SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 8, 1999
(Date of earliest event reported)
COMPU-DAWN, INC.
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(Exact name of Registrant as specified in charter)
Delaware 000-22611 11-3344575
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(State or other jurisdiction (Commission File No.) (IRS Employer Identification
of incorporation) Number)
77 Spruce Street, Cedarhurst, New York 11516
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 374-6700
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Item 2. Acquisition of Disposition of Assets.
Acquisition of Assets.
On January 8, 1999 e.TV Commerce, Inc., ("e.TV"), a wholly
owned subsidiary of Compu-DAWN, Inc. ("Compu-DAWN") acquired certain assets of
LocalNet Communications, Inc., a Florida corporation ("LocalNet"). The LocalNet
assets were acquired to satisfy $750,000 in principal of a $1,800,000 secured
loan previously made by Compu-DAWN to LocalNet pursuant to a Loan and Security
Agreement (the "Loan and Security Agreement) as of October 6, 1998 and as
amended as of October 23, 1998 and November 12, 1998 (the "Loan"). The Loan was
secured by all of the assets of LocalNet.
During the first week of January, 1999, Compu-DAWN became
aware that LocalNet was in default of certain representations and warranties and
covenants under the Loan Agreement. Additionally, Compu-DAWN assigned all of its
interest under the Loan Agreement to its wholly owned subsidiary e.TV. e.TV and
LocalNet entered into a peaceful surrender agreement dated as of January 8, 1999
pursuant to which LocalNet surrendered certain of its assets to e.TV in
satisfaction of $750,000 in principal of the Loan.
The LocalNet assets acquired by e.TV included, among other
things, LocalNet's accounts receivable, other earned revenue, obligations and
accounts owed to LocalNet, furniture, equipment, inventory, insurance claims,
tax refunds and rebates owed to LocalNet, all funds and deposits of LocalNet,
computer software and internet domain names and website addresses. The value of
the assets acquired was determined mutually by LocalNet and Compu-DAWN based on
LocalNet's financial statements.
Compu-DAWN, through e.TV, intends to use the assets acquired
to operate in the internet, e-commerce and, telecommunications business (the
"e.TV Business"), which is similar to the business operated by LocalNet up to
the time of the asset acquisition. e.TV will market and sell its products and
services primarily using a person to person sales approach with the services of
commissioned sales representatives in a multi-level network marketing
organization. Key services and products will include:
(i) Interactive advanced digital tv set top boxes which enable
the consumer to access the internet through the consumer's tv set over a
telephone line, conduct electronic commerce through e.TV's own e-commerce
shopping mall, and access a variety of different software applications through
network computing capabilities; and
(ii) Sales of local and long distance telephone service.
Employment Agreements.
Contemporaneously with the consummation of the peaceful
surrender agreement, Compu-DAWN and e.TV entered into employment agreements with
R.E. Turner, IV, Chairman of the Board and co-founder of LocalNet, and Rudy C.
Theale, Jr., President and co-founder of
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LocalNet. Mr. Turner was appointed Chairman of the Board of Compu-DAWN and a
director e.TV. Mr. Theale was appointed Executive Vice President of Compu-DAWN,
and President and a director of e.TV. Pursuant to their respective employment
agreements, Messrs. Turner and Theale will each be paid a salary of $208,000 a
year and will receive stock options to purchase 200,000 and 650,000 Compu-DAWN
Common Shares respectively.
As of the same time, the employment agreements of Mark
Honigsfeld, Mr. Turner's predecessor as Chairman of the Board and currently the
Chief Executive Officer and a director of Compu-DAWN and e.TV, and Louis Libin,
the Chief Technology Officer, Senior Executive Vice President and a director of
Compu-DAWN and Senior Executive Vice President and a director of e.TV, were
amended to terminate their current bonus terms, and in lieu thereof, they will
each be issued a stock options to purchase 200,000 Compu-DAWN Common Shares
respectively.
Messrs. Turner, Theale's Honigsfeld's and Libin's options will
vest over a period of 3 years and are exercisable at $5.82 per share, the market
price as determined under Compu- DAWN's 1996 Stock Option Plan.
Rights Plan.
Additionally, Compu-DAWN adopted a 1999 restricted stock
rights grant plan (the "Rights Plan"). The Rights Plan provides for the issuance
of up to 2,000,000 Common Shares to the Rights Plan participants based on a
formula which provides for the participants to share up to 2,000,000 Common
Shares (the "Performance Shares") if Compu-DAWN generates up to $10,000,000 in
earnings before taxes by December 31, 2001, including making up any losses
during the years 1999 through 2001, if any. If Compu-DAWN earns less than
$10,000,000, the number of Performance Shares will be pro rated based on one
share for each $5.00 in earnings before taxes. The Rights Plan participants
include Mark Honigsfeld, Rudy C. Theale, Jr., R.E. Turner, IV, Louis Libin,
David Greenspan who is the Chief Financial Officer of Compu-DAWN, Paul Danner
and Chris Liston and any other person who is employed by or is providing
services to Compu-DAWN or its subsidiaries and who is elected as a participant
by the initial participants. Mr. Greenspan, Mr. Danner, Mr. Liston were formerly
employees of LocalNet. The participants will be issued the Performance Shares
based on their pro rata ownership of Compu-DAWN securities on January 8, 1999,
the date the Rights Plan was adopted. However, each participant must be employed
by or providing services to Compu-DAWN or its subsidiaries in connection with
the e.TV Business on December 31, 2001 in order to receive any Performance
Shares. In addition, the issuance of the Performance Shares is subject to, among
other things, any consent or approval of any regulatory body or the stock
holders of Compu-DAWN, if such consents or approvals are necessary.
Options.
In order to provide incentive for certain former LocalNet
employees or consultants to enter into and remain in employment or consulting
arrangements with Compu-dawn or e.TV, Compu-DAWN granted additional stock
options to purchase approximately 350,500 Common
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Shares. All such stock options vest over three years and are exercisable at
market prices as determined pursuant to the 1996 Stock Option Plan.
Board of Directors.
Compu-DAWN has agreed to expand its Board of Directors to
seven directors and cause the board to be comprised of Messrs. Honigsfeld,
Libin, Turner and Theale, one person nominated by Messrs. Honigsfeld and Libin,
one person nominated by Messrs. Turner and Theale and one person nominated by
Messrs. Honigsfeld, Libin, Turner and Theale. The reconstitution of the Board is
anticipated to be effective at the time Compu-DAWN complies with Rule 14f-1
under the Securities Exchange Act of 1934.
Other Transactions.
Compu-DAWN has also agreed to issue approximately 250,000
Common Shares to certain non-affiliated business entities and individuals in
order to establish ongoing business relationships with key suppliers, vendors
and consultants for the e.TV Business.
On January 11, 1999, Compu-DAWN issued a Press-Release
announcing the foregoing transactions, a copy of which is attached hereto as
Exhibit 99.1
Forward Looking Statements
Certain information contained in this Current Report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and is subject to the safe harbor created by that
act. Compu-DAWN cautions readers that certain important factors may affect
Compu-DAWN's actual results and could cause such results to differ materially
from any forward-looking statements which may be deemed to have been made in
this Current Report or which are otherwise made by or on behalf of Compu-DAWN.
For this purpose, any statements contained in this Current Report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "estimate," or "continue"
or the negative variations thereof or comparable terminology are intended to
identify forward-looking statements. Factors which may affect Compu-DAWN's
results include, but are not limited to, the risks and uncertainties associated
with multi-level network marketing, the internet and internet related technology
and products, new technology developments, developments and regulation in the
telecommunications industry, the risk of loss of management and personnel, the
competitive environment within the internet and telecommunications industries
industry, the competence required and experience of management and economic
conditions. Compu-DAWN is also subject to other risks detailed herein or
detailed from time to time in Compu-DAWN's SEC filings.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired. The Financial Statements
required by Item 7(a) will be filed by amendment to this Current Report
on Form 8-K pursuant to Item 7(a)(4).
(b) Pro Forma Financial Information. The Financial Statements required by
Item 7(b) will be filed by amendment to this Current Report on Form 8-K
pursuant to Item 7(a)(4).
(c) Exhibits.
2.1 Peaceful Surrender Agreement dated January 8, 1999 between
e.TV Commerce, Inc. (a wholly owned subsidiary of Compu-DAWN)
and LocalNet Communications, Inc.
99.1 Press Release, dated January 8, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
COMPU-DAWN, INC.
Dated: January 21, 1999 By:/s/ Mark Honigsfeld
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Mark Honigsfeld, Chairman of the Board
K:\WPDOC\CORP\COMPUDAW\SECFILE\8K-JAN99.2
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PEACEFUL SURRENDER AGREEMENT
This Agreement is made on the 8th day of January, 1999, between
LocalNet Communications, Inc., a Florida corporation, (hereinafter, "Debtor")
and e.TV Commerce, Inc, a Delaware corporation ("Secured Creditor").
WHEREAS, as of October 6, 1998, as amended as of October 23, 1998 and
as further amended as of November 12, 1998 (collectively, the "Loan Agreement"),
the Debtor executed a Loan and Security Agreement in favor of Compu-DAWN, Inc.,
a Delaware corporation ("Compu-DAWN"), among other things, giving Compu-DAWN a
security interest in and to all of the personal property of the Debtor, which
security interest was perfected by filing Form UCC-1 financing statements with
the Department of the State of Florida and the County Clerk of Duval County.
(Copies of the Loan Agreement and financing statements are annexed hereto as
Exhibit "A"); and
WHEREAS, on October 6, 1998, in connection with the Loan Agreement for
value received the Debtor executed a promissory note in favor of Compu-DAWN in
the principal sum of $500,000.00. (A copy of the Note is annexed hereto as
Exhibit "B"); and
WHEREAS, on October 23, 1998, in connection with the Loan Agreement for
value received the Debtor executed a promissory note in favor of Compu-DAWN in
the principal sum of $500,000.00. (A copy of the Note is annexed hereto as
Exhibit "C"); and
WHEREAS, on November 12, 1998, in connection with the Loan Agreement
for value received the Debtor executed a promissory note in favor of Compu-DAWN
in the principal sum of $800,000.00. (A copy of the Note is annexed hereto as
Exhibit "D"); and
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WHEREAS, on January 4, 1999, Compu-DAWN loaned to the Debtor
$100,000.00 (the "Additional Loan Principal"), receipt of which is hereby
acknowledged by Debtor; and
WHEREAS, on January 7, 1999, Compu-DAWN assigned all of its rights,
title and interest in, and to, the Loan Agreement, the Notes and the Additional
Loan Principal, plus the rights to all interest accrued thereon, and its
perfected security interest in connection therewith to the Secured Creditor,
which is a wholly owned subsidiary of Compu-DAWN; and
WHEREAS, the Debtor is in default in payment on the Notes and the
Additional Loan Principal in that the Debtor has breached certain of its
representations, warranties and covenants under the Loan Agreement and there is
now due and outstanding from the Debtor to the Secured Creditor the sum of
$1,800,000.00 with interest on each of the Notes from the date on the notes and
the Additional Loan Principal at the rate of 12% per annum; and
WHEREAS, capitalized terms not defined in Sections 1 through 4 hereof
are defined in Section 5 hereof.
NOW, it is therefore agreed as follows:
1. SURRENDER BY DEBTOR: Because of the inability of the Debtor to pay
its debts and obligations to the Secured Creditor, the Debtor herewith grants
and surrenders to the Secured Creditor certain collateral (the "Collateral")
pledged as security as provided in the Loan Agreement which Collateral is
enumerated on Schedule 1 attached hereto in satisfaction of $750,000 of
indebtedness owed by the Debtor under the Loan Agreement and pursuant to the
Notes and the Additional Principal Loan (the "Satisfied Amount"). The Loan
Agreement, the Notes and the Additional Loan Principal and the
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security interest of the Secured Party in connection therewith, shall remain in
full force and effect with respect to the indebtedness in excess of the
Satisfied Amount. The Secured Creditor retains all, and does not waive any of
its rights as a secured creditor with respect to the collateral not included as
Collateral on Schedule 1 hereto. The Debtor agrees that the Secured Creditor may
retain the Collateral free and clear of any claim from Debtor, or any person
claiming by, through or on behalf of the Debtor, hereafter. The Debtor further
agrees that the Secured Creditor may take immediate possession of all of the
Collateral wherever same may be found.
2. REPRESENTATIONS AND WARRANTIES BY DEBTOR:
In order to induce the Secured Creditor to enter into this
Agreement and to consummate the transaction(s) contemplated under this
Agreement, Debtor represents and warrants to the Secured Party as follows each
of which shall be deemed to be material and the Secured Party, in executing,
delivering and consummating this Agreement, has relied upon the correctness and
completeness or each of such representations and warranties:
(a) Neither the execution nor the delivery of this Agreement nor the
consummation of the transaction contemplated herein will constitute: a default
or an event that would, with notice of lapse of time or both, constitute a
default under, or violation or breach of Debtor's Articles of Incorporation or
Bylaws, or any Contract, indenture, license, lease, franchise, mortgage,
instrument, or other agreement to which Debtor is a party or by which Debtor or
the properties of Debtor including, without limitation, the Collateral may be
bound; or an event that would result in the creation or imposition of any Lien,
on the Collateral which would adversely affect the Secured Party's rights in and
use of the
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Collateral. This Agreement has been duly and validly authorized by all corporate
and other action, including, without limitation, the Board of Directors and
Stockholders of Debtor and, when executed and delivered by Debtor, will be valid
and binding on it and enforceable in accordance with its terms. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement will not conflict with or violate any ordinance
or regulation or any decree or order of any Court or administrative or other
governmental body which is either applicable to, binding upon or enforceable
against Debtor, nor will it result in any breach of or default under any,
Contract or other instrument which is either binding upon or enforceable against
either Debtor except for Equipment Leases or Equipment Loans or for the Debtor's
leased premises, or the Collateral nor violate any legally protected right of
any individual or entity or give to any individual or entity a right or claim,
nor impair or in any way limit any governmental or professional licensing
entity, to the extent that it would render this Agreement unenforceable or
impair or adversely affect the Collateral in any way.
(b) Debtor has good and marketable title to the Collateral, free and
clear of all Liens. The Collateral is sufficient to permit Debtor to operate the
Debtor Business as it is now being conducted.
(c) All Equipment included in the Collateral is in good condition, in
good operating order and are fit for the purposes for which they are used or
intended to be used, subject to normal wear and tear.
(d) Except as set forth in Schedule 2(d) all Contracts included in the
Collateral are freely assignable to the Secured Party, are in full force and
effect and are enforceable in accordance with their respective terms, except as
the contrary would not have a materially
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adverse effect on the Debtor Business, and all copies of Contracts instruments,
agreements and other documents delivered by Debtor to the Secured Party or
Compu-DAWN for its review in connection with this Agreement and the transactions
contemplated hereby represent all of the Contracts to which Debtor or any of its
subsidiaries is a party, and such copies are true, correct and complete copies
of all those contracts, instruments, agreements and other documents.
(e) All Schedule(s) attached to this Agreement are true, correct and
complete, and shall be true, correct and complete as at the date hereof.
Further, no statement contained in this Agreement or in any Schedule(s) or any
other writing furnished pursuant to the provisions of this Agreement or in
connection with the consummation of the contemplated transactions, contains any
untrue statement or omits to state a material fact necessary in order to make
the statement contained herein or therein not misleading. Without limiting the
generality of the foregoing, there is no fact known to Debtor that has had, or
which may be reasonably expected to have, a materially adverse effect on any of
the Collateral or Debtor Business that has not been disclosed in this Agreement,
except for any landlord liens.
(f) Intentionally left blank.
(g) Except as set forth and disclosed in Schedule 2(g) to this
Agreement, there are no actions pending or threatened against or affecting
Debtor or any of its businesses or properties, including, without limitation the
Collateral which would have a materially adverse effect on the Debtor Business
or which would render the transactions contemplated hereby illegal.
(h) Debtor has all material Permits necessary for the operation of the
Debtor Business.
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(i) Debtor has delivered to Compu-DAWN or the Secured Party true,
correct and complete copies of its Financial Statements for the year ended
December 31, 1998; it being represented to Compu-DAWN that all such Financial
Statements were all prepared from the books and records of Debtor, and in
accordance with Generally Accepted Accounting Principles as promulgated by the
AICPA consistently applied, and the Financial Statements fairly present the
financial position and Collateral and liabilities of Debtor as at the date
indicated.
(j) To the best of Debtor's knowledge, the operation of the Debtor
Business is not in violation of any law, regulation, ordinance, order,
injunction, decree, award or other requirement of any Body, court or arbitrator
which is in effect on the date of this Agreement, except as to matters set forth
in Schedule 2(j).
(k) Debtor has furnished to the Secured party for its examination: its
minute book containing all records required to be set forth of all proceedings,
consents, actions and meetings of the shareholders and Board of Directors; all
Permits, orders and consents issued by the State of Florida or other states with
respect to such Permits, orders and consents; and the stock transfer book
setting forth all issuances and transfers of any capital stock.
(l) Debtor has filed all federal, state and local tax return(s)
required by law and has paid all taxes, assessments and penalties due and
payable. None of the federal income tax and Florida tax returns of Debtor have
been audited by the Internal Revenue Service and the Florida Tax Board,
respectively, for all fiscal years to and including the fiscal year ended
December 31, 1997. The provisions for taxes reflected in Debtor's Balance Sheet
as of December 31, 1998 are adequate for any and all federal, state, county and
local tax(es) for
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the period ending on the date of that balance sheet and for all prior periods,
whether or not disputed. There are no present disputes as to taxes of any nature
payable by Debtor.
(m) The inventories shown on the Balance Sheet of Debtor as of December
31, 1998, included in the Financial Statements, consist of items of a quality
and quantity usable and salable in the ordinary course of business by Debtor,
except for obsolete and slow-moving items and items below standard quality, all
of which have been written down on the books of Debtor to net realizable market
value, or have been provided for by adequate reserves. All items included in the
inventories are the property of Debtor, except for sales made in the ordinary
course of business since the date of the Balance Sheet; for each of these sales,
either the purchaser has made full payment or the purchaser's liability to make
payment is reflected in the books of Debtor. No items included in the inventory
have been pledged as collateral or are held by Debtor on consignment from
others, except those set forth in Schedule 2(m). The inventories shown on all
the Balance Sheet(s) included in the Financial Statements are based on
quantities determined by physical count or measurement, taken within the
preceding twelve (12) months, and are valued at the lower of cost (determined on
a first-in, first-out basis) or market value and on a basis consistent with that
of prior years.
(n) Debtor's schedule of accounts receivable set forth in the Balance
Sheet included in the Financial Statements is complete and accurate; it being
understood that all accounts receivable of Debtor created after that date have
been in the ordinary course of business.
(o) Debtor does not use any Copyrights, Trademarks or Patents in its
business, nor does it own or has it applied for any Copyrights, Trademarks or
Patents. Further, no person owns any Proprietary Rights the use of which is
necessary or contemplated in
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connection with the operation of the Debtor Business or in connection with the
performance of any Contract to which Debtor is a party. Debtor is not infringing
upon any Proprietary Rights or otherwise is violating the rights of any third
party with respect thereto, and no proceedings have been instituted, and no
claim has been received by Debtor, and is not aware of any claim, alleging any
such violation.
(p) Debtor has attached to this Agreement, as Schedule 2(p), a list of
all (i) Employment Agreement(s) and/or all pension, bonus profit-sharing, stock
option, and/or other agreement(s) or arrangements providing for employee
remuneration or benefits to which Debtor is a party or by which it is bound,
whether written or oral, for a specific term or terminable of will, (ii) current
salary rates of, bonus commitments to, and other compensatory arrangements with
all present officers of and all other persons employed or retained by, Debtor.
All these contracts and arrangements are in full force and effect, and neither
Debtor nor any other party is in default under them. There have been no claims
of defaults and, to the best knowledge of Debtor, there are no facts or
conditions that if continued, or on notice, will result in a default under these
contracts or arrangements. Debtor is in compliance with all Federal, state and
other applicable laws, rules and regulations respecting employment and
employment practices, terms and conditions of employment and wages and laws and
has not engaged in any unfair labor practice. There has not been, and Debtor
does not anticipate any change in relations with its employees and/or
independent representatives as a result of the transactions contemplated by this
Agreement which will have a materially adverse effect on the Debtor Business.
Without limitation the foregoing, Debtor is in compliance with the Immigration
Reform and Control Act of 1986, as amended, and maintains a current Form I-9 as
required by such act in the personnel file of each Debtor
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employee. There is no pending or, to Debtor's knowledge, threatened labor
dispute, strike or work stoppage affecting Debtor's business. To the best of
Debtor's knowledge, it has complied with all applicable laws for each of its
respective employee benefit plans, pension plans and welfare plans including the
provisions of the Employee Retirement Income Security Act ("ERISA") if and to
the extent applicable. There are no threatened or pending claims by or on behalf
of any such benefit plan, by or on behalf of any employee covered under any such
plan, or otherwise involving any such benefit plan, that allege a breach of
fiduciary duties or violation of other applicable state or federal law, nor is
there, to Debtor's knowledge, any basis for such a claim.
(q) As of December 31, 1998, Debtor had no Liabilities, other than
those Liabilities reflected or reserved against in Debtor's Balance Sheet of
such date
(r) Except as otherwise expressly provided or set forth in, or required
by, this Agreement since December 31, 1998, Debtor has not: (i) incurred any
material Liability, (ii) made any wage or salary increases or granted any
bonuses; (iii) mortgaged, pledged or subjected to any Lien any of its
Collateral, or permitted any of its Collateral to be subjected to any Lien; (iv)
sold, assigned or transferred any of its Collateral, except in the ordinary and
usual course of business consistent with past practice; (v) other than this
Agreement or the transactions contemplated hereby, entered into any transaction
or course of conduct not in the ordinary and usual course of business and
consistent with past practice; (vi) changed its accounting methods, principles
or practices affecting the Collateral, Debtor's Liabilities or the Business;
(vii) revalued any of the Collateral, including, without limitation, writing
down the value of inventory or writing off notes or accounts receivable; (viii)
incurred any damage, destruction or loss (whether or not covered by insurance)
adversely affecting the Collateral
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or the Debtor Business which would result in a material adverse change in the
Collateral and/or the Debtor Business; (ix) incurred any adverse change in
employee relations which has or would have a material adverse effect on the
financial condition of the results of operations of the Debtor Business and/or
the relationship between the employees of the Debtor Business and the management
of the Debtor Business; (x) amended, canceled or terminated any Contract or
Permit relating to the Collateral of the Debtor Business or entered into any
Contract or Permit relating to the Collateral or the Business which is not in
the ordinary course of business, including, without limitation, any employment
or consulting agreement, which would result in a material adverse change in the
Collateral and/or Debtor Business; (xi) increased or changed its assumptions
underlying, or methods of calculating, any doubtful account contingency or other
reserves of Debtor; (xii) paid, discharged or satisfied any Liabilities of
Debtor other than the payment, discharge or satisfaction in the ordinary course
of business of Liabilities set forth or reserved for on the December 31, 1998
Balance Sheet or incurred in the ordinary course of business; (xiii) made any
capital expenditure, entered into any lease or incurred any material obligations
to make any capital expenditure; (xiv) failed to pay or satisfy when due any
Liability of Debtor; (xv) failed to carry on the Debtor Business in the ordinary
course, consistent with the past practices so as to reasonably keep available to
Compu-DAWN the services of Debtor's employees, and to preserve for Compu-DAWN
the Collateral and the Debtor Business and the goodwill of Debtor's suppliers,
customers, distributors and others having business relations with it; and (xvi)
disposed of or allowed the lapse of any Proprietary Rights or any disposition or
disclosure to any person of any Proprietary Rights not theretofore a matter of
public
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knowledge, which would have a materially adverse effect on the Collateral or the
Debtor Business.
(s) Except as listed and briefly described in Schedule 2(s) attached
hereto (the "Listed Agreements"), Debtor is not party to, or bound by, any: (i)
Contracts which involves aggregate payments or receipts in excess of $1,000 that
cannot be terminated at will without penalty or premium or any continuing
obligation or liability; (ii) Contract of any kind with any shareholder, of
Seller; (iii) Contract which is violation of applicable law; (iv) Contract for
the purchase, sale or lease of any materials, products, supplies or services
which contains, or which commits or will commit it for, a fixed term; (v)
Contract of employment with any officer or employee not terminable at will
without penalty or premium or any continuing obligation or liability; (vi)
deferred compensation, bonus or incentive plan or Contract not cancelable at
will without penalty or premium or any continuing obligation or liability; (vii)
management or consulting Contract not terminable at will without penalty or
premium or any continuing obligation or liability; (viii) lease for real or
personal property; (ix) license or royalty Contract; (x) Contract relating to
indebtedness for borrowed money; (xi) union or other collective bargaining
Contract; (xii) Contract which, by its terms, requires the consent of any party
thereto to the consummation of the transactions contemplated hereby; (xiii)
Contract containing covenants limiting the freedom of Debtor or any officer,
employee or shareholder, to engage or compete in any line or business or with
any person in any geographical area; (xiv) Contract or option relating to the
acquisition or sale of any business; (xv) voting agreement or similar agreement
or Contract; (xvi) option for the purchase of any asset, tangible or intangible;
or (xvii) distributor, franchise, license, technical assistance agency or
advertising Contracts; (xviii) Contract with the United States state or local
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government or any agency or department thereof, and/or (xix) other Contract
which materially affects any of its Collateral and/or Business, whether directly
or indirectly, or which was entered into other than in the ordinary and usual
course of business consistent with past practice, which would have a materially
adverse effect on the Debtor Business. A true and correct copy of each of the
written Listed Agreements has been delivered, to Compu-DAWN. Except as set forth
in Schedule 2(s) Debtor has in all material respects performed all obligations
required to be performed by it to date under all of the Listed Agreements, is
not in Default under any of the Listed Agreements and has received no notice of
any dispute, Default or alleged Default thereunder which has not heretofore been
cured or which notice has not heretofore been withdrawn, except if the contrary
would not have a materially adverse effect on the Debtor's Business. Debtor does
not know of any Default under any of the Listed Agreements by any other party
thereto or by any other person, firm or corporation bound thereunder, except if
the contrary would not have a materially adverse effect on the Debtor's
Business. Each of the Listed Agreements is freely assignable to Compu-DAWN.
(t) Schedule 2(t) attached hereto and made a part hereof sets forth a
true and complete list of all Permits from all Bodies held by Debtor. Debtor has
all Permits of all Bodies required to carry on the Debtor Business as presently
conducted and to offer and sell its products and services; all such Permits are
in full force and effect, and no suspension or cancellation of any of such
Permits is threatened; and Debtor is in compliance in all material respects with
all requirements, standards and procedures of the Bodies which have issued such
Permits. No notice to, declaration, filing or registration with, or Permit from,
any Body, or any other person or entity, is required to be made or obtained by
Debtor, in connection
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with the execution, delivery or performance of this Agreement the consummation
of the transactions contemplated hereby.
(u) The operations of the Debtor Business do not require, and Debtor
does not have, any Permits from any Bodies relating to occupational health and
safety or environmental matters to lawfully conduct the Debtor Business. There
is no litigation, investigation or other proceeding pending or, threatened or
known to be contemplated by any Body in respect of or relating to the Debtor
Business or the Collateral with respect to occupational health and safety or
environmental matters. All operations of the Debtor Business have been conducted
in compliance with all, and Debtor is not liable in any respect for any
violation of any, applicable federal, state or local laws or regulations
pertaining to occupational health and safety and environmental matters,
including, without limitation, those relating to the emission, discharge,
storage, release or disposal of Materials of Environmental Concern into ambient
air, surface water, ground water or land surface or sub- surface strata or
otherwise relating to the manufacture, processing, distribution, use, handling,
disposal or transport of Materials of Environmental Concern. Debtor has not
received any notice of a possible claim or citation against or in respect of any
real property leased by Debtor, or with regard to the Collateral or the Debtor
Business relating to occupational health and safety or environmental matters and
is not aware of any basis for any such Action.
(v) Schedule 2(v) sets forth a complete and accurate list of the names
and addresses of all the suppliers of the Debtor Business. Since December 31,
1998, there has been no adverse change in the business relationship of Debtor
with any distributor or supplier named on Schedule 2(v). Debtor has not received
any communication from any distributor
13
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or supplier named on Schedule 2(v) of any intention to terminate or materially
reduce purchases from or suppliers to Debtor, except as set forth on such
Schedule 2(v).
(w) Debtor has not, directly or indirectly, paid or delivered any fee,
commission or other sum of money or item or property, however characterized, to
any finder, agent, client, customer, supplies, government official or other
party, in the United States or any other country, which is in any manner related
to the Debtor Business or Collateral, which is illegal under any federal, state
or local laws of the United States (including, without limitation, the U.S.
Foreign Corrupt Practices Act); and Debtor has not participated, directly or
indirectly, in any boycotts or other similar practices affecting any actual or
potential customers of the Debtor Business and has at all times done business in
an open and ethical manner.
(x) Debtor has made and kept (and given Compu-DAWN or the Secured
Creditor access to) Books and Records and accounts, which, in reasonable detail,
accurately and fairly reflect the activities of the Business. Debtor has not
engaged in any material transaction, maintained any bank account or used any
corporate funds in connection with the Debtor Business except for transactions,
bank accounts and funds which have been and are reflected in the normally
maintained books and records of Debtor.
(y) The authorized capital stock of Debtor consists of _____________
shares of Class B common stock, and ________ shares of Class B Cumulative
Preferred Stock of which 401,922 shares of Class B Common Stock and no shares of
Class B cumulative Preferred Stock are issued and outstanding. Debtor is the
sole owner of all of the capital stock of the subsidiaries (collectively the
"Subsidiary Stock") and such subsidiary stock is duly authorized validly issued
fully paid and non-assessable. All the issued and outstanding
14
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shares of Class B Common Stock and Class B Cumulative Preferred Stock of Debtor
were validly issued, fully paid and nonassessable, and, there are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements or commitments obligating Debtor to issue or transfer from treasury
any additional shares of its capital stock of any class. Schedule 2(z) sets
forth a complete list of shareholders indicating the type and number of shares
of Debtor capital stock each shareholder owns. To the best of Debtor's knowledge
no Debtor security holder has any obligation or commitment to sell assignor
transfer any Debtor security.
3. WAIVER: The Debtor further acknowledges that it has defaulted in the
payment of its debts and obligations to the Secured Creditor and hereby waives
and renounces all of its rights to notification under Section 679.504 of the
Uniform Commercial Code ("UCC") as to the sale or other disposition by the
Secured Creditor of the above described Collateral and under Section 679.505 and
679.506 of the UCC regarding acceptance of Collateral as discharge of the
obligation of the Debtor to the Secured Creditor and waiver of the Debtor's
right to redeem Collateral, respectively and consents to any private or public
sale of the Collateral as the Secured Creditor may, in its sole discretion
conduct.
4. INDEMNIFICATION: From and after the date hereof, Debtor, will
reimburse, indemnify and hold harmless the Secured Party and Compu-DAWN and its
successors assigns and designees against and in respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by the Secured Party and/or Compu-DAWN that result
from, relate to or arise out of the following and arise during the one (1) year
period commencing on the date hereof:
15
<PAGE>
(i) any and all liabilities and obligations of Debtor of any kind,
nature and description whatsoever, fixed or contingent, inchoate or
otherwise;
(ii) any and all Actions against the Secured Party and/or
Compu-DAWN that relate to the Debtor Business or the Collateral in
which the principal event giving rise thereto occurred prior to the
date hereof or which result from or arise out of any action or inaction
prior to the date hereof of Debtor or any director, officer, employee,
shareholder, agent or representative of Debtor; or
(iii) any misrepresentation, breach of warranty or nonfulfillment
of any agreement or covenant on the part of Debtor under this
Agreement, or from any misrepresentation in or omission from any
certificate, schedule, statement, document or instrument furnished to
the Secured Party and/or Compu-DAWN pursuant hereto or in connection
with the negotiation, execution or performance of this Agreement; (b)
any and all Actions, assessments, audits, fines, judgments, costs and
other expenses (including, without limitation, reasonable legal fees)
incident to any of the foregoing or to the enforcement of this Section
4.
5. DEFINITIONS: As used in the following terms shall have the following
meanings:
"Action" shall mean any action, claim, suit, demand, litigation,
governmental or other proceeding, labor dispute, arbitral action, governmental
audit, inquiry, investigation, criminal prosecution, investigation or unfair
labor practice charges or complaint.
"Body" shall mean all federal, state, local, and foreign
governmental and other regulatory bodies.
16
<PAGE>
"Books and Records" shall mean (a) all records and lists of Debtor
pertaining to the Assets, (b) all records and lists pertaining to the Assets,
Debtor Business, customers, suppliers or personnel of the Debtor Business, (c)
all books, ledgers, files, reports, plans, drawings and operating records of
every kind maintained by Debtor relating to the Debtor Business, and (d) all
work papers of Debtor's accountants pertaining to the Debtor Business.
"Contract" shall mean any agreement, contract, note, lease,
evidence of indebtedness, purchase order, letter of credit, indenture, security
or pledge agreement, franchise agreement, undertaking, covenant not to compete,
employment agreement, license, instrument, obligation, commitment, course of
dealing or practice to which Debtor is a party or is bound and which relates to
the Debtor Business or the Assets, whether oral or written.
"Copyrights" shall mean registered copyrights, copyright
applications and unregistered copyrights relating to the Debtor Business.
"Balance Sheet" shall mean Debtor's balance sheet as of the Balance
Sheet Date which is part of the Financial Statements.
"Balance Sheet Date" shall mean December 31, 1998.
"Debtor Business" shall mean Debtor's business of reselling through
multi-level marketing by and through independent representatives of
telecommunication services, using a cooperative marketing distribution model and
providing value-added services including internet access and proprietary content
including the "LocalNet Broadcast Network" delivery through a tele-tv set-top
box which provides access to the internet as well as spreadsheets and word
processing software programs and presentation of software applications without
home computers and product extensions, as well as related products.
17
<PAGE>
"Default" shall mean any breach, default and/or other violation of
any Contract and/or the occurrence of any event that with or without the passage
of time or the giving of notice or both would constitute a breach, default or
other violation under, or give any party the right to accelerate, terminate or
renegotiate, any Contract.
"Equipment" shall mean that machinery and equipment owned by Debtor
and all warranty rights with respect thereto.
"Financial Statements" shall mean Debtor's balance sheets at
December 31, 1998, Statements of Earnings and Shareholder's Statements of Cash
Flows for the years ended December 31, 1998 and notes thereto.
"Lease(s)" shall mean the lease(s) and/or sublease(s) to which
Debtor is a party.
"Liability" shall mean any direct or indirect liability, obligation,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"Lien" shall mean any claim, lien, pledge, option, charge,
restriction, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"Listed Agreements" shall mean those Contracts described on
Schedule 2(s).
"Materials of Environmental Concern" shall mean pollutants,
contaminants, hazardous or noxious or toxic materials or wastes.
18
<PAGE>
"Patents" shall mean all patents and patent applications and
registered design and registered design applications used in the Debtor
Business.
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any and all Bodies
necessary for the present conduct of, or relating to the operations of, the
Debtor Business.
"Proprietary Rights" shall mean all of the Copyrights, Patents,
Trademarks, technology rights and licenses, computer software (including,
without limitation, any source or object codes thereof or documentation relating
thereto), trade secrets, franchises, inventions, designs, specifications, plans,
drawings, data bases, now-how, domain names, world wide web addresses and
intellectual property rights used in the Debtor Business or under development.
"Trademarks" shall mean registered trademarks, registered service
marks, trademark and service mark applications and unregistered trademarks and
service marks used in the Business.
Other terms not defined in this Section are defined elsewhere in
this Agreement.
6. MISCELLANEOUS: This document constitutes the entire agreement of the
parties with respect to the matters herein and the same may not be discharged,
altered, amended or waived except in writing and signed by the party against
whom enforcement is or shall be sought. This agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
K:\WPDOC\CORP\COMPUDAW\LocalNet\Peaceful3.agt
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
LOCALNET COMMUNICATIONS, INC.
By: /s/ Rudy C. Theale
----------------------
e. TV COMMERCE, INC.
By:/s/ Mark Honigsfeld
----------------------
ACKNOWLEDGED:
COMPU-DAWN, INC.
By:/s/ Mark Honigsfeld
----------------------
K:\WPDOC\CORP\COMPUDAW\LocalNet\Peaceful3.agt
20
<PAGE>
PEACEFUL SURRENDER AGREEMENT
INDEX OF EXHIBITS AND SCHEDULES
Exhibits
Exhibit A Loan Agreement and Financing Statements
Exhibit B $500,000 LocalNet Promissory Note dated October 6, 1998
Exhibit C $500,000 LocalNet Promissory Note dated October 23, 1998
Exhibit D $800,000 Local net Promissory Note dated November 12,
1998
Schedules
Schedule 1 Collateral
Schedule 2(d) Restrictions to Assignment
Schedule 2(g) Actions
Schedule 2(j) Violations
Schedule 2(m) Inventory Restrictions
Schedule 2(p) Employment Agreements
Schedule 2(s) Listed Agreements
Schedule 2(t) Permits
Schedule 2(v) Suppliers
Schedule 2(z) Capitalization
<PAGE>
Exhibit 99.1
Contact: Compu-DAWN, Inc.
Mark Honigsfeld (516) 374-6700 Ext. 601
LocalNet Communications, Inc.
Chris Liston (904) 680-6680 Ext. 5183
COMPU-DAWN, INC. ENTERS INTERNET E-COMMERCE BUSINESS BY
ACQUIRING THE OPERATING ASSETS OF LOCALNET COMMUNICATIONS, INC.,
A PRIVATELY HELD $10 MILLION INTERNET, E-COMMERCE
AND TELECOMMUNICATIONS SALES COMPANY.
TED TURNER IV, CO-FOUNDER OF LOCALNET COMMUNICATIONS, INC.
HAS JOINED COMPU-DAWN AND HAS ASSUMED THE ROLE AS
CHAIRMAN OF THE BOARD
CEDARHURST, NY - January 11, 1999 - Compu-DAWN, Inc. (NASDAQ:CODI) announced
today that its newly formed wholly owned subsidiary, e.TV Commerce, Inc.
("e.TV") has acquired the operating assets of LocalNet Communications, Inc. of
Jacksonville, Florida ("LocalNet"), an internet, e-commerce and
telecommunications sales company.
LocalNet Business
- -----------------
LocalNet began operations in July 1997. LocalNet is in the internet, e-commerce
and telecommunications business. LocalNet markets and sells its products and
services primarily using a person to person sales approach with the services of
commissioned sales representatives in a multi-level network marketing
organization. In the last 12 months of operations (January through December
1998) LocalNet had gross sales of approximately $10 million (on an unaudited
basis). Key services and products of LocalNet include:
(i) interactive advanced digital TV set top boxes which enables the consumer to
access the internet through the consumer's TV set over a standard telephone
line, conduct electronic commerce through LocalNet's own e-commerce shopping
mall (www.localnetshop.com), access a variety of different software applications
through its network computing capability, and (ii) local and long distance
telephone service.
LocalNet has approximately 18,000 independent sales representatives in their
distribution network and to date has sold and installed in excess of 4,000 TV
set top boxes. Indirectly, LocalNet acts as an internet service provider (ISP)
through companies such as Earthlink (NASDAQ: ELNK). LocalNet also provides long
distance and international calling services that currently account for more than
100,000 billing telephone numbers. Additionally, LocalNet has partnered with a
number
<PAGE>
of other companies in the telecommunications field for various products such as
Sprint PCS phones (NYSE:FON) and competitive local exchange carriers such as
e.spire (NASDAQ:ESPI) and others for non PC based internet telephony products.
LocalNet believes it has one of the first consumer TV set top boxes to also
provide network computer capability in which the user does not need to purchase
a computer and software. Rather, LocalNet houses the software at it's corporate
server farm utilizing Citrix's (NASDAQ:CTRX) Winframe middleware and provides a
time share environment to the end user in which customers pay a monthly fee to
access the LocalNet "Broadcast Network."
LocalNet introduced the TV set top box to its sales force in April of 1998. More
recently LocalNet unveiled an online shopping mall that boasts many popular
tenants and began shipping the upgraded network computer versions of its TV set
top box. Amazon.com (NASDAQ:AMZN), Office Max (NYSE:OMX), Barnes & Noble
(NYSE:BKS), K-Tel Records (NASDAQ:KTEL), etoys, JCrew, Super Fashionmall, and
Publishers Clearing House are some of the tenants currently in the LocalNet
internet mall. Additional tenants to Localnetshop.com are being pursued
continuously.
Independent market research indicates that annual e-commerce sales to the retail
market is expected to grow from $7.1 billion in 1998 to $41.1 billion in 2002.
Furthermore, the research indicates that by the year 2002, appliances such as TV
set top boxes are expected to account for 43% of e- commerce capable device
sales and will eventually replace the PC as the principal means to e- commerce
and substitute the living room for the home office as the home shopping center
making e-commerce a more recreational and convenient experience for people of
all ages and income levels.
e.TV Management
- ---------------
Ted Turner IV, Chairman of the Board and co-founder of LocalNet, has assumed the
role of Chairman for Compu-DAWN and e.TV. Mr. Turner has held various management
positions at subsidiaries of Turner Broadcasting Systems and CNN, now divisions
of Time Warner (NYSE:TWX). Rudy Theale, President and co-founder of LocalNet,
has agreed to serve as President of e.TV and as Executive Vice President of
Compu-DAWN. Mr. Theale previously was President and founder of Smartphone
America, a retailer of pre-paid cellular phones. Mark Honigsfeld, current
Chairman of the Board and Chief Executive Officer of Compu-DAWN, has assumed the
position of Chief Executive Officer for e.TV and will continue as Chief
Executive Officer and President of Compu-DAWN. Louis Libin, Chief Technology
Officer of Compu-DAWN, will continue as Chief Technology Officer of Compu-DAWN
and also serve as Senior Executive Vice President for both companies. Messrs.
Turner, Honigsfeld, Theale and Libin have agreed to enter into new 3-year
employment agreements and to be Directors of both entities. Compu-DAWN has
agreed to increase its board to 7 directors with 3 directors to be nominated by
each of Compu-DAWN, and by Mr. Turner and Mr. Theale, and 1 director to be
nominated by both groups.
Stock options to acquire approximately 1.6 million shares of common stock in
Compu-DAWN have been issued to various individuals and consultants who have
joined the new management team. All such stock options were issued at market
price pursuant to Compu-DAWN's 1996 Stock Option Plan, ($5.8125), and are
generally exercisable over a vesting period of 3 years. Furthermore, subject
<PAGE>
to shareholder approval, if required by regulatory bodies, are an additional 2
million performance shares that may be issued among a group of people including
Ted Turner IV, Rudy Theale, Mark Honigsfeld, Louis Libin and other management
employees of e.TV. The performance shares would be issued based on an income
formula of earnings before income taxes (EBT) at a rate of 1 common share issued
for each $5.00 of EBT, up to a maximum aggregate of 2 million shares for
$10,000,000 of EBT over the 3 year period beginning January 1, 1999 and ending
December 31, 2001, accounting for any losses.
Mark Honigsfeld, CEO of Compu-DAWN said "We are extremely excited about this
transaction with LocalNet and the creation of e.tv. Compu-DAWN has now procured
an effective way to apply its many valuable resources to an e-commerce business.
Compu-DAWN's management believes that LocalNet has been and now e.tv is involved
in one of the most progressive and exciting technology marketplaces, the
internet, and has also created a marketing program with a sizeable sales
organization that can bring technology to market, very quickly, and at
reasonable costs. This approach includes thin client/server technology for
consumers, utilizing interactive advanced digital TV set top boxes with ordinary
TV sets and a regular telephone line to access the internet. Our ability to
provide users with centralized management and systems administration is very
similar to the AOL (NYSE:AOL) model, but without the costs and complexities
associated with owning and/or operating PC's and PC networks. A recent article
in Wired News (www.wired.com) stated that "watching TV seems to be increasingly
uncool for young Americans, according to a survey by Nielsen media Research, and
computers may be the reason why. Prime-time viewing among adults 18-34, one of
the demographics most prized by networks and advertisers, fell 6 percent on a
season- to-date average compared with the same period last year." Asked for an
explanation, one TV ad exec said "These are people that eat, sleep, and drink
computers and the Internet." e.TV's vision is to capture a big part of the
potential that the e-commerce marketplace provides through the much larger TV
viewing audience. e.TV will use the entertainment center as our paradigm for
sending e-mail, surfing the web, playing games, shopping on-line, and to a host
of many other applications through a thin/client platform. All this to the
consumer at a fraction of the cost and without the challenges associated with
the use of traditional PC computers."
Ted Turner IV said "Attaching multi-level network marketing to a user friendly
technology for the information superhighway with our TV set top box, is what it
takes to build e.TV's business to new heights. Not only are TV's abundant in
living rooms and family rooms, but they also occupy 63% of master bedrooms and
64% of teenage children's rooms. In addition, 24% of households have a TV in
their kitchens and 28% in their dens or home offices. With Compu-DAWN's
ownership and commitment we now have the ability to dramatically expand
LocalNet's prior efforts. Compu- DAWN provides valuable expertise in technology,
management, capital and many other very important resources."
Rudy Theale said "At the beginning of 1998, less than 25% of U.S. households had
PC access to the internet from home or work. Many believe that the reasons is
because most people don't have the financial resources to spend thousands of
dollars for a multimedia computer and most often lack the skills and
understanding needed to work with a computer or access and use the internet. We
have made significant progress towards bringing the average consumer onto the
information
<PAGE>
superhighway through a TV set top box environment. Statistics have shown that
the median age for the head of an on-line household is 40.8, slightly younger
than the national average. On-line penetration is highest in the youngest
segments, with 38% of those under 30 on-line. The 30 to 50 year old segment is
about 30% penetrated, while only 6% of those over 65 are on-line. With the use
of a TV set top box, everyone can feel comfortable sending e-mail, accessing the
web, word processing, playing games and using software applications and
conducting e-commerce from their sofa. These activities are primarily what the
majority of existing household PC owners use PC's for anyway. Our vision is to
own a piece of the family room and to turn e-commerce into a daily event for
everyone. We expect to accomplish our marketing goals through "relationship
selling." Imagine from the comfort of your living room, or den, being able to
watch your favorite TV program or sports event while simultaneously, on the same
TV screen, surfing the internet."
Marketing
- ---------
Management believes that the most effective way to reach a growing consumer
audience interested in internet and telephony technology is through relationship
selling, of which multi-level network marketing is the most commonly seen
example. Network marketing, involves using independent sales representatives to
sell products and services, paying the sales representative a commission on
their sales and encouraging the sales representative to recruit additional sales
representatives. The sales representative typically sells and recruits among the
people they interact with regularly, thus the term "relationship selling". Much
of the consumer long distance telephone business as is known today was created
through this kind of marketing. MCI/Worldcom (NASDAQ:WCOM) Friends and Family
program is often regarded as the original telecom application of the
relationship selling concept. Almost every residential long distance and
interexchange carrier (IXC) has used some variation on this method of
distribution. Excel Communications Inc., recently acquired by Teleglobe
(NYSE:TGO) is an example of such a company which has built a $2 billion
residential long distance business and IXC using network marketing. Other well
known companies in the network marketing business promoting various types of
products are Nu-Skin (NYSE:NUS), Rexall Sundown, Inc. (NASDAQ:RXSD), Pre-Paid
Legal Services, Inc. (ASE:PPD) and Amway Corp. (NYSE: AAP and AJL).
Terms of The Acquisition
- ------------------------
The acquisition of the operating assets of LocalNet by Compu-DAWN was
effectuated in connection with the partial satisfaction of a $1.8 million
secured loan previously made to LocalNet by Compu- DAWN.
Related to this transaction, subject to review by our auditors, Compu-DAWN
expects to (i) set up certain reserves of approximately $1.5 million as a charge
against 1998 earnings, (ii) book a purchase of assets approximating $250,000 and
(iii) book the purchase of good will approximating $1.5 million. As of the
effective date of this transaction, Compu-DAWN expects to remain with
approximately $5 million in assets, $4.5 million in cash and virtually no
long-term debt.
<PAGE>
Other Transactions
- ------------------
Compu-DAWN has also agreed to issue approximately 250,000 shares of Compu-DAWN's
Common Stock to certain business entities in order to establish ongoing business
relationships with key suppliers for the new entity, e.TV.
Additional information about the business of LocalNet can be obtained by viewing
their website at www.localnetcom.com.
Compu-DAWN, Inc. continues to operate its business in the public safety software
marketplace.
Forward Looking Statements
- --------------------------
Certain information contained in this announcement are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and is subject to the safe harbor created by that act. Compu-DAWN
cautions readers that certain important factors may affect Compu-DAWN's actual
results and could cause such results to differ materially from any forward-
looking statements which may be deemed to have been made in this announcement or
which are otherwise made by or on behalf of Compu-DAWN. For this purpose, any
statements contained in this announcement that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative
variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors which may affect Compu-DAWN's results
include, but are not limited to, the risks and uncertainties associated with
multi-level network marketing, the internet and internet related technology and
products, new technology developments, developments and regulation in the
telecommunications industry, the risk of loss of management and personnel, the
competitive environment within the internet and telecommunications industries
industry, the competence required and experience of management and economic
conditions. Compu-DAWN is also subject to other risks detailed herein or
detailed from time to time in Compu-DAWN's SEC filings.
<PAGE>
