of the Agreement, Customer shall keep complete and accurate records
pertaining to the number of Directory Results Sets served during the
applicable period.
6. Indemnification. Inktomi shall defend and/or settle, and pay
damages awarded pursuant to, any third party claim brought against Customer
alleging the software comprising the Inktomi Directory Engine improperly
includes any third party copyrighted subject matter, third party patented
subject matter or third party trade secrets; provided that Customer
promptly notifies Inktomi in writing of any such claim and promptly tenders
the control of the defense and settlement of any such claim to Inktomi at
Inktomi's expense and with Inktomi's choice of counsel. Customer shall
cooperate with Inktomi, at Inktomi's expense, in defending or settling such
claim and Customer may join in defense with counsel of its choice at its
own expense. Inktomi shall not reimburse Customer for any expenses incurred
by Customer without the prior written approval of Inktomi. The
indemnification obligation set forth in this Section 6 shall terminate upon
the expiration or termination of the General Directory Services provided
pursuant to this Exhibit.
IN WITNESS WHEREOF, the parties have caused this Exhibit to the Agreement
to be signed by their duly authorized representatives.
GPC ACQUISITION CORP. INKTOMI CORPORATION
By: /s/ Paul Danner By: /s/ Jerry Kennelly
- ------------------- ----------------------
Name: Paul Danner Name: Jerry Kennelly
- ----------------- --------------------
Title:CEO Title:Chief Financial Officer
- --------- -----------------------------
Date: 2/4/00 Date:_______________________
- ------------
AA3-4
<PAGE>
ATTACHMENT A
TO
EXHIBIT A-3
GENERAL DIRECTORY SERVICES
General Directory Services
Inktomi shall provide directory services to Customer through the Inktomi
Directory Engine during the Term of the Agreement. The functionality
specifications and performance criteria applicable to such services are as
follows:
Functionality Specifications:
The functionality specifications and performance criteria applicable to
such services are as follows:
1. Inktomi version of Netscape Open Directory.
- An Inktomi version of Netscape Open Directory containing an estimated
twenty-five thousand (25,000) categories and an estimated eight
hundred thousand (800,000) documents.
- Additional categories and documents from the Open Directory Project
will continue to be included in the Inktomi version of the Netscape
Open Directory.
- Directory categories may be accessed via the Inktomi Data Protocol.
2. Crawling and Indexing.
- The objective is a minimum of twelve (12) updates per year
(approximately every four (4) weeks which may vary depending upon
operational circumstances).
<PAGE>
SCHEDULE 1
TO THE
PORTAL SERVICES AGREEMENT
SUPPORT GUIDELINES FOR
SEARCH SERVICES
1. Definitions.
(a) Hours of Operation. Inktomi will provide Customer with 7 x 24 support
as set forth herein.
(b) Problem. Any error, bug, or malfunction that makes any feature of the
Inktomi Search Engine perform unpredictably or to otherwise become
intermittently unavailable, or that causes the Inktomi Search Engine
to have a material degradation in response time performance.
(c) Severe Problem. Any error, bug, or malfunction that causes the Inktomi
Search Engine to become inaccessible to Customer and its Site end
users, or that causes any feature of the Inktomi Search Engine to
become continuously unavailable.
(d) Enhancement Request. A request by Customer to incorporate a new
feature or enhance an existing feature of the Inktomi Search Engine.
(e) Fix. A correction, fix, alteration or workaround that solves a Problem
or a Severe Problem.
2. Contact points.
(a) Customer Technical Support Personnel. Customer will designate no more
than three Customer employees as qualified to contact Inktomi for
technical support.
(b) Inktomi Technical Support Personnel. Inktomi will ensure that its
Technical Support Personnel are adequately trained to provide
technical support to Customer. Inktomi will provide Customer with a
web interface or an email address (the "Support Address"), as well as
an email pager address (the "Support Pager") for contacting the
Inktomi Technical Support Personnel no later than one week prior to
the Launch Date. Inktomi will also provide Customer with contact
information for executive escalation personnel no later than one week
prior to the Launch Date. Inktomi may change its designated Technical
Support Personnel and executive escalation personnel at its discretion
with reasonable notice to Customer.
3. Support procedures.
(a) All Problems reported by Customer Technical Support Personnel to
Inktomi must be submitted via web site or email to the Support
Address.
(b) If Customer believes it is reporting a Severe Problem, Customer will
accompany its email request with a page via the Support Pager.
<PAGE>
(c) Upon receiving a report from Customer, Inktomi will determine whether
the request is a Problem, a Severe Problem, or an Enhancement Request.
Inktomi will respond to the request and use reasonable commercial
efforts to provide a Fix as described in the support table set forth
below.
(d) Inktomi will use commercially reasonable effort to inform Customer
Technical Support Personnel of Fixes.
4. Support levels.
(a) Customer will provide technical support to end users of the Sites who
email or otherwise contact Customer directly with questions about the
Sites. Customer will use its commercially reasonable efforts to Fix
any Problems without escalation to Inktomi.
(b) Inktomi will provide the following technical support solely to
Customer Technical Support Personnel:
<TABLE>
<S> <C> <C> <C>
Receipt of email Type of email Target response Target Fix Time and Reporting
request request Time from email
receipt
- ------------------------- -------------------- ------------------------ -----------------------------------------------
During business Problem Within one Commercially reasonable best efforts
hours or other business day with weekly status reports to Customer
times
- ------------------------- -------------------- ------------------------ -----------------------------------------------
During the hours Severe Within two hours Commercially reasonable best efforts
between 6:00 a.m. Problem with daily status reports to Customer
and 9:00 p.m.
Pacific time
- ------------------------- -------------------- ------------------------ -----------------------------------------------
During other times Severe Within four hours Commercially reasonable best efforts
Problem with daily status reports to Customer
- ------------------------- -------------------- ------------------------ -----------------------------------------------
During business Enhancement Within five At Inktomi's discretion
hours or other Requests business days
times
- ------------------------- -------------------- ------------------------ -----------------------------------------------
</TABLE>
(c) In the event Inktomi does not respond to Customer within the target
response time from email receipt set forth above, then Customer may
contact the following Inktomi executive escalation personnel in order:
Steve Crusenberry - Search Engine Technical Operations
Troy Toman - Director of Partner Services
Dick Pierce - COO
Dave Peterschmidt - CEO
<PAGE>
ATTACHMENT B
TO
EXHIBIT A-3
GENERAL DIRECTORY SERVICES
Open Directory License
The Open Directory is a compilation of many different editors' contributions.
Netscape Communications Corporation (`Netscape') owns the copyright to the
compilation of the different contributions, and makes the Open Directory
available to you to use under the following license agreement terms and
conditions (`Open Directory License'). For purposes of this Open Directory
License, `Open Directory' means only the Open Directory Project currently hosted
at http://dmoz.org (or at another site as may be designated by Netscape in the
future), and does not include any other versions of directories, even if
referred to as an `Open Directory,' that may be hosted by Netscape on other web
pages (e.g., Netscape Netcenter).
1. Basic License. Netscape grants you a non-exclusive, royalty-free license to
use, reproduce, modify and create derivative works from, and distribute and
publish the Open Directory and your derivative works thereof, subject to all of
the terms and conditions of this Open Directory License. You may authorize
others to exercise the foregoing rights; provided, however, that you must have
an agreement with your sublicensees that passes on the requirements and
obligations of Sections 2 and 4 below and which must include a limitation of
liability provision no less protective of Netscape than Section 6 below. Due to
the nature of the content of the Open Directory, many third parties' trade names
and trademarks will be identified within the content of the Open Directory
(e.g., as part of URLs and description of link). Except for the limited license
to use the Netscape attribution in Section 2 below, nothing herein shall be
deemed to grant you any license to use any Netscape or third party trademark or
tradename.
2. Attribution Requirement. As a material condition of this Open Directory
License, you must provide the below applicable attribution statements on (1) all
copies of the Open Directory, in whole or in part, and derivative works thereof
which are either distributed (internally or otherwise) or published (made
available on the Internet and/or internally over any internal network/intranet
or otherwise), whether distributed or published electronically, on hard copy
media or by any other means, and (2) on any program/web page from which you
directly link to/access any information contained within the Open Directory, in
whole or in part, or any derivative work thereof:
(a) If the Open Directory in whole or in part, or any derivative work
thereof, is made available via the Internet or internal network/intranet
and/or information contained therein is directly accessed or linked via the
Internet or internal network/intranet then you must provide the Netscape
attribution statement as described in the page(s) at the URL
http://dmoz.org/become_an_editor.
(b) If the Open Directory in whole or in part, or any derivative work
thereof, is made available on any hard copy media (e.g., CD-ROM, diskette),
you must place on the packaging a notice providing Netscape attribution as
described in the page(s) at the URL http://dmoz.org/become_an_editor. If
there is no `packaging', the previous attribution notice should be placed
conspicuously such that it would be reasonably viewed by the recipient of
the Open Directory.
(c) If you are using or distributing the Open Directory in modified
form (i.e., with additions or deletions), you must include a statement
indicating you have made modifications to it. Such statement should be
placed with the attribution notices required by Sections 2(a) and 2(b)
above. Netscape grants you the non-exclusive, royalty-free license to use
the above identified Netscape attribution statements solely for the purpose
of the above attribution requirements, and such use must be
<PAGE>
in accordance with the usage guidelines that may be published by Netscape
from time to time as part of the above URLs.
3. Right To Identify Licensee. You agree that Netscape has the right to publicly
identify you as a user/licensee of the Open Directory.
4. Errors and Changes. From time to time Netscape may elect to post on the
page(s) at the URL http://dmoz.org/become_an_editor certain specific changes to
the Open Directory and/or above attribution statements, which changes may be to
correct errors and/or remove content alleged to be improperly in the Open
Directory. So long as you are exercising the license to Open Directory
hereunder, you agree to use commercially reasonable efforts to check the page(s)
at the URL http://dmoz.org/become_an_editor from time to time, and to use
commercially reasonable efforts to make the changes/corrections/deletion of
content from the Open Directory and/or attribution statements as may be
indicated at such URL. Any changes to the Open Directory content posted at the
page(s) at the URL http://dmoz.org/become_an_editor are part of Open Directory.
5. No Warranty/Use At Your Risk. THE OPEN DIRECTORY AND ANY NETSCAPE TRADEMARKS
AND LOGOS CONTAINED WITH THE REQUIRED ATTRIBUTION STATEMENTS ARE MADE AVAILABLE
UNDER THIS OPEN DIRECTORY LICENSE AT NO CHARGE. ACCORDINGLY, THE OPEN DIRECTORY
AND THE NETSCAPE TRADEMARKS AND LOGOS ARE PROVIDED `AS IS,' WITHOUT WARRANTY OF
ANY KIND, INCLUDING WITHOUT LIMITATION THE WARRANTIES THAT THEY ARE
MERCHANTABLE, FIT FOR A PARTICULAR PURPOSE OR NON-INFRINGING. YOU ARE SOLELY
RESPONSIBLE FOR YOUR USE, DISTRIBUTION, MODIFICATION, REPRODUCTION AND
PUBLICATION OF THE OPEN DIRECTORY AND ANY DERIVATIVE WORKS THEREOF BY YOU AND
ANY OF YOUR SUBLICENSEES (COLLECTIVELY, `YOUR OPEN DIRECTORY USE'). THE ENTIRE
RISK AS TO YOUR OPEN DIRECTORY USE IS BORNE BY YOU. YOU AGREE TO INDEMNIFY AND
HOLD NETSCAPE, ITS SUBSIDIARIES AND AFFILIATES HARMLESS FROM ANY CLAIMS ARISING
FROM OR RELATING TO YOUR OPEN DIRECTORY USE.
6. Limitation of Liability. IN NO EVENT SHALL NETSCAPE, ITS SUBSIDIARIES OR
AFFILIATES, OR THE OPEN DIRECTORY CONTRIBUTING EDITORS, BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF GOODWILL OR ANY AND ALL OTHER COMMERCIAL DAMAGES
OR LOSSES, EVEN IF ADVISED OF THE POSSIBILITY THEREOF, AND REGARDLESS OF WHETHER
ANY CLAIM IS BASED UPON ANY CONTRACT, TORT OR OTHER LEGAL OR EQUITABLE THEORY,
RELATING OR ARISING FROM THE OPEN DIRECTORY, YOUR OPEN DIRECTORY USE OR THIS
OPEN DIRECTORY LICENSE AGREEMENT.
7. California Law. This Open Directory License will be governed by the laws of
the State of California, excluding its conflict of laws provisions. Rev01-13-99
<PAGE>
NEWDEAL - MYTURN
CROSS-LICENSE AND DISTRIBUTION AGREEMENT
This Agreement is effective as of February 12, 2000 (the "Effective Date"), by
and between NewDeal, Inc., a Delaware corporation ("NewDeal"), whose principal
address is 20 Holland Street, Somerville, MA, and MyTurn.com, Inc., a Delaware
corporation ("MyTurn"), whose principal address is 960 Atlantic Avenue, Suite
200, Alameda, California 94501.
RECITALS
A. NewDeal is an online service provider and developer and publisher of
computer software, as well as the worldwide exclusive licensee of the GEOS
operating environment and application suite for Personal Computers and
Internet terminals or devices with hard disk or other non-solid state mass
storage devices, marketed by NewDeal as a suite of integrated applications
under various names and configurations, such as "NewDeal Office," "NewDeal
SchoolSuite," and "NewDeal WebSuite".
B. NewDeal is also a developer and publisher of aftermarket products for use
in conjunction with GEOS and the NewDeal integrated application suites.
C. MyTurn is an online service provider and developer and publisher of
computer software, as well as the worldwide exclusive licensee of the
GEOS(R) operating environment and application suite for personal Computers
and Internet terminals or devices with solid state storage devices.
D. MyTurn is also a developer, reference design licensor, manufacturer and
distributor of low-cost personal computers and Internet terminals and
devices.
E. The software products of both NewDeal and MyTurn are derived, in part, from
the GEOS(R) graphical operating environment and GEOS-based applications
licensed respectively to NewDeal and to MyTurn by Geoworks Corporation.
F. NewDeal wishes to license its software technologies to MyTurn, for use by
MyTurn in conjunction with its personal computer and Internet terminal
products.
G. NewDeal further wishes to selectively authorize MyTurn to distribute
NewDeal's after-market products through MyTurn's distribution channels.
H. MyTurn wishes to license its software technologies to NewDeal, for use by
NewDeal in conjunction with its application suites and to authorize NewDeal
to distribute MyTurn's aftermarket products and personal computer products
in the Educational Market and the Non-Profit markets (eg. 501(C)3 and
similar organizations).
<PAGE>
I. Each Party wishes to license to the other certain improvements, bug fixes,
upgrades, extensions, enhancements, tools, and documentation it makes or
adds to its licensed technology, certain new products and technologies that
each party develops, or that are jointly developed, or are developed in
conjunction with third parties.
<PAGE>
1. DEFINITIONS
1.1 "Party" and "Parties" refer to NewDeal and MyTurn.
1.2 "NewDeal Market(s)" means all markets and channels that NewDeal
sells GEOS and the NewDeal Application Suites to and through for Used
Computers, and the following markets and channels for New Computers:
(a) New Computers that have a pre-installed current version of
Microsoft Windows with a paid license, except that for these New
Computers NewDeal shall exclude the Consumer User Interface
(CUI).
(b) Africa, on a non-exclusive OEM basis, where the OEM agrees
contractually not to ship outside of Africa and agrees to require
its distributors to contractually agree not to ship outside of
Africa.
(c) where GEOS and the NewDeal Application Suite(s) are embedded
in a solid state device for a New Computer that is powered by a
mechanical (e.g. spring) electrical energy source.
1.3 "NewDeal Territory(ies)" means worldwide.
1.4 "NewDeal Licensed Technology" means the GEOS operating environment
and applications licensed to NewDeal by Geoworks and all bug fixes,
enhancements, upgrades, extensions, tools, documentation or new
technology made or added thereto and included in NewDeal's Application
Suite products, however configured and named, as more completely
described in Exhibit A.
1.5 "NewDeal Application Suite" means the GEOS operating system, a
suite of integrated applications, software development tools, and End
User documentation, all as licensed, developed and/or enhanced by
NewDeal.
1.6 "NewDeal Bundled Items" means any product, technology, or
documentation that NewDeal customarily includes with a NewDeal
Application Suite, or otherwise provides to End Users of a NewDeal
Application Suite, at no separate charge where NewDeal has the right
to license such technology to MyTurn.
1.7 "NewDeal After-Market Products" means any product, technology, or
documentation that NewDeal publishes for use in connection with a
NewDeal Application Suite, for which NewDeal imposes a charge separate
from the charge for the NewDeal Application Suite.
1.8 "MyTurn Market(s)" means the New Computer market(s) where GEOS and
the GlobalPC Applications Suite are preinstalled on a New Computer,
except for New Computers as identified in Clause 1.2 (a).
<PAGE>
1.9 "MyTurn Territory(ies)" means worldwide, excluding all countries
on the continent of Africa.
1.10 "MyTurn Licensed Technology" means the GEOS operating environment
and applications licensed to MyTurn by Geoworks and NewDeal
respectively, and all bug fixes, enhancements, upgrades, extensions ,
tools, documentation or new technology made or added thereto and
included in the software component of MyTurn's products, including
GlobalPC Application Suite, Bundled Items and Aftermarket products,
however configured and named, as more completely described in Exhibit
A, excluding the GEOS operating environment embedded in solid-state
storage devices except as provide for in Section 1.2C.
1.11 "GlobalPC Application Suite" means the GEOS operating system, a
suite of integrated applications, software development tools, and End
User documentation, as licensed, developed and/or enhanced by MyTurn.
1.12 "GlobalPC Bundled Items" means any technology, product, or
documentation that MyTurn includes with a GlobalPC Application Suite,
or otherwise provides to End Users of a GlobalPC Application Suite, at
no separate charge where MyTurn has the right to license such
technology to NewDeal.
1.13 "MyTurn Aftermarket Products" means any technology, product or
documentation that MyTurn publishes for use in connection with a
GlobalPC Application Suite, for which MyTurn imposes a charge separate
from the charge for the GlobalPC Application Suite.
1.14 "GlobalPC Device" means a New Computer designed and manufactured
by or for MyTurn or its sublicensees.
1.15 "Third Party Technology" means any software, hardware,
documentation or other technologies that are licensed to a Party by
third parties and included or bundled with the Party's MyTurn Licensed
Technology or NewDeal Licensed Technology as the case nay be.
1.16 "Educational Market" means public or private institutions
providing education to students in kindergarten through twelfth grade
(K-12), and non-college adult education.
1.17 "Computer" includes (1) a general-purpose personal computer,
whether sold with or without a monitor; (2) an Internet terminal or
device (i.e., a terminal including a browser, e-mail client and
internal modem, the purpose which is to access the Internet,
world-wide-web pages or similar network services), whether or not
capable of functioning as a stand-alone Personal Computer, but not
marketed as such; and (3) dedicated word processors.
<PAGE>
1.18 "New Computer" means a Computer that includes a CPU based upon
the Intel X86 or Pentium(C) architecture and contains a hard drive or
non-solid state storage device, and is sold as a New Computer or
Internet terminal or device.
1.19 "Used Computer" means a Computer or Internet terminal or device
that is sold or donated to End Users as a used or refurbished Computer
or Internet terminal or device, or is a currently owned Computer or
Internet terminal or device.
1.20 "GEOS" means the GEOS operating system licensed by Geoworks
Corporation to NewDeal and to MyTurn, together with any enhancements,
bug fixes, upgrades, extensions, tools, documentation or technology
made or added thereto developed by either Party, or developed with, or
for, or licensed to, either party by a third party and transferable to
the other party within the licensing agreement between the licensor
and either NewDeal or MyTurn.
1.21 "End User" means any person, organization or entity that acquires
a copy of either Party's Licensed Technology for its own use and not
for resale.
1.22 "Manufacturer" means any person or entity to whom a Party has
granted a right to manufacture copies of NewDeal Licensed Technology
or MyTurn Licensed Technology and/or GlobalPC Devices.
1.23 "Distributor" means any person or entity to whom a Party has
granted a right to distribute NewDeal or MyTurn Licensed Technology
(i) to End Users, or (ii) to resellers for further distribution to End
Users.
1.24 "OEM" means any person or entity to whom a Party grants a right
to manufacture and distribute copies of NewDeal or MyTurn Licensed
Technology preinstalled on a New or Used Computer or Internet terminal
or device.
1.25 "Pre-Installed" means copied onto the internal hard disk or other
storage media (other than solid state media) of a Computer or Internet
terminal or device prior to sale of the Computer or Internet terminal
or device to an End User.
1.26 "Product Shipment" means a shipment of a unit of a
royalty-bearing product by a Party, or by an OEM of a Party, to a
Distributor, End User or other customer.
1.27 "Derivative Work" means (1) for material subject to copyright
protection, any work which is based upon any MyTurn Licensed
Technology and/or NewDeal Licensed Technology, such as bug fixes,
enhancements, upgrades, extensions and additions, tools, documentation
or technology; (2) for patentable or patented materials, any
adaptation, subset, addition, improvement or combination of MyTurn
Licensed Technology and/or NewDeal Licensed Technology; and (3) for
material subject to trade secret protection, any new material,
information or data relating to and derived from MyTurn Licensed
Technology and/or NewDeal Licensed Technology.
<PAGE>
1.28 "Intellectual Property Rights" means patents, design patents, and
designs (whether or not capable of registration), chip topography
rights and other like protection, copyright, and any other form of
statutory protection of any kind (other than trademarks) and
applications for any of the foregoing respectively, all moral rights,
including rights of paternity and integrity, Confidential Information,
know-how and trade secrets.
1.29 "Consumer User Interface" refers to the simplified user interface
for GEOS designed for entry level users and accessible from the
advanced or industry standard user interface for GEOS.
1.30 "Authorized Personnel" means each respective Party's employees,
consultants and other third-party contractors which have entered into
a contract with such Party, which contracts shall provide, among other
things, that such contracting third-parties shall comply with the
confidentiality and source code access terms and conditions of this
contract applicable to it pursuant to the terms hereof.
1.31 "Licensed Technology" means the MyTurn Licensed Technology and/or
the NewDeal Licensed Technology as the context requires.
2. GRANT OF LICENSES FROM NEWDEAL TO MYTURN
Subject to Section 2.6(Reserved Rights), NewDeal grants to MyTurn, for the term
of this Agreement, the following licenses:
2.1 Reproduction
(a) Object Code: a non-transferable (except as provided in
Section 18.1 (Assignment)), worldwide license to reproduce copies
of the object code of the NewDeal Licensed Technology and copies
of the object code of Derivative Works based thereon, and the
right to sublicense such reproduction rights to New Computer
Manufacturers and OEMs of MyTurn, all such sublicenses to be in
writing and subject to the terms, conditions and limitations of
this Agreement; and
(b) Source Code: a non-transferable (except as provided in
Section 18.1 (Assignment)), worldwide license to reproduce copies
of the source code of the NewDeal Licensed Technology (excluding
the original source code licensed to NewDeal by Geoworks, for
which MyTurn has a direct source code license from Geoworks, and
any Third Party Technology for which NewDeal does not have the
right to grant source code access to MyTurn) and copies of
Derivative Works, for internal use by MyTurn in carrying out its
rights and obligations under this Agreement. NewDeal shall
provide all iterations of its source code to MyTurn in a timely
fashion and in such manner as MyTurn may reasonably request, and
NewDeal shall not under any circumstances prevent access to
NewDeal source code except for breach of contract, and then only
with due process.
<PAGE>
2.2 Modification, Derivative Works
(a) a non-exclusive, non-transferable (except as provided in
Section 18.1 (Assignment)), worldwide license to modify the
source code to the NewDeal Licensed Technology, (excluding any
Third Party Technology for which NewDeal does not have the right
to grant source code modification rights to MyTurn), and to
create Derivative Works, provided that any warranty against
infringement, indemnity obligation, or maintenance or support
obligation given by NewDeal under the provisions of this
Agreement shall not apply to modifications or Derivative Works
made by or for MyTurn, or to portions of the NewDeal Licensed
Technology affected by such modifications or Derivative Works.
(b) For purposes of this Modification license, NewDeal grants to
MyTurn a non-exclusive, non-transferable (except as provided in
Section 18.1 (Assignment)) internal license to use the software
development tools and documentation included in the NewDeal
Licensed Technology.
2.3 Distribution
(a) Application Suite and Bundled Items in GlobalPC Devices: a
royalty-bearing, non-transferable (except as provided in Section
18.1 (Assignment)), worldwide license to distribute the NewDeal
Application Suite(s) and NewDeal Bundled Items, and Derivative
Works based thereon, preinstalled in New Computers, in object
code form only, and the right to sublicense such distribution
rights to OEMs and Manufacturers of MyTurn, all such sublicenses
to be in writing and subject to the terms, conditions and
limitations of this Agreement.
(b) After-Market Products: a royalty-bearing, non-transferable
(except as provided in Section 18.1 (Assignment)), worldwide
license to distribute the NewDeal After-Market Products
(excluding After-Market Products marketed to the Educational
Market) to OEMs and Manufacturers of MyTurn, and directly to End
Users for the MyTurn markets. For each NewDeal After-Market
Product, the Parties shall amend Exhibits A and B to this
Agreement, identifying the product and setting forth the
applicable royalty rate, the conditions of exclusivity under
section 2.7(c), if applicable, and other mutually agreeable terms
and conditions. If the Parties are not able to reach agreement as
to the terms of distribution after good faith negotiations, then
NewDeal may sell it itself or offer distribution rights for the
NewDeal After-Market Product to another party.
(d) End User License. MyTurn and its sublicensees will distribute
the NewDeal Licensed Technology and Derivative Works to End Users
only under the terms of an End User license substantially in the
form provided as Exhibit C.
(d) Tools. NewDeal shall be entitled to create and make available
to third party developers and End Users a software development
kit (SDK) for
<PAGE>
developing applications for "GEOS 2000" (as amended from time to
time) and compatible with NewDeal Licensed Technology and/or
MyTurn Licensed Technology.
2.4 Sublicense Rights. MyTurn shall have the right to sublicense the
foregoing license rights to OEMs and Manufacturers of MyTurn, all such
sublicenses to be in writing and subject to the terms, conditions and
limitations of this Agreement.
2.5 Derivative Works, Enhancements and Third Party Technologies
(a) Derivative Works and Enhancements. The licenses granted to
MyTurn in this Section 2 shall, at MyTurn's election, include and
extend to all Derivative Works, enhancements, extensions,
upgrades, updates, bug fixes and revisions to the Licensed
Technology that NewDeal develops, or to which NewDeal acquires
distribution rights, during the term of this Agreement.
(b) Third Party Technologies. The licenses granted to MyTurn in
this Section 2 shall, at MyTurn's election, also include
sublicenses, with the exception of patent licenses, to any Third
Party Technology to which NewDeal acquires license rights during
the term of this Agreement; provided, however, that such Third
Party Technologies shall be included in the licenses granted to
MyTurn hereunder only to the extent that the license agreement
between the Third Party Technology provider and NewDeal so
permits. NewDeal will use its best commercially reasonable
efforts to obtain such sublicense rights from its Third Party
Technology providers, especially for Atlas, Encyclopedia and
Dictionary products.
(c) Exhibit A shall be amended from time to time to add any
technologies that are included in this Agreement as provided in
this Section 2.5.
2.6 Reserved Rights
(a) NewDeal reserves to itself and its licensees the exclusive
right to manufacture and distribute the NewDeal Licensed
Technology preinstalled in Used Computers and New Computers as
defined in section 1.2 (a) and 1.2 (b).
(b) Subject to any NewDeal After-Market Products distribution
rights that may be granted to MyTurn in Section 2.3(b) of this
Agreement, NewDeal reserves to itself and its licensees the
exclusive right to sell the NewDeal Licensed Technology to End
Users separately from the sale of a Computer.
2.7 Exclusivity of Rights Granted to MyTurn
(a) Exclusivity. Subject to Section 2.6 (Reserved Rights) and
Section 2.7(b) (Conditions of Exclusivity), the rights granted to
MyTurn in this Section 2 shall be exclusive to MyTurn during the
term of this Agreement.
<PAGE>
(b) Conditions of Exclusivity for New Computers. The rights
granted to MyTurn in Sections and 2.1, 2.2 and 2.3(a) shall
become nonexclusive if MyTurn fails to meet the performance
requirements set forth in Exhibit A or B to this Agreement;
provided, however, MyTurn, provided it is not in default of any
other requirement under this contract, may maintain its
exclusivity by paying to NewDeal, no later than the last day of
each applicable period, an amount by which it is short of the
performance requirement, as set forth in Exhibit B.
(c) Conditions of Exclusivity for Aftermarket Products. The
rights granted to MyTurn in Section 2.1, 2.2 and 2.3(b) shall
become nonexclusive if MyTurn fails to meet the performance
requirements set forth in Exhibit A or B attached to this
Agreement; provided, however, that MyTurn may maintain its
exclusivity by paying to NewDeal, no later than the last day of
each applicable period, an amount by which it is short of the
performance requirement, as set forth in the Exhibit B.
3. GRANT OF LICENSE FROM MYTURN TO NEWDEAL
MyTurn grants to NewDeal, for the term of this Agreement, the following
licenses:
3.1 Reproduction
(a) Object Code: a non-transferable (except as provided in
Section 18.1 (Assignment)), worldwide, exclusive license for the
NewDeal Markets to reproduce copies of the object code of the
MyTurn Licensed Technology, and copies of the object code of
Derivative Works based thereon, for sale to End users, and the
right to sublicense such reproduction rights to Computer
Manufacturers of and OEMs of NewDeal, all such sublicenses to be
in writing and subject to the terms, conditions and limitations
of this Agreement; and
(b) Source Code: a non-transferable (except as provided in
Section 18.1 (Assignment)), worldwide, exclusive license for the
NewDeal Markets to reproduce copies of the source code of the
MyTurn Licensed Technology (excluding any Third Party Technology
for which MyTurn does not have the right to grant source code
access to NewDeal) and of Derivative Works, for internal use by
NewDeal in carrying out its rights and obligations under this
Agreement. MyTurn shall provide all iterations of its source code
to NewDeal in a timely fashion and in such manner as NewDeal may
reasonably request, and MyTurn shall not under any circumstances
prevent access to MyTurn source code except for breach of
contract, and then only with due process.
(c) Solid State License: a non-transferable (except as provided
for in Section 18.1 (Assignment)) worldwide, non-exclusive
license to reproduce copies of the object code of the MyTurn
Licensed Technology, and copies of the object code of Derivative
Works based thereon, and the right to sublicense such
reproduction rights to Manufacturers of and OEMs of NewDeal, when
embedded in solid state devices for New
<PAGE>
Computers that have a mechanical electrical generation
capability, with all such sublicenses to be in writing and
subject to the terms, conditions and limitations of this
Agreement.
3.2 Modification, Derivative Works
(a) a non-exclusive, non-transferable (except as provided in
Section 18.1 (Assignment)), worldwide license to modify the
source code to the MyTurn Licensed Technology (excluding any
Third Party Technology for which MyTurn does not have the right
to grant modification rights to NewDeal), and to create
Derivative Works, provided that any warranty against
infringement, indemnity obligation, or maintenance or support
obligation given by MyTurn under the provisions of this Agreement
shall not apply to modifications or Derivative Works made by or
for NewDeal, or to portions of the MyTurn Licensed Technology
affected by such modifications or Derivative Works. For purposes
of this Modification license, MyTurn grants to NewDeal a
non-exclusive, non-transferable (except as provided in Section
18.1 (Assignment)) internal license to use the software
development tools and documentation included in the MyTurn
Licensed Technology.
(b) For purposes of this Modification license, MyTurn grants to
NewDeal a non-exclusive, non-transferable (except as provided in
Section 18.1 (Assignment)) internal license to use the software
development tools and documentation included in the MyTurn
Licensed Technology.
3.3 Distribution
(a) Application Suite and Bundled Items: a non-royalty-bearing,
non-transferable (except as provided in Section 18.1
(Assignment)), worldwide license to distribute the MyTurn
Licensed Technology, and Derivative Works based thereon, to OEMs,
Manufacturers, Distributors and End Users in all NewDeal Markets.
All copies so distributed must be (1) in object code form only;
and for New Computers are subject to the feature and distribution
terms defined in Clauses 1.2 (a), and 1.2(b).
(b) Aftermarket Products: a royalty bearing, non-transferable
(except as provided in Section 18.1 (Assignment)), worldwide
license to distribute the MyTurn Aftermarket Products to End
Users in the NewDeal Market, in the NewDeal Territory. For each
MyTurn Aftermarket Product, the Parties shall amend Exhibits A
and B to this Agreement, identifying the product and setting
forth the applicable royalty rate, the conditions of exclusivity,
if applicable, and other mutually agreeable terms and conditions.
If the Parties are not able to reach agreement as to the terms of
distribution after good faith negotiations, then MyTurn may offer
distribution rights for the MyTurn Aftermarket Product in the
Education Market to another party.
(c) GlobalPC Devices: a non-exclusive appointment as a MyTurn
sales representative for the sale of GlobalPC Devices to the
Educational Market.
<PAGE>
(d) End User License. NewDeal and its sublicensees will
distribute the MyTurn Licensed Technology and Derivative Works to
End Users only under the terms of an End User license
substantially in the form provided as Exhibit C.
(e) Sublicense Rights. NewDeal shall have the right to sublicense
the foregoing distribution rights to OEMs, Manufacturers and
Distributors of NewDeal for all NewDeal Markets, all such
sublicenses to be in writing and subject to the terms, conditions
and limitations of this Agreement for all Used Computers and New
Computer markets as defined in Section 1.2 (a) and 1.2 (b).
(f) Tools. MyTurn shall be entitled to create and make available
to third party developers and End Users a software development
kit (SDK) for developing applications for "GEOS 2000" (as amended
from time to time) and compatible with MyTurn Licensed Technology
and/or NewDeal Licensed Technology.
3.4 Derivative Works, Enhancements and Third Party Technologies
(a) Derivative Works and Enhancements. The licenses granted to
NewDeal shall, at NewDeal's election, include and extend to all
Derivative Works, enhancements, upgrades, extensions, updates,
bug fixes and revisions to the MyTurn Licensed Technology that
MyTurn develops during the term of this Agreement.
(b) Third Party Technologies. The licenses granted to NewDeal
shall, at NewDeal's election, also include sublicenses, with the
exception of patent licenses, to any Third Party Technology to
which MyTurn acquires license rights during the term of this
Agreement; provided, however, that such Third Party Technologies
shall be included in the licenses granted to NewDeal hereunder
only to the extent that the license agreement between the Third
Party Technology provider and MyTurn so permits. MyTurn will use
its best commercially reasonable efforts to obtain such
sublicense rights from its Third Party Technology providers,
especially for Atlas, Encyclopedia and Dictionary products.
(c) Exhibit A shall be amended from time to time to add any
technologies that are included in this Agreement as provided in
this Section 3.4.
4. PRODUCT RELEASE AND ANNOUNCEMENTS
4.1 Product Release. Each Party shall have the sole right to determine
when its NewDeal Licensed Technology and/or MyTurn Licensed Technology as
the case may be, and products are demonstrated, externally tested,
announced, disclosed and released. Neither Party shall publicly
demonstrate, test, announce, disclose or release any
<PAGE>
such technology or product without the prior written consent of the other
Party, except to comply will disclosure obligations under any law, rule or
regulation applicable to it.
4.2 Acknowledgments. Neither Party shall use the other Party's name or
the name of its products in promotional literature or marketing materials,
without the prior approval from the other Party. Such approval shall not to
be unreasonably withheld or delayed, but may be withheld prior to a Party's
planned product launch or announcement, or in order to protect confidential
information and proprietary rights. Each Party shall promptly review
(within five (5) business days) all such requests made under this
Subsection
5. MANUFACTURERS and OEMS
Each Manufacturer and OEM of a Party that is granted sublicense rights under
Sections 2 or 3 must agree in writing:
5.1 to accept that no ownership rights to the MyTurn Licensed
Technology and/or NewDeal Licensed Technology as the case may be, or to
Derivative Works are transferred to the Manufacturer or OEM;
5.2 to include on all copies of the MyTurn Licensed Technology and/or
NewDeal Licensed Technology as the case may be, and Derivative Works, and
on all related packaging, manuals and promotional materials, all
proprietary, copyright, trade secret and other notices of the Parties in
accordance with 10.7 (Acknowledgment of Parties) hereof;
5.3 not to decompile or reverse engineer the MyTurn Licensed
Technology and/or NewDeal Licensed Technology as the case may be, or
Derivative Works;
5.4 to keep records showing the number of copies of the MyTurn
Licensed Technology and/or NewDeal Licensed Technology as the case may be,
and Derivative Works manufactured, and the number of copies distributed;
5.5 to furnish to the Party granting the sublicense rights, within 30
days from the end of each calendar quarter, a signed statement showing the
number of copies so made and the number of copies so distributed, and to
allow both MyTurn and NewDeal to have such statements examined and audited
by an independent auditor to the extent necessary to verify such
statements, subject to the audit conditions set forth in Section 9.6
Audits); and
5.6 to be bound by the provisions of this Agreement, and to permit
both MyTurn and NewDeal to enforce such provisions against such
Manufacturers and OEMs, provided that the appointment of Manufacturers and
OEMs by a Party shall not in any respect create any relationship between
the other Party and such persons.
<PAGE>
6. END USER SUPPORT
6.1 MyTurn. MyTurn shall have the responsibility and authority to
provide first-level customer support to End Users in accordance with
commercially reasonable and customary customer support practices, for (a)
GlobalPC Devices, and (b) software products that are distributed under the
MyTurn brand and are labeled for use on GlobalPC Devices.
6.2 NewDeal. NewDeal shall have the responsibility and authority to
provide first-level customer support to all End Users in the NewDeal
Market(s) in the NewDeal Territory(ies), in accordance with commercially
reasonable and customary customer support practices.
6.3 Second Level Support. In the event that a Party's technical
personnel are unable to answer End Users' question(s) regarding the other
Party's Licensed Technology after using reasonable efforts, such technical
personnel may contact the other Party at its principal place of business in
the United States with respect to such technical support questions.
7. INTELLECTUAL PROPERTY RIGHTS
7.1 The Licensed Technologies. Each Party and its licensors are and
shall remain the owners of all Intellectual Property Rights in and to their
respective Licensed Technology.
7.2 The GlobalPC Devices. MyTurn is and shall remain the owner of all
Intellectual Property Rights in and to the GlobalPC Devices.
7.3 Derivative Works
(a) Each Party shall own the Intellectual Property Rights in and
to any Derivative Works made by it during the course of this
Agreement, or made for it by third parties.
(b) Each Party's Intellectual Property Rights in Derivative Works
shall not extend to the underlying Licensed Technology or
underlying Derivative Works owned by the other Party, but only to
the modifications thereto made by or for MyTurn or NewDeal.
(c) Where the contributions of NewDeal and MyTurn to the creation
of a Derivative Work are interlinked, the Parties agree to
specific ownership rights as defined in Exhibit A; provided
however, that such jointly-owned Intellectual Property Rights
shall not extend to the underlying Licensed Technology or
underlying Derivative Works owned by either Party, as set forth
above, but only to the modifications thereto made jointly
<PAGE>
(d) Each Party shall take all actions and execute all documents
that are necessary to assign to the other its ownership interest
in any jointly owned Intellectual Property Rights. Neither Party
shall be required to obtain the consent of, or account to, the
other Party for the exploitation of the rights covered by any
such jointly-owned Intellectual Property Rights, except that
neither Party shall have the authority to grant an exclusive
license under any such rights without the prior written consent
of the other Party.
8. OTHER TERMS
8.1 Co-Marketing. Each Party will provide the other Party with the
following marketing support: each Party will provide the other party's logo
in an agreed size, as a link to the other's specified URL, in the partners
section of each Party's "corporate" web site.
9. PAYMENTS
9.1 Royalty Payments and Reimbursements. In consideration for the
licenses granted in Sections 2 and 3, each Party agrees to pay to the other
Party the royalty payments, and to reimburse the other Party for the cost
of Third Party Technologies, as set forth in Exhibit B. Royalty payments
and reimbursements are due and payable within forty-five (45) days after
the close of the calendar quarter in which applicable revenue is received.
9.2 Not For Resale Units. Neither Party will incur any royalty
payments (except for reimbursement to the other Party for Third Party
Technologies as identified in Exhibit B) for a reasonable number of
promotional, "not for resale" units of GlobalPC Devices and/or copies of
software products provided free of charge to End Users or to Distributors,
or for units used by a Party solely for demonstration, evaluation or review
purposes, and/or for customer support, or, in the case of NewDeal, large
scale electronic download trial programs to End-Users; provided, however,
that a royalty payment will become due if and when the Party receives a
payment or other compensation for any such units or uses such units for
internal use other than as set forth in this Section. NewDeal shall have
the right to freely distribute royalty free (except for applicable third
party royalties) copies of NewDeal Licensed Technology through the NewDeal
Foundation to educational, faith-based, Non-Governmental Organizations and
non-profit organizations.
9.3 Currency. All payments under this Agreement are to be made in U.S.
dollars.
9.4 Records. During the term of this Agreement and for twelve (12)
months hereafter, each Party shall maintain complete and correct records
establishing the amount of royalties and other payments due hereunder.
9.5 Reports. No later than forty five (45) days after the end of each
calendar quarter, each Party shall send to the other Party a report
detailing for such quarter:
<PAGE>
(a) The number of units of Product Shipment, including a
breakdown as applicable by Product, version and country; and
(b) A detailed account of all royalty and other amounts due and
the basis for calculation.
9.6 Audits. During the term of this Agreement and for twelve (12)
months after the expiration or any termination of this Agreement, an
independent third-party representative of a Party, reasonably acceptable to
the other Party, upon reasonable notice and during the audited Party's
normal business hours, shall have the right to conduct an audit of the
relevant portions of the other Party's books of account to verify
compliance with this Agreement. The audited Party shall immediately pay any
overdue payments revealed by such audit(s), together with interest thereon
at the rate of 1.5% per month (or the maximum permitted by applicable law,
if less) from the due date until paid. Except as set forth below, such
audit(s) may be conducted no more than once in any twelve-month period. The
Party conducting the audit shall bear the costs of the audit; provided,
however, if the audit reveals overdue payments in excess of five percent
(5%) of the total royalty payable for any twelve-month period, the audited
Party shall pay the costs of such audit. All information obtained by the
auditors shall be treated as Confidential Information as defined in Section
16 (Nondisclosure and Restricted Use).
10. BRANDING AND PROPRIETARY MARKINGS
10.1 The GlobalPC Device shall be branded and labeled solely as a
MyTurn product unless otherwise agreed in writing, whether it is
distributed by MyTurn or sold by NewDeal.
10.2 All NewDeal Licensed Technology that is distributed by MyTurn
shall be branded and labeled (including product screen displays, packaging
and documentation) as a MyTurn product, and MyTurn shall appropriately
indicate NewDeal's intellectual property, including, without limitation,
copyrights, trademarks and the like, unless the parties agree otherwise.
10.3 All MyTurn Licensed Technology that is distributed by NewDeal
shall be branded and labeled (including product screen displays, packaging
and documentation) as a NewDeal product, and NewDeal shall appropriately
indicate MyTurn's intellectual property, including, without limitation,
copyrights, trademarks and the like, unless the parties agree otherwise.
10.4 NewDeal shall not use the "GlobalPC" trademark, name, label or
logo (or any other mark that MyTurn uses to identify the GlobalPC Device)
on or in conjunction with the sale or marketing of any product (other than
the commissioned sales of GlobalPC Devices by NewDeal as provided in
Exhibit B). NewDeal shall not represent that any product "operates on" or
is "comparable to," "compatible with," or "designed for" the GlobalPC
Device or any GlobalPC-branded software, without MyTurn's prior written
approval which shall not be unreasonably withheld and shall be provided in
a timely manner. Both Parties will specify on their packaging that their
<PAGE>
products are compatible with the "GEOS 2000" operating system, as may be
amended from time to time, provided that both Parties have the right from
Geoworks to include such markings.
10.5 Neither Party shall represent represent that it's products are an
"upgrade" (or comparable designation) to any product distributed by the
other Party, unless the parties agree otherwise.
10.6 Notwithstanding the foregoing, the Parties shall comply with any
branding and labeling requirements applicable to Third Party Technologies.
10.7 Each Party agrees to include the other Party's proprietary
notices in the "About" menu in the software and in the End User
documentation for the Licensed Technology.
10.8 Acknowledgements. Each Party shall be entitled to use the other
Party's name and the name of its products in promotional literature and
marketing materials, upon receipt of prior approval from the other Party,
such approval not to be unreasonably withheld or delayed.
11. NEWDEAL'S INDEMNITIES
11.1 Indemnity. NewDeal will defend MyTurn against, and pay any
resulting awards and settlements arising from, any claim, demand, suit or
action to the extent it alleges that the NewDeal Licensed Technology as
supplied by NewDeal infringes upon any United States patent issued as of
the Effective Date of this Agreement (or, with respect to revisions,
enhancements or updates, as of the date that any such item is supplied to
MyTurn by NewDeal), or any copyright or trade secret of any third party,
provided that (1) MyTurn promptly informs NewDeal in writing of any such
claim, demand, action or suit, (2) NewDeal is given control over the
defense thereof and MyTurn cooperates in the defense, at NewDeal's expense,
and (3) MyTurn will not agree to the settlement of any such claim, demand,
action or suit prior to a final judgment thereon without the prior written
consent of NewDeal, which consent will not be unreasonably withheld. MyTurn
shall have the right to select its own counsel to participate in any such
defense, at MyTurn's expense. NewDeal's indemnity obligations do not apply
to (1) modifications made to the NewDeal Licensed Technology by anyone
other than NewDeal, (2) use of a superseded infringing version of the
Licensed Technology by MyTurn after release of a non-infringing version by
NewDeal in accordance with Section 11.2 hereof, and (3) any use or
combination of the Licensed Technology with any technology, software or
hardware not supplied by NewDeal, if such alleged infringement would be
avoided by use of the Licensed Technology alone or with other technology,
software or hardware.
11.2 Response to Infringement Claim. If a claim, demand, suit or
action alleging infringement is brought, or if NewDeal reasonably believes
one may be brought (based upon the opinion of independent counsel), NewDeal
shall have the option at its
<PAGE>
expense to (1) modify the NewDeal Licensed Technology to avoid the
allegation of infringement, (2) obtain for MyTurn a license to continue
reproducing and distributing the NewDeal Licensed Technology, or (3) if
neither (1) nor (2) is reasonably practicable in NewDeal's discretion,
terminate this Agreement as to the affected NewDeal Licensed Technology, as
to a portion thereof, or as to a specific MyTurn Product or Products, upon
written notice.
11.3 Limitations. This Section 11 (NEW DEAL's INDEMNITIES) sets forth
NewDeal's entire liability to MyTurn for any actual or alleged infringement
or misappropriation of any third party's intellectual property rights
arising out of the NewDeal Licensed Technology. In no event shall NewDeal's
aggregate liability to defend and indemnify under Section 11 (NEWDEAL'S
INDEMNITIES) exceed an amount equal to two times the total of all amounts
paid or payable by MyTurn to NewDeal under this Agreement. The foregoing
amounts shall be determined as of the date that the infringement claim is
finally settled or, if there is no settlement, as of the date that a final
decision is made by a court or arbitrator in the infringement action.
12. MYTURN'S INDEMNITIES
12.1 Indemnity. MyTurn will defend NewDeal against, and pay any
resulting awards and settlements arising from any claim, demand, suit or
action to the extent it alleges that the MyTurn Licensed Technology or a
GlobalPC Device as supplied by MyTurn infringes upon any United States
patent issued as of the Effective Date of this Agreement, or any copyright
or trade secret of any third party provided that (1) NewDeal promptly
informs MyTurn in writing of any such claim, demand, action or suit, (2)
MyTurn is given control over the defense thereof and NewDeal cooperates in
the defense at MyTurn' expense, and (3) NewDeal will not agree to the
settlement of any such claim, demand, action or suit prior to a final
judgment thereon without the written consent of MyTurn, which consent will
not be unreasonably withheld. NewDeal shall have the right to select its
own counsel to participate in any such defense at NewDeal' expense.
MyTurn's indemnity obligations do not apply to (1) modifications made to
the MyTurn Licensed Technology by anyone other than MyTurn, (2) use of a
superseded infringing version of the Licensed Technology by NewDeal after
release of a non-infringing version by MyTurn in accordance with Section
12.2 hereof, and (3) any use or combination of the Licensed Technology with
any technology, software or hardware not supplied by MyTurn, if such
alleged infringement would be avoided by use of the Licensed Technology
alone or with other technology, software or hardware.
12.2 Response to Infringement Claim. If a claim, demand, suit or
action alleging infringement is brought, or if MyTurn reasonably believes
one may be brought (based upon the opinion of independent counsel), MyTurn
shall have the option at its expense to (1) modify the MyTurn Licensed
Technology to avoid the allegation of infringement, (2) obtain for NewDeal
a license to continue reproducing and distributing the MyTurn Licensed
Technology, or (3) if neither (1) nor (2) is reasonably practicable in
<PAGE>
MyTurn's discretion, terminate this Agreement as to the affected MyTurn
Licensed Technology, as to a portion thereof, or as to a specific NewDeal
Product or Products, upon written notice.
12.3 Limitations. This Section 12 (MYTURN'S INDEMNITIES) sets forth
MyTurn's entire liability to NewDeal for any actual or alleged infringement
or misappropriation of any third party's intellectual property rights
arising out of the MyTurn Licensed Technology or a GlobalPC Device. In no
event shall MyTurn's aggregate liability to defend and indemnify under
Section 12 (MYTURN'S INDEMNITIES) exceed an amount equal to two times the
total of all amounts paid or payable by NewDeal to MyTurn under this
Agreement. The foregoing amounts shall be determined as of the date that
the infringement claim is finally settled or, if there is no settlement, as
of the date that a final decision is made by a court or arbitrator in the
infringement action.
13. COMBINATION CLAIMS
Any infringement claim arising solely out of the use or combination of the
NewDeal Licensed Technology with the MyTurn Licensed Technology or GlobalPC
Device shall be defended cooperatively by both Parties, and the cost of such
defense and any settlements or liabilities shall be shared equitably by the
Parties. If the Parties cannot agree as to the equitable arrangement, then the
settlements or liabilities shall be shared pursuant to the determination by the
arbitrator (or court, if the claim was filed in a court by a third party) of
each Party's percentage of fault.
14. WARRANTIES
14.1 Disclaimer of Express Warranties. Subject to Section 11
(NEWDEAL'S INDEMNITIES), and 12 (MYTURN'S INDEMNITIES), all Licensed
Technology, Third Party Technology, Confidential Information, GlobalPC
Devices and other products or technologies provided by either Party are
provided "AS IS," without a warranty of any kind. NO REQUEST FOR PROPOSAL,
PROPOSAL, CORRESPONDENCE, ADVERTISEMENT, BID OR VERBAL REPRESENTATION
CONCERNING THE LICENSED TECHNOLOGY, THIRD PARTY TECHNOLOGY, CONFIDENTIAL
INFORMATION, GLOBALPC DEVICE OR SERVICES PROVIDED BY EITHER PARTY UNDER
THIS AGREEMENT SHALL CONSTITUTE A WARRANTY OR GUARANTY.
14.2 Disclaimer Of Implied Warranties. Subject to Section 11
(NEWDEAL'S INDEMNITIES), and 12 (MYTURN'S INDEMNITIES) TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ALL IMPLIED WARRANTIES WITH RESPECT TO THE
LICENSED TECHNOLOGIES AND THE GLOBALPC DEVICE, INCLUDING BUT NOT LIMITED TO
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
ARE HEREBY EXCLUDED.
<PAGE>
14.3 Limited Warranty For Third Party Technology. With respect to any
Third Party Technology, each Party will extend to the other Party any
warranty that the supplying Party is authorized by the Third Party to so
extend. THE PARTIES EXTEND NO OTHER WARRANTY, STATUTORY, EXPRESS, IMPLIED
OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE, REGARDING ANY
HARDWARE, SOFTWARE, CONTENT OR SERVICES PURCHASED OR LICENSED FROM THIRD
PARTIES, EVEN IF SUCH ITEMS WERE SELECTED OR RECOMMENDED BY MYTURN OR
NEWDEAL. ALL WARRANTIES, IF ANY, ARE PROVIDED SOLELY BY THE THIRD PARTIES.
15. TERM OF AGREEMENT AND TERMINATION
15.1 Term. This Agreement shall begin on the Effective Date. The
initial term of the Agreement will expire on December 31, 2003, provided,
however, that the MyTurn has met the Conditions of Exclusivity set forth in
Section 2.7 (Conditions of Exclusivity). Thereafter, the Agreement will
renew automatically for successive one-year terms provided that MyTurn
meets performance requirements as specified in Exhibit B.
15.2 Termination For Breach. Each Party shall have the right to
terminate this Agreement upon thirty (30) days prior written notice if the
other Party is in breach of any material term of this Agreement and the
breaching Party fails to remedy such breach within the thirty-day notice
period, or if the breach can not be cured by best efforts in thirty (30)
days, the breaching Party fails to commence and continues to take
meaningful steps to remedy such breach within the thirty (30) day period.
15.3. All technology cross-licensing under this Agreement in effect at
the time of termination, of this Agreement, whether from natural expiration
or breach, shall continue in full force and effect beyond the term of the
Agreement, and both parties shall be entitled to continue to ship products
based on NewDeal Licensed Technology and/or MyTurn Licensed Technology as
the case may be, subject only to whatever other legal constraints or
remedies may be applicable.
<PAGE>
15.4 Bankruptcy. Each Party shall have the right to terminate this
Agreement immediately upon written notice in the event that the other Party
becomes insolvent, files for any form of bankruptcy, makes any assignment
for the benefit of creditors, or ceases to conduct business (other than in
connection with an assignment permitted under Section 18.1 (Assignment)),
or has a complaint for involuntary bankruptcy filed against it which is not
discharged within one hundred eighty (180) days. Each Party acknowledges
that if it is a debtor-in-possession or if a trustee in bankruptcy in a
case under the United States Bankruptcy Code rejects this Agreement or any
agreement supplementary hereto, the other Party may elect to retain its
rights under this Agreement and/or any supplementary agreement as provided
in Section 365(n) of the Bankruptcy Code. Upon written request of the other
Party to the bankrupt Party or the Bankruptcy Trustee, the bankrupt Party
or such Bankruptcy Trustee shall not interfere with the rights of the other
Party as provided in this Agreement and any supplementary agreement.
15.5 No Damages For Termination. NEITHER NEWDEAL NOR MYTURN SHALL BE
LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OF THIS AGREEMENT
IN ACCORDANCE WITH THIS SECTION.
16. NONDISCLOSURE AND RESTRICTED USE
<PAGE>
16.1 Confidential Information. In the course of performing this
Agreement, each Party (the "Disclosing Party") may disclose to the other
Party ("the Receiving Party") trade secrets and confidential and
proprietary information of the Disclosing Party, clearly marked or, in the
case of verbal communications, clearly confirmed in writing as
"CONFIDENTIAL" or any other similar legend ("Confidential Information").
Such Confidential Information includes without limitation the terms and
conditions of this Agreement, technical and/or internal specifications of
the Disclosing Party's products, non-public marketing plans, future
products and other non-public business information, the trade secrets and
technology embodied in the Licensed Technology, the trade secrets and
technology embodied in any Party's product, each Party's sales data,
customer lists and other non-public information. All Confidential
Information shall remain the sole property of the Disclosing Party and the
Receiving Party shall have no interest in or right to such Confidential
Information except as expressly set forth in this Agreement. Both Parties
agree that all Confidential Information of the other Party shall be held in
strict confidence, will not be disseminated or disclosed to any third party
and will not be used by the Receiving Party for any purpose other than
performing its rights under this Agreement without the express written
consent of the Disclosing Party for three (3) years from the date of
disclosure (five (5) years for technical information). Both Parties agree
to use at least the degree of diligence to protect the other Party's
Confidential Information as a reasonably prudent technology company would
normally use to protect any of its own trade secrets and other confidential
information. The provisions of this Section shall not apply to any
information or materials:
(a) which are in the public domain at the time of disclosure to
the Receiving Party or which thereafter enter the public domain
through no action or inaction by the Receiving Party or its
employees; or
(b) which the Receiving Party can establish and document were in
the possession of, or known by, the Receiving Party prior to its
receipt from the Disclosing Party; or
(c) which are rightfully disclosed to the Receiving Party by
another person not in violation of the proprietary or other
rights of the Disclosing Party, or any other person or entity; or
(d) which are shown by written record to have been independently
developed by the Receiving Party, provided that the persons
developing the same have not had access to the Confidential
Information furnished to the Receiving Party by the Disclosing
Party hereunder; or
(e) which are required to be disclosed pursuant to law, provided,
however, that a minimum of ten (10) days written notice shall be
provided by the Party intending to disclose in order to permit
the other Party to take such action as it deems appropriate to
prevent or limit such disclosure, except if such ten day (10)
notice period would cause the disclosing Party to violate any
law, rule or regulation, the
<PAGE>
disclosing Party shall give the other Party the maximum amount of
time less than ten (10) days which the disclosing Party could
give without violating any such law, rule or regulation.
16.2 Restricted Use. Without prejudice to the generality of the
foregoing, each Party agrees not to use any of the Confidential Information
or Licensed Technology of the other Party for any use or purposes except
those expressly specified herein.
16.3 Source Code Restrictions
(a) Each Party acknowledges that the other Party considers its
source code to be Confidential Information and to contain
proprietary and trade secret information. Each Party agrees not
to provide, disclose, reproduce in any form, or give access to
such source code to any third party or employee other than the
Authorized Personnel. Each Party agrees that Authorized Personnel
shall be informed of and abide by the terms and conditions of
this Agreement
(b) Each Party shall hold the other Party's source code in strict
confidence. Each Party shall investigate all unauthorized
attempts to gain access to the source code, and immediately
notify the other Party concerning any breach of source code
confidentiality, whether or not such breach was inadvertent.
(c) The source code shall be placed on secure computer systems
located at the receiving Party's principal place of business. The
receiving Party shall implement sufficient security procedures to
limit access to the source code to Authorized Personnel. The
secure computer systems shall be available for inspection by the
disclosing Party.
(d) The receiving Party agrees to take all reasonable precautions
and to implement procedures to minimize the risk of theft or
unauthorized copying of the source code, and to take appropriate
action by instruction, agreement, or otherwise with the
Authorized Personnel.
17. LIMITATION OF LIABILITY
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL
PURPOSE, (1) NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE TO THE OTHER PARTY
FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR THE LOSS OF ANTICIPATED
PROFITS ARISING FROM ANY PERFORMANCE OR BREACH OF THIS AGREEMENT BY SUCH PARTY
EVEN IF NOTICE IS GIVEN OF THE POSSIBILITY OF SUCH DAMAGES, AND (2) IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR ANY DAMAGES IN EXCESS OF TWICE THE AMOUNT PAID
BY MYTURN TO NEWDEAL UNDER THIS AGREEMENT.
<PAGE>
18. GENERAL
18.1 Assignment. This Agreement may be assigned in whole or in part by
either Party with the prior written consent of the other Party, which
consent shall not be unreasonably withheld, or without the prior written
consent of the other Party such assignment is in connection with the sale
of all, or substantially all of the Party's assets, a majority of
outstanding voting capital stock, the issuance of a number of shares of
voting capital stock which following such issuance constitutes a majority
of the outstanding voting capital stock of such Party, in connection with a
merger, consolidation, or transfer to an entity under common majority
ownership with the Party, or to a majority parent, or to a majority owned
subsidiary.
18.2 Governing Law; Arbitration. This Agreement will be governed and
interpreted in accordance with the laws of the state of Massachusetts,
except for that body of law pertaining to conflicts of law, but excluding
the Convention on Contracts for the International Sale of Goods. All
disputes arising in connection with this Agreement shall, unless amicably
settled by the parties, be finally settled by arbitration under the
commercial arbitration rules of the American Arbitration Association by a
panel of three (3) arbitrators appointed in accordance with the Rules of
the American Arbitration Association. The place of arbitration shall be,
unless otherwise agreed between the parties, the county in which the
respondent resides and the city in which the respondent has its principal
place of business. Judgment upon the award rendered may be entered in any
Court having jurisdiction or application may be made to such Court for a
judicial acceptance of the award and an order of enforcement, as the case
may be. Notwithstanding the foregoing, either party may request
injunctions, seizure orders, writs of attachment, and other extraordinary
remedies from any court having jurisdiction in the case of an actual or
threatened infringement of such party's patents, copyrights, trademarks,
trade secrets or other intellectual property rights by the other party. The
filing of a proceeding for such extraordinary remedies shall not constitute
a waiver by the filing party of the right to compel arbitration of all
demands for other remedies.
18.3 Independent Contractors.Each Party will be deemed to have the
status of an independent contractor towards the other Party, and nothing in
this Agreement will be deemed to place the Parties in the relationship of
employer-employee, principal-agent, partners or joint ventures.
18.4 Waiver. The failure of either Party to enforce any provision of
this Agreement shall not be deemed a waiver of that or any other provision
of this Agreement.
<PAGE>
18.5 Force Majeure. Neither Party will be deemed in default of this
Agreement to the extent that performance of its obligations is delayed or
prevented by reason of any act of God, fire, natural disaster, accident,
act of government, or any other cause beyond the control of such Party
("Force Majeure"), provided that such Party gives the other Party written
notice thereof promptly and uses its good faith efforts to cure the breach.
In the event of such a Force Majeure, the time for performance or cure will
be extended for a period equal to the duration of the Force Majeure but not
in excess of six (6) months.
18.6 Notices. Notices to either Party shall be in writing and shall be
deemed delivered when served in person, one business day after being
transmitted by fax, or two business days after being dispatched by an
internationally recognized express courier service, and delivered to the
addresses set forth at the beginning of this Agreement. A Party may change
its address for purposes of receiving notices by giving notice of the
change to the other Party.
18.7 Survival. The rights and obligations under Sections 7
(INTELLECTUAL PROPERTY RIGHTS), 9 (PAYMENTS), 11 (NEWDEAL'S INDEMNITIES),
12 (MYTURN'S INDEMNITIES), 13(COMBINATION CLAIMS), 14 (WARRANTIES), 16
(NONDISCLOSURE AND RESTRICTED USE), 17 (LIMITATION OF LIABILITY), and 18
(GENERAL) shall survive the expiration and any termination of this
Agreement.
18.8 Export. Each Party agrees that it will not knowingly export or
re-export the other Party's licensed Technology, directly or indirectly, to
any country to the extent export to such country at the time of export
requires an export license or other governmental approval, without first
obtaining such license or approval.
19. FORM OF AGREEMENT
19.1 Exhibits. This Agreement has the following Exhibits which form an
integral part hereof:
Exhibit A Identification of the Licensed Technologies. This
Exhibit is a description of all NewDeal and MyTurn Licensed
Technologies that are the subject of this Agreement.
Exhibit B Payments. This Exhibit specifies the royalties and
fees payable under this Agreement, and certain other
financial terms.
Exhibit C Form of End User License. This Exhibit specifies
the form of End User license that the Parties will use when
distributing each other's Licensed Technologies.
<PAGE>
19.2 Modification and Interpretation of Exhibits. The Exhibits shall
be kept up-to-date and modifications and additions thereto shall be
executed as a result of agreed modifications and additions. All Exhibits
shall be subject to the terms and conditions of this Agreement, unless
otherwise provided in any such Exhibit. In the event of a conflict between
the terms of an Exhibit and the terms of this Agreement, the terms of the
Exhibit shall be given effect for the subject matter covered by that
Exhibit.
19.3 Entire Agreement. This Agreement and the Exhibits hereto state
the entire agreement between the Parties and supersede all prior
communications, written or oral, between the Parties. No terms in any
purchase order or other forms shall modify the terms of this Agreement,
even if such purchase order or other forms are accepted by either Party.
19.4 Severability. If any provision contained in this Agreement is
determined to be invalid or unenforceable, in whole or in part, the
remaining provisions and any partially enforceable provision will,
nevertheless, be binding and enforceable, and the Parties agree to
substitute for the invalid provision a valid provision which most closely
approximates the intent and economic effect of the invalid provision.
19.5 Writing. No amendment or modification of this Agreement may be
made except by an instrument in writing signed by both Parties
MYTURN: NEWDEAL:
By /s/ Rudy C. Theale By /s/ Clive G. Smith
-------------------------- ------------------------
Name Rudy C. Theale Name Clive G. Smith
----------------------- ----------------------
Title President Title CEO
---------------------- ---------------------
Date 2/15/00 Date 2/16/00
----------------------- ----------------------
<PAGE>
EXHIBIT A
IDENTIFICATION OF TECHNOLOGIES
Initial Identification of the NewDeal Licensed Technology and Application Suite
1. The GEOS operating system, as licensed to NewDeal by Geoworks
Corporation, and as enhanced by NewDeal, version 3.0, in effect during August
1998.
2. The NewDeal Application Suite NewDeal Office 98
Applications:
------------
New Manager - file manager
New Write - word processor
NewDraw - drawing program
NewCalc - spreadsheet
NewFile - database
NewDex - address book
NewPlanner - scheduler
NewComm - bbs communications program
NewMail - email program
NewBanner - banner maker
Utilities
---------
Calculator
File Finder
Scrapbook
Character Map
Directory Lister
Crossword
Solitaire
Clock
Media Viewer
3. End User documentation
4. Third Party Technology
File Finder (Breadbox, no royalty)
Directory Lister (Breadbox, no royalty)
Media Viewer (Breadbox, no royalty)
5. Software Development Tools
<PAGE>
Legos (NewBasic) tool set
Initial Identification of the NewDeal Bundled Items
- ---------------------------------------------------
1. NewDeal Licensed Technology
2. Third Party Technology
Initial Identification of the NewDeal After-Market Products
- -----------------------------------------------------------
New Banker (licensed from Breadbox)
Media Viewer (licensed from Breadbox)
America's Clock (licensed from Breadbox)
Font Magick (licensed from Breadbox)
Gourmet (licensed from Breadbox)
Homebase (licensed from Breadbox)
Home Inventory Plus (licensed from Breadbox)
Time Tool (licensed from Breadbox)
NewBASIC (parts licensed from Geoworks)
GeoSafari (content licensed from Educational Insight)
Initial Identification of the MyTurn Licensed Technology and GlobalPC
- --------------------------------------------------------------------------------
Application Suite
- -----------------
1. The GEOS operating system, as licensed to MyTurn by Geoworks Corporation
and NewDeal, and as enhanced by MyTurn and NewDeal, in effect in February,
2000.
2. The GlobalPC Application Suite
Global Communications:
Browser (from Breadbox, no royalty), including but not limited to, all
browser extensions, plug-ins, Javascript, pdf viewer, AIM and ICQ
clients, web filters, etc E-mail (jointly developed with NewDeal)
Internet Dial-up & Configure
Global Home Office:
Writer
Artist
Spreadsheet
Calendar
Address Book
Banker (Breadbox, no royalty)
Database (Breadbox, no royalty)
<PAGE>
Games:
Solitaire, Tetris, Crossword
Utilities:
Start-up/Tutorial
Update Application
Installer Application
Backup/Restore
Character Map
File Finder (new application created by MyTurn)
Banner
Calculator
File Manager
Preferences
WAV-file Player
Auto-registration
Initial Identification of the GlobalPC Bundled Items
- ----------------------------------------------------
1. MyTurn Licensed Technology
2. Third party technologies
Initial Identification of the MyTurn Aftermarket Products
- ---------------------------------------------------------
Typing Tutor
Third Party Technology Royalties
- --------------------------------
[Specify]
<PAGE>
EXHIBIT B
PAYMENTS
I. Royalty for GlobalPC Devices Sold by MyTurn
-------------------------------------------
MyTurn shall pay NewDeal a royalty of five dollars ($5) US per royalty-bearing
Product Shipment for NewDeal Licensed Technology and/or MyTurn Licensed
Technology sold by MyTurn, or by an OEM or Sub-Licensee of MyTurn, with which
the NewDeal Licensed Technology and/or MyTurn Licensed Technology and GlobalPC
Application Suite is preinstalled.
In addition to the foregoing royalties, MyTurn shall reimburse NewDeal pro rata
per unit for the royalties paid by NewDeal to any third party for Third Party
Technology that is sublicensed by NewDeal to MyTurn hereunder and included in a
GlobalPC Device Product Shipment, and which arises out of such sublicense. In
the event that the Third Party Technology License is flat fee or one-time
license, MyTurn will pay one-half of the amount of the license fee. The Third
Party Technology royalty rates are as set forth in Exhibit A, which may be
amended from time to time as necessary.
Except as set forth above, there shall be no separate royalty payable by MyTurn
for NewDeal Bundled Items.
Conditions for Exclusivity
- --------------------------
The conditions for MyTurn's exclusivity under section 2.7 be as follows:
<TABLE>
<CAPTION>
<S> <C>
Calendar Year 2000 Royalties for GlobalPC Devices 250,000 units or equivalent cash payment.
Calendar Year 2001 Royalties for GlobalPC Devices 850,000 units or equivalent cash payment.
Calendar Year 2002 Royalties for GlobalPC Devices 1,500,000 units or equivalent cash payment.
Calendar Year 2003 Royalties for GlobalPC Devices 2,250,000 units or equivalent cash payment.
Calendar Year 2004 Royalties for GlobalPC Devices 3,000,000 units or equivalent cash payment.
</TABLE>
For renewal past the Calendar Year 2004, the Parties agree to use the Calendar
Year 2004 3,000,000 units or equivalent cash payment as the minimum royalty
payment necessary to maintain exclusivity for the NewDeal Licensed Technology
for future years under the Agreement.
<PAGE>
In the event that the unit volume or equivalent cash payments are not made by
MyTurn in the specified timeframes, MyTurn will forfeit its exclusivity to the
NewDeal Licensed Technology.
II. Royalty for NewDeal After-Market Products Distributed by MyTurn
---------------------------------------------------------------
MyTurn shall at all times offer to NewDeal the most favorable royalty terms (in
US dollars) that MyTurn grants to any other supplier of aftermarket software
products distributed by MyTurn through its retail and Internet channels, for
comparable goods and services. NewDeal shall have the right to have an
independent auditor from time to time check MyTurn's compliance with this most
favored customer provision.
III. Royalty for MyTurn Technology Distributed by NewDeal
----------------------------------------------------
NewDeal shall reimburse MyTurn pro rata per unit for the royalties paid by
MyTurn to any third party for Third Party Technology that is sublicensed by
MyTurn to NewDeal hereunder and included in a NewDeal Product Shipment, and
which arises out of this sublicense. In the event that the Third Party
Technology License is flat fee or one-time license, NewDeal will pay one-half of
the amount of the license fee. The Third Party Technology royalty rates will be
listed in Exhibit A, which may be amended from time to time as necessary.
Except as set forth above, there shall be no separate royalty payable by NewDeal
for MyTurn Bundled Items.
All NewDeal royalties accrued in a quarter will first be offset against any
corresponding MyTurn royalties owed to NewDeal in that same quarter or accrued
from previous quarters. Only when the NewDeal royalties owed to MyTurn exceed
the royalties MyTurn owes NewDeal will there be a cash payment made to MyTurn by
NewDeal.
Royalty for MyTurn Aftermarket Products Distributed into the Education Market by
NewDeal shall be negotiated in a manner similar to the royalty arrangement
agreed to on NewDeal Aftermarket products being distributed into MyTurn's
markets.
<PAGE>
EXHIBIT C
Form of End User License.
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference, in the Registration
Statement No. 333- 18667 on Amendment No. 1 to Form SB-2 on Form S-3, the
Registration Statement No. 333- 39327 on Form S-8, the Registration Statement
No. 333-65303 on Form S-3, the Registration Statement No. 333-82137 on Form S-8,
and the Registration Statement No. 333-30330 on Form S-8, of our report dated
February 25, 1999 on the Consolidated Financial Statement for the year ended
December 31, 1998 which appears in the annual report on Form 10-KSB of
MyTurn.com, Inc. (f/k/a Compu-DAWN, Inc.) for the year ended December 31, 1999.
/s/ Lazar Levine & Felix, LLP
-----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
April 13, 2000
<PAGE>
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Reg. Nos. 333-30330, 333-39327, 333-82137), and
Amendment No. 1 to Form SB-2 on Form S-3 (Reg. No. 333-18667) of MyTurn.com,
Inc. of our report dated March 24, 2000, except for Note 15, for which the date
is April 4, 2000, relating to the consolidated financial statements, which
appears in this Form 10-KSB.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Tampa, Florida
April 11, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001028079
<NAME> MyTurn.com, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,454,421
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 222,394
<CURRENT-ASSETS> 1,697,700
<PP&E> 228,503
<DEPRECIATION> 14,003
<TOTAL-ASSETS> 17,604,500
<CURRENT-LIABILITIES> 2,201,899
<BONDS> 0
0
14
<COMMON> 77,868
<OTHER-SE> 15,305,798
<TOTAL-LIABILITY-AND-EQUITY> 15,383,680
<SALES> 0
<TOTAL-REVENUES> 233,660
<CGS> 0
<TOTAL-COSTS> 7,362,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,033
<INCOME-PRETAX> (7,128,995)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,128,995)
<DISCONTINUED> (6,792,222)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,383,485)
<EPS-BASIC> (3.29)
<EPS-DILUTED> (3.29)
</TABLE>