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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999,
REGISTRATION NO. 333-71949.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------
AMENDMENT NO. 4
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
YOUNETWORK CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 7380 13-399035
(State of Jurisdiction) (Primary Standard Industrial (I.R.S. Employee
Classification Code Number) Identification No.)
NEW YORK, NEW YORK 10010
212-576-2030
(Address and telephone number of principal executive
offices and principal place of business)
---------------
KYLE S. TAYLOR, PRESIDENT
YOUNETWORK CORPORATION
220 EAST 23RD STREET, SUITE 607
NEW YORK, NEW YORK 10010
(212) 576 2030
(Name, address and telephone number of agent for service)
Copies of all communications to:
SILVERMAN, COLLURA & CHERNIS, P.C.
GARY W. MAIR, ESQ.
381 PARK AVENUE SOUTH, SUITE 1601
NEW YORK, NEW YORK 10016
(212) 779-8600
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of he earlier effective
registration statement for the same offering. [ ] ___________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]___________________
If this form is a post-effective registration statement filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]___________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARES(1) PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
class A common stock,
.0001 par value per share ......... 1,000,000 $ 0.00 $ 0.00 $ 0.00
- -----------------------------------------------------------------------------------------------------------------------------
class B common stock,
.0001 par value per share ......... 1,000,000 $ 1.00 $1,000,000 $ 280.00
- -----------------------------------------------------------------------------------------------------------------------------
Total ........................... 2,000,000 $1,000,000 $ 280.00
=============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to 457(o).
================================================================================
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED, WE MAY
NOT DISTRIBUTE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 13, 1999
1,000,000 SHARES OF CLASS A COMMON STOCK
AND 1,000,000 SHARES OF CLASS B COMMON STOCK
YOUNETWORK CORPORATION
YouNetwork Corporation, a Delaware corporation is hereby offering
1,000,000 shares of class A common stock, par value $.0001 per share, and
1,000,000 shares of class B common stock, par value $.0001. The shares are
being distributed by us to new members of our online consumer network.
WE URGE YOU TO READ THE RISK FACTORS BEGINNING ON PAGE 6, ALONG WITH THIS
PROSPECTUS BEFORE YOU MAKE YOUR INVESTMENT DECISION.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these shares, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
We will not receive proceeds from the sale of our class A or class B
shares. One class A share will be offered to each of our first 250,000 new
members at no cost. The remaining 750,000 class A shares will be distributed to
our members based on net value. Class B shares may only be purchased with a
rebate balance. We will receive an indirect economic benefit from the sale of
our class B shares to the extent that our obligation to pay rebate dollars to
our members will be reduced.
<TABLE>
<CAPTION>
PER CLASS A PER CLASS B
SHARE TOTAL SHARE TOTAL
------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Initial public offering price ......... $ 0.00 $ 0.00 $ 1.00 $ 1.00
Proceeds .............................. $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
PROSPECTUS DATED JULY 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary ....................................................................... 3
The Offering ............................................................................. 4
Summary Financial Information ............................................................ 5
Risk Factors ............................................................................. 6
We have no operating history for you to judge our prospects ............................. 6
We have had losses and anticipate that this will continue in the foreseeable future ..... 6
We depend on our own developed system and computer infrastructure and will be adversely
affected by any failure or damage to our system ....................................... 6
Despite our security measures we will always be vulnerable to computer viruses and
physical or electronic break-ins, which could hinder electronic commerce and the
demand for our products and services .................................................. 7
Our success is dependent on the continued growth of online commerce ..................... 7
If we do not continually upgrade technology we may not be able to compete in our
industry .............................................................................. 7
Our operations could be materially adversely affected if we are unable to
maintain relationships with our vendors and distributors .............................. 8
Sales tax collection by states may adversely affect our growth .......................... 8
We need to manage our growth effectively ................................................ 8
The loss of the services of our President, Kyle S. Taylor, Chief Executive Officer, Don
S. Senerath and of our key personnel could impair our chances for success ............. 8
Failure of our computer systems and software products to be year 2000 compliant could
negatively impact our business ........................................................ 9
We face significant competition in the electronic commerce network for members,
consumers, visitors and from more established competitors ............................. 9
We must establish and maintain our brand name, YouNetwork ............................... 9
We are heavily dependent on our proprietary technology, tracking and net value .......... 10
We may be held liable for online content provided by us or third parties ................ 10
Government regulation and legal uncertainties could add additional costs to doing
business on the internet............................................................... 10
We have no independent directors, audit or compensation committee ....................... 11
We will not receive any proceeds and we may be unable to raise additional capital in the
future, which would adversely affect your investment .................................. 11
The price investors pay for our class B shares is higher than the per share
value of our net assets and is also higher than the price paid by our founders and
prior investors ....................................................................... 11
We may not be able to achieve profitability in the future ............................... 11
You may not be able to sell your shares unless a public market develops for our 11
securities
Capitalization ........................................................................... 12
Dividend Policy .......................................................................... 13
Dilution ................................................................................. 14
Plan of Operation ........................................................................ 15
Business ................................................................................. 22
Industry Background ...................................................................... 24
Management ............................................................................... 31
Certain Transactions ..................................................................... 34
Principal Stockholders ................................................................... 36
Description of Shares .................................................................... 37
Plan of Distribution ..................................................................... 39
Shares Eligible for Future Sale .......................................................... 40
Disclosure of Commission position on Indemnification for Securities Act Liabilities ...... 40
Transfer Agent and Registrar ............................................................. 41
Legal Matters ............................................................................ 41
Experts .................................................................................. 41
Additional Information ................................................................... 41
Index to Financial Statements ............................................................ F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
You should carefully read the entire prospectus, including the "Risk
Factors" section, and the financial statements and related notes.
YOUNETWORK CORPORATION
YouNetwork, a Delaware corporation, is a development stage company which
is poised to launch a unique and novel online consumer network. By combining
the virtues of cooperative marketing with incentives designed to reward a
member's purchasing influence, our consumer network will seek to develop a
sizeable membership base (without entry fees), and distinguish itself from the
emerging wave of direct internet marketing companies, which are seeking to tap
the rapidly developing market for internet commerce.
We have developed proprietary tracking technology, which will be utilized
to track the referrals of our members, and to pay rebates to a member based on
purchases and referrals made by a member and a referred member. Each member of
our consumer network may sponsor an individual for membership on our consumer
network by sending an e-mail invitation or providing a sponsor code to a member
referred individual.
Our principal executive offices are located at 220 East 23rd Street, Suite
607 New York, New York 10010, and our telephone number at this address is (212)
576-2030. We maintain a website at www.YouNetwork.com.
This is neither a solicitation to buy nor an offer to sell to persons
in the following jurisdictions: Alabama, Arizona, Arkansas, California,
Connecticut, Idaho, Kansas, Maryland, Massachusetts, Michigan, Minnesota,
Missouri, Montana, Nebraska, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania,
South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and no
purchase of these securities by persons in these jurisdictions is authorized.
3
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THE OFFERING
SHARES OFFERED................ 1,000,000 shares of class A common stock and
1,000,000 shares of class B common stock. We are
distributing the first 250,000 class A shares to
the first 250,000 new members of our consumer
network at no cost, our remaining 750,000 class A
shares will be distributed to members based on
net value. Our class B shares are offered to our
members at a price of $1.00 per share. Class B
shares may only be paid with rebate dollars
accumulated by our members through the purchase
of our products and services.
SHARES OF COMMON STOCK
OUTSTANDING BEFORE OFFERING... 41,159,452
SHARES OF COMMON STOCK
OUTSTANDING AFTER OFFERING.... 43,159,452
4
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SUMMARY FINANCIAL INFORMATION
The summary financial information presented below as of December 31, 1998,
and for the period from inception (January 14, 1998), to December 31, 1998, was
derived from our audited financial statements appearing elsewhere in this
prospectus. The financial information for the three months ended March 31,
1999, was derived from our unaudited financial statements. In the opinion of
management the financial information for the three months ended March 31, 1999,
contain all adjustments, consisting only of normal recurring accruals necessary
for the fair presentation of the results of operations and financial position
for such period. You should read this summary financial information in
conjunction with our plan of operation, financial statements and related notes
to the financial statements, each appearing elsewhere in this prospectus.
On February 3, 1999, YouNetwork Corp., a New York corporation merged into
us, YouNetwork, a Delaware corporation. All shareholders of the New York
corporation exchanged their shares of common stock for our shares of class C
common stock, $.0001 par value per share, on a basis of 330,000 shares of our
class C common stock for each outstanding share of the New York corporation.
The reason for the merger was to take advantage of the laws of the State of
Delaware. Unless otherwise indicated, all information included in this
prospectus has been adjusted to reflect the recapitalization and exchange of
each share of common stock of our predecessor, YouNetwork Corp., for 330,000
shares of our Class C common stock.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(JANUARY 14, 1998) FOR THE THREE
TO MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------------ ------------------
<S> <C> <C>
OPERATING STATEMENT INFORMATION:
Revenues ..................................................... $ -- $ --
Expenses ..................................................... (160,848) (89,626)
Operating Loss ............................................... (160,848) (89,626)
Interest Expense ............................................. (1,975) (1,063)
Net Loss During the Development Stage ........................ $ (162,823) (90,689)
Net Loss Per Common Share, Basic and Diluted ................. $ (.01)(1)
Weighted Average of Common Shares Outstanding Basic and
Diluted ..................................................... 24,916,434 (1) 34,993,89
DECEMBER 31, 1998 MARCH 31, 1999
------------------------ ------------------
BALANCE SHEET INFORMATION:
Cash ......................................................... $ 178,068 $ 355,902
Working Capital Deficit ...................................... (57,363) 86,442
Total Assets ................................................. 299,034 712,959
Capital Lease Obligations, Excluding Current Portion ......... 25,554 21,808
Stockholders' Equity ......................................... 37,377 409,688
</TABLE>
- ----------
(1) Amounts retroactively adjusted to reflect the merger on February 3, 1999.
5
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RISK FACTORS
The shares offered in this prospectus are highly speculative in nature and
involve a high degree of risk. You should consider very carefully certain risks
and speculative factors inherent in and affecting our business prior to the
purchase of any of our shares offered to you in this prospectus, as well as all
of the other matters set forth elsewhere in this prospectus.
WE HAVE NO OPERATING HISTORY FOR YOU TO JUDGE OUR PROSPECTS.
We were incorporated on January 14, 1998, under the name YouNetwork Corp.,
a New York corporation. Pursuant to a merger effective February 3, 1999, the
New York corporation merged into us. The purpose of the merger is to take
advantage of the laws of the state of Delaware.
Since inception we have not yet generated any revenue. We have devoted all
our efforts to various organizational activities, including our effort to build
out our website and to develop our proprietary tracking technology. As a
result, we have no operating history upon which you can evaluate us. Our
business must be considered in light of the risks, expenses and problems
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as online
commerce and the internet.
To address these risks we must, among other things, develop, maintain and
increase our membership base, continue to develop and upgrade our technology,
respond to competitive developments, and attract, retain and motivate qualified
personnel. There can be no assurance that we will be successful in addressing
such risks, and any failure to do so could have a material adverse effect on
our business, results of operations and financial condition.
WE HAVE HAD LOSSES AND ANTICIPATE THAT THIS WILL CONTINUE IN THE FORSEEABLE
FUTURE.
As of March 31, 1999, we had an accumulated deficit of $253,512, and we
anticipate that we will incur net losses for the foreseeable future. The extent
of these losses will be dependent, in part, on our ability to attract and build
a membership base, to generate sales, and to offer products and services at
competitive prices. We expect our operating expenses to increase, especially in
the areas of sales and marketing and brand promotion, and, as a result, we will
need to commence operations and generate revenue if profitability is to be
achieved. Although we intend to develop our marketing of products and services,
no assurance can be given that we will be able to achieve these objectives or
that, if these objectives are achieved, we will ever be profitable.
To the extent that our net revenue does not grow at anticipated rates, or
that increases in operating expenses are not followed by commensurate increases
in net revenue, or that we are unable to adjust operating expense levels
accordingly, our business, results of operations and financial condition will
be materially and adversely affected. There can be no assurance that our
operating losses will not increase in the future or that we will ever achieve
or sustain profitability. The establishment of our operations is contingent
upon our success in establishing markets for our products and services and
achieving profitable operations.
WE DEPEND ON OUR OWN DEVELOPED SYSTEM AND COMPUTER INFRASTRUCTURE AND WILL BE
ADVERSELY AFFECTED BY ANY FAILURE OR DAMAGE TO OUR SYSTEM.
Substantially all of our communications and computer hardware is located
at our offices in New York, New York. Our system is vulnerable to damage from
fire, flood, earthquakes, power loss, telecommunications failures, break-ins
and similar events. Aside from "off-site" backups of essential systems, we will
carry business interruption insurance; however, we will not have a secondary
"off-site" systems or a formal disaster recovery plan. A system failure at our
present location would have a major adverse affect on the performance of our
services.
The performance of our server and networking hardware and software
infrastructure is critical to our business and our ability to attract web users
and members to our website. Any system failure that causes an interruption in
service or decrease responsiveness of our website could impair our ability to
attract and
6
<PAGE>
retain members. Any disruption in internet access or any failure of our server
and networking systems to handle member orders would have a major adverse
effect on the performance of our server, which could have a material adverse
effect on our business, results of operations and financial condition.
We will use an internally developed system for our website and
substantially all aspects of our transaction processing and order management
systems. Reliability and efficiency of our system remains untested since we
have not, with the exception of beta testing, commenced operating our consumer
network. Moreover, our lack of operational experience and our inability to
modify this system as necessary to accommodate increased traffic on our website
or increased volume through our transaction processing systems may result in
system disruptions, slow response times, impaired quality and speed of order
fulfillment, and delays in reporting accurate financial information. Any of
these events could have a material adverse effect on our business, results of
operations and financial condition.
DESPITE OUR SECURITY MEASURES WE WILL ALWAYS BE VULNERABLE TO COMPUTER VIRUSES
AND PHYSICAL OR ELECTRONIC BREAK-INS, WHICH COULD HINDER ELECTRONIC COMMERCE
AND THE DEMAND FOR OUR PRODUCTS AND SERVICES.
Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptive problems caused by third parties. These disruptive problems could
lead to interruptions, delays or cessation in service to users of our services
and products. We plan to implement reasonable security measures to prevent any
physical or electronic break-ins or attacks to our facilities and system and to
minimize the effect of such if it were to occur. These measures include daily
comprehensive backups of the systems, firewell implementation and isolation of
frontline systems to only serve web connections wherever possible and deemed
necessary. As a business that depends on access of our system to numerous
unidentified remote computers and servers; our system will always be vulnerable
to electronic break-ins on our server and disruption of our services.
No assurances can be given by us regarding our security liability in case
of loss or damages, physical or electronic as a result of physical or
electronic break-ins. We currently do not anticipate expending funds
specifically for the purpose of preventing security breaches; however, future
growth of our infrastructure may be funded by additional financing, which will
include maintaining the above-mentioned security measures in the foreseeable
future. We will have a data loss insurance policy to cover our website once it
is operational. The data loss policy will insure our consumer network from the
threat of securitybreaches.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED GROWTH OF ONLINE COMMERCE.
Our future success is substantially dependent upon continued growth in the
use of the internet and the web. Use of the internet as a means of effecting
retail transactions is at an early stage of development, and demand and market
acceptance for retail marketing over the internet is uncertain. We will be
dependent on electronic commerce revenue as our sole source of revenue. We
cannot predict the extent to which consumers will be willing to shift their
purchasing habits from traditional retailers to online retailers. The internet
may not prove to be a viable commercial marketplace for a number of reasons,
including the lack of acceptable security technologies, inconsistent quality of
service and lack of availability of cost-effective, high-speed service. If the
use of the internet does not continue to grow or grows more slowly than
expected, our business, financial condition and results of operations may be
adversely affected.
IF WE DO NOT CONTINUALLY UPGRADE TECHNOLOGY WE MAY NOT BE ABLE TO COMPETE IN
OUR INDUSTRY.
We will need to continually expand and upgrade our infrastructure and
systems and ensure high levels of service, speedy operation, and reliability.
We will have to improve our methods for measuring the performance and
commercial success of our different products to better respond to customer
demands for information on product effectiveness and to better determine which
products and services can be developed most profitably. Our current and planned
personnel, financial and operating procedures and controls, may not be adequate
to support our future operations. If we are unable to manage our growth
effectively, our business will be negatively affected.
7
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OUR OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE ARE UNABLE TO
MAINTAIN RELATIONSHIPS WITH OUR VENDORS AND DISTRIBUTORS.
We will be totally dependant on vendors and distributors for all of our
product and service fulfillment and we have no fulfillment operation or
facility of our own. As a result, we will need to establish and maintain
relationships and affiliations with a broad array of vendors and distributors
in order to offer our members a broad based product mix at competitive and
discounted prices. There can be no assurance that we will successfully
establish and, if established, maintain relationships and affiliations with
vendors and distributors on terms satisfactory to us. An unanticipated
termination of our relationship with any vendor or distributor could materially
adversely affect our results of operations even if we were able to establish a
relationship with an alternative vendor. To the extent that vendors and
distributors do not have sufficient capacity, or are unable to satisfy on a
timely basis our requirements, our business and results of operations may be
materially adversely affected.
Moreover, the success of our consumer network will be dependent upon the
ability of vendors and distributors who will supply our products and services
to supply adequate amounts of inventory on a timely basis. The failure of
vendors and distributors to meet their commitments would have a material
adverse effect on our business, results of operations and financial condition.
All product fulfillment and post sale services will be provided by our vendor
affiliates. We will not maintain an inventory in any product line which we
market. All return policies will be posted on our website www.YouNetwork.com
under our help desk section.
SALES TAX COLLECTION BY STATES MAY ADVERSELY AFFECT OUR GROWTH.
One or more states may seek to impose sales tax collection obligations on
an out-of-state company such as us which engages in online commerce. A
successful assertion by one or more states that we should collect sales or
other similar taxes on the sale of merchandise could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY.
We may experience rapid growth, which may place a significant strain on
our managerial, financial and operational resources. We will be required to
manage multiple relationships with various members, vendors distributors and
other third parties. These requirements will be strained in the event of our
rapid growth or in the number of third party relationships, and there can be no
assurance that our systems, procedures or controls will be adequate to support
our operations, or that our management will be able to manage any growth
effectively. We will need to:
o improve our financial management and controls, reporting systems and
procedures;
o expand, train and manage our workforce for marketing, sales and support,
product development, site design, maintenance, network and equipment
repair; and
o manage multiple relationships with various vendors, distributors and
other third parties.
THE LOSS OF THE SERVICES OF OUR PRESIDENT, KYLE S. TAYLOR, CHIEF EXECUTIVE
OFFICER, DON S. SENERATH AND OF OUR KEY PERSONNEL COULD IMPAIR OUR CHANCES FOR
SUCCESS.
Our performance will be substantially dependent on the performance of our
executive officers Kyle S. Taylor, President and Don S. Senerath, Chief
Executive Officer who have worked together only a short period of time. The
loss of the services of either of our executive officers could have a material
adverse effect on our business, results of operations and financial condition.
Each officer will devote his full-time to working on our affairs.
Competition for senior management, experienced media sales and marketing
personnel, qualified web engineers and other employees is intense, and there
can be no assurance that we will be successful in attracting and retaining such
personnel. Our failure to successfully manage our personnel requirements would
have a material adverse effect on our business, results of operations and
financial condition. In
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connection with our key executive officers, we currently have keyman life
insurance policies covering the life of Mr. Taylor and Mr. Senerath in the
amounts of $1,000,000 and $3,000,000, respectively. We do not have any
employment agreements with our employees or key personnel; however, Messrs.
Taylor and Senerath are subject to certain terms of an agreement among us,
Taylor and Senerath. "See Management--Agreements on page 32".
FAILURE OF OUR COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
COULD NEGATIVELY IMPACT OUR BUSINESS.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results. We believe that our products and
internal systems are year 2000 compliant. No assurances have been given to us
by vendors or third parties, which supply us with components, regarding the
Year 2000 compliance. The failure of products or systems maintained by third
parties or our products and systems to be year 2000 compliant could cause us to
incur significant expenses to remedy any problems, or seriously damage our
business. We have not incurred significant costs for these purposes and we do
not believe that we will incur significant costs for these purposes in the
forseeable future.
As of June 7, 1999, we estimate the reasonable cost to become Year 2000
compliance to be as follows: (a) systems survey approximately $ 10,000,
hardware systems upgrade and swapping approximately $60,000, software
re-writing if any, $40,000; and (d) miscellaneous administrative costs of
$20,000. It is expected that such expenditures will not have a material effect
on the financial condition and results of our operations. The funds to insure
year 2000 compliance will be from current and future private or public
financing. There can be no assurance that we will be able to raise the
necessary financing to assure Year 2000 compliance or that financing will be
available in amounts or on terms acceptable to us, if at all.
WE FACE SIGNIFICANT COMPETITION IN THE ELECTRONIC COMMERCE NETWORK FOR MEMBERS,
CONSUMERS, VISITORS AND FROM MORE ESTABLISHED COMPETITORS.
The market for electronic commerce direct selling channels on the internet
is new and rapidly evolving, and competition for members, consumers, visitors
and more established competitors is intense and is expected to increase
significantly in the future. Barriers to entry are relatively insubstantial. We
believe that the principal competitive factors for companies seeking to create
electronic commerce networks on the internet are critical mass, functionality,
brand recognition, member affinity and loyalty, broad demographic focus and
open access for visitors. Our primary competitors, which are primarily focused
on creating electronic commerce networks on the internet, include such
companies as: Amazon.com, Value America, Shopping.com, Buy.com, the NetMarket
division of Cendent Corporation, and Ebay.com.
Nearly all of our existing and potential competitors, web directories,
search engines and large traditional media companies, have longer operating
histories in the web market, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than us.
Our competitors are able to undertake more extensive marketing campaigns for
their brands and services, and make more attractive offers to potential
employees, vendor affiliates, commerce companies and third-party content
providers.
There can be no assurance that our competitors will not experience greater
growth in traffic than us, which could have the effect of making their websites
more attractive to vendors or that vendors will not sever or elect not to renew
their relationships with us. There can also be no assurance we will be able to
compete successfully against our current or future competitors or that
competition will not have a material adverse effect on our business, results of
operations and financial condition.
WE MUST ESTABLISH AND MAINTAIN OUR BRAND NAME, YOUNETWORK.
We believe that establishing and maintaining the YouNetwork brand will be
critical to attracting and expanding our member base, web traffic and commerce
relationships. We also believe that the importance
9
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of brand recognition will increase due to the growing number of internet sites
and the low barriers to entry. If members, visitors to our website, businesses,
vendors or distributors do not perceive our existing services to be of high
quality, or if we alter or modify our brand image, introduce new services or
enter into new business ventures that are not favorably received by such
parties, the value of our brand could be diluted, thereby, decreasing the
attractiveness of our website to such parties. We recently submitted an
application to register our servicemark, "YouNetwork" with the United States
Patent and Trademark Office.
WE ARE HEAVILY DEPENDENT ON OUR PROPRIETARY TECHNOLOGY, TRACKING AND NET VALUE.
We regard our proprietary technology such as tracking and net value as
proprietary. We will attempt to protect it by relying on trademark, service
mark and trade secret laws and other methods. We also intend to enter into
confidentiality agreements with our employees and consultants. Despite these
precautions it may be possible for a third party to copy or otherwise obtain
and use our proprietary information without authorization or to develop similar
technology independently.
WE MAY BE HELD LIABLE FOR ONLINE CONTENT PROVIDED BY US OR THIRD PARTIES.
Materials may be downloaded and distributed to others by the on-line or
internet services offered by us or the internet service providers with which we
have a relationship. If this happens, claims may be made against us for
defamation, negligence, copyright or trademark infringement or some other
reason. These claims or the imposition of liability may have a negative effect
on our business, results of operations and financial condition.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in internet-related businesses are
uncertain and still evolving. No assurance can be given as to the future
viability or value of any of our proprietary rights. There can be no assurance
that the steps we take have prevented or will prevent misappropriation or
infringement of our proprietary information.
There can be no assurance that our business activities will not or have
not infringed upon the proprietary rights of others or that other parties will
not assert infringement claims against us. Such claims and any resultant
litigation, should it occur, might subject us to significant liability for
damages and might result in invalidation of our proprietary rights, and even if
not meritorious, could be time consuming, expensive to defend, and result in
the diversion of management time and attention, any of which might have a
material adverse effect on our business, results of operations and financial
condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO
DOING BUSINESS ON THE INTERNET.
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there
are currently few laws or regulations directly applicable to access to commerce
on the internet. Due to the increasing popularity and use of the internet, a
number of legislative and regulatory proposals are under consideration by
federal, state, local governmental organizations, and it is possible that a
number of laws or regulations may be adopted with respect to the internet
relating to such issues as user privacy, taxation, infringement, pricing,
quality of products and services and intellectual property ownership. The
adoption of any such laws or regulations may decrease the growth in the use of
the internet, which could in turn decrease the demand for our community,
increase our cost of doing business, or otherwise have a material adverse
effect on our business, results of operations and financial condition. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on our business, results of operations and
financial condition.
The Federal Trade Commission and most states prohibit certain types of
multi-level sales programs. The statutes in question generally prohibit sales
promotions that require a participant to give consideration in exchange for the
opportunity to receive remuneration for soliciting more participants or buyers.
We believe that these laws have no application to our consumer network rebate
program; however, there are certain states namely: Alaska, South Carolina,
Florida and West Virginia, which prohibit the sharing
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<PAGE>
of any consideration among participants in multi-level sales programs. Although
residents of those states will not be offered the shares in this offering,
there can be no assurance that our rebate program will not be subject to
challenge in other states where we intend to do business.
WE HAVE NO INDEPENDENT DIRECTORS, AUDIT OR COMPENSATION COMMITTEE.
Currently, we have no independent directors, an audit or compensation
committee. We are currently in the process of recruiting two independent
directors. The board of directors intends to have a standing Audit Committee
shortly after the nomination of its independent directors. The Audit Committee
will assist the board of directors in exercising its fiduciary responsibilities
for oversight of audit and related matters, including corporate accounting,
reporting and control practices. It will be responsible for recommending to the
board of directors the independent auditors for the following year. We intend
to have the Audit Committee meet periodically with management, financial
personnel and the independent auditors to review internal accounting controls
and auditing and financial reporting matters.
WE WILL NOT RECEIVE ANY PROCEEDS, AND WE MAY BE UNABLE TO RAISE ADDITIONAL
CAPITAL IN THE FUTURE, WHICH WOULD ADVERSELY AFFECT YOUR INVESTMENT.
We will not receive proceeds from the sale of class A or class B shares.
Moreover, we currently have no revenue and do not expect to have any revenue
until we commence operations following this offering; however, we currently
anticipate that we have sufficient capital to meet our needs for working
capital and capital expenditures for at least the next 6 months. After 6 months
we will need to raise additional funds through a private or public offering of
our securities in order to fund our operations while we build our customer
base. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution, and those
securities may have rights, preferences or privileges senior to those
securities held by existing stockholders. There can be no assurance that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or not available on acceptable terms, we may
not be able to fund our future operations, promote our brand as we desire, take
advantage of unanticipated acquisition opportunities, develop or enhance
services or respond to competitive pressures. Any such inability could have a
material adverse effect on our business, results of operations and financial
condition.
THE PRICE INVESTORS PAY FOR OUR CLASS B SHARES IS HIGHER THAN THE PER SHARE
VALUE OF OUR NET ASSETS AND IS ALSO HIGHER THAN THE PRICE PAID BY OUR FOUNDERS
AND PRIOR INVESTORS.
The initial public offering price per share of our class B common stock is
substantially higher than the net tangible book value per share of our
outstanding common stock. Purchasers of our class B common stock will suffer
immediate and substantial dilution of $ 0.972 per share, or approximately 97.2%
of the assumed initial public offering price of $1.00 per class B share.
Further, existing stockholders, including founders, purchased or were issued
their shares at an average price of $0.02 per share as compared to the
anticipated initial public offering price of $1.00 per class B share.
WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY IN THE FUTURE.
We may be unable to operate as a going concern because we have suffered
recurring losses from operations and have a working capital deficiency. Our
independent accountants have included an explanatory paragraph stating that our
financial statements have been prepared assuming that we will continue as a
going concern and that we have suffered recurring losses from operations and
have a working capital deficiency which cause substantial doubt as to our
ability to do so.
YOU MAY NOT BE ABLE TO SELL YOUR SHARES UNLESS A PUBLIC MARKET DEVELOPS FOR OUR
SECURITIES.
The initial public offering price of the class B shares has been
arbitrarily determined by us and is not necessarily related to our assets, book
value, results of operations, or any other established criteria of value. Prior
to the offering, there has been no public market for our shares. Failure to
develop or maintain an active trading market could negatively effect the price
of our shares.
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<PAGE>
CAPITALIZATION
On February 3, 1999, YouNetwork Corp., a New York corporation merged into
us. All stockholders of the New York corporation exchanged their shares of
common stock for shares of our class C common stock, $.0001 par value per
share, on a basis of 330,000 shares of our class C common stock for each
outstanding share of the New York corporation's common stock. The reason for
the merger was to take advantage of the laws of the State of Delaware.
The following table sets forth: (1) the historical capitalization of
YouNetwork Corp. a New York corporation as of March 31, 1999; (2) pro forma
effect of the issuance of 2,050,000 shares of our class C common stock through
a private placement in April 1999, for consideration of $1,025,000; and (3) as
adjusted for: (a) the issuance of 1,000,000 shares of class A common stock for
no cash proceeds with an assigned value of $.50 per share based on our private
placement of our common stock, and the recognition of a charge to operations of
$500,000 for promotion costs, (b) the issuance of 1,000,000 shares of class B
common stock for no cash proceeds, and (c) offering costs of approximately
$257,000, which will be offset against additional-paid-in-capital.
You should read this table in conjunction with our financial statements,
and the related notes thereto, and other financial information included in this
prospectus.
<TABLE>
<CAPTION>
YOUNETWORK PRO FORMA YOUNETWORK
(HISTORICAL) ADJUSTMENTS PRO FORMA AS ADJUSTED
-------------- ------------- ------------- --------------
(1) (2) (1) (2) (3)
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Long-term liabilities:
Capital lease obligation ................... $ 21,808 $ -- $ 21,808 $ 21,808
Stockholders' Equity:
class A common stock, $.0001 par
value, 1,500,000 shares authorized, no
shares issued and outstanding
YouNetwork Corp. (historical) and
1,000,000 shares issued and
outstanding as adjusted .................. -- -- -- 100
class B common stock, $.0001 par
value, 1,500,000 shares authorized, no
shares issued and outstanding
YouNetwork Corporation (historical)
and 1,000,000 shares issued and
outstanding as adjusted .................. -- -- -- 100
class C common stock, $.0001 par
value, 247,000,000 shares authorized;
39,109,452 shares issued and
outstanding YouNetwork Corporation
(historical); 41,159,452 issued and
outstanding pro forma and as adjusted..... 3,911 205 4,116 4,116
Additional-paid-in-capital ................ 659,289 1,024,795 1,684,084 1,926,884
Accumulated Deficit ....................... (253,512) -- (253,512) (753,512)
---------- ---------- ---------- ----------
Total stockholder's equity ................ 409,688 1,025,000 1,434,688 1,177,688
---------- ---------- ---------- ----------
Total capitalization ..................... $ 431,496 $1,025,000 $1,456,496 $1,199,496
========== ========== ========== ==========
</TABLE>
We will not receive any proceeds from the sale of our class A or class B
shares. One class A share will be offered to each of the first 250,000 members
at no cost. The remaining 750,000 class A shares will be offered to a member
based on each member's net value. Class B shares in this offering are offered
to a member at a rate of one share for each $1.00 of a member's rebate balance.
A rebate balance is created when a member is credited for a percentage of the
value of products or services purchased on our website.
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<PAGE>
A member may choose to have their rebate balance paid to them in cash, purchase
additional products or services or purchase class B shares in this offering. If
a member chooses to purchase class B shares with his or her rebate dollars, the
rebate balance will be reduced $1.00 for each class B share purchased. Since a
rebate balance is a liability owed by us to our members, the purchase of a
class B share will offset an outstanding liability to those members who choose
to purchase a class B share with their rebate dollars.
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock, but to retain our earnings, if
any, for the operation and expansion of our business. Dividends will be subject
to the discretion of our board of directors and will be contingent on future
earnings, if any, our, financial condition, capital requirements, general
business conditions and other factors as our board of directors' deem relevant.
13
<PAGE>
DILUTION
Our members who receive shares of class A common stock will experience no
dilution in their investment since they will receive their shares for no
monetary payment. Members' who purchase our shares of class B common stock will
experience immediate and substantial dilution in the net tangible book value of
their investment. The difference between the initial public offering price per
share of class B common stock and the net tangible book value per share of
common stock after this offering constitutes the dilution per share of class B
common stock to investors in this offering. Net tangible book value per share
is determined by dividing the net tangible book value or total tangible assets
less total liabilities by the number of outstanding shares of common stock. As
of March 31, 1999, we had a net tangible book value of $409,688, approximately
$.010 per share of common stock. If we give effect to the distribution of
1,000,000 shares of class A common stock for no monetary payment, and 1,000,000
shares of class B common stock, at an assumed initial public offering price of
$1.00 per share, the net tangible book value on March 31, 1999 would have been
$1,152,688, or $.028 per share. This represents an immediate increase in the
net tangible book value of approximately $.018 or an increase of 268% per share
to existing stockholders and an immediate dilution of $0.972 per share or 97.2%
to new investors in class B common stock. The following table illustrates the
per share dilution assuming the distribution of 1,000,000 shares of class A
common stock for no monetary consideration and the sale of 1,000,000 shares of
class B common stock for $1.00 per share to be paid by a debit to a member's
rebate balance.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share for class B common stock $ 1.00
Net tangible book value per share as of December 31, 1998 ............... $ 0.010
-------
Increase per share attributable to this offering ........................ $0.018
-------
Net tangible book value per share after this offering ................... $ 0.028
-------
Dilution per share to new investors in class B common stock ............. $ 0.972
-------
</TABLE>
The following table summarizes, as of March 31, 1999, the number of shares
of common stock purchased from us, the total consideration paid to us and the
average price per share paid by existing stockholders and by new investors.
Existing stockholders shares does not include 2,050,000 shares of our class C
common stock for consideration of $1,025,000, issued in a private placement in
April 1999.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders .......... 39,109,452 95.14% $ 663,200 47.16% $ 0.02
---------- ------ ---------- ------ -------
New Investors
(class B common stock) ......... 1,000,000 2.43 743,000 52.84 0.74
(class A common stock) ......... 1,000,000 2.43 -- -- --
---------- ------ ---------- ------ -------
Total ....................... 41,109,452 100.00% $1,406,200 100.00%
========== ====== ========== ======
</TABLE>
14
<PAGE>
PLAN OF OPERATION
The following discussion and analysis of the financial condition and
results of our operations should be read in conjunction with, and is qualified
in its entirety by, the more detailed information including the summary
financial information and our financial statements and the notes thereto
included elsewhere in this prospectus. This prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from the results discussed in the forward-looking statements.
Factors that may cause or contribute to such differences include those
discussed in "Risk Factors," as well as those discussed elsewhere in this
prospectus.
OVERVIEW.
We are a development stage company, which is poised to launch a unique
online consumer network. Our consumer network will offer a broad range of
consumer products and services through our website, www.YouNetwork.com.
Our website will be operational when we offer the shares in this offering.
We were incorporated on January 14, 1998, and have not yet commenced
offering products or services for sale. Since our inception we have been
primarily engaged in the development of our computer software programs,
negotiating agreements with our vendors raising capital and initial planning
and development of the our website and operations. As a result, there has not
been any operating revenue generated by utilization of our services or products
through December 31, 1998, and the three months ended, March 31, 1999.
We believe that our consumer network is unique in that we will utilize our
proprietary tracking technology to track the referrals of a member, and to pay
rebates to a member based on his or her purchases, and the purchases made by
such referrals. Each member of our consumer network may sponsor an individual
for membership on our consumer network by sending an e-mail invitation or
providing a sponsor code to a member referred individual.
A member will receive a rebate based upon purchases made by the member as
well as the purchases made by a new member who they refer, a direct referral. A
member will also receive rebates based upon purchases by any indirect referral,
i.e., an individual who is referred to us by the member's direct referral. A
member's referral is tracked to the fifth level of referral. By way of example,
a member who is being tracked refers member number one, the first level
referral; member number one refers member number two, the second level
referral; member number two refers member number three, the third level
referral; member number three refers member number four, the fourth level
referral; and member number four refers member number five, the fifth level
referral. Rebates will be credited to the account of the tracked member for
purchases made by first level referrals based upon a designated percentage of
the rebate. A rebate at descending percentage rates will be credited to the
account of a tracked member for purchases made by the second through fifth
level referrals.
When a member, or the member's direct or indirect referral purchases a
product or service, a cash rebate is recorded on a member's home page as a
pending rebate balance. The pending rebate balance is not available to the
member until the transaction has been confirmed and the applicable time period
in which a product may be returned has elapsed, which varies from 5 to 40
business days. The pending rebate balance is then transferred to a member's
available rebate balance. A member can choose to receive any portion of the
available rebate balance in the form of cash, use it to purchase other products
or services, or apply the rebate balance to purchase class B shares at the
purchase price of $1.00 of available rebate dollars. For example, if a member
purchased a book on our website for $20.00 with a $1.25 rebate, and we have a
30-day return policy on our books, the $1.25 rebate is recorded in the member's
pending rebate balance. If the product is not returned within 30 days, and the
transaction confirmed, the $1.25 is transferred from the member's pending
balance to his or her available rebate balance.
Each product is assigned a gross markup and rebate percentage by
our merchandising staff. Rebates are based on a percentage of selling price and
are credited to members when the purchase is made. Rebates earned by members
based on merchandise purchased or services provided will be recorded as a
reduction of the corresponding revenue.
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<PAGE>
The rebate percentage for each direct referral of a member, and each
indirect referral, through the fifth level of referral, are totaled to
determine a member's word-of-mouth influence, which we define as net value,
within our membership. One class A share will be offered at no cost to the
first 250,000 individuals who register to become a consumer network member;
however, the remaining 750,000 class A shares will be distributed to members
based on their net value. Net value will also determine a member's entitlement
to future network promotions.
A member will purchase our products with a major credit card by providing
the requested information on our website, www.YouNetwork.com. We will only sell
our products through our website. Once we have received the necessary
information, and confirmed the order from our purchasing member, we will
electronically transfer the order to a third-party distributor. The distributor
will fulfill the order directly to our purchasing member by delivering the
product through the U.S. mail or courier service. When the product has been
shipped we are notified and the member's credit card charge is processed. The
distributor generates an invoice for the wholesale of goods to us, which is
recorded on our books as an account payable. After the goods are shipped and
invoiced, we will take legal possession of our product, and are responsible to
our members for any claims or returns. The sale of a consumer product will be
recognized by us as revenue. At this time revenues are recognized and related
rebates are recorded. We will establish an allowance for any claims or returns
of our products, which are not a vendor or distributor's responsibility.
VENDOR AND DISTRIBUTION AGREEMENTS.
On March 6, 1998, we entered into an agreement with Qwest International
Inc., a successor in interest to LCI International Telecom Corp., to solicit
orders for long distance service. Under the agreement, Qwest will pay us a 10%
commission on toll revenue generated by our members during its term and up to a
maximum of 24 months following termination. The commission is currently 10% of
our collected revenue relating to services sold by us (excluding taxes,
installation charges, subscription fees and local loops). Collected revenue
will only be realized for those subscribers who remain on the Qwest service a
minimum of 30 days.
If in any month the disconnect percentage of established subscribers meet
or exceeds 15% of our new subscribers within that same 30 day period, and if we
fail to meet the established disconnect percentage within 30 days of notice
from Qwest of an unacceptable disconnect percentage, Qwest may terminate the
agreement and no usage commission will be payable by Qwest. The industry
standard for such disconnects average 15% of subscribers within the first three
months of the date service is sold to a subscribers, 12% for the three months
after the initial three month period, and 7% for each month thereafter.
We will recognize revenue for installation commissions at the time of a
newly referred subscriber's first usage of the service, as defined and limited
by the agreement. Under the agreement, Qwest will recover all monies advanced
to us at a rate of 100% holdback of installation commissions. We will record a
reduction of our liability for deferred revenue when such installation revenue
is recognized. As payment of the usage commission is based on collected
revenue, as defined in the agreement, we will provide an allowance for possible
uncollected commissions. Usage commissions earned in accordance with our
agreement with Qwest will be recorded as revenue at the time Qwest collects
payment for those services provided.
A member may register to receive our long distance telephone service
through our website. A member who requests long distance service through our
website will be billed directly by our service provider, currently, Qwest
International, Inc. Qwest will pay us $5.00 for each newly installed Qwest
subscriber. Commissions are payable by Qwest approximately 45 days following
the end of the month in which collected revenue is collected, or billed revenue
is billed.
Pursuant to the terms of the agreement, Qwest advanced to us approximately
$175,000 as of March 31, 1998. Commissions earned for the referral of customers
will be offset against these advances. Advances made in excess of commissions
earned are offset against advances payable by us on the earlier of the
termination of the agreement or twelve months from the date of the agreement.
The initial term of the agreement shall be three years; the agreement shall be
renewed thereafter automatically on a year to year basis. Each party may
terminate this Agreement at any time during a renewal term upon 30 days prior
written notice. Qwest may cancel this agreement if we fail to attain the agreed
upon monthly revenue volume from our subscribers discussed above.
16
<PAGE>
On June 16, 1998, we entered into a distribution agreement with Ingram
Micro, Inc. to purchase computers, hardware, software and peripherals. Upon
receipt of an invoice, we pay Ingram Micro for all products ordered, including
shipping and handling. Either party may terminate this agreement at any time.
We entered into a distribution agreement on January 19, 1999, and February
15, 1999, with Baker & Taylor, Inc. for the purchase of books, spoken word
audio products, pre-recorded video products, laser disc and DVD formats,
multi-media products and music audio products. The terms of both agreements are
for a one year period ending January 18, 2000, and February 14, 2000,
respectively. Unless notified by the other party, both agreements are
automatically renewable for five consecutive periods of one year. We pay Baker
& Taylor for all products ordered, including shipping and handling, within 30
days from date of delivery to our customers. Either party may terminate either
agreement within 30 days notice of an event of default.
LICENSE AGREEMENTS.
We currently license from Baker & Taylor, Inc. and Muze, Inc. certain
databases incorporated into our website.
In July 9, 1998, we entered into a non-exclusive license with Baker &
Taylor, Inc., which distributes books, spoken word audio products and provides
certain value added services. Baker & Taylor gives us the ability to provide
access to its proprietary database to our members. Under the terms of the
agreement we will pay Baker & Taylor a license fee of $1,000 for the use of the
database for each year we use it. We will also pay a subscription fee each year
of $1,650.
The fees were payable to Baker & Taylor in July 9, 1998, and are due each
year thereafter up to July 2000, at which time the Agreement is subject to
negotiation. Baker & Taylor may increase the fee at its option after giving
notice to us. The fees will be amortized over a one year period and charged to
operations as a marketing expense. We do not purchase any products or services
under this arrangement. We can terminate this agreement for any reason by
giving 30 days prior written notice. The agreement is automatically renewed for
two consecutive periods of one year ending on July 2002.
In January 4, 1999, we also entered into a non-exclusive license with
Muze, Inc. for us to gain access to music, video and book databases for a one
year period, which will renew automatically for successive one year periods
unless either party notifies the other in writing to terminate the agreement at
least 60 days before the end of the term of any successive term. Pursuant to
the agreement, we must pay a minimum monthly license fee of $1,000 per music,
video and book database.
Muze, Inc. and Baker & Taylor, Inc. are not involved in the sale on
fulfillment of any products listed on their respective databases. Our expenses
incurred in connection with our license agreements for units sold to members
will be charged to cost of goods sold.
The introduction by us of new services that incorporate new technologies
may require us to license additional technology from others. There can be no
assurance that these licenses will continue to be available to us on
commercially reasonable terms, if at all. Our inability to obtain any of these
technology licenses could result in delays or reductions in the introduction of
new services or could adversely affect the performance of our existing services
until equivalent technology is identified, licensed and integrated. Our
insurance may not be sufficient to offset liability arising from delays or
resolutions in our services, and any liability in excess of such coverage could
have a material adverse effect.
All product fulfillment and post sale services will be provided by our
distributors. We will not maintain an inventory in any products which we
market. As a result, the costs of our operations will be limited to data
management and front-end site development, product merchandising and general
office and administration. We believe our costs will remain relatively fixed,
while our membership and revenues grow. It is expected that our margins will be
limited as we build our initial membership base and grow as our membership base
increases. It is expected that we will operate at a loss in the foreseeable
future as we develop our operating system, infrastructure and market our
website.
We have funded our activities primarily from equity financing in the
amount of $1,688,000, and from advanced commissions from Qwest International
Inc. in the approximate amount of $175,000. We will
17
<PAGE>
continue to require substantial funding to continue development of activities
and to commence sales and marketing efforts. Our capital requirements will
depend on many factors, including the problems, delays, expenses and
complications frequently encountered by development stage companies; the
progress and costs associated with our development of our computer software,
future research, marketing or other funding arrangements; the availability of
qualified personnel; the success of our sales and marketing programs; and
changes in economic, regulatory or competitive conditions of our planned
business. We have sufficient cash requirements to operate our website for the
next six months. We may seek to raise additional funding through a private
placement of another public offering. There can be no assurance that financing
will be available in amounts or on terms acceptable to us, if at all.
OUR GROWTH STRATEGY.
By offering the first 250,000 of our class A shares at no cost to each
consumer who registers to become a consumer network member, offering the
remaining 750,000 class A shares for net value; offering our class B shares to
each member for a purchase price of $1.00, which may only be paid with rebates
a member may earn by making purchases on our consumer network, and by offering
competitively priced products and purchase incentives in the form of cash
rebates, we believe that we can develop an innovative online sales channel with
low customer acquisition costs. The key elements of our approach are:
o to utilize the cost-effective direct marketing capabilities of the web
to sell products to our customer base;
o to offer equity participation to rapidly attract a sizeable membership
base;
o to develop a detailed member database;
o to continue to grow online reach and membership utilizing our
proprietary tracking technology; and
o to provide customer convenience and competitive prices to encourage
purchasing.
We believe that promoting repeat usage and membership loyalty through
equity ownership in our company will help establish us as a preferred
destination among web users.
Our future net revenues will be generated from electronic commerce
primarily through the sale of products and services on our website through our
vendor affiliations. Our increase in total net revenue will be primarily due to
expansion in our membership base, resulting in electronic commerce revenue, and
web-based vendor revenue. As we grow, our operating expenses will increase, and
we expect that our operating expenses will continue to increase as a result of
increased sales and marketing efforts, increased funding of site development,
technology and operating infrastructure and the increased general and
administrative staff needed to support our growth.
We have not generated any revenue to date and we will not until we
commence sales of products and services to persons who become members of our
consumer network. We believe that once we commence our marketing operations,
future operating results may fluctuate significantly as a result of a variety
of factors, many of which are outside of our control. These factors include
demand for the products and services we sell through the consumer network,
consumers' acceptance of electronic commerce and, in particular, direct e-mail
marketing as a medium for the purchase of goods and services, the level of
traffic on our website, the amount and timing of capital expenditures and other
costs relating to the expansion of our operations, the introduction of new or
enhanced services by us or our competitors, the availability of desirable
products and services for sale through our website, the loss of a key vendor
contract or relationship, technical difficulties with our website, general
economic conditions and economic conditions specific to the internet or all or
a portion of the technology market.
As of March 31, 1999, we had an accumulated deficit of $253,512. We
anticipate that we will incur net losses for the foreseeable future. The extent
of these losses will be contingent, in part, on the amount and rates of growth
in our net revenue from electronic commerce and our vendor affiliations. We
expect our operating expenses to increase significantly, especially in the
areas of sales and marketing and brand
18
<PAGE>
promotion, and, as a result, we will need to generate increased quarterly net
revenue if profitability is to be achieved. We believe that our operating
results are not meaningful and that the results for any period should not be
relied upon as an indication of future performance. To the extent that net
revenue does not grow at anticipated rates or that increases in our operating
expenses precede or are not subsequently followed by commensurate increases in
net revenue, or that we are unable to adjust operating expense levels
accordingly, our business, results of operations and financial condition will
be materially and adversely affected. There can be no assurance that our
operating losses will not increase in the future or that we will ever achieve
or sustain profitability.
STRATEGIC ALLIANCES.
To date, we have entered into vendor affiliations, license arrangements
and strategic alliances in order to build our electronic commerce networks.
In order to increase reach and membership, we intend to continue to seek
additional strategic relationships with our license arrangements and vendor
affiliates and distributors, including, alliances that create co-branded sites
through which we market our services. Vendor affiliations carry numerous risks
and uncertainties, including risks of entering business markets in which we
have none or limited prior experience. No assurance can be given as to our
ability to successfully integrate any businesses, products, technologies or
personnel that might be acquired in the future, and the failure to do so could
have a material adverse effect on our business, results of operations and
financial condition. In addition, there can be no assurance that we will be
successful in identifying potential vendor affiliation candidates.
Our vendor affiliations provide for order fulfillment directly to our
customers. We will not maintain an inventory in any product line which we
market. There are inherent risks coordinating with vendors for order
fulfillment, including but not limited to, product obsolescence, excess
inventory, inventory shortages resulting in unfulfilled orders, which could
materially adversely affect operating results in the future.
International Computing, LLC, formerly known as Digital Pulp Technologies,
LLC, provides software and system integration consultation services in
connection with our efforts to build out our web site and to develop our
proprietary tracking technology. Don S. Senerath, Chief Executive Officer of
YouNetwork, is a member of International Computing. For the period from
inception through December 31, 1998, we paid International Computing $89,425
for consulting services. In March 1999, we entered into an oral agreement with
International Computing to continue to provide software and systems integration
consultation services to us; it will be paid $50,000 per month for such
services through completion of the proprietary software development. Mr.
Senerath has not received a salary from us.
In March of 1999, we agreed to issue to Raw Interactive Ltd. warrants to
purchase 100,000 shares of class C common stock in consideration of certain
services to be rendered in the form of graphic design of our website. The
rights represented by this warrant are exercisable at any time commencing on
March 31, 1999, and expiring on March 1, 2000, at an exercise price of $2.00
per share provided, however, that if the warrant is exercised after our first
underwriting public offer of our common stock, the exercise price shall be the
lesser of $2.00 or 50% of the offering price for which our common stock is sold
in our first underwritten public offering, subject to adjustment in accordance
with its anti-dilution provision. After the expiration of the exercise period,
Raw Interactive will have no right to purchase any shares of the common stock
underlying this warrant.
On May 26, 1999, we entered into a master lease agreement with Leasing
Technologies, Inc., in which we leased computers, servers and other hardware.
The term of the agreement shall commence on the installation date of such
equipment for a term of 36 months.
We believe that all of the transactions set forth above with persons
affiliated with us were made on terms no less favorable to us than could have
been obtained from unaffiliated third parties. We lacked sufficient
disinterested independent directors to ratify the transaction at the time the
transactions were initiated. All future material affiliated transactions and
loans, and any forgiveness of loans, will be approved by a majority of our
independent directors who do not have an interest in the transaction and who
had access, at our expense, to our or independent legal counsel.
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RESULTS OF OPERATIONS.
From inception, operations have been in the early stages of development.
We had no revenues for the period ended December 31, 1998, and the three months
ended March 31, 1999. We incurred expenses of $162,823, and $90,689 for the
period ended December 31, 1998, and the three months ended, March 31, 1999,
respectively, consisting of compensation expense, system development costs and
other general and administrative expenses.
Compensation expenses are related to establishing strategic relationships
through license arrangements and vendor affiliations to market the business. In
addition, we incurred costs in developing our proprietary tracking system as
well as other general and administrative expenses since inception.
As of December 31, 1998, we had net operating loss carry forwards for
federal income tax purposes of approximately $162,000. There can be no
assurance that we will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforward will expire in the
fiscal year 2013. We have established a valuation allowance with respect to
these federal and state carryforwards. "See Notes to Financial Statements, Note
6."
We expect operating results to fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include demand for the products we sell through our website, consumers'
acceptance of electronic commerce and, in particular, direct e-mail marketing
as a medium for the purchase of goods and services, the level of traffic on our
website, the amount and timing of capital expenditures and other costs relating
to the expansion of our operations, the introduction of new or enhanced
services by us or our competitors, the timing and number of new hires, the
availability of desirable products and services for sale through our website,
the accuracy of our predictions regarding optimal inventory levels for
products, the loss of a key vendor affiliation or relationship by us, changes
in our pricing policy or those of our competitors, the mix of products and
services sold by us, engineering or development fees that may be paid in
connection with adding new website development and publishing tools, technical
difficulties with our website, incurrence of costs relating to general economic
conditions, and economic conditions specific to the internet or all or a
portion of the technology market. As a strategic response to changes in the
competitive environment, we may from time to time make certain pricing, service
or marketing decisions or business combinations that could have a material
adverse effect on our business, results of operations and financial condition.
In order to accelerate the promotion of our brand, we intend to significantly
increase our marketing budget, which could materially and adversely affect our
business, results of operations and financial condition. We expect to
experience seasonality in our business, with user traffic on our website
potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of our website is lower. Because web-based commerce
is an emerging market, additional seasonal and other patterns may develop in
the future as the market matures. Any seasonality is likely to cause quarterly
fluctuations in our operating results, there can be no assurance that such
patterns will not have a material adverse effect on our business, results of
operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES.
As of March 31, 1999, our principal commitments consisted of obligations
outstanding under operating and capital leases. Although we have no material
commitments for capital expenditures, we anticipate a substantial increase in
our capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel.
Our capital requirements depend on numerous factors, including, market
acceptance of our services, the amount of resources we devote to investments in
our electronic commerce networks, the resources we devote to marketing and
selling our services and our brand promotions and other factors. We have
experienced a substantial increase in our capital expenditures since our
inception consistent with the growth in our operations and staffing; we
anticipate that this will continue for the foreseeable future particularly
relating to our website and systems infrastructure. We believe that our current
cash will be sufficient to meet our anticipated needs for working capital,
capital expenditures and business expansion for the next 6 months. After 6
months, if cash generated from operations is insufficient to satisfy our
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liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. There can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all.
NO PROCEEDS FROM THE SALE OF CLASS A OR CLASS B SHARES.
We will not receive proceeds from the sale of our class A or class B
shares. One class A share will be offered to the first 250,000 members at no
cost. The remaining 750,000 class A shares will be offered to a member based on
each member's net value. A class B share in this offering is offered to a
member at a rate of one share for each $1.00 of a member's rebate balance. A
rebate balance is created when a member is credited for the value of the
product or service purchased on our website. A member may choose to have a
percentage of their rebate balance paid to them in cash, to purchase additional
products or services or to purchase a class B share in this offering. If a
member chooses to purchase a class B share with his or her rebate dollars, the
rebate balance will be debited $1.00 for each class B share purchased. Since a
rebate balance is a liability owed by us to our members, the purchase of class
B shares will offset our outstanding liability to those members who choose to
purchase a class B share with their rebate dollars. If a member chooses to
purchase a class B share with rebate dollars -- we will not have to provide a
cash rebate and his or her rebate balance will be reduced.
YEAR 2000 COMPLIANCE.
Our systems are built upon multiple layers of third party software and
hardware components. No assurances have been given to us by vendors or third
parties, which supply us with components regarding the Year 2000 compliance. We
are currently conducting a survey with our vendors and third party suppliers,
which may or may not uncover a potential source of a year 2000 non-compliance
problem. The failure of products or systems maintained by third parties or of
our products and systems to be year 2000 compliant, could cause us to incur
significant expenses to remedy any problems, or seriously damage our business.
We have not incurred significant costs for these purposes and we do not believe
that we will incur significant costs for these purposes in the foreseeable
future. In July 1999, we will begin converting our computer system to be Year
2000 compliant. As of June 1999, we have not incurred any expenses attributed
to our Year 2000 compliance efforts.
To insure year 2000 compliance we have instituted the following:
o a full scale 24 hour archival process to insure against data corruption;
o Windows NT basic input output system Year 2000 compliance is under
review; and
o we are seeking Year 2000 compliance and certification of compliance from
database vendors and third party application server software vendors.
As of June 7, 1999, we estimate the reasonable cost to become Year 2000
compliant to be as follows: (a) systems survey approximately $ 10,000, hardware
systems upgrade and swapping approximately $60,000, software re-writing if any,
$40,000; and (d) miscellaneous administrative costs of $20,000. It is expected
that such expenditures will not have a material effect on the financial
condition and results of our operations.
RECENT ACCOUNTING PRONOUNCEMENTS.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for all fiscal periods beginning after June 15, 1999. SFAS No.
133 requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
the derivative is designated as part of a hedge transaction and, if it is the
type of hedge transaction. Management of the Company anticipates that due to
its limited use of derivative instruments, the adoption of SFAS No. 133 will
not have a material impact on the Company's financial position or results of
operations.
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BUSINESS
OVERVIEW.
We are a development stage company which is poised to launch a unique and
novel online consumer network. By combining the virtues of cooperative
marketing with incentives designed to reward a member's purchasing influence,
our consumer network will seek to develop a sizeable membership base, without
entry fees, and to distinguish itself from the emerging wave of direct internet
marketing companies which are seeking to tap the rapidly developing market for
internet commerce.
We were incorporated on January 14, 1998, under the name YouNetwork Corp.,
a New York corporation. Pursuant to a merger effective, February 3, 1999, the
New York corporation merged into us, YouNetwork corporation, a Delaware
corporation. The purpose of the merger is to take advantage of the laws of the
state of Delaware.
This prospectus contains product names, trade names and trademarks of
other organizations, which are the property of their respective owners. Our
website located at www.YouNetwork.com will be operational at the time this
offering is made to our members. Nothing contained on our website should be
construed as a part of this prospectus.
OUR UNIQUE ON-LINE CONSUMER NETWORK.
We have developed proprietary tracking technology, which will be utilized
to track the referrals of our members, and to pay rebates to a member based on
purchases made by the member and member referrals. Each member of our consumer
network may sponsor an individual for membership on our network by sending an
e-mail invitation or providing a sponsor code to the referred individual.
A member will receive a rebate based upon a purchase as well as purchases
made by a new member who they refer, a direct referral. A member will also
receive rebates based upon a purchase by any indirect referral, i.e., an
individual who is referred to us by the member's direct referral. A member's
referral is tracked to the fifth level of referral. By way of example, a member
who is being tracked refers member number one, the first level referral; member
number one refers member number two, the second level referral; member number
two refers member number three, the third level referral; member number three
refers member number four, the fourth level referral; and member number four
refers member number five, the fifth level referral. Rebates will be credited
to the account of the tracked member for purchases made by first level
referrals based upon a designated percentage of the rebate. Rebates at
descending percentage rates will be credited to the account of a tracked member
for purchases made by the second through fifth level referral.
When a member or the member's direct or indirect referral purchases a
product or service, a cash rebate is recorded as a member's pending rebate
balance. The pending rebate balance is not available to the member until the
transaction has been confirmed and the applicable time period in which a
product may be returned has elapsed, which varies from 5 to 40 business days.
The pending rebate balance is then transferred to a member's available rebate
balance. A member can choose to receive any portion of the available rebate
balance in the form of cash, use it to purchase other products or services or
apply the rebate balance to purchase class B shares at the purchase price of
$1.00 of available rebate dollars. For example, if a member purchased a book
for $20.00 with a $1.25 rebate, and we have a 30-day return policy on books,
the $1.25 rebate is recorded in the member's pending rebate balance. If the
product is not returned within 30 days and the transaction confirmed, the $1.25
is transferred from the member's pending balance to his or her available rebate
balance.
The rebate percentages for each direct referral of a member, and each
indirect referral, through the fifth level of referral, are totaled to
determine a member's word-of-mouth influence, which we define as net value. The
first 250,000 individuals who register as a consumer network member will be
allotted one class A share each at no cost; however, the remaining 750,000
class A shares will be distributed to a member based on a member's net value.
Net value will also determine a member's entitlement to future network
promotions. No shares will be distributed for a fractional net value point.
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CLASS A SHARE.
We will distribute one class A share (for an aggregate of 250,000 class A
shares) to each of the first 250,000 members of our consumer network at no
cost. The remaining 750,000 class A shares will be distributed to members based
on their net value. Each member will receive one class A share for each whole
point of net value they achieve as a result of direct and indirect referrals
until such time as all the 750,000 class A shares have been distributed.
CLASS B SHARE.
Our class B shares are offered to our members at a price of $1.00 per
share. Class B shares may only be purchased with rebate dollars accumulated by
our members through the purchase of our products and services.
When a member or the member's direct or indirect referral purchases a
product or service, a cash rebate is recorded in a member's pending rebate
balance. A rebate is transferred to a member's available rebate balance,
approximately 5 to 40 business days after the transaction has been confirmed,
and the applicable return period has elapsed. A member can request his or her
available rebate in the form of cash, use it to purchase a product or service,
or to purchase a class B share at the purchase price of $1.00 of available
rebate dollars. The rebate percentage for each direct referral of a member and
each indirect referral, through the fifth level of referral are totaled to
determine a member's word-of-mouth influence which we defines as net value.
Record ownership of our class A and class B share shall be made by
bookkeeping entry. A member shall receive confirmation of his or her ownership
in an uncertificated share by e-mail. Members who request a stock certificate
to evidence their ownership in a class A or class B share shall be charged a
nominal fee for shipping and handling. We will distribute our class A and class
B shares to our members until such time as all the shares included in the
registration statement, of which this prospectus forms a part, are fully
distributed. No shares will be distributed for a fractional net value point.
The following table illustrates how net value and available rebate dollars
may be used by a member to receive class A and class B shares. The table
assumes the following: (a) six direct referrals, (b) the direct referrals make
an average of three referrals each, (c) indirect referrals have an average of
three referrals each; (d) each member spends an average of $75.00, and (e) a
member's available rebate perentage is 10.0% of the selling price with a
maximum of 65.0% of the rebate distribution provided to a member. We may adjust
a member's available rebate percentage and distribution percentage based on
marketing conditions.
<TABLE>
<CAPTION>
AVERAGE
NUMBER GROSS
OF INDIRECT GROSS TOTAL REBATE
THIS EXAMPLE SHOWS PROJECTED REBATES AND NET VALUE NUMBER OF REFERRALS VOLUME AVAILABLE DOLLARS
FOR A SINGLE MEMBER ASSUMING THE VARIABLES ON THE DIRECT PER PER REBATE PER
RIGHT FOR ONE YEAR. REFERRALS MEMBER MEMBER PERCENTAGE MEMBER
- -------------------------------------------------- ------------- ------------- ------------ ------------- --------------
6 3 $ 75.00 10.0% $ 7.50
REBATE REBATES PER TOTAL
NUMBER OF DISTRIBUTION LEVEL OF REBATES
LEVEL REBATE RATE REFERRALS NET VALUE PERCENTAGE REFERRAL PER LEVEL
----------- ------------- ------------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Member ................. 0.40 1 0.40 40.0% $ 3.00 $ 3.00
Direct Referral ........ One 0.07 6 0.42 7.0% $ 0.53 $ 3.15
Indirect Referral ...... Two 0.06 18 1.08 6.0% $ 0.45 $ 8.10
Indirect Referral ...... Three 0.05 54 2.70 5.0% $ 0.38 $ 20.25
Indirect Referral ...... Four 0.04 162 6.48 4.0% $ 0.30 $ 48.60
Indirect Referral ...... Five 0.03 486 14.58 3.0% $ 0.23 $ 109.35
Totals: ................ 727 25.66 65.0% $ 192.45
Class A shares (One class A share for each point of net value) ................................................. 25 shares
Class B shares which may be purchased(One class B share for each $1.00 of available rebate balance) ............ 192 shares
</TABLE>
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INDUSTRY BACKGROUND
GROWTH OF THE INTERNET.
The internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business
electronically. Studies by Jupiter Research report that total electronic
commerce for the calendar year 1998, reached approximately $200 billion, with
consumer commerce estimated at 10 to 15% of that total. Visa International
studies suggest that consumer electronic commerce alone will reach $100 billion
by 2001. Recent studies by Ziff-Davis Market Intelligence report that more than
23 million United States households are connected to the internet and almost 16
million of those are participating in electronic commerce. This growth is
expected to be driven by the large and growing number of personal computers
installed in homes and offices, the decreasing cost of personal computers,
easier, faster and cheaper access to the internet, improvements in network
infrastructure, the proliferation of internet content and the increasing
familiarity with and acceptance of the internet by businesses and consumers.
The internet possesses a number of unique characteristics that differentiate it
from traditional media: a lack of geographic or temporal limitations; real-time
access to dynamic and interactive content; and instantaneous communication with
a single individual or with groups of individuals. As a result of these
characteristics, web usage is expected to continue to grow rapidly. The
proliferation of users, combined with the web's reach and lower cost of
marketing, has created a powerful direct sales and marketing channel. The
statistical data concerning the internet is taken or derived from information
published by sources including Jupiter Research, Visa International Studies and
Ziff-Davis Marketing Intelligence. Although we believe that the data is
generally indicative of the matters reflected therein, the data may be
imprecise and investors are cautioned not to place undue reliance on it.
ELECTRONIC COMMERCE.
The growing adoption of the web represents a significant opportunity for
businesses to conduct commerce over the internet. One factor in this projected
growth is the increasing variety of transactions that take place on the web.
Initially, companies focused on facilitating internet transactions between
businesses. More recently, however, a number of companies have targeted
business-to-consumer transactions. These companies typically use the internet
to offer standard products and services that can be easily described with
graphics and text that do not necessarily require a physical presence for
purchase such as software, books, music CDs, videocassettes, home loans,
airline tickets and online banking and stock trading. The internet allows these
companies to develop one-to-one relationships with customers without making
significant investments in traditional infrastructure such as retail outlets,
vendor networks and sales personnel.
THE DIRECT MARKETING OPPORTUNITY OF THE INTERNET.
The same advantages that facilitate the growth of electronic commerce and
advertising make the internet a compelling medium for direct marketing
campaigns. Direct marketing over the internet uses e-mail to reach potential
buyers, potentially offering them a significantly broader selection of products
and services than is available locally. Internet-based direct marketing also
allows marketers to rapidly collect meaningful demographic information and
feedback from consumers and to use this information to tailor new messages
quickly. Registration information typically collected by websites, and user
involvement in topical electronic commerce networks of interest, provide
additional demographic information. This offers businesses the chance to
increase the effectiveness of their direct marketing campaigns, which may
translate into higher sales. Moreover, the costs of direct marketing through
e-mail are dramatically lower than those of traditional direct marketing
techniques. As a result, internet-based direct marketing campaigns can be
profitable at response rates that are a fraction of the rates for traditional
campaigns.
THE YOUNETWORK SOLUTION TO MARKET SERVICES AND PRODUCTS AND DEVELOP A SIZEABLE
MEMBERSHIP BASE.
We will use the unique characteristics of the web to cost-effectively
market our products and services and to develop a sizeable membership base. By
offering our members a variety of competitively priced branded products
offerings, together with purchase incentives, rebates and equity participation
in our
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company, we believe that we have created an innovative online sales channel
with low customer acquisition costs. The key elements of our approach are:
(a) Development of a detailed member database.
We expect to gather a significant base of information about our members
through registration information, responses to closed end beta tests and
purchasing information obtained from third parties. As members join us, and as
we obtain a purchasing history data, the level of information regarding our
members will continue to grow. We intend to use this growing database to target
offers, increase our range of product offerings, and to encourage future
transactions and involvement with our website. Information obtained from a
member is kept confidential.
(b) Customer convenience.
We intend to provide attractive electronic commerce opportunities for
potential purchasers. Order processing services will be available 24 hours a
day, seven days a week, which facilitates on-demand ordering. Purchasers will
be able to reach our website from the home or office. Our vendors will ship
products directly to a member's address, without the need to travel to a store,
thereby enhancing convenience, particularly for customers in rural locations
without ready access to retail stores.
(c) Equity participation.
As part of our promotion to rapidly build membership, we will offer at no
cost, one class A share to each of our first 250,000 members who have joined
our consumer network, an additional 750,000 class A shares to our members based
upon their net value, and 1,000,000 class B shares to our members for a
purchase price of $1.00 each. The class B shares may only be paid with rebates
a member may earn by making purchases on our consumer network.
We will record all sales of our class A and class B shares by listing the
number of shares owned by a member on his or her home page. Record ownership of
either a class A or class B share shall be made by bookkeeping entry. A member
shall receive confirmation of his or her ownership in an uncertificated share
by e-mail. Members who request a stock certificate to evidence their ownership
in a class A or class B share shall be charged a nominal fee for shipping and
handling. We will distribute the class A and class B shares to registered
members until such time as all the class A and class B shares included in this
registration statement, of which this prospectus forms a part, are fully
distributed.
(d) Net value.
We have developed proprietary tracking technology. Our tracking technology
will be utilized to track the referrals of our members and to pay rebates to
the member based on a member's purchases and the purchases made by a member's
referrals.
By offering the first 250,000 class A shares to the first 250,000
consumers who registers to become a consumer network member, by offering the
remaining 750,000 class A shares to our members based upon their net value, and
with competitively priced products and purchase incentives in the form of
rebate dollars, which rebate dollars may be used to purchase our class B
shares, we believe that we can develop an innovative online sales channel with
low customer acquisition costs. The key elements of our approach are:
o to utilize the cost-effective direct marketing capabilities of the web
to sell products to our customer base;
o to offer equity participation to rapidly attract a sizeable membership
base;
o to develop a detailed member database;
o to continue to grow online reach and membership utilizing our
proprietary tracking technology; and
o to provide customer convenience and competitive prices to encourage
purchasing.
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OUR STRATEGY.
Our objective is to develop a sizeable membership base and to create a
unique consumer network which will provide consumers with built in incentives
to participate in online commerce. Key strategies to achieve this objective
include:
(a) Focus on membership growth.
We plan to increase membership by: (1) providing initial equity
participation through the issuance of our shares; (2) offering a broad and
expanding array of products and services at competitive reduced prices; and (3)
offering incentive rebates based on member purchases and purchases by a
member's referrals.
(b) Build strong brand recognition.
We believe that establishing and leveraging the YouNetwork brand is
critical to our ultimate success. We intend to develop our brand recognition
through effective marketing and promotion and improved customer service.
(c) Promote repeat usage and member loyalty.
We believe that community-based websites have an inherent potential for
creating and retaining a loyal membership base particularly when combined with
product and service offerings such as those we will provide. We intend to
promote repeat usage and member loyalty by expanding our product offerings and
by creating incentives to buy through our consumer network based upon our
rebate program.
(d) Offer new products and services.
Our product offerings will include computers, software, computer
accessories and peripherals, consumer electronics, books, music and
entertainment products. We also intend to enter into strategic alliances with a
host of other vendors to provide additional brand name products and services to
our members.
(e) Maintain and improve technological focus and expertise.
We believe that highly advanced functionality and performance of our
website are critical to our ultimate success. We are committed to site
reliability and accessibility, and intend to make continuous enhancements to
our technology, such as upgrading and expanding server and networking
infrastructure, increasing fault tolerance and improving internet connections.
We intend to increase the efficiency of our transaction processing and
fulfillment operations and the sophistication of our direct marketing campaign
management software.
(f) How visitors become members.
To become a member a visitor must provide his or her name and billing
address. No fee is required to become a member. Information obtained from a
member is treated as confidential.
(g) Converting membership into commerce revenue.
Following membership registration, a new member will receive a user name
and a password to enable a member to log on to our consumer network. As our
membership base grows, we will further develop our member database enabling us
to identify and effectively target consumers and members having an affinity for
certain products and services.
(h) Purchase of our class A and class B shares.
Members may purchase our class A and class B shares on our website at
www.YouNetwork. com. Our website will be operational before this offering is
made to our members. Members who purchase class A shares will acknowledge on
our website that they accept and agree to the class A shares lock-up period and
their conversion into class B shares within 12 months from the date of this
offering. Members who do not agree to be subject to the terms controlling the
class A shares will not be sold class A shares.
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(i) Delivery of uncertificated class A and class B shares.
We will record each sale of our class A and class B shares, and list the
number of shares owned by a member, on his or her home page. Record ownership
of our shares shall be made by bookkeeping entry. A member will receive
confirmation of his or her ownership in our shares by e-mail. Members
requesting a stock certificate to evidence their ownership in our shares will
be charged a nominal fee for shipping and handling.
(j) Delivery of our prospectus.
We will only offer the shares in this offering to those members who
consent to accept electronic delivery of our final prospectus, and other
related communications by e-mail.
LICENSE AND VENDOR ARRANGEMENTS.
In July 1998, we entered into a non-exclusive license with Baker & Taylor,
Inc., which distributes books, spoken word audio products and provides certain
value added services. Baker & Taylor gives us the ability to provide access to
its proprietary data base to our members. Under the terms of the agreement we
will pay Baker & Taylor a license fee of $1,000 for the use of the data base
for each year we use it. We will also pay a subscription fee each year of
$1,650. The fees were payable to Baker & Taylor in July 1998, and are due each
year thereafter up to July 2000, at which time the agreement is subject to
negotiation. Baker & Taylor may increase the fee at its option after giving us
notice. We can terminate this agreement for any reason by giving 30 days prior
written notice. The agreement is automatically renewed for two consecutive
periods of one year ending on July 2000.
In January 4, 1999, we also entered into a non-exclusive license with
Muze, Inc. for us to gain access to music, video and book databases for a one
year period, which will renew automatically for successive one year periods
unless either parties notifies the other in writing to terminate the agreement
at least 60 days before the end of the term of any successive term. The terms
of the agreement requires us to pay a minimum license fee of $1,000 a month per
music, video and book database. The fee was due and paid on March 1, 1999.
On March 6, 1998, we entered into an agreement with Qwest International
Inc., a successor in interest to LCI International Telecom Corp., to solicit
orders for long distance service. Under the agreement, Qwest will pay us a 10%
commission on toll revenue generated by our members during its term and up to a
maximum of 24 months following termination. The commission is currently 10% of
our collected revenue relating to services sold by us, excluding taxes,
installation charges, subscription fees and local loops. Collected revenue will
only be realized for those subscribers who remain on the Qwest service a
minimum of 30 days.
If in any month the disconnect percentage of established subscribers meet
or exceeds 15% of our new subscribers within that same 30 day period, and if we
fail to meet the established disconnect percentage within 30 days of notice
from Qwest of an unacceptable disconnect percentage, Qwest may terminate the
agreement and no usage commission will be payable by Qwest. The industry
standard for such disconnects average 15% of subscribers within the first three
months of the date service is sold to a subscribers, 12% for the three months
after the initial three month period, and 7% for each month thereafter.
Pursuant to the terms of the agreement, Qwest advanced us approximately
$175,000 as of March 31, 1998. Commissions earned for the referral of customers
will be offset against these advances. Advances made in excess of commissions
earned are offset against advances payable by us on the earlier of the
termination of the agreement or twelve months from the date of the agreement.
Each party may terminate this agreement at any time during a renewal term upon
30 days prior written notice. Qwest may cancel this agreement if we fail to
attain the agreed upon monthly revenue volume from our subscribers discussed
above.
On June 16, 1998, we entered into a distribution agreement with Ingram
Micro, Inc. to purchase computers, hardware, software and peripherals. Upon
receipt of an invoice, we pay Ingram Micro for all products ordered, including
shipping and handling. Either party may terminate this agreement at any time.
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We entered into a distribution agreement on January 19, 1999, and February
15, 1999, with Baker & Taylor, Inc for the purchase of books, spoken word audio
products, pre-recorded video products, laser disc and DVD formats, multi-media
products and music audio products. The terms of both agreements are for a one
year period ending January 18, 2000 and February 14, 2000, respectively. Unless
notified by the other party, both agreements are automatically renewable for
five consecutive periods of one year. We pay Baker & Taylor for all products
ordered, including shipping and handling, within 30 days from date of delivery
to our customers. Either party may terminate either agreement within 30 days
notice of an event of default.
We view our strategic relationships as a key factor in our overall
business strategy; however, there can be no assurance that our licensor or
vendor affiliates will view their relationships with us as significant to their
own business or that they will not reassess their commitment to us in the
future. There can be no assurance that any agreement with a licensor or vendor
would be specifically enforceable by us. Our arrangements with our licensors
and vendors generally may be terminated by either party with little notice.
There can be no assurance that these relationships will be successful. In the
event that any one or more of our strategic relationship is discontinued for
any reason, our business, results of operations and financial condition may be
materially adversely affected. In addition, there can be no assurance that we
will be successful in establishing additional licensor or vendor relationships.
SALES AND MARKETING.
Our sales and marketing strategy is designed to strengthen awareness of
our brand, increase online traffic, build member loyalty, maximize repeat
purchases, increase the size and frequency of electronic commerce transactions
and develop additional revenue opportunities.
(a) Marketing our website.
We expect that the marketing of our services will be primarily by
word-of-mouth and indirect promotions by members with links to our website
through the use of our services. We believe that such relationship marketing
(along with our unique equity participation and rebate incentives) will
generate a substantial amount of additional traffic and new members. To augment
these marketing efforts, we intend to initiate a more formal and aggressive
brand promotional campaign to enhance membership growth, and draw additional
advertisers and commerce partners.
(b) Product marketing.
We will apply a direct marketing program, modeled after traditional direct
mail campaigns, to generate product sales. As we gather additional information
about our members, we intend to further target our offers and increase our
range of product offerings. Information obtained from a member is treated as
confidential.
WAREHOUSING AND FULFILLMENT.
We will be totally dependant on vendors and distributors for all of our
product and service fulfillment. We have no fulfillment operation or facility
of our own; therefore, we will need to establish and maintain relationships and
affiliations with a broad array of vendors and distributors in order to offer
our members a broad based product mix at competitive and discounted prices. We
will not maintain an inventory in any product line.
We will use automated interfaces for accepting, sorting and processing
orders to enable us to achieve the most rapid and economical purchase and
delivery terms. All of our orders will be processed online. Once we receive an
order we will send a confirmation by e-mail to the customer. At the end of each
day, we will send all orders to our vendors and distributors for processing.
Our vendors and distributors will then pack and ship orders, providing
confirmation to us, along with UPS shipping information for all ground-shipped
U.S. orders. We will forward ship information by e-mail to customers along with
a link to UPS for package tracking. There can be no assurance that we will
successfully establish and, if established, maintain relationships and
affiliations with vendors and distributors on terms satisfactory to us.
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TECHNOLOGY AND INFRASTRUCTURE.
Our systems are designed for portability, efficiency and growth. Using
state of the art technology from Windows NT and Unix technology we have created
a custom solution that is based on high bandwith access, latest server
technology and redundant storage systems. We have placed an emphasis on
portability of our application modules in order to support the migration of
systems as they encounter the added demand of a fast growing customer base. Our
access to the internet is reinforced with multiple support providers and daily
and weekly backups to minimize data loss as a result of system failure. A high
degree of automation is employed to assure quality of service as well as
cost-efficient operation of our system. We continue to monitor and upgrade
components of our infrastructure with the goal of providing highly productive
user experience to our members.
COMPETITION.
The market for electronic commerce direct selling channels on the internet
is new and rapidly evolving, and competition for members, consumers and
visitors is intense and is expected to increase significantly in the future.
Barriers to entry are relatively insubstantial. We believe that the principal
competitive factors for companies seeking to create electronic commerce
networks on the internet are critical mass, functionality, brand recognition,
member affinity and loyalty, broad demographic focus and open access for
visitors. Established companies which are primarily focused on creating
electronic commerce networks on the internet, and with whom we will compete,
include: Amazon.com, Value America, Shopping.com, Buy.com, the NetMarket
division of Cendent Corporation, and Ebay.com. We could also face competition
in the future from web directories, search engines, shareware archives, content
sites, commercial online service providers, sites maintained by internet
service providers, traditional media companies and other entities that attempt
to or establish electronic commerce networks on the internet by developing
their own community or acquiring one of our competitors.
Nearly all of our existing and potential competitors, including web
directories and search engines and large traditional media companies, have
longer operating histories in the web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than us. Such competitors are able to undertake more extensive
marketing campaigns for their brands and services, and make more attractive
offers to potential employees, vendor affiliates, commerce companies and
third-party content providers. There can also be no assurance that we will be
able to compete successfully against our current or future competitors or that
competition will not have a material adverse effect on our business, results of
operations and financial condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
We have recently submitted an application to register the servicemark,
"YouNetwork" with the United States Patent and Trademark Office. We currently
have no patents and we do not anticipate that patents will become a significant
part of our intellectual property in the foreseeable future. We regard our
technology as proprietary and will attempt to protect out tracking and net
value by relying on trademark, service mark, copyright and trade secret laws
and restrictions on disclosure and transferring title and other methods. We
will enter into confidentiality or license agreements with our employees and
consultants and will attempt to limit access by vendors of our proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use our proprietary information without
authorization or to develop similar technology independently. Policing
unauthorized use of our proprietary information is difficult. Legal standards
relating to the validity, enforceability and scope of protection of certain
proprietary rights in internet-related businesses are uncertain and still
evolving, and no assurance can be given as to the future viability or value of
any of our proprietary rights.
EMPLOYEES.
As of June 8, 1999, we had five full-time employees. Our future success
will depend, in part, on our ability to continue to attract, retain and
motivate highly qualified technical and management personnel for whom
competition is intense. From time to time, we also employ independent
contractors to support our
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research and development, marketing, sales and support and administrative
organizations. Our employees are not covered by any collective bargaining
agreement and we have never experienced a work stoppage. We believe our
relations with our employees are good.
FACILITIES.
Our headquarters are currently located in a leased facility in the Borough
of Manhattan, New York, New York, consisting of approximately 6,000 square feet
of office space, which is under a lease that expires June 30, 2002. We will
carry business interruption insurance but not a secondary "off-site" system or
a formal disaster recovery plan. Our business interruption insurance policy
coverage is up to $750,000. We also have a data processing policy covering
hardware for up to $1,000,000 and software up to $250,000 in connection with
our internet services. We will carry a data loss insurance policy when our
website is operational to cover any losses as a result of certain security
breaches. Our present network operations and bandwith infrastructure located at
our facility is capable of handling expected customer demand for the next 6
month, after six months, we will have to expand to accommodate expected growth.
There can be no assurance we will be successful in addressing such growth, and
any failure to do so could have a material adverse effect on our business,
results of operations and financial condition.
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MANAGEMENT
DIRECTORS AND OFFICERS.
Our directors and executive officers and their respective ages as of
July 13, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ----- --------------------------------------
<S> <C> <C>
Kyle S. Taylor .............. 41 President and Director
Don S. Senerath ............. 29 Chief Executive Officer, and Director
Peter R. Silverman .......... 52 Director
</TABLE>
KYLE S. TAYLOR, PRESIDENT.
Kyle S. Taylor has been our President since our inception in January 1998.
After attending the University of Tennessee, Mr. Taylor spent twelve years in
the retail apparel business both working as an executive with a division of
Federated Corporation as well as owning and operating a privately held retail
business. In 1994, Mr. Taylor was hired by Delta Woodside Industries, a NYSE
textile conglomerate, as Vice President of Merchandising with responsibilities
for product development, brand marketing and merchandising. During his tenure
at Delta Woodside he developed and implemented several marketing campaigns,
including a national product launch in conjunction with Sears Corporation, J.C.
Penny, Federated Department Stores and other major retail accounts. In 1996,
Mr. Taylor pursued new opportunities in the On-Line Marketing. As Marketing
Director for Interactive Imaginations, the owners of Riddler.com and The
Commonwealth Network, he was responsible for developing electronic commerce
programs with on-line retailers and corporate sponsors such as CitiBank, LCI
International, Kodak, America On-line, Barnes & Noble and others.
DON S. SENERATH, CHIEF EXECUTIVE OFFICER.
Don S. Senerath has been our Chief Executive Officer since our inception
in January 1998. Mr. Senerath is also an officer of International Computing LLC
(formerly known as Digital Pulp Technologies LLC), a Manhattan based new media
consulting and development firm which he founded in 1997. In the last five
years, International Computing has developed large scale back-end electronic
commerce systems for major corporations in the telecom, commercial capital,
entertainment and computer industries. From 1994 through 1997, Mr. Senerath was
employed as the chief engineer at Integrated Media Inc., where he developed a
full scale internet system for Miramax Films, and interactive television
products for Nynex, for which he was awarded the Nynex Quality Award in 1995.
In 1994, Mr. Senerath received a Bachelor of Science degree in Electrical
Engineering and Computer Science from Cornell University, where his academic
research concentrated on the compression and delivery of media with
applications in marketing and distribution.
PETER R. SILVERMAN, DIRECTOR.
Peter R. Silverman has been our director since December 1998. Mr.
Silverman has been a practicing attorney for over 27 years and has specialized
in the development of start up companies in the telecom industry. He is the
founding member of the law firm, Silverman, Collura & Chernis, P.C. Mr.
Silverman received a bachelor of arts degree from George Washington University
in 1967, and a law degree from Brooklyn Law School in 1970.
DIRECTORS.
Our directors receive no cash compensation for their services as board
members or committee members and are not reimbursed for expenses incurred in
connection with attending board and committee meetings. All directors hold
office until the next annual meeting of the stockholders and until their
successors have been duly elected and qualified. Executive officers are elected
by and serve at the discretion of the board of directors. There are no family
relationships among any of our directors or
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executive officers. All future material affiliated transactions and loans, and
any forgiveness of loans, will be approved by a majority of our independent
directors who do not have an interest in the transaction and who had access, at
our expense, to our or independent legal counsel.
EXECUTIVE COMPENSATION.
The following table sets forth certain information concerning compensation
to our Chief Executive Officer and each of our other most highly compensated
executive officers whose aggregate salary, bonus and other compensation
exceeded $100,000 during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- --------------------------
RESTRICTED SECURITIES ALL
OTHER ANNUAL STOCK UNDERLYING LTIP OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
- ----------------------------- ------ ---------- ------- -------------- ----------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don S. Senerath,
CEO 1998 0 0 0 0 0 0 $89,425
Kyle S. Taylor,
President 1998 $65,251 0 0 0 0 0 0
</TABLE>
AGREEMENTS.
Currently we do not have any employment agreements with our employees or
key personnel; however, Messrs. Taylor and Senerath are subject to certain
terms of an agreement among us, Messrs. Taylor and Senerath.
Pursuant to a stock and warrant purchase agreement, dated as of December
4, 1998, if the employment of Kyle S. Taylor, President or Don S. Senerath,
Chief Executive Officer is terminated by us without substantial cause, as
defined in the Agreement, the terminated executive will receive compensation
equivalent to twelve times his monthly compensation during the month
immediately prior to the termination date, which compensation shall be paid
quarterly in advance.
The stock purchase agreement also provides that for a period of two years
from the date of termination of employment, with the exception of termination
by us without substantial cause, the terminated executive will not:
o directly or indirectly, engage in the business of electronic commerce with
respect to buying or selling of consumer products through a membership
network or buying syndicate which offers its members purchase incentives or
which utilizes programs and/or systems which duplicate or are similar to
the programs and systems which have been developed exclusively by or for
us; or
o solicit our employees or our clients.
International Computing, LLC, formerly known as Digital Pulp Technologies,
LLC, provides software and system integration consultation services in
connection with our efforts to build out our website and to develop our
proprietary tracking technology. Don S. Senerath, our Chief Executive Officer,
is a member of International Computing. For the period from inception through
December 31, 1998, we paid International Computing $89,425 for such consulting
services. In March 1999, we entered into an oral agreement with International
Computing to continue to provide software and systems integration consultation
services to us, which will be paid $50,000 per month for such services through
completion of the proprietary software development. Mr. Senerath has not
received a salary from us.
STOCK OPTION PLAN.
In April 1999, we adopted the 1999 Stock Option Plan. The purpose of the
plan is to enable us to attract, retain and motivate key employees, directors,
and consultants by providing them with stock options. Options granted under the
plan may be either incentive stock options, as defined in Section 422A of the
Internal Revenue Code of 1986, or non-qualified stock options. We have reserved
2,000,000 shares of class C common stock for issuance under the plan. As of the
date of this prospectus no options have been granted pursuant to the plan.
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Our board of directors will administer the plan. Our board has the power
to determine the terms of any options granted under the plan, including the
exercise price, the number of shares subject to the option, and conditions of
exercise. Options granted under the plan are generally not transferable, and
each option is generally exercisable during the lifetime of the holder only by
the holder. The exercise price of all incentive stock options granted under the
plan must be at least equal to the fair market value of the shares of common
stock on the date of the grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of our stock, the
exercise price of any incentive stock option granted must be equal to at least
110% of the fair market value on the grant date. The term of all incentive
stock options under the plan may not exceed ten years, or five years in the
case of 10% owners. Our board of directors approve the terms of each stock
option. These terms are reflected in our written stock option agreement.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS.
Our certificate of incorporation, as amended, and our bylaws provides that
the liability of our directors for monetary damages shall be limited to the
fullest extent permissible under Delaware law. We may enter into
indemnification agreements with our directors and officers.
This provision in the certificate of incorporation does not eliminate a
director's duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available. Each director will continue to be subject to liability for breach of
the director's duty of loyalty to us, for acts or omissions not in good faith
or involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of us
or our stockholders, for any transaction from which the director derived an
improper personal benefit, for improper transactions between the director and
us and for improper loans to stockholders and loans to directors and officers.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
Insofar as indemnification for liabilities may be permitted to our
directors, officers and controlling persons pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
There is no pending litigation or proceeding involving our directors or
officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
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CERTAIN TRANSACTIONS
Pursuant to a stockholders' agreement, dated as of December 4, 1998, among
Kyle S. Taylor, Don S. Senerath (the "Management Stockholders"), Dalia
Silverman and Kleopatra Georgiades (the "Original Investors") and us; our board
of directors, the Management Stockholders and Original Investors who owned
77.3% of our common stock agreed to vote their shares of common stock to elect
a board of directors consisting of three directors one of whom was designated
by the Original Investors, and two of whom were designated by the Management
Stockholders. The ratio of directors designated by the Original Investors to
those designated by the Management Stockholders shall be maintained in the
event the board is increased in number. Pursuant to the stockholders' agreement
no significant transaction can be approved without the unanimous approval of
all of the directors. A significant transaction is defined in the agreement as:
o any creation of any class of capital stock;
o the sale or issuance of shares of capital stock, warrants or other
securities convertible into or exchangeable for capital stock;
o any declaration or issuance of any dividend;
o any transaction or contract with a value of $10,000 or more;
o any amendment to or modification of any provision of our Certificate of
Incorporation or By-laws; any change in our auditors;
o any consolidation or merger of us;
o any executive employment contract;
o payment of salaries to any officer at a rate of more than $85,000 per
annum; and
o the election of officers.
The stockholders' agreement also provides for certain bring along rights
and rights of first refusal among the Management Stockholders and the Original
Investors with respect to any sale of their shares. The stockholders' agreement
terminates on December 1, 2010, or such earlier time as either:
o the Original Investors no longer own at least 10% of our common stock on
a fully diluted basis; or
o we have completed a public offering of our securities resulting in net
proceeds to us of at least $10,000,000.
Pursuant to a December 4, 1998, stock sale agreement among us, the
Management Stockholders and the Original Investors, the Original Investors
purchased from us, for an aggregate purchase price of $200,000: (a) an
aggregate of 8,910,000 shares of common stock (the "Purchased Shares")
representing 27% of the issued and outstanding common stock, on a fully diluted
basis; and (b) options (the "Purchase Options") to purchase in the aggregate
such number of shares of common stock, at nominal consideration, as shall
equal, in the aggregate when added to our Purchased Shares, 27% of our issued
and outstanding common stock on a fully diluted basis, immediately following
the sale of additional common stock by us in consideration of the first
$400,000 of common stock sale proceeds received by us following December 4,
1998.
The proceeds from the sale of our shares to the Original Investors was
used for software development in the approximate amount of $68,000, legal
expenses in the amount of $10,000, and $122,000 to salaries, office expenses
and general administrative costs. In March of 1999, the Original Investors
exercised the Purchase Options following a private placement in March of 1999,
to accredited investors only for the sale of 4,630,000 class C shares by us for
consideration of $463,000. Proceeds from the private placements is being used
for salaries and fees, network expansion, equipment upgrades, and development
costs in connection with our proprietary software, tracking.
As a result of their March 1999 exercise of their respective Purchase
Options, the Original Investors each received 739,726 shares of our class C
common stock. The $463,000 raised from the private placement in March of 1999,
was used for salaries, fees and working capital.
Currently we do not have any employment agreements with our employees or
key personnel; however, pursuant to the stock sale agreement if either Mr.
Taylor's or Mr. Senerath's employment with
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us is terminated without substantial cause, as defined in the Agreement, the
terminated executive will receive compensation equivalent to twelve times his
monthly compensation during the month immediately prior to the termination
date, which compensation shall be paid quarterly in advance.
Under the agreement, Mr. Taylor and Mr. Senerath have agreed that for a
period of two years from the date of termination of employment, with the
exception of termination by us without substantial cause, they will not,
directly or indirectly, engage in the business of electronic commerce with
respect to buying or selling consumer products through a membership network or
buying syndicate which offers its members purchase incentives or which utilizes
programs or systems which duplicate or are similar to the programs and systems
which have been developed exclusively by or for us; or (ii) solicit our
employees or its clients.
On February 3, 1999, YouNetwork, a New York corporation, merged with and
into us, the surviving corporation. Pursuant to the agreement and plan of
merger, dated February 3, 1999, all shareholders of the New York corporation
exchanged their common stock for our class C common stock $.0001 par value per
share, on a basis of 330,000 shares of our class C common stock for each
outstanding share of the New York corporation. The reason for the merger was to
take advantage of the laws of the State of Delaware.
In March of 1999, and April of 1999, we sold 6,680,000 shares of our class
C common stock for $1,488,000 to accredited investors. Proceeds from the
private placements will be used for network expansion, equipment upgrades, and
development costs in connection with our proprietary software, tracking.
We believe that all of the transactions set forth above with persons
affiliated with us were made on terms no less favorable to us than could have
been obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with
respect to beneficial ownership of our common stock as of July 13, 1999, and as
adjusted for the sale of the securities offered by this prospectus, the number
and percentage of outstanding shares of common stock beneficially owned by each
person who beneficially owns:
o more than 5% of the outstanding shares of our common stock;
o each of our officers and directors; and
o all of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment power
with respect to all shares of common stock owned by them. Dalia Silverman is
the wife of Peter R. Silverman, one of our directors. Mr. Silverman disclaims
any beneficial ownership in the shares owned by his wife, Dalia Silverman.
There is no family relationship between Kleopatra Georgiades and any of our
directors or officers. Michael Karfunkel, George Karfunkel and Kevin Kimberlin
are partners of Spencer Trask Partners.
Unless otherwise indicated, the address of each beneficial owner is c/o
YouNetwork Corporation, 220 East 23rd Street, Suite 607 New York, New York
10010. The percentages shown after the completion of this offering assumes the
sale of the 1,000,000 class A shares and 1,000,000 class B shares of our common
stock offered in this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS OF SHARES BENEFICIALLY % BENEFICIALLY OWNED % BENEFICIALLY OWNED
BENEFICIAL OWNER(1) OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------- --------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Kyle S. Taylor ................. 9,637,500 23.4% 22.3%
Don S. Senerath ................ 12,575,000 30.6% 29.1%
Dalia Silverman ................ 4,682,226 11.4% 10.8%
Kleopatra Georgiades ........... 4,904,726 11.9% 11.4%
Spencer Trask Partners ......... 4,000,000 9.7% 9.3%
All Officers and Directors as a
Group (2 persons) ............. 22,212,500 54.0% 51.4%
</TABLE>
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<PAGE>
DESCRIPTION OF SHARES
Upon the closing of the offering, we will be authorized to issue up to:
(a) 1,500,000 shares of class A common stock; (b) 1,500,000 shares of class B
common stock; and (c) 247,000,000 shares of class C common stock, $.0001 par
value per share. The following summary of certain provisions of the common
stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of YouNetwork's restated and amended certificate of
incorporation, which is included as an exhibit to the registration statement,
of which this prospectus is a part, and by the provisions of applicable law.
COMMON STOCK.
As of July 13,1999, there were 41,159,452 shares of class C common stock
outstanding that were held of record by approximately 52 stockholders, assuming
conversion of all warrants outstanding as of July 13, 1999. There were no class
A shares or class B shares outstanding as of July 13, 1999.
The holders of class A, class B and class C shares of common stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of the stockholders. We do not have cumulative voting rights in the
election of directors; accordingly, holders of a majority of the shares voting
are able to elect all of the directors. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share
ratably in all of our assets remaining after payment of liabilities. Holders of
common stock have no preemptive or other subscription of conversion rights.
There are no redemption or sinking fund provisions applicable to our common
stock.
Our class A shares have an assigned value of $.50 per share based on our
private placement of our class C common stock.
The initial public offering price of the class B shares has been
arbitrarily determined by us and is not necessarily related to our assets, book
value results of operations, or any other established criteria of value.
Prior to the offering there has been no public market for our shares
offered. We have not applied to have the shares listed on any forum, including
an exchange, the Over the Counter Bulletin Board or pink sheets, and do not
presently intend to do so. We may in the future apply to have our shares listed
on the Nasdaq SmallCap Market. Even if such a market developed, it would still
be more difficult for an investor to dispose of, or obtain quotations as to the
shares offered in this prospectus rather than a security traded on the Nasdaq
small cap market or a national securities exchange.
If we applied in the future to have our shares listed on Nasdaq SmallCap
Market and we did not satisfy Nasdaq listing or maintenance requirements then
we may list our shares to be traded subject to certain penny stock rules
promulgated by the Securities and Exchange Commission. Under such rules,
broker/dealers who recommend such securities to persons other than established
customers and accredited investors, must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement
to a transaction prior to sale. Securities are exempt from this rule if the
market price is at least $5.00 per share.
The Securities and Exchange Commission has adopted regulations that
generally define a "penny stock" to be an equity security that has a market
price of less than $5.00 per share or an exercise price of less than $5.00 per
share subject to certain exceptions. Such exceptions include equity securities
listed on Nasdaq and equity securities issued by an issuer that has: (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for more than three years, or (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a risk of disclosure
schedule explaining the penny stock market and the risks associated therewith.
LOCK-UP PERIOD AND CONVERSION OF CLASS A SHARES.
A holder of our class A shares shall be subject to a lock-up period and
shall not, directly or indirectly, offer, sell, pledge, grant any option to
purchase, or otherwise sell or dispose of any class A shares for a period of 12
months after this offering. There are no exceptions to the lock-up period.
After 12 months from the date of this offering, one class A share shall be
automatically converted into one class B share.
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Members who purchase class A shares will acknowledge on our website that they
accept and agree to the class A shares lock-up period and its conversion into
class B shares before being sold the class A shares.
OUR MANAGEMENT HAS SUBSTANTIAL CONTROL OVER US AND INVESTORS IN THIS OFFERING
MAY HAVE NO EFFECTIVE VOICE IN MANAGEMENT.
Upon completion of the offering, our directors, executive officers and
principal stockholders will, in the aggregate, beneficially own approximately
73.7% of the outstanding common stock. As a result, these stockholders will
possess significant influence over us, giving them the ability, among other
things, to elect a majority of our board of directors and approve significant
corporate transactions. This share ownership and control may also have the
effect of delaying or preventing a change in control, impeding a merger,
consolidation, takeover or other business combination involving us or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which could have a material adverse effect
on the market price of our securities.
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PLAN OF DISTRIBUTION
Our shares are being offered by us through our officers. No selling
discounts, commissions or other form of remuneration will be paid in connection
with the offering.
CLASS A SHARE.
We will distribute one class A share, for an aggregate of 250,000 class A
shares, to each of the first 250,000 members of our consumer network at no
cost. The remaining 750,000 class A shares will be distributed to members based
on their net value. Net value is calculated by our proprietary tracking
software which tracks each member's direct and indirect referrals. When a
member refers someone to join our consumer network they are assigned a rebate
rate that is added to the referring member's net value. The rebate rates of
both direct referrals and indirect referrals, up to five levels, are totaled to
determine an individual member's net value. Members can locate their net value
calculation upon logging on to the network. They may also link to their
personalized stockholder statement to view the shares that have been credited
to their account. Each member will receive one class A share for each whole
point of net value they achieve as a result of direct and indirect referrals,
until such time as all the 750,000 class A shares have been distributed.
CLASS B SHARE.
Our class B shares are offered to our members at a price of $1.00 per
share. Class B shares may only be purchased with rebate dollars accumulated by
our members through the purchase of our products and services. A member will
receive a rebate based upon purchases he or she makes as well as the purchases
made by a new member who they refer, a direct referral. A member will also
receive rebates based upon purchases by any indirect referral, i.e., an
individual who is referred to us by the member's direct referral. A member's
referral is tracked to the fifth level of referral. By way of example, a member
who is being tracked refers member number one, the first level referral; member
number one refers member number two, the second level referral; member number
two refers member number three, the third level referral; member number three
refers member number four, the fourth level referral; and member number four
refers member number five, the fifth level referral. Rebates will be credited
to the account of the tracked member for purchases made by first level
referrals based upon a designated rebate percentage. A rebate at descending
percentage rates will be credited to the account of a tracked member for
purchases made by the second through fifth level referrals.
When a member or the member's direct or indirect referral purchases a
product or service, a cash rebate is recorded as a member's pending rebate
balance. The pending rebate balance is not available to the member until the
transaction has been confirmed and the applicable time period in which a
product may be returned has elapsed, which varies from 5 to 40 business days.
The pending rebate balance is then transferred to a member's available rebate
balance. A member can choose to receive any portion of the available rebate
balance in the form of cash, use it to purchase other products or services or
apply the rebate balance to purchase class B shares at the purchase price of
$1.00 of available rebate dollars. A member's rebate dollars will be posted on
a member's home page website.
We will publish our prospectus, which is a part of this registration
statement, on the internet world wide web at www.YouNetwork.com. We will only
offer the shares in this offering to those members who consent to accept
electronic delivery of our prospectus, and all other communications by e-mail.
Record ownership of class A and class B shares shall be made by
bookkeeping entry. A member will receive confirmation of ownership in our
uncertificated shares by e-mail. Members requesting a stock certificate to
evidence their ownership in our shares will be charged a nominal fee for
shipping and handling. We will distribute the class A and class B shares to our
members until such time as all the class A and class B shares included in the
registration statement, of which this prospectus forms a part, are fully
distributed.
Holders of class A shares will not be permitted to directly or indirectly,
offer sell, pledge, grant any option to purchase, or otherwise dispose of class
A shares for a period of 12 months after the offering. After 12 months from the
date of this offering -- class A shares shall be automatically converted into
class B shares.
39
<PAGE>
The price at which the class B shares are offered has been established
without independent appraisal by management and has no relationship to the book
value per share, our earnings, or other generally accepted measurement of
value.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public
market, or the availability of shares for sale, could adversely affect the
prevailing market price of our common stock and our ability to raise capital
through an offering of equity securities.
41,159,452 shares of class C common stock were sold by us in private
transactions in reliance on exemptions from the registration requirements and
are "restricted securities" as that term is defined under Rule 144.
Rule 144 provides that a person holding restricted securities for a period
of one year may sell in brokerage transactions an amount equal to 1% of our
outstanding common stock every three months. A person who is a "non-affiliate"
of us and who has held restricted securities for over two years is not subject
to the aforesaid volume limitation as long as the other conditions of the Rule
are met. Possible or actual sales or our common stock by certain of our present
stockholders under Rule 144 may, in the future, have a depressive effect on the
price of our common stock in any market which may develop for such shares.
These shares would be eligible for sale within one year under Rule 144 subject
to certain volume restrictions and other conditions imposed thereon commencing
February 4, 2000.
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Section 145 of the Delaware General Corporation Law, as amended,
authorizes us to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceedings, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being one of our directors or officers if it is determined that the person
acted in accordance with the applicable standard of conduct set forth in such
statutory provisions. Article 9 of our certificate of incorporation provides
for the indemnification of directors and officers to the full extent permitted
by Delaware law.
We may also purchase and maintain insurance for the benefit of any
director or officer which may cover claims for which we could not indemnify
such person.
Insofar as indemnification for liabilities may be permitted to directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable.
40
<PAGE>
TRANSFER AGENT AND REGISTRAR.
We will act as our own transfer agent and registrar for our uncertificated
class A and class B shares. Our address is 220 East 23rd Street, Suite 607 New
York, New York 10016, and our telephone number is (212) 576-2030.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
YouNetwork Corporation by Silverman, Collura & Chernis, P.C. New York, New
York.
EXPERTS
The financial statements included in this prospectus, and elsewhere in the
registration statement as of December 31, 1998, and from January 14, 1998 (date
of inception), to December 31, 1998, have been audited by Mahoney Cohen &
Company, CPA, P.C., independent auditors, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
The report of Mahoney Cohen & Company, CPA, P.C. covering the December 31,
1998, and the three months ended March 31, 1999, financial statements contains
an explanatory paragraph that states that we have incurred losses since
inception and expects to incur losses for the foreseeable future, which raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of reported assets amounts or the amounts and
classification of liabilities that might result from the outcome of that
uncertainly.
ADDITIONAL INFORMATION
With respect to the shares offered in this prospectus, we have filed with
the principal office of the Securities and Exchange Commission in Washington,
D.C., a registration statement on Form SB-2. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
thereto, to which reference hereby is made. Each statement made in this
prospectus concerning a document filed as an exhibit to the registration
statement is not necessarily complete and is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions. Any
interested party may inspect the registration statement and its exhibits
without charge, or obtain a copy of all or any portion thereof, at prescribed
rates, at the public reference facilities of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. Information on the Operation of the Public Reference Room can be
obtained by calling the Commission at 1-800-SEC-0330. The registration
statement and exhibits may also be inspected at the Commission's regional
offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New
York, New York 10048, or the Commissions website located at www.sec.gov.
We are not currently a reporting company under the Securities and Exchange
Act of 1934, and therefore we have not filed any reports with the Securities
and Exchange Commission Upon completion of this offering we intend to file
reports with the Securities and Exchange Commisson under the Securities Act of
1933, and to furnish to our security holders annual reports containing audited
financial statements reported on by independent auditors, and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year by electronic delivery on our website at www.YouNetwork.com.
41
<PAGE>
YOUNETWORK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditor's Report .............................................. F-2
Balance Sheets as of December 31, 1998 and March 31, 1999 (Unaudited) ..... F-3
Statement of Operations for the Period from Inception (January 14, 1998) to
December 31, 1998, the Three Months Ended March 31, 1999 (Unaudited)
and the Period from Inception (January 14, 1998) to March 31, 1999
(Unaudited) .............................................................. F-4
Statement of Changes in Stockholders' Equity for the Period from Inception
(January 14, 1998) to December 31, 1998 and the Three Months Ended
March 31, 1999 (Unaudited) ............................................... F-5
Statement of Cash Flows for the Period from Inception (January 14, 1998) to
December 31, 1998, the Three Months Ended March 31, 1999 (Unaudited)
and the Period from Inception (January 14, 1998) to March 31, 1999
(Unaudited) .............................................................. F-6
Notes to Financial Statements ............................................. F-7 - F-12
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
YouNetwork Corp.
We have audited the accompanying balance sheet of YouNetwork Corporation
(formerly YouNetwork Corp.), a development stage company, as of December 31,
1998, and the related statements of operations, changes in stockholders' equity
and cash flows for the period from inception (January 14, 1998) to 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of YouNetwork Corporation
(formerly YouNetwork Corp.), a development stage company, as of December 31,
1998, and the results of its operations and its cash flows for the period from
inception (January 14, 1998) to December 31, 1998, in conformity with generally
accepted accounting principles.
As more fully described in Note 1 to the financial statements, the Company
is in the development stage, has incurred losses since inception of
approximately $163,000 and expects to incur net losses for the foreseeable
future. At December 31, 1998, the Company had a working capital deficit of
approximately $57,000. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans as to
these matters are also described in Note 1. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ MAHONEY COHEN & COMPANY, CPA, P.C.
New York, New York
January 20, 1999, except for Note 11
first paragraph as to which the date
is February 3, 1999, second paragraph
as to which the date is February 8, 1999
and the third and fourth paragraphs as to
which the date is April 19, 1999
F-2
<PAGE>
YOUNETWORK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------- ---------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash ..................................................................... $178,068 $355,902
Other current assets ..................................................... 672 12,003
-------- --------
Total current assets ................................................... 178,740 367,905
Property and equipment, net (Notes 3 and 4) ............................... 47,369 43,882
Other assets:
Software development costs (Notes 2 and 7) ............................... 69,425 234,425
Deferred registration costs .............................................. -- 62,047
Security deposits ........................................................ 3,500 4,700
-------- --------
Total other assets ..................................................... 72,925 301,172
-------- --------
$299,034 $712,959
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue (Note 5) ................................................ $ 175,000 $ 175,000
Current portion of capital lease obligation (Note 4) ..................... 14,000 14,388
Due to related party (Note 7) ............................................ 23,150 59,190
Accounts payable ......................................................... 9,224 22,737
Other current liabilities ................................................ 14,729 10,148
---------- ----------
Total current liabilities .............................................. 236,103 281,463
Capital lease obligation (Note 4) ......................................... 25,554 21,808
Commitment (Note 10)
Stockholders' equity (Note 9):
Common stock:
Class A -- par value $.0001 per share, Authorized -- 1,500,000 shares
No shares issued and outstanding ...................................... -- --
Class B -- par value $.0001 per share, Authorized -- 1,500,000 shares
No shares issued and outstanding ...................................... -- --
Class C -- par value $.0001 per share, Authorized -- 247,000,000 shares,
Issued and outstanding -- 33,000,000 shares at December 31, 1998 and
39,109,452 shares at March 31, 1999 ................................... 3,300 3,911
Additional paid-in capital ............................................... 196,900 659,289
Deficit accumulated during the development stage ......................... (162,823) (253,512)
---------- ----------
Total stockholders' equity ............................................. 37,377 409,688
---------- ----------
$ 299,034 $ 712,959
========== ==========
</TABLE>
F-3
<PAGE>
YOUNETWORK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE FOR THE PERIOD
FROM INCEPTION THREE MONTHS FROM INCEPTION
(JANUARY 14, 1998) TO ENDED (JANUARY 14, 1998) TO
DECEMBER 31, 1998 MARCH 31, 1999 MARCH 31, 1999
----------------------- ---------------- ----------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue ....................................... $ -- $ -- $ --
Expenses:
Compensation ................................. 67,251 24,854 92,105
Development costs ............................ 20,000 -- 20,000
General and administrative ................... 66,089 60,372 126,461
Depreciation and amortization ................ 7,508 4,400 11,908
Interest expense ............................. 1,975 1,063 3,038
----------- ----------- -----------
Total expenses ............................. 162,823 90,689 253,512
----------- ----------- -----------
Net loss during the development stage ......... $ (162,823) $ (90,689) $ (253,512)
=========== =========== ===========
Net loss per common share, basic and
diluted ...................................... $ (.01) $ -- $ (.01)
=========== =========== ===========
Weighted average of common shares
outstanding -- basic and diluted ............. 24,916,434 34,993,896 26,968,406
=========== =========== ===========
</TABLE>
F-4
<PAGE>
YOUNETWORK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 14, 1998) TO DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ADDITIONAL ACCUMULATED
COMMON STOCK DURING THE
-------------------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Issuance of 24,090,000 shares of
common stock on January 22,
1998 for cash (at less than $.01
per share) ............................ 24,090,000 $2,409 $ (2,209) $ -- $ 200
Issuance of 8,910,000 shares of
common stock on December 4,
1998 for cash (at $.02 per share) ..... 8,910,000 891 199,109 -- 200,000
Net loss for the period from
inception (January 14, 1998) to
December 31, 1998 ..................... -- -- -- (162,823) (162,823)
Balances, December 31, 1998 ............ 33,000,000 3,300 196,900 (162,823) 37,377
Issuance of 4,630,000 shares of
common stock on March 22, 1999
for cash (at $.10 per share) .......... 4,630,000 463 462,537 -- 463,000
Exercise of common stock purchase
warrants for no cash proceeds in
accordance with anti-dilutive
provisions (Notes 9 and 11) ........... 1,479,452 148 (148) -- --
Net loss for the three months ended
March 31, 1999 (unaudited) ............ -- -- -- (90,689) (90,689)
---------- ------ -------- ---------- ----------
Balances, March 31, 1999
(unaudited) ........................... 39,109,452 $3,911 $659,289 $ (253,512) $ 409,688
========== ====== ======== ========== ==========
</TABLE>
F-5
<PAGE>
YOUNETWORK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FOR THE THREE FROM INCEPTION
(JANUARY 14, 1998) MONTHS ENDED (JANUARY 14, 1998)
TO DECEMBER 31, 1998 MARCH 31, 1999 TO MARCH 31, 1999
---------------------- ---------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss during the development stage ............ $ (162,823) $ (90,689) $ (253,512)
Adjustments to reconcile net loss during the
development stage to net cash provided by
(used in) operating activities:
Depreciation and amortization .................. 7,508 4,400 11,908
Change in assets and liabilities:
Other current assets .......................... (672) (11,331) (12,003)
Deferred revenue .............................. 175,000 -- 175,000
Due to related party .......................... 23,150 36,040 59,190
Accounts payable .............................. 9,224 13,513 22,737
Other current liabilities ..................... 14,729 (4,581) 10,148
---------- ---------- ----------
Net cash provided by (used in)
operating activities ....................... 66,116 (52,648) 13,468
---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment ............. (9,927) (913) (10,840)
Software development costs ..................... (69,425) (165,000) (234,425)
Payment of security deposit .................... (3,500) (1,200) (4,700)
---------- ---------- ----------
Cash used in investing activities ........... (82,852) (167,113) (249,965)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock ......... 200,200 463,000 663,200
Deferred registration costs .................... -- (62,047) (62,047)
Payments of capital lease obligation ........... (5,396) (3,358) (8,754)
---------- ---------- ----------
Net cash provided by financing
activities ................................. 194,804 397,595 592,399
---------- ---------- ----------
Net increase in cash .............................. 178,068 177,834 355,902
Cash, beginning of period ......................... -- 178,068 --
Cash, end of period ............................... $ 178,068 $ 355,902 $ 355,902
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest ......................................... $ 1,975 $ 1,063 $ 3,038
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligation incurred for the
acquisition of new equipment ..................... $ 44,950 $ -- $ 44,950
========== ========== ==========
</TABLE>
In March 1999, common stock purchase warrants were exercised and the Company
issued 1,479,452 of class C common stock for no cash proceeds.
F-6
<PAGE>
YOUNETWORK CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
YouNetwork Corp. was incorporated in the State of New York on January 14,
1998. On February 3, 1999, the stockholders of YouNetwork Corp. exchanged their
common stock for shares of class C common stock of YouNetwork Corporation (the
"Company") (see Note 11). The Company is developing an on-line consumer network
comprised of consumers who are Internet shoppers. The Company will market a
wide range of branded consumer products and services provided through vendor
affiliations at discounted prices to members of its network. Members will earn
rebates based on purchases. Members will be able to request rebates as cash, as
a credit to future product purchases or to purchase stock in the Company. The
Company will not maintain an inventory in any product line which it markets.
All product fulfillment and post sale services will be provided by the
Company's vendors.
Basis of Presentation and Management's Plans
Since its inception, the Company has been primarily engaged in the
development of its computer software program, negotiating agreements with its
vendors and raising capital. As a consequence, there has not been any operating
revenue generated by the utilization of the Company's services and/or products
since inception. Management believes that by offering competitively priced
products, purchase incentives in the form of rebates and equity participation
to members, they can develop an on-line sales channel with low customer
acquisition costs.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. For the period from inception
(January 14, 1998) through December 31, 1998, the Company has incurred a net
loss of approximately $163,000 and had a working capital deficit of
approximately $57,000 as of December 31, 1998. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management expects to incur additional losses for the foreseeable future and
recognizes the need for an infusion of cash to achieve their business plan. The
Company is actively pursuing various options which include seeking additional
equity financing. The Company believes it will be able to raise sufficient
funds to achieve its planned business objectives through private placements
(see Note 11) and through the issuance of stock to members upon commencement of
operations of its online consumer network. The Company expects to fund its
equipment needs through debt and equity financing. The Company has no bank
lines of credit and there can be no assurance that the Company will be able to
obtain any needed additional financing on commercially reasonable terms. If the
Company is unable to obtain sufficient funds, it may be necessary for the
Company to explore other options which could have a material adverse effect on
the Company's business. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classifications of liabilities that may result.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
The Company has entered into contracts with certain vendors whereby the
Company will be paid commissions based on purchases by the members of its
consumer network. The Company will recognize revenue at the time the goods are
shipped or services are provided by its vendors.
F-7
<PAGE>
YOUNETWORK CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major
additions and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is computed
by the straight-line method over the assets' estimated useful lives ranging
from three to five years. Leasehold improvements will be amortized by the
straight-line method over the lesser of the term of the related lease or the
useful life. Upon sale or retirement of property and equipment, the related
cost and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in operations.
Software Development Costs
The Company accounts for its software development costs in accordance with
the provisions of Statement of Position 98-1, "Accounting for Costs of Computer
Software for Internal Use", issued by the American Institute of Certified
Public Accountants ("SOP 98-1"). Under the provisions of SOP 98-1, certain
costs incurred in developing internal use software principally in the software
application development stage, are eligible for capitalization.
The Company has developed certain proprietary e-commerce technology for
its online systems. Development includes software for its member referral
tracking, shopping list and checkout, rebate and reward accounting, credit card
transaction engine, automated merchandising and product presentation, as well
as data base management tools and reporting programs. Front-end site
development includes such items as design and development of the shopping
interface, dynamic home page and Internet gateway. Accordingly, during the
period from inception (January 14, 1998) to December 31, 1998 and the three
months ended March 31, 1999, the Company capitalized $69,425 and $165,000,
respectively, of fees incurred related to software application development
costs. Such costs will be amortized on a straight-line basis over three years
commencing with the substantial completion of the software development. To
date, substantially all of the Company's software development has been
conducted by an affiliate, International Computing, Inc., formerly Digital Pulp
Technologies, Inc. ("Digital") (see Note 7).
Deferred Registration Costs
Deferred registration costs will be offset against additional paid-in
capital upon the issuance of shares as contemplated in the registration
statement (see Note 11). Deferred registration costs will be charged to
operations if at such time it is determined that the offering is unsuccessful.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for all fiscal periods beginning after June 15, 1999. SFAS No.
133 requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
the derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. Management of the Company anticipates that due to
its limited use of derivative instruments, the adoption of SFAS No. 133 will
not have a material impact on the Company's financial position or results of
operations.
Advertising and Promotion Costs
Advertising and promotion costs are charged to operations during the
period in which they are incurred. Since inception, such costs have been
nominal.
F-8
<PAGE>
YOUNETWORK CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Computation of Net Loss per Common Share
The Company adopted SFAS No. 128, "Earnings per Share". This statement
requires that the Company report basic and diluted earnings (loss) per share
for all periods reported. Basic net income (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, consisting of dilutive common stock options using the treasury
stock method.
For all periods presented, common stock warrants are not included in the
computation as they would be anti-dilutive. In the event that the Company was
to report net income in future periods, these warrants could have a dilutive
effect on future earnings per share calculations in those periods.
The Company's board of directors declared a 3.65 to 1 stock split of its
common stock effective December 4, 1998. The stock split was effective prior to
the issuance of shares discussed in Note 9. All share data has been
retroactively adjusted for the effect of the stock split on December 4, 1998
and the exchange of stock on February 3, 1999 (see Note 11).
SFAS No. 123, "Accounting for Stock-Based Compensation", requires entities
to recognize as compensation expense over the vesting period the fair value of
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB No. 25 and provide pro
forma net income and pro forma income (loss) per share disclosures for employee
stock option grants made from 1995 forward as if the fair-value-based method,
defined in SFAS No. 123, had been applied.
The Company has elected to adopt the disclosure-only provision of SFAS No.
123, and as described above, will continue to apply APB No. 25 to account for
stock options. Since there were no stock options outstanding at December 31,
1998 and March 31, 1999, there is no pro forma effect on loss per share.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Computer equipment ...................................... $ 4,071 $ 4,071
Office equipment ........................................ 3,706 4,619
Leasehold improvements .................................. 2,150 2,150
------- -------
9,927 10,840
Equipment held under capital lease ...................... 44,950 44,950
------- -------
54,877 55,790
Less: Accumulated depreciation and amortization ......... 7,508 11,908
------- -------
$47,369 $43,882
======= =======
</TABLE>
F-9
<PAGE>
YOUNETWORK CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- CAPITAL LEASE OBLIGATION
Capital lease obligation consists of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Capital lease obligation, payable in monthly installments of
$1,472, including interest at 11%, maturing in July 2001,
secured by specific equipment with a carrying value of
approximately $38,700 at December 31, 1998 and $35,000 at
March 31, 1999 ............................................ $ 45,619 $ 41,205
Less: Amount representing interest ......................... 6,065 5,009
-------- --------
39,554 36,196
Less: Current portion ...................................... 14,000 14,388
-------- --------
$ 25,554 $ 21,808
======== ========
</TABLE>
Minimum future lease payments under the capital lease as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------
<S> <C>
1999 ....................................................................... $14,000
2000 ....................................................................... 15,620
2001 ....................................................................... 9,934
-------
$39,554
=======
</TABLE>
NOTE 5 -- DEFERRED REVENUE
The Company entered into an agreement in March 1998 with a company which
provides long-distance telephone service. The agreement includes provisions for
advances to the Company totalling $250,000. At December 31, 1998, the Company
had received advances of $175,000. Commissions earned by the Company for the
referral of customers to the telephone company are offsetable against these
advances. The initial term of the agreement is three years. Advances made in
excess of commissions earned and offset against the advances are payable by the
Company on the earlier of the termination of the agreement or twelve months
from the date of full execution of the agreement.
NOTE 6 -- INCOME TAXES
At December 31, 1998, the Company had a U.S. federal and New York State
net operating loss carryforward of approximately $162,000 expiring in 2013. The
Company has established a valuation allowance with respect to these federal and
state carryforwards.
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards .......................................... $65,100
Valuation allowance ....................................................... (65,100)
----------
Net deferred tax assets .................................................... $ --
==========
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
From inception, the Company has retained the services of Digital, a
corporation that is partially-owned by the Company's chief executive officer
who is also a significant shareholder of the Company. For
F-10
<PAGE>
YOUNETWORK CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 -- RELATED PARTY TRANSACTIONS (CONTINUED)
the period from inception through March 31, 1999, this individual had not
performed any significant services on behalf of the Company in his role as
chief executive officer and no compensation expense has been recorded by the
Company. Digital has provided software and systems integration consultation
services in connection with the Company's development of its proprietary
tracking software. Consulting fees paid by the Company to Digital for the
period from inception (January 14, 1998) to December 31, 1998 were $89,425, of
which $69,425 was capitalized and the balance charged to operations. Consulting
fees paid by the Company to Digital and capitalized were $155,000 for the three
months ended March 31, 1999. At December 31, 1998 and March 31, 1999, $23,150
and $59,190, respectively, was due to Digital by the Company.
NOTE 8 -- CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at two banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000.
NOTE 9 -- STOCK WARRANTS
On December 4, 1998, the Company issued 8,910,000 shares (the "Purchased
Shares") of common stock and common stock purchase warrants (the "Purchase
Warrants") for $200,000. These shares represented 27% of the issued and
outstanding shares of common stock of the Company on a fully diluted basis. The
Purchase Warrants can be used to purchase in the aggregate such number of
shares of common stock, at nominal consideration, as shall equal, in the
aggregate when added to the Purchased Shares, 27% of the issued and outstanding
shares of common stock of the Company on a fully diluted basis, immediately
following the sale of additional common stock by the Company in consideration
of the first $400,000 of common stock proceeds received by the Company after
December 4, 1998. During 1998, no warrants were exercised. During the three
months ended March 31, 1999, the warrants were exercised and the Company issued
1,479,452 shares of class C common stock.
NOTE 10 -- COMMITMENT
Lease
The Company leases office space under an operating lease expiring in April
2003. As of December 31, 1998, the future minimum lease payments, excluding
escalation charges, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------
<S> <C>
1999 ......... $21,000
2000 ......... 21,000
2001 ......... 21,000
2002 ......... 21,000
2003 ......... 7,000
-------
$91,000
=======
</TABLE>
Total rent expense charged to operations for the period from inception
(January 14, 1998) to December 31, 1998 and the three months ended March 31,
1999 was approximately $12,100 and $5,700, respectively.
NOTE 11 -- SUBSEQUENT EVENTS
Exchange of Stock
On February 3, 1999, the stockholders of YouNetwork Corp., a New York
corporation, exchanged each share of their common stock for 330,000 shares of
class C common stock of YouNetwork
F-11
<PAGE>
YOUNETWORK CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 -- SUBSEQUENT EVENTS (CONTINUED)
Corporation, a recently formed Delaware corporation under common control. Since
the entities are under common control, the transaction is to be accounted for
in the same manner as a pooling of interest.
YouNetwork Corporation is authorized to issue common stock as follows:
<TABLE>
<CAPTION>
PAR SHARES
VALUE AUTHORIZED
----------- --------------
<S> <C> <C>
Class A Common stock ......... $ .0001 1,500,000
Class B Common stock ......... $ .0001 1,500,000
Class C Common stock ......... $ .0001 247,000,000
</TABLE>
Registration Statement
On February 8, 1999, YouNetwork Corporation filed a registration statement
under the Securities Act of 1933 to register 1,000,000 shares each of class A
and class B common stock. The first 250,000 class A shares will be offered at
no cost to each consumer who registers to become a member of YouNetwork
Corporation's consumer network. The remaining 750,000 class A shares will be
distributed to members based upon referring new members to the consumer
network. Class B shares will be offered to consumer network members at $1.00
per share, which may only be paid with rebates earned by members making
purchases on the consumer network.
Upon the issuance of class A shares, the Company will record a charge to
operations for promotions costs for the value of the shares issued based on the
most recent private offering. Upon the issuance of class B shares, the Company
will record a reduction in the liability for rebates due to members of the
consumer network. A liability for rebates due to members and a corresponding
charge to cost of goods sold are recorded when members make purchases on the
consumer network.
Private Placements
Through April 19, 1999, the Company received $1,488,000 from the issuance
of 6,680,000 shares of class C common stock from private offerings, pursuant to
Regulation D, and issued 1,479,452 shares of class C common stock of the
Company to certain stockholders in accordance with anti-dilutive provisions of
a stockholders' agreement (see Note 9).
Consulting Agreement
During 1999, the Company entered into an oral agreement with Digital, a
corporation that is partially-owned by one of the Company's significant
stockholders, to continue to provide software and systems integration
consultation services. Digital will receive $50,000 per month through
completion of the proprietary software development.
NOTE 12 -- INTERIM PERIODS (UNAUDITED)
In the opinion of the Company, the accompanying unaudited financial
statements include all adjustments (which consist only of normally recurring
items) necessary to present fairly the financial position as of March 31, 1999,
and the results of operations and cash flows for the three months ended March
31, 1999 and the period from inception (January 14, 1998) to March 31, 1999.
The results for the months ended March 31, 1999 and the period from inception
(January 14, 1998) to March 31, 1999, are not necessarily indicative of the
results to be expected for the year. Operations for the three months ended
March 31, 1998 and the Company's financial position at March 31, 1998 were not
significant.
F-12
<PAGE>
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL THE SECURITIES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF THIS DATE.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------------------
<S> <C>
Prospectus Summary ....................... 3
The Offering ............................. 4
Summary Financial Information ............ 5
Risk Factors ............................. 6
Capitalization ........................... 12
Dividend Policy .......................... 13
Dilution ................................. 14
Plan of Operation ........................ 15
Business ................................. 22
Industry Background ...................... 24
Management ............................... 31
Executive Compensation Table ............. 32
Certain Transactions ..................... 34
Principal Stockholders ................... 36
Description of Shares .................... 37
Plan of Distribution ..................... 39
Shares Eligible for Future Sale .......... 40
Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities ....................... 40
Transfer Agent and Registrar ............. 41
Legal Matters ............................ 41
Experts .................................. 41
Additional Information ................... 41
YOUNETWORK CORPORATION
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report ............. F-2
Financial Statements:
Balance Sheets ........................ F-3
Statements of Operations .............. F-4
Statement of Stockholders' Equity F-5
Statements of Cash Flows .............. F-6
Notes to Financial Statements ............ F-7 - F-12
</TABLE>
- ----------------------
Until August 7, 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a prospectus when acting as Representatives and with respect to their
unsold allotments or subscriptions.
1,000,000 SHARES OF CLASS A
COMMON STOCK AND
1,000,000 SHARES OF CLASS B
COMMON STOCK
YOUNETWORK
CORPORATION
-----------------------
PROSPECTUS
-----------------------
JULY 13, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
YouNetwork's certificate of incorporation, as amended, and bylaws limit
the liability of directors and officers to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for: (i) breach of the
directors' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption, and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and this provision of our Certificate of Incorporation has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
Insofar as indemnification for liabilities may be permitted to directors,
officers and controlling persons of YouNetwork pursuant to the foregoing
provisions, or otherwise, YouNetwork has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy and is, therefore, unenforceable.
Corporation Takeover Provisions
Section 203 of the Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that
such stockholder became an interested stockholder, unless (i) the corporation
has elected in its original certificate of incorporation not to be governed by
Section 203 (we did not make such an election) (ii) the business combination
was approved by the Board of Directors of the corporation before the other
party to the business combination became an interested stockholder (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the commencement of the transaction (excluding
voting stock owned by directors who are also officers or held in employee
benefit plans in which the employees do not have a confidential right to render
or vote stock held by the plan) or, (iv) the business combination was approved
by the Board of Directors of the corporation and ratified by two-thirds of the
voting stock which the interested stockholder did not own. The three-year
prohibition also does not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the
assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally as a stockholder
who, together with affiliates and associates, owns (or, within three years
prior, did own) 15% or more of a Delaware corporation's voting stock. Section
203 could prohibit or delay a merger, takeover or other change in control of
YouNetwork and therefore could discourage attempts to acquire YouNetwork.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration Fee .................................................. $ 280
Printing and Engraving Expenses ....................................... $ 20,000*
Legal Fees and Expenses (including blue sky fees and expenses) ........ $ 175,000*
Accounting Fees and Expenses .......................................... $ 50,000*
Transfer Agent's Fees and Expenses .................................... $ 10,000*
Miscellaneous Expenses ................................................ $ 2,000*
---------
TOTAL ............................................................... $ 257,280*
</TABLE>
- ----------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following gives effect to the 330,000 to 1 exchange of class C shares
of common stock effected February 3, 1999, pursuant to an agreement and plan of
merger between YouNetwork, Corp., a New York corporation and the registrant,
YouNetwork Corporation, a Delaware corporation. The purpose of the merger is to
take advantage of the laws of the state of Delaware.
PRIVATE PLACEMENT.
In March and April of 1999, YouNetwork sold 6,680,000 shares of its class
C common stock for $1,488,000. The reason for the offering was to raise
necessary additional capital to finance network expansion and equipment
upgrades, and development costs in connection with our proprietary software,
tracking. The offering was a private transaction exempt from registration. All
investors are accredited.
Pursuant to an agreement among YouNetwork, Dalia Silverman and Kleopatra
Georgiades (the "Original Investors"), the Original Investors purchased from
YouNetwork, for an aggregate purchase price of $200,000: (i) an aggregate of
8,910,000 shares of common stock (the "Purchased Shares") representing 27% of
the issued and outstanding common stock, on a fully diluted basis; and (ii)
options (the "Purchase Options") to purchase in the aggregate such number of
shares of common stock, at nominal consideration, as shall equal, in the
aggregate when added to the Purchased Shares, 27% of the issued and outstanding
common stock of YouNetwork on a fully diluted basis, immediately following the
sale of additional common stock by YouNetwork in consideration of the first
$400,000 of common stock sale proceeds received by YouNetwork following
December 4, 1998.
The proceeds from the sale of our shares to the Original Investors was
used for software development in the approximate amount of $68,000, legal
expenses in the amount of $10,000, and $122,000 to salaries, office expenses
and general administrative costs. In March of 1999, the Original Investors
exercised the Purchase Options following a private placement in March of 1999
for the sale of 4,630,000 shares of class C common stock by YouNetwork to
accredited investors for consideration of $463,000. As a result of the exercise
of the Original Investors respective Purchase Options, the Original Investors
received 739,726 shares of YouNetwork class C common stock.
The foregoing offerings were private transactions exempt from
registration. All investors in these private transactions are accredited.
II-2
<PAGE>
Except as otherwise indicated, all exhibits listed below were filed with
YouNetwork's initial filing, Form SB-2 on February 5, 1999, and Amendment No. 2
and 3.
ITEM 27. EXHIBITS
EXHIBIT
NO. DESCRIPTION
--- -----------
2.1* Agreement and plan of merger Agreement, dated February 3, 1999, by
and between YouNetwork Corp., a New York corporation and YouNetwork
Corporation, a Delaware corporation.
3.1* Certificate of Incorporation of Registrant, as amended
3.2** Amended and Restated By-laws of Registrant
4.1* Specimen certificate representing Registrant's class A Common Stock
4.2* Specimen certificate representing Registrant's class B Common Stock
5.1** Opinion of Silverman, Collura & Chernis, P.C. with respect to
legality of the securities of the Registrant being registered
10.1* Stockholders' Agreement, dated December 4, 1998
10.2* Stock and Warrant Purchase Agreement, dated December 4, 1998
10.3* Agreement between Muze, Inc. and YouNetwork , dated January 7, 1999
10.4* Agreement between Qwest International Inc. (a successor in interest
to LCI International Telecom Corp.), dated March 6, 1998.
10.5* Agreement between Baker & Taylor, Inc. and YouNetwork, dated, July
9, 1998.
10.6* 1999 Stock Option Plan.
10.7* Master lease agreement between Leasing Technologies, Inc and
YouNetwork corporation, dated April 15, 1999.
10.8** Lease agreement between Waltox Corporation, N.V. c/o First Pioneer
Properties, Inc. and YouNetwork Corporation, dated July 1, 1999.
10.9** Distribution agreement between Ingram Micro, Inc. and YouNetwork,
dated June 16, 1998.
10.10** Distribution agreement between Baker & Taylor, Inc. and YouNetwork,
dated January 19, 1999.
10.11** Distribution agreement between Baker & Taylor, Inc. and YouNetwork,
dated February 15, 1999.
23.1** Consent of Silverman, Collura &, Chernis, P.C. (included in Exhibit
5.1)
23.2** Consent of Mahoney Cohen & Company, CPA, P.C.
27* Financial Data Schedule
- ----------
* Previously filed
** Filed with this Amendment No. 4 to Form SB-2
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) Rule 415 offerings.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Includes any additional or changed material information on the
plan of distribution. Provided, however, the paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on Form S-3 or
Form S-8, and the information required in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
(1) Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or otherwise, the issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the issuer of expenses incurred or paid by a
director, officer or controlling person of the issuer in the successful
defense of any action, suit or proceedings) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the issuer will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such court.
(2) For determining liability under the Securities Act, treat the
information in the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the form of
prospectus file by the small business issuer under rule 424(b)(1), or (4)
or 457(h) under the Securities Act as part of this registration statement
as at the time the Commission declares it effective.
(3) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on this Form SB-2 Amendment No. 4 and
authorizes this registration statement to be signed on its behalf by the
undersigned, in the City of New York, State of New York, on July 13, 1999.
YOUNETWORK CORPORATION
By: /s/ Kyle S. Taylor
------------------------------------
Kyle S. Taylor, President
Pursuant to the requirements of the Securities Act of 1933, this
registration Statement has been signed by the following persons in their
respective capacities with YouNetwork and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Kyle S. Taylor President July 13, 1999
- -----------------------------
Kyle S. Taylor
/s/ Don S. Senerath Chief Executive Officer, July 13, 1999
- ----------------------------- Director
Don S. Senerath
/s/ Peter R. Silverman Director July 13, 1999
- -----------------------------
Peter Silverman
II-5
<PAGE>
Except as otherwise indicated, all exhibits listed below were filed with
YouNetwork's initial filing, Form SB-2 on February 5, 1999, and Amendment No. 2
and 3.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
2.1* Agreement and plan of merger Agreement, dated February 3, 1999, by
and between YouNetwork Corp., a New York corporation and YouNetwork
Corporation, a Delaware corporation.
3.1* Certificate of Incorporation of Registrant, as amended
3.2** Amended and Restated By-laws of Registrant
4.1* Specimen certificate representing Registrant's class A Common Stock
4.2* Specimen certificate representing Registrant's class B Common Stock
5.1** Opinion of Silverman, Collura & Chernis, P.C. with respect to
legality of the securities of the Registrant being registered
10.1* Stockholders' Agreement, dated December 4, 1998
10.2* Stock and Warrant Purchase Agreement, dated December 4, 1998
10.3* Agreement between Muze, Inc. and YouNetwork , dated January 7, 1999
10.4* Agreement between Qwest International Inc. (a successor in interest
to LCI International Telecom Corp.), dated March 6, 1998.
10.5* Agreement between Baker & Taylor, Inc. and YouNetwork, dated, July
9, 1998.
10.6* 1999 Stock Option Plan.
10.7* Master lease agreement between Leasing Technologies, Inc and
YouNetwork corporation, dated April 15, 1999.
10.8** Lease agreement between Waltox Corporation, N.V. c/o First Pioneer
Properties, Inc. and YouNetwork Corporation, dated July 1, 1999.
10.9** Distribution agreement between Ingram Micro, Inc. and YouNetwork,
dated June 16, 1998.
10.10** Distribution agreement between Baker & Taylor, Inc. and YouNetwork,
dated January 19, 1999.
10.11** Distribution agreement between Baker & Taylor, Inc. and YouNetwork,
dated February 15, 1999.
23.1** Consent of Silverman, Collura &, Chernis, P.C. (included in Exhibit
5.1)
23.2** Consent of Mahoney Cohen & Company, CPA, P.C.
27* Financial Data Schedule
- ----------
* Previously filed
** Filed with this Amendment No. 4 to Form SB-2
<PAGE>
AMENDED & RESTATED
BYLAWS
OF
YOUNETWORK COPORATION
ARTICLE I
OFFICES
Section 1. The registered office shall be located in the City of
Wilmington, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors of
directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders shall be held at such
place within or without the State as may be from time to time fixed or
determined by the Board of Directors.
Section 2. An annual meeting of the stockholders, commencing with the
year 1999, shall be held on a date and at a time and place to be determined by
the Board of Directors, when they shall elect by a plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Special meetings of the stockholders for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called at any time by holders of not less than 10% of the
shares entitled to vote at such meeting or the Board of Directors pursuant to a
resolution adopted by a majority of total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption). Such resolution shall state the purpose or purposes of the proposed
meeting. Upon delivery to the secretary of the Corporation of said resolution,
it shall be the duty of the secretary to call a special meeting of the
stockholders to be hold at such time, not more than sixty days thereafter, as
the secretary may fix. if the secretary shall neglect to issue such call, the
person or persons making the request may issue the call.
Section 4. Written notice of every meeting of the stockholders,
specifying the place, date, and hour of the meeting, and in the case of a
special meeting, the purpose or purposes for which the meeting in called, shall
be served upon or mailed, postage prepaid, not less than ten nor more
1
<PAGE>
than sixty days before the date of the meeting unless a different period of
notice is required by statute, to each stockholder entitled to vote thereat.
Section 5. The officer who has charge of the stock ledger of the
Corporation shall prepare and make at least ten days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list 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.
Section 6. Business transacted at all special meetings of stockholders
shall be limited to the purposes stated in the notice.
Section 7., The holders of a majority of the issued and outstanding
shares entitled to vote, present in person or represented by proxy, shall be
requisite and shall constitute a quorum at all meetings of the stockholders for
the transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation, or by these Bylaws. The stockholders present in
person or by proxy at a duly convened meeting can continue to do business until
adjournment, notwithstanding withdrawal of enough stockholders to leave less
than a quorum.
Section 8. When a quorum is present or represented at any meeting, the
vote of the holders of a majority of the shares having voting powers, present
in person or represented by proxy, shall decide any question brought before
such meeting, unless the. question is one upon which, by express provision of
the statutes or of the Certificate of Incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
Section 9. Each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share having voting
power hold by such stockholder, but no proxy shall be voted an after three
years from its date, unless the proxy provides for a longer period; and, except
where the Board of Directors has fixed, in advance, a record date, which shall
not be more than sixty, nor less than ten days before the date of such meeting,
the record date for determining stockholders entitled to vote at a meeting of
stockholders shall be at the close of business on the next day preceding the
day on which the meeting is hold.
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ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the Board
of Directors shall not be less than one (1) nor more than eight (8) directors,
which Board of Directors shall be elected by the stockholders at their annual
meeting. The Board of Directors may, by a vote of not less than a majority of
the authorized number of directors, increase or decrease the number of
directors from time to time without a vote of the stockholders provided,
however, that any such decrease shall not eliminate any director then in
office.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors shall be filled by a
majority of the remaining number of, the Board of Directors, though less than a
quorum. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole Board of Directors (as constituted immediately prior to
any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be hold to fill any such vacancies or newly
created directorships, or to replace the directors chosen by directors then in
office as aforesaid, which election shall be governed by the provision of
Article II, Section 2, as far as applicable.
Section 3. The business of the Corporation shall be managed by its
Board of Directors which may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised and, done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at the same place as, and immediately following, the annual
meeting of the stockholders unless the stockholders shall otherwise fix the
time and place of such meeting at the annual meeting of stockholders at which
such directors were elected, in which case such meeting shall be hold at the
time and place so fixed. No notice of such meeting shall be necessary to the
newly elected directors in order to legally constitute such meeting, provided a
majority of the whole Board of Directors shall be present. In the event such
meeting is not hold at such time and place as provided for above, the meeting
may be held at such time and place as shall be specified in a notice given as
hereinafter provided for such meetings of the Board of Directors, or as shall
be specified in a written waiver signed by all of the directors,
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Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by resolution of at least a majority of the Board of Directors at a
duly governed meeting, or by unanimous written consent.
Section 7. Special meetings of the Board of Directors may be called by
the president on five (5) days' notice to each director, either personally or
by mail or by telegram; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors.
Section 8. At all meetings of the Board of Directors, a majority of
the directors in office shall be necessary to constitute a quorum for the
transaction of business, and the acts of a majority of the directors present at
a meeting at which a quorum is present shall be the acts of the Board of
Directors, except as may be otherwise specifically provided by statute or the
Certificate of Incorporation. If a quorum shall not be present at any meeting
of directors, the directors present thereat may adjourn the meeting from time
to time, without notice, other than announcement at the meeting, until a quorum
shall be present.
Section 9. If all the directors shall severally or collectively
consent in writing to any action to be taken by the Corporation, and if the
writing or writings are filed with the minutes of the proceedings of the Board
of Directors, such action shall be as valid a corporate action as though it had
been authorized at a meeting of the Board of Directors.
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board of Directors, designate one or more committees,
each committee to consist of two or more of the directors of the Corporation.
The Board of Directors may designate alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution, shall have and
may exercise the powers of the Board of Directors in the management of the
business affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it. The committee or
committees designated -shall keep regular minutes of its proceedings and report
the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 11. Directors shall not receive any stated salary for their
services but, by resolution of the Board of Directors, a fixed sum and expenses
of attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board of Directors or at meetings of the executive committee;
provided that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
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REMOVAL OF DIRECTORS
Section 12. The entire Board of Directors or any individual director
may be removed from office at any time, for or without cause, by a majority vote
of the holders of the then outstanding shares of capital stock entitled to vote
generally in the election of directors.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing
and delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, 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 V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a chairman of the Board of Directors, a
president, a vice president,-a secretary and a treasurer. The Board of
Directors may also choose additional vice presidents and one or more assistant
secretaries and assistant treasurers. Any of the aforesaid offices may be held
by the same person. The Board of Directors, in its discretion, may leave vacant
for such period of time as it may doom appropriate any office provided for in
these Bylaws.
Section 2. The Board of Directors, at their first meeting, shall elect
a president, who may but need not be a director, and, the Board of Directors
shall also annually choose a vice president, a secretary and a treasurer who
need not be members of the Board of Directors.
Section 3. The Board of Directors may appoint such other officers and,
agents as it shall doom necessary 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 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
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Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 6. The chairman of the Board of Directors shall preside at all
meetings of the Board of Directors and shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
THE PRESIDENT
Section 7. The president shall preside at all meetings of the
stockholders, shall have general and active management of the business, of the
Corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 8. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be-expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
THE CHIEF EXECUTIVE OFFICER
Section 9. The Chief Executive Officer, shall, in the absence or
disability of the president, perform the duties and exercise the powers of the
president, and shall perform such other duties and have much other powers as
the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the Corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the executive
committee when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or president, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it and, when so affixed,
it shall be attested by his signature or by the signature of an assistant
secretary.
Section 11. The assistant secretary or, if there shall be more than
one, the assistant secretaries, in the order determined by the Board of
Directors, shall, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary and shall perform
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such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have custody of the corporate funds
and securities, shall keep full and accurate. accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors.
Section 13. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors at
its regular meetings or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
Section 14. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 15. The assistant treasurer or, if there shall be more than
one, the assistant treasurers, in the order determined by the Board of
Directors, shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE VI
CERTIFICATES OF SHARES
Section 1. The certificates of shares of the Corporation shall be
numbered and registered in a share register as they are issued. They shall
exhibit the name of the -registered holder and the number and class of shares
and the -series, if any, represented thereby and the par value of each share or
a statement that such shares are without par value as the case may be.
Section 2. Every share certificate shall be signed by the president
and the secretary and shall be sealed with the corporate seal which may be
facsimile, engraved or printed.
Section 3. In case any officer who has signed or whose facsimile
signature has been placed. upon any share certificate, shall have ceased to be
such officer because of death, resignation or
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otherwise before, the certificate is issued, it maybe issued, by the
Corporation with the same of fact as if the officer had not ceased to be such
at the date of its issue.
LOST CERTIFICATES
Section 4. The Board of Directors shall direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, destroyed or
wrongfully taken, upon the making of an affidavit of that fact by the person
claiming the share certificate to be lost, destroyed or wrongfully taken. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, destroyed or wrongfully taken
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and give the Corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate or certificates alleged to have
been lost, destroyed or wrongfully taken.
TRANSFER OF SHARES
Section 8. Upon the surrender to the Corporation or the transfer agent
of the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS.
Section 6. The Board of Directors may fix a time, not more than sixty
nor less than ten days, prior to the date of any meeting of stockholders or the
date fixed for the payment of any dividend or distribution or the date for the
allotment of rights or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination
of the stockholders entitled to receive payment of any such dividend or
distribution or to receive any such allotment of rights or to exercise the
rights in respect to any such change, conversion or exchange of shares. In such
case only such stockholders an shall be stockholders of record on the date so
fixed shall be entitled to notice of and to vote at such meeting or to receive
payment of such dividend or to receive such allotment of rights or to exercise
such rights, as the case may be, notwithstanding any transfer of any shares on
the books of the Corporation after any record date so fixed. The Board of
Directors may close the books of the Corporation against transfers of shares
during the whole or any part of such period and in such case written or printed
notice thereof shall be mailed at least ton days before the closing thereof to
each stockholder of record at the address appearing on the records of the
Corporation or supplied by him to the Corporation for the purpose of notice.
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REGISTERED STOCKHOLDERS
Section 7. The Corporation shall be entitled to treat the holder of
record of any share or shares as the holder in fact thereof and shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, and shall not be liable for any registration or
transfer of shares which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with actual knowledge that
a fiduciary or nominee of a fiduciary is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
Section 1. The Corporation shall, to the fullest extent now or
hereafter permitted by law,.indemnify any person who was or is a party or in
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys fees, judgments, fines and-amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contenders or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The Corporation shall, to the fullest extent now or
hereafter permitted by law, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise against expenses, including attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Corporation. No such
indemnification against expenses shall be made, however, in respect of any
claim, issue or matter as to which such person shall have
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been adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery in which such action or suit was brought shall
determine upon application that despite the adjudication of liability, but in
view of all the circumstances of the came, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall doom proper.
Section 3. Indemnification under Sections 1 and 2 of this Article
shall be made by the Corporation when ordered by a court or upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct at forth in
those sections. Such determination shall be made (a) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit, or proceeding, or (b) if such quorum is not obtainable or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (c) by the stockholders.
Section 4. Expenses incurred in defending a civil or criminal action,
suit or proceeding of the kind described in sections 1 and 2 of this Article
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking, by or on behalf of
the person who may be entitled to indemnification under those Sections, to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation.
Section 5. The indemnification provided in this Article shall continue
as to a person who has ceased to be a director or officer of the Corporation
and shall inure to the benefit of the heirs, executors and administrators of
such a parson.
Section 6. Nothing herein contained shall be construed as limiting the
power or obligation of the Corporation to indemnify any person in accordance
with the Delaware General Corporation Law, as amended from time to time, or in
accordance with any similar law adopted in lieu thereof. The indemnification
and advancement of expenses provided by, or granted pursuant to, this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office.
Section 7. The Corporation shall also indemnify any person against
expenses, including attorneys' fees, actually and reasonably incurred by him in
enforcing any right to indemnification under this Article, under the Delaware
General Corporation Law, as amended from time to time, or under any similar law
adopted in lieu thereof.
Section 8. Any person who shall serve as a director, officer, employee
or agent of the Corporation or who shall serve, at the request of the
Corporation, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be
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deemed to do so with knowledge of and in reliance upon the rights of
indemnification provided in this Article, in the Delaware General Corporation
Law, as amended from time to time, and in any similar law adopted in lieu
thereof.
INSURANCE
Section 9. The Corporation shall have power but not the obligation to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability.
ARTICLE VIII
GENERAL PROVISIONS
EMERGENCY BYLAWS
Section 1. The Board of Directors of the Corporation may adopt
emergency Bylaws, subject to repeal or change by action of the stockholders,
which shall be operative during any emergency resulting from warlike damage or
attack on the United States or any nuclear or atomic disaster. The emergency
Bylaws may make any provision that may be practical and necessary for the
circumstances of the emergency.
INTERESTED DIRECTORS
Section 2. No contract or transaction between the Corporation and one
or more of its directors or officers, or between the Corporation and any other
corporation, partnership, association or other organization in which one or
more of its directors or officers are also directors or officers, or have a
financial interest, shall be void or voidable solely for such reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his interest and as to the
contract or transaction are disclosed or known to the Board of Directors and
the Board of Directors in good faith authorizes the contract or transaction by
a vote sufficient for such purpose without counting the vote of the interested
director or directors; or
(b) The material facts as to his interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by a vote of the shareholders; or
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(c) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors or the stockholders.
Section 3. Interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors which authorized a
contract or transaction in the preceding section.
DIVIDENDS
Section 4. Dividends upon the shares of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in its shares, subject to the
provisions of the Certificate of Incorporation.
Section 5. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 6. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 7. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 8. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "YouNetwork
Corporation Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
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ARTICLE IX
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed by a
resolution of a majority of the Board of Directors.
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YouNetwork Corporation
July 13, 1999
Page 1
[SILVERMAN, COLLURA & CHERNIS, P.C. LETTERHEAD]
July 13, 1999
YouNetwork Corporation
220 East 23rd Street, Suite 607
New York, New York 10010
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to YouNetwork Corporation ("Company"), a
Delaware corporation, pursuant to a Registration Statement on Form SB-2, as
filed with the Securities and Exchange Commission on February 5, 1999, as
amended ("Registration Statement"), covering: 1,000,000 shares of the Company's
Class A common stock, $.0001 par value; and (ii) 1,000,000 shares of the
Company's Class B common stock, $.0001 par value ("Common Stock").
In acting as counsel for the Company and arriving at the opinions as
expressed below, we have examined and relied upon originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein.
In connection with our examination we have assumed the genuineness of
all signatures, the authenticity of all documents tendered to us as originals,
the legal capacity of natural persons and the conformity to original documents
of all documents submitted to us as certified or Photostatted copies.
Based on the foregoing, and subject to the qualifications and
limitations set forth herein, it is our opinion that:
<PAGE>
1. The Company has authority to issue the Common Stock in the manner and
under the terms set forth in the Registration Statement.
2. The Common Stock has been duly authorized and is validly issued,
fully paid and non-assessable
We express no opinion with respect to the laws other than those of the
State of New York and federal laws of the United States of America, and we
assume no responsibility as to the applicability thereto, or the effect thereon,
of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and its use as part of the Registration Statement.
Very truly yours,
SILVERMAN, COLLURA
& CHERNIS, P.C.
/s/ Silverman, Collura & Chernis, P.C.
--------------------------------------
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STANDARD FORM OF LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE, made as of this 2nd day of July 1999, between
Waltox Corporation, N.V. c/o First Pioneer Properties, Inc., 34-09 Queens
Boulevard party of the first part, hereinafter referred to as OWNER, and
Long Island City, NY 11101
You Network Corporation party of the second part, hereinafter referred to as
TENANT.
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner The
Entire 9th Floor in the building known as 115 East 23rd Street, New York, NY in
the Borough of Manhattan, City of New York, for the term of Three (3) years (or
until such term shall sooner cease and expire as hereinafter provided) to
commence on the 1st day of July nineteen hundred and ninety nine, and to end on
the 30th day of June two thousand two and both dates inclusive, at an annual
rental rate of One Hundred Thirty Two Thousand ($132,000) Dollars per annum,
payable in advance in equal monthly installments of $11,000 which Tenant agrees
to pay in lawful money of the United States which shall be legal tender in
payment of all debts and dues, public and private, at the time of payment, in
equal monthly installments in advance on the first day of each month during said
term, at the office of Owner or such other place as Owner may designate, without
any set off or deduction whatsoever, except that Tenant shall pay the first
monthly installment(s) on the execution hereof (unless this lease be a
renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for General and
Executive Offices
provided such use is in accordance with the certificate of occupancy for the
building, if any, and for no other purpose.
ALTERATIONS: 3. Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written consent. [1] Subject to the
prior written consent of Owner, and to the provisions of this article, Tenant,
at Tenant's expense, may make alterations, installations, additions or
improvements which are nonstructural and which do not affect utility services or
plumbing and electrical lines, in or to the interior of the demised premises
using contractors or mechanics first approved in each instance by Owner. Tenant
shall, at its expense, before making any alterations, additions, installations
or improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter at
Tenant's expense, by payment or filing the bond required by law or otherwise.
All fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Owner on Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's right thereto and to have them removed
by Tenant, in which event the same shall be removed from the demised premises by
Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in
this Article shall be construed to give Owner title to or to prevent Tenant's
removal of trade fixtures, moveable office furniture and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Owner, Tenant shall immediately and at its expense, [2]
repair and restore the premises to the condition existing prior to installation
and repair any damage to the demised premises or the building due to such
removal. [3] All property permitted or required to be removed by Tenant at the
end of the term remaining in the premises after Tenant's removal shall be deemed
abandoned and may, at the election of Owner, either be retained as Owner's
property or removed from the premises by Owner, at Tenant's expense.
REPAIRS: 4. Owner shall maintain and repair the exterior of and the
public portions of the building. Tenant shall, (4) throughout the term of this
lease, take good care of the demised premises including the bathrooms and
lavatory facilities (if the demised premises encompass the entire floor of the
building) and the windows and window frames and, the fixtures and appurtenances
therein and [4] at Tenant's sole cost and expense promptly make all repairs
thereto and to the building, whether structural or non-structural in nature,
caused by or resulting from the carelessness, omission, neglect or improper
conduct of Tenant. Tenant's servants, employees, invitees, or licensees, and
whether or not arising from such Tenant conduct or omission, when required by
other provisions of this lease, including Article 6. Tenant shall also repair
all damage to the building and the demised premises caused by the moving of
Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of
quality or class equal to the original work or construction. If Tenant fails,
after ten days notice, to proceed with due diligence to make repairs required to
be made by Tenant, the same may be made by the Owner at the expense of Tenant,
and the expenses thereof incurred by Owner shall be collectible, as additional
rent, after rendition of a bill or statement therefor. If the demised premises
be or become infested with vermin, [5] Tenant shall, at its expense, cause the
same to be exterminated. Tenant shall give Owner prompt notice of any defective
condition [6] in any [7] plumbing, heating system or electrical lines located in
the demised premises and following such notice, Owner shall remedy the condition
with due diligence, but at the expense of Tenant, if repairs are necessitated by
damage or injury attributable to Tenant. Tenant's servants, agents, employees,
invitees or licensees as aforesaid. Except as specifically provided in Article 9
or elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner. Tenant or
others making of failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any set off or reduction of rent by
reason of any failure of Owner to comply with the covenants of this or any other
article of this lease. Tenant agrees that Tenant's sole remedy at law in such
instance will be by way of any action for damages for breach of contract. The
provisions of this Article 4 with respect to the making of repairs shall not
apply in the case of fire or other casualty with regard to which Article 9
hereof shall apply.
WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the New York State Labor Law or any other applicable
law or of the Rules of the Board of Standards and Appeals, or of any other Board
or body having or asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE: 6. Prior to the commencement of the
lease term, if Tenant is then in possession, and at all times thereafter Tenant
shall, at Tenant's sole cost and expense, promptly comply with all present and
future laws, orders and regulations of all state, federal, municipal and local
governments, departments, commissions and boards and any direction of any public
officer pursuant to law, and all orders, rules and regulations of the New York
Board of Fire Underwriters, or the Insurance Services Office, or any similar
body which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, or, with respect to the building, if arising out of
Tenant's use or manner of use of the demised premises of the building (including
the use permitted under the lease). Except as provided in Article 30 thereof,
nothing herein shall require Tenant to make structural repairs or alterations
unless Tenant has, by its manner of use of the demised premises or method of
operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant shall not do or
<PAGE>
permit any act or thing to be done in or to the demised premises which is
contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for
the benefit of Owner. Tenant shall not keep anything in the demised premises
except as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" or rate for the building or demised premises
issued by a body making fire insurance rates applicable to said premises shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position of
all safes, business machines and mechanical equipment. Such installations shall
be placed and maintained by Tenant, at Tenant's expense, in settings sufficient,
in Owner's judgement, to absorb and prevent vibration, noise and annoyance.
SUBORDINATION: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY: 8. Owner
or its agents shall not be liable for any damage to property of Tenant or of
others entrusted to employees of the building, nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees; Owner
or its agents shall not be liable for any damage caused by other tenants or
persons in, upon or about said building or caused by operations in connection of
any private, public or quasi public work [8] if at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorney's fees,
paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licensees (8). Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant,
and any agent, contractor, employee, invitee or licensee of any sub-tenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY: 9. (a) If the demised premises or
any part thereof shall be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall continue in full force
and effect except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other casualty, the
damages thereto shall be repaired by and at the expense of Owner and the rent
and other items of additional rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent and other items of additional rent as hereinafter expressly provided shall
be proportionately paid up to the time of the casualty and thenceforth shall
cease until the date when the premises shall have been repaired and restored by
Owner (or sooner reoccupied in part by Tenant then rent shall be apportioned as
provided in subsection (b) above), subject to Owner's right to elect not to
restore the same as hereinafter provided. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises are damaged in
whole or in part) if the building shall be so damaged that Owner shall decide to
demolish it or to rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90 days after
such fire or casualty, or 30 days after adjustment of the insurance claim for
such fire or casualty, whichever is sooner, specifying a date for the expiration
of the lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date were the date set forth above for
the termination of this lease and Tenant shall forthwith quit, surrender and
vacate the premises without prejudice however, to Owner's rights and remedies
against Tenant under the lease provisions in effect prior to such termination,
and any rent owing shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for Tenant's
occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law. Owner
and Tenant each hereby releases and waives all right of recovery with respect to
subparagraphs (b), (d) and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/or to any personal property, equipment trade fixtures,
goods and merchandise located therein. The foregoing release and waiver shall be
in force only if both releasor's insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance. If, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefitting from the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Owner will not be obligated to repair any damage thereto or
replace the same. (f) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this article shall govern
and control in lieu thereof.
EMINENT DOMAIN: 10. If the whole or any part of the demised premises shall
be acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease. Tenant shall
have the right to make an independent claim to the condemning authority for the
value of Tenant's moving expenses and personal property, trade fixtures and
equipment provided Tenant is entitled pursuant to the terms of the lease to
remove such property, trade fixtures and equipment at the end of the term and
provided further such claim does not reduce Owner's award.
ASSIGNMENT, MORTGAGE, ETC.: 11. Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner [9] in
each instance. Transfer of the majority of the stock of a corporate Tenant or
the majority partnership interest of a partnership Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, undertenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
ELECTRIC CURRENT: 12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
ACCESS TO PREMISES: 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform in
the premises after Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this lease, or for the purpose of complying
with laws, regulations and other directions of governmental authorities. Tenant
shall permit Owner to use and maintain and replace pipes and conduits in and
through the demised premises and to erect new pipes and conduits therein
provided, wherever possible, they are within walls or otherwise concealed. Owner
may, during the progress of any work in the demised premises, take all
necessary materials and equipment into said premises without the same
constituting an eviction nor shall the Tenant be entitled to any abatement of
rent while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof Owner shall
have the right to enter the demised premises at reasonable hours for the purpose
of showing the same to prospective purchasers or mortgagees of the building, and
during the last six months of the term for the purpose of showing the same to
prospective tenants and may, during said six months period, place upon
<PAGE>
the demised premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the demised premises, Owner or Owner's
agents may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom. Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligation hereunder.
VAULT, VAULT SPACE, AREA: 14. No Vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
lines of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant, if used by
Tenant, whether or not specifically leased hereunder.
OCCUPANCY: 15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for the building of
which the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to Owner's
work, if any. In any event, Owner makes no representation as to the condition of
the premises and Tenant agrees to accept the same subject to violations, whether
or not of record. If any governmental license or permit shall be required for
the proper and lawful conduct of Tenant's business, Tenant shall be responsible
for and shall procure and maintain such license or permit.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as the debtor; or (2) the making by Tenant
of an assignment or any other arrangement for the benefit of creditors under any
state statute. Neither Tenant nor any person claiming through or under Tenant,
or by reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rental reserved hereunder for the unexpired portion of
the term demised and the fair and reasonable rental value of the demised
premises for the same period. In the computation of such damages the difference
between any installment of rent becoming due hereunder after the date of
termination and the fair and reasonable rental value of the demised premises for
the period for which such installment was payable shall be discounted to the
date of termination at the rate of four percent (4%) per annum. If such premises
or any part thereof be relet by the Owner for the unexpired term of said lease,
or any part thereof, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the amount of rent reserved upon such
reletting shall be deemed to be the fair and reasonable rental value for the
part of the whole of the premises so re-let during the term of the re-letting.
Nothing herein contained shall limit or prejudice the right of the Owner to
prove for and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the amount
of the difference referred to above.
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the
covenants of this lease other than the covenants for the payment of rent or
additional rent; or if the demised premises becomes vacant or deserted "or if
this lease be rejected under [Section] 235 of Title 11 of the U.S. Code
(bankruptcy code):" or if any execution or attachment shall be issued against
Tenant or any of Tenant's property whereupon the demised premises shall be taken
or occupied by someone other than Tenant; or if Tenant shall make default with
respect to any other lease between Owner and Tenant; or if Tenant shall have
failed, after five (5) days written notice, to redeposit with Owner any portion
of the security deposited hereunder which Owner has applied to the payment of
any rent and additional rent due and payable hereunder or failed to move into or
take possession of the premises within thirty (30) days after the commencement
of the term of this lease, of which fact Owner shall be the sole judge; then in
any one or more of such events, upon Owner serving a written fifteen (15) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said fifteen (15) days, if Tenant shall have failed to comply with or remedy
such default, or if the said default or omission complained of shall be of a
nature that the same cannot be completely cured or remedied within said fifteen
(15) day period, and if Tenant shall not have diligently commenced during such
default within such fifteen (15) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written five (5) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said five (5) days this lease and
the term thereunder shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have
been given, and the term shall expire as aforesaid; or if Tenant shall make
default in the payment of the rent reserved herein or any item of additional
rent herein mentioned or any part of either or in making any other payment
herein required; then and in any of such events Owner may without notice,
re-enter the demised premises either by force or otherwise, and dispossess
Tenant by summary proceedings or otherwise, and the legal representative of
Tenant or other occupant of demised premises and remove their effects and hold
the premises as if this lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings to
that end. If Tenant shall make default hereunder prior to the date fixed as the
commencement of any renewal or extension of this lease. Owner may cancel and
terminate such renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION: 18. In case of any such
default, re-entry, expiration and/or dispossess by summary proceedings or other
wise, (a) the rent, and additional rent, shall become due thereupon and be paid
up to the time of such re-entry, dispossess and/or expiration, (b) Owner may
re-let the premises or any part or parts thereof, either in the name of Owner or
otherwise, for a term or terms, which may at Owner's option be less than or
exceed the period which would otherwise have constituted the balance of the term
of this lease and may grant concessions or free rent or charge a higher rental
than that in this lease, (c) Tenant or the legal representatives of Tenant shall
also pay Owner as liquidated damages for the failure of Tenant to observe and
perform said Tenant's covenants herein contained, any deficiency between the
rent hereby reserved and or covenanted to be paid and the net amount, if any, of
the rents collected on account of the subsequent lease or leases of the demised
premises for each month of the period which would otherwise have constituted the
balance of the term of this lease. The failure of Owner to re-let the premises
or any part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such expenses as Owner may incur in connection with re-letting, such
as legal expenses, reasonable attorneys' fees, brokerage, advertising and for
keeping the demised premises in good order or for preparing the same for
re-letting. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent day specified in this lease and any suit brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Owner to collect the deficiency for any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owner's option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Owner, in Owner's
sole judgment, considers advisable and necessary for the purpose of re-letting
the demised premises, and the making of such alterations, repairs, replacements,
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
FEES AND EXPENSES: 19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, after
notice if required and upon expiration of any applicable grace period if any,
(except in an emergency), then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. If Owner, in connection with the
foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to reasonable attorney's fees, in
instituting, prosecuting or defending any action or proceedings, and prevails in
any such action or proceeding, then Tenant will reimburse Owner for such sums so
paid or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within ten (10) days of rendition
of any bill or statement to Tenant therefor. If Tenant's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT: 20. Owner shall have the right at any
time without the same constituting an eviction and without incurring liability
to Tenant therefor to change the arrangement and or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets
or other public parts of the building and to change the name, number or
designation by which the building may be known. There shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from Owner or
other Tenant making any repairs in the building or any such alterations,
additions and improvements. Furthermore, Tenant shall not have any claim against
Owner by reason of Owner's imposition of any controls of the manner of access to
the building by Tenant's social or business visitors as the Owner may deem
necessary for the security of the building and its occupants.
<PAGE>
NO REPRESENTATION BY OWNER: 21. Neither Owner nor Owner's agents have made
any representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rents,
leases, expenses of operation or any other matter or thing affecting or related
to the demised premises or the building except as herein expressly set forth and
no rights, casements or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in the provisions of this lease. Tenant
has inspected the building and the demised premises and is thoroughly acquainted
with their condition and agrees to like the same "as is" on the date possession
is tendered and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
END OF TERM: 22. Upon the expiration or other termination of the term of
this lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property from the demised premises. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of this lease. If the last day of the term of this Lease or any
renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday unless it be a legal holiday in which case it shall expire at
noon on the preceding business day.
QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 34 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of
the demised premises on the date of the commencement of the term hereof, because
of the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate or
occupancy has not been procured or if Owner has not completed any work required
to be performed by Owner, of for any other reason, Owner shall not be subject to
any liability for failure to give possession on said date and the validity of
the lease shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession or complete any work required) until after Owner
shall have given Tenant notice that Owner is able to deliver possession in the
condition required by this lease. If permission is given to Tenant to enter into
the possession of the demised premises or to occupy premises other than the
demised premises prior to the date specified as the commencement of the term of
this lease, Tenant covenants and agrees that such possession and/or occupancy
shall be deemed to be under all the terms, covenants, conditions and provisions
of this lease, except the obligation to pay the fixed annual rent set forth in
page one of this lease. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law.
NO WAIVER: 25. The failure of Owner to seek redress for violation of,
or to insist upon the strict performance of any covenant or condition of this
lease or of any of the Rules or Regulations, set forth or hereafter adopted by
Owner, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent with knowledge of the breach of any
covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payments by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, not shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance or such rent
or pursue any other remedy in this lease provided. All checks tendered to Owner
as and for the rent of the demised premises shall be deemed payments for the
account of Tenant. Acceptance of Owner of rent from anyone other than Tenant
shall not be deemed to operate as an attornment to Owner by the payor of such
rent or as a consent by Owner to an assignment or subletting by Tenant of the
demised premises to such payor, or as a modification of the provisions of this
lease. No act or thing done by Owner or Owner's agents during the term hereby
demised shall be deemed an acceptance of a surrender of said premises and no
agreement to accept such surrender shall be valid unless in writing signed by
Owner. No employee of Owner or Owner's agent shall have any power to accept the
keys of said premises prior to the termination of the lease and the delivery of
keys to any such agent or employee shall not operate as a termination of the
lease or a surrender of the premises.
[GRAPHIC OMITTED]
<PAGE>
WAIVER OF TRIAL BY JURY: 26. It is mutually agreed by and between Owner
and Tenant that the respective parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property
damage) on any matters whatsoever arising out of or in any way connected with
this lease, the relationship of Owner and Tenant. Tenant's use of or occupancy
of said premises, and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Owner commences any proceeding or
action for possession including a summary proceeding for possession of the
premises. Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding including a counterclaim under Article 4
except for statutory mandatory counterclaim. [10]
INABILITY TO PERFORM: 27. This Lease and the obligation of Tenant to pay
rent hereunder and perform all of the other covenants and agreements hereunder
on part of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under this
lease or to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repair,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment, fixtures or other materials of Owner is prevented or
delayed from doing so by reason of strike or labor troubles or any cause
whatsoever beyond Owner's sole control including, but not limited to, government
preemption or restrictions or by reason of any rule, order or regulation of any
department or subdivision thereof of any government agency or by reason of the
conditions which have been or are affected, either directly or indirectly, by
war or other emergency.
BILLS AND NOTICES: 28. Except as otherwise in this lease provided, a bill
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant or left at any of the
aforesaid premises addressed to Tenant, and the time of the rendition of such
bill or statement and of the giving of such notice or communication shall be
deemed to be the time when the same is delivered to Tenant, mailed, or left at
the premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
WATER CHARGES: 29. If Tenant requires, uses or consumes water for any
purpose in addition to ordinary lavatory purposes (of which fact Tenant
constitutes Owner to be the sole judge) Owner may install a water meter and
thereby measure Tenant's water consumption for all purposes. Tenant shall pay
Owner for the cost of the meter and the cost of the installation, thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant's own cost and
expense in default of which Owner may cause such meter and equipment to be
replaced or repaired and collect the cost thereof from Tenant, as additional
rent. Tenant agrees to pay for water consumed, as shown on said meter as and
when bills are rendered, and on default in making such payment. Owner may pay
such charges and collect the same from Tenant, as additional rent. Tenant
covenants and agrees to pay, as additional rent, the sewer rent, charge or any
other tax, rent, levy or charge which now or hereafter is assessed, imposed or a
lien upon the demised premises or the realty of which they are part pursuant to
law, order or regulation made or issued in connection with the use, consumption,
maintenance or supply of water, water system or sewage connection or system. If
the building or the demised premises or any part thereof is supplied with water
through a meter through which water is also supplied to other premises Tenant
shall pay to Owner, as additional rent, [GRAPHIC OMITTED] on the first day of
each month, % ($150.00) of the total meter charges as Tenant's portion.
Independently of and in addition to any of the remedies reserved to Owner
hereinabove or elsewhere in this lease, Owner may sue for and collect any
monies to be paid by Tenant or paid by Owner for any of the reasons or purposes
hereinabove set forth.
SPRINKLERS: 30. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
city government recommend or require the installation of a sprinkler system or
that any changes, modifications, alterations, or additional sprinkler heads or
other equipment be made or supplied in an existing sprinkler system by reason of
Tenant's business, or the location or partitions, trade fixtures, or other
contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, modifications, alterations, additional sprinkler
header or other such equipment, become necessary to prevent the imposition of a
penalty or charge against the full allowance for a sprinkler system in the fire
insurance rate set by any said Exchange or by any fire insurance company, Tenant
shall, at Tenant's expense, promptly make such sprinkler system installations,
changes, modifications, alterations, and supply additional sprinkler heads or
other equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay [GRAPHIC OMITTED] to Owner as
additional rent the sum of $150.00 on the first day of each month during the
term of this lease, as Tenant's portion of the contract price for sprinkler
supervisory service.
ELEVATORS, HEAT, CLEANING: 31. As long as Tenant is not in default under
any the covenants of this lease beyond the applicable grace period provided in
this lease for the curing of such defaults, Owner shall: (a) provide necessary
passenger elevator facilities on business days from 8 a.m. to 6 p.m. and on
Saturdays from 8 a.m. to 1 p.m.; (b) if freight elevator service is provided,
same shall be provided only on regular business days Monday through Friday
inclusive, and on those days only between the hours of 9 a.m. and 12 noon and
between 1 p.m. and 5 p.m.; (c) furnish heat, water and other services supplied
by Owner to the demised premised, when and as required by law, on business days
from 8 a.m. to 6 p.m. and on Saturdays from 8
<PAGE>
a.m. to 1 p.m.; (d) clean the public halls and public portions of the building
which are used in common by all tenants, Tenant shall, at Tenant's expense, keep
the demised premises, including the windows, clean and in order, to the
reasonable satisfaction of Owner, and for that purpose shall employ the person
or persons, or corporation approved by Owner. Tenant shall pay to Owner the cost
of removal of any of Tenant's refuse and rubbish from the building. Bills for
the same shall be rendered by Owner to Tenant at such time as Owner may elect
and shall be due and payable hereunder, and the amount of such bills shall be
deemed to be, and be paid as, additional rent. Tenant shall, however, have the
option of independently contracting for the removal of such rubbish and refuse
in the event that Tenant does not wish to have same done by employees of Owner.
Under such circumstances, however, the removal of such refuse and rubbish by
others shall be subject to such rules and regulations as, in the judgment of
Owner, are necessary for the proper operation of the building. Owner reserves
the right to stop service of the heating, elevator, plumbing and electric
systems, when necessary, by reason of accident, or emergency, or for repairs,
alterations, replacements or improvements, in the judgment of Owner desirable or
necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed. If the building of which the demised
premises are a part supplies manually operated elevator service. Owner may
proceed diligently with alterations necessary to substitute automatic control
elevator service without in any way affecting the obligations of Tenant
hereunder.
SECURITY: 32. Tenant has deposited with Owner the sum of
[GRAPHIC OMITTED] $ See Rider as security for the faithful performance and
observance by Tenant of the terms, provisions and conditions of this lease; it
is agreed that in the event Tenant defaults in respect of any of the terms,
provisions and conditions of this lease, including, but not limited to, the
payment of rent and additional rent, Owner may use, apply or retain the whole
or any part of the security so deposited to the extent required for the
payment of any rent and additional rent or any other sum as to which Tenant is
in default or for any sum which Owner may expend or may be required to expend
by reason of Tenant's default in respect of any of the terms, covenants and
conditions of this lease, including but not limited to, any damages or
deficiency in the reletting of the premises whether such damages or deficiency
accrued before or after summary proceedings or other re-entry by Owner. In the
event that Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this lease, the security shall be
returned to Tenant after the date fixed as the end of the Lease and after
delivery of entire possession of the demised premises to Owner. In the event
of a sale of the land and building or leasing of the building, of which the
demised premises form a part, Owner shall have the right to transfer the
security to the vendor or lease and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees
to look to the new Owner solely for the return of said security, and it is
agreed that the provisions hereof shall apply to every transfer or assignment
made of the security to a new Owner. Tenant further covenants that it will not
assign or encumber or attempt to assign or encumber the monies deposited
herein as a security and that neither Owner nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance.
CAPTIONS: 33. The Captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this lease nor the intent of any provision thereof.
DEFINITIONS: 34. The term "Owner" as used in this lease means only the
owner of the fee or of the leasehold of the building, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said leases of the building, or of the land and building, that the purchaser or
the leases of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "rent" includes the annual rental rate whether so expressed or
expressed in monthly installments, and "additional rent." "Additional rent"
means all sums which shall be due to Owner from Tenant under this lease, in
addition to the annual rental rate. The term "business days" as used in this
lease, shall exclude Saturdays, Sundays and all days observed by the State or
Federal Government as legal holidays and those designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service. Wherever
it is expressly provided in this lease that consent shall not be unreasonably
withheld, such consent shall not be unreasonably delayed.
ADJACENT EXCAVATION SHORTAGE: 35. If an excavation shall be made upon
land adjacent to the demised premises, or shall be authorized to be made. Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
RULES AND REGULATIONS: 36. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations annexed hereto and such other and further reasonable Rules
and Regulations as Owner or Owner's agents may from time to time adopt. Notice
of any additional rules or regulations shall be given in such manner as Owner
may elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
CLASS: 37. Owner shall replace, at the expense of the Tenant,
any and all plate and other glass damaged or broken from any cause whatsoever in
and about the demised premises. Owner may insure, and keep insured, at Tenant's
expense, all plate and other glass in the demised premises for and in the name
of Owner. Bills for the premiums therefor shall be rendered by Owner to Tenant
at such times as Owner may elect, and shall be due from, and payable by, Tenant
when rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent.
ESTOPPEL CERTIFICATES: 38. Tenant, at any time, and from time to time, upon at
least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, a
statement certifying that this lease is unmodified in full force and effect (or,
if there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this lease, and, if so, specifying each such default.
DIRECTORY BOARD LISTING: 39. If, at the request of and as accommodation to
Tenant, Owner shall place upon the directory board in the lobby of the building,
one or more names of persons other than Tenant, such directory board listing
shall not be construed as the consent by Owner to an assignment or subletting by
Tenant to such persons or persons.
SUCCESSORS AND ASSIGNS: 40. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns. Tenant shall look
only to Owner's cause and interest in the land and building for the satisfaction
of Tenant's remedies for the collection of a judgment (or other judicial
process) against Owner in the event of any default by Owner hereunder, and no
other property or assets of such Owner (or any partner, member, officer or
director thereof, disclosed or undisclosed), shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this lease, the relationship of Owner and Tenant hereunder,
or Tenant's use and occupancy of the demised premises.
[GRAPHIC OMITTED]
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner WALTOX CORPORATION, N.V. [CORP.
FIRST PIONEER PROPERTIES, INC. SEAL]
By: --------------------------------
as agent
- --------------------------------
By:
--------------------------------[L.S.]
Vice President
[CORP.
Witness for Tenant YOU NETWORK CORPORATION SEAL]
--------------------------------
- -------------------------------- By:
--------------------------------[L.S.]
President
<PAGE>
RIDER attached to and forming part of Lease dated as of the day of May
1999, between Waltox Corporation, N.V., as LANDLORD, and YouNetwork Corporation
as TENANT
41. PROVISIONS OF RIDER
This rider is annexed to and made a part of the printed part of this
lease and to which it is attached and in each instance in which the provisions
of this rider shall contradict or be inconsistent with the provisions of the
printed portion of this lease, as constituted without this rider, the provisions
of this rider shall prevail and govern and the contradicted or inconsistent
provisions of the printed portion of this lease shall be deemed amended
accordingly. The term "Landlord" used within this rider shall be used
interchangeably with the term "Owner" used within the printed form of this
lease.
42. CERTIFICATES BY TENANT
At any time and from time to time, Tenant, for the benefit of Landlord
and the lessor under any ground lease or underlying lease or the holder of any
leasehold mortgage affecting any ground lease or underlying lease, or of any fee
mortgage covering the land or the land and building containing the demised
premises, on at least ten (10) days prior written request by Landlord, will
deliver to Landlord a statement, certifying that this lease is not modified and
is in full force and effect (or if there shall have been modifications that the
same is in full force and effect as modified, and stating the modifications),
the commencement and expiration dates hereof, the dates to which the fixed rent,
additional rent and other charges have been paid, and whether or not, to the
best knowledge of the signer of such statement, there are any then existing
defaults on the part of either Landlord or Tenant in the performance of the
terms, covenants and conditions of this lease, and if so, specifying the default
of which the signer of such statement has knowledge.
Landlord shall from time to time provide upon ten (10) days prior
written request by Tenant a statement certifying as to status of rent and
additional rental payments due under this lease and/or that lease has not been
modified and remains in full force and effect.
43. LIMITATION OF LIABILITY
Tenant agrees that the liability of Landlord under this lease and all
matters pertaining to or arising out of the tenancy and the use and occupancy of
the demised premises shall be limited to Landlord's interest in the building of
which the demised premises form a part, the land on which such building stands,
the rents and profits therefrom and the proceeds of insurance thereon and in no
event shall Tenant make any claim against or seek to impose any personal
liability upon any general or limited partner of Landlord or any principal of
any firm or corporation that may hereafter be or become the Landlord.
44. INDEMNIFICATION & INSURANCE
To the extent any injury, loss, claim or damage to any person or
property is not covered by insurance, Tenant shall save Landlord harmless and
indemnify it from and against all injury, loss, claims or damage to any person
or property while on the demised premises arising out of the manner or use of
the demised premises by Tenant and from and against all injury, loss, claim or
damage to any person or property anywhere occasioned by any neglect or default
<PAGE>
of Tenant or Tenant's servants, employees or licensees unless caused by the
negligence of Landlord, his servants or employees.
Tenant covenants and agrees that during the term of this lease it will
provide and keep in force general public liability insurance protecting and
indemnifying persons and property in or about the demised premises and in the
connecting corridor to the limit of not less than five million ($5,000,000)
dollars in respect of any one occurrence and to the limit of not less than one
million ($1,000,000) dollars for property damage.
Tenant shall provide, or cause to be provided, Workmen's Compensation
Insurance covering all persons employed in connection with the performance of
work upon, in or about the demised premises.
All such insurance shall be effected in standard form under valid
enforceable policies issued by insurers licensed to do business in the State of
New York and shall, except in the case of Workmen's Compensation Insurance, name
Landlord and Tenant as the insureds as their respective interests may appear.
Landlord agrees that for this purpose National Union Fire Insurance Co., or an
insurer of similar stature shall be an acceptable insurance company.
Certificates of such insurance shall be delivered to Landlord from time to time
during the term of this lease at least ten days prior to the expiration date of
the previous policy together with certificates evidencing the renewal of such
policy with satisfactory evidence of payment of the premium on such policy. To
the extent obtainable, all such policies shall contain agreements by the
insurers that (i) such policies shall not be cancelled except upon ten days
prior written notice to each name insured and (ii) the coverage afforded thereby
shall not be affected by the performance of any work upon, in or about the
demised premises. Nothing in this paragraph shall prevent Tenant from taking out
such insurance under a blanket insurance policy, or policies, which also can
cover other properties, or parts thereof, owned, leased or operated by Tenant as
well as the demised premises.
Tenant agrees to pay all premiums and charges for such insurance, and
in the event of its failure to make any such payment when due, or in the event
of its failure to provide such insurance or renewal thereof, Landlord may
procure the same and/or pay the premium thereon (but in no event shall be
obligated to do so), and Tenant agrees to pay such premiums to Landlord upon
demand as additional rent.
45. ADDENDA TO ARTICLE 6 - REQUIREMENTS TO LAW
A. If at any time during the term of this lease, the fire and life
safety law requirements of the City of New York pursuant to Local Law #5 of
1973, Local Law #16 of 1984 or otherwise ("Fire Requirements") or the masonry or
exterior wall requirements of the City of New York pursuant to Local Law #10 of
1980 or otherwise ("Masonry Requirements") or any other laws or requirements of
the City of New York or any agency having jurisdiction ("Other Requirements")
shall impose any obligations or requirements upon Landlord to perform any
alterations, installations, changes or improvements (collectively "changes") to
the building hereof and/or the demised premises, then Tenant shall pay to
Landlord as additional rent eight and 33/100 (8.33%) percent ("Tenant's
Payment") of all costs and expenses incurred by Landlord in complying with the
Fire Requirements, Masonry Requirements or Other Requirements. Tenant's Payment
shall be due and payable to Landlord within thirty (30) days after rendition of
a bill therefor accompanied by a statement setting forth the changes performed
by Landlord. The obligation of Tenant in respect of such additional rent shall
survive the expiration of this lease.
2
<PAGE>
B. Refuse Recycling and Removal
(i) Compliance by Tenant. Tenant covenants and agrees, at its
sole cost and expense to comply with all present and future laws, orders, and
regulations of all state, federal, municipal, and local governments,
departments, commissions, and boards regarding the collection, sorting,
separation, and recycling of waste products, garbage, refuse, and trash. Tenant
or Tenant's cleaning contractor shall sort and separate such waste products,
garbage, refuse, and trash into such categories as provided by law. Each
separately sorted category of waste products, garbage, refuse, and trash shall
be placed in separate receptacles reasonably approved by Landlord. Such separate
receptacle, may at Landlord's option, be removed from the demised premises in
accordance with a collection schedule prescribed by law.
(ii) Landlord's Rights in Event of Noncompliance. Landlord
reserves the right to prohibit the removal of refuse or to collect or accept
from Tenant any waste products, garbage, refuse, or trash that are not separated
and sorted as required by law, and to require Tenant to arrange for such
collection at Tenant's sole cost and expense, utilizing a contractor
satisfactory to Landlord. Tenant shall pay all costs, expenses, fines,
penalties, or damages that may be imposed on Landlord or Tenant by reason of
Tenant's failure to comply with the provisions of this article, and, at Tenant's
sole cost and expense, shall indemnify, defend, and hold Landlord harmless
(including legal fees and expenses) from and against any actions, claims, and
suits arising from such noncompliance, utilizing counsel reasonably satisfactory
to Landlord.
46. BINDING EFFECT
The submission by Landlord of this lease in draft form shall be deemed
submitted solely for Tenant's consideration and not for acceptance and
execution. Such submission shall have no binding force or effect and shall
confer no rights nor impose any obligation, including brokerage obligations, on
either party unless and until both Landlord and Tenant shall have executed this
lease and duplicate originals thereof shall have been delivered to the
respective parties.
47. REAL ESTATE TAXES
Tenant shall pay to Landlord, as additional rent, escalation based on
increases in real estate taxes in accordance with this Paragraph:
(a) Definitions: For the purpose of this Paragraph, the following
definitions shall apply:
(i) The term "base tax year" as hereinafter set forth for
the determination of real estate tax escalation shall
mean the average of the New York City real estate tax
years commencing July 1, 1998 and ending June 30,
1999 and commencing July 1, 1999 and ending June 30,
2000.
(ii) The term "The Percentage" shall mean eight and 33/100
(8.33%) percent.
(iii) The term "the building project" shall mean all of the
land together with the improvements thereon known as
115 East 23rd Street, New York, New York.
3
<PAGE>
(iv) The term "comparative year" shall mean the twelve
months following the base tax year, and each
subsequent period of twelve months.
(v) The term "real estate taxes" shall mean the total of
all taxes and special or other assessments levied,
assessed or imposed at any time by any governmental
authority upon or against the building project, and
also any tax or assessment levied, assessed or
imposed at any time by any governmental authority in
connection with the receipt of income or rents from
said building project to the extent that same shall
be in lieu of all or a portion of any of the
aforesaid taxes or assessments, or additions or
increases thereof, upon or against said building
project. If, due to a future change in the method of
taxation or in the taxing authority or for any other
reason, a franchise, income, transit, profit or other
tax or governmental imposition, however designated,
shall be levied against Landlord in substitution in
whole or in part for the real estate taxes, or in
lieu of additions to or increases of said real estate
taxes, then such franchise, income, transit, profit
or other tax or governmental imposition shall be
deemed to be included within the definition of "real
estate taxes" for the purposes hereof. As to special
assessments which are payable over a period of time
extending beyond the term of this Lease, only a
prorata portion thereof, covering the portion of the
term of this Lease unexpired at the time of the
imposition of such assessment, shall be included in
"real estate taxes." If, by law, any assessment may
be paid in installments, then, for the purposes
hereof (a) such assessment shall be deemed to have
been payable in the maximum number of installments
permitted by law and (b) there shall be included in
real estate taxes for each comparative year in which
such installments may be paid, the installments of
such assessment so becoming payable during such
comparative year, together with interest payable
during such comparative year.
(vi) The phrase "real estate taxes payable during the base
tax year" shall mean the real estate taxes payable
for the base tax year.
(vii) Tenant shall not be required to pay, as additional
rent, any increases in Real Estate Taxes which shall
result from landlord's increasing the size of the
building.
b. Real Estate Taxes:
1. In the event that the real estate taxes payable for any
comparative year shall exceed the amount of such real estate taxes payable
during the base tax year, Tenant shall pay to Landlord, as additional rent for
such comparative year, an amount equal to The Percentage of the excess. By or
after the start of the comparative year following the base tax year, and by or
after the start of each comparative year thereafter, Landlord shall furnish to
Tenant a statement of the real estate taxes payable during such comparative
year, and a statement of the real estate taxes payable during the base tax year.
If the real estate taxes payable for such comparative year exceed the real
estate taxes payable during the base tax year, additional rent for such
comparative year, in an amount equal to The Percentage of the excess, shall be
due from Tenant to Landlord, and such additional rent shall be payable by
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Tenant to Landlord within ten (10) days after receipt of the aforesaid
statement. If Landlord is permitted, by applicable law, to pay real estate taxes
in installments, Tenant shall make payments due hereunder in the same number of
installments and at the same time as such installments are payable by Landlord.
2. Should the real estate taxes payable during the base tax
year be reduced by final determination of legal proceedings, settlement or
otherwise, then, the real estate taxes payable hereunder for all comparative
years shall be recomputed on the basis of such reduction, and Tenant shall pay
to Landlord as additional rent, within ten (10) days after being billed
therefor, any deficiency between the amount of such additional rent as
theretofore computed and the amount thereof due as the result of such
recomputations. Should the real estate taxes payable during the base tax year be
increased by final determination of legal proceedings, settlement or otherwise,
then appropriate recomputation and adjustment also shall be made.
3. If, after Tenant shall have made a payment of additional
rent under this subdivision (b), Landlord shall receive a refund of any portion
of the real estate taxes payable during any comparative year after the base tax
year on which such payment of additional rent shall have been based, as a result
of a reduction of such real estate taxes by final determination of legal
proceedings, settlement or otherwise, Landlord shall within ten (10) days after
receiving the refund pay to Tenant The Percentage of the refund less The
Percentage of reasonable expenses (including reasonable attorneys' and
appraisers' fees) incurred by Landlord in connection with any such application
or proceeding. If, prior to the payment of taxes for any comparative year,
Landlord shall have obtained a reduction of that comparative year's assessed
valuation of the building project, and therefore of said taxes, then the term
"real estate taxes" for that comparative year shall be deemed to include the
amount of Landlord's reasonable expenses in obtaining such reduction in assessed
valuation, including reasonable attorneys' and appraisers' fees.
(c) In no event shall the fixed annual rent under this Lease
(exclusive of the additional rents under this Paragraph) be reduced by virtue of
this Paragraph.
(d) Upon the date of any expiration or termination of this
Lease, whether the same be the date hereinabove set forth for the expiration of
the term (hereinafter called "lease expiration date") or any prior or subsequent
date, a proportionate share of the additional rent for the comparative year
during which such expiration or termination occurs shall become due and payable
by Tenant to Landlord. The said proportionate share shall be based upon the
length of time that this Lease shall have been in existence during such
comparative year. Promptly after said expiration or termination, Landlord shall
compute the additional rent from Tenant, as aforesaid, which computations shall
either be based on that comparative year's actual figures or be an estimate
based upon the most recent statements theretofore prepared by Landlord and
furnished to Tenant under subdivisions (b) and (c) above. If an estimate is used
then Landlord shall promptly cause statements to be prepared on the basis of
that comparative year's actual figures and within ten (10) days after such
statement or statements are prepared by Landlord and furnished to Tenant,
Landlord and Tenant shall make appropriate adjustments of any estimated payments
theretofore made.
(e) Notwithstanding any expiration or termination of this
Lease prior to the Lease expiration date (except in the case of a cancellation
by
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mutual agreement, fire, condemnation, or Tenant's termination as of right)
Tenant's obligation to pay any and all additional rent under this Lease shall
continue and shall cover all periods up to the Lease expiration date. Landlord's
and Tenant's obligation to make the adjustments referred to in subdivision (d)
above shall survive any expiration or termination of this Lease.
(f) Any delay or failure of Landlord in billing for any
additional rent payable as hereinabove provided shall not constitute a waiver of
or in any way impair the continuing obligation of Tenant to pay such additional
rent hereunder.
48. COST OF LIVING ADJUSTMENTS
The annual rent reserved in this lease and payable hereunder shall be
adjusted, as of the times and in the manner set forth in this Paragraph.
(a) Definitions: For the purposes of this Paragraph the following
definitions shall apply:
(i) The term "Base Year" shall mean April 1999.
(ii) The term "Price Index" shall mean the "Consumer Price
Index" published by the Bureau of Labor Statistics of
the U.S. Department of Labor, All Items U.S. city
average, all urban consumers (presently denominated
"CPI-U") or a successor or substitute index
appropriately adjusted.
(iii) The term "Price Index for the Base Year shall mean
the average of the monthly All Items Price Indexes
for each of the 12 months of the Base Year.
(b) Effective as of each January and July subsequent to the Base Year,
there shall be made a cost of living adjustment of the annual rate payable
hereunder. The July adjustment shall be based on the percentage difference
between the Price Index for the preceding month of June and the Price Index for
the Base Year. The January adjustment shall be based on such percentage
difference between the Price Index for the Base Year, and the Price Index for
the preceding month of December.
(i) In the event the Price Index for June in any calendar
year during the term of this lease reflects an
increase over the Price Index for the Base Year, then
the annual rent herein provided to be paid as of the
July 1st following such month of June i.e. fixed
annual rent originally provided to be paid for in
this lease (unchanged by any adjustments under this
Paragraph) shall be multiplied by 100% of the
percentage difference between the Price Index for
June and the Price Index for the Base Year, and the
resulting sum shall be added to such annual rent,
effective as of such July 1st. Said adjusted annual
rent shall thereafter be payable hereunder, in equal
monthly installments, until it is readjusted pursuant
to the terms of this lease.
(ii) In the event the Price Index for December in any
calendar year during the term of this lease reflects
an increase over the Price Index for the Base Year,
then the annual rent
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herein provided to be paid as of the January 1st
following such month of December i.e. fixed annual
rent originally provided to be paid for in this lease
(unchanged by any adjustments under this Article)
shall be multiplied by 100% of the percentage
difference between the Price Index for December and
the Price Index for the Base Year, and the resulting
sum shall be added to such annual rent effective as
of such January 1st. Said adjusted annual rent shall
thereafter be payable hereunder, in equal monthly
installments, until it is readjusted pursuant to the
terms of this lease.
The following illustrates the intentions of the parties hereto as to
the computation of the aforementioned cost of living adjustment in the annual
rent payable hereunder:
Assuming that said annual rent is $10,000, that the Price Index for the
Base Year was 102.0 and that the Price Index for the month of June in a calendar
year following the Base Year was 105.0, then the percentage increase thus
reflected, i.e. 2.941% (3.0/102.0) would be multiplied by 100% of $10,000, and
said annual rent would be increased by $294.12 effective as of July 1st of said
calendar year.
In the event that the Price Index ceases to use 1967=100 as the basis
of calculation, or if a substantial change is made in terms or number of items
contained in the Price Index, then the Price Index shall be adjusted to the
figure that would have been arrived at had the manner of computing the Price
Index in effect at the date of this lease not been altered. In the event such
Price Index (or a successor or substitute index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
heretofore used in determining the Price Index shall be used.
No adjustments or recomputations, retroactive or otherwise, shall be
made due to any revision which may later be made in the first published figure
of the Price Index for any month.
(c) Landlord will cause statements of the cost of living adjustments
provided in subdivision (b) to be prepared in reasonable detail and delivered to
Tenant.
(d) In no event shall the annual rent originally provided to be paid
under this lease (exclusive of the adjustments under this Paragraph) be reduced
by virtue of this Paragraph.
(e) Any delay or failure of Landlord, beyond July or January of any
year, in computing or billing for the rent adjustments hereinabove provided,
shall not constitute a waiver of or in any way impair the continuing obligation
of Tenant to pay such rent adjustments hereunder.
(f) Notwithstanding any expiration or termination of this lease prior
to the lease expiration date (except in the case of a cancellation by mutual
agreement) Tenant's obligation to pay rent as adjusted under this Paragraph
shall continue and shall cover all periods up to the lease expiration date, and
shall survive any expiration of termination of this lease.
49. ALTERATIONS
Anything in Article 3 to the contrary notwithstanding, Landlord shall
not unreasonably withhold or delay approval of written requests of Tenant to
make
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non-structural interior alterations, decorations, additions and improvements
(herein referred to as "alterations") in the demised premises, provided that
such alterations do not adversely affect utility services or plumbing and
electrical lines or other systems of the building, and provided that all such
alterations shall be performed in accordance with the following conditions:
(a) All such alterations costing more than $10,000 shall be performed
in accordance with plans and specifications first submitted to Landlord for its
prior written approval which will not be unreasonably delayed or withheld.
(b) All alterations shall be done in a good and workmanlike manner. All
alterations shall be done in compliance with all other applicable provisions of
this Lease and with all applicable laws, ordinances, directions, rules and
regulations of governmental authorities having jurisdiction; and Tenant shall,
prior to the commencement of any such alterations, at its sole cost and expense,
obtain and exhibit to Landlord any governmental permit required in connection
with such alterations.
(c) All work in connection with alterations shall be performed with
union labor having the proper jurisdictional qualifications.
(d) Tenant shall keep the building and the demised premises free and
clear of all liens for any work or material claimed to have been furnished to
Tenant or to the demised premises.
(e) Prior to the commencement of any work by or for Tenant, Tenant
shall furnish to Landlord certificates evidencing the existence of the following
insurance:
(i) Workmen's compensation insurance covering all persons
employed for such work and with respect to whom death
or bodily injury claims could be asserted against
Landlord, Tenant or the demised premises.
(ii) General liability insurance naming Landlord, its
designees, and Tenant as insureds, with limits of not
less than $500,000 in the event of bodily injury to
one person and not less than $1,000,000 in the event
of bodily injury to any number of persons in any one
occurrence, and with limits of not less than $50,000
for property damage. Tenant, at its sole cost and
expense, shall cause all such insurance to be
maintained at all times when the work to be performed
for or by Tenant is in progress. All such insurance
shall be in a company authorized to do business in
New York and all policies, or certificates therefor,
issued by the insurer and bearing notations
evidencing the payment of premiums, shall be
delivered to Landlord.
(f) All work to be performed by Tenant shall be done in a manner which
will not unreasonably interfere with or disturb other tenants and occupants of
the building.
(g) Tenant shall not be required to remove any fixtures, panelling,
partitions, railings or other installations presently constituting a part of the
demised premises, constituting a part of the initial fitting up of the demised
premises for Tenant's occupancy or installed by Landlord at its expense.
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(h) All trade fixtures and other movable property installed by Tenant
in the demised premises shall remain Tenant's property and shall be removed by
Tenant on or before the expiration date, provided only that Tenant shall repair
any resultant damage to the demised premises.
(i) Any alterations to be made by Tenant (other than plumbing and
electrical work) may be performed by any reputable contractor or mechanic
(collectively "Contractor") selected by Tenant and approved by Landlord, which
approval Landlord agrees it will not unreasonably withhold or delay, provided
the Contractor's performance of the alterations would not result in any labor
discord in the Building.
(j) Tenant may, at any time during the Term, remove any alteration made
by Tenant, solely at its expense, provided Tenant promptly repairs any damage
resulting from such removal.
(k) Any restoration or repair which Tenant is required to make (whether
structural or non-structural) shall be of quality or class equal to the then
Building Standard.
50. SUBLETTING AND ASSIGNMENT
Supplementing the provisions of Article 11 hereof, Landlord shall not
unreasonably withhold or delay consent to an assignment of this lease or to
subletting of all or part of the demised premises, provided that any such
assignment or subletting shall be made solely upon the following terms and
conditions:
1. No assignment and no subletting shall become effective unless and
until Tenant shall have given Landlord at least thirty (30) business days prior
written notice of such proposed assignment or proposed bona fide subletting,
together with a statement containing the name and address of the proposed
sublessee or assignee, adequate information as to its reputation and financial
condition and the intended use of the premises, and a copy of the proposed
sublease or assignment. The parties agree that if there is a proposed asignment
or a proposed subletting of all the demised premises for all or substantially
all of the balance of the term of this lease, then Landlord shall thereupon have
the option, excercisable by written notice within thirty (30) business days
after receipt of the notice from Tenant, to terminate this Lease effective as of
the effective date of the proposed assignment or the commencement date of the
term of such proposed subletting. If there is a proposed subletting of all of
the demised premises for less than substantially all of the balance of the term
of this Lease or of part but not all of the demised premises, then Landlord
shall thereupon have the option, exercisable by written notice within thirty
(30) business days after the receipt of the notice from Tenant, to delete the
space proposed to be subleased from the premises demised hereunder (with a
prorated change in all payments due hereunder for the period of such proposed
subletting) effective as of the commencement date of the term of such proposed
subletting and for the period of such proposed subletting. If Landlord shall so
terminate this Lease or delete portions of space therefrom, then Tenant shall
vacate and surrender the demised premises or the deleted space portion, to
Landlord, on or before the effective date pursuant hereto.
2. If (i) Landlord shall delete any space (the "Space") to be subleased
constituting a portion of the demised premises or shall terminate this Lease in
the event of any assignment or subletting of all the demised premises (also the
"Space") in accordance with the provisions of Paragraph 1 of this Article 50 or
(ii) Landlord shall not elect to terminate this Lease or delete portions of
Space herefrom pursuant to the provisions of Paragraph 1 and the Space is
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sublet or assigned by Tenant in accordance with the provisions thereof, then all
rent and additional rent payable by (a) the assignee or any new tenant to whom
Landlord rents the demised premises shall be paid to Landlord, and (b) the
sublessee to whom Tenant subleases the demised premises or any portion thereof
shall be paid to Tenant. Upon receipt of such rent and additional rent for any
month, Landlord or Tenant, as the case may be, shall disburse the rent and
additional rent received from such new tenant or sublessee as follows: (i) if
received by Landlord, first to Landlord until Landlord has received the monthly
rent and additional rent which would have been paid to Landlord pursuant to this
lease by Tenant for the Space (which rent is the "Original Rent"), including
fixed annual rent, escalation rent for taxes or increases in the Consumer Price
Index and all other additional rent, including electricity, water and sprinkler
charges; (ii) if received by Tenant, first to Tenant until Tenant has been
reimbursed for the amount of the monthly Original Rent paid by Tenant to
Landlord; (iii) then, to Landlord or Tenant, whichever is appropriate, an amount
equal to the amount by which such rent and additional rent from the assignee,
subtenant or new tenant exceeds the Original Rent (which amount is hereinafter
"The Excess") until it recoups the entire cost of brokerage commissions,
installations and other costs of renting to such assignee, new tenant or
subtenant; (iv) then, to Tenant, out of The Excess, an amount equal to Tenant's
unrecouped Installation Cost (as hereinafter defined). Tenant's unrecouped
Installation Cost equals Tenant's Installation Cost times a fraction, the
numerator of which is the number of months remaining in the term of this Lease
from and after the date of assignment or subletting as if it were not terminated
or the Space sublet or assigned and the denominator of which is the number of
months during the term of this Lease (as extended by any exercised option), less
payments previously made hereunder therefor; and (v) finally, any remaining
portion of The Excess received shall be distributed 50% to Landlord and 50% to
Tenant. Tenant shall not be entitled to any payment hereunder from Landlord for
any period beyond the date this Lease would have expired or terminated, as
provided herein, had Landlord not terminated this Lease with respect to the
Space pursuant to this Article 50. If Tenant or Landlord, as the case may be,
shall receive a payment to which the other is entitled hereunder, payment to the
party entitled thereto shall be made within 10 days of receipt thereof and that
portion payable by Tenant hereunder shall be paid as additional rent in
accordance with the terms hereof.
3. There shall be no default (after notice and the expiration of any
applicable grace period) by Tenant under any of the terms, covenants and
conditions of this Lease at the time that Landlord's consent to any such
subletting or assignment is requested and on the date of the commencement of the
term of any such proposed sublease or the effective date of any such proposed
assignment.
4. Upon receiving Landlord's written consent, a duly executed copy of
the sublease or assignment shall be delivered to Landlord within thirty (30)
days after execution thereof. Any such sublease shall provide that the sublease
is subject and subordinate to this Lease. Any such assignment of lease shall
contain an assumption by the assignee of all of the terms, covenants and
conditions of this Lease thereafter to be performed by the Tenant.
5. Anything herein contained to the contrary notwithstanding:
(a) Tenant shall not publicly advertise the availability of
the demised premises for assignment or subletting at a rental rate lower than
the rental rate at which Landlord is then offering to lease comparable space in
the building (but Tenant shall not be prohibited from assigning or subletting
for less than such rental rate).
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(b) No assignment or subletting shall be made:
(i) By the legal representatives of the Tenant
or by any person whom Tenant's interest
under this Lease passes by operation of law,
except in compliance with the provisions of
this Article and Article 11 hereof; and
(ii) To any person or entity for the conduct of a
business which is not in keeping with the
standards for and general character of the
Building of which the demised premises form
a part.
(c) Tenant may not sublet a part of the Demised Premises
without the prior written consent of Landlord.
6. Anything hereinabove contained to the contrary notwithstanding,
Landlord herewith consents to assignment of this Lease or sublease of all or
part of the demised premises to any entity in which Tenant or its stockholders
own at least 51% of the beneficial interest or the parent of Tenant or to any
corporation into or with which Tenant may be merged or consolidated or to which
substantially all of its assets or stock may be transferred, provided that any
such assignment of lease shall contain an assumption by the assignee of all of
the terms, covenants and conditions of this Lease thereafter to be performed by
the Tenant. Tenant agrees that no such assignment or subletting shall be
effective unless and until Tenant gives Landlord written notice thereof,
together with a true copy of the assignment or of the sublease.
7. "Installation Cost" shall mean the cost and expenses incurred and
paid for by Tenant in performing alterations in accordance with plans and
specifications approved by Landlord for its initial occupancy as evidenced by
paid receipts for materials supplied and services rendered by independent
contractors.
8. In no event shall any permitted subleasee assign or encumber its
sublease or further sublet all or any portion of its sublet space or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others without Landlord's prior written consent in each instance.
51. CONTRACTORS
When in this Lease the Tenant shall take or be required to take any
action which may affect or alter the plumbing or electrical facilities or
services furnished by Landlord in the building, the demised premises, or any
portion thereof, Tenant shall only be entitled to have such work performed by
the building contractor designated from time to time by Landlord, in its sole
and absolute discretion, to perform such alteration and Landlord shall not be
required to permit, and Tenant shall not be entitled to use, any contractor not
designated by Landlord's selected contractors, provided, however, that such
contractors' bids do not exceed by more than 10% the bids for work of comparable
quality, workmanship and specifications for performing such alterations
submitted by Tenant's contractors. If Tenant's contractor's bids are more than
10% below the bids of Landlord's contractors, Landlord agrees not to
unreasonably withhold or delay approval of Tenant's contractor's performance of
such alteration.
52. EXTRA HEAT
If Tenant shall request heat for the demised premises at any time other
than when Landlord is required to furnish heat hereto, Landlord shall furnish
heat and shall be entitled to receive, as additional rent hereunder and in
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consideration therefor, an amount computed in accordance with Landlord's
standard building rates from time to time for supplying heat. Tenant shall be
required to give prior notice to Landlord in accordance with Landlord's standard
procedure if such heat is required. Payment of the additional rent shall be made
within 10 days of Tenant being notified and billed therefor by Landlord.
Landlord represents that its current standard billing rate for supplying
overtime heat is 300/day (based upon an eight hour day).
53. CASUALTY DAMAGE
Anything in Article 9 to the contrary notwithstanding, in the event of
damage or destruction to the demised premises by fire or other casualty
(collectively "Casualty"), if the demised premises cannot be restored to
substantially their condition immediately prior to the Casualty within nine (9)
months after the occurrence of the Casualty or are not so restored within such
nine (9) month period or if Landlord shall not have commenced the restoration
work three (3) months after the occurrence of the Casualty, Tenant may terminate
the Lease, by notice sent to Landlord within fifteen (15) days of the expiration
of such nine (9) month period or of the three (3) month period if Landlord shall
not have commenced the restoration work, whichever is earlier, in which event,
the Lease shall terminate as of the date in such notice, Fixed Rent and other
amounts payable under this Lease shall be apportioned as of such date and the
parties shall have no liability for subsequently accruing obligations hereunder.
54. TENANT'S CONDEMNATION CLAIM
Anything in Article 10 to the contrary notwithstanding, Tenant shall
have the right to make a claim against the condemning authority for the value of
its trade fixtures and business machines and equipment taken in the condemnation
and for reimbursement of its resultant moving expenses.
55. ACCESS TO THE DEMISED PREMISES
Supplementing the provisions of Article 13, Landlord's right to enter
the demised premises and its access thereto to make repairs and Alterations and
to erect and maintain pipes and conduits therein (except in the event of an
emergency, in which event, such right and access shall be unrestricted) shall be
subject to the following conditions:
A. Landlord shall give Tenant reasonable advance notice of proposed
entry or access;
B. All such pipes and conduits shall be concealed in a Building
Standard manner; and
C. Landlord shall effect all such repairs and alterations and erect and
maintain all such pipes and conduits so as to minimize interference with
Tenant's normal business operations, but no provision hereof shall obligate
Landlord to perform such work other than during normal business hours unless
they materially interfere with Tenant's normal business operations.
D. Landlord's right to change the arrangement and/or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets
or other public parts of the Building shall, at Landlord's sole cost and expense
and if the demised premises or the means of access thereto are materially
adversely affected, be subject to Tenant's prior written consent, which shall
not be unreasonably withheld, provided, however, that if such
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change is made in compliance with any law, order or regulation of any
governmental authority having jurisdiction, the New York Board of Fire
Underwriters or similar organization, or any insurer of the Building and/or
Landlord's interest therein, Tenant's consent shall not be required.
56. LANDLORD'S PERFORMANCE OF TENANT'S OBLIGATIONS
Supplementing the provisions of Article 19, except in the event of an
emergency, Landlord shall not perform any obligation of Tenant under this Lease
nor incur any expenditure for such purpose until after the expiration of any
applicable grace period.
57. TENANT'S TAKING POSSESSION OF THE DEMISED PREMISES
Anything in Article 20 to the contrary notwithstanding, Tenant's taking
possession of the demised premises shall be conclusive evidence that the demised
premises and the Building were in good and satisfactory condition at the time
such possession was so taken, except as to latent defects and to any items as to
which Tenant notifies Landlord within thirty (30) days after initially taking
possession.
58. ACCESS
Tenant shall be entitled to have access to the demised premises 24
hours a day, 7 days a week, without additional charge, provided, however, that
Landlord shall be entitled to charge Tenant for any heating services supplied to
Tenant other than during hours and on days during which Landlord has the
obligation to supply such services pursuant to Article 31 hereof.
59. HOLIDAYS
Heat and/or manual elevator facilities shall not be provided on
holidays deemed to be commercial building contract holidays of Local 32B-32J of
Service Employees Union.
60. POSSESSION
Landlord and Tenant hereby acknowledge that the demised premises is
currently occupied by another tenant of the Building whose lease expired on
April 30,1999. Landlord hereby agrees to use its best efforts to have the
demised premises vacated by said tenant and possession delivered to Tenant by
June 1,1999. The commencement date of the term of this Lease shall be the later
of (i) June 1,1999 or (ii) the date of Landlord's delivery of possession to
Tenant. Landlord shall, in accordance with the foregoing, fix the commencement
date of the term of this Lease and revise the expiration date if the possession
date is later than June 1,1999. When the commencement date of the term of this
Lease has so been determined, the parties hereto shall within thirty (30) days
thereafter, at Landlord's request, (i) initial such revised date or dates on the
executed copies of this Lease, or (ii) execute a written agreement confirming
such dates as the dates of the commencement and expiration of the term of this
Lease. Any failure of the parties to initial or to execute such written
agreement shall not affect the validity of the commencement and the expiration
date as fixed and determined by Landlord, as aforesaid. Notwithstanding anything
contained to the contrary herein, if possession is not delivered to Tenant by
June 1,1999, Landlord nor Tenant shall not be subject to any liability and the
validity of this Lease shall not be impaired, but the expiration date of the
Lease shall be extended to coordinate with the eventual commencement date.
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61. SQUARE FOOTAGE
The Tenant does hereby acknowledge that no representations have been
made by the Landlord or anyone acting on behalf of the Landlord as to the amount
of square footage in the demised premises. The Tenant has inspected the demised
premises and relies upon its own judgement in computing the square footage.
62. INTENTIONALLY OMITTED
63. VOLATILE MATERIALS
The Tenant nor any of Tenant's servants, employees, agents, visitors or
licensees shall not bring, keep or use in or upon the demised premises or the
building of which they form a part, any solvent having a flash point below 110
degrees Farenheit, nor shall any liquid which emits volatile vapors below the
temperature of 100 degrees Farenheit be brought, kept or used in or upon the
demised premises or the building of which they form a part, except as follows:
A. The process using such liquids shall be conducted in a room of
fire resistant construction, as the same is or may hereafter
be defined by the Fire Insurance Rating Organization.
If more than one but not more than two gallons of such liquids are kept
on the premises, they shall be stored in safety cans. If more than two but less
than ten gallons of such liquids are kept on the premises, they must be stored
in safety cans and kept in a cabinet constructed by Tenant in a manner approved
by the Fire Insurance Rating Organization. Reasonable amounts in excess of ten
gallons may be kept provided they are stored in a vault constructed by Tenant in
a manner approved by said Organization.
Any use or storage of such liquids shall at all times be in accordance with the
requirements of the Fire Department Board of Fire Underwriters and the Fire
Insurance Rating Organization.
A breach of the aforesaid regulations shall be deemed a default of this lease
under Paragraph 17 hereof.
64. SECURITY
Tenant shall deposit with Landlord the sum of $44,000 upon the signing
of this lease as security for the faithful performance and observance by Tenant
of the terms, provisions and conditions of this lease. It is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including but not limited to, the payment of rent and additional
rent, Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum which Landlord may expend or may be required to expend by
reason of Tenant's default in respect of any of the terms, covenants and
conditions of this lease, including but not limited to, any damages or
deficiency in the reletting of the premises, whether such damages or deficiency
accrued before or after summary proceedings or other re-entry by Landlord. In
the event that Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this lease, the security shall be
returned to Tenant after the date fixed as the end of the Lease and after
delivery of entire possession of the demised premises to Landlord. In the event
of a sale of the land and building or leasing of the building, of which
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the demised premises form a part, Landlord shall have the right to transfer the
security to the vendee or lessee upon written notice to Tenant and Landlord
shall thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look to the new Landlord solely for the return of
said security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Landlord.
Tenant further covenants that it will not assign or encumber or attempt
to assign or encumber the monies deposited herein as security and that neither
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
All interest and/or dividends, if any, accruing on the security
deposited, whether in cash or otherwise as aforesaid, shall remain Tenant's
property* and, provided Tenant is not in default in the performance of the
terms, conditions and covenants of this lease, shall be paid to Tenant after
each calendar year during the term, provided, however, that Tenant shall make a
written demand therefor no later than January 31st in each year.
* Less standard management charge of 1%.
65. EXTERMINATION
Tenant at its sole cost and expense shall maintain such extermination
services as are necessary to keep the demised premises free of pests and vermin
at all times.
66. ODORS
Tenant shall not cause or permit any unusual or objectionable odors,
by-products or waste material to permeate from the demised premises. Tenant
covenants that it will hold Landlord harmless against all claims, damages or
causes of action for damages arising after the commencement of the term of this
lease and will indemnify the Landlord for all such suits, orders or decrees and
judgments entered therein, brought on account of any such permeation from the
demised premises of the said unusual or objectionable odors, by-products or
waste material, and, in addition, Tenant covenants to pay any attorneys' fees
and other legal expenses made necessary in connection with any claim or suit as
aforesaid, unless caused by the negligence of the Landlord, its servants or
employees, all provided, however, that Tenant is given immediate written notice
thereof with the opportunity to defend by attorneys of its designation and that
Landlord cooperates in said defense.
For the purpose of eliminating any such odors, waste material or by
products, Tenant may erect and maintain such facilities and appurtenances as may
be necessary to eliminate any such odors, by-products, or waste materials. All
such facilities or appurtenances shall be erected at Tenant's sole cost and
expense, shall be in accordance with applicable laws, orders and regulations of
all governmental authorities and the New York Board of Fire Underwriters as set
forth in Paragraph 6 of this lease.
67. FLOOR LOAD
Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law. Tenant agrees to position all machines, safes, business
machines, printing equipment or other mechanical equipment in such locations as
to minimize noise and vibration emanating therefrom. All of such installations
shall be placed and maintained by Tenant, at Tenant's sole
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expense, in setting sufficient, in Landlord's sole judgment, to absorb and
prevent vibration, noise and annoyance to other Tenants in Landlord's building.
All of such machines and/or equipment installed by Tenant in the
demised premises will not at any time be in violation of existing laws affecting
the demised premises or in violation of the certificate of occupancy issued for
the building of which the demised premises are a part.
68. PLATE GLASS
Tenant, at its own cost and expense, shall replace all damaged or
broken plate glass or other glass in or about the demised premises. All existing
broken plate glass shall be repaired by Landlord prior to Tenant's occupancy.
69. BROKER
Tenant warrants that it has dealt with no real estate broker other than
Helmsley Spear, Inc. and The Staubach Company in negotiating this lease and
hereby agrees to indemnify and hold harmless Landlord in the event that claims
for brokerage are made by any other broker.
70. "AS IS"
Notwithstanding any provisions to the contrary, Tenant agrees to accept
premises in "as is" condition except that Landlord shall deliver the demised
premises in "broom clean" condition.
71. EFFECT OF CONVEYANCE, ETC.
If the building containing the premises shall be sold, transferred or
leased, or the lease thereof transferred or sold, Landlord shall be relieved of
all future obligations and liabilities hereunder and the purchaser, transferee
or lessee of the building shall be deemed to have assumed and agreed to perform
all such obligations and liabilities of Landlord hereunder. In the event of such
sale, transfer or lease, Landlord shall also be relieved of all existing
obligations and liabilities hereunder, provided that the purchaser, transferee
or lessee of the building assumes in writing such obligations and liabilities.
72. ELECTRIC POWER
Tenant hereby agrees to obtain electric power at its own cost and
expense directly from the public utility servicing the demised premises.
73. HOLDING OVER
If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this lease, such
holding over shall not be deemed to extend the term or renew the lease, but such
holding over hereafter shall continue upon the covenants and conditions herein
set forth except that the charge for use and occupancy of such holding over for
each calendar month or part thereof (even if such part shall be a small fraction
of a calendar month) shall be the sum of:
a. 1/12 of the highest annual rent rate set forth on page one of
this lease, times 1.5 plus
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b. 1/12 of the net increase, if any, in annual fixed rental due
solely to increases in the cost of the value of electric
service furnished to the premises in effect on the last day of
the term of the lease, plus
c. 1/12 of all other items of annual additional rental, which
annual additional rental would have been payable pursuant to
this lease had this lease not expired, plus
d. those other items of additional rent (not annual additional
rent) which would have been payable monthly pursuant to this
lease, had this lease not expired,which total sum Tenant
agrees to pay to Landlord promptly upon demand, in full,
without set-off or deduction. Neither the billing nor the
collection of use and occupancy in the above amount shall be
deemed a waiver of any right of Landlord to collect damages
for Tenant's failure to vacate the demised premises after the
expiration or sooner termination of this lease. The aforesaid
provisions of this Article shall survive the expiration or
sooner termination of this lease.
74. LANDLORD'S COSTS BY TENANT'S DEFAULTS
If Landlord, as a result of a default by Tenant of any of the
provisions of this lease, including the covenants to pay rent and/or additional
rent, makes any expenditure or incurs any obligations for the payment of money,
including but not limited to attorney's fees, in instituting, prosecuting or
defending any action or proceeding, such sums so paid or obligations so incurred
with interest and costs shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Landlord within five (5) days of rendition of any
bill or statement to Tenant therefore, and if any expenditure is incurred in
collecting such obligations, such sum shall be recoverable by Landlord as
additional damages.
75. NO ORAL AGREEMENTS
This lease together with riders attached, contains the complete
arrangement between the Landlord and Tenant in its entirety with respect to the
premises leased herein, and cannot be changed, modified or terminated orally.
There are no representations, agreements, arrangements or understandings oral or
written, between Landlord and Tenant up to the date of this lease, which are not
fully contained herein.
76. NOTICES
Any notices or other communication relative to this lease shall be in
writing and shall be considered given when mailed by registered or certified
mail, return receipt requested, to the respective party at its address herein
set forth as at such other address as either party may designate by notice given
in accordance with this paragraph. All payments of rent or additional rents due
under this lease shall be mailed in accordance with this paragraph, by regular
mail or delivered by hand as Landlord may designate.
77. BUILDING ALTERATIONS AND MANAGEMENT
Landlord shall have the right at any time without the same constituting
an eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets, or other public parts of the building and
to change the name, number or designation by which the building may be
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known. There shall be no allowance to Tenant for diminution of rental value and
no liability on the part of Landlord by reason of inconvenience, annoyance or
injury to business arising from Landlord or other Tenant making any repairs in
the building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Landlord by reason of Landlord's
imposition of any controls of the manner of access to the building by Tenant's
social or business visitors as the Landlord may deem necessary for the security
of the building and its occupants.
78. DIRECTORY BOARD LISTING
If, at the request of and as accomodation to Tenant, Landlord shall
place upon the directory board in the lobby of the building one or more names of
persons other than Tenant, such directory board listing shall not be construed
as the consent by Landlord to an assignment or subletting by Tenant to such
person or persons.
79. PORNOGRAPHIC USES PROHIBITED
Tenant agrees that the value of the demised premises and the reputation
of the Landlord will be seriously injured if the premises are used for any
obscene or pornographic purposes or any sort of commercial sex establishment.
Tenant agrees that Tenant will not bring, manufacture, or permit any obscene or
pornographic material on the premises, and shall not permit or conduct any
obscene, nude or seminude live performances on the premises, nor permit use of
the premises for nude modeling, rap sessions, or as a so-called "rubber goods"
shop, or as a sex club of any sort, or as a "massage parlor", or for any similar
use. Tenant agrees further that Tenant will not permit any of these uses by any
sublessee or assignee of the premises. This Article shall directly bind any
successors in interest to the Tenant. Tenant agrees that if at any time Tenant
violates any of the provisions of this Article, such violations shall be deemed
a breach of a substantial obligation of the term of this lease and objectionable
conduct. Pornographic material is defined for purposes of this Article as any
written or pictorial matter with prurient appeal or any objects of instrument
that are primarily concerned with lewd or prurient sexual activity. Obscene
material is defined here as it is in New York State Penal Law 235.00.
80. RENT CONTROL
If the fixed annual rent or additional rent or any part thereof
provided to be paid by Tenant under the provisions of this lease during the
demised term shall become uncollectible or shall be reduced or required to be
reduced or refunded by virtue of any Federal, State, County or City law, order
or regulation or by any direction of a public officer or body pursuant to law or
the orders, rules, code or regulations of any organization or entity formed
pursuant to law, whether such organization or entity be public or private, then
Landlord, at its option, may at any time thereafter terminate this lease, by not
less than thirty (30) days' written notice to Tenant, on a date set forth in
said notice, in which event this lease and the term hereof shall terminate and
come to an end on the date fixed in said notice as if the said date were the
date originally fixed herein for the termination of the demised term. Landlord
shall not have the right so to terminate this lease if Tenant within such period
of thirty (30) days shall in writing lawfully agree that the rentals herein
reserved are a reasonable rental and agree to continue to pay said rentals, and
if such agreement by Tenant shall then be legally enforceable by Landlord.
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81. LATE PAYMENTS
Tenant acknowledges that monthly rental and additional rental payments
are due on or before the first day of each month. Tenant shall herein be
permitted to make such payments up to the tenth day of each month without
additional charge. In the event that, during any calendar year, Tenant fails to
make such payments of any portion of rents due by the tenth day of each month,
Landlord shall, for each lateness after the first occurrence, be permitted to
charge Tenant as additional rent, the sum of $250 as liquidated damages and not
as a penalty, which Tenant agrees to pay within fifteen (15) days of receipt of
invoice.
82. FURTHER PROVISIONS AS TO DEFAULT
All sums of money, other than the Fixed Rental reserved in this lease,
that shall become due from and payable by Tenant to Landlord hereunder shall
constitute Additional Rental, for default in the payment of which Landlord shall
have the same remedies as for a default in the payment of Fixed Rental.
If Tenant is late in making any payments due to Landlord from Tenant
under this Lease for forty-five (45) or more days, then interest shall become
due and owing to Landlord on such payment from the date forty-five (45) days
after which it was due, which interest shall be computed at the following rates:
(i) for an individual or partnership tenant, computed at
the maximum lawful rate of interest;
(ii) for a corporate tenant, computed at the greater of
(a) two and 00/100 (2.00%) percent per month or (b)
three (3%) percent per annum over the prime rate of
Chase Manhattan Bank, N.A., but in no event in excess
of the maximum lawful rate of interest chargeable to
corporations in the State of New York.
Bills for any expenses incurred by Landlord in connection with any
performance by it for the account of Tenant after a default hereunder beyond the
applicable grace period, and bills for all costs, expenses and disbursements of
every kind and nature whatsoever, including reasonable counsel fees involved in
collecting or endeavoring to collect the Fixed Rental or Additional Rental or
any part thereof, enforcing or endeavoring to enforce any right against Tenant,
under or in connection with this lease, or pursuant to law, including any such
cost, expense and disbursement involved in instituting and prosecuting summary
proceedings, as well as bills for any property, material labor, or services
provided, furnished, or rendered, by Landlord at Tenant's instance to Tenant,
may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option,
and shall be due and payable in accordance with the terms of such bills.
83. HAZARDOUS MATERIALS
Tenant shall not (either with or without negligence) cause or permit
the introduction, placement, use, storage, manufacture, transportation, release
or disposition of any biologically or chemically active or other hazardous
substances or materials, without the prior written consent of Landlord, which
consent may be withheld in the sole and absolute discretion of Landlord without
any requirement of reasonableness in the exercise of that discretion. The
foregoing notwithstanding, Tenant may use de minimus quantities of the types of
materials which are technically classified as hazardous materials but are
commonly used in its business to the extent the same are not used in an amount
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which, either individually or cumulatively, would either exceed the quantities
typical for ordinary use of the premises as such use is defined elsewhere in
this Lease or would be a "reportable quantity" under any applicable federal,
state or local law or regulation. With respect to such de minimus quantities of
such materials, Tenant shall not allow the storage or use of such substances or
materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the storage and use of such substances or
materials. Without limitation, hazardous substances and materials shall include
those described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. section 6901 et seq., any
applicable state or local laws and the regulations adopted under these acts. If
any lender or governmental agency shall ever require testing to ascertain
whether or not there has been any release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional rent if such requirement (i) applies to the premises or (ii) is
imposed due to Tenant's representation and the like from time to time at
Landlord's request concerning Tenant's best knowledge and belief regarding the
presence of hazardous substances or materials on the demised premises. In all
events, Tenant shall indemnify and hold harmless Landlord in the manner
elsewhere provided in this Lease from and against all liability, damages, costs,
claims, judgments and expenses arising out of or relating to the presence, use
or release of hazardous materials on the demised premises occurring while Tenant
is in possession, or elsewhere if caused by Tenant or persons acting under
Tenant. The within covenants shall survive the expiration or earlier termination
of the Lease term.
84. LOBBY ATTENDANT
In the event Landlord elects to maintain lobby attendant service in the
passenger lobby of the Building, Tenant agrees to pay to Landlord a sum which
shall represent its proportionate share of eight and 33/100 (8.33%) of
Landlord's total cost of maintaining such lobby attendant service. This sum
shall be payable as additional rent due under this Lease. As the cost of
maintaining such lobby attendant shall increase or decrease, so shall the above
mentioned charge be adjusted proportionate to the increase or decrease in the
total cost of maintaining such lobby attendant service.
85. AMERICANS WITH DISABILITIES ACT
(a) Notwithstanding any provision of this Lease to the contrary, Tenant
shall, at its expense, subject to all of the provisions of this Lease, comply
with all aspects of the Americans with Disabilities Acts, as now or hereafter
constituted (the "ADA"), with respect to the demised premises, whether or not
such compliance is required as the result of Tenant's business or Tenant's use
or manner of use of the demised premises or the Building (including the use
permitted under this Lease), and whether or not such compliance requires
structural changes to the demised premises. If Tenant's business or Tenant's use
or manner of use requires changes to any portion of the Building or areas
adjacent to the Building in order to comply with the ADA, Landlord shall have
the option of either terminating this Lease (in which event this Lease shall end
on the 30th day following Landlord's notice, without further liability or
obligation of Landlord or Tenant, beyond that date) or performing those changes
at Tenant's expense (in which event, Tenant shall pay Landlord for the expense
of the changes, plus 21% of the expense, in installments, in advance, as the
work is performed).
(b) Nothwithstanding any right of Tenant under this Lease to the
contrary, Tenant shall take no action which would, as the result of that
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action, require any changes to the demised premises or the building under the
ADA.
(c) Tenant shall indemnify, defend and hold harmless Landlord from and
against any claims, actions or proceedings, and all losses, damages,
liabilities, costs and expenses (including, without limitation, attorneys' fees)
in connection therewith, arising out of Tenant's failure to comply with the ADA
or this Article.
86. APPLICATION OF PAYMENTS
Any rent, additional rent, fees, charges or expenses hereunder shall be
paid by Tenant pursuant to the terms of this Lease. However, in the event that
Tenant is in default in payment of any rent, additional rent, fees, charges or
expenses, Landlord shall have the right to apply any payment received from
Tenant hereunder, regardless of any annotation or demand for specific
application on the part of Tenant, to any rent, additional rent, fees, charges
or expenses which are in arrears. The application of the payment shall be made
in the sole discretion of Landlord, so long as the payment is applied to the
payment of money due and owing by Tenant to Landlord hereunder.
87. AIR CONDITIONING
Tenant herein agrees that the payment for the cost of electric power
consumed by the air conditioning system, if any, shall be the responsibility of
the Tenant.
During the term of this Lease, the air conditioning system, if any, and
any new air conditioning system installed by Tenant shall be owned by the
Landlord and shall be surrendered to the Landlord at the expiration of the Lease
in good working order. The Tenant agrees to maintain the system and provide
periodic service thereto but not less than once per year at its sole cost and
expense and Tenant shall make replacements of parts to the air conditioning unit
as they may become necessary during the term of this Lease.
Tenant shall not be permitted to install window air conditioning units
in the windows facing 23rd Street under any circumstances. Landlord makes no
representations or warranties regarding the existing air conditioning system, if
any.
88. LANDLORD'S APPROVALS
Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval and Landlord shall require the
expert opinion of Landlord's counsel or architect as to the form or substance
thereof, Tenant agrees to pay the reasonable fee of such architect and/or
counsel for the reviewing of said plan, agreement or document.
89. SIGNAGE
Tenant shall be allowed three (3) listings in the Building's lobby
directory for which it agrees to pay to Landlord a one time charge which shall
not exceed Landlord's cost per listing requested. No other signs or advertising
of any kind will be permitted in the lobby.
Tenant shall be permitted to display upon the entrance door to the
demised premises a sign of size, material and design equivalent to building
standard. Tenant agrees to submit the text and design of such door sign to
Landlord for Landlord's reasonable approval.
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Landlord reserves the right to change building standard from time to
time and to change signs and listings to comply with building standard. In no
instance will Tenant be permitted to display any signs or advertising in the
windows of the Building.
90. DEFAULT IN THE PAYMENT OF RENT
Notwithstanding any provisions contained herein to the contrary, and
without waiving Landlord's right to commence summary eviction proceedings for
non-payment of rent, the Landlord, at Landlord's sole discretion, shall have the
option of exercising the provisions of this paragraph. In the event Tenant
defaults in fulfilling the covenant to make timely payment of rent in any month,
it being understood that rent is due in advance on the first day of each month,
the Landlord may send the Tenant three (3) days notice in writing as required by
law specifying a default in the payment of rent and upon expiration of said
three (3) days, if Tenant shall have failed to make payment of the rent and
thereby remedy the default, then the Landlord may send to the Tenant a written
three (3) days notice by certified mail of cancellation of this Lease, and upon
expiration of said three (3) days, this Lease and the term thereunder shall end
and fully expire as completely as if the expiration of such three (3) day period
were the day herein definitely fixed for the end and expiration of this Lease
and the term thereof and Tenant shall then quit and surrender the premises to
the Landlord. The effective date of each notice heretofore referred to shall be
the date of mailing, regardless of the date received by the Tenant. The
inclusion of the provisions of this paragraph represent a significant inducement
for the Landlord to enter into this lease agreement. The Tenant is entitled to
the grace periods set forth herein.
91. DEMAND FOR RENT
Notwithstanding anything herein to the contrary, the Tenant
specifically agrees to waive any right to a demand in writing and acknowledges
that notwithstanding any notice provision contained herein to the contrary, the
Landlord may orally demand the rent and commence a summary non-payment
proceeding based upon an oral demand regardless of any notice provision
contained herein. The Tenant waives any and all rights to receive a demand for
rent other than as required by the applicable law, RPAPL 711(2). It is
specifically agreed by the Landlord and the Tenant that the notice provisions of
this Lease shall not pertain to and shall exclude any requirement to serve a
demand notice prior to the commencement of a non-payment summary proceeding. The
notice provisions of this Lease do not obligate the Landlord in any manner or
form to send a notice or demand in writing prior to the commencement of a
non-payment summary proceeding except as specifically required by law. The
Tenant fully understands and agrees that the Landlord pursuant to RPAPL 711(2)
may demand the rent either orally or in writing and that the Landlord shall not
be required to make such a demand in writing despite any notice provisions in
the Lease to the contrary.
92. FREE RENT
Notwithstanding anything contained to the contrary herein, Tenant shall not
be obligated to pay base annual rent for the month of June 1999 and Tenant shall
be entitled to rent credits in the amount of $5,561.11 for the month of August
1999, $5,561.11 for the month of February 2000 and $5,561.11 for the month of
June 2000. Notwithstanding anything contained to the contrary herein, if Tenant
shall be in monetary default of the Lease at the time Tenant is entitled to
receive a rent credit hereunder, then said rent credit shall be waived by Tenant
and shall not be given.
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93. TENANT IMPROVEMENTS
As an inducement for Landlord to enter into this Lease, Tenant represents
and warrants that it shall spend at least thirty thousand ($30,000) dollars on
hard construction costs improving the demised premises. Over and above said
$30,000, Tenant shall repaint and install new flooring in the demised premises.
Tenant shall deliver invoices marked paid to Landlord as evidence of compliance
with this paragraph.
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[1] which shall not be unreasonably withheld.
[2] not be responsible to
[3] reasonable wear and tear expected. Except those improvements approved by
Landlord pursuant to Article 49.
[4] except for ordinary wear and tear
[5] through no fault of Landlord
[6] for Landlord to repair
[7] and make structural repairs within the Demised Premises arising from
ordinary wear and tear or through causes Tenant has no control
[8] unless caused by or due to the negligence of the Owner, its agents,
servants or employees.
[9] which shall not be unreasonably withheld
[10] provided that the failure to interpose such a counterclaim would not waive
Tenant's right to pursue such right of action.
<PAGE>
AGREEMENT
Agreement dated May ___, 1999 by Kyle Taylor residing at
_________________________________________("Principal");
RECITALS
A. YouNetwork Corporation ("Tenant"), a New York corporation, is about
to enter into a lease of even date herewith (the "Lease"), between Waltox
Corporation, N.V. ("Landlord"), as Landlord and Tenant, as Tenant, covering
premises (the "Demised Premises") located at 115 East 23rd Street, New York, NY.
B. Landlord does not desire to have Principal guarantee the obligations
of Tenant under the Lease. Landlord is concerned, however, that if Tenant
defaults under the Lease, Tenant may continue to occupy the Demised Premises, to
the detriment of Landlord. Therefore, in order to avoid that situation, Landlord
has requested Principal to guarantee to Landlord that if Tenant defaults under
the Lease, Tenant will vacate the Demised Premises. The result being that if
Tenant vacates the Demised Premises at the time of the default, Principal will
have no obligation or liability under this Agreement (although the obligation
and liability of Tenant under the Lease will continue in accordance with the
Lease).
C. Accordingly, Principal agrees as follows:
1. Until Tenant vacates the entire Demised Premises (for any reason and
at any time), Principal guarantees to Landlord the payment and performance of
Tenant's obligations under and in accordance with the Lease, including, without
limitation, the payment of fixed and additional rent (the "Obligations"), so
that Principal will have no obligation or liability for obligations which accrue
under the Lease following the date Tenant vacates the entire Demised Premises.
If, however, Tenant defaults and does not vacate the entire Demised Premises,
then until Tenant does vacate, Landlord may, at its option, proceed against
Principal and Tenant, jointly and severally, or Landlord may proceed against
Principal under this Agreement without commencing any suit or proceeding of any
kind against Tenant, or without having obtained any judgment against Tenant.
2. The obligations of Principal under this Agreement are unconditional,
are not subject to any set-off or defense based upon any claim Principal may
have against Landlord, and will remain in full force and effect without regard
to any circumstance or condition, including, without limitation: (a) any
modification or extension of the Lease (except that the liability of Principal
hereunder will apply to the Lease as so modified or extended); (b) any exercise
or non-exercise by Landlord of any right or remedy in respect of the Lease, or
any waiver, consent or other action, or omission, in respect of the Lease; (c)
any transfer by Landlord or Tenant in respect of the Lease or any interest in
the Demised Premises; (d) any bankruptcy, insolvency, receivership,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding involving or affecting Landlord or Tenant
<PAGE>
or their obligations, properties or creditors, or any action taken with respect
to such obligations or properties of the Lease, by any Trustee or receiver of
Landlord or Tenant, or by any court, in any such proceeding; (e) any defense to
or limitation on the liability or obligations of Tenant under the Lease, or any
invalidity or unenforceability, in whole or in part, of any obligation of Tenant
under the Lease or of any term of the Lease; or (f) any transfer by Principal of
any or all of the capital stock of Tenant or the control thereof.
3. Principal waives presentment and demand for payment, notice of
non-payment or non-performance, and any other notice or demand to which
Principal might otherwise be entitled.
4. If judgment is entered against Principal in any action, suit or
proceeding to enforce this Agreement, Principal will reimburse Landlord for all
costs and expenses incurred by Landlord in connection, therewith, including,
without limitation, reasonable attorneys' fees.
5. Principal and Landlord each waive trial by jury of all issues arising
in any action, suit or proceeding to which Landlord and Principal may be parties
in connection with this Agreement.
6. Principal, at its expense, will execute, acknowledge and deliver all
instruments and take all action as Landlord from time to time may request for
the assuring to Landlord the full benefits intended to be created by this
Agreement.
7. No delay by Landlord in exercising any right under this Agreement nor
any failure to exercise the same will waive that right or any other right.
8. Any notice or other communication hereunder must be in writing and will
be deemed duly served on the date it is mailed by registered or certified mail
in any post office station or letter box in the continental United States,
addressed if to Principal, to it at the address or Principal set forth herein or
such other address as Principal shall have last designated by notice to
Landlord, and addressed if to Landlord, to it at the address set forth above or
such other address as Landlord shall have last designated by notice to
Principal.
9. This Agreement may not be modified or terminated orally or in any
manner other than by an agreement in writing signed by Principal and Landlord,
or their respective successors and assigns.
10. This Agreement and any issues arising hereunder will be governed by the
laws of the State of New York.
11. All remedies of Landlord by reason of this Agreement are separate and
cumulative remedies and no one remedy, whether exercised by Landlord or not,
will be in exclusion of any other remedy of Landlord and will not limit or
prejudice any other legal or equitable remedy which Landlord may have.
<PAGE>
12. If any provision of this Agreement or the application thereof to any
person or circumstance will to any extent be held unenforceable, the remainder
of this Agreement or the application of such provision to persons or
circumstances other than those as to which it is held unenforceable, will not be
affected thereby, and each provision of this Agreement shall be valid and
unenforceable to the fullest extent permitted by law.
13. This Agreement will inure to the benefit of and may be enforced by
Landlord and its successors or assigns, and will be binding upon and enforceable
against Principal and its successors, assigns, heirs and personal
representatives. If there is more than one Principal, Principal's obligations
and liabilities under this Agreement will be joint and several.
IN WITNESS WHEREOF, Principal has duly executed this Agreement as of the
day and year first above written.
------------------------------------
KYLE TAYLOR
<PAGE>
================================================================================
[STOP] Will you be reselling the product that you purchase
from Ingram Micro? [ ] YES [ ] NO
If "No," stop here:
Ingram Micro's position in the industry is as a distributor/wholesaler. Because
of commitments we have made to our vendors and customers, we can only sell our
product to Resellers. If you will not be reselling the product you are intending
to purchase from Ingram Micro, or if you are unable to complete the attached
Resale Certificate, we will not be able to establish an account relationship at
this time.
================================================================================
[INGRAM MICRO LOGO] RESELLER APPLICATION Customer Number
Documents must be fully completed before an account is opened and pricing
quoted. We do not want to delay your application.
1. Where did you find out about Ingram Micro? (Check all that apply)
[ ] Vendor [ ] Publication [ ] Reseller Referral [ ] Trade Show [X] Other
DESCRIPTION OF BUSINESS (Please type or print)
This company is a (check one): [ ] Sole Proprietorship [ ] Partnership
[X] Corporation; State of Incorporation [ NY ]
Length of time operating under business name: Yrs. [ ] Mos. [ ]
Length of time at this address: Yrs. [ ] Mos. [ ]
YouNetwork Corporation
- --------------------------------------------------------------------------------
Business Trade Name (DBA)
YouNetwork Corporation
- --------------------------------------------------------------------------------
Legal Business Name (As it appears on business license)
220 East 23rd St. S.607
- --------------------------------------------------------------------------------
Business Street Address (Must be provided)
New York, NY 10010
- --------------------------------------------------------------------------------
City, State, Country and ZIP Code
Business Phone: 212-576-2030 x10
-----------------------------------------------------------------
Business Fax: 212-576-2039
-------------------------------------------------------------------
Kyle S. Taylor
- --------------------------------------------------------------------------------
Officer's/Owner's Name
President
- --------------------------------------------------------------------------------
Title
Dow Sewerath
- --------------------------------------------------------------------------------
Officer's/Owner's Name
CEO, CTO
- --------------------------------------------------------------------------------
Title
Kyle S. Taylor, Dow Sewerath
- --------------------------------------------------------------------------------
Authorized Purchaser(s)
BILLING ADDRESS (if different than above)
Above
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City, County, State, Country and ZIP Code
SHIPPING ADDRESS (Attach list if more than one shipping address)
Above
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City, County, State, Country and ZIP Code
Customer agrees to notify Ingram Micro of any changes in ownership of its
business as set forth herein be certified mail to:
If you are located in Ingram Micro Inc. All Other States:
AK, AZ, CA, CO, HI, ID 1600 E. St. Andrew Place Ingram Micro Inc.
MT, NM, NV, OR, WA or P.O. Box 25125 1768 Wehrle Drive
UT, please send your Santa Ana, CA 92799-5125 Williamsville, N.Y. 14221-7887
completed Dealer Attn: New Accounts Attn: Geoff Currier
Application and Fax: (714) 566-7705 Fax: 716-565-4283
Resale Certificate to:
2. Why are you opening an account with Ingram Micro: (Check all that apply)
[ ] Dissatisfied with current sources [X] Need to source product
[ ] Other [ ]
3. Which category best describes your company's business: (Check one)
[ ] Dealer [ ] Manufacturer
[ ] Computer Superstore [ ] Distributor
[ ] Corporate Reseller [ ] Educational Retailer
[ ] Direct Marketer [ ] Office Products Store
[ ] Mass Merchant [X] Alternate Consumer Channels
[ ] OEM [ ] Consumer Electronics
[ ] VAR/Systems Consultant [ ] Software Only
[ ] Other [ ] [ ] Warehouse Club
[ ] Exporter (If yes, what countries?)
[ ]
4. If you are a VAR, which of the following best describes your company's
reseller activities? (Check one)
[ ] Systems Integrator [ ] Application VAR [ ] Network Integrator/Technical VAR
[ ] Other [ ]
1
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<PAGE>
================================================================================
5. Which category best describes your company's ownership affiliation?
(Check one)
[ ] Owner-Operated Chain Location [ ] Member of Franchise Group
[ ] Affiliated w/ Franchise Group [X] Independent Reseller
6. On average, which of the following best describes your company's total
monthly microcomputer purchases through all sources? (Check one)
[ ] Under $3,000 [ ] $50,000-$74,999 [ ] $500,000-$749,999
[ ] $3,000-$4,999 [ ] $75,000-$99,999 [ ] $750,000-$999,999
[ ] $5,000-$9,999 [ ] $100,000-$149,999 [ ] $1,000,000 or more
[ ] $10,000-$24,999 [ ] $150,000-$249,999 [X] Don't Know
[ ] $25,000-$49,999 [ ] $250,000-$449,999
7. Which operating systems do you primarily sell and support?
(Check all that apply)
[X] Mac OS [ ] VINES
[ ] DOS [ ] LANtastic
[ ] NetWare [ ] OS/2
[X] Windows [ ] UNIX
[ ] Other [ ] [ ] Windows NT
8. Which of the following manufacturers do you have authorized reseller
agreements with, if any? (Please list authorization # and check all
that apply)
[ ] Microsoft [ ] [ ] Hewlett-Packard [ ]
[ ] Lotus [ ] [ ] IBM [ ]
[ ] 3Com [ ] [ ] Any academic vendors [ ]
[ ] Apple [ ] [ ] Compaq [ ]
[ ] Novell [ ] [ ] Other [ ]
9. Which of the following platform solutions do you sell, if any?
(Check all that apply)
[ ] Hewlett-Packard [ ] SUN [ ] HAL
[ ] SGI [ ] IBM RS6000 [ ] Other [ ]
10. What percentage of your purchases are from the following sources?
(Total should equal 100%)
Manufacturer Direct [ ]% Tech Data [ ]% Other Sources [ ]%
Ingram Micro [ ]% Aggregator [ ]%
Merisel [ ]% Other Distributor [ ]%
11. What are the main vertical markets on which your company focuses, if any?
(Check main verticals and indicate proprietary software)
Proprietary
S/W
[ ] Accounting Y [ ] N [ ]
[ ] Computer Telephony Y [ ] N [ ]
[ ] CAD/CAM Y [ ] N [ ]
[ ] Construction Y [ ] N [ ]
[ ] Education Y [ ] N [ ]
[ ] Financial Services Y [ ] N [ ]
[ ] Government Y [ ] N [ ]
[ ] Health Care Y [ ] N [ ]
[ ] Insurance Y [ ] N [ ]
[ ] Legal Y [ ] N [ ]
[ ] Manufacturing Y [ ] N [ ]
[ ] Digital Video Y [ ] N [ ]
[ ] Printing/Publishing Y [ ] N [ ]
[ ] Document Imaging Y [ ] N [ ]
[ ] Retail/O.S. Y [ ] N [ ]
[ ] Wholesale/Distribution Y [ ] N [ ]
[ ] Sales Automation Y [ ] N [ ]
[ ] Video Teleconferencing Y [ ] N [ ]
[ ] None Y [ ] N [ ]
[ ] Remote Access Y [ ] N [ ]
12. What percentage of your sales are to the following markets?
(Total should equal 100%)
Small- to Medium-Size Business [ ]% Government [ ]%
Fortune 1000 [ ]% Education [ ]%
Home User [100]% Other [ ]%
13. How many employees does your company have? (Check one)
[ ] 1-5 [X] 6-10 [ ] 11-20 [ ] 21-50 [ ] 51-100 [ ] 101+ [ ] Don't Know
14. How many employees will be calling Ingram Micro? (Check one)
[X] 1-5 [ ] 6-10 [ ] 11-20 [ ] 21-50 [ ] 51-100 [ ] 101+
2
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<PAGE>
15. How many employees will be authorized to place purchase orders with
Ingram Micro?
[X] 1-5 [ ] 6-10 [ ] 10+
16. What were your company's total gross sales last year? (Check one)
[ ] Less than $500,000 [ ] $10,000,000-$24,999,999
[ ] $500,000-$999,999 [ ] $25,000,000 or more
[ ] $1,000,000-$4,999,999 [X] Don't know
[ ] $5,000,000-$9,999,999
17. Do you currently finance any of your microcomputer purchases through
floor planning? [ ] Yes [X] No
Ingram Micro has established floor planning relationships with the following
companies: AT&T Commercial Finance, Deuteche Financial Services (ITT), Finova
Capital Corp., IBM Credit Corp., NationsCredit Commercial Corp. and Transamerica
Commercial Finance. If you have an account with any of the above and wish to
floor Ingram Micro purchases, please complete the following information:
- --------------------------------------------------------------------------------
Company Name Phone # Dealer # Contact Name
18. Do you have a floor planning account with any other finance company?
If so, who?
- --------------------------------------------------------------------------------
Finance Company Name
19. Do you currently offer a leasing program to your customers? If so,
through what company?
- --------------------------------------------------------------------------------
Company Name Phone # Dealer # Contact Name
20. Would you like information on either of the above programs?
[ ] Floor Planning [ ] Leasing
================================================================================
COMPLETE THIS SECTION TO OPEN NEW ACCOUNT
- --------------------------------------------------------------------------------
(Indicate Preference)
[X] PREPAID (Credit card, wire transfer)
[ ] COD (Cashier's check)
[ ] COD (Company check)
Please submit voided business check copy for faster processing
[ ] NET TERMS Credit Line Amount $[ ]
================================================================================
COMPLETE THIS SECTION TO UPDATE YOUR ACCOUNT
- --------------------------------------------------------------------------------
(Indicate Preference)
[ ] Change CERTIFIED FUNDS to COD COMPANY CHECK
[ ] Change COD to NET TERMS Credit Line Amount $[ ]
[ ] Increase Net or COD Credit Limit to $[ ]
- --------------------------------------------------------------------------------
THIS INFORMATION IS REQUIRED ONLY USE SEPARATE SHEET IF NECESSARY
IF DEALER IS NOT INCORPORATED. TO LIST 100% OWNERSHIP
PRINCIPAL INFORMATION (OWNER/PARTNER)
- --------------------------------------------------------------------------------
Owner/Partner Name % Ownership Social Security # Driver's License #
- --------------------------------------------------------------------------------
Address (Street, City, State and Zip Code) Telephone #
Have you ever filed for bankruptcy?
[ ] No [ ] Yes [ ] Personal [ ] Business Dated Filed: Status:
- --------------------------------------------------------------------------------
Owner/Partner Name % Ownership Social Security # Driver's License #
- --------------------------------------------------------------------------------
Address (Street, City, State and Zip Code) Telephone #
Have you ever filed for bankruptcy? [ ] No [ ] Yes [ ] Personal [ ] Business
Dated Filed: Status:
--------------------- ---------------------------------------
3
================================================================================
<PAGE>
================================================================================
BANK REFERENCES (PLEASE COMPLETE FULLY)
CitiBank Madeline Santana 95239718
- --------------------------------------------------------------------------------
Bank Name Account Officer's Name Checking Account #
101 World Trade Center
- --------------------------------------------------------------------------------
Address (Street, City, State, Country and Zip Code)
212-240-1333 212-240-1353
- --------------------------------------------------------------------------------
Telephone # Fax # Loan #
- --------------------------------------------------------------------------------
Bank Name Account Officer's Name Checking Account #
- --------------------------------------------------------------------------------
Address (Street, City, State, Country and Zip Code)
- --------------------------------------------------------------------------------
Telephone # Fax # Loan #
FLOORING REFERENCE
- --------------------------------------------------------------------------------
Name, Address, Telephone # Contact Name Dealer #
TRADE REFERENCES (RELATED INDUSTRY PURCHASES DURING PAST 12 MONTHS)
Digital Pulp Technologies 212-679-0676
- --------------------------------------------------------------------------------
Name Address Telephone # Account #
LCI International 703-363-4626
- --------------------------------------------------------------------------------
Name Address Telephone # Account #
- --------------------------------------------------------------------------------
Name Address Telephone # Account #
***CURRENT YEAR-END FINANCIAL STATEMENTS MUST ACCOMPANY NET TERM REQUESTS.***
Financial statements must include a balance sheet and income statement.
Unaudited financial statements must be signed and dated by the company's
Owner/Officer. The statement's time period must be indicated.
[STOP] IN ORDER TO NOT DELAY YOUR ORDERING ABILITY, PLEASE MAKE SURE YOU HAVE
PROVIDED ALL INFORMATION REQUESTED.
This application and agreement is submitted by applicant to Ingram Micro Inc.
(IMI) to obtain trade credit. IMI reserves the right to decline credit to
applicant and in the event credit is extended to applicant, to change or revoke
applicant's credit limit on the basis of changes in IMI's credit policies or
applicant's financial condition and/or payment record. All sales of product and
services by IMI to applicant will be subject to IMI's standard sales terms and
conditions printed in the IMI comprehensive catalog in effect at the time of
order. Any variance from those terms and conditions will be effective only if
agreed to in writing by IMI prior to the time the product or services are
ordered.
Customer agrees to make payment in full to IMI for all amounts due according
to IMI invoice(s). Customer also agrees to pay IMI as interest, an amount equal
to 1 1/2% per month, or the maximum provided by law (whichever is less) for
invoice amounts that are past due. Should customer default in any such
payment(s). IMI shall have the right, without notice to customer, to declare all
invoice amounts due and payable. In the event IMI should commence any action or
actions, or otherwise seek to enforce this agreement against customer, customer
agrees to pay reasonable attorney(s) fees, court costs and other expenses
incurred by IMI, whether or not suit is filed. This agreement is strictly
confidential and is not transferable or assignable without prior written consent
of IMI. Customer agrees that any change in liability for any debts incurred to
IMI due to a change in customer's form of business, shall not be effective as to
IMI, until IMI receives actual notice of the change by certified mail. Venue
shall be in Orange County, CA or Erie County, N.Y. as determined by IMI.
Applicant hereby authorizes the release of credit and banking information to
IMI by the references listed on this application.
Signed at YouNetwork as of this 16 day of June , 1998
---------------- -------- --------- --
Officer/Owner /s/ Kyle S. Taylor, President
------------------------------------------------------------------
4
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<PAGE>
Exhibit 10.10
YouNetwork Distribution Agreement Page 1 of 15
THIS DISTRIBUTION AGREEMENT (this "Agreement") is entered this 19th day
of Jan., 1999 by and between YouNetwork, a having an address at 220 E. 23rd St.,
New York, NY 10010 ("Company") and BAKER & TAYLOR, INC. ("B&T"), a Delaware
corporation having an address at 8140 North Lehigh Avenue, Morton Grove,
Illinois 60053.
WITNESSETH:
For valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties agree as follows:
I. DEFINITIONS
As used throughout this Agreement the following terms have the following
meanings:
1.1 "Effective Date" means 1/19/99.
1.2 "Initial Termination Date" means the day preceding the first
anniversary of the Effective Date.
1.3 "Customers" or "Customer" means customers of Company within the United
States who order Products (hereinafter defined) from Company by means of
Company's online retail store doing business over the Internet.
1.4 "Products" means [books, spoken word audio products,] pre-recorded
video products in VHS, laser disc and DVD formats, multi-media products, and
music audio products.
2. TERM
2.1 This Agreement will begin on the Effective Date and will expire on the
Initial Termination Date, unless terminated on an earlier date pursuant to the
express terms of this Agreement or unless extended pursuant to the terms of
Section 2.2
2.2 Unless one of the parties (the "Notifying Party") to this Agreement notifies
the other party not less than 60 days prior to the Initial Termination Date or
any subsequent Termination Date
<PAGE>
(hereinafter defined) that the Notifying Party wishes that this Agreement not be
renewed, and if this Agreement otherwise is in full force and effect and no
Event of Default (hereinafter defined) has occurred, this Agreement
automatically may be renewed for not more than five (5) consecutive periods of
one (1) year each (each such period, a "Renewal Term") without further action by
either party and on the same terms and conditions as set forth herein. If the
Notifying Party notifies the other party before the 60 day period that it does
not wish that this Agreement be renewed, this Agreement automatically will
expire on the Initial Termination Date or on the next succeeding Termination
Date. As used herein, "Termination Date" means the anniversary of the Initial
Termination Date in a Renewal Term to which the same relates. As used herein,
"Term" means the period beginning on the date hereof and ending on the Initial
Termination Date or a Renewal Term, as the case may be.
3. ORDER FULFILLMENT
3.1 Company will transmit orders in batches via the Internet to B&T at B&T's
Internet mailbox location by file transfer protocol ("FTP"). The frequency of
batched orders transmitted to B&T will be determined by the parties' mutual
agreement. Each order transmitted by Company to B&T will contain the following
information: (a) the Customer's name and shipping address, (b) the method by
which Products ordered must be shipped to the Customer, (c) whether or not the
order may be fulfilled in multiple shipments of Products to the Company or if
the order may only be fulfilled when B&T has all Products ordered in stock, and
(d) the text of any special messages to the Customer. B&T will furnish Company
with specifications for FTP communications. B&T may change such specifications
from time to time on not less than 30 days' prior written notice to Company.
3.3 After receipt of an order, B&T will (a) fill the order from inventory of
Products in stock at such of B&T's facilities in the United States as B&T from
time to time may designate collectively, "Shipping Facilities"), (b) print the
text of any special message requested by Company on the standard packing slip
included in the order, (c) include any additional packing slips requested by
company in the order, (d) pursuant to Company's instructions, and based upon
availability of Products in stock, ship the order to Customer either as a
multiple shipment or as
2
<PAGE>
one shipment, (e) promptly place any Products ordered by Company which B&T does
not have in stock on a backorder report for review by B&T's account manager for
Company, after which time such Products will be promptly ordered by B&T
(collectively, "Backordered Products") , and (f) ship any Backordered Products,
when received by B&T, pursuant to the terms of the preceding clauses (a) -(d)
and the following two sentences. B&T will ship on the same business day all
orders received by 1:00 P.M. Eastern time from Company on such business day for
Products which B&T then has in stock at a Shipping Facility. Any orders received
by B&T after 1:00 P.M. Eastern time will be shipped on the following business
day. As used in this Section, "business day" means Monday through Friday, but
excluding any Holidays. As used herein, "Holiday" means any recognized holiday
on which the approved carrier or shippers providing services under this
Agreement are closed for business.
3.4 B&T will print all packing slips, will insert all packing slips and will
print and affix shipping labels on orders being shipped to Customers as part of
its fulfillment obligations hereunder and at no expense to Company, other than
the fulfillment fee specified below.
3.5 Company acknowledges that it does not expect B&T to maintain
in stock a complete inventory of all Products that may be ordered
by Customers. B&T will maintain, and will update on a weekly
basis, stock availability for Products. In addition, B&T will
provide stock availability to Company on demand by FTP
transmission.
3.6 Invoices enclosed in shipments by B&T to Customers will be customized in
accordance with Company's specifications. Company's specifications will not
exceed the capabilities of B&T's invoice printers.
3.7 (a) B&T will provide the following reports to Company:
(i) On a daily basis, B&T will transmit to Company a Ship Complete Report
which details, by order, all orders received from Company for the preceding
week, all Products contained in each order from Company, the fulfillment status
of each such order, and the number of days elapsed since the order as made.
(ii) On a daily basis and on a weekly basis, B&T will deliver to Company a
Daily Log and a Weekly Log, respectively,
3
<PAGE>
which details (x) all Product returns (identified, by invoice number) processed
by B&T for the preceding business day or for the preceding week, as the case may
be, and indicating quantity and amount, and (y) by order, all orders filled by
B&T on the preceding business day or the preceding week, as the case may be, and
which includes the following information for each such order: the order number,
the Customer's name and address, an itemization of Products shipped, the price
charged by B&T to Company for each Product, and shipping and handling charges to
Customers and to Company.
(iii) On a daily basis, B&T will deliver to Company a Canceled Order Report
which specifies all orders canceled each day during the previous week and
includes the following information for each cancelled order: the order number,
the Customer's name, the title of each Product, the quantity of all Products,
and the name of the person who cancelled the order on behalf of the Customer.
(iv) On a daily basis, B&T will deliver to Company an Inactive Product
Report which specifies all orders of Products which are on backorder during the
previous week and for which any Product contained in the order has been flagged
as "inactive" in B&T's inventory system. As used herein, "inactive" means all
Products which are out of print or otherwise permanently unavailable for sale.
(v) On a monthly basis, B&T will deliver to Company a statement of account
which itemizes (x) all invoices sent to Company hereunder during the prior
calendar month, (Y) all payments received from Company hereunder during the
prior calendar month which have been applied against invoices and (z) all
invoices unpaid by Company hereunder.
(b) The preceding reports will be delivered by FTP transmission to
Company's Internet address at no additional charge to Company.
3.8 If any Products ordered by a Company are placed on moratorium by the vendor,
B&T will notify Company and will supply the Product only while B&T's supplies
last, after which time B&T will cancel the order. If a shipment from any vendor
to B&T of any Products ordered by Customers is delayed, B&T will notify Company
within one (1) business day after being notified by the vendor of the delay. B&T
will not be liable for delays arising
4
<PAGE>
from the failure of any freight carrier to meet its respective delivery
standards. As used herein, "placed on moratorium" means Products which are
designated by the vendor as being indefinitely unavailable for purchase from
the vendor.
4. RETURNS
4.1 (a) As used in this Agreement:
(i) "Defective Products" means Products which contain manufactured defects
which prevent them from being used for their intended purpose;
(ii) "Damaged Products" means Products which are damaged during shipment to
Customers which prevent them from being used for their intended purpose;
and
(iii) "Unmerchandisable Products" means Products which are shopworn and/or
soiled.
(b) Each shipment of Products to Customers will include Company's return
policy, including instructions that Customers are to make returns of Products to
Company at B&T's return center address. Within three (3) business days of B&T's
receipt of the same, all returned Products will be received into B&T's
inventory, the Products will be logged as having been received, Company will be
issued a credit by B&T for the price paid by Company to B&T for the returned
Products and B&T will provide Company with information in reasonably sufficient
detail to allow Company to properly credit Customers for such returns. Company
will reimburse B&T for any freight costs incurred for Products returns within 30
days after receipt of B&T's invoice therefor, except for returns of Defective
Products, Unmerchandisable Products and/or Products shipped erroneously to
Customers, in which case B&T promptly will issue a credit to Company equal to
the U.S. Postal Service charge for shipment from Customers to B&T of such
Products, and B&T will be responsible for any freight costs to ship replacement
Products. On not less than 30 days' prior notice to B&T, Company may elect to
process all returns of Products from Customers after the date specified in such
notice.
(c) B&T will not be obligated to accept all returns of Products submitted
more than 60 days after shipment of such Products to a Customer in the United
States (or if such Products
5
<PAGE>
have been shipped outside the United States, more than 90 days after such
shipment) including returns of Defective Products, Damaged Products,
Unmerchandisable Products and/or erroneously shipped Products.
4.2 If returns of Products (other than returns of Defective Products,
Unmerchandisable Products or Products erroneously shipped by B&T) during any
calendar quarter exceed two percent (2%) of the total price charged by B&T to
Company of all Products shipped during the prior calendar quarter, Company will
pay B&T a return fee equal to seven and one-half percent (7.5%) of the price
charged by B&T to Company for such Products. Payment of any return fees will be
made within 30 days after Company's receipt of B&T'S invoice therefor. Credit
memos for returns will be processed by B&T and delivered to Company within 15
days after B&T's receipt of the returned product. Credits issued to Company
under any such credit memos will be applied immediately to payables incurred
by Company.
4.3 All Product returned to B&T (except for returns of Defective Products and/or
Unmerchandisable Products) during any calendar quarter must be with the original
packaging intact (including manufacturer's shrink wrap for video and audio
Products). Returns of any Products which are not in compliance with the
preceding sentence will be subject to a repackaging fee of $.40 per unit.
Payment of any repackaging fees will be made within 30 days after Company's
receipt of B&T's invoice therefor.
4.4 (a) B&T will use commercially reasonable efforts to not ship
Unmerchandisable Products to Customers. If Unmerchandisable Products are shipped
by B&T to Customers, B&T's sole liability hereunder will be to accept returns of
the same within the time period specified above and, subject to availability,
promptly replace the same for Customers at no additional cost to them or to
Company. If replacement Products are not available, B&T promptly will issue a
credit to Company in the amount theretofore invoiced to Company for the same.
(b) B&T will package for shipment to Customers in a manner which is
commercially reasonable to prevent damage during shipment. If Products are
damaged during shipment to Customers, B&T will accept a return of the same made
within the time period specified above and, subject to availability, replace the
same for Customers at no additional cost to Customers within a reasonable period
of time. If replacement Products are not
6
<PAGE>
available, B&T promptly will issue a credit to Company in the amount theretofore
invoiced to Company for the same. Company will reimburse B&T for the freight
charges incurred by B&T for the return of such Products to B&T and for shipment
of replacement Products to Customers. Such reimbursement will be made within 30
days after Customer's receipt of B&T's invoice therefor. Company also will pay
B&T a fulfillment charge for supplying replacement Products in accordance with
the terms of Section 6.3(a) below. Company will not be responsible for
reimbursing B&T for the cost of replacement Products. B&T promptly will file a
claim with the carrier that shipped the Damaged Products (if permitted by such
carrier's terms), and will use commercially reasonable efforts to prosecute any
such claim. If any portion recovered by B&T from a carrier with respect to a
claim filed by B&T is specifically identified as reimbursement for freight
charges, B&T will issue a credit to Company in such amount within 30 days after
B&T's receipt thereof.
5. PRICING AND PAYMENT TERMS
5.1 (a) Company will pay B&T for all Products ordered by Customers, and Company
will pay all fees and reimbursables payable to B&T herein, within 30 days after
Customer's receipt of B&T's invoice therefor (subject to financial review). All
payments made to B&T will be in good funds and delivered by check or wire
transfer to the order of B&T pursuant to B&T's instructions. Company may not
reduce and set off amounts payable hereunder against any indebtedness or any
other claim that Company may have against B&T, however or whenever arising,
except as expressly provided herein.
(b) The purchase price payable by Company for Products ordered by Customers
during the Term will be the following:
(i) for VHS video products (other than for Disney Classics having a list
price of $26.9X) purchased for sale (i.e., for which the suggested retail
price for a single unit is under $30, or which is designated with "E" for
the product group in B&T's ordering system) the list price at the time an
order is placed, less a discount of 37%;
(ii) for VHS video products which are designated with "R" for the product
group in B&T's ordering system, the list price at the time an order is
placed, less a discount of 33%;
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(iii) for DVD video products, the list price at the time an order is
placed, less a discount of 31%
(iv) for Laser Disc video products, the list price at the time an order is
placed, less a discount of 33%, except those items designated as non-
discountable;
(v) for music audio compact discs and music audio cassettes, the published
list price at the time an order is placed, less a discount of 30% and 34%
respectfully;
5.2 As used in this Agreement, "list price," means, respectively, the
publisher's, studio's or audio label's published list price with respect to a
Product, unless the same does not exist, in which case "list price" means B&T's
published list price for such Product.
5.3 (a) Company will pay B&T an order fulfillment fee for each order placed by
a Company equal to $1.25 for the first unit in each order and $0.75 for each
additional unit in each order, regardless of the number of shipments made for
each order or the number of locations from which the shipments are made.
(b) Company will pay B&T a transmission fee of $0.18 per order for all
orders of Products made by Company to B&T by means of electronic data
interchange transmission through a value added network. No fee will be payable
if Company transmits orders to B&T by FTP.
(c) Company will reimburse B&T for all mail orders from Customers to B&T
at the rate of $1.00 for the first unit in each order and $0.30 for
each additional unit in each order.
5.4 Company and B&T have entered into a separate license agreement by which B&T
is licensing its' database of Products to Company (the "License
Agreement".) If, during the Term, B&T fulfills orders from the Company, on
a net basis, for more than $25,000 in the aggregate, B&T will rebate to
Company the license fee paid by Company to B&T under the License Agreement.
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5.5 Except as provided in Section 5 concerning returns of Defective Products,
Unmerchandisable Products and or erroneously shipped Products, Company will
pay all freight costs for all Product shipments to, and Product returns
from, Customers. Freight costs will be at the carriers' published rates.
Company acknowledges that such freight charges are subject to change.
5.6 The cost of any custom reporting functions or custom packaging requested by
Company and supplied by B&T hereunder will be determined by the agreement of the
parties from time to time.
5.7 A volume rebate will be available to Customer to be paid on a quarterly
basis based on monthly net purchases from company. Purchases of items with
special discounted prices from Company shall be excluded from the net purchase
base for the rebate calculation.
MONTHLY NET PURCHASES REBATE
- -----------------------------------------
$500,000 to $750,000 0.25%
- -----------------------------------------
$750,001 to $1,000,000 0.50%
- -----------------------------------------
$1,000,001 to $1,500,000 1.00%
- -----------------------------------------
$1,500,001 plus 1.50%
- -----------------------------------------
6. WARRANTY OF TITLE
6.1 B&T warrants that it has good title to the Products delivered to Customers
pursuant to this Agreement. EXCEPT FOR THE FOREGOING WARRANTY, THERE ARE NO
OTHER EXPRESS WARRANTIES, AND THERE ARE NO IMPLIED WARRANTIES. EXPRESSLY
EXCLUDED ARE ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY B&T OR ITS AGENTS OR
EMPLOYEES WILL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THE
FOREGOING WARRANTY.
6.2 NEITHER B&T NOR COMPANY WILL NOT BE LIABLE FOR ANY DIRECT, INDIRECT,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, AND THE LIKE) ARISING OUT OF ANY CUSTOMER'S USE
OF, OR INABILITY TO USE, ANY PRODUCTS, EVEN IF EITHER PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. The only liability B&T will have with respect
to any Defective Products, damaged Products,
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Unmerchandisable Products and/or Products erroneously shipped will be the return
rights of Customers described herein.
6.3 The provisions of this Section shall survive the termination or expiration
of this Agreement.
7. TERMINATION
7.1 Either party may terminate this Agreement forthwith upon the occurrence of
an Event of Default by the other party. As used herein, an "Event of Default"
means the defaulting party's failure to cure, after receipt of not less than 30
days' prior written notice from the non-defaulting party, of any of the
following: (i) failure of the defaulting party to observe or perform any
condition or obligation imposed on the defaulting party under this Agreement
(including payment obligations), (ii) breach of any warranty made by the
defaulting party under this Agreement, and/or (iii) filing of a voluntary
petition in bankruptcy or having a involuntary petition filed against the
defaulting party, the appointment of a receiver or trustee for the defaulting
party, or the execution of an assignment for the benefit of creditors of the
defaulting party. The option to terminate this Agreement shall be in addition
to, and not in lieu of, any other remedy available to the terminating party
under this Agreement or at law or equity, all such remedies being cumulative.
7.2 Termination of this Agreement upon either party's default, or the
expiration of this Agreement will not affect:
(a) the rights of either party with respect to any breach of this
Agreement, or
(b) the obligations of either party already accrued prior to the effective
date of expiration or termination (including obligations with respect to
returned Products)
(c) those obligations of the parties that, by their terms, survive
termination or expiration of this Agreement.
7.3 In the event of the expiration or a termination of this Agreement, the
parties promptly will reconcile accounts payable and receivable and bring the
balance owed, if any, current and up-to-date to the party concerned.
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8. CONFIDENTIALITY The parties acknowledge that each may be exposed under this
Agreement to confidential information relating to the other party's business,
including but not limited to, the terms of this Agreement, quantities of
Products, dollar volumes, revenues of Products, wholesale prices and similar
information. The parties agree that, during the Term and for a period of three
(3) years after the termination or expiration of this Agreement, neither party
will disclose to any third party (except to the party's employees, agents,
contractors, director and similar entities solely required to fulfill the terms
of this Agreement) any such confidential information without the prior written
consent of the other party, only if such third parties agree to be bound by the
confidentiality provisions hereof. The confidential information which each party
may receive from the other party for the above period will be treated with the
same degree of care used to protect its own confidential business information.
The confidentiality obligations between the parties will not apply to any
information (a) which is in the public domain or which becomes part of the
public domain through no fault of the party receiving the confidential
information (the "receiving party"); (b) which is known by the receiving party
prior to the disclosure thereof by the disclosing party (as established by
documentary evidence); (c) which is lawfully received by the receiving party
from a third party who provided such information without breach of any separate
confidentiality obligation owed to the disclosing party; (d) which is disclosed
by the disclosing party to any third party without restriction on further
disclosure; or (e) which is independently developed by personnel having no
access to the disclosing party's confirmation information (as established by
documentary evidence). Confidential information also may be disclosed to third
parties as may be required by law in the reasonable judgment of the receiving
party's attorneys. In the event of disclosure under the preceding sentence the
receiving party promptly will notify the disclosing party of the same so that
the disclosing party may seek a protective order or other appropriate remedy,
and the receiving party will not oppose action by the disclosing party to obtain
such an order or remedy.
9. MISCELLANEOUS.
9.1 The risk of loss for Products shall pass from B&T when the Products are
delivered to the carrier for shipment to Customers.
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9.2 Sales Tax. Customer shall be responsible for collecting all applicable
sales taxes from Consumers and remitting such sales taxes to the appropriate
taxing authorities. Customer shall indemnify and hold harmless B&T for any sales
tax due to a government entity on products shipped to the Consumer on behalf of
the Customer.
9.3 Neither party will be liable for any failure to perform, or delay in the
performance of, any of its obligations hereunder (nor will the same constitute
in an Event of Default) if and to the extent the failure or delay is caused,
directly or indirectly, by events beyond its control, such as acts of God, acts
of the public enemy, acts of any governmental body in its sovereign or
contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes
or other labor disputes (except strikes or labor disputes that are not industry
wide but are brought against Company or B&T solely), freight embargoes, and/or
unusually severe weather. Lack of funds by either party will not excuse its
timely performance of its obligations hereunder. In the event of an occurrence
described in the first sentence, the non-performing party affected will be
excused from further performance or observance of the obligation(s) so affected
for as long as such circumstances prevail and if the party continues to use its
best efforts to recommence performance observance whenever and to whatever
extent possible without delay.
9.4 This Agreement shall be construed in accordance with the laws of the State
of Illinois, without giving effect to the conflict of laws provisions thereof.
9.5 The parties agree to bring any dispute, controversy or claim arising out of
this Agreement or the matters provided for in this Agreement and which has not
been resolved by the parties through an informal process within 45 days after
either party notifies the other that a matter is in dispute, for arbitration and
settlement in Chicago, Illinois in accordance with the Rules of the American
Arbitration Association (the "Rules"). Each party will bear its own legal
expenses, attorneys' fees and disbursements and costs of all experts and
witnesses called by it. However, if the claim of either party is upheld by the
arbitrators in all material respects, then the prevailing party promptly will be
reimbursed by the other party for its reasonable attorneys' fees and
disbursements and the reasonable costs of its experts and witnesses, and the
non-prevailing party also will pay all fees, costs and expenses of the
arbitration. Any award
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rendered will be final and conclusive upon the parties. Any judgment thereon may
be enforced in any court having jurisdiction. Both parties will continue to
perform their respective obligations under this Agreement during any arbitration
proceedings. Notwithstanding the Rules, the arbitrators' determination will only
be in favor of one party's position.
9.6 No representation, promise, inducement or agreement relating to the
transactions contemplated by this Agreement has been made by either party that
is not set forth in this Agreement, and neither party shall be bound by or
liable for any representation, promise, inducement or agreement not so
set forth.
9.7 All notices, demands, consents, approvals and requests given by either
party hereunder shall be in writing and shall be sent, by a nationally
recognized overnight courier with receipt acknowledged and provision for payment
made, or by registered or certified mail (return receipt requested), return
postage prepaid, to the parties at the following addresses:
If to B&T: Baker & Taylor, Inc.
c/o Baker & Taylor Entertainment
8140 North Lehigh Avenue
Morton Grove, IL 60053
Attn: Sherri L. Sawyer
Telecopy No.: 847-470-7860
If to Company: YouNetwork
220 E. 23rd St.
Suite 607
New York, NY 10010
Attn.: Mr. Kyle Taylor
All notices given by courier will be deemed delivered when received at the
notice address and all notices given by registered or certified mail will be
deemed delivered five (5) days after deposit with the U.S. Postal Service,
Either party may change is notice address from time to time by notification in
writing to the other party, however any such notification will not be deemed
given until actually received by the recipient party.
9.8 Either party (the "Auditing Party") may, on reasonable prior notice to the
other party (the "Audited Party"), at the Auditing Party's own expense, during
the Audited Party's regular business
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hours and at the place where the Audited Party regularly keeps them, examine the
books and records of the Audited Party relating to the Audited Party's
performance of its obligations hereunder.
9.9 The waiver or failure of either party to exercise in any respect any right
provided for herein will not be deemed a waiver of any further right hereunder.
9.10 The provisions of this Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and each of their respective successors and
assigns. Neither party may assign its interest in this Agreement without the
prior written consent of the other party, which consent will not be unreasonably
withheld or delayed. Notwithstanding the preceding sentence, either party shall
have the right, upon contemporaneous notice given to the other party, and
provided the assignee assumes all of the assigning party's obligations under
this Agreement accruing after the date of such assignment, to assign this
Agreement to any entity to which the assigning party may transfer all or
substantially all of its assets (or, in the case of B&T, the assets of its
operating unit presently known as Baker & Taylor Entertainment).
9.11 Nothing contained in this Agreement shall be deemed or construed to create
a partnership or joint venture of or between Company and B&T, or to create any
other relationship between the parties other than that of independent
contractors.
9.12 The captions used herein are for convenience of reference only and are
not part of this Agreement, and shall in no way be deemed to define, limit,
describe, or modify the meaning of any provision of this Agreement.
9.13 If any term or provision of this Agreement or applications
thereof to any person or circumstances is, to any extent, held to
be invalid or unenforceable, the remaining terms and provisions
of this Agreement, or the applications of such term or provision
to persons or circumstances other than those as to which it is
held invalid or unenforceable, will not be affected thereby, and
each term and provision of this Agreement will be valid and
enforced to the fullest extent permitted by law.
9.14 If Company fails to make any payment to B&T within 30 days after payment
is due hereunder with respect to an invoice actually delivered to Company, then
Company will pay B&T the
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amount due, together with interest thereon until paid, calculated at the rate of
twelve percent (12%) per annum.
9.15 This Agreement contains and embodies the entire agreement of the parties
here to, and no representations, inducements, or agreements, oral or otherwise
between the parties not contained in this Agreement, if any, will be of any
force or effect. This Agreement may not be modified, changed or terminated in
whole or in part in any manner other than by an agreement in writing duly signed
by both parties.
9.16 This Agreement may be signed in counterparts both of which taken together
shall be deemed one original. Telecopied facsimiles of a signed counterpart of
this Agreement from one party to the other will be deemed to be delivery of a
signed counterpart by the party sending the telecopied facsimile.
IN WITNESS WHEREOF, the parties have signed and delivered this Agreement on the
date first above written.
BAKER & TAYLOR, INC.,
by Baker & Taylor Entertainment
By:/s/
----------------------------------
Name:
--------------------------------
Title: President
-------------------------------
YouNetwork
By:/s/ Kyle S. Taylor
----------------------------------
Name: Kyle S. Taylor
--------------------------------
Title: President
-------------------------------
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Exhibit 10.11
DROP SHIP AGREEMENT
THIS AGREEMENT (this "Agreement") is entered this 15th day of February,
1999 by and between YouNetwork Corporation, a Delaware corporation having an
address at 220 East 23rd Street, Suite 607, NYC, NY 10010 ("Retailer") and BAKER
& TAYLOR, INC. ("B&T"), a Delaware corporation having an address at 1200 Highway
22 East, Bridgewater, New Jersey 08807.
WITNESSETH:
For valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
As used throughout this Agreement the following terms have the following
meanings:
1.1 "EDI" means electronic data interchange, using BISAC or X.12 formats.
1.2 "Effective Date" means February 15, 1999.
1.3 "Initial Expiration Date" means the day preceding the first anniversary
of the Effective Date.
1.4 "Expiration Date" means the day preceding an anniversary of the
Effective Date.
1.5 "Customers" means customers of Retailer within the United States who
order Products (hereinafter defined) from Retailer and to whom Retailer wishes
B&T to ship Products directly from B&T's distribution facilities.
1.6 "Products" means books, spoken word audio products and calendars.
2. SCOPE OF AGREEMENT The services to be provided by B&T herein are also
subject to the terms and conditions set forth in the Methodology and
Requirements Document attached to, and made a part of, this Agreement as
Exhibit A.
3. TERM
3.1 This Agreement will begin on the Effective Date and will expire on the
Initial Expiration Date, unless terminated on an earlier date pursuant to the
express terms of this Agreement or unless extended pursuant to the terms of
Section 3.2.
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3.2 B&T will notify Retailer of any changes in the pricing and payment terms
hereunder by written notice (a "Pricing Notice") given not less than 60 days
prior to the Initial Expiration Date or any subsequent Expiration Date
(hereinafter defined). If Retailer is not satisfied with any changes in the
pricing and payment terms set forth in the Pricing Notice, Retailer's only
option will be to notify B&T that it does not wish that this Agreement be
renewed pursuant to the following sentence. Unless one of the parties (the
"Notifying Party") to this Agreement notifies the other party not less than 45
days prior to the Initial Expiration Date or any subsequent Expiration Date that
the Notifying Party wishes that this Agreement not be renewed, and if this
Agreement otherwise is in full force and effect and no Event of Default
(hereinafter defined) has occurred, this Agreement automatically may be renewed
for not more than five (5) consecutive periods of one (1) year each (each such
period, a "Renewal Term") without further action by either party and on the same
terms and conditions as set forth herein (except for any changes in the pricing
and payment terms as set forth in the Pricing Notice. If the Notifying Party
notifies the other party before the 60 day period that it does not wish that
this Agreement be renewed, this Agreement automatically will expire on the
Initial Expiration Date or on the next succeeding Expiration. As used herein,
"Expiration Date" means the anniversary of the Initial Expiration Date in a
Renewal Term to which the same relates. As used herein, "Term" means the period
beginning on the date hereof and ending on the Initial Expiration Date or on an
Expiration Date, as the case may be.
4. ORDER FULFILLMENT
4.1 Upon receipt of an order for one or more Products from Customers, Retailer
will transmit the order to B&T's EDI mailbox location by means of a mutually
acceptable form of EDI. Each order transmitted by Retailer to B&T will contain
the following information: (a) the Customer's name and shipping address, (b) the
method by which Products ordered must be shipped to the Customer, (c) whether or
not the order may be fulfilled in multiple shipments of Products to the Customer
or if the order may only be fulfilled when B&T has all Products ordered in
stock, (d) the text of any standard retail messages and/or special messages to
the Customer, (e) instructions concerning specific package inserts to be
included in the order, and (f) instructions concerning gift wrapping and gift
cards.
4.2 If Retailer wishes B&T to include package inserts with orders to Customers,
Retailer will deliver to B&T a quantity of package inserts to be included with
orders to Customers in sufficient quantity to supply to Customers as directed by
Retailer to B&T. Within five (5) business days after inquiry from Retailer, B&T
will notify of the quantity of the various package inserts on hand at B&T's
facilities. B&T will use reasonable commercial efforts to assure that an
adequate quantity of package inserts is maintained at each B&T facility from
which Products are being shipped to Customers. Retailer will give B&T not less
than five (5) business days' prior notice to include, or to cease inclusion of,
a particular package insert in shipments of orders to Customers.
4.3 After receipt of an order, B&T will (a) fill the order from inventory of
Products in stock at B&Ts facilities, (b) gift wrap any Products as instructed
by Retailer, (c) print the text of any standard retailer message and/or any
special message requested by Retailer on the packing slip or on
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a separate gift card included in the order, (d) include in the order up to three
(3) package inserts requested by Retailer, (e) pursuant to Retailer's
instructions, and based upon availability of Products in stock, ship the order
to the Customer either as a multiple shipment or as one shipment, (f) pursuant
to Retailer's instructions, promptly place any Products ordered by Retailer
which B&T does not have in stock on a backorder report for review by B&T's
account manager, after which time such Products will be promptly ordered by B&T
(collectively, "Backordered Products") and (g) ship any Backordered Products,
when received by B&T, pursuant to the terms of the preceding clauses (a)-(e) and
the following two sentences. For all Products which B&T then has in stock, B&T
will use commercially reasonable efforts to fulfill on the same day all orders
received from Retailer not later than 12:00 P.M. Central time for orders
received Monday through Friday), If B&T from time to time is unable to meet the
schedule specified in the preceding sentence, B&T promptly will notify Retailer
of the same. Any orders received by B&T after such times will be fulfilled on
the following business day. Notwithstanding the foregoing, if any orders are
received on a day which is not a business day will be fulfilled on the following
business day. As used in this Agreement, "business day" means any day which is
not a recognized holiday on which B&T and the approved carrier or shippers
providing services under this Agreement are open for business.
4.4 B&T will acknowledge receipt of orders to Retailer via EDI at Retailer's
EDI mailbox location. The first acknowledgment will be made promptly after an
order is received and will identify Products as being in stock and/or
backordered and/or as for which the order is being cancelled. The second
acknowledgment will be made at the time an order is ready to be shipped to a
Customer and will contain the shipper's tracking number if provided by the
shipper to B&T. Each such acknowledgment is referred to herein as an "ASN".
4.5 B&T will use commercially reasonable efforts to fulfill orders from
Retailer. Retailer acknowledges that it does not expect B&T to maintain in
stock a complete inventory of all Products that may be ordered by Customers.
4.5 B&T will transmit all invoices to Retailer via EDI to Retailer's mailbox
location.
4.6 B&T will not be liable for delays arising from the failure of any freight
carrier to meet its respective delivery standards.
5. RETURNS
5.1 Each shipment of Products to Customers will include Retailer's return
center address and Customers will be instructed to make returns of Products to
such address. Retailer will forward all such returns to B&T on a weekly basis
and will pay the freight costs for the same. B&T will process all returns of
Products within five (5) business days of its receipt of the same. B&T will not
be obligated to accept any returns made more than 60 days after shipment of the
Product to a Customer. Retailer agrees to comply with the terms of B&T's then
current published returns policy, as long as B&T has provided the same to
Retailer.
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5.2 (a) As used in this Agreement:
(i) "Defective Products" means Products which contain manufactured defects
which prevent them from being used for their intended purpose;
(ii) "Damaged Products" means Products which are damaged during shipment to
Customers which prevent them from being used for their intended purpose;
and
(iii) "Unmerchandisable Products" means Products which are shopworn and/or
soiled.
(b) Retailer promptly will reimburse B&T for any freight costs incurred for
Products returns, except for returns of Defective Products, Unmerchandisable
Products (if shipped in that condition by B&T) and/or Products shipped
erroneously to Customers (collectively, "Free Return Products"). B&T promptly
will issue a credit to Retailer equal to the U.S. Postal Service charge for
shipment from Customers to B&T of Free Return Products and B&T will be
responsible for freight costs to ship replacement Products to Customers for Free
Return Products.
6. PRICING AND PAYMENT TERMS
6.1 (a) Retailer will pay B&T for all Products ordered by Customers, and will
pay all fees and reimbursables payable to B&T herein, within 30 days from the
date of delivery of B&T's detailed invoice therefor. All payments made to B&T
will be in good funds and delivered by check or wire transfer to the order of
B&T pursuant to B&T's instructions. Retailer may not reduce and set off amounts
payable hereunder against any indebtedness or any other claim that may have
against B&T, however or whenever arising.
(b) The price charged by B&T to Retailer for Products purchased from B&T
will be expressed on the basis of a discount from the publishers' list prices
for the same as of the date of shipment of Products to Customers, and as set
forth on Schedule 6.2. Publishers' list prices for Products are displayed on
B&T's title database of Products, which presently is available for license by
B&T to third parties (including Retailer). Retailer acknowledges and agrees that
publishers' list prices for Products may be subject to change without notice.
Retailer acknowledges and agrees that it is Retailer's responsibility to
determine the pricing of Products to Customers and that B&T is not responsible
if Retailer sells Products at prices which result in a lower selling margin than
may be desired by Retailer.
6.2 (a) Each party will be responsible for the payment of its EDI transmissions
to the other party.
(b) Retailer will pay the charges and fees to B&T as more particularly set
forth on Schedule 6.2 attached hereto and made a part hereof.
6.3 Retailer will pay all freight costs for all Product shipments to, and
Product returns from, Customers. Freight costs will be at the carriers'
published rates.
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7. WARRANTIES
7.1 B&T warrants that it has good title to the Products delivered to Customers
pursuant to this Agreement. EXCEPT FOR THE FOREGOING WARRANTY, THERE ARE NO
OTHER EXPRESS WARRANTIES, AND THERE ARE NO IMPLIED WARRANTIES. EXPRESSLY
EXCLUDED ARE ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY B&T OR ITS AGENTS OR
EMPLOYEES WILL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THE
FOREGOING WARRANTY.
7.2 B&T WILL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, OR
INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS
INTERRUPTION, AND THE LIKE) ARISING OUT OF THE DELIVERY OF, USE OF, OR INABILITY
TO USE, ANY PRODUCTS, EVEN IF B&T HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. The only liability B&T will have with respect to any Defective
Products, Unmerchandisable Products and/or Damaged Products will be the return
rights of Customers described herein. Retailer will indemnify and hold harmless
B&T, its officers, employees and agents, for any loss, claim, cost or expense
(including reasonable attorneys' fees and expenses) incurred by reason of any
claim made by a Customer concerning any matter to which the preceding limitation
of liability may apply.
7.3 The provisions of this Section shall survive the termination or expiration
of this Agreement.
8. TERMINATION
8.1 (a) Either party may terminate this Agreement upon the occurrence of an
Event of Default by the other party. An "Event of Default" is hereby defined to
mean the defaulting party's failure to cure, (a) after receipt of 30 days'
written notice from the non-defaulting party, of any of the following: (i)
failure of the defaulting party to observe or perform any condition or
obligation imposed under this Agreement on the defaulting party not relating to
the payment of money, (ii) breach of any warranty made by the defaulting party
under this Agreement, (iii) filing of a voluntary petition in bankruptcy or
having a involuntary petition filed against it, the appointment of a receiver or
trustee, the execution of an assignment for the benefit of creditors; and (b)
after receipt of 10 days' written notice from the non-defaulting party of the
failure of the defaulting party to make any payments when due hereunder. The
option to terminate this Agreement all be in addition to, and not in lieu of,
any other remedy available to the terminating party under this Agreement or at
law or equity, all such remedies being cumulative.
(b) In addition to the preceding remedies, upon the occurrence of an Event
of Default by Retailer hereunder at any time and from time to time, B&T may
require Retailer to reduce its account balance with B&T to a level determined by
B&T in its sole discretion (up to and including an account balance of $0).
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8.2 Termination of this Agreement upon either party's default, or the
expiration of this Agreement will not affect:
(a) the rights of either party with respect to any breach of this
Agreement, or
(b) the obligations of either party already accrued prior to the effective
date of expiration or termination (including obligations with respect to
returned Products).
(c) those obligations of the parties that, by their terms, survive
termination or expiration of this Agreement.
8.3 In the event of the expiration or a termination of this Agreement, Retailer
promptly will reconcile accounts payable and receivable with B&T and bring the
balance owed, if any, current and up-to-date.
9. CONFIDENTIALITY
The parties acknowledge that each may be exposed to confidential
information relating to the other party's business under this Agreement,
including, but not limited to, the terms of this Agreement, quantities of
Products, dollar volumes, revenues of Products, wholesale prices and similar
information. The parties agree that, during the Term, and for a period of three
(3) years after the termination or expiration of this Agreement, neither party
will disclose to any third party any such confidential information without the
prior written consent of the other party, except to employees, agents, auditors,
contractors, directors and similar entities solely required to fulfill the terms
of this Agreement, and as long as such third parties agree to be bound by the
confidentiality provisions hereof. The confidential information which each party
may receive from the other party for the above period will be treated with the
same degree of care used to protect its own confidential information. The
confidentiality obligations between the parties will not apply to any
information (a) which is in the public domain or which becomes part of the
public domain through no fault of the receiving party; (b) which is known to the
receiving party prior to the disclosure thereof by the disclosing party (as
established by documentary evidence); (c) which is lawfully received by the
receiving party from a third party who provided such information without breach
of any separate confidentiality obligation owed to the disclosing party; (d)
which is disclosed by the disclosing party to any third party without
restriction on further disclosure; or (e) which is independently developed by
personnel having no access to the disclosing party's confidential information
(as established by documentary evidence).
10. MISCELLANEOUS.
10.1 The risk of parcel loss or damage shall pass from B&T to Retailer when the
parcels containing Products are tendered to Retailer's carriers for shipment to
Customers. Title to Products shall transfer from B&T to Retailer when the
parcels containing Products are tendered to Retailer's
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carriers for shipment to Customers. Retailer will be liable for any Products for
which shipments are damaged, lost and/or misdirected by Retailer's carrier
and/or refused by Customers.
10.2 B&T will not be liable for any sales and related tax liability, if any,
associated with the sale to Customers of Products. Retailer will indemnify and
hold harmless B&T for any claim for payment of sales tax made upon B&T by any
state or other governmental authority for sales of Products to Customers
hereunder.
10.3 Neither party will be liable for any failure to perform, or delay in the
performance of, any of its obligations hereunder (nor will the same constitute
in an Event of Default) if and to the extent the failure or delay is caused,
directly or indirectly, by events beyond its control, such as acts of God, acts
of the public enemy, acts of any governmental body in its sovereign or
contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes
or other labor disputes (except strikes or labor disputes that are not industry
wide but are brought against Retailer or B&T solely), freight embargoes, and/or
unusually severe weather. Lack of funds by either party will not excuse its
timely performance of its obligations hereunder. In the event of an occurrence
described in the first sentence, the non-performing party affected will be
excused from further performance or observance of the obligation(s) so affected
for as long as such circumstances prevail and if the party continues to use its
best efforts to recommence performance or observance whenever and to whatever
extent possible without delay.
10.4 Continued extension of credit to Retailer by B&T shall be subject to
Retailer paying B&T in a timely manner and to B&T's assessment of Retailer's
financial condition, which assessment shall be made in B&T's sole judgment.
Retailer will deliver to B&T at its address at 501 South Gladiolus St., Momence,
IL., 60954-1799, Attn: Credit Manager, the following financial information:
(a) within seven (7) days of issuance, but not later than 90 days after
the end of each fiscal year of Retailer, Retailer's audited financial
statements (including footnotes and accountant's opinion) as of the
last day of each of Retailers' fiscal year;
(b) within seven (7) days of issuance, but not later than 30 days after
the end of each calendar quarter, Retailer's unaudited financial
statements (including comparative profit and loss and balance sheet
statements) dated as of the last day of each calendar quarter;
(c) not later than the 15th day of the following calendar month, a
statement of Retailer's cash balance as of the last day of each
calendar month; and
(d) other data that B&T may reasonably request to establish and maintain a
credit line for Retailer.
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At any time and from time to time during the Term, B&T may require Retailer to
reduce its account balance with B&T to a level determined by B&T in its sole
discretion (up to and including an account balance of $0), based upon B&T's
determination that Retailer's financial condition warrants the same.
10.5 This Agreement shall be construed in accordance with the laws of the State
of New Jersey, without giving effect to the conflict of laws provisions thereof.
10.6 No representation, promise, inducement or agreement relating to the
transactions contemplated by this Agreement has been made by either party that
is not set forth in this Agreement, and neither party shall be bound by or
liable for any representation, promise, inducement or agreement not so set
forth.
10.7 All notices, demands, consents, approvals and requests given by either
party hereunder and shall be in writing and shall be sent, by a nationally
recognized overnight courier with receipt acknowledged and provision for payment
made, by telecopy, or by registered or certified mail (return receipt
requested), return postage pre-paid, to the parties at the following addresses:
If to B&T: Baker & Taylor, Inc.
2709 Water Ridge Parkway
Suite 500
Charlotte, NC 28217
Attn: Director, Sales Administration
If to Retailer: YouNetwork Corp.
220 East 23rd Street
Suite 607
NYC, NY 10010
Attn.: Kyle Taylor
All notices given by courier or by telecopy will be deemed received at the
notice address and all notices given by registered or certified mail will be
deemed delivered five (5) days after deposit with the U.S. Postal Service.
Either party may change is notice address from time to time by notification in
writing to the other party, however any such notification will not be deemed
given until actually received by the recipient party.
10.8 The waiver or failure of either party to exercise in any respect any right
provided for herein will not be deemed a waiver of any further right hereunder.
10.9 The provisions of this Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and each of their respective successors and
assigns.
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10.10 Nothing contained in this Agreement shall be deemed or construed to create
a partnership or joint venture of or between and B&T, or to create any other
relationship between the parties other than that of independent contractors.
10.11 The captions used herein are for convenience of reference only and are
not part of this Agreement, and shall in no way be deemed to define, limit,
describe, or modify the meaning of any provision of this Agreement.
10.12 If any term or provision of this Agreement or applications thereof to any
person or circumstances is, to any extent, held to be invalid or unenforceable,
the remaining terms and provisions of this Agreement, or the applications of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, will not he affected thereby, and each term
and provision of this Agreement will be valid and enforced to the fullest extent
permitted by law.
10.13 If Retailer fails to make any payment due hereunder to B&T within 30 days
after receipt of B&T's invoice therefore, then Retailer will pay B&T the amount
due, together with interest thereon until paid, calculated at the rate of
eighteen percent (18%) per annum.
10.14 This Agreement contains and embodies the entire agreement of the parties
here to, and no representations, inducements, or agreements, oral or otherwise
between the parties not contained in this Agreement, if any, will be of any
force or effect. This Agreement may not be modified, changed or terminated in
whole or in part in any manner other than by an agreement in writing duly signed
by both parties.
10.15 This Agreement may be signed in counterparts both of which taken together
shall be deemed one original. Telecopied facsimiles of a signed counterpart of
this Agreement from one party to the other will be deemed to be delivery of a
signed counterpart by the party sending the telecopied facsimile.
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IN WITNESS WHEREOF, the parties have signed and delivered this Agreement on
the date first above written.
BAKER & TAYLOR, INC.,
by Baker & Taylor Books
By:/s/ Frank W. Daly
--------------------------------------
Name: Frank W. Daly
------------------------------------
Title:Vice President Business Development
-----------------------------------
[RETAILER]
By:/s/ Kyle S. Taylor
---------------------------------------
Name: Kyle S. Taylor
------------------------------------
Title: President
-----------------------------------
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SCHEDULE 6.2
DROP SHIP SERVICE PRICING
* MINIMUM ORDER: None
* PRICE PLAN: 0001
* PRICES AND CHARGES (prices expressed as discounts off publishers
list prices):
Trade Hardcover and Trade Paperback - Flat 40%
(except for those products designated by B&T as short discount products)
Mass Market Paperback - Flat 35%
Spoken Word Audio Products - Flat 45%
(except for those products designated by B&T as short discount products)
Short Discount Products - 25% to 5%
Products for which B&T receives no discount from the publisher or for which
B&T must pre-pay - No discount to Retailer (i.e., Retailer's price is
publishers' list price), plus $4.95 surcharge.
* Handling Charge: $.95 per book/cassette/disk
* Shipment Stuffers: $.05 fee per each insertion
* Freight Charge: Exact cost of freight charge per package
* Gift Wrap & Card Charge: $2.00 per gift item in shipment (provided Retailer
specifies B&T's standard gift wrap and card)
Set up Fee $5.00 Refundable once $10,000 in net sales is
reached.
Charges include all costs of packaging materials, invoicing, labeling and
packing list preparations.
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INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated January 20, 1999 except for Note 11 first
paragraph as to which the date is February 3, 1999, second paragraph as to which
the date is February 8, 1999 and the third and fourth paragraphs as to which the
date is April 19, 1999, in the Registration Statement and related Prospectus of
YouNetwork Corporation.
Our report dated January 20, 1999, except for Note 11 first paragraph
as to which the date is February 3, 1999, second paragraph as to which the date
is February 8, 1999 and the third and fourth paragraphs as to which the date is
April 19, 1999, contains an explanatory paragraph that states that the Company
has incurred losses since inception and expects to incur losses for the
foreseeable future which raise substantial doubt about the entity's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of that uncertainty.
/s/ Mahoney Cohen & Company, CPA, P.C.
New York, New York
July 13, 1999
