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As filed with the Securities and Exchange Commission on February 5, 1999
Registration No. _________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
YOUNETWORK CORPORATION
(Name of Small Business Issuer in its charter)
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<S> <C> <C>
Delaware 13-399035
(State of Jurisdiction ) (Primary Standard Industrial Classification Code Number) (I.R.S. Employee Identification No.)
</TABLE>
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 & Balzano, P.C.
Gary W. Mair, Esq.
381 Park Avenue South, Suite 1601
New York, New York 10016
(212) 779-8600
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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. [ ]
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
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======================================= ====================== ===================== ======================== =====================
Proposed Maximum Proposed Maximum
Offering Price Per Aggregate Offering
Title of Each Class of Securities to Amount to be Shares(1) Price (1) Amount of
be Registered Registered Registration Fee
<S> <C> <C> <C> <C> <C>
======================================= ====================== ===================== ======================== =====================
Class A Common Stock, .0001 par value 1,000,000 $0.00 $0.00 $0.00
per share
======================================= ====================== ===================== ======================== =====================
Class B Common Stock, .0001 par value
per share 1,000,000 $1.00 $1,000,000 $200.00
======================================= ====================== ===================== ======================== =====================
Total 2,000,000 $1,000,000 $200.00
======================================= ====================== ===================== ======================== =====================
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to 457(o).
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YOUNETWORK CORPORATION
Cross-Reference Sheet
pursuant to Item 501(b)
Showing Location in Prospectus of Information
Required by Items of Form SB-2
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Registration Statement Item Caption in Prospectus
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1. Front of Registration Statement and Facing Page; Cross-Reference Sheet;
Outside Front Cover of Prospectus Prospectus Cover Page
2. Inside Front and Outside Back Cover Prospectus Cover Page; Prospectus
Pages of Prospectus Back Cover Page
3. Summary Information and Risk Factors Prospectus Summary; YouNetwork
Corporation; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Shares Eligible For Future
Sale
6. Dilution Dilution and Other Comparative
Data
7. Selling Security holders Not Applicable
8. Legal Proceedings Not Applicable
9. Plan of Distribution Not Applicable
10. Directors, Executive Officers, Promoters Management; Principal Stockholders
and Control Persons
11. Security Ownership of Certain Beneficial Principal Stockholders
Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Description of Securities
Indemnification for Securities Act
Liabilities
15. Organization Within One Year Prospectus Summary; Risk Factors;
Business;Certain Transactions
16. Description of Business Business
17. Management's Discussion and Analysis Management's Discussion and
Analysis
18. Description of Property Business
19. Certain Relations and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Outside Front Cover Of Prospectus;
Stockholder Matters Description of Securities; Risk Factors
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements With Not applicable
Accountants on Accounting and Financial
Disclosure
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SUBJECT TO COMPLETION, DATED FEBRUARY 5, 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 ("YouNetwork, our, we or
us") is hereby offering 1,000,000 shares of Class A Common Stock, par value
$.0001 per share ("Class A Shares") and 1,000,000 shares of Class B Common
Stock, par value $.0001 ("Class B Shares")(collectively, the "Securities"). The
Securities are being distributed by YouNetwork Corporation (the "Offering") to
its new members ("Members") of its on-line consumer network ("Consumer
Network"). Class A Shares will be offered at no cost to each consumer who
registers to become a Consumer Network Member. Class B Shares will be offered
to Members at $1.00 per share, which may only be paid with rebates a Member may
earn by making purchases on our Consumer Network. A holder of our Class A
Shares 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 the Offering (the "Lock-Up Period"). Prior to this Offering,
there has been no public market for the Securities, and there can be no
assurance that such a market will develop or be sustained. See "Risk Factors
- -No Prior Public Market for Securities."
A brief description of our Securities can be found under "SUMMARY" in
this prospectus.
WE URGE YOU TO READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 7,
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 securities, or
passed upon the adequacy or accuracy of this prospectus. Any representation to
the contrary is a criminal offense.
Per Class A Per Class B
Share Total Share Total
----- ----- ----- -----
Initial public Offering price... $0 $0 $1.00 $1.00
Proceeds before expenses to
YouNetwork.................... $0 $0 $1,000,000 $1,000,000
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 THESE SECURITIES AND IT IS NOT A SOLICITATION OF AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE DATE OF THIS PROSPECTUS IS ________ __, 1999
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We have not employed any brokers, dealers or underwriters in
connection with the distribution of the Securities included in this
Registration Statement and no underwriters commission, fees or discounts will
be paid in connection with this Offering.
We are not currently a reporting company under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") and therefore we have not
filed any reports with the Securities and Exchange Commission ("Commission").
Upon completion of this offering, we intend to register under the Exchange Act
and 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.
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SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with the more detailed information including "Risk Factors"
and financial statements and the notes relating thereto, appearing elsewhere in
this Prospectus. 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 YouNetwork Corp., a New York corporation for
330,000 shares of Class C Common Stock of the Registrant, YouNetwork. The
discussion in this Prospectus contains certain forward-looking statements. The
outcome of events described in such forward-looking statements is subject to
risks and uncertainties. YouNetwork's actual results may differ materially form
those discussed in such forward-looking statements. Factors that may cause or
contribute to such differences include those discussed in "Risk Factors,"
"Management's Discussion And Analysis" and "Business" as well as those
discussed elsewhere in this Prospectus
YOUNETWORK CORPORATION
YouNetwork is a development stage company which is poised to launch a
unique and novel on line Consumer Network. By combining the virtues of
cooperative marketing with incentives designed to reward a Member's purchasing
influence, the 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.
The Consumer Network will offer Members a tiered incentive rebate
program for a broad based variety of branded consumer products and services
offered at competitive and discounted prices. Incentive rebates will be awarded
to Consumer Network Members based on our proprietary tracking technology
("Tracking"). Tracking will monitor each consumer who registers on the
YouNetwork site for their influence on the network as well as the influence of
other Members they may refer. For each Member of the Consumer Network
("Identified Member") Tracking will account for: (i) Purchases by the
Identified Member; (ii) "Lineage" of the Identified Member (i.e. each new
Member ("New Member") referred by an Identified Member (first level referral),
each Member referred by the New Member (second level referral) and further
levels of referral down through the fifth level of referral); and (iii)
Purchases by the Member's Lineage.
Tracking will quantify a Member's influence on the Network by a factor
("Net Value") based upon the Member's Lineage. The Net Value factor will in
turn determine the rebate rate which will be credited to the Member's account
on all purchases made by the Member as well as purchases made by the Member's
Lineage. Members will have the option to receive their accumulated rebates
("Rebate Balance") in cash, to apply their Rebate Balance to future purchases
or for the purchase of Class B Shares. The registration statement, of which
this Prospectus forms a part, includes the Class B Shares.
By offering our Securities to each consumer who registers to become a
Consumer Network Member, 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: (i) to utilize the cost-effective direct
marketing capabilities of the Web to sell products to our customer base;
(ii) to offer equity
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participation to rapidly attract a sizeable membership base; (iii) to develop a
detailed member database; (iv) to continue to grow online reach and membership
utilizing our proprietary Tracking technology; and (v) to provide customer
convenience and competitive prices to encourage purchasing.
All product fulfillment and post sale services will be provided by our
vendor affiliates ("Vendors"). We will not maintain an inventory in any product
line which we market.
We believe that promoting repeat usage and membership loyalty through
equity ownership in YouNetwork will help establish us as a preferred
destination among Web users.
This Prospectus contains product names, trade names and trademarks of
other organizations, which are the property of their respective owners.
YouNetwork was incorporated in the State of New York on January 14, 1998, and
was subsequently merged into YouNetwork, Corporation, a Delaware corporation on
February 3, 1999. The principal executive offices of YouNetwork are located at
220 East 23rd Street, Suite 607 New York, New York 10010, and its telephone
number at this address is (212) 576-2030. YouNetwork maintains a website at
www.YouNetwork.com. Nothing contained on such website should be construed as a
part of this Prospectus.
This Prospectus includes statistical data regarding the Internet
industry. Such data is taken or derived from information published by sources
including Jupiter Research ("Jupiter Research"), Visa International Studies
("Visa), and Ziff-Davis Marketing Intelligence ("Ziff-Davis"). Although
YouNetwork believes that such data are generally indicative of the matters
reflected therein, such data may be imprecise and investors are cautioned not
to place undue reliance on such data.
These Securities are being offered and sold only in ________________.
This is neither a solicitation to buy nor an offer to sell to persons in the
following jurisdictions: Alaska, South Carolina, Florida and West Virginia, and
no purchase of these securities by persons in these jurisdictions is
authorized.
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THE OFFERING
SECURITIES OFFERED............... 1,000,000 shares of Class A Common Stock
and 1,000,000 shares of Class B Common
Stock. The Class A Common Stock will be
distributed to New Members of our Consumer
Network at no cost. The Class B Shares are
offered to our Members at a price of $1.00
per share, which may only be paid with
rebates accumulated by Members in
connection with purchases made on our
Consumer Network. See "Description of
Securities."
SHARES OF COMMON STOCK
OUTSTANDING BEFORE OFFERING..... 33,000,000
SHARES OF COMMON STOCK
OUTSTANDING AFTER OFFERING..... 35,000,000
LOCK UP PERIOD .................. A holder of our Class A Shares shall not,
directly or indirectly,. offer, sell,
pledge, grant any option to purchase, or
otherwise sell or dispose of any Securities
for a period of 12 months after the
Offering
USE OF PROCEEDS.................. The net proceeds to YouNetwork, aggregating
approximately $872,800 from the sale of
Class B Shares will be used to expand our
Network capacity and for general working
capital.
RISK FACTORS..................... The Securities offered hereby are highly
speculative and involve a high degree of
risk. Prospective investors should
carefully review and consider the factors
set forth under "Risk Factors" as well as
all other information contained herein.
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SUMMARY FINANCIAL INFORMATION
The summary financial information presented below as of December 31,
1998, and for the period from inception (January 14, 1998), to December 31,
1998, was derived from the audited financial statements of YouNetwork
Corporation (formerly known as YouNetwork Corp.) appearing elsewhere herein.
The summary should be read in conjunction with Management's Discussion and
Analysis, the financial statements of YouNetwork and the related notes to the
financial statements, each appearing elsewhere in this prospectus.
FOR THE PERIOD FROM
INCEPTION (JANUARY 14, 1998) TO
DECEMBER 31, 1998(1)
--------------------
OPERATING STATEMENT INFORMATION:
REVENUES ........................................................$ -
EXPENSES ...................................................(160,848)
OPERATING LOSS ............................................ (160,848)
INTEREST EXPENSE..............................................(1,975)
NET LOSS DURING THE DEVELOPMENT STAGE......................$(162,823)
NET LOSS PER COMMON SHARE, BASIC AND DILUTED.................. $(.01)(2)
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
BASIC AND DILUTED..................................... 24,798,750 (2)
BALANCE SHEET INFORMATION: DECEMBER 31, 1998
-----------------
CASH........................................................$178,068
WORKING CAPITAL DEFICIT......................................(57,363)
TOTAL ASSETS.................................................299,034
CAPITAL LEASE OBLIGATIONS, EXCLUDING CURRENT PORTION......... 25,554
STOCKHOLDERS' EQUITY..........................................37,377
(1) On February 3, 1999, YouNetwork Corp., a New York corporation merged
into the registrant, YouNetwork. All shareholders of YouNetwork Corp.
exchanged their shares of Common Stock in YouNetwork Corp. for shares
of Class C Common Stock of the registrant, YouNetwork at $.0001 par
value per share on a basis of 330,000 shares of YouNetwork for each
outstanding share of YouNetwork Corp.
(2) These amounts have been retroactively adjusted to reflect the merger
on February 3, 1999.
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RISK FACTORS
The Securities offered hereby are highly speculative in nature and
involve a high degree of risk. Therefore each prospective investor should
consider very carefully certain risks and speculative factors inherent in and
affecting the business of YouNetwork prior to the purchase of any of the
Securities offered hereby, as well as all of the other matters set forth
elsewhere in this Prospectus.
LACK OF OPERATING HISTORY; ANTICIPATED FUTURE LOSSES.
YouNetwork was incorporated on January 14, 1998, under the name
YouNetwork Corp., a New York corporation. Pursuant to a Merger effective
February 3, 1999, YouNetwork Corp. merged into the registrant, YouNetwork
Corporation, a Delaware corporation. YouNetwork has not yet generated any
revenue. To date, we have devoted our efforts to various organizational
activities, including our effort to build out our web site and to develop our
proprietary Tracking technology. As a result, we have no operating history upon
which you can evaluate YouNetwork. 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. Set forth below is a brief
summary of risks, expenses and problems frequently encountered by companies
such as YouNetwork:
(i) Our inability to develop, maintain and/or increase levels
of traffic on the YouNetwork site; the failure by us to develop the
YouNetwork brand; our inability to attract or retain Members; our
inability to generate significant Web-based commerce revenue from our
Members; our failure to anticipate and adapt to a developing market;
and the level of use of the Internet and online services for the
purchase of consumer products.
(ii) YouNetwork's ability to upgrade and develop a system and
infrastructure and our ability to attract new personnel in a timely
and effective
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manner; the inability to effectively manage rapidly expanding
operations; the level of traffic on our Web site; the failure of our
server and networking systems to efficiently handle our Web traffic;
technical difficulties and system downtime or Internet brownouts; and
the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure.
(iii) The level of merchandise returns experienced by
YouNetwork; its competition and dependence on the Internet; and the
introduction and development of different or more extensive
electronic-commerce networks by direct and indirect competitors,
particularly in light of the fact that most of such competitors are
much larger and have greater financial, technical and marketing
resources than YouNetwork.
(iv) Governmental regulation and general economic conditions
and economic conditions specific to the Internet and the online
commerce industry.
To address these risks, YouNetwork must, among other things, develop,
maintain and increase its membership base, continue to develop and upgrade its
technology, respond to competitive developments, and attract, retain and
motivate qualified personnel. There can be no assurance 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.
As of December 31, 1998, YouNetwork had an accumulated deficit of
$162,823 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 generate additional revenue if
profitability is to be achieved. Although we intend to develop and expand 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 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, YouNetwork's 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.
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UNPREDICTABILITY OF FUTURE NET REVENUE.
We have not generated any revenue to date and will not generate any
revenue 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 the YouNetwork site, 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 Web site,
the loss of a key Vendor contract or relationship by us, technical difficulties
with the YouNetwork site, general economic conditions, and economic conditions
specific to the Internet or all or a portion of the technology market.
As a result of our lack of operating history, we have no meaningful
historical financial data upon which to base planned operating expenses.
Therefore, our expense levels are based in part on our expectations as to
future revenue from sales of products and services, and anticipated growth in
membership. Sales and operating results from product sales generally depend on
the volume, timing and ability to fulfill orders received, which are difficult
to forecast. In addition, there can be no assurance that we will be able to
accurately predict our net revenue, particularly in light of the intense
competition for the sale of products and services on the Web, and the
uncertainty as to the broad acceptance of the Web as a commerce medium. We may
be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Any failure by us to accurately make such
predictions would have a material adverse effect on our business, results of
operations and financial condition.
RISKS OF CAPACITY CONSTRAINTS; SYSTEM FAILURES; TECHNOLOGICAL RISKS.
The performance of our server and networking hardware and software
infrastructure is critical to our business and our ability to attract Web users
and New Members to YouNetwork's Web site is unknown. Any system failure that
causes an interruption in service or a decrease in responsiveness of our Web
site could impair our ability to attract and retain Members. Any disruption in
Internet access or any failure of our server and networking systems to handle
Member orders would have a material adverse effect on our business, results of
operations and financial condition. Despite our implementation of network
security measures, our servers will be vulnerable to computer viruses,
break-ins, and similar disruptions from unauthorized tampering. The occurrence
of any of these events could result in interruptions, delays or cessations in
service, which could have a material adverse effect on our business, results of
operations and financial condition. In addition, our reputation and the
YouNetwork brand could be materially and
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adversely affected. See "Management Of Growth And Relationships; Brief Tenure
Of Management; Dependence On Key Personnel."
RISK OF RELIANCE ON INTERNALLY DEVELOPED SYSTEMS.
We will use an internally developed system for our Web site 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 Web
site 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.
DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE; DEPENDENCE ON DIRECT SALES.
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 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, YouNetwork's business, financial condition and results of operations
may be adversely affected.
RELIANCE ON VENDOR AFFILIATIONS.
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 and/or are unable to satisfy on a
timely basis our requirements, our business may be materially adversely
affected.
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In addition, 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. We will not
maintain an inventory in any product line which we market. The failure of
Vendors and distributors to meet their commitments would have a material
adverse effect on YouNetwork's business, results of operations and financial
condition.
SALE TAX COLLECTION.
We do not intend to collect sales or other similar taxes in respect to
shipments of goods into states other than New York State. However, one or more
states may seek to impose sales tax collection obligations on an out-of-state
company such as YouNetwork which engage 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. See
"--Government Regulation And Legal Uncertainties."
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT;
DEPENDENCE ON KEY PERSONNEL.
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 and other third
parties. These requirements will be strained in the event of rapid growth of
YouNetwork 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.
Our performance will be substantially dependent on the performance of
our executive officers, Kyle S. Taylor and Don S. Senerath who have worked
together only a short period of time, and on merchandising and marketing
personnel we intend to hire. The loss of Messrs. Taylor or Senerath would have
a material adverse effect on YouNetwork. We do not currently have "key person"
life insurance policies on any of our employees. 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. 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.
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DEPENDENCE ON WEB INFRASTRUCTURE.
Our success will depend in large part upon the development of a Web
infrastructure, with the necessary speed, data capacity and security, and
timely development of complementary products for providing reliable Web access
and services. Because global commerce and online exchange of information on the
Web and other similar open wide area networks are new and evolving, it is
difficult to predict with any assurance whether the Web will support increasing
use or will prove to be a viable commercial marketplace. The Web has
experienced, and is expected to continue to experience, significant growth in
the number of users and the amount of content. To the extent that the Web
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements of users, there can be no assurance that the
Web infrastructure will continue to be able to support the demands placed on it
by this continued growth or that the performance or reliability of the Web will
not be adversely affected by this continued growth. In addition, the Web could
lose its viability or effectiveness due to delays and the development or
adoption of new standards and protocols to handle increased levels of
activities or due to increased government regulation. There can be no assurance
that the infrastructure necessary to make the Web a viable commercial
marketplace will be developed, or, if developed, that the Web will achieve
broad acceptance. If the necessary infrastructure standards, protocols or
complementary products, services or facilities are not developed, our business,
results of operations and financial condition will be materially and adversely
affected.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT.
We believe that establishing and maintaining the YouNetwork brand will
be critical to attracting and expanding our Member base and Web traffic and
commerce relationships. We also believe that the importance of brand
recognition will increase due to the growing number of Internet sites and the
low barriers to entry. If Members, visitors to the YouNetwork site or
businesses do not perceive YouNetwork 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 Web site to such parties.
SECURITY RISKS.
We may experience attempts by experienced programmers or "hackers" to
penetrate our network security, some of which may succeed. If successful, such
actions could have a material adverse effect on our business, results of
operations and financial condition. A party who is able to penetrate our
network security could misappropriate proprietary information or cause
interruptions in our Web site. We may be required to expend significant capital
and resources to protect against the threat of such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
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Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, particularly as a means of conducting commercial
transactions. Security breaches or the inadvertent transmission of computer
viruses could expose the us to a risk of loss or litigation and possible
liability. There can be no assurance that contractual provisions attempting to
limit our liability in such areas will be successful or enforceable, or that
other parties will accept such contractual provisions as part of our agreements
which could have a material adverse effect on our business, results of
operations and financial condition.
INTENSE COMPETITION.
The market for electronic commerce networks on the Internet is new and
rapidly evolving, and competition for members, consumers visitors and Vendors
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 and member
affinity and loyalty. We could also face competition in the future from Web
directories, search engines, shareware archives, content sites, commercial
online service providers ("OSPs"), sites maintained by Internet service
providers ("ISPs"), 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. There can be no
assurance that our competitors and potential competitors will not develop
electronic commerce networks that are equal or superior to ours or that achieve
greater market acceptance than YouNetwork electronic commerce networks.
Most of our existing and potential competitors have relatively long
operating histories in the Web market, name recognition, large customer bases
and significantly greater financial, technical and marketing resources. Such
competitors are able to undertake more extensive marketing campaigns for their
brands and services, adopt more aggressive advertising pricing policies and
make more attractive offers to potential employees, commerce companies, and
Vendors. Our competitors will be perceived by Vendors as having more desirable
Web sites for placement of their goods or services. In addition, we expect all
of our current Vendors will have established collaborative relationships with
certain of our competitors or potential competitors, and other high-traffic Web
sites. Therefore, there can be no assurance that we will be able to grow our
membership base, traffic levels and Vendor customer base to the extent
necessary to generate sufficient net revenues to successfully operate our
Consumer Network or that competitors will not experience greater growth in
traffic than YouNetwork as a result of such relationships which could have the
effect of making their Web sites more attractive to Vendors, or that Vendors
will not sever or elect not to renew their relationships with YouNetwork. 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.
See "Business--Competition."
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DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISKS OF INFRINGEMENT AND
LIABILITY FOR ONLINE CONTENT.
We regard our technology such as Tracking and Net Value, as
proprietary and 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 have recently submitted an application to register
the servicemark, "YouNetwork" with the United States Patent and Trademark
Office.
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 proprietary rights of YouNetwork. There can be no
assurance that the steps we take have prevented or will prevent
misappropriation or infringement of our proprietary information. Any such
infringement or misappropriation, should it occur, might have a material
adverse effect on our business, results of operations and financial condition.
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 YouNetwork. Such claims and any
resultant litigation, should it occur, might subject YouNetwork to significant
liability for damages and might result in invalidation of YouNetwork's
proprietary rights and even if not meritorious, could be time consuming and
expensive to defend and could 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.
We currently license from third parties certain databases incorporated
into our Web site. As we continue to introduce new services that incorporate
new technologies, we may be required to license additional technology from
others. There can be no assurance that these third-party technology licenses
will continue to be available to YouNetwork 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. Insurance carried by
YouNetwork 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 on YouNetwork. See "Business--Intellectual
Property And Proprietary Rights."
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<PAGE>
YEAR 2000 COMPLIANCE.
Our systems are built upon multiple layers of third party software and
hardware components. A systems failure that originates in one or more of these
layers may affect the performance and accuracy of computations carried out by
our systems as a whole. No assurances have been given to us regarding the Y2K
compliance of some such third party components. We are currently conducting a
survey on such potential vulnerabilities and may or may not uncover a potential
source of a Y2K related problem. As such we do not represent that our systems
are fully and completely Y2K compliant although efforts are being made to
minimize the possibility of such a failure.
Our efforts to identify potential points of Y2K failures have lead us
to several separate initiatives:
1. Where data corruption issues are concerned, we have instituted a full
scale archival process where the data archives are maintained on a 24
hour basis.
2. Windows NT bios y2k compliance is being currently investigated with
respect to several versions that were previously known to be
vulnerable.
3. Compliance and certification is being sought from Database vendors and
third party applications server software vendors. Although no
assurances have been given to us regarding full certification by any
of the vendors, we will be maintaining readiness data and upgrading
where possible and deemed necessary.
4. At present we have estimated the cost of system re-engineering based
on any vulnerabilities to reach a maximum of $2,000,000, excluding any
compensatory damages that may result from potential systems
corruption. The cost estimates were based on hardware purchases and
application of software patches as well as the worst case replacement
of the YouNetwork infrastructure systems within a one month period.
5. Our ongoing investigation is expected to conclude by the second
quarter of 1999.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES.
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. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign 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. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, copyright, trademark, trade
secret, obscenity, libel and personal privacy is uncertain and developing. 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. Government legislation could hamper the
growth in use of the Web generally and decrease the acceptance of the Web as a
communications and commercial medium, and could, thereby, have a material
adverse effect on our business, results of operations and financial condition.
In addition, a number of proposals have been made at the federal, state and
local level that would impose additional taxes on the sale of goods and
services over the Internet and certain states have taken measures to tax
Internet-related activities.
Because materials may be downloaded by Members and other users of the
our Web site and subsequently distributed to others, there is a potential that
claims will be made against YouNetwork for defamation, negligence, copyright or
trademark infringement, personal injury or other theories based on the nature,
content, publication and advertising of such materials. Such claims have been
brought, sometimes
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<PAGE>
successfully, against OSPs in the past. In addition, the
increased attention focused upon liability issues as a result of these lawsuits
and legislative proposals could impact the overall growth of Internet use. We
could also be exposed to liability with respect to the offering of third party
content that may be accessible through our Web site. Such claims might include,
among others, that by directly or indirectly providing hyperlink text links to
Web sites operated by third parties, we are liable for copyright or trademark
infringement or other wrongful actions by such third parties through such Web
sites. It is also possible that if any third-party content information provided
on our Web site contains errors, third parties could make claims against
YouNetwork for losses incurred in reliance on such information. Even to the
extent such claims do not result in liability, we could incur significant costs
in investigating and defending against such claims. The imposition on
YouNetwork of potential liability for information carried on or disseminated
through our systems could require us to implement measures to reduce our
exposure to such liability, which may require the expenditure of substantial
resources and limit the attractiveness of our services to members and users.
Although we carry general liability insurance, it may not cover all potential
claims to which we are exposed or may not be adequate to indemnify us for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
In addition, the increased attention focused upon liability issues as a result
of these lawsuits and legislative proposals could impact the overall growth of
Internet use.
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 such 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 of any consideration
among participants in multi-level sales programs. Although residents of such
states will not be accepted as Members of our Consumer Network, there can be no
assurance that the YouNetwork rebate program will not be subject to challenge
in other states where we intend to do business.
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<PAGE>
NO PRIOR PUBLIC MARKET FOR SECURITIES, POSSIBLE VOLATILITY OF STOCK PRICE.
Prior to the Offering, there has been no public market for the
Securities, and we presently do not intend to apply to have the Securities
listed. The initial public offering price of the Class B Shares has been
arbitrarily determined by YouNetwork and is not necessarily related to our
assets, book value, results of operations, or any other established criteria of
value. There can be no assurance that an active trading market for the Class A
Shares (which are subject to a Lock-Up Period of 12 months) or the Class B
Shares will develop or be sustained, following the closing of the Offering or
that the market price of the Class B Shares will not decline below the initial
public offering price.
In addition, the stock market in general and the technology and
Internet sectors in particular have experienced extreme price and volume
fluctuations which have affected the market price for many companies in
industries similar or related to that of YouNetwork and which have been
unrelated to the operating performance of these companies. These market
fluctuations, as well as general economic, political and market conditions, may
have a material adverse effect on the market price of our Securities. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against such companies. Such litigation, if instituted, and irrespective of the
outcome of such litigation, could result in substantial costs and a diversion
of management's attention and resources and have a material adverse effect on
our business, results of operations and financial condition.
PENNY STOCK REGULATION.
We have not applied to have the Securities listed on any market and do not
presently intend to do so. However, we may in the future apply to have the
Securities listed on the Nasdaq Small Cap market.
If we do not satisfy Nasdaq listing or maintenance requirements then we
may list the shares of Common Stock to be traded in the over-the-counter market
and reported by the National Daily Quotation Service ("Pink Sheets") published
by the National Quotation Bureau, Inc. and the Electronic Bulletin Board
maintained by the NASD. As a result, we will be subject to certain "penny
stock" rules promulgated by the Securities and Exchange. Under such rules,
brokers-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 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 AMEX 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.
SHARES ELIGIBLE FOR FUTURE SALE.
Upon completion of this Offering, YouNetwork will have outstanding
35,000,000 shares of Common Stock Consisting of: (a) 1,000,000 shares of Class
A Common Stock; (b) 1,000,000 shares of Class B Common Stock; and (iii)
33,000,000 shares of Class C Common Stock.
Of the 35,000,000 issued and outstanding shares of our Common Stock,
approximately 33,000,000 shares of Class C Shares of Common stock may be deemed
"restricted shares." The "restricted" shares were issued by YouNetwork in
private transactions in reliance upon one or more exemptions contained in the
Securities Act of 1933, as amended (the "Act"). Restricted securities may, in
the future, be sold in compliance with Rule 144 under the Act.
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 YouNetwork and who has held restricted securities for over
two years is not subject to the aforesaid volume limitations as long as the
other conditions of the Rule are met. Possible or actual sales of our Common
Stock by certain of our present Stockholders under Rule 144 may,
17
<PAGE>
in the future, have a depressive effect on the price of our Common Stock in any
market which may develop for such shares. See "Description of Capital
Stock-Shares Eligible for Future Sale."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL STOCKHOLDERS.
Upon completion of the Offering the directors, executive officers and
principal stockholders of YouNetwork, will in the aggregate, beneficially own
approximately 93% of the outstanding Common Stock. As a result, these
stockholders will possess significant influence over YouNetwork, giving them
the ability, among other things, to elect a majority of our Board of Directors
and approve significant corporate transactions. Such share ownership and
control may also have the effect of delaying or preventing a change in control
of YouNetwork, impeding a merger, consolidation, takeover or other business
combination involving YouNetwork or discourage a potential acquirer from making
a tender offer or otherwise attempting to obtain control of YouNetwork which
could have a material adverse effect on the market price of our Common Stock.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING.
We currently anticipate that to meet our anticipated needs for working
capital and capital expenditures for at least the next 6 months. YouNetwork
will need to raise additional funds in the future in order to fund its
operations while it builds its customer base. If additional funds are raised
through the issuance of equity or convertible debt securities, the percentage
ownership of the Stockholders of YouNetwork will be reduced, Stockholders may
experience additional dilution and such securities may have rights, preferences
or privileges senior to those of the rights of YouNetwork's Common Stock. There
can be no assurance that additional financing will be available on terms
favorable to YouNetwork, or at all. If adequate funds are not available or not
available on acceptable terms, YouNetwork may not be able to fund its future
operations, promote its brand as it desires, 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. We currently
have no revenue and do not expect to have any revenue until we commence
operations, following this offering.
USE OF PROCEEDS.
The net proceeds to YouNetwork from the sale of the Class B Shares is
estimated to be approximately $872,800 at an assumed initial public offering
price of $1.00 per shares. The net proceeds will be used to expand our Network
capacity and for general working capital.
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<PAGE>
DIVIDEND POLICY.
We have never declared or paid any cash dividends on our capital
stock to date and do not anticipate paying any cash dividends on our capital
stock in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth: (1) the actual capitalization of
YouNetwork Corp. as of December 31, 1998 and YouNetwork Corporation as of
February 3, 1999; (2) pro forma capitalization after giving effect to the
merger of YouNetwork Corp. into YouNetwork Corporation on February 3, 1999 and
issuance of 330,000 shares of Class C Common Stock of YouNetwork Corporation
for each share of Common Stock of YouNetwork Corp. then outstanding; and (3) as
adjusted for: (a) the issuance of 1,000,000 shares of Class A Common Stock at
no cost, and (b) the issuance of 1,000,000 shares of Class B Common Stock for
net proceeds of $900,000. This table should be read in conjunction with the
financial statements of YouNetwork Corp. and the related notes thereto and
other financial information included in this Prospectus. See "Use of Proceeds",
"Dividend Policy", and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
YouNetwork YouNetwork
Corp. Corporation
Actual Actual Pro Forma As Adusted
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Long-term liabilities:
Capital lese obligation $ 25,554 $ -- $ 25,554 $ 25,554
Stockholders' Equity:
Common Stock, no par value; 200 shares authorized;
100 shares issued and outstanding actual, no
shares issued and outstanding as adjusted 200,200 -- -- --
Class A Common Stock, $.0001 par value, 1,500,000
shares authorized; 1,000,000 shares issued and
outstanding as adjusted -- -- -- 100
Class B Common Stock, $.0001 par value, 1,500,000
shares authorized; 1,000,000 shares issued and
outstanding as adjusted -- -- -- 100
Class C Common Stock, $.0001 par value, 247,000,000
shares authorized; 33,000,000 shares issued and
outstanding -- -- 3,300 3,300
Additional-paid-in-capital -- -- 196,900 1,069,500
Accumulated Deficit (167,823) -- (167,823) (167,823)
-------- ------ -------- ----------
Total stockholder's equity 32,377 -- 32,377 905,177
-------- ------ -------- ----------
Total capitalization $ 57,931 -- $ 57,931 $ 930,731
-------- ------ -------- ----------
</TABLE>
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<PAGE>
DILUTION
The following table illustrates the per share dilution to investors in
the Class B Common Stock upon the issuance of 1,000,000 shares of Class A
Common Stock at no cost and 1,000,000 shares of Class B Common Stock for net
proceeds of $900,000, included in this registration statement, for which this
prospectus forms a part:
Per Share
---------
Assumed offering price $1.00
Net tangible book value at December 31, 1998 (1) $0.00
Effect attributable to investors in this prospectus 0.03
----
Pro forma net tangible book value after this Offering 0.03
-----
Dilution to new investors in this prospectus $0.97
-----
- -------------------------
(1) Adjusted to reflect the merger of YouNetwork Corp. into
YouNetwork Corporation on February 3, 1999 and the issuance of 330,000
shares of Class C Common Stock of YouNetwork Corporation for each
share of Common Stock of YouNetwork Corp. then outstanding.
The following table summarizes on a pro forma basis as of December 31,
1998, after giving effect to this prospectus, the number of shares of Common
Stock issued by us, the total consideration paid to us and the average
consideration paid to us and the average consideration paid per share by the
existing stockholders and by the new investors in this prospectus.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- ------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1) 33,000,000 94.28% $200,200 16.68% $0.01
Investors in this Offering:
Class A Common Stock 1,000,000 2.86% -- -- --
Class B Common Stock 1,000,000 2.86% $1,000,000 83.32% $1.00
---------- ------- ---------- ------- -----
35,000,000 100.00% $1,200,200 100.00% $0.03
---------- ------- ---------- ------- -----
</TABLE>
- -------------------------
(1) Adjusted to reflect the merger of YouNetwork Corp. into
YouNetwork Corporation on February 3, 1999, and the issuance of
330,000 shares of Class C Common Stock of YouNetwork Corporation for
each share of Common Stock of YouNetwork Corp., then outstanding.
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<PAGE>
RISKS ASSOCIATED CERTAIN WITH FORWARD LOOKING STATEMENTS
Certain statements in this prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). We desire to avail ourself of certain "safe harbor"
provisions of the Reform Act and are therefore including this special note to
enable us to do so. Forward-looking statements in this Prospectus involve known
and unknown risks, uncertainties and other factors which could cause
YouNetwork's actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward looking
statements. Such future results are based upon management's best estimates
based upon current conditions and the most recent results of operations. These
risks include, but are not limited to, risks associated with the intense
competition in the internet, on line commerce industry, as well as other risks
which are detailed below which could adversely affect our business and the
accuracy of the forward-looking statements contained herein.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of the financial condition and
results of operations of YouNetwork 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.
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<PAGE>
OVERVIEW.
YouNetwork is a development stage company which expects to launch an
on line Consumer Network.
The Consumer Network will offer Members a tiered incentive rebate
program for a broad based variety of branded consumer products and services
offered at competitive and discounted prices. Incentive rebates will be awarded
to Consumer Network Members based on our proprietary tracking technology
("Tracking"). Tracking will monitor each consumer who registers on the
YouNetwork site (the "Tracked Member") for their influence on the network as
well as the influence of other Members they may refer. For each Member of the
Consumer Network ("Identified Member") Tracking will account for: (i) Purchases
by the Identified Member; (ii) "Lineage" of the Identified Member (i.e. each
new Member ("New Member") referred by an Identified Member (first level
referral), each Member referred by the New Member (second level referral) and
further levels of referral down through the fifth level of referral); and (iii)
Purchases by the Member's Lineage.
Tracking will quantify a Member's influence on the Network by a factor
("Net Value") based upon the Member's Lineage. The Net Value factor will in
turn determine the rebate rate which will be credited to the Member's account
on all purchases made by the Member as well as purchases made by the Member's
Lineage. Members will have the option to receive their accumulated rebates
("Rebate Balance") in cash, or to apply their Rebate Balance to future
purchases or for the purchase of Class B Shares. The registration statement, of
which this Prospectus forms a part, includes the Class B Shares.
All product fulfillment and post sale services will be provided by our
Vendors. 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
deployment, 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.
By offering our Class A Shares at no cost to each consumer who
registers to become a Consumer Network Member; offering our Class B shares to
each Member for a purchase price of $1.00, which Class B Shares 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: (i) to utilize the cost-effective direct marketing
capabilities of the Web to sell products to our customer base; (ii) to offer
equity participation to rapidly attract a sizeable membership base; (iii) to
develop a detailed member database; (iv) to continue to grow online reach and
membership
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<PAGE>
utilizing our proprietary Tracking technology; and (v) to provide customer
convenience and competitive prices to encourage purchasing.
We believe that promoting repeat usage and membership loyalty through
equity ownership in YouNetwork will help establish us as a preferred
destination among Web users.
We were incorporated in January 14, 1998 (formerly known as YouNetwork
Corp.), and have not yet commenced offering products for sale. Since our
inception we have been primarily engaged in the development of our computer
software programs, negotiating agreements with our Vendors and raising capital,
and initial planning and development of the YouNetwork site and operations.. As
a result, there has not been any operating revenue generated by utilization of
our services and\or products through December 31, 1998.
We have funded our activities to date primarily from equity financing
in the amount of $200,000 and from an advance commissions from Qwest
International Inc. in the approximate amount of $175,000. We will 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.
Our future net revenues will be generated from electronic-commerce,
primarily through the sale of products and services on our Web site 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.
As of December 31, 1998, we had an accumulated deficit of $162,823.
Moreover, 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 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
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<PAGE>
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. See "Risk Factors--Limited
Operating History; No Assurance Of Profitability; Anticipated Losses."
To date, we have entered into Vendor affiliations, license
arrangements and strategic alliances in order to build our electronic commerce
networks.
We have executed an agreement, dated March 6, 1998, with Qwest
International Inc., a successor in interest to LCI International Telecom Corp.
("Qwest") to promote the sale of and solicit orders for certain services
offered in the form of communication long distance service. The term of this
Agreement is for three years, and is renewed automatically on a year to year
basis. In consideration of providing such service on our Web site we receive
certain commissions. 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 a certain agreed upon monthly revenue volume.
In July 1998, we entered into a non-exclusive license with Baker &
Taylor, Inc. ("B&T"), which distributes books, spoken word audio products and
provides certain value added services. B&T gives us the ability to provide
access its proprietary data base to our Members. We can terminate this
agreement for any reason by giving 30 days prior written notice, and it is
automatically renewed for two consecutive periods of one year.
In January 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.
In order to increase reach and membership, we intend to continue to
seek additional strategic relationships with our license arrangements and
Vendor affiliates, including alliances that create co-branded sites through
which YouNetwork markets its 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
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not limited to, product obsolescence, excess inventory, inventory shortages
resulting in unfulfilled orders, which could materially adversely affect
operating results in the future. See "Risk Factors--Reliance On Vendor
Affiliations" and "--Risk Of Reliance On Internally Developed Systems."
HISTORICAL RESULTS OF OPERATIONS.
From inception, operations have been in the early stages of
development. YouNetwork had no revenues for the period ended December 31, 1998.
The Company incurred expenses of $162,823, consisting of compensation expense,
system development costs and other general and administrative expenses.
Compensation expenses has been related to establishing strategic
relationships through license arrangements and vendor affiliations to market
the business. In addition, YouNetwork incurred costs in developing its
proprietary Tracking system as well as other general and administrative
expenses since inception.
As of December 31, 1998, we had a U.S. 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 of our control.
These factors include demand for the products we sell through our Web site,
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 the YouNetwork site, 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 YouNetwork or our competitors, the timing and
number of new hires, the availability of desirable products and services for
sale through our Web site, the accuracy of our predictions regarding optimal
inventory levels for products, the loss of a key Vendor affiliations or
relationship by YouNetwork, 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 Web site
development and publishing tools, technical difficulties with the YouNetwork
site, 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
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condition. In order to accelerate the promotion of the YouNetwork 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 the YouNetwork site potentially being lower during the summer and
year-end vacation and holiday periods when overall usage of the Web 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, and 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 December 31, 1998, 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
YouNetwork 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, and
anticipate that this will continue for the foreseeable future particularly
relating to our Web site and systems infrastructure. We believe that our
current cash will be sufficient to meet our anticipated needs for working
capital and capital expenditures and business expansion for the next 6 months.
Thereafter, if cash generated from operations is insufficient to satisfy our
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. See "Risk Factors--Future
Capital Needs; Uncertainty Of Additional Financing."
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculations.
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YEAR 2000 COMPLIANCE.
Our systems are built upon multiple layers of third party software and
hardware components. A systems failure that originates in one or more of these
layers may affect the performance and accuracy of computations carried out by
our systems as a whole. No assurances have been given to us regarding the Y2K
compliance of some such third party components. We are currently conducting a
survey on such potential vulnerabilities and may or may not uncover a potential
source of a Y2K related problem. As such we do not represent that our systems
are fully and completely Y2K compliant although efforts are being made to
minimize the possibility of such a failure.
Our efforts to identify potential points of Y2K failures have lead us
to several separate initiatives:
1. Where data corruption issues are concerned, we have instituted a full
scale archival process where the data archives are maintained on a 24
hour basis.
2. Windows NT bios y2k compliance is being currently investigated with
respect to several versions that were previously known to be
vulnerable.
3. Compliance and certification is being sought from Database vendors and
third party applications server software vendors. Although no
assurances have been given to us regarding full certification by any
of the vendors, we will be maintaining readiness data and upgrading
where possible and deemed necessary.
4. At present we have estimated the cost of system re0engineering based
on any vulnerabilities to reach a maximum of $2,000,000, excluding any
compensatory damages that may result from potential systems
corruption. The cost estimates were based on hardware purchases and
application of software patches as well as the worst case replacement
of the YouNetwork infrastructure systems within a one month period.
5. Our ongoing investigation is expected to conclude by the second
quarter of 1999.
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.
BUSINESS
This Prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
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OVERVIEW.
YouNetwork is a development stage company which is poised to launch a
unique and novel on line Consumer Network. We were formed in January, 1998, and
have since been engaged in the development of our web site for direct internet
marketing through a consumer network and membership program. By combining the
virtues of cooperative marketing with incentives designed to reward a Member's
purchasing influence, the 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.
The Consumer Network will offer Members a tiered incentive rebate
program for a broad based variety of branded consumer products and services
offered at competitive and discounted prices. Incentive rebates will be awarded
to Consumer Network Members based on our proprietary tracking technology
("Tracking"). Tracking will monitor each consumer who registers on the
YouNetwork site (the "Tracked Member") for their influence on the network as
well as the influence of other Members they may refer. For each Member of the
Consumer Network ("Identified Member") Tracking will account for: (i) Purchases
by the Identified Member; (ii) "Lineage" of the Identified Member (i.e. each
new Member ("New Member") referred by an Identified Member (first level
referral), each Member referred by the New Member (second level referral) and
further levels of referral down through the fifth level of referral); and (iii)
Purchases by the Member's Lineage.
Tracking will quantify a Member's influence on the Network by a factor
("Net Value") based upon the Member's Lineage. The Net Value factor will in
turn determine the rebate rate which will be credited to the Member's account
on all purchases made by the Member as well as purchases made by the Member's
Lineage. Members will have the option to receive their accumulated rebates
("Rebate Balance") in cash, to apply their Rebate Balance to future purchases,
or to purchase Class B Shares. The registration statement, of which this
Prospectus forms a part, includes the Class B Shares.
By offering our Class A Shares at no cost to each consumer who
registers to become a Consumer Network Member, offering our Class B shares to
each Member for a purchase price of $1.00, which Class B Shares 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: (i) to utilize the cost-effective direct marketing
capabilities of the Web to sell products to our customer base; (ii) to offer
equity participation to rapidly attract a sizeable membership base; (iii) to
develop a detailed member database; (iv) to continue to grow online reach and
membership
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utilizing our proprietary Tracking technology; and (v) to provide customer
convenience and competitive prices to encourage purchasing.
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. For example, studies by Jupiter Research report that total
electronic-commerce for the calendar year 1998 will reach 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 PCs installed in homes and offices, the decreasing cost of
PCs, 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.
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 and 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 worldwide without
making significant investments in traditional infrastructure such as retail
outlets, Vendor networks and sales personnel.
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THE DIRECT MARKETING OPPORTUNITY 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 Web sites, 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. Further, 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.
YouNetwork uses the unique characteristics of the Web to
cost-effectively market products and services to our rapidly growing Member
base. By offering our Members a variety of competitively priced branded
products offerings, together with purchase incentives, rebates and equity
participation in YouNetwork, we believe that we have created an innovative
online sales channel with low customer acquisition costs. The key elements of
the YouNetwork 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
YouNetwork, and as we obtain a purchasing history data, the level of
information regarding YouNetwork's Members will continue to grow. We intend to
use this growing database to target offers, increase our range of product
offerings and encourage future transactions and involvement with the YouNetwork
site.
(b) Customer Convenience.
YouNetwork intends to provide an 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 the YouNetwork site 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
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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
Class A Shares to each consumer (at no cost) upon becoming a Member, and Class
B Shares to each Member for a purchase price of $1.00, which Class B Shares may
only be paid with rebates a Member may earn by making purchases on our Consumer
Network.
(d) Net Value
The Consumer Network will offer Members a tiered incentive
rebate program for a broad based variety of branded consumer products and
services offered at competitive and discounted prices. Incentive rebates will
be awarded to Consumer Network Members based on our proprietary tracking
technology ("Tracking"). Tracking will monitor each consumer who registers on
the YouNetwork site (the "Tracked Member") for their influence on the network
as well as the influence of other Members they may refer. For each Member of
the Consumer Network ("Identified Member") Tracking will account for: (i)
Purchases by the Identified Member; (ii) "Lineage" of the Identified Member
(i.e. each new Member ("New Member") referred by an Identified Member (first
level referral), each Member referred by the New Member (second level referral)
and further levels of referral down through the fifth level of referral); and
(iii) Purchases by the Member's Lineage.
Tracking will quantify a Member's influence on the Network by a factor
("Net Value") based upon the Member's Lineage. The Net Value factor will in
turn determine the rebate rate which will be credited to the Member's account
on all purchases made by the Member as well as purchases made by the Member's
Lineage. Members will have the option to receive their accumulated rebates
("Rebate Balance") in cash, to apply their Rebate Balance to future purchases,
or to purchase Class B Shares. The registration statement, of which this
Prospectus forms a part, includes the Class B Shares.
By offering our Class A Shares at no cost to each consumer who
registers to become a Consumer Network Member; Class B Shares to each Member
for a purchase price of $1.00, which Class B Shares 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.
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STRATEGY.
Our objective is to develop a sizeable membership base and to create a
network which will provide consumers with built in incentives to participate in
on line commerce. Key strategies to achieve this objective include:
(a) Focus on Membership Growth.
We plan to increase membership by: (i) providing initial equity
participation through the issuance of Securities in YouNetwork at no cost; (ii)
offering a broad and expanding array of products and services at competitive
reduced prices; and (iii) offering incentive rebates based on member purchases
and purchases by a member's Lineage.
(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 Web sites have an inherent potential
for creating and retaining a loyal membership base, particularly when combined
with product and service offerings such as those provided by YouNetwork. We
intend to promote repeat usage and Member loyalty by expanding our product
offerings and by creating incentives to buy through our Network based upon our
rebate program.
(d) Offer New Products and Services.
Our product offerings will include computer software, computer
accessories and peripherals, consumer electronics, books and music and
entertainment products. Additionally, we intend to enter into strategic
alliances with a host of other vendors to provide additional brand name
products and services to YouNetwork.
(e) Maintain and Improve Technological Focus and Expertise.
We believe that highly advanced functionality and performance of the
YouNetwork site 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.
In addition, we intend to increase the efficiency of our transaction processing
and fulfillment operations and the sophistication of our direct marketing
campaign management software.
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(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.
(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 Network. As our
membership base grows, we will further develop our Member database enabling us
to identify and effectively target consumers having an affinity for certain
products and services.
LICENSE AND VENDOR ARRANGEMENTS.
In July 1998, we entered into a non-exclusive license and marketing
agreement with Baker & Taylor, Inc. ("B&T"), which distributes books, video,
music products and spoken word audio products and provides certain value added
services. B&T gives us the ability to access to provide access to its
proprietary data base for our Members and to market B&T products. We can
terminate this agreement for any reason by giving 30 days prior written notice,
and it is automatically renewed for two consecutive periods of one year.
In January 1999, we also entered into a non-exclusive license for us
to gain access to certain music, video and book databases of Muze, Inc. 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.
On March 6, 1998, we entered into an agreement with Qwest
Communications International, Inc. ("Qwest") to promote the sale of and solicit
orders for certain services offered by Qwest in the form of communication long
distance service. The term of this Agreement is for three years, and is renewed
automatically on a year to year basis. In consideration of providing such
service on our Web site we will receive certain commissions. Each party may
terminate this Agreement at any time during a renewal term upon 30 days prior
written notice. Qwest may also cancel this Agreement if we fail to attain a
certain agreed upon monthly revenue volume.
We view our strategic relationships as a key factor in our overall
business strategy; however, there can be no assurance that our 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 Vendor would be
specifically enforceable by YouNetwork. Our arrangements with our Vendors
generally may be terminated by either party with little notice. Therefore,
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, YouNetwork's
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business, results of operations and financial condition may be materially
adversely affected. In addition, there can be no assurance that YouNetwork will
be successful in establishing additional Vendor relationships. See "Risk
Factors--Reliance On Strategic Relationships."
SALES AND MARKETING.
Our sales and marketing strategy is designed to strengthen awareness
of the YouNetwork 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 the YouNetwork Site.
We expect that the marketing of our services will be primarily by
word-of-mouth and indirect promotions by Members with links to the YouNetwork
site and 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,
aggressive brand promotional campaign to enhance membership growth and draw
additional advertisers and commerce partners. See "Risk Factors--Reliance On
Strategic Relationships."
(b) Product Marketing.
YouNetwork will apply a direct marketing program, modeled after
traditional direct mail campaigns, to generate product sales. As we gathers
additional information about our Members, we intend to further target our
offers and increase our range of product offerings.
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; accordingly, 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 YouNetwork along with UPS shipping
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information for all ground-shipped US orders. YouNetwork will forward shipping
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. See "Risk Factors-Vendor
Affiliations."]
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 re-enforced with multiple support providers. The
system is reinforced with 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 functioning of all systems. We
continue to monitor and upgrade components of our infrastructure with the goal
of providing highly productive user experience to our Members. See "Risk
Factors--Risks Of Capacity Constraints; System Failures; Technological Risks"
and "Risk Of Reliance On Internally Developed Systems."
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. Other established companies which are primarily
focused on creating electronic-commerce networks on the Internet and with whom
we will compete include companies such as 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 OSPs, sites
maintained by ISPs, 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 the our competitors. Further, there can
be no assurance that our competitors and potential competitors will not develop
electronic-commerce networks that are equal or superior to us or that achieve
greater market acceptance.
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
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greater financial, technical and marketing resources than YouNetwork. 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.
See "Risk Factors--Competition."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
We regard our technology as proprietary and attempt to protect it by
relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. 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
also will enter into confidentiality or license agreements with our employees
and consultants, and we will attempt to limit access by Vendor 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 proprietary rights of YouNetwork.
EMPLOYEES.
As of December 31, 1998, YouNetwork had three full-time employees and
no part-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 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 1,000
square feet of office space, which is under a lease that expires April 3, 2003.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of YouNetwork and
their respective ages as of December 31, 1998, are as follows:
NAME AGE POSITION
Kyle S. Taylor.............41 President and Director
Don S. Senerath............29 Chief Executive Officer, and Director
Peter R. Silverman.........52 Director
KYLE S. TAYLOR :
Mr. Taylor has been President of YouNetwork since its 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 operation 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 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.
Mr. Senerath has been Chief Executive Officer of YouNetwork since its
inception in January 1998. Mr. Senerath is also the Chief Executive 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 two years, International Computing has developed large scale
back-end E 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 media scientist 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
digital media with applications in marketing and distribution.
PETER R. SILVERMAN
Peter R. Silverman has been a director of YouNetwork 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 and
Balzano, 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.
38
<PAGE>
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 direction of the Board of
Directors. There are no family relationships among any of the Directors or
Executive Officers of YouNetwork.
DIRECTOR COMPENSATION.
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.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation of YouNetwork's Chief Executive Officer and each of the other most
highly compensated executive officers of YouNetwork whose aggregate salary,
bonus and other compensation exceeded $100,000 during the fiscal year ended
December 31, 1998 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Other Restricted Securities All
Name and Principal Annual Stock Underlying LTIP other
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- -0-
Kyle S. Taylor, 1998 $65,251 -0- -0- -0- -0- -0- -0-
President
</TABLE>
AGREEMENTS.
Pursuant to an agreement between Mr. Taylor and YouNetwork, if Mr.
Taylor's employment with YouNetwork is terminated without substantial cause (as
defined in the Agreement), he 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.
Pursuant to an agreement between Don S. Senerath, the CEO of
YouNetwork, if Mr. Senerath's employment with YouNetwork is terminated without
substantial cause (as defined in the Agreement) he 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.
39
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS.
Our Certificate of Incorporation provides that the liability of the
YouNetwork's directors for monetary damages shall be eliminated to the fullest
extent permissible under the Delaware Business Corporations Act, as amended. 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 YouNetwork, 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 YouNetwork or its stockholders, for any transaction from which the
director derived an improper personal benefit, for improper transactions
between the director and YouNetwork 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 arising under the
Securities Act may be permitted to directors, officers and controlling persons
of YouNetwork 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 a director or
officer of YouNetwork 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.
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 "Investors") and the Company, the Board
of YouNetwork shall consist of three directors one of whom is designated by the
Investors and two of whom are designated by the Management Stockholders. The
ratio of directors designated by the Investors to those designated by the
Management Stockholders shall be maintained in the event the Board is increased
in number. Each party to the stockholders' agreement has agreed to vote all
shares of voting securities owned by them to cause the election to the Board of
Directors of the individuals so designated by them. 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 as: (i) any creation of any class of capital stock; (ii) the sale or
issuance of shares of capital stock, warrants or other securities convertible
into or exchangeable for capital stock; (iii) any declaration or issuance of
any dividend; (iv) any transaction or contract with a value of $10,000 or more;
(v) any amendment to or modification of any provision of the Certificate of
Incorporation or By-laws of the Company; (vi) any change in the Companies
auditors; (vii) any consolidation or merger of the Company; (viii); (ix) any
executive employment contract; (x) payment of salaries to any officer at a rate
of more than $85,000 per annum (xi) election of officers.
The stockholders' agreement also provides for certain bring along
rights and rights of first refusal among the Management Stockholders and
the Investors with respect to any sale of their shares in YouNetwork. The
stockholders' agreement terminates on December 1 2010, or such earlier time as
either (i) the Investors no longer own at least 10% of the Common Stock of
YouNetwork on a fully diluted basis; or (ii) YouNetwork has completed a public
offering of its securities resulting in net proceeds to YouNetwork of at least
$10,000,000.
Pursuant to an agreement among YouNetwork, Dalia Silverman and
Kleopatra Georgiades (the "Investors"), the 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 dilluted 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.
40
<PAGE>
Pursuant to an agreement between Kyle Taylor and YouNetwork, if Mr.
Taylor's employment with YouNetwork is terminated without substantial cause (as
defined in the Agreement), he 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.
Pursuant to an Agreement between Don S. Senerath, the Chief Financial
Officer of YouNetwork, if Mr. Senerath's employment with YouNetwork is
terminated without substantial cause (as defined in the Agreement), he 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.
From inception, YouNetwork has retained the services of International
Computing, LLC (formerly known as Digital Pulp Technologies, LLC) ("IC"), a
corporation partially owned by Don S. Senerath. IC 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. Total
consulting fees to IC for January 14, 1998 (inception period) to December 31,
1998, was approximately $89,400.
YouNetwork entered into an agreement in March 1998, with Qwest
International Inc., a successor in interest to LCI International Telecom Corp.
("Qwest") to promote the sale of and solicit orders for certain services
offered in the form of communication long distance service. The term of this
Agreement is for three years, and is renewed automatically on a year to year
basis. In consideration of providing such service on our Web site YouNetwork
receives certain commissions. Qwest advanced YouNetwork approximately $175,000
as of December 31, 1998. Commissions earned for the referral of customers are
offsetable against these advances. Advances made in excess of commissions
earned are offset against advances are payable by YouNetwork 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
YouNetwork fails to attain a certain agreed upon monthly revenue volume.
In February 1999, YouNetwork agreed that it would issue to Raw
Interactive Ltd. warrants to purchase 100,000 shares of Class C Common Stock in
consideration of certain services to be rendered. The exercise price shall be
the lesser of $2.00 per share of 50% of the offering price for which our Common
Stock is sold in our first underwritten public offering of Class C Common Stock,
provided said offering is consummated before the expiration of the exercise
period, __________, __, 2001. To date, no warrants have been issued, and no
warrants will be used until consummation of certain services to be rendered on
or before __________, __, 1999.
On February 3, 1999, YouNetwork, a New York corporation ("YNY") merged
with and into YouNetwork, a Delaware corporation ("YDW"), the surviving
corporation. Pursuant to the Agreement and Plan of Merger between YNY and YDW,
dated February 3, 1999, all Shareholders of YNY exchanged their Common Stock in
YNY for Common Stock of YDW at $.0001 par value, per share on a basis of
330,000 shares of YDW for each outstanding share of YNY.
We believe that all of the transactions set forth above were made on
terms no less favorable to us than could have been obtained from unaffiliated
third parties.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to YouNetwork
with respect to beneficial ownership of YouNetwork's Common Stock as of
February 3, 1999, and as adjusted to reflect the sale of the shares offered
hereby, by: (i) each person known by YouNetwork to own beneficially more than
5% of the outstanding shares of Common Stock, (ii) each of YouNetwork's
directors, (iii) each of the Named Executive Officers, and (iv) all executive
officers and directors of YouNetwork as a group.
<TABLE>
<CAPTION>
Number Of Shares Percentage Of Shares
Beneficially Owned Stock Beneficially
Name Of Beneficial Owner Prior To Offering(1) Before Offering After Offering
- ------------------------ -------------------- --------------- --------------
<S> <C> <C> <C>
Kyle S. Taylor 12,045,000 36.5 34.4
Don S. Senerath 12,045,000 36.5 34.4
Dalia Silverman 4,095,000(2) 12.4 11.7
Kleopatra Georgiades 4,305,000(3) 13.0 12.3
</TABLE>
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock which is issuable: (a) upon the exercise of a Warrant or
Stock Option which is presently exercisable or which becomes exercisable within
60 days of December 31, 1998, or (b) upon the exercise of a Warrant or Stock
Option which is presently exercisable or which becomes exercisable within 60
days of December 31, 1998, are deemed outstanding. Percentage of beneficial
ownership is based upon 33,000,000 shares of Common Stock outstanding prior to
the Offering and 35,000,000 shares of Common Stock outstanding after the
Offering, as of [_____ __, 1999. To YouNetwork's knowledge, except as set forth
in the footnotes to this table and subject to applicable community property
laws, each person named in the table has sole voting and investment power with
respect to the shares set forth opposite such person's name. Except as
otherwise indicated, the address of each of the persons in this table is as
follows: c/o YouNetwork, Inc., 220 East 23rd Street, Suite 607 New York, NY
10010.
(2) Does not include Warrants owned by Dalia Silverman to purchase for nominal
value an additional number of shares of Common Stock as shall equal when added
to 4,455,000, an aggregate of 13.5% of the issued and outstanding Common Stock
of YouNetwork on a fully dilluted 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.
Dalia Silverman is the wife of Peter R. Silverman, a director of YouNetwork. Mr.
Silverman disclaims beneficial ownership as to the shares of Common Stock owned
by his wife.
(3) Does not include Warrants owned by Kleopatra Georgiades to purchase for
nominal value an additional number of shares of Common Stock as shall equal
when added to 4,455,000, an aggregate of 13.5% of the issued and outstanding
Common Stock of YouNetwork on a fully dilluted 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.
42
<PAGE>
DESCRIPTION OF SECURITIES
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 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 February 5, 1999, there were 33,000,000 shares of Class C
Common Stock outstanding that were held of record by approximately 19
stockholders (assuming conversion of all Warrants outstanding as of February
5, 1999). There were no Class A Shares or Class B Shares outstanding as of
February 5, 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. YouNetwork does not have cumulative voting rights
in the election of directors, and accordingly, holders of a majority of the
shares voting are able to elect all of the directors. In the event of a
liquidation, dissolution or winding up of YouNetwork, holders of Common Stock
are entitled to share ratably in all assets of YouNetwork remaining after
payment of liabilities. Security holders of Common Stock have no preemptive or
other subscription of conversion rights. There are no redemption or sinking
fund provisions applicable to the Common Stock.
LOCK-UP PERIOD.
A holder of our Class A shares shall not, directly or indirectly,
offer, sell, pledge, grant any option to purchase, or otherwise sell or dispose
of any Securities for a period of 12 months after the Offering .
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the
Offering could adversely affect the market price of the Common Stock and could
impair YouNetwork's ability to raise capital through the sale of equity
securities. Upon completion of the Offering, YouNetwork will have outstanding
35,000,000 shares of Common Stock.
The 33,000,000 shares of Class C Common Stock were sold by YouNetwork
in private transactions in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" as that term
is defined under Rule 144 promulgated under the Securities Act of 1933, as
amended. Such shares would be
43
<PAGE>
eligible for sale within one year under Rule 144 (subject to certain volume
restrictions and other conditions imposed thereby) commencing February __, __,
2000.
Prior to the Offering, there has been no public market for the
Securities offered hereby. The purchase price of the Class B Shares has been
arbitrarily determined by YouNetwork and is not necessarily related to our
assets, book value, results of operations, or any other established criteria of
value. There can be no assurance that an active trading market for the
Securities will develop or be sustained following the closing of the Offering.
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Section 145 of the Delaware General Corporation Law, as amended,
authorizes the Company 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 a director or officer of the Company if it is determined that such person
acted in accordance with the applicable standard of conduct set forth in such
statutory provisions. Article 9 of the Company's Certificate of Incorporation
provides for the indemnification of directors and officers to the full extent
permitted by Delaware law.
The Company may also purchase and maintain insurance for the benefit
of any director or officer which may cover claims for which the Company could
not indemnify such person.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore unenforceable.
TRANSFER AGENT AND REGISTRAR.
The transfer agent and registrar for YouNetwork's Securities is
American Stock Transfer Co., its address is 147 W. Merrick Road Freeport, New
York 11520, and its telephone number is (516) 379-8501.
44
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon
for YouNetwork by Silverman, Collura, Chernis & Balzano, P.C. ("SCCB") 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
financial statements contains an explanatory paragraph that states that the
Company has incurred losses since inception and expects to incur losses for
the foreseeable future raises 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 liabilities
that might result from the outcome of that uncertainly.
ADDITIONAL INFORMATION
With respect to the securities offered hereby, YouNetwork has filed with the
principal office of the Securities and Exchange Commission ("Commission") in
Washington, D.C., a Registration Statement on Form SB-2 under the Securities
Act of 1933, as amended ("Securities Act"). For purpose hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. 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. The website is www.sec.gov.
45
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Financial Statements
December 31, 1998
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Index
-----
Page
----
Independent Auditor's Report F-1 - F-2
Balance Sheet as of December 31, 1998 F-3
Statement of Operations for the Period from Inception
(January 14, 1998) to December 31, 1998 F-4
Statement of Changes in Stockholders' Equity for the Period
from Inception (January 14, 1998) to December 31, 1998 F-5
Statement of Cash Flows for the Period from Inception
(January 14, 1998) to December 31, 1998 F-6
Notes to Financial Statements F-7 - F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
YouNetwork Corp.
We have audited the accompanying balance sheet of 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 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.
F-1
<PAGE>
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.
New York, New York
January 20, 1999, except for
Note 11, as to which the
date is February 3, 1999
F-2
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Balance Sheet
December 31, 1998
ASSETS
Current assets:
Cash $ 178,068
Other current assets 672
---------
Total current assets 178,740
Property and equipment, net (Notes 3 and 4) 47,369
Other assets:
Software development costs (Notes 2 and 7) 69,425
Security deposit 3,500
---------
Total other assets 72,925
---------
$ 299,034
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Deferred revenue (Note 5) $ 175,000
Current portion of capital lease obligation (Note 4) 14,000
Due to related party (Note 7) 23,150
Accounts payable 9,224
Other current liabilities 14,729
---------
Total current liabilities 236,103
Capital lease obligation (Note 4) 25,554
Commitment (Note 10)
Stockholders' equity (Note 9):
Common stock, no par value:
Authorized - 200 shares
Issued and outstanding - 100 shares 200,200
Deficit accumulated during the development stage (162,823)
---------
Total stockholders' equity 37,377
---------
$ 299,034
=========
See accompanying notes.
F-3
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Statement of Operations
For the Period from Inception (January 14, 1998) to December 31, 1998
Revenue $ --
Expenses:
Compensation 67,251
Development costs 20,000
General and administrative 66,089
Depreciation and amortization 7,508
Interest expense 1,975
----------
Total expenses 162,823
----------
Net loss during the development stage $ (162,823)
==========
Net loss per common share, basic and diluted $(2,170.97)
==========
Weighted average of common shares outstanding
- basic and diluted 75
=====
See accompanying notes.
F-4
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period from Inception (January 14, 1998) to December 31, 1998
Deficit
Accumulated
Common Stock During the
------------------ Development
Shares Amount Stage Total
------ -------- ----------- -------
Issuance of 73 shares of common
stock on January 22, 1998 for
cash (at $2.74 per share) 73 $ 200 $ -- $ 200
Issuance of 27 shares of common
stock on December 4, 1998 for
cash (at $7,407.41 per share) 27 200,000 -- 200,000
Net loss for the period from
inception (January 14, 1998)
to December 31, 1998 -- -- (162,823) (162,823)
------ -------- --------- --------
Balances, December 31, 1998 100 $200,200 $(162,823) $ 37,377
====== ======== ========= ========
See accompanying notes.
F-5
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Statement of Cash Flows
For the Period from Inception (January 14, 1998) to December 31, 1998
Cash flows from operating activities:
Net loss during the development stage $(162,823)
Adjustments to reconcile net loss during the development
stage to net cash provided by operating activities:
Depreciation and amortization 7,508
Change in assets and liabilities:
Other current assets (672)
Deferred revenue 175,000
Due to related party 23,150
Accounts payable 9,224
Other current liabilities 14,729
---------
Net cash provided by operating activities 66,116
---------
Cash flows from investing activities:
Purchase of property and equipment (9,927)
Software development costs (69,425)
Payment of security deposit (3,500)
---------
Cash used in investing activities (82,852)
---------
Cash flows from financing activities:
Proceeds from issuance of common stock 200,200
Payments of capital lease obligation (5,396)
---------
Net cash provided by financing activities 194,804
---------
Net increase in cash and cash, end of year $ 178,068
=========
Supplemental Disclosure of
Cash Flow Information
Cash paid during the period for:
Interest $ 1,975
=========
Supplemental Schedule of Non-Cash
Investing and Financing Activities
Capital lease obligation incurred for the acquisition
of new equipment $ 44,950
=========
See accompanying notes.
F-6
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 1 - The Company
YouNetwork Corp. (the "Company") was incorporated in the State of
New York on January 14, 1998. 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. 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 programs, 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
through December 31, 1998.
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. The Company is actively pursuing
various options which include seeking additional equity financing, and believes
that sufficient funding will be available to achieve its planned business
objectives. 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.
F-7
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Summary of Significant Accounting Policies (Continued)
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.
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.
Accordingly, during the period from inception (January 14, 1998)
to December 31, 1998, the Company capitalized $69,425 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, 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).
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
F-8
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 2 - Summary of Significant Accounting Policies (Continued)
New Accounting Pronouncement (Continued)
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. For the period from inception (January
14, 1998) to December 31, 1998, such costs were nominal.
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 split.
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.
F-9
<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 (Continued)
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, there is no pro forma effect on loss per share.
Note 3 - Property and Equipment
Property and equipment consists of:
Computer equipment $ 4,071
Office equipment 3,706
Leasehold improvements 2,150
----------
9,927
Equipment held under capital lease 44,950
----------
54,877
Less: Accumulated depreciation and
amortization 7,508
----------
$ 47,369
==========
Note 4 - Capital Lease Obligation
Capital lease obligation consists of:
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 $ 45,619
Less: Amount representing interest 6,065
----------
39,554
Less: Current portion
14,000
----------
$ 25,554
==========
F-10
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 4 - Capital Lease Obligation (Continued)
Minimum future lease payments under the capital lease as of
December 31, 1998 are as follows:
Year Ending
December 31,
------------
1999 $ 14,000
2000 15,620
2001 9,934
----------
$ 39,554
==========
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.
Deferred tax assets:
Net operating loss carryforwards $ 65,100
Valuation allowance (65,100)
----------
Net deferred tax assets $ --
==========
Note 7 - Related Party Transactions
From inception, the Company has retained the services of Digital,
a corporation that is partially-owned by one of the Company's significant
stockholders. Digital has provided software and systems integration
consultation services in connection with the Company's effort to develop
F-11
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 7 - Related Party Transactions (Continued)
its proprietary tracking technology. Total consulting fees paid by the Company
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. At December 31, 1998, $23,150 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 27 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.
Note 10 - Commitment
Lease
The Company leases office space under an operating lease expiring
in April 2003. The future minimum lease payments, excluding escalation charges,
are as follows:
Year Ending
December 31,
------------
1999 $ 21,000
2000 21,000
2001 21,000
2002 21,000
2003 7,000
----------
$ 91,000
==========
F-12
<PAGE>
YOUNETWORK CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 10 - Commitment (Continued)
Lease (Continued)
Total rent expense charged to operations for the period from
inception (January 14, 1998) to December 31, 1998 was approximately $12,100.
Note 11 - Subsequent Event
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 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.
F-13
<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
Page
Prospectus Summary................................... 3
Summary Financial Information........................ 6
Risk Factors......................................... 7
Capitalization....................................... 20
Dilution............................................. 21
Management's Discussion and Analysis................. 22
Business............................................. 28
Industry Background.................................. 30
Management........................................... 38
Executive Compensation Table......................... 39
Principal Stockholders............................... 42
Description of Securities............................ 43
Shares Eligible for Future Sale...................... 43
Disclosure of Compensation Position on Indemnification
for Securities Act Liabilities....................... 44
Legal Matters........................................ 45
Experts.............................................. 45
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-13
Index to Financial Statements........................ F-1
Report of Independent Auditor........................ F-2
Financial Statements................................. F-3
- --------------------
Until , 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.
------------------------------------
--------
<PAGE>
1,000,000 SHARES OF CLASS A
COMMON STOCK AND
1,000,000 SHARES OF CLASS B
COMMON STOCK
YOUNETWORK CORPORATION
_______________
PROSPECTUS
_______________
____________, 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 arising under the
Securities Act may be permitted to directors, officers and controlling persons
of LOA pursuant to the foregoing provisions, or otherwise, LOA 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.
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 t he previous three years or who became
an interested
<PAGE>
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
LOA and therefore could discourage attempts to acquire LOA.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ $200
Printing and Engraving Expenses $ 5,000*
Legal Fees and Expenses (including blue sky fees and expenses) $ 100,000*
Accounting Fees and Expenses $ 15,000*
Transfer Agent's Fees and Expenses $ 5,000*
Miscellaneous Expenses $ 2,000*
-------------
TOTAL $ 127,200*
</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.
Pursuant to an agreement among YouNetwork, Dalia Silverman and
Kleopatra Georgiades (the "Investors"), the 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 dilluted 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 foregoing transaction was effected without registration under the
Securities Act in reliance on the exemption from registration provided pursuant
to Section 4(2) and Regulation D promulgated thereunder.
<PAGE>
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 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 & Balzano, 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.
23.1* Consent of Silverman, Collura, Chernis & Balzano, P.C.
(included in Exhibit 5.1)
23.2 Consent of Mahoney Cohen & Company, CPA, P.C.
27 Financial Data Schedule
* to be filed by amendment
<PAGE>
b. Financial Statement Schedules.
None
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
<PAGE>
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.
<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 Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York, on February 5, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
s/Kyle S. Taylor President February 5, 1999
- ---------------- Director
Kyle S. Taylor
s/Don S. Senerath Chief Executive Officer, February 5, 1999
- ----------------- Director
Don S. Senerath
S/Peter R. Silverman Director February 5, 1999
- --------------------
Peter Silverman
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is made as
of February 3, 1999, by and between YouNetwork Corp., a New York corporation
("NYYNW"), and YouNetwork Corporation, a Delaware corporation ("DYNW""); (NYYNW
and DYNW collectively, the "Constituent Corporations").
The authorized capital stock of NYYNW consists of One Hundred (100)
shares of Common Stock, no par value per share. The authorized capital stock of
DYNW, upon effectuation of the transactions set forth in this Merger Agreement,
will be Two-Hundred and Fifty Million (250,000,000) shares of Common Stock
consisting of: (i) One Million and Five-Hundred Thousand (1,500,000) shares of
Class A common stock, $.0001 par value per share; (ii) One Million and
Five-Hundred Thousand (1,500,000) shares of Class B common stock, $.0001 par
value per share; and (iii) Two Hundred and Forty Seven Million (247,000,000)
shares of Class C common stock, $.0001 par value per share.
The directors of the Constituent Corporations deem it advisable and to
the advantage of the Constituent Corporations that NYYNW merge with and into
DYNW upon the terms and conditions provided herein.
NOW THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that NYYNW shall merge
with and into DYNW on the following terms, conditions and other provisions:
1. TERMS AND CONDITIONS
1.1 Merger. NYYNW shall be merged with and into DYNW (the "Merger"),
and DYNW shall be the surviving corporation (the "Surviving Corporation")
effective upon the time of filing of the Certificate of Merger. (the "Effective
Date").
1.2 Succession. On the Effective date, DYNW shall continue its
corporate existence under the laws of the State of Delaware, and the separate
existence and corporate organization of NYYNW except insofar as it may be
continued by operation of law, shall be terminated and cease.
1.3 Transfer of Assets and Liabilities. On the Effective Date, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and
all and singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, of each
of the Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, thereafter shall be the property
of the Surviving Corporation as they were of the
<PAGE>
Constituent Corporations, and the title to any real estate vested by deed
otherwise in either of the Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger; provided, however, that the
liabilities of the Constituent Corporations and of their stockholders,
directors and officers shall not be affected and all rights of creditors and
all liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and any claim existing or action or proceeding pending by
or against either of the Constituent Corporations may be prosecuted to judgment
as if the Merger had not been consummated, except as they may be modified with
the consent of such creditors, and all debts, liabilities and duties of or upon
each of the Constituent Corporations shall attach to the Surviving Corporation,
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it.
1.4 Common Stock of NYYNW and DYNW . On the Effective Date, by virtue
of the Merger and without any further action on the part of the Constituent
Corporations or their respective stockholders, (i) each share of Common Stock
of NYYNW issued and outstanding immediately prior thereto shall be combined,
changed and converted into 330,000 shares of Class C Common Stock of DYNW in
each case fully paid and nonassessable, and (ii) each share of Common Stock of
NYYNW issued and outstanding immediately prior thereto shall be canceled and
returned to the status of authorized but unissued shares.
1.5 Stock Certificates. On and after the Effective Date, all of the
outstanding certificates that, prior to that time, represented shares of Common
Stock of NYYNW shall be deemed for all purposes to evidence ownership of and to
represent the shares of DYNW into which the shares of NYYNW represented by such
certificates have been converted as herein provided and shall be so registered
on the books and records of the Surviving Corporation or its transfer agents.
The registered owner of any such outstanding stock certificate shall, until
such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or its transfer agent,
have and be entitled to exercise any voting and other rights with respect to
and to receive any dividend and other distribution upon the shares of DYNW
evidenced by such outstanding certificate as above provided.
1.6 Purchase Rights. On the Effective Date, the Surviving Corporation
will assume the outstanding obligations of NYYNW to issue Common Stock or other
capital stock pursuant to contractual purchase rights granted by NYYNW, and the
outstanding and unexercised portions of all outstanding contractual rights to
purchase Common Stock or other capital stock of NYYNW shall be changed and
converted into contractual rights to purchase Common Stock or other capital
stock, respectively, of DYNW such that a contractual right to purchase one (1)
share of Common Stock or other capital stock of NYYNW shall be converted into a
contractual right to purchase 330,000 shares of Class C Common Stock or other
capital stock, respectively, of DYNW. No other changes in the terms and
conditions of such contractual purchase rights will occur.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2
<PAGE>
2.1 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of DYNW in effect on the Effective date shall continue to be the
Certificate of Incorporation of the Surviving Corporation without change or
amendment until further amended in accordance with the provisions thereof and
applicable law. The Bylaws of DYNW in effect on the Effective Date shall
continue to be the Bylaws of the Surviving Corporation without change or
amendment until further amended in accordance with the provision thereof and
applicable law.
2.2 Directors. The directors of NYYNW immediately preceding the
Effective Date shall become the directors of the Surviving Corporation on and
after the Effective Date to serve until the expiration of their terms and until
their successors are elected and qualified.
2.3 Officers. The officers of NYYNW immediately preceding the
Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS
3.1 Further Assurances. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, the surviving
Corporation shall execute and deliver, or cause to be executed and delivered,
such deeds and other instruments, and the Surviving Corporation shall take or
cause to be taken such further and other action as shall be appropriate or
necessary in order to vest or perfect in or to conform of record or otherwise,
in the Surviving Corporation the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of DYNW and otherwise to carry out the purposes of this Merger
Agreement, and the officers and directors of the Surviving Corporation are
authorized fully in the name and on behalf of DYNW or otherwise to take any and
all such action and to execute and deliver any and all such deeds and other
instruments.
3.2 Amendment. At any time before or after approval by the stockholder
of NYYNW, this Merger Agreement may be amended in any manner (except that,
after the approval of the Merger Agreement by the stockholders of NYYNW, the
principal terms may not be amended without the further approval of the
stockholders of NYYNW) as may be determined in the judgment of the respective
Board of Directors of DYNW and NYYNW to be necessary, desirable, or expedient
in order to clarify the intention of the parties hereto or to effect or
facilitate the purpose and intent of this Merger Agreement.
3.3 Conditions of Merger. The obligation of the Constituent
Corporations to effect the transactions contemplated hereby is subject to
satisfaction of the following conditions (any or all of which may be waived by
either of the Constituent Corporations in its sole discretion to the extent
permitted by law):
(a) the Merger shall have been approved by the stockholders
of NYYNW in accordance with applicable provisions of the New York
Business Corporation Law; and
3
<PAGE>
(b) NYYNW, as sole stockholder of DYNW, shall have approved
the Merger in accordance with the General Corporation Law of the State
of Delaware; and
(c) any and all consents, permits, authorizations, approvals,
and orders deemed in the sole discretion of NYYNW to be material to
consummation of the Merger shall have been obtained.
3.4 Abandonment or Deferral. Notwithstanding the approval of this
Merger Agreement by the stockholders of NYYNW or DYNW, at any time before the
Effective Date, (a) this Merger Agreement may be terminated and the Merger may
be abandoned by the Board of Directors of either NYYNW or DYNW or both or (b)
the consummation of the Merger may be deferred for a reasonable period of time
if, in the opinion of the board of Directors of NYYNW and DYNW, such action
would be in the best interests of such corporations. In the event of
termination of this Merger Agreement, this Merger Agreement shall become void
and of no effect and there shall be no liability on the part of either
Constituent Corporation or their respective Board of Directors or stockholders
with respect thereto, except that NYYNW shall pay all expenses incurred in
connection with the Merger or in respect to this Merger Agreement or relating
thereto.
3.5 Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly
approved by the Board of Directors of NYYNW and DYNW, hereby is executed on
behalf of each such corporations and attested by their respective officers
thereunto duly authorized.
YOUNETWORK CORP.,
a New York Corporation
By:s/ Kyle S. Taylor
----------------------
ATTEST: Kyle S. Taylor, President
S/ Don S. Senerath
- ---------------------------
Don S. Senerath, Secretary
YOUNETWORK CORPORATION,
a Delaware Corporation
By:s/ Kyle S. Taylor
------------------------
Kyle S. Taylor, President
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ATTEST:
S/ Don S. Senerath
- --------------------
Don S. Senerath , Secretary
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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
YOUNETWORK CORPORATION
YouNetwork Corporation, a corporation organized and existing under the
law of the State of Delaware (?Corporation?), hereby certifies as follows:
. This Amended and Restated Certificate of Incorporation restates,
integrates and amends the provisions of the Certificate of Incorporation of the
Corporation, originally filed with the Secretary of State of Delaware on
January 14, 1999, and has been duly adopted by the Corporation?s directors in
accordance with Section 141(f) of the General Corporation Law of the State of
Delaware and by the Corporation?s shareholders in accordance with Sections 228,
242 and 245 of the General Corporation Law of the State of Delaware. Prompt
written notice of the adoption of the amendment and restatement of the
Certificate of Incorporation herein certified has been given to those
stockholders who have not consented in writing thereto, as provided in Section
228 of the General Corporation Law of the State of Delaware.
The text of the Amended and Restated Certificate of
Incorporation is hereby restated and amended to read in its entirety as
follows:
FIRST: The name of the Corporation is YouNetwork Corporation.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, Dover, Delaware 19901, County of
Kent, and the name of the registered agent of the Corporation in the State of
Delaware at such address is National Registered Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: A. The aggregate number of shares which the Corporation shall
have authority to issue is Two-Hundred and Fifty Million (250,000,000) shares
of all classes of stock, consisting of:
1. One Million and Five-Hundred Thousand (1,500,000) shares of Class A
common stock, $.0001 par value per share;
2. One Million and Five-Hundred Thousand (1,500,000) shares of Class B
common stock, $.0001 par value per share; and
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3. Two Hundred and Forty Seven Million (247,000,000) shares of Class C
common stock, $.0001 par value per share.
B. No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors, or any class of them, and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or stockholder thereof or on the application of any
receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all of the creditors or class of creditors, and/or on all of the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
SEVENTH: A. The business affairs of the Corporation shall be managed
by or under the direction of the Board of Directors consisting of not less than
one director. The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-laws. The
phrase "whole board" and the phrase "total number of directors" shall be deemed
to have the same meaning, to wit, the total number of directors which the
Corporation would have if there were no vacancies; and
B. A director shall hold office until the annual meeting when his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any position
on the Board of Directors that results from an increase in the number of
directors may be filled by a majority of the Board of Directors then in office,
and any other vacancy occurring in the Board of Directors may be filled by a
majority of the
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directors then in office, although less than a quorum, or by a
sole remaining director.
EIGHTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is hereafter amended to authorize corporate action further limiting or
eliminating the personal liability of directors, then the liability of a
director to the Corporation shall be limited or eliminated to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended from time to time. No repeal or modification of this ARTICLE EIGHTH,
directly or by adoption of an inconsistent provision of this Certificate of
Incorporation, by the stockholders of the Corporation shall be effective with
respect to any cause of action, suit, claim or other matter, that, but for this
ARTICLE EIGHTH, would accrue or arise prior to such repeal or modification.
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented (the "GCL"), indemnify any and all persons
whom it shall have power to indemnify under said section (the "Indemnitee")
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification provided for
herein shall not be deemed exclusive of any other rights to which those
indemnified 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, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. The Corporation shall pay in advance of the
final disposition of such Indemnitee upon the receipt of an undertaking by or
on behalf of such Indemnitee to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this ARTICLE NINTH.
TENTH: The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability, or loss, whether or not the Corporation
would have the power to indemnity such person against such expense, liability
or loss under the Delaware General Corporation Law.
ELEVENTH: Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called (A) upon the
written request of the Chairman of the Board, the President or the Secretary;
or (B) at the written request of a majority of Directors.
TWELTH: A. For business to be properly brought before an annual or
special meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the
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Secretary of the Corporation. A stockholder's notice related to a proposal to
be presented at an annual or special meeting, to be timely, must be received at
the Corporation's principal executive offices not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that if less than 70
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which a notice of the date of the annual or special meeting, as the case may
be, was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (b) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (c) the class and number of shares
of the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Article and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
B. Only persons who are nominated in accordance with the procedures set
forth in this ARTICLE TWELTH shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the Corporation entitled to
vote for the election of Directors at the meeting who complies with the notice
procedures set forth in this section. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be received at the Corporation's principal executive
offices not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of such person, (ii) the
class and number of shares of the Corporation which are beneficially owned by
such person and (iv) any of the information relating to such person that is
required to be disclosed in solicitations of proxies for election of Directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
persons' written consent to being named in the proxy statement as a nominee and
to serving as a Director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Corporation's books, of
such stockholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board
of Directors any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the
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nominee. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section. The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Article, and if he should so
determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
THIRTEENTH: The original by-laws of the Corporation shall be adopted by
the Incorporator. Thereafter, the power to make, alter, or repeal the by-laws;
and to adopt any new by-law, shall be vested in the Board of Directors.
FOURTEENTH: From time to time any of the provisions of this
Certificate of Incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the Corporation
by this Certificate of Incorporation are granted subject to the provisions of
this ARTICLE FOURTEENTH.
IN WITNESS WHEREOF, the undersigned do hereby execute this certificate
as of January 27, 1999.
/s/ Kyle S. Taylor
---------------------------
Kyle S. Taylor, President
Attest:
/s/ Don S. Senerath
- ------------------------------
Don S. Senerath, Secretary
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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 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
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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, but only for cause and only by an
affirmative vote of the holders of at least 80% 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]
Class A Common Stock
This is to certify that ___________________________________ is the _________ of
_______________________________________________________________________________
Fully Paid and Non-Assessable Shares of Class A Common Stock of
YOUNETWORK CORPORATION
transferable only on the books of the Corporation by the holder thereof in
person or by a duly authorized Attorney upon surrender of this Certificate
properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated
[SEAL]
- -------------------------------------------------------------------------------
THESE SECURITIES WERE ORIGINALLY ISSUED IN TRANSACTIONS EXEMPT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT") PURSUANT TO THE EXEMPTION PROVIDED BY
SECTION 4(2) OF THE ACT, AND HAVE BEEN REGISTERED UNDER THE ACT FOR SALE ON
BEHALF OF THE HOLDER. THESE SECURITIES MAY NOT OFFERED, SOLD OR TRANSFERRED
EXCEPT, (I) PURSUANT TO THE REGISTRATION STATEMENT IF A CURRENT PROSPECTUS WITH
RESPECT TO THESE SECURITIES IS DELIVERED IN CONNECTION THEREWITH, OR (II)
PURSUANT TO AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.
<PAGE>
- -------------------------------------------------------------------------------
[YOUNETWORK CORPORATION]
Class B Common Stock
This is to certify that ___________________________________ is the _________ of
_______________________________________________________________________________
Fully Paid and Non-Assessable Shares of Class B Common Stock of
YOUNETWORK CORPORATION
transferable only on the books of the Corporation by the holder thereof in
person or by a duly authorized Attorney upon surrender of this Certificate
properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated
[SEAL]
- -------------------------------------------------------------------------------
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above
list.
UNIF GIFT MIN ACT -- Custodian
------- ---------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------------------
(State)
For value received hereby sell assign and transfer unto
------
PLEASE INCEPT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
represented by the within Certificate, and do hereby irrovcably constitute and
appoint
- ------------------------------------------------------------------------Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the promises
Dated
-----------------------
In presence of
-------------------------------------
- -----------------------------
THESE SECURITIES WERE ORIGINALLY ISSUED IN TRANSACTIONS EXEMPT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT") PURSUANT TO THE EXEMPTION PROVIDED BY
SECTION 4(2) OF THE ACT, AND HAVE BEEN REGISTERED UNDER THE ACT FOR SALE ON
BEHALF OF THE HOLDER. THESE SECURITIES MAY NOT OFFERED, SOLD OR TRANSFERRED
EXCEPT, (I) PURSUANT TO THE REGISTRATION STATEMENT IF A CURRENT PROSPECTUS WITH
RESPECT TO THESE SECURITIES IS DELIVERED IN CONNECTION THEREWITH, OR (II)
PURSUANT TO AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.
<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of December 4, 1998, by and among
YOUNETWORK CORPORATION, a New York corporation (the "Company"), and each of the
Parties signatory hereto.
R E C I T A L S:
WHEREAS, the Company is authorized by its Amended Certificate of
Incorporation to issue 200 shares of common stock, no par value ("Common
Stock");
WHEREAS, the Company has issued 36.5 shares of Common Stock to each of
Kyle Taylor and Don S. Senerath (collectively, the "Management Shareholders")
for a total of 73 shares of Common Stock, such shares being all the shares of
Common Stock issued and outstanding;
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of December
__, 1998 (the "Stock Purchase Agreement"), between the Company, Dalia Silverman
and Kleopatra Georgiades ^ (collectively, the "Investors"), the Investors are
purchasing from the Company, for an aggregate purchase price of $200,000 (i) an
aggregate of 27 shares of Common Stock (the "Purchased Shares") representing
27% of the issued and outstanding Common Stock, on a fully diluted basis; and
(ii) Common Stock purchase warrants (the "Purchase Warrants") 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 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 sale proceeds received by
the Company following the date of the Stock Purchase Agreement;
WHEREAS, the Company, the Investors and the Management Shareholders
desire to set forth their agreement concerning the management of the Company
and such other matters as are set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual and
dependent promises set forth in this Agreement, the Company, the Investors and
the Management Shareholders agree as follows:
ARTICLE I
DEFINITIONS AND OTHER GENERAL MATTERS
SECTION 1.01. Definitions. The following terms shall be used in this
Agreement with the meanings set forth in this Section 1.01:
"Affiliate" means, with respect to any person or entity, any other
person or entity that directly or indirectly through one or more intermediates
controls, is controlled by or is under common control with the first specified
person or entity.
"Board" means the Board of Directors of the Company.
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"Business" means the development, marketing and operation of an on
line Internet consumer buying network.
"By-laws" means the restated by-laws of the Company.
"CEO" means the officer elected by the Board to the post designated in
the By-laws as the chief executive officer of the Company. Donald Senerath will
be the initial CEO and Chairman of the Board.
"Certificate of Incorporation" means the Restated Certificate of
Incorporation of the Company.
"Closing" shall have the meaning given in the Stock Purchase
Agreement, dated as of December __, 1998, between the Company and the
Investors.
"Common Stock" means the common stock, no par value, of the Company.
"Consenting Stockholder" means any beneficial owner of shares of
Voting Securities that is a party to this Agreement.
"Significant Transaction" means, with respect to the Company or any
affiliates, any of the following actions:
(A) conducting any business other than the Business;
(B) (i) any creation of (x) any additional class of capital stock or
(y) any security having a direct or indirect equity participation in the
Company or any affiliate or (ii) the sale or issuance of shares of capital
stock or warrants, options or rights to acquire shares of capital stock or
securities convertible into or exchangeable for capital stock or any security
having a direct or indirect equity participation in the Company or any
affiliate;
(C) any declaration or issuance of any dividend or other distribution
on any shares of capital stock or any payment on account of the purchase,
redemption, retirement or other acquisition for value of any shares of capital
stock;
(D) any transaction or contract with a value of $10,000 or more;
(E) any amendment to or modification of any provision of the
Certificate of Incorporation or By-laws of the Company;
(F) any change in the auditors for, or in the accounting policies or
procedures of, the Company;
(G) entering into any agreement or obtaining any license or franchise
which restricts the transfer of shares of Common Stock or Preferred Stock;
(H) any consolidation or merger of the Company or its affiliates with
any other entity:
(I) any sale of all or substantially all of the assets of the Company
or its affiliates;
(J) any executive employment contract;
(K) payment of salaries to any officer at a rate of more than $85,000
per annum.
(L) change of required signatories on the Company's bank accounts;
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(M) election of officers.
"Voting Securities" means the Common Stock.
ARTICLE II
VOTING
SECTION 2.01. Voting; Written Consent. (a) Any agreement by the
Consenting Stockholders herein to vote their shares of Voting Securities in a
certain manner shall be deemed, in each instance, to include an agreement by
each Consenting Stockholder to use such Consenting Stockholder's best efforts
and to take all actions necessary to call, or cause the Company and the
appropriate officers and directors of the Company to call, as promptly as
practicable, a special or annual meeting of stockholders or to act by written
consent.
(b) When any action is required to be taken by a Consenting
Stockholder pursuant to this Agreement, such Consenting Stockholder
shall take all steps necessary to implement such action, including,
without limitation, executing or causing to be executed, as promptly
as practicable, a consent in writing in lieu of an annual or special
meeting of the stockholders pursuant to Section 615 of the Business
Corporation Law of New York or any successor statute thereto to effect
such stockholder action.
(c) Unless expressly stated to the contrary herein, any
action requiring the vote of the directors (or any committee thereof)
may be effected by consent in lieu of a meeting of the directors or
committee members, as the case may be, pursuant to Section 708 of the
Business Corporation Law of New York or any successor statute thereto.
ARTICLE III
BOARD OF DIRECTORS AND STOCKHOLDERS
SECTION 3.01. Composition of the Board of Directors. (a) General. The
Board shall initially consist of three directors, of which (i) the Investors
shall have the right to designate one individual to serve as a director and
(ii) the Management Shareholders shall have the right to designate two
individuals to serve as directors. In no event shall the Board be composed of
fewer than three directors. The ratio of directors designated by the Investors
to those designated by the Management Shareholders shall be maintained as set
forth in this Section 3.01 should the Board be increased in number.
(b) Election of Directors. Each Consenting Stockholder hereby
agrees to vote all shares of Voting Securities owned by such
Consenting Stockholder to cause the election to the Board of Directors
of the individuals designated by the Consenting Stockholders in
accordance with this Section 2.01.
SECTION 3.02. Conflicting Charter or By-law Provisions. Each
Consenting Stockholder shall vote its shares of Common Stock, and shall take
all other actions necessary, to ensure that the Certificate of Incorporation
and By-laws facilitate and do not at any time conflict with the provisions of
this Agreement.
SECTION 3.O3. Action By the Board of Directors.
(a) Except as otherwise provided in Sections 3.03(b), all
actions of the Board of Directors shall require the affirmative vote
of the
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majority of directors present at a duly convened meeting of the
Board at which a quorum is present or, in lieu of a meeting, by the
unanimous written consent of the members of the Board of Directors.
(b) Neither the Company nor any entity controlled by the
Company shall take, and no party to this Agreement shall cause the
Company or any entity controlled by the Company to take, any action
with respect to any Significant Transaction without
(i) providing to the directors at least 2 business days'
notice of any meeting of the Board at which a Significant Transaction
is proposed to be approved, which notice shall describe such proposed
Significant Transaction and
(ii) the unanimous approval of all of the directors.
ARTICLE IV
TRANSFERS
SECTION 4.01. Restrictions on Transfers. Management Shareholders may
transfer Common Stock only if a sale or transfer ^ shall include a cash offer
to bring the Investors along on the same terms for that percentage of their
ownership ^ as the sale represents of the total Management Shareholders
holdings, and provided that the Management Shareholders shall retain ownership
interest of at least 40% of the equity securities of the Company prior to a
Public Offering.
SECTION 4.02. First Refusal. The Investors pro rata to their
respective share ownership shall have a right of first refusal on all shares
held by Management Shareholders, excluding shares transferred in accordance
with Section 4.01. ^ Management Shareholders pro rata to their respective share
ownership shall have a right of first refusal on all shares held by the
Investors ^^. The foregoing right of first refusal shall not apply to sales in
Public Offerings or to sales in the public market subsequent to such a Public
Offering. In the event that any Management Shareholder or any Investor
Shareholder shall desire to sell his shares pursuant to a bona fide offer
("Offer") to purchase such shares, he shall first give written notice of such
Offer and the terms and conditions thereof to the Investor Shareholders in the
case of a proposed sale by a Management Shareholder or to the Management
Shareholders in the case of a proposed sale by an Investors Shareholder. The
Shareholders receiving such notice shall have a right within a period of ten
business days to purchase the offered shares on the same terms and conditions
as set forth in the Offer. In the event such right is not exercised, the
offered shares may be sold pursuant to the terms of the Offer within a period
of sixty days thereafter, provided that as a conditions to such sale, the
purchasers shall agree to be bound by the terms of this Agreement
SECTION 4.03 Permitted Transfers. Notwithstanding anything provided in
Sections 4.01 or 4.02 to the contrary, any Consenting Shareholder may transfer
his shares, at any time during the term of this Agreement, to either a family
member, or to a family trust or a corporation or partnership in which such
shareholder has a majority controlling interest, providing that any such
transferee, as a condition to such transfer, shall first agree to be subject to
the terms and conditions of this agreement.
SECTION 4.04 Officers. The officers of the Company shall be as
follows, subject to removal and/or change by the Board of Directors:
Chief Executive Officer Don S. Senerath
President Kyle Taylor
Secretary Peter R. Silverman
SECTION 4.05 Bank Accounts. All bank accounts maintained by the
Company shall be established pursuant to resolution adopted by the Board of
Directors,
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which resolution shall provide that the Chief Executive, President
and Secretary shall each be authorized signatories on any such account and that
any check for an amount in excess of $5,000 shall require the signatures of at
least two officers, one of whom shall be the Secretary.
SECTION 4.06. Legend. Each certificate evidencing outstanding shares
of Voting Securities held by a Consenting Stockholder shall bear the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF
TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER
UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT,
DATED AS OF DECEMBER __, 1998, AS IT MAY BE AMENDED FROM TIME TO TIME,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE
BEEN COMPLIED WITH."
All certificates evidencing shares of Voting Securities hereafter issued by the
Company to a Consenting Stockholder shall bear the legend set forth above. Upon
termination of this Agreement or upon registration of such shares of Voting
Securities in accordance with this Agreement and then upon surrender to the
Company of any certificates bearing the legend set forth above, the Company
shall reissue such certificates to the owner thereof without such legend.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Right of Audit. The Investors shall have rights upon
reasonable notice to inspect the Company books and records during normal
business hours and to audit at its own expense provided that such inspection or
audit shall not unduly interfere with the conduct of the Company's business.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Representations. Each of the parties hereto represents
that this Agreement has been duly authorized, executed and delivered by such
party and constitutes a legal, valid and binding obligation of such party,
enforceable against it in accordance with the terms of this Agreement.
SECTION 6.02. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of their terms hereof, in addition to any
other remedy at law or in equity.
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SECTION 6.03. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any such term may be waived (either generally
or in a particular instance and either retroactively or prospectively) only
with the written consent of the Company and the Investors. Each Consenting
Stockholder shall be bound by any amendment or waiver authorized by this
Section 6.03, whether or not such Consenting Stockholder shall have consented
thereto.
SECTION 6.04. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by hand, telecopied or
sent by certified or registered mail, return receipt requested, postage
prepaid, addressed in the manner set forth on the signature pages of this
Agreement (or in such other manner for a party as shall be specified in a
notice given in accordance with this Section 6.04). All such notices shall be
conclusively deemed to be received and shall be effective, if sent by hand
delivery or telecopied, upon receipt, or if sent by registered or certified
mail, on the fifth day after the day on which such notice is mailed.
SECTION 6.05. Benefit: Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that this Agreement shall not inure to the benefit
of any prospective transferee unless such prospective transferee shall have
agreed in writing to be bound by the terms of this Agreement. No Consenting
Stockholder may assign any of its rights hereunder to any person other than a
transferee that has complied with the requirements of this Section 6.05 in all
respects. Nothing in this Agreement either express or implied is intended to
confer on any person other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under or
by reason of this Agreement.
SECTION 6.06. Termination. This Agreement shall terminate on
December 1, 2010, or such earlier time as either (i) the Investors collectively
no longer own at least 10% of the Common Stock of the Company on a fully
diluted basis; or (ii) the Company has completed a public offering of its
securities resulting in net proceeds to the Company of at least $10,000,000.
SECTION 5.07. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. If any
term or other provision of this Agreement is held invalid, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect, unless the term or provision held invalid shall substantially impair
the benefits of the remaining portions of this Agreement and shall not limit or
otherwise affect the meaning hereof. This Agreement shall be governed by the
law of the State of New York. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in their individual capacity or caused it to be duly executed by
their respective authorized signatories thereunto duly authorized as of the day
and year first above written.
YOUNETWORK CORPORATION
By:/s/ Kyle Taylor
----------------------------------
- -------------------------------------
Name: Kyle Taylor
Title:
6
<PAGE>
Kleopatra Georgiades
By: /s/ Achilles Georgiades /s/ Don S. Senerath
- --------------------------------------- ---------------------------
Achilles Georgiades, Don S. Senerath
her Attorney in Fact
/s/ Dalia Silverman
---------------------------
Dalia Silverman
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<PAGE>
This Stock and Warrant Purchase Agreement ("Agreement"), dated as of
December 4, 1998, by and among
YOU NETWORK, CORPORATION, a New York corporation, having an
office at 220 East 23rd Street, Suite 607, New York, NY 10016
("The Company");
DALIA SILVERMAN, residing at 200 West 58th Street, New York,
NY 10019 ("Silverman");
KLEOPATRA GEORGIADES, having an address at 44 Andromahis
Street, Nicosia, Cyprus ("Georgiades" and together with
Silverman the "Buyers and each a "Buyer");
KYLE TAYLOR, the President of the Company residing at 115
East 72nd Street, New York, NY 10021 ("Taylor"); and
DON SENERATH, the Chief Executive Officer of the Company,
residing at 155 East 31st, New York, NY 10016 ("Senerath" and
collectively with Taylor The "Management Shareholders").
R E C I T A L S
WHEREAS, the Company is engaged in the development of an Internet
consumer buying network;
WHEREAS, each Buyer has agreed to purchase and the Company has agreed
to sell to each Buyer 13.5 shares of Common Stock of the Company, no par value
(an aggregate of 27 shares of Common Stock referred to herein as the "Purchased
Shares") pursuant to the terms and conditions hereinafter set forth in this
Agreement which Purchased Shares shall, upon issuance equal 27% of all issued
and outstanding common stock of the Company on a fully diluted basis;.
WHEREAS, the Company has agreed to issue to the Buyers Common Stock
purchase warrants ("Purchase Warrants") 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 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 sale proceeds received by the Company
following the date of the Stock Purchase Agreement;
WHEREAS, the Company and the Buyers have agreed that in the event that
either Sterling Capital LLC and/or Peter Sahagen (the "Additional Investors")
shall purchase common stock (the
<PAGE>
"Additional Common Stock") in the Company within 30 days following the Closing
Date herein, the Buyers and the Management Shareholders shall surrender a
portion of their outstanding shares to the Company as provided herein and the
Buyers shall exchange their Purchase Warrants for new warrants as provided
herein.
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties and covenants contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings specified or referred to in this Article I:
"NOVEMBER 11, BALANCE SHEET" -- the balance sheet for the Company at
November 11, 1998 and for the ten months then ended.
"BALANCE SHEET DATE" - November 11, 1998.
"BREACH" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any material inaccuracy in or breach of, or any failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision, or (b) any true and valid claim (by any Person) or other occurrence
or circumstance that is or was inconsistent with such representation, warranty,
covenant, obligation, or other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence, or circumstance.
"CLOSING" -- as defined in Section 2.03.
"CLOSING DATE" -- the date and time as of which the Closing actually
takes place.
"COMPANY" -- as defined in the Recitals hereto.
"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including, but not limited to, any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by
and/or in connection with this Agreement.
"ENCUMBRANCE" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right
of first refusal, or restriction of any kind,
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<PAGE>
including any restriction on use, voting, transfer (other than restrictions
imposed by applicable federal or state securities laws), receipt of income, or
exercise of any other attribute of ownership.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and any regulations and rules issued thereunder.
"FINANCIAL STATEMENTS" -- the balance sheet for the Company .
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Body or pursuant
to any Legal Requirement, including, but not limited to, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
"GOVERNMENTAL BODY" -- any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"IRC" -- the Internal Revenue Code of 1986, as amended, or any
successor law, and any rules or regulations thereunder .
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (I) such individual is actually aware of
such fact or other matter; or (ii) if such individual upon the exercise of due
inquiry would be expected to be aware of such fact or matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, executive, manager, executor,
or trustee of such Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or matter.
3
<PAGE>
"LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign,
international, multinational, Order, constitution, law, ordinance, principle of
common law, regulation, statute, or treaty in effect and applicable to the
companies as of the date of this Agreement.
"LIABILITIES". -- As determined in accordance with GAAP.
"ORDER" -- any award, decision, injunction, writ, judgment, order,
stipulation, ruling, subpoena, or verdict entered, issued, made, or rendered by
any court, administrative agency, or other Governmental Body or by any
arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate of
incorporation (or similar organizational documents) and the bylaws (or similar
document) of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) the
operating agreement and certificate of formation of a limited liability
company; (e) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (f) any
amendment to any of the foregoing.
"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PROCEEDING" -- any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"PURCHASE WARRANTS" -- as defined in the Recitals to this Agreement.
"RELATED PERSON" -- with respect to a particular individual:
(a) each other member of such individual's immediate Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's immediate
Family;
(c) any Person in which such individual or members of such
individual's immediate Family hold (individually or in the aggregate)
a Material Interest; and
4
<PAGE>
(d) any Person with respect to which such individual or one or more
members of such individual's immediate Family serves as a director,
officer, partner, member, executor, or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, member,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
partner, manager or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c). For purposes of this definition, (a) the "Family" of an
individual includes (I) the individual, (ii) the individual's spouse,
(iii) any other natural person who is related to the individual or the
individual's spouse as a mother, father, brother or sister, and (iv)
any other natural person who resides with such individual, other than
a natural person employed by or rendering services for consideration
to such individual or his/her family and (b) "Material Interest" means
direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of voting
securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other
equity interests representing at least 5% of the outstanding equity
securities or equity interests in a Person.
"SUBSIDIARY" -- with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect (either directly or indirectly) a majority of that corporation's
or other Person's board of directors or similar governing body, or otherwise
having the power to direct (either directly or indirectly) the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries.
"TAX" -- any tax however denominated, including any interest,
penalties or other additions to tax that may be payable in respect thereof,
imposed by any Governmental Body, including, without limitation, all income or
profit taxes, payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, ad valorem taxes, excise taxes,
5
<PAGE>
franchise taxes, gross receipts taxes, business license taxes, occupation
taxes, real and personal property taxes, stamp taxes, environmental taxes,
transfer taxes, workers' compensation, Pension Benefit Guaranty Corporation
premiums and any other governmental charges, and other obligations of the same
or of a similar nature to any of the foregoing, required to be paid, withheld
or collected.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
ARTICLE II
PURCHASE AND SALE
2.01 PURCHASE AND SALE OF SHARES AND WARRANTS. Upon the terms and subject
to the conditions of this Agreement and in consideration of the
Purchase Price, the Company shall sell, assign, transfer and deliver
to each Buyer and each Buyer shall purchase from the Company (I)
thirteen and one half (13.5) shares of Common Stock of the Company,
and in the aggregate, twenty seven (27) shares of Common Stock ("the
Shares"); and the Purchase Warrants.
2.02 PURCHASE PRICE. The aggregate purchase price ("Purchase Price") for
the Shares and the Purchase Warrants shall be $200,000 ($100,000 for
each Buyer) the ("Purchase Price").
2.03 CLOSING. The Closing shall take place upon the execution of this
Agreement at the offices of Silverman, Collura, Chernis & Balzano,
P.C.
ARTICLE III
AGREEMENT TO RESTRUCTURE
3.01 The Company, the Buyers and the Management Shareholders agree that in
the event that either Sterling Capital LLC and/or affiliates thereof,
or Peter Sahagen and/or his affiliates (collectively and /or
singularly referred to herein as the "Additional Investors") shall,
within 30 days of the Closing purchase additional common stock in the
Company (the "Additional Common Stock"), the capital stock of the
Company shall be restructured in order that following the issuance and
sale of the Additional Common Stock, the shareholders of the Company
shall respectively own the following percentages of outstanding common
stock:
(I) in the event the Additional Investors shall pay $100,000
for the Additional Common Stock:
Management Shareholders - 70%
Buyers - 20%
Additional Investors - 10%
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<PAGE>
(ii) in the event the Additional Investors shall pay $200,000
for the Additional Common Stock:
Management Shareholders - 60%
Buyers - 20%
Additional Investors - 20%
3.02 In the event that $200,000 of Additional Common Stock is sold by the
Company to the Additional Investors, the Purchase Warrants shall
expire and be of no further force or effect.
3.03 in the event that $100,000 of Additional Common Stock is sold by the
Company to the Additional Investors, upon sale of such Additional
Common Stock to the Additional Investors, the Buyers shall surrender
the Purchase Warrants to the Company in exchange for new warrants (the
"New Warrants") which shall be issued to the Buyers and to the
Additional Investors. The New Warrants will entitle the Buyers and the
Additional Investors, pro rata to their respective shareholdings, 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 and the Additional Shares:
30% of the issued and outstanding common stock of the Company
on a fully diluted basis immediately following the sale of
the first $400,000 of common Stock following the date of sale
of stock to the Additional Investors.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLERS AND THE COMPANIES
The Company and each of the Management Shareholders represent and
warrant to the Buyers as follows:
4.01. ORGANIZATION- CHARTER AND BY-LAWS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and has the corporate power and authority to own and
lease its properties, conduct its business, to enter into this
Agreement and the Contemplated Transactions and perform its
obligations hereunder. The Company has furnished to Buyer a complete
and correct copy of its Organizational Documents, each as amended to
date, each of which is in full force and effect. The Company is not in
violation of any of the provisions of its Organizational Documents
except where such violations would not, taken as a whole, have a
material adverse effect on the business of the Company.
4.02. AUTHORIZATION AND ENFORCEABILITY. This Agreement has been duly
executed and delivered by, and when executed and delivered by the
Company shall constitute, the legal, valid and
7
<PAGE>
binding obligation of the Company, enforceable against it in
accordance with its respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws now or hereafter
in effect relating to creditors' rights, and equitable principles.
4.03. SHARES; CAPITALIZATION. (a) The authorized capital stock of the
Company consists solely of the following:
<TABLE>
<CAPTION>
Authorized Shares
Shares of Issued and Par No. of Shares
Common Stock Outstanding Value (a) Shareholders of Record Owned of Record
- ------------ ----------- ----- -------------------------- ---------------
<S> <C> <C> <C> <C>
200 73 None Kyle Taylor 36.5
Don Senerath 36.5
</TABLE>
(b) None of the Shares are held in treasury. All of the Shares will be
conveyed to the Buyers free and clear of any and all liens, claims or
encumbrances. All of the Shares will be validly issued, fully paid and
nonassessable. There are no options, warrants or other rights,
agreements, arrangements for commitments of any character to which the
Company is a party or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company.
There are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any of the capital stock of
the Company or to provide funds to or make any investment (in the form
of a loan, capital contribution or otherwise) in any other entity. The
Company is not a party to any agreement granting registration rights
to any Person with respect to any equity or debt securities of the
Company.
4.04. SUBSIDIARIES AND INVESTMENTS. The Company does not own any shares of
capital stock of or equity interests in any subsidiary, corporation,
partnership, joint venture or other entity.
4.05. NO VIOLATION OF LAWS OR AGREEMENTS; CONSENTS. (a) None of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or thereby will: (I) contravene any
provision of the Organizational Documents of the Company, (ii) result
in an event of default (or an event that would, with the passage of
time or the giving of notice or both, constitute an event of default)
under the terms of any material indenture, mortgage or other material
Contract to which the Company is a party, or (iii) violate any law or
violate any judgment, Order or Legal Requirement to which the Company
is subject. No material consent which has not been received or which
will not be obtained prior to closing is required in connection with
the execution and delivery by any Seller and any Company of this
Agreement and the completion of the Contemplated Transactions; No
consent or approval by or notice to any Person is required in a
connection with the consummation of this agreement and/or change of
control of the Company.
4.06. FINANCIAL STATEMENTS. Attached hereto are the Financial Statements.
The Financial Statements present fairly the financial condition,
results of operations and cash flows of the Company as of the dates
thereof or for the periods covered thereby.
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<PAGE>
4.07. ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no liability or
obligation which would be required to be reflected on the Financial
Statements and would have a material adverse effect on the business of
the Company.
4.08. NO CHANGES. Since the Balance Sheet Date, each of the Companies has
conducted its business only in the Ordinary Course of Business.
Without limiting the generality of the foregoing sentence, since the
Balance Sheet Date, except as disclosed in this Agreement, there has
not been any: (I) material uninsured damage to any property owned or
leased by the Company; (ii) labor strike; (iii) declaration or payment
of any dividend or redemption of any shares of capital stock; (iv)
increases in the salaries or bonuses of any employee of the Company
outside of the Ordinary Course of Business or payment of any bonuses
to officers of the Company; (v) capital expenditures or other asset
acquisition or expenditure out of the Ordinary Course of Business;
(vi) issuance or sale of stock of the Company or options to purchase
stock of the Company; (vii) contract entered into by the Company which
is material to its operations; (viii) any material encumbrance
attaching to assets of the Company; (ix) any agreement or commitment
to do any of the foregoing.
4.09. TAX MATTERS. The Company has duly filed with the appropriate federal,
state and local governmental agencies all Tax Returns and reports
which are required to be filed, and have paid in full, or made
adequate provision for, all Taxes, interest, penalties. assessments
and deficiencies owed by it. Adequate accrual has been made in the
Financial Statements for all the accrued and unpaid federal, state and
local Taxes (including interest and penalties) of the Company for the
period then ended whether or not yet due and payable and whether or
not disputed. The Company has not executed or filed with the IRS or
any other taxing authority, any agreement extending the period for
assessment or collection of any taxes. In the last five tax years none
of the Tax Returns of the Company has been audited by any governmental
agency and the Company has not received notice of any intention to
audit any of such returns. The Company is not party to any pending
action or Proceeding, nor to the knowledge of Seller, is any action or
Proceeding threatened, by any Governmental Body for assessment or
collection of taxes, and no claim for assessment or collection of
taxes, has been asserted against the Company.
4.10. TITLE TO AND CONDITION OF PROPERTIES AND ASSETS. All machinery and
equipment and fixtures owned or leased by the Company, are described
in Schedule 4.10 hereto. The Company has good and marketable title to
all of its properties and assets including those reflected in the
Financial Statements and Schedule 4.10 hereto, subject to no mortgage,
pledge, lien, conditional sale agreement, security interest,
Encumbrance or other charge.
4.11. NO PENDING LITIGATION OR PROCEEDINGS. There are no actions, suits,
investigations, claims or proceedings (collectively, "Claims") of any
nature or kind whatsoever pending or, to the best knowledge of the
Sellers and the Companies, no Claims are threatened, nor is the
Company or the Management Shareholders aware of any occurrence or set
of facts which with the passage of time could give rise to a Claim
which would have a Material Adverse Effect on the Company, the Shares,
the Contemplated Transactions or the material Contracts of the
Company, at law or in equity, by or before any Governmental Body.
There are presently no material outstanding judgments, decrees or
orders of any governmental body against or affecting the Company.
9
<PAGE>
4.12. CONTRACTS. Schedule 4.12 identifies each material lease, contract,
indenture, mortgage or other agreement to which the Company is a
party, each of which is a legal, valid and binding obligation of the
Company and is in full force and effect.
4.13. CONTRACT COMPLIANCE. The Company is not in default in any material
respect under any material lease, contract, indenture, mortgage or
other agreement (collectively, the "Contracts").
4.14. TRANSACTIONS WITH RELATED PARTIES. Neither the Management Shareholders
nor any Related Persons thereof, is party to any agreement with the
Company, is indebted to the Company, or is due any debt or obligation
from the Company.
4.15. BANKING RELATIONS. All of the bank accounts letters of credit, loans
and other transactions which the Company has with any banking
institution are described in Schedule 4.15 hereto, indicating with
respect to each of such arrangement the type of arrangement maintained
and the person or persons authorized to act on behalf of the Company
in respect thereof and identification of each account maintained by
the Company. The Company has not given any person a power of attorney
to act on its behalf with respect to such arrangements.
4.16. BROKERS AND FINDERS FEES. Neither the Management Shareholders nor the
Company has employed any broker or finder or incurred any liability
for any brokerage fees, commissions or finder's fees in connection
with the Contemplated Transactions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.01. NO VIOLATION OF LAWS OR AGREEMENTS. None of the execution and delivery
of this Agreement, or the consummation of the Contemplated
Transactions will: (I) result in an event of default (or an event that
would, with the passage of time or the giving of notice or both,
constitute an event of default) under any of the terms of any material
indenture, mortgage or other contract to which any Buyer is a party,
or (ii) violate any law or violate any judgment or order of any
governmental body to which any Buyer is subject. No material consent
is required in connection with the execution and delivery by any Buyer
of this Agreement.
5.02. INVESTMENT REPRESENTATIONS -- (I) Each Buyer has had a reasonable
opportunity to ask questions of and receive answers from the Company
concerning the Company and the offering, and all such questions, if
any, have been answered to the full satisfaction of each Buyer;
(ii) Each Buyer has such knowledge and expertise in financial and
business matters that he is capable of evaluating the merits and risks
involved in an investment in the Company;
(iii) Except as set forth herein, no representations or warranties
have been made by the Company, or any agent, employee or affiliate of
the Company, to any Buyer and in entering
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<PAGE>
into this transaction each Buyer is relying solely upon information
developed from his independent investigation of the Company;
(iv) Each Buyer understands that (A) the Common Stock and Purchase
Warrants issued hereunder (collectively, the "Shares") have not been
registered under federal securities laws or the securities laws of any
state, based upon an exemption from such registration requirements for
non-public offerings to "accredited investors"; (B) the Shares are and
will be "restricted and securities", as said term is defined in Rule
144 of the Rules and Regulations promulgated under the Act; (c) the
Shares may not be sold or otherwise transferred unless they have been
first registered under the federal securities laws and all applicable
state securities laws, or unless exemptions from such registration
provisions are available with respect to said resale or transfer; (D)
the Company is under no obligations to register the Shares, or to take
any action to make any exemption from any such registration provisions
available; (E) the certificates for the Shares will bear a legend to
the effect that the transfer of the same represented thereby is
subject to the provisions hereof; and (F) sop transfer instructions
will be placed with the transfer agent for the Shares;
(v) Each Buyer is acquiring the Shares solely for his own account, for
investment purposes only, and not with a view towards the resale or
distribution thereof;
(vi) Each Buyer is an "accredited investor", as such term is defined
in Regulation D of the Rules and Regulations promulgated under the
Securities Act of 1933, as amended.
5.03. BROKERS AND FINDERS FEES. None of the Buyers has employed any broker
or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the Contemplated
Transactions.
ARTICLE VI
CERTAIN COVENANTS
6.01. KEY MAY LIFE INSURANCE POLICIES. Within 30 days of the Closing Date
the Company shall use its best efforts to purchase a key man life
insurance policy on the life of Senerath in the amount of $500,000.
6.02. LEGENDS. It is understood that the certificates evidencing the Shares
shall bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND THESE SECURITIES MAY NOT BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT,
AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE
DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
6.03. COVENANT NOT TO COMPETE.
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(a) For a period of two (2) years from the date of termination of
employment of any Management Shareholder with the exception of
termination by the Company without substantial cause, such Management
Shareholder agrees for himself that he will not, directly or
indirectly, (I) 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 the Company; (ii) solicit or endeavor to entice
away from the Company, any Person who is, or was during the then most
recent 6 month period, employed by or associated with the Company,;
(iii) solicit or endeavor to entice away from the Company, any person
or entity who is, or was within the then most recent 6 month period, a
customer, client or prospect of the Company, or (iv) be a member of a
partnership or stockholder, investor, creditor, officer, director,
employee, agent, associate or consultant of any person, partnership or
corporation which does any of the acts described herein. Management
Shareholders acknowledge and agree that the remedies available to the
Company and Buyers at law in the event of a breach of any of her
covenants in this section will be inadequate, and Buyers and the
Company or any successor shall be entitled to injunctive relief for
the enforcement of this section, in addition to all other remedies
which may be available to Buyers or the Company.
(b) In the event a Management Shareholder is terminated by the Company
without substantial cause, as a condition to the enforcement of
Section 6.03(a), he 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. For purposes of this Section, a termination of a Management
Shareholder for substantial cause shall mean a termination for one or
more of the following reasons:
(1) Fraud, misappropriation or embezzlement; or
(2) Gross neglect of duties or an act of gross
misconduct which has a detrimental effect on the
Company; or
(3) Conviction by a court of competent jurisdiction of a
felony or a crime involving moral turpitude; or
(4) Material breach of Section 6.04 of this Agreement;
or
(5) Any act of dishonesty or disloyalty constituting a
violation of Executive's fiduciary responsibility to
the Company.
6.04. CONFIDENTIALITY. (a) The Management Shareholders and the Buyers
acknowledge that certain proprietary and/or confidential information
concerning the Company ("Information") has or may be disclosed to them
in the course of their association with the Company as employee,
shareholder, officer and/or director. The Management Shareholders and
the Buyers covenant and agree that they shall:
(I) hold the Information in confidence, exercising a
degree of care not less than the care used by
Management Shareholders to protect their own
proprietary
12
<PAGE>
or confidential Information that Management
Shareholders do not wish to disclose; and
(ii) restrict disclosure of the Information solely to
those employees, agents representatives and
consultants with a need to know in order to complete
the Contemplated Transactions, and not disclose it
to any other person;
(b) The Information shall be deemed the property of the Company
and, upon request, the Management Shareholders and/or Buyer
will return all Information received in tangible form to the
disclosing party or will destroy all such Information at the
Company"s direction.
(c) The Management Shareholders and/or Buyers acknowledge that in
the event of any unauthorized disclosure, the damages
incurred by the Company and the Buyers may be difficult if
not impossible to ascertain; and that the Company may seek
injunctive relief as well as monetary damages for such
improper disclosure.
ARTICLE VII
CONDITIONS TO CLOSING
7.01. DELIVERIES AND PROCEEDINGS AT CLOSING.
(a) DELIVERIES BY SELLERS. The Company shall deliver or cause to be
delivered to the Buyers at the Closing:
(I) Certificates representing the Shares and Warrants duly
endorsed in negotiable form.
(ii) Certificates of the appropriate public officials to the
effect that the Company is validly existing corporation in
good standing under the laws of the state of incorporation.
(iii) Certificate of the Secretary of the Company setting
forth all resolutions of the Board of Directors of the
Company authorizing the execution and delivery of this
Agreement and the performance by the Company of the
Contemplated Transactions.
(b) DELIVERIES BY THE BUYERS. Each of the Buyers shall deliver or
cause to be delivered to the Company at the Closing:
(I) The Purchase Price, by check or wire transfer of
good funds to an account designated by the Company;
ARTICLE VIII
INDEMNIFICATION
8.01. INDEMNIFICATION BY COMPANY AND MANAGEMENT SHAREHOLDERS.
(a) The Company and Management Shareholders shall jointly and
severally indemnify, defend, save and hold Buyers harmless from and
against all demands, claims, expenses
13
<PAGE>
(including reasonable attorneys' fees but excluding indirect,
incidental or consequential damages incurred by Buyer), losses or
actions (collectively "Claims") incurred by Buyer or the Company in
connection with (I) any material inaccuracy or breach of the
representations and warranties or schedules made by Management
Shareholders or the Company in this Agreement or any material breach
of any of the covenants or agreements made by Management Shareholders
or the Company in this Agreement; or (ii) any Claims listed or
referred to in the Schedules incorporated therein unless and to the
extent that such Claims are paid by applicable insurance.
(b) The indemnification provided for in subparagraph (a) shall be
limited to Claims which are made within two years from the date of
Closing.
8.02. INDEMNIFICATION BY BUYERS
(a) The Buyers shall severally indemnify, defend, save and hold the
Company harmless from and against all demands, claims, expenses
(including reasonable attorneys' fees but excluding indirect,
incidental or consequential damages incurred by the Company), losses
or actions (collectively "Claims") incurred by the Company in
connection with (I) any material inaccuracy or breach of the
representations and warranties made by Buyers in this Agreement or any
material breach of any of the covenants or agreements made by Buyers
in this Agreement.
(b) The indemnification provided for in subparagraph (a) shall be
limited to Claims which are made within two years from the date of
Closing.
ARTICLE IX
MISCELLANEOUS
9.01 CONSTRUCTION. As used herein, unless the context otherwise requires:
(I) references to "Article" or "Section" are to an article or section
hereof; (ii) all "Exhibits" and "Schedules" referred to herein are to
Exhibits and Schedules attached hereto and are incorporated herein by
reference and made a part hereof; (iii) "include", "includes" and
"including" are deemed to be followed by "without limitation" whether
or not they are in fact followed by such words or words of like
import; (iv) "knowledge" means actual knowledge; (v) the headings of
the various articles, sections and other subdivisions hereof are for
convenience of reference only and shall not modify, define or limit
any of the terms or provisions hereof.
9.02. COSTS AND EXPENSES. Buyers and the Company shall each pay their
respective expenses incurred in connection with this Agreement and the
Contemplated Transactions hereby, except as otherwise specifically
provided herein.
9.03. GOVERNING LAW AND JURISDICTION. This Agreement will be governed by,
and construed in accordance with, the laws of the State of New York,
without regard to conflict of law principles. The Buyer, the Sellers
and the Company submit to the jurisdiction of the courts of the state
of New York located in New York City, the courts of the United States
of America for the Eastern District of New York, and appellate courts
from any thereof, and agree that such courts are convenient forums
with respect to any dispute arising in connection with or under the
terms of this Agreement.
14
<PAGE>
9.05. FURTHER ASSURANCES. The Company shall, at any time and from time to
time on and after the Closing Date, upon request by Buyers and without
further consideration, take or cause to be taken such actions and
execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such instruments, documents, transfers,
conveyances and assurances as may be required or desirable for the
better conveying, transferring, assigning, delivering, assuring and
confirming the Shares to Buyer and execute any documents required with
respect to the sale of the Shares pursuant to this Agreement.
9.06. NOTICES. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been
duly given or made (I) the second business day after the date of
mailing, if delivered by registered or certified mail, postage
prepaid, return receipt requested, (ii) upon delivery, if sent by hand
delivery, (iii) upon delivery, if sent by prepaid overnight carrier,
with a record of receipt, or (iv) the next day after the date of
dispatch, if sent by cable, telegram, overnight carrier, facsimile or
telecopy (with a copy simultaneously sent by registered or certified
mail, postage prepaid, return receipt requested), to the parties at
the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
(I) if to Buyers, to:
Dalia Silverman
200 West 58th Street
New York, NY 10019
Kleopatra Georgiades
c/o Stallion Inc.
150 West 30th Street
New York, NY 10001
Sterling Capital LLC
350 Park Avenue
14th Floor
New York, NY 10022
with a required copy to:
Peter Silverman, Esq.
381 Park Avenue South Suite 1601
New York, NY 10016
Fax: (212) 779-8858
(ii) if to the Company:
You Network, Inc.
220 East 23rd Street, Suite 607
New York, NY 10016
Attn: Kyle Taylor
15
<PAGE>
9.07. ASSIGNMENT; GOVERNING LAW. This Agreement and all the rights and
powers granted hereby shall bind and inure to the benefit of the
parties hereto and their respective permitted successors, heirs,
personal representatives and permitted assigns. This Agreement and the
rights, interests and obligations hereunder may not be assigned by any
party hereto without the prior written consent of the other parties
hereto provided that Buyer may assign this Agreement to an affiliate
of the Buyer. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to
its conflict of law rules.
9.08. AMENDMENT AND WAIVER; CUMULATIVE EFFECT. To be effective, any
amendment or waiver under this Agreement must be in writing and be
signed by the party against whom enforcement of the same is sought.
The rights and remedies of the parties hereto are cumulative and not
exclusive of the rights and remedies that they otherwise might have
now or hereafter, at law, in equity, by statute or otherwise.
9.09. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and the
schedules and exhibits hereto set forth all of the promises,
covenants, agreements, conditions and undertakings between the parties
hereto with respect to the subject matter hereof, and supersede all
prior or contemporaneous agreements and understandings, negotiations,
inducements or conditions, express or implied, oral or written,
including the letter of intent, as amended. This Agreement is not
intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
9.10. SEVERABILITY. If any term or other provision of this Agreement is held
by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced under any rule of law in any particular
respect or under any particular circumstances, such term or provision
shall nevertheless remain in full force and effect in all other
respects and under all other circumstances, and all other terms,
conditions and provisions of this Agreement shall nevertheless remain
in full force and effect so long as the economic or legal substance of
the Contemplated Transactions hereby is not affected in any manner
materially adverse to any party. Upon final determination by a court
of competent jurisdiction that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner to the end that the Contemplated Transactions hereby are
fulfilled to the fullest extent possible.
9.11. COUNTERPARTS. This Agreement may be executed in two or more facsimile
counterparts, each of which shall be deemed to be an original but all
of which together shall be deemed to be one and the same instrument
followed by exchange of original execution documents between the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and Year first above written.
YOU NETWORK, INC.
16
<PAGE>
By: /s/ Kyle Taylor
------------------------- ----------------------------
Kyle Taylor
/s/ Don Senerath /s/ Dalia Silverman
- ----------------------------- ----------------------------
Don Senerath Dalia Silverman
Kleopatra Georgiades
By: /s/ Achilles Georgiades
-------------------------
Achilles Georgiades,
her Attorney in Fact
<PAGE>
ATTACHMENT 1
TERMS AND CONDITIONS
EFFECTIVE DATE:
o January 4, 1999
TERM:
o One (1) years from effective date.
o Agreement will renew automatically for successive one (1) year periods
unless either of the parties notifies the other in writing of its desire to
terminate the Agreement at least sixty (60) days before the end of the term
or any successive term.
o Upon thirty (30) days written notice to Muze that licensee is no longer in
the business of selling products listed in the Muze database Products,
Licensee may terminate this Agreement. Any such termination shall not
extinguish any of Licensee's obligations accrued prior to the termination
date.
PRODUCTS, FORMAT, MEDIUM:
o CHECK ALL THAT APPLY
o [X] Muze for Music (database only), on-line version
o [X] Muze for Video (database only), on-line version
o [X] Muze for Books (database only), on-line version
o [ ] Encyclopedia of Popular Music (database only), on-line version
SITES, HARDWARE, AND OTHER LIMITATIONS:
o Licensee's use of the Products shall be limited to the following website(s)
for on-line sales transactions (a separate license fee may be due for each
site; see below for definition of single site):
o List URL(s): www.younetwork.com
o The Products may only run on a single server. Multiple URL's linked to the
same site for on-line sales transactions generally constitute a single
site, as do mirrored on-line sales transactional sites.
o Licensee shall not offer, or knowingly permit others to offer, public
internet access terminals at any retail location where its products are
sold.
o Licensee shall not display to end users the catalog numbers (except for
catalog numbers for classical music) or UPC numbers that may be contained
in the Products.
PAYMENT AND TERMS:
o Fees shall be payable beginning the earlier of the date Licensee's site
(URL listed above) is running the Products and is accessible to Licensee's
end users via the internet, or March 1, 1999.
Attachment 1 to License Agreement
Muze Confidential Page 1 of 3
<PAGE>
o The minimum monthly license fee is $1,000.00 per Product for each of Muze
for Music, Muze for Video and Muze for Books. Minimum fees shall be paid on
the first day of each month for which they are due.
o For each Product licensed, if greater than the monthly minimum, the monthly
license fee shall be calculated based on the following rates, and shall be
due by the fifteenth day of the following month, with a credit for the
minimum already paid:
o for each on-line sale of any Licensee product listed in the database
of the Muze for Music Product (plus the premium if the Agreement also
covers ):
---------------------------------------------------------------
ON-LINE SALES PRICE PER UNIT
(PER MONTH) SOLD
---------------------------------------------------------------
Sale of first 0-14,999 units $.25
---------------------------------------------------------------
Sale of succeeding 15,000 - 24, 999 units $.22
---------------------------------------------------------------
Sale of succeeding 25,000 - 34,999 units $.19
---------------------------------------------------------------
Sale of succeeding 35,000 units and over $.15
---------------------------------------------------------------
[By way of explanation, in each calendar month, on-line product sales
of 0-14,999 units are billed at $.25 per; on-line product sales of
15,000-24,999 units are billed at $.22 per unit); on-line product
sales of 25,000-34,999 units are billed at $.19 per unit and on-line
product sales of 35,000 units and over are billed at $.15 per unit]
o for each on-line sale of any Licensee product listed in the database
of the Muze for Video Product:
---------------------------------------------------------------
ON-LINE SALES PRICE PER UNIT
(PER MONTH) SOLD
---------------------------------------------------------------
Sale of first 0-14,999 units $.25
---------------------------------------------------------------
Sale of succeeding 15,000 - 24, 999 units $.22
---------------------------------------------------------------
Sale of succeeding 25,000 - 34,999 units $.19
---------------------------------------------------------------
Sale of succeeding 35,000 units and over $.15
---------------------------------------------------------------
o for each on line sale of any Licensee product listed in the database
of the Muze for Books Product:
two percent (2%) of Licensee's retail price of all such sales
o If Licensee delivers any of its products by digital download (as opposed to
physical delivery on a tangible medium), the license fee for such sales
shall be separately accounted for as follows:
o Digital download sales shall not affect the minimum fees set forth
above.
o The monthly license fee for such sales shall be two percent (2%) of
the retail price of all such sales, due the fifteenth day of the
following month.
o Licensee shall report its sales to Muze monthly by number of items sold.
Licensee shall maintain records (including title, artist and format)
sufficient to back up such reports for a rolling three-year period.
o Muze may audit Licensee's records once each year. If an audit shows an
underpayment of more than five percent (5%) for any month, Licensee shall
pay the reasonable costs of the audit.
o Licensee shall not have any interest in any other website that engages in
the sale or fulfillment of products listed in the Product databases, unless
Licensee ensures that Muze receives all fees which would otherwise be due
Muze based on transactions (as set forth above) at such alternative
locations.
Attachment 1 to License Agreement
Muze Confidential Page 2 of 3
<PAGE>
SERVICES:
o For so long as Licensee is in compliance with its obligations under the o
Agreement, Muze will provide updates of data and/or software relevant to
the licensed Products approximately every week for Muze for Music, every
two weeks for Muze for Video and every month for Muze for Books.
o Muze will provide the updates in one of Muze's standard formats/media, as
agreed by the parties. Licensee shall return each update (unless updates
are downloaded by agreement with Muze) before receiving the next update.
o Any custom work provided by Muze shall be at Muze's standard rates pursuant
to an authorized work order.
RIGHTS NOTICES:
o Licensee shall ensure that the following credits and rights notices appear
on each page of its website from which end users may access the Products:
o For Muze for Music:
"Copyright 1948-(current year) Muze Inc. For personal non-commercial use only.
All rights reserved."
o For Muze for Video:
"Copyright 1981-(current year) Muze Inc. For personal non-commercial use only.
All rights reserved."
o For Muze for Books:
"Copyright 1995-(current year) Muze Inc. For personal non-commercial use only.
All rights reserved."
o On all pages from which the Products may be accessed:
The Muze logo, as supplied electronically with the Products.
Attachment 1 to License Agreement
Muze Confidential Page 3 of 3
<PAGE>
LICENSE AGREEMENT
Based on their respective representations, warranties, covenants, rights, and
responsibilities, set forth below, Muze Inc., at 304 Hudson Street, 8th Floor,
New York, NY 10013, Fax No. 212.741.1246, a New York corporation, and
YouNetwork Corp. at 220 East 23rd St., Suite 607,New York, NY 10010, Fax No.
212.576.2039 a New York corporation, enter into this License Agreement as
follows:
1. DEFINITIONS
"Agreement" means this License Agreement, including its attachment(s).
"Terms and Conditions" means the specific additional terms and conditions of
this Agreement set forth in Attachment 1 (as may be amended from time to time).
"Effective Date" means the date this Agreement enters into force, noted in the
Terms and Conditions.
"Hardware" means the computer and other hardware on which the Products run (the
Hardware is listed in Attachment 1 unless Muze supplies any of the Hardware, in
which case Hardware and the terms of purchase are set forth in an
Attachment 2).
"Licensee" means YouNetwork Corp.
"Muze" means Muze Inc.
"Products" means data and/or software and periodic updates licensed by Muze to
Licensee under this Agreement, as set forth in the Terms and Conditions.
"Services" means the services provided by MUZE to Licensee under this
Agreement, if any, as described or provided for in the Terms and Conditions.
2. GRANT OF LICENSE
Muze grants Licensee a non-exclusive, non-transferable, limited right to use
the Products strictly in accordance with all the provisions of this Agreement.
This license shall be immediately terminable by Muze for any material breach by
Licensee of its obligations under this Agreement.
Unless terminated by Muze as provided for above, the license and this Agreement
shall continue in force for the time period set forth in the Terms and
Conditions. Should Muze terminate this Agreement because of a material breach
by Licensee, it will not refund any portion of the license fees or other fees
(as provided for in the Terms and Conditions) already paid by Licensee or
already accrued at the time of termination. Unless otherwise provided in the
Terms and Conditions, this Agreement shall automatically be extended for
successive one-year periods at the end of the initial term.
All ownership rights in the Products and any related know-how, and in any works
that may be created by Muze as part of the Services, shall remain with Muze.
Licensee shall not contest Muze's ownership rights in the Products or any such
works.
3. LICENSEE'S OBLIGATIONS
Licensee shall:
a. Use the Products only on the Hardware, at the locations, and according to
the conditions specified in the Terms and Conditions.
b. Make all payments required by the Terms and Conditions in a timely manner.
c. Comply with all applicable laws and regulations regarding use of the
Products, including any laws or regulations relating to sale of goods and
services and to privacy rights. Licensee shall be responsible for determining
the existence and applicability of any such laws and regulations and for
obtaining any necessary permits or approvals for use of the Products.
d. Restrict its end users to non-commercial use of the Products and notify each
of its end users of the Products that the Products are owned by Muze and may
not be copied or used without Muze's consent. Licensee shall incorporate the
rights notices set forth in the Terms and Conditions in its end-user interface.
e. Keep confidential all of Muze's proprietary information provided to it under
this Agreement (or under any previous Confidentiality Agreement) during the
term of this Agreement and for ten (10) years after termination. This
obligation shall apply to any information identified by Muze as confidential
and any information that Licensee knows, or should know under the
circumstances, is proprietary. Muze proprietary information may include the
Products, documentation, technical information, business or technical concepts
or designs. Licensee's obligation
Muze Confidential Page 1 of 3
<PAGE>
shall not apply to information: (a) lawfully in the public domain, (b) Licensee
lawfully possessed before disclosure by Muze, or (c) lawfully disclosed to
Licensee by a third party without obligation of confidentiality. Upon
termination of this Agreement, Licensee shall return or destroy, at Muze's
election, any Muze proprietary information still in its possession.
f. Upon termination of this Agreement, return or destroy, at Muze's election,
the Products and any copies, as well as any matter that incorporates any other
Muze proprietary or confidential information.
g. Permit Muze to use Licensee's name as a customer reference and prominently
feature a link to Muze's web site if the Products are available to end users on
the internet pursuant to the Terms and Conditions.
h. Indemnify Muze against any claims made against Muze (or its affiliates,
officers, directors, employees, or contractors) by third parties (including by
any of Licensee's employees or contractors) arising out of (a) content,
software, or hardware not provided by Muze, (b) Licensee's breach of any of its
obligations under this Agreement, or (c) any illegal or unauthorized use of the
Products by Licensee, its employees, contractors, or end users. Muze shall
promptly notify Licensee of any such claim. Licensee shall conduct the defense
of any such claim, at its own expense, subject to Muze's right to participate
and to approve any settlement that purports to bind Muze in any way.
Licensee shall not:
a. Use the Products other than at the sites and in the manner set forth in the
Terms and Conditions.
b. Reverse engineer, decompile, or disassemble the Products, nor shall it
modify the Products or create any derivative works.
c. Assign, sell, rent, timeshare or use the Products in any way not expressly
permitted in this Agreement.
d. Sublicense the Products to any party, including to its affiliates, unless
specifically authorized to do so in the Terms and Conditions.
e. Make any copies of the Products, except (a) as necessary to run the Products
on the Hardware and (b) one copy for archival or backup purposes.
f. Intentionally or negligently permit any third party to copy the Products or
extract data or code from them.
g. Remove any Muze copyright or other proprietary rights notices included in or
on any of the Products.
h. Use Muze's trademarks without written consent.
Licensee represents and warrants that:
a. It is authorized to enter into this Agreement.
b. It is free to fully perform its obligations under this Agreement and will
comply with each of them.
4. MUZE'S OBLIGATIONS
Muze shall:
a. Indemnify Licensee from any claim by a third party that proper use of the
Products infringes a U.S. intellectual property right of that third party. This
indemnity is conditioned on Licensee's (a) prompt notification of Muze of any
such claim and (b) compliance with its negative covenants. This indemnity shall
not apply to (i) graphical, audio, video, or other media content, or
third-party software, supplied with or as part of the Products or (ii) any
software or systems not provided by Muze. Muze shall have the right to conduct
the defense of any such claim, subject to Licensee's reasonable right to
participate in any settlement thereof that may affect it in any way not related
to its use of the Products. Should any such claim by a third party result in a
material limitation of Licensee's rights to use the Products, Muze shall, at
its election: (a) provide a functionally equivalent, non-infringing substitute
for the Product(s); (b) procure at its own expense the necessary licenses or
rights for Licensee to continue using the Product(s); or (c) refund any license
fees paid by Licensee for the period beginning upon such material limitation of
Licensee's rights. In no case shall Muze's liability under this Agreement
exceed the total license and other fees paid by Licensee.
b. Perform the Services, if any, (specified in the Terms and Conditions) in a
professional manner and to a professional standard of quality and
effectiveness.
Muze represents and warrants that:
a. It is authorized and has the right to enter into this Agreement and is free
to fully perform its obligations hereunder.
b. It shall comply with all of its obligations hereunder.
Muze Confidential Page 2 of 3
<PAGE>
5. DISCLAIMER OF WARRANTIES; LIMITATION ON LIABILITY
EXCEPT AS SET FORTH ABOVE, Muze MAKES NO WARRANTIES, EXPRESS OR IMPLIED (BY LAW
OR OTHERWISE) AS TO ANY MATTER WHATSOEVER. THE PRODUCTS ARE PROVIDED "AS IS,"
AND ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE ARE EXPRESSLY EXCLUDED.
EXCEPT AS SET FORTH ABOVE, Muze SHALL NOT BE LIABLE FOR ANY CLAIMS AGAINST
Licensee BY ANY THIRD PARTY (INCLUDING BY Licensee's EMPLOYEES OR CONTRACTORS).
IN NO CASE SHALL ANY LIABILITY OF Muze EXCEED THE TOTAL LICENSE AND OTHER FEES
PAID TO Muze BY Licensee HEREUNDER. FURTHERMORE, Muze SHALL UNDER NO
CIRCUMSTANCES (OTHER THAN WILLFUL MISCONDUCT) BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL OR INDIRECT DAMAGES.
6. OTHER PROVISIONS
Press Releases: Muze and Licensee shall each have the reasonable right to
approve the other's press releases concerning the business relationship of the
parties. If one party does not respond to the other party's request for
approval within five (5) business days of receiving any such request, approval
shall be deemed granted.
Governing law and dispute resolution: This Agreement shall be governed by New
York law, as though executed and fully performed in New York, and without
reference to New York's conflicts of laws principles. Licensee consents to
venue and personal jurisdiction in the State and Federal courts located in New
York County for the resolution of any disputes arising out of this Agreement.
Licensee acknowledges that any breach by it of its obligations under this
Agreement may cause Muze irreparable harm for which there may be no adequate
remedy at law, and that Muze may therefore be entitled to equitable relief by
injunction or otherwise.
Amendment or waiver: Any amendment to this Agreement must be in writing and
signed by both parties. No provision of this Agreement may be waived except in
writing signed by the party against whom enforcement of the waiver is sought.
Notices: Notices shall be sent by courier or by certified mail to the addresses
set forth above, or to any succeeding address that may be provided.
Independent Contractors: Both parties acknowledge that they are independent
contractors and that no joint venture, partnership, agency, or employment
agreement is created by this Agreement.
Entire Agreement: This Agreement and its Attachment(s) constitute the parties'
entire agreement with respect to the subject matter hereof and supersede all
prior and contemporaneous oral and written representations with respect
thereto.
Signed:
Muze Inc. YouNetwork Corp.
By /s/ Anthony Laudico By /s/ /s/ Kyle S. Taylor
--------------------------- ---------------------------
Name: Anthony Laudico Name:
Title: Chief Executive Officer Title:
Muze Confidential Page 3 of 3
<PAGE>
RESIDENTIAL DISTRIBUTOR PROGRAM AGREEMENT
It is agreed on this 6 day of March, 1998 by and between LCI
International Telecom Corp. (hereinafter "LCI"), a Delaware Corporation with
its principal place of business at 4650 Lakehurst Court, Dublin, Ohio 43016 and
YouNetwork, Corporation (hereinafter "Representative"), whose address is
11 Maiden Lane, Suite 8E New York, New York 10038.
1. GRANT OF AUTHORITY
a.) LCI appoints Representative as a non-exclusive representative in
the territory set forth in Exhibit A to promote the sale of and
solicit orders for the services defined in Exhibit A ("Services")' all
subject to the terms and conditions of this Agreement. Representative
agrees to use its best efforts in selling LCI's services to Customers,
including having each Customer sign or electronically approve a Letter
Of Agency ("LOA") substantially in the form set forth in Exhibit C of
this Agreement. Representative agrees to provide a copy of Exhibit C
and other documentation regarding LCI to Customers. LCI reserves the
right to add to or delete from the Services as may be required from
time to time. Such additions or deletions will be specified in writing
by LCI. Tariffs relating to the Services and the LOA may be changed by
LCI at its sole discretion. Representative further agrees to secure
and use at its own expense within 30 days, for the purpose of
communication and electronic download of LOAs to LCI, the equipment or
its equivalent as outlined in Exhibit E.
b.) Notwithstanding the foregoing, Representative will only use those
means of marketing and selling LCI services, provided under this
Agreement, which are mutually acceptable to LCI and Representative and
agreed to in writing. Accordingly, Representative agrees to submit a
sales and marketing plan within thirty (30) days of execution of this
Agreement for approval by LCI. Representative agrees to submit any
changes in the sales and marketing plan to LCI for written approval,
prior to any implementation by Representative. Solicitation by direct
mail, by telemarketing, sweepstakes, contests, or drawings is not
permitted by Representative, its employees, agents, or contractors
under this Agreement without prior written approval by LCI.
c.) Representative shall send a verification by email to each customer
that electronically agrees to switch to LCI via Representative's
website.
2. COMMISSION
Representative shall receive commissions in accordance with the
commission structure set forth in Exhibit B (attached), provided
however, no commission shall be paid on existing LCI account
conversions or new accounts that call LCI directly to subscribe to LCI
services (other than inbound programs previously approved by LCI in
writing). usly approved by LCI in writing).
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3. RELATIONSHIP
The parties agree and understand that Representative is an independent
contractor and there is no employer-employee relationship, joint
venture or agency created hereby. During the term of this Agreement
and for twenty-four (24) months following the termination of this
Agreement, Representative shall not, directly or indirectly, convert
any LCI account to any other interlata telecommunications carrier.
Representative shall not enter into any oral or written agreement with
a competitor of LCI similar to this Agreement nor shall
Representative, directly or indirectly, market, solicit or sell
services of a competitor of LCI. Representative has no authority to act
for, or on behalf of LCI. Representative is not authorized to incur
any obligation on behalf of LCI or to bind LCI in any manner
whatsoever. Representative will not make any representations of rates,
terms or conditions of the Services that conflict with the applicable
tariffs or information provided by LCI. LCI shall incur no obligation
to employees, contractors or other parties utilized by Representative
in selling services to customers for LCI. Such individuals shall at all
times remain employees, agents or contractors of Representative.
Representative is responsible for all expenses and obligations
incurred by it as a result of its efforts to solicit customers for
LCI. Representative shall be responsible for payment of all taxes due
as a result of payments made to Representative by LCI.
4. CUSTOMER SERVICE
a.) Representative shall not provide customer service to any customers
solicited by Representative, including billing, collections or repair
service. Customers attracted by Representative are customers of LCI
and shall remain customers of LCI after termination of this Agreement.
b.) LCI shall provide initial training to a limited number of
Representative's employees, staff and agents with the intent that said
employees, staff and agents will train the remainder of the employees,
staff and agents affiliated with Representative and all other training
and support shall be at Representative's expense unless otherwise
agreed in writing by the parties hereto. The number of persons to be
trained by LCI as well as date and location of training shall be upon
mutual agreement of parties. LCI, at its sole discretion, reserves the
right to charge Representative for LCI providing training or support
to employees, staff and agents if any of the same contact LCI directly
to request product information, sales support, training, account
status, commission information or other related matters. LCI may
charge Representative for such support at a rate of $45.00 per hour,
billed to Representative. LCI will notify Representative, in writing,
prior to the implementation of such billing. LCI will provide to the
Representative, the name, telephone number, and nature of the request
of employee, agent, or contractor for which any charge for the
aforementioned support is incurred by the Representative.
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5. PRODUCT LITERATURE AND MARKETING
a.) LCI agrees to assist Representative in designing a master
subscription form (LOA) for printing, to include specific language
required for authorizing the change in a customer's Primary
Interexchange Carrier (PIC) to LCI. Other sales materials may also be
developed by and purchased from LCI by Representative at prices
normally charged to LCI's residential distributors, representatives,
and contractors. Representative, the Representative's agents,
contractors or franchises shall not develop or use any other product
literature other than that provided by LCI without the prior written
consent of LCI. At least fifteen (15) days prior to any publication,
Representative shall submit to LCI for approval, all materials to be
used in advertising or promoting LCI services.
6. ORDER PROCESSING, BILLING AND COLLECTION
a.) LCI shall have the sole right to accept or reject all orders, to
fix the prices of the Services, the terms and conditions of the
Service or other adjustments and to discontinue offering or selling
any service, without liability to Representative. Representative
agrees that all orders submitted to LCI are subject to verification
and approval by LCI, at its sole discretion.
b.) Representative shall obtain a signed or electronically authorized
PIC authorization (LOA), in a format approved by LCI, for each
customer sold hereunder. If Representative submits service order
information electronically to LCI then upon an oral or written request
by LCI, Representative shall produce a copy of the LOA within
forty-eight (48) hours for the customer telephone number requested. If
Representative does not comply with the request for LOA, LCI reserves
the right not to accept all additional service order information until
Representative complies.
c.) Representative will safeguard against the submission of invalid
PIC authorizations (LOAs). If LCI receives invalid LOAs totaling more
than two percent (2%) of the total LOAs submitted by Representative in
any month, then LCI may suspend accepting LOAs and/or service order
information or terminate this Agreement immediately.
d.) In the event a local telephone company (LEC) or any regulatory
entity assesses LCI any charges for improper or inadequate PIC
authorizations relating to LCI services ordered through
Representative, Representative shall promptly reimburse LCI for all
LEC or regulatory charges, plus an LCI management fee of twenty-five
dollars ($25.00) per customer telephone number ordered through
Representative that is deemed to lack proper PIC authorization. In
addition, LCI shall chargeback to Representative all Installation
Commissions and Usage Commissions and any other payments previously
made to any other payments previously made to Representative in
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connection with the sale with the improper or inadequate PIC
authorization. Payment for said charges may be withheld from payable
commissions.
e.) Upon the request of LCI, Representative will provide to LCI or the
LEC, at Representative's expense, any documentation required by the
LEC regarding PIC selections or authorizations for customers sold
hereunder. In addition, Representative shall promptly and in good
faith cooperate with LCI and all LEC's in attempting to resolve all
PIC selection and authorization disputes.
f) Representative shall provide, at Representative's cost, a copy of
"LCI's POLICIES AND PROCEDURES REGARDING SLAMMING PREVENTION"
including an "Acknowledgment" form as set forth in Exhibit D, to all
employees, agents, contractors, or independent distributors involved
in the selling of LCI services. Representative shall have the
employee, agent, contractor, or independent distributor review the
aforementioned policy and return to the Representative a signed
"Acknowledgment" form, indicating they understand and will comply
with the LCI policy. Representative further agrees to produce a copy
of the signed "Acknowledgment" form within forty-eight (48) hours,
upon LCI's request, for any employee, agent, contractor, or
independent distributor. If Representative does not comply with the
request for providing a signed "Acknowledgment" form, then LCI may
suspend accepting LOAs hereunder and/or service order information or
terminate this Agreement immediately.
7. CONFIDENTIALITY
All information disclosed by either party to the other party pursuant
to this Agreement, other than such information as may be generally
available to the public or the industry, is and will be disclosed to
it in confidence solely for its use in the conduct of its business.
Each party agrees to keep such information secret and confidential
indefinitely and not to disclose it to any other person or use it
during the term of this Agreement or after its termination except in
carrying out its obligations hereunder or in response to obligations
imposed by tariff or order of a court or regulatory body. Neither
party shall disclose the terms and conditions of this Agreement to any
person or entity without the prior written consent of the other party.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS
Representative represents, warrants and covenants to LCI that as of
the date of this Agreement and continuing for the term of this
Agreement that:
a.) Representative is a (check one):
(x) Corporation
( ) Partnership
( ) Sole Proprietorship
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duly organized, validly existing and in good standing under the laws
of New York State, with a Federal EIN of 13-13990305 and is qualified
to do business in the state of New York ______________ and has full
and unrestricted power and authority to execute and perform under
this Ageement.
b.) Representative has obtained all licenses, permits and other
authorizations necessary to perform its obligations under this
Agreement and shall maintain same, as required, in full force and
effect during the term of this Agreement. Representative shall comply
with all applicable tariffs and orders of judicial and regulatory
bodies and all local, state and federal laws.
c.) Representative shall not participate in any pyramid or multilevel
marketing system in conjunction with any person who has an agreement
with LCI. Representative shall 1) appoint a single point of contact for
LCI regarding all matters pertaining to this Agreement, 2) commit no
act which would reflect unfavorably upon LCI.
d.) Representative shall not solicit any existing LCI account not
originally sold by Representative, for the purposes of selling,
upgrading or converting such account to LCI service. Representative
shall not solicit any existing LCI account for the purposes of
converting such LCI account to a competitor of LCI.
e.) Representative Rather realizes that LCI may be selling and
marketing its Affinity Program to a variety of organizations.
Representative agrees to identify to LCI all organizations it solicits
or will solicit pursuant to this Agreement and agrees to not knowingly
sell and/or market any similar affinity program to organizations who
have a relationship with LCI or to organizations who have received
verbal or written proposals from LCI regarding its "All America Plan"
Affinity Program.
f.) Representative hereby represents and warrants that Representative
is not subject to any consent decree, judgment, injunction,
restraining order, settlement agreement, or agreement or order similar
in nature relating to the conduct of its business.
g.) In addition to its obligations under this Section 8 of this
Agreement, Representative hereby covenants and agrees that during the
term of this Agreement that it will notify LCI in writing within three
(3) business days of:
i.) Representative becoming aware of any investigation or
threatened investigation of Representative's sales or
marketing activities by any federal, state, or local
governmental body or agency, or
ii.) Representative becoming subject to or entering into any
consent decree, judgment, injunction, restraining order,
settlement agreement or agreement or order relating to the
conduct of its business.
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h.) Notwithstanding anything in the Agreement to the contrary, it
shall be a material breach of the Agreement, without regard to any
cure rights hereof or otherwise, in the event Representative breaches
any representation or warranty hereunder, or if Contractor breaches
any obligations under Section 8 of the Agreement.
i.) LCI may, at its sole discretion, exercised in a commercially
reasonable manner, suspend the acceptance of orders from
Representative in any state where there is an investigation, or
threatened investigation or decree as described in Section 8 following
the receipt of any notice issued by Representative pursuant to
Section 8. or if no notice is sent following LCI becoming aware of
any such investigation or threatened investigation or decree.
LCI, at its sole discretion, exercised in a commercially reasonable
manner, will determine if any order suspensions will be lifted.
9. INSURANCE
Representative shall secure and maintain Worker's Compensation
Comprehensive General Liability and Automobile Insurance sufficient
amounts to comply with law and to cover its respective obligations
under this Agreement. Upon request, each party shall furnish insurance
certificates as evidence of such coverage.
10. TRADEMARKS AND TRADE NAMES
a.) LCI hereby grants to Representative a non-exclusive,
non-transferable, royalty-free license to use during the term of this
Agreement, in the Territory, LCI's trademarks "LCI", "LCI Authorized
Distributor" and "LCI International" (the "Marks") in connection with
Representative's marketing and sale of the Services. Representative
agrees to state in appropriate places on all of Representative's
products of marketing tools or devices using the Marks that the marks
are trademarks of LCI, and agrees to include the symbol (Tm) or (R) as
appropriate. LCI grants no trademark or service mark rights other than
expressly granted hereunder, and Representative acknowledges that LCI
claims exclusive ownership of the Marks. Representative agrees not to
take any action inconsistent with such claim of ownership by LCI.
Representative shall not adopt, use or attempt to register any
trademarks or trade names that are confusingly similar to the marks in
the field of telecommunications or computer equipment or software or
in such a way as to create combination marks. LCI may terminate, in
whole or in part, Representative's license to use the Marks if, in
LCI's reasonable discretion, Representative's use of the Marks does
not conform to LCI's standards for such usage as provided to
Representative in writing, and provided that such non-conforming use
is not cured within thirty (30) days after the Representative receives
written notice that such use does not conform to LCI's standards.
<PAGE>
11. TERM OF AGREEMENT AND TERMINATION
a.) The initial term of this Agreement shall be three (3) years, and
the Agreement shall be renewed thereafter automatically on a
year-to-year basis, unless sooner terminated as hereinafter provided,
subject to and upon the terms and conditions herein specified. Either
party may terminate this Agreement at any time during a renewal term
upon giving the other party thirty (30) days prior written notice.
b.) LCI may cancel this Agreement upon written notice to
Representative in the event of:
i.) Representative's failure to attain the monthly Revenue
volume commitment level specified in Exhibit B.
ii.) Breach of any provision of this Agreement by
Representative, or if Representative defaults, fails to
perform its obligations or participates or engages in any
activity relating to fraud against LCI.
iii.) Insolvency, bankruptcy, receivership or dissolution of
Representative.
iv.) Representative's assignment of the Agreement without LCI's
prior written consent or any significant change in
Representative's ownership or management without LCI's
prior written consent.
No commission shall be payable following any termination pursuant to
this Section 11.B.Ii.), iii.), or iv.).
All notices under this Agreement, whether addressed to LCI or
Representative, shall be sent by Certified Mail, Return Receipt
Requested.
If to LCI: LCI International Telecom Corp.
4650 Lakehurst Court
Dublin, Ohio 43016-3254
ATTN: General Counsel
If to Representative: YouNetwork Corporation
11 Maiden Lane
Suite 8E
New York, New York 10038
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Fax 212 679 0643
ATTN: Kyle Taylor President
12. INDEMNIFICATION
Each party shall indemnify, defend and hold the other party (and all
officers, directors, employees, agents and affiliates thereof)
harmless from and against any and all claims, demands, actions,
losses, damages, assessments, charges, liabilities, costs and expenses
(including, without limitation, interest, penalties, and attorney's
fees and disbursements) which may at any time be suffered or incurred
by, or be asserted against, any or all of them, directly or
indirectly, on account of or in connection with:
a.) The indemnifying party's default under any provision herein,
breach of any warranty or representation herein, or failure in any way
to perform any obligation hereunder; or
b.) Bodily injury or damage to property (including death) to any
person (including, without limitation, any employee of either party
and any third person), and any damage to or loss of use of any
property, arising out of or in any way relating to the services or
pursuant, directly or indirectly, to this Agreement.
Each party shall hold harmless and indemnify the other from and
against any claim, cause of action, judgment, liability or expense
relating to or arising out of the acts or omissions of the
indemnifying party's employees, contractors and agents.
13. LIABILITY
In no event shall either party be liable for special, indirect,
incidental, or consequential damages, including loss of profits,
arising from the relationship or the conduct of business contemplated
herein. Without limiting the previous sentence, in no event shall
LCI's liability in connection with this Agreement exceed one month's
average commission paid to Representative.
14. MISCELLANEOUS
Representative shall not assign this Agreement or any interest therein
without LCI's prior written consent. The terms of this Agreement shall
be governed by and construed in accordance with the laws of New York.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
Provisions of this Agreement identified by the context to survive the
termination or expiration of this Agreement shall so survive. This
Agreement (including any Exhibits hereto) constitutes the entire
Agreement between the parties hereto with respect to the subject
matter hereof, and it supersedes all prior oral or written agreements,
commitments or understandings, with respect to the matters provided
for herein.
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15. SECURITY
Representative acknowledges that the advance described in Exhibit B
shall be used to develop certain software to assist Representative in
connection with performing its obligations hereunder ("Software").
Representative shall promptly disclose to LCI all material (including
the Software itself related to documentation, reports, programs,
source code, manuals, updates, flow charts, tapes, card decks,
listings and any other programming materials relating to such
Software, updates and improvements (and all of the foregoing shall be
included in the term "Software"). The parties agree that all
copyrightable material related to such Software is a work made for
hire, that all portions of the Software created or acquired by
Representative including all copyrights, any extension or renewals,
and all related work, shall be the exclusive property of LCI, and that
LCI shall have the right, at its own expense, to obtain and to hold in
its own name copyrights, registrations, patents, or such other
protection as may be appropriate to said Software. Representative
warrants and shall provide LCI and its assigns the full, sole and
continuing right (without any payments or liabilities to any person)
to use the Software and to publish, perform, reproduce and distribute
throughout the world any or all portions of the Software, either as a
complete unit or in segments, in any way LCI sees fit and for any
purpose whatsoever. Notwithstanding the previous two sentences, as
long as Representative is not in default of any obligation hereunder,
Representative shall have an exclusive license to use the Software for
its business and LCI shall not use the Software in any way.
Representative shall insert a proper statutory copyright notice at an
appropriate location on copyrightable material, and on all portions
and on all related items which may be subject to copyright protection,
which copyright notice shall specify LCI, as the sole copyright owner.
Representative further agrees to give LCI or any person designated by
LCI, at LCI's expense, all such information and to execute all such
additional documents including, without limitation, patent
applications, as may be reasonably required to perfect the rights
referred to herein. In the event Representative or a third party is
deemed to be the author for copyright purposes of any such materials
under this Agreement, Representative agrees to assign or cause such
third party to assign, and assigns to LCI whatever copyrights exist in
copyrightable materials and Work. Representative agrees to execute and
have its employees, agents and contractors, execute any documents
(including patent applications and assignments) reasonably requested
by LCI, at LCI's expense, to provide LCI the right to own, use and
protect the Software under this Section.
Upon full recovery of the advance pursuant to Section 1 of Exhibit B
or upon repayment in cash of the advance, LCI shall transfer and
assign to Representative all right, title and interest (including
copyrights) in the Software free and clear of all liens and
encumbrances.
16. This Agreement shall become effective only upon approval
and signature of an officer of LCI.
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17. SURVIVABILITY.
Provisions that by their context are intended to survive the
termination or expiration of this agreement, shall so survive.
18. LCI shall have the right of first refusal to have
Representative market ancillary telecommunications services such as
paging, internet and cellular.
IN WITNESS WHEREOF, the parties have executed this Agreement intending
to be legally bound.
LCI INTERNATIONAL TELECOM CORP.
--------------------------------------
("YouNetwork Corporation")
By: /s/ By: /s/ Kyle S. Taylor
----------------------------------- -----------------------------------
Title: SVP Title: President
-------------------------------- --------------------------------
Date: 3-18-98 Date: 3-6-98
--------------------------------- ---------------------------------
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EXHIBIT A
I. Representative's nonexclusive territory shall be the contiguous
forty-eight states of the Continental U.S. (excluding exchanges of
members of the National Exchange Carrier Association, commonly known
as "NECA", and the United States Independent Telephone Company
organization, commonly known as "USINTELCO").
II. Services:
1. LCI Difference
2. Option S and Option T
3. WorldCard Plus
4. Home 800
5. Residential base International
6. Residential international Tell the World
III. All services and rates will be provided in accordance with LCI's
tariffs and are subject to change. Day, Evening and Night/Weekend
periods are as defined in LCI's tariffs.
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EXHIBIT B
PAGE 1 OF 3 PAGES
COMMISSIONS
1. INSTALLATION COMMISSION
During the term of this Agreement, LCI shall pay Representative $5.00
for each newly installed LCI Dial 1 subscriber in the Territory upon
said subscriber's first usage, provided said first usage is within
ninety (90) days from installation ("Installation Commission(s)").
"First Usage" shall be defined as any activity on any LCI Services
defined in Exhibit A, Section II, other than Home 800. Neither
Installation Commissions nor Usage Commissions shall be paid on LOA's
submitted from customers who are existing LCI customers or for stand
alone World Card Plus or Home 800 accounts. LCI, shall not pay
Installation Commissions or Usage Commissions for upgrades for
service, and shall not pay more than one Installation Commission on
the sale of any particular telephone number during the term of this
Agreement.
LCI will recover 100% of any and all monies advanced to Representative
as defined in Exhibit B 2d at a rate of 100% holdback of Installation
Commissions until such time that all advanced funds have been
recovered by LCI. If on the earlier of termination of this Agreement
or 12 months from the date of full execution of this Agreement, the
amount of Installation Commissions so recovered is less than the
amount advanced ("Shortfall"), Representative shall pay to LCI in cash
the amount of such Shortfall upon receipt of invoice therefor.
2. USAGE COMMISSION
LCI shall pay Representative a commission as specified below on
"Collected Revenue" for sales of the Services in the Territory
pursuant to this Agreement ("Usage Commission(s)") for those LCI
customers who remain on LCI service a minimum of thirty (30) days.
"Collected Revenue" is defined as interexchange toll actually
collected by LCI relating to the Services sold by Representative
(excluding taxes, installation charges, subscription fees, and local
loops). Usage Commissions shall be payable only during the term of
this Agreement and a maximum of twenty-four (24) months following
termination provided that this Agreement is terminated by LCI pursuant
to Section 11.a. or Section 11.b.i.) hereof. If, in any month,
disconnects of ANI's sold within 30 days by Representative meet or
exceed 15% of active ANI's sold within 30 days by Representative and
if, after written notification to Representative of such unacceptable
Disconnect Percentage, Representative fails to meet the established
Disconnect Percentage standard in the thirty days following such
notice, LCI may, at its sole discretion, take any one or all of the
following actions: reduce Usage Commissions or terminate this
Agreement without further liability hereunder (such termination shall
be deemed to occur pursuant to Section 11.b.ii.) of this Agreement).
LCI may change the Disconnect Percentage up to two (2) times in any
twelve (12) month period
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upon thirty (30) days prior written notice to Representative. No Usage
Commission shall be payable following any termination pursuant to
Section 11.b.ii.)., iii.), or iv.). hereof.
EXHIBIT B
PAGE 2 OF 3 PAGES
a. LCI, at its sole option, may pay Usage Commissions based on billed
revenue less a percentage related to estimated uncollectables and LEC
holdbacks ("Percent") as opposed to actual collected revenue, which
Percent is currently nine percent (9%) (hereinafter "Billed Revenue").
For example, if the amount billed for LCI service is $100 and the
commission rate is 5%, than the commission paid hereunder would be
$4.55 ($100-(9% X $100) X 5% = $4.55). LCI may change the Percent up
to two (2) times in any twelve (12) month period upon thirty (30) days
prior written notice to Representative.
b. In the event LCI pays commission based on Billed Revenue, LCI may
periodically perform a "true up" covering a period not to exceed 180
days to compare collected revenue to Billed Revenue and "charge back"
or pay Representative the difference between commissions paid on
Billed Revenue and what would have been paid on actual collected
revenue. The last month's payment of commissions hereunder may be
withheld no more than three (3) months so that the final "true up" may
be performed. LCI reserves the right to set off from commissions any
amount due to LCI by Representative under this Agreement or otherwise.
c. Commissions for residential long distance service shall be paid to
Representative at 10% based upon total monthly Collected Revenue
d. Advance Commission: LCI will advance Representative a total of
$250,000 in the form of a recoverable draw against Installation
Commission as defined in Installation Commission section at a rate of
100% of Installation Commissions. The payment of these funds will be
contingent based upon accomplishing the major activities as listed
below and as scheduled in no less than 30 day periods:
First Payment: $100,000 Upon full execution of this Agreement. Representative
shall use this payment for the Advance-Beta Program with LCI Beta sign-up, and
have Beta membership in place
Second Payment: $75,000 Upon accomplishing the obligations under the First
Payment. Representative shall use this payment for Advance-Beta in full test
mode, integration of additional Marketing Partners, with a minimum of 250
members in network.
Third Payment: $75,000 Upon accomplishing the obligations under the Second
Payment. Representative shall use this payment for Advance-Beta Program
completion, with aggressive membership and LCI subscriber program in place and
a minimum of 1500 members in network.
2. PAYMENT OF COMMISSIONS
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Usage Commissions will be paid by LCI approximately forty-five (45) days
following the end of the month in which the Collected Revenue is collected, or
Billed Revenue is billed, as applicable.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LCI INTERNATIONAL TELECOM CORP. YOUNET CORPORATION
By: /s/ By: /s/ Kyle S. Taylor
----------------------------------- -----------------------------------
Title: SVP Title: President
-------------------------------- --------------------------------
Date: 3-18-98 Date: 3-6-98
--------------------------------- ---------------------------------
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EXHIBIT D
PAGE 1 OF 4 PAGES
"LCI'S POLICIES AND PROCEDURES REGARDING SLAMMING PREVENTION"
ADVISORY TO ALL REPRESENTATIVES SELLING LCI INTERNATIONAL LONG
DISTANCE SERVICES:
All Representatives/Distributors selling LCI International Telecom
Corporation's (LCI) long distance service must carefully read the contents of
this document. It will explain LCI's policies and procedures for the sale of
LCI long distance services. The purpose of this document is to explain what can
cause unauthorized switching of a customer, the importance of preventing such
switching, and the seriousness of the matter to LCI, its authorized
Representatives, and their independent distributors. This document includes an
"Acknowledgment" that must be read, signed, and returned to the
Representative/Distributor by each individual selling LCI services.
Representatives/Distributors must make a signed copy of this document available
to LCI, upon request.
A. COMMON CAUSES OF SLAMMING:
o Incorrect telephone number on submitted LOAs - means that incorrect
telephone number is switched without the customer's written consent.
o The submitted LOA is illegible and directly causes the person that keys the
order into the system to enter the wrong name and/or phone number.
o The person who "authorized" switching carriers really didn't have the
authority to make the switch. Sometimes receptionists, secretaries or
assistants authorize a switch to qualify for some sort of premium or other
inducement.
o A simple misunderstanding when one partner doesn't tell the other partner
about selecting a new long distance service. This is especially true when it
is the other person who reviews or pays the bills. The bill-paying partner
sees a new long distance carrier name and thinks something is wrong. Please
ask your customers to inform the appropriate persons about changing long
distance carriers.
o Signing someone up just to "get the sale" or reach a qualification or
commission level.
o Signing someone up, without the customer's knowledge, as a result of
spending a lot of time with a company decision-maker and assuming that the
person would be satisfied with LCI service.
B. EFFECTS OF SLAMMING:
o It is illegal and will not be tolerated by LCI!
o Creates a bad image and adversely affects LCI's and the Sales
Agent/Distributor's reputation.
o Takes time to investigate and correct.
o If we can get information verified (correct), it will save on:
1. Order rejects
2. Returned mail
3. Time to process valid and accurate orders.
o Frustrating experience for the company that was slammed.
o Usually the local telephone company levies a charge to make the initial
switch to LCI and then charges again to switch the affected customer back to
the original long distance company. LCI and then the distributor and its
sales agents are billed for these costs. These LCI charges will probably be
billed by distributors to their sales agent. This leads to serious
consequences for the agent, including termination of the sales agent
relationship with LCI.
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EXHIBIT D
PAGE 2 OF 4 PAGES
LCI AS WELL AS FEDERAL, STATE, AND LOCAL REGULATORY AGENCIES VIEW "SLAMMING" AS
A VERY SERIOUS PROBLEM. THE FCC CAN IMPOSE SIGNIFICANT FINES ON A PER VIOLATION
BASIS.
C. HOW CAN A REPRESENTATIVE/DISTRIBUTOR PROTECT AGAINST SLAMMING:
o You are strongly encouraged to verify information against each new
customer's actual telephone bill for each LOA.
o The person signing the LOA should be a person with authority to act on
behalf of the company or the person whose name appears on the telephone
bill. It is essential that the person signing the LOA has authority to
change long distance carriers. Note that children, roommates, receptionists,
secretaries and assistants typically do not have the authority to change
long distance carriers for an individual or a company. If the person signing
the LOA is different from the person with the actual authority to do so, you
should attempt to contact the other person. While this policy might
jeopardize some sales orders, it should give you a chance to retain sales by
demonstrating your concern and professionalism.
o Take your time. Review the LOA for accuracy and legibility, especially the
telephone number. Confirm the person's telephone number.
o NEVER sign someone else's name on an LOA or any other document!
o Don't force a sale that is not there.
17
<PAGE>
EXHIBIT D
PAGE 3 OF 4 PAGES
ACKNOWLEDGMENT
THIS WILL VERIFY THAT I HAVE RECEIVED, READ, UNDERSTAND, AND WILL COMPLY
WITH THE DOCUMENT ENTITLED "LCI'S POLICIES AND PROCEDURES REGARDING SLAMMING
PREVENTION". I FULLY UNDERSTAND AND APPRECIATE MY OBLIGATIONS AS AN LCI SALES
AGENT OR INDEPENDENT CONTRACTOR NOT TO ENGAGE IN OR FACILITATE THE PRACTICE OF
"SLAMMING" CUSTOMERS. I UNDERSTAND THAT LCI WILL NOT TOLERATE FURTHER
OCCURRENCES OF "SLAMMING", AND THAT LCI WILL TAKE WHATEVER ACTIONS ARE
NECESSARY TO PROTECT AGAINST SLAMMING INCLUDING, WITHOUT LIMITATION,
TERMINATION OF THE SALES AGENT RELATIONSHIP AND ENFORCEMENT AND ENFORCEMENT OF
ALL APPLICABLE LEGAL RIGHTS AND REMEDIES.
/s/ Kyle S. Taylor, President
- -------------------------------------------------------------------
SIGNATURE OF REPRESENTATIVE SELLING LCI INTERNATIONAL LONG DISTANCE
DATE 3/6/98
--------
KYLE S. TAYLOR
- -------------------------------
PRINT NAME
PHONE NUMBER 212 679-0676 x229
-------------------
YouNetwork Corporation
- -------------------------------
PRINT NAME OF COMPANY
CHANNEL CODE
-------------------
ORGANIZATION CODE
--------------
18
<PAGE>
EXHIBIT D
PAGE 4 OF 4 PAGES
ACKNOWLEDGMENT BY SALES AGENT
THIS WILL VERIFY THAT ON BEHALF OF , I HAVE
RECEIVED, READ, UNDERSTAND, AND WILL DISTRIBUTE THE DOCUMENT ENTITLED "LCI'S
POLICIES AND PROCEDURES REGARDING SLAMMING PREVENTION" TO THE INDIVIDUALS
RESPONSIBLE FOR SELLING LCI INTERNATIONAL LONG DISTANCE SERVICE. WE FULLY
UNDERSTAND AND APPRECIATE OUR OBLIGATIONS AS AN LCI SALES AGENT NOT TO ENGAGE
IN OR FACILITATE THE PRACTICE OF "SLAMMING" CUSTOMERS. WE UNDERSTAND THAT LCI
WILL NOT TOLERATE FURTHER OCCURRENCES OF "SLAMMING", AND THAT LCI WILL TAKE
WHATEVER ACTIONS ARE NECESSARY TO PROTECT AGAINST SLAMMING INCLUDING, WITHOUT
LIMITATION, TERMINATION OF THE SALES AGENT RELATIONSHIP AND ENFORCEMENT OF ALL
APPLICABLE LEGAL RIGHTS AND REMEDIES.
DATE
- ---------------------------------------- -----------------------
SIGNATURE OF REPRESENTATIVE
- ----------------------------------------
PRINT NAME
BUSINESS PHONE NUMBER
-------------------
- -------------------------------
PRINT NAME OF COMPANY
CHANNEL CODE
-------------------
ORGANIZATION CODE
--------------
PLEASE REMIT THIS FORM WITHIN FOURTEEN DAYS OF RECEIPT TO: LCI INTERNATIONAL,
INC., 4650 LAKEHURST COURT, DUBLIN, OHIO 43016, ATTN: SHERRI RONNEBAUM, LEGAL
DEPT.
SIGNATURE OF REPRESENTATIVE FOR .
-------------------------------
19
<PAGE>
EXHIBIT D
PAGE 1 OF 1 PAGES
MINIMUM COMPUTER EQUIPMENT
I. The following IBM compatible equipment shall be used by Representative for
the purpose of account information and the electronic transfer of LOAs to
LCI. All reporting to the Representative by LCI shall be done via
electronic files.
A. Hardware
1. PC Compatible with a Pentium 100+ Mhz, recommended; 486 66 MHz,
minimum
2. 16 Meg of RAM on board, minimum
3 520 MB IDE Hard Drive, minimum
4. 28.8 internal/external FAX modem, recommended; 14.4 modem,
minimum
5. VGA color Monitor, minimum
6. 101 keyboard style
7. A working printer for reports. A wide carriage type (EPSON FX)
is preferred but not necessary.
B. Software
1. DOS 6.20 or better
2. Windows 3.11 for work groups (Windows 95 is also supported)
3. Communications package (Quicklink or PROCOMM PLUS is preferred,
but not necessary.)
4. Microsoft Office (Optional)
5. Microsoft Access, Version 2.0 (Office 97 version not supported)
if using current versions of LCI provided data entry software.
6. Microsoft Internet Explorer, most recent version, recommended;
Netscape, Optional
7. Wildcat browser - LCI provided
II. Distributor may use its own or other programs for electronic submission of
LOAs, as long as files meet LCI file type and layout requirements.
III. THE ABOVE LISTING IS A MINIMUM GUIDELINE AND IS SUBJECT TO CHANGE BY LCI.
LCI SHOULD BE CONTACTED PRIOR TO ANY PURCHASES OF EQUIPMENT OR SOFTWARE
FOR CONFIRMATION OF LATEST STANDARDS.
IV. LCI does not currently support an Apple/Macintosh or UNIX environment.
20
<PAGE>
DATABASE LICENSE AGREEMENT
(SINGLE SERVER/INTERNET)
THIS IS AN AGREEMENT, dated as of July 9, 1998 by and between BAKER &
TAYLOR, INC. ("B&T"), a Delaware corporation having a place of business at Five
Lake Pointe Plaza, Suite 500, 2709 Water Ridge Parkway, Charlotte, North
Carolina and YouNetwork Corporation ("Licensee"), a New York State Corporation
having a place of business at 220 East 23rd Street, Suite 607, New, York, New
York 10010.
W I T N E S S E T H:
WHEREAS, B&T, through its unincorporated operating unit Baker & Taylor
Books ("Books") distributes books, spoken word audio products and other similar
products and provides value-added services; and
WHEREAS, B&T, through its unincorporated operating unit Electronic
Business and Information Services, grants limited access to its Database
(hereinafter defined) to specified users; and
WHEREAS, Licensee desires B&T to grant to Licensee a license, under
the terms and conditions set forth herein, to use the Licensed Data or any
portion thereof and CD-EXPORT (hereinafter defined); and
WHEREAS, B&T is willing to grant such a license in accordance with the
terms and conditions set forth below.
ACCORDINGLY, in consideration of the covenants, promises and
undertakings provided for herein and for other valuable consideration, the
receipt and legal sufficiency of which the parties acknowledge, the parties
agree as follows:
1.00 DEFINITIONS
As used throughout this Agreement the following terms have the
following meanings:
1.01 "CD-EXPORT" means B&T's specialized software application which
allows Licensee to search the Database without using any other application
screen interfaces;
1.02 "Database" means B&T's complete title file database containing
the bibliographic records consisting of, among other things, the Licensed Data
or any portion thereof, as the same from time to time may be modified by B&T
during the Term of this Agreement (hereinafter defined), for books and spoken
word audio products (sometimes hereinafter collectively referred to as "Books
Products").
<PAGE>
1.03 "Effective Date" means the date of this Agreement.
1.04 "Licensed Data" means (a) the data elements in electronic
database form which are more particularly set forth on Schedule 1.04 attached
hereto and made a part hereof, for each title on the Database, (b) any updates
provided by B&T to such data elements from time to time, and (c) such other
data elements as B&T at its sole discretion from time to time hereafter may
agree to add without further consideration by Licensee;
[[1.05 "Year" means the twelve (12) month period beginning at 12:00
(Eastern U.S. Time) on the Effective Date and terminating at 11:59 P.M.
(Eastern U.S. Time) on the day immediately preceding the anniversary of the
Effective Date or any one (1) twelve (12) month period subsequent thereto.]]
2.00 LICENSE
2.01 Subject to the terms and conditions of this Agreement and extent
of the license which Licensee is granted hereby, and based upon B&T's receipt
of its license fee payments then currently due, B&T hereby grants to Licensee
and Licensee hereby accepts from B&T a non-exclusive, nontransferable and
revocable license:
(a) to display all or a portion of the Licensed Data on Licensee's
Internet web site for viewing by users in "read only" access;
(b) to use CD-EXPORT solely for the purpose of utilizing the Licensed
Data or any portion thereof at Licensee's Internet web site; and
(c) to display all or a portion of the Licensed Data on Licensee's
in-house database system by means of a single server for viewing by users.
(d) to display Baker & Taylor's name and logo as the supplier of the
database and/or books and related product.
Licensee will not make all or any portion of the Database, the Licensed Data
and/or CD-EXPORT accessible to any persons other than persons specifically
authorized for the purposes above. Licensee will use its best efforts to take
all reasonable steps to prevent or restrict the downloading, transmission,
display or copying of the information contained in all or any portion of the
Database and/or the Licensed Data to a degree which is not necessary for
purposes of ordering the products listed thereon. Such steps may include, but
will not be limited to, the following: the use of passwords,
encryption/de-encryption algorithms used in the security process and similar
tools. The license granted hereby is personal to the Licensee. Licensee may use
the license solely for the purposes specified above. Nothing contained in this
Agreement will, or will be deemed to, convey any title or will, or will be
deemed to, convey any title or
2
<PAGE>
ownership interest in all or any portion of the Database, the Licensed Data
and/or CD-EXPORT regardless of whether any portion thereof is used by Licensee
or other users.
2.02 B&T reserves all rights with respect to all or any portion of the
Database, the Licensed Data and/or CD-EXPORT not expressly granted to Licensee,
nor expressly contemplated, herein. This reservation specifically applies, but
is not limited, to any media, mode or method of distribution or transmission or
other technology that may be commercialized or developed in the future.
3.00 TERM
[3.01 (a) Subject to the terms and conditions hereof, this Agreement
will be effective for a period (the "Term") beginning on the Effective Date and
ending at 11:59 P.M. (Eastern U.S. Time) on the day preceding the first
anniversary of the Effective Date (as the case may be, the "Termination Date").
(b) Despite the statements in the preceding clause (a) of this Section
3.01, Licensee may terminate this Agreement for any reason whatsoever during
the Term by giving notice to B&T not less than thirty (30) days prior to the
date on which Licensee wishes to terminate this agreement. In such an event,
this Agreement automatically will terminate on the date set forth in Licensee's
notice as if it were the Termination Date. If Licensee wishes to terminate this
Agreement pursuant to this clause (b), none of the annual licensee fees payable
with respect to the period of time after which this Agreement is terminated
will be refunded to Licensee.]
[[3.01 (a) Subject to the terms and conditions hereof, this Agreement
will be effective for a period (the "Initial Term") beginning on the Effective
Date and ending at 11:59 P.M. (Eastern U.S. Time) on the day preceding the
[first][second][third] anniversary of the Effective Date (the "Initial
Termination Date").
(b) 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 (hereinafter defined) that
the Notifying Party desires that this Agreement not be renewed, and if this
Agreement otherwise is in full force and effect and no Event of Default has
occurred, this Agreement automatically may be renewed for not more than two (2)
consecutive periods of one (1) Year each (each such period, a "Renewal Term",
and the Initial Term or any Renewal Term being hereinafter referred to as the
"Term"). Each such renewal will be under the terms and conditions as set forth
in this Agreement, except that the annual license fee for each Renewal Term may
be increased by B&T at its option on notice given to Licensee not
3
<PAGE>
less than 75 days prior to the Initial Termination Date or any subsequent
Termination Date. If the Notifying Party desires that this Agreement not be
renewed, this Agreement automatically will expire on the Initial Termination
Date or on the Termination Date of the Term, as the case may be. As used in
this Agreement, "Termination Date" means the anniversary of the Initial
Termination Date in a Renewal Term to which the same relates.]]
3.02 Immediately upon termination of this Agreement, whether or not
pursuant to this Article, the following will occur:
(a) all rights and licenses granted to Licensee hereunder
automatically will terminate;
(b) Licensee promptly will permanently delete all or any portion of
the Database, the Licensed Data and/or CD-EXPORT and any copies thereof from
all computers, all database and other systems and/or any storage medium of
Licensee in any location, whether backup or otherwise (including persons and/or
entities within Licensee's direct control, such as non-Internet users having
access by, through or under Licensee);
(c) Licensee will not use, or permit any user having access by,
through or under Licensee to use, all or any portion of the Database, the
Licensed Data and/or CD-EXPORT in any way; and
(d) Licensee will return all Database, Licensed Data and/or CD-EXPORT
media received from B&T, together with any copies made from the same. For a
period of not less than ten (10) consecutive days immediately following the
date on which this Agreement terminates, Licensee will post the following
notice at Licensee's Internet web site so that it is visible by all users
thereof: "Effective immediately, [insert Licensee's name used at its web site)
will no longer be using Baker & Taylor, Inc.'s database of books and spoken
word audio products at this web site." Licensee will certify in writing that
the terms contained in the preceding clauses (a)-(d) have been complied with.
4.00 THE PARTIES' OBLIGATIONS
4.01 Licensee will:
(a) pay B&T according to the terms of this Agreement;
(b) not directly or indirectly duplicate, copy, transmit, publish,
provide access to (by electronic or any other means) exchange, throw away, or
incorporate with, or as part of another database, package, program, record or
system, all or any portion of the Database, the Licensed Data and/or CD-EXPORT
for any purpose except as provided in Section 2.01 of this Agreement;
4
<PAGE>
(c) use its best efforts to take all reasonably necessary steps to
ensure compliance with Licensee's obligations under this Agreement by users of
its Internet web site and its employees, agents, representatives and customers.
Such best efforts will include, but not be limited to, taking such steps as
directed pursuant to this Agreement and pursuant to any instruction made by B&T
at any time during the effective period and after termination of this
Agreement;
(d) except to display the same as expressly provided herein at
Licensee's Internet web site and/or on Licensee's in-house database system at a
single location for viewing by users at such location, not sell, offer for
re-sale, distribute, rent, sublicense or lease all or any portion of the
Database, the Licensed Data and/or CD-EXPORT, nor use all or any portion of the
Database, the Licensed Data and/or CD-EXPORT in a network, timesharing,
multiple central processor unit or multi-user arrangement;
(e) not combine or incorporate all or any portion of the Database, the
Licensed Data and/or CD-EXPORT with any other program, database, record or
system which will be sold, offered for re-sale, distributed, rented,
sublicensed or leased;
(f) not utilize all or any portion of the Database and/or the Licensed
Data in connection with any sales by Licensee, by any partner or affiliate of
Licensee or by any enterprise or entity in which Licensee has any interest,
except for sales to retail consumers;
(g) pay all sales, use, value-added, excise or similar taxes
associated with Licensee's or its users' use of all or any portion of the
Database, the Licensed Data and/or CD-EXPORT;
(h) reproduce, incorporate and maintain each and every B&T
proprietary, trade secret or copyright notice in any copy or partial copy of
ail or any portion of the Database, the Licensed Data and/or CD-EXPORT or in
any database containing any element of the Database and/or the Licensed Data,
and not remove or obscure any B&T proprietary, trade secret or copyright notice
or other legend with respect to all or any portion of the Database, the
Licensed Data and/or CD-EXPORT;
(i) comply with all laws and regulations relating to or pertaining to
the sale, distribution, export or use of all or any portion of the Database,
the Licensed Data and/or CD-EXPORT and maintain high quality and standards
associated with B&T;
(j) promptly notify B&T in writing if Licensee becomes aware of the
unauthorized reproduction, manufacture or sale of, or of any acts that are
prohibited in this section with respect to, all
5
<PAGE>
or any portion of the Database, the Licensed Data and/or CD-EXPORT by anyone
having access to the Licensed Data or any portion thereof by means of
Licensee's Internet web site or Licensee's in-house database system.
4.02 B&T will deliver CD-EXPORT to Licensee contemporaneously with
the software which contains the Database and any updates to the Database so
that Licensee may access the Licensed Data from the Database.
5.00 FEES AND PAYMENTS
5.01 (a) Licensee will pay B&T a $1,000 license fee for the Database
and the Licensed Data in consideration of the license of the same [[for each
Year]] during the Term.
(b) Licensee will pay B&T a $1,650 subscription fee for a one (1) year
subscription of the weekly edition of THE TITLE SOURCE [[for each Year during
the Term]].
5.02 (a) Payment of the license and subscription fees will be made in
full prior to delivery of THE TITLE SOURCE, the Licensed Data and/or CD-EXPORT
to Licensee at the beginning of the [[Initial]] Term [[and, if this Agreement
is renewed beyond the Initial Term, prior to the first day of each Year
thereafter]]. B&T has no obligation to deliver all or any portion of THE TITLE
SOURCE, the Licensed Data and/or CD-EXPORT until Licensee pays the license and
subscription fees. All fees are non-refundable.
(b) B&T will send all billing invoices to Licensee at the address from
time to time specified in writing by Licensee.
(c) All payments to B&T will be made in U.S. Dollars and by delivery
to the address set forth in B&T's billing invoice to Licensee.
6.00 DEFAULT AND REMEDIES
6.01 The following will be an Event of Default: Licensee's failure to
perform any of its obligations, or failure to comply with any of its
agreements, hereunder which failure is not cured within ten (10) business days
after notice from B&T (including, but not limited to, Licensee's use of all or
any portion of the Licensed Data and/or CD EXPORT in a manner or form not
expressly authorized by this Agreement).
6.02 If an Event of Default occurs, B&T will have all rights and
remedies available to it under applicable law or in equity. In addition to
such rights and remedies, B&T also may:
6
<PAGE>
(a) declare this Agreement and the license granted herein immediately
terminated;
(b) sue Licensee for the fulfillment of its obligations under this
Agreement; and/or
(c) seek an injunction against Licensee to compel Licensee to comply
with the terms of this Agreement and/or to cease activities which constitute a
default of Licensee's obligations hereunder.
In addition to B&T's rights set forth above in subsections (a)-(c), Licensee
also will cease use and/or display of all or any portion of the Licensed Data
within 36 hours after receipt of B&T's notice that an event of Default has
occurred.
6.03 If an Event of Default occurs in which Licensee is either using,
or providing access to, all or any portion of the Database, the Licensed Data
and/or the CD-EXPORT, in breach of the terms of this Agreement then, in
addition to any other remedies which B&T may seek hereunder, Licensee will be
obligated to promptly pay B&T, as and for liquidated damages, an amount equal
to the product of $10,000 and each day in which such Event of Default remains
unremedied. For the purposes of calculating liquidated damages under this
Section 6.03, a portion of a day will constitute a full day.
7.00 NO WARRANTY
7.01 THE DATABASE, THE LICENSED DATA OR ANY PORTION THEREOF AND/OR
CD-EXPORT ARE PROVIDED "AS IS" WITHOUT WARRANTY, EXPRESS OR IMPLIED, OF ANY
KIND. EXPRESSLY EXCLUDED ARE ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE. Licensee will advise all users that B&T makes no
warranties with respect to the Database, the Licensed Data or any portion
thereof and/or CD-EXPORT.
7.02 NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY B&T, ITS AGENTS
OR EMPLOYEES WILL CREATE A WARRANTY AND LICENSEE MAY NOT RELY ON ANY SUCH
INFORMATION OR ADVICE.
7.03 B&T's sole liability and Licensee's exclusive remedy with respect
to a defect in the medium on which the Database and/or the Licensed Data is
delivered to Licensee will be replacement of such medium, as long as the
defective medium is returned to B&T with a copy of the receipt which accompanied
delivery of the medium to Licensee. If failure of the medium results from
accident, abuse or misapplication, B&T will have no responsibility to replace
the medium.
8.00 INDEMNIFICATION
7
<PAGE>
8.01 As long as Licensee promptly notifies B&T in writing of such a
claim, B&T at its own expense will defend any action brought and pay any final
judgement against Licensee to the extent that such action is based on a claim
that all or any portion of the Database, the Licensed Data and/or CD-EXPORT
infringes any copyright or subscription rights in existence as of the effective
date of this Agreement. B&T will have the right to control the defense of all
such claims, lawsuits or proceedings without Licensee's prior written approval.
If, because of any claim of infringement against any copyright or subscription
right which is based on a claim that all or any portion of the Database, the
Licensed Data and/or CD-EXPORT infringes any copyright or subscription rights,
either B&T or Licensee is enjoined from using all or any portion of the
Database, the Licensed Data and/or CD-EXPORT, or if B&T believes that all or
any portion of the Database, the Licensed Data and/or CD-EXPORT is likely to
become the subject of such a claim of infringement, B&T may, at its sole option
and expense, may do the following: (a) obtain the right for Licensee to
continue to use the Database, the Licensed Data or any portion thereof and/or
CD-EXPORT; or (b) replace or modify all or any portion of the Database, the
Licensed Data and/or CD-EXPORT so as to make it non-infringing. If neither of
these two options is reasonably practicable, B&T may terminate this Agreement
by written notice to Licensee. The foregoing states the entire liability of B&T
with respect to infringement of any copyright or subscription rights by the
Database or the Licensed Data.
8.02 The indemnity set forth in Section 8.01 will not extend to any
claims of infringement resulting from (i) modification of all or any portion of
the Database, the Licensed Data and/or CD-EXPORT by Licensee or any user
having access to the same, (ii) modification of all or any portion of the
Licensed Data and/or CD-EXPORT by, through or under Licensee, (iii) the use of
all or any portion of the Database, the Licensed Data and/or CD-EXPORT in
combination with any other software, hardware or server or (iv) the use of the
same by Licensee or any user in a manner for which all or any portion of the
Database, the Licensed Data and/or CD-EXPORT are not designed, or from any
product which incorporates any of the modifications noted above.
8.03 Licensee will indemnify and hold harmless B&T, its officers,
employees and directors from any loss, liability, damage, cost or expense,
including reasonable attorneys' fees and expenses, arising out of
(a) Licensee's breach of its obligations under this Agreement; and/or (b) any
modifications, however slight, made by or on behalf of Licensee to all or any
portion of the Database, the Licensed Data and/or CD-EXPORT. Licensee expressly
acknowledges that B&T will not be liable to Licensee or any of its customers
for any damage incurred by any of them arising from such modifications.
8
<PAGE>
9.00 NOTICES
All communications, notices, and the like required or given pursuant
to any provision of this Agreement, must be given by Express Mail or by
Certified Mail, Return Receipt Request and will be deemed to have been properly
made or given, if by Express Mail, when received by the addressee and, if by
certified mail, five (5) days after deposit, postage prepaid, with the U.S.
Postal Service, addressed as follows:
If to B&T:
Baker & Taylor, Inc.
501 S. Gladiolus
Momence, Illinois U.S.A. 60954
Attn.: ITG Distribution Coordinator
If to Licensee:
YouNetwork Corporation
220 East 23rd Street,
Suite 607,
New York, New York 10010.
Attention: Kyle S. Taylor
Either party may change its address as set forth above by notification in
writing to the other party, however any such notification will only become
effective upon actual receipt thereof.
10.00 MISCELLANEOUS
10.01 The waiver or failure of either party hereto to exercise in any
respect any right provided for herein will not be deemed a waiver of any
further right hereunder.
10.02 Dates or terms by which either party is required to perform
under this Agreement will be postponed automatically to the extent that either
party is prevented from meeting them by causes beyond its reasonable control
and for the duration of any such cause.
10.03 (a) This Agreement and the transactions provided for herein will
be governed, construed and enforced according to the laws of the State of New
Jersey (excluding any conflict-of-law provisions thereof).
(b) Licensee and B&T hereby 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
9
<PAGE>
either party notifies the other that a matter is in dispute, for settlement in
Newark, New Jersey in accordance with the Rules of American Arbitration
Association (the "Rules") . Each party will bear its own legal expenses,
attorneys' fees and disbursements and costs of all experts and witnesses.
However, if the claim of either party is upheld by the arbitrators in all
material respects, then the prevailing party will be promptly reimbursed by the
other party for its legal expenses, attorneys' fees and disbursements and costs
of its experts and witnesses and the prevailing party also will pay all fees,
costs and expenses of the arbitration. Any award 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 arbitrator's determination will only be in favor
of one party's position.
10.04 For a period of time not to exceed two (2) years after the date
on which this Agreement expires or terminates, Licensee will maintain accurate
records at one office of Licensee within the continental United States
concerning Licensee's use of, including without limitation all records of
access to, all or any portion of the Database, the Licensed Data and/or
CD-EXPORT under this Agreement. During the Term, and for a two (2) year period
after the date on which Agreement expires or terminates, on reasonable prior
notice to Licensee and during Licensee's normal business hours, B&T will have
the right to audit Licensee's records with respect to such use and with respect
to Licensee's compliance with the terms hereof. As soon as Licensee uses any
portion of the Licensed Data at its Internet web site, Licensee also will
provide B&T at no expense to B&T with any passwords and access codes necessary
to enable B&T to have access to the same in order to confirm Licensee's
compliance with the terms of this Agreement.
10.05 Licensee agrees in advance that this Agreement may be assigned
by B&T. Licensee will not assign this Agreement, by operation of law or
otherwise, without B&T's prior written consent, which may be withheld in B&T's
sole discretion. Notwithstanding the preceding sentence, on notice given to B&T
contemporaneously with such assignment, Licensee may assign this Agreement to
an affiliate of Licensee who will remain an affiliate of Licensee during the
term of this Agreement. As used herein, "affiliate of Licensee" means (a) a
corporation which controls, is controlled by or is under common control with
Licensee; the term "control" meaning ownership of not less than 51% of the
outstanding voting stock of a corporation; or (b) a partnership in which
Licensee is a general partner and of which Licensee owns not less than 51% of
the legal and equitable interest.
10.06 English will be the official text for this Agreement.
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<PAGE>
No translation will be used to construe the meaning or intent hereof.
10.07 If any of the terms or provisions of this Agreement are ruled to
be invalid or unenforceable in an arbitration proceeding or by a court or
administrative bureau of competent jurisdiction, the remainder of the Agreement
will not be affected thereby. If an arbitrator, court or bureau does not
replace a provision in this Agreement ruled to be invalid or unenforceable with
a valid and enforceable one which accomplishes the same general purpose to the
maximum extent possible, the parties will reasonably try to negotiate a
replacement for the provision which accomplishes the same general purpose to
the maximum extent possible.
10.08 This Agreement constitutes the complete and exclusive statement
of the terms and conditions between the parties and supersedes and merges all
prior proposals, understandings and all other agreements, oral and written,
between the parties relating to the subject matter of this Agreement. This
Agreement may not be modified or altered except by written instrument duly
executed by both parties. This Agreement will be binding upon, and will inure
to the benefit of, the parties hereto and their respective successors,
permitted assigns and legal representatives.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
LICENSEE: YouNetwork Corporation
-------------------------------
By: /s/ Kyle S. Taylor
-------------------------------------
Title: President
----------------------------------
BAKER & TAYLOR, INC.,
by Electronic Business and
Information Services
By: /s/
-------------------------------------
Title:
----------------------------------
11
<PAGE>
SCHEDULE 1.04
LICENSED DATA
TITLE
SOURCE
FILE
FORMAT
- ----------------------------------------------
FIELD LENGTH
NAME (BYTES)
- ----------------------------------------------
ISBN 10
Title 150
Author 70
Binding 3
Status 2
Price 9
Subject 30
1
Subject 30
2
Subject 30
3
Subject 30
4
Subject 30
5
Pub 5
Date
Publisher 11
Code
Publisher 150
Name
Bookstore 3
Sub.
Code
- ----------------------------------------------
<PAGE>
[TO COME]
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0
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