SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1999
---------------------
Commission file number 000-22611
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Compu-DAWN, Inc.
(Exact name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3344575
- --------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
333 North First Street, Suite 200, Jacksonville Beach, Florida 32250
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(Address of principal executive offices)
Issuer's telephone number, including area code (904) 249-5756
12735 Gran Bay Parkway Building 200, Jacksonville, Florida 32258
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(Former Name, Former Address and Formal Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of November 2, 1999: 4,008,119
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
- INDEX -
PART I Financial Information
Item 1 Financial Statements Consolidated Condensed Balance Sheets - 3
September 30, 1999 (unaudited) and December 31,1998 3
Consolidated Condensed Statements of Operations - Three and Nine 4
Months Ended September 30, 1999 and 1998 (unaudited)
Consolidated Condensed Statements of Cash Flows - Nine Months
Ended September 30, 1999 and 1998 (unaudited) 5
Notes to Interim Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II Other Information
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 19
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
Compu-DAWN, Inc. AND SUBSIDIARY
CONDENSED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
September December
30, 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 362,092 $ 4,378,400
Accounts receivable 7,198 -
Interest receivable 14,751 -
Prepaid expenses 32,027 -
Inventory (Note 3) 64,832 -
Net assets of discontinued operations (Note 1) - 919,520
--------------- --------
TOTAL CURRENT ASSETS 480,900 5,297,920
FIXED ASSETS - NET 95,953 -
OTHER ASSETS:
Notes receivable (Note 3) 611,573
Capitalized software costs (Note 3) 157,676 -
Security deposits 28,293 -
--------------- ---------------
TOTAL ASSETS $ 1,374,395 $ 5,297,920
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 626,680 $ -
Accrued expenses 25,220 -
Accrued settlement costs (Note 4) 71,000 -
Deferred rent liability 35,901 -
Capitalized lease payable 18,944
Net liabilities of discontinued operations (Note 1) 455,796
---------
TOTAL CURRENT LIABILITIES 1,233,541 -
---------------- --------------
NON-CURRENT LIABILITIES:
Capitalized lease payable 22,791 -
Deferred rent liability 36,900 -
--------------- --------------
TOTAL NON-CURRENT LIABILITIES 59,691 -
--------------- --------------
TOTAL LIABILITIES 1,293,232 -
----------- --------------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized:
Series A Convertible Preferred; 1,075 and 3,250 shares
issued and outstanding for 1999 and 1998, respectively 11 33
Series B Convertible Preferred; 1,480 and 1,750 shares
issued and outstanding for 1999 and 1998, respectively 15 17
Common stock, $.01 par value, 20,000,000 shares authorized,
4,253,663 and 3,265,448 shares issued for 1999 and 1998,
respectively 42,537 32,654
Additional paid-in capital 16,252,234 13,661,649
Accumulated deficit (15,762,625) (7,620,721)
Accumulated other comprehensive loss - (150,000)
----------------- --------------
532,172 5,923,632
Less: treasury stock, 277,544 and 340,044 shares, at cost,
September 30, 1999 and December 31, 1998, respectively (451,009) (625,712)
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY 81,163 5,297,920
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,374,395 $ 5,297,920
============= ============
</TABLE>
See accompanying notes to condensed
financial statements.
3
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------ ----------------------------------
1999 1998 1999 1998
----------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Products and services $ 30,073 $ - $ 357,960 $ -
Interest and other income 11,532 55,124 193,019 121,246
------ ------ ------- -------
TOTAL REVENUES: 41,605 55,124 550,979 121,246
COSTS AND EXPENSES:
Cost of revenues 100,900 - 296,136 -
General and administrative expenses 1,086,464 - 1,787,954 -
Interest expense 1,414 7,235 99,517 17,940
Loss on settlement (Note 4) 71,000 71,000
Loss due to terminated investment transaction - 296,952 - 296,952
--------- ------- - -------
TOTAL COSTS AND EXPENSES: 1,259,778 304,187 2,254,607 314,892
--------- ------- --------- -------
LOSS FROM CONTINUING OPERATIONS (1,218,173) (249,063) (1,703,628) (193,646)
----------- --------- ----------- ---------
DISCONTINUED OPERATIONS:
Loss from discontinued operations (1,005,917) (118,809) (6,976,008) (1,073,264)
Gain on sale of discontinued operations 537,732 537,732
------- --------- ------- ---------
NET LOSS $(1,686,358) $(367,872) $(8,141,904) $(1,266,910)
=========== ========= =========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE:
From continuing operations $(.29) $(.08) $ (0.44) $(.06)
From discontinued operations (.24) ( .04) (1.79) (.36)
From gain from sale of discontinued operations .13 - .14 -
--- ---- ---
Basic net loss per common share $(.40) $(.12) $(2.09) $(.42)
===== ===== ====== =====
DILUTED INCOME (LOSS) PER COMMON SHARE:
From continuing operations $(.29) $(.08) $ (0.44) $(.06)
From discontinued operations (.24) ( .04) (1.79) (.36)
From gain from sale of discontinued operations .09 - .08 -
--- --- --- ---
Diluted net loss per common share $(.47) $(.12) $(2.15) $(.42)
===== ===== ====== =====
Average common shares outstanding, basic 4,192,489 3,148,730 3,887,625 2,988,978
========= ========= ========= =========
Average common shares outstanding, diluted 6,168,863 4,453,230 6,476,210 4,238,565
========= ========= ========= ========
</TABLE>
See accompanying notes to condensed
financial statements.
4
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(8,141,904) $ (1,266,910)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations 6,976,008 1,073,264
Gain on sale of discontinued operations (537,732) -
Depreciation 12,269 -
Loss on settlement 71,000 -
Stock options issued for consulting services 212,800
Loss on sale of short-term investments 36,818 -
-------------- ---------
(1,370,741) (193,646)
Changes in assets and liabilities net of
effect from discontinued
operations:
Increase in accounts receivable (7,198) -
Increase in interest receivable (14,751) -
Increase in prepaid expenses and other assets (32,027) -
Increase in inventory (64,832) -
Increase in security deposits (28,293) -
Increase in capitalized software (157,676) -
Increase in accounts payable and accrued expenses 651,900 -
Decrease in other payable (50,000) -
---------------- ---------
297,123 -
---------------- ---------
Net cash used in continuing operations (1,073,618) (193,646)
----------- ---------
Net cash used in discontinued operations (3,471,702) (1,141,010)
----------- -------------
Net cash used in operating activities $(4,545,320) $ (1,334,656)
------------ ----------------
Cash Flows from Investing Activities:
Loans to GlobalPC (Note 3) (611,573) -
Capital expenditures of discontinued operations (158,036) (21,186)
Net proceeds from sale of network marketing customer lists 250,000 -
Net proceeds from sale of public safety division 500,000 -
------- ---------
Net cash used in investing activities (19,609) (21,186)
Cash Flows from Financing Activities:
Stock options and warrants exercised 471,050 19,336
Loan repaid to former officer - (75,000)
Net proceeds from private placements 96,865 4,741,837
Capital lease payments (19,294) (4,219)
---------- -------
Net cash provided by financing activities 548,621 4,681,954
Net Increase (Decrease) in Cash and Cash Equivalents (4,016,308) 3,326,112
Cash and Cash Equivalents at Beginning of Year 4,378,400 3,081,253
------------ -----------
Cash and Cash Equivalents at End of Period $ 362,092 $6,407,365
========= ==========
</TABLE>
See accompanying notes to condensed
financial statements.
5
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY:
Compu-DAWN, Inc., (the "Company"), was incorporated under the
name of Coastal Computer Systems, Inc., in New York on March
31, 1983, and was reincorporated in Delaware under its present
name on October 18, 1996. Through January 8, 1999 the Company
was engaged in one line of business, designing, developing,
licensing, installing and servicing computer software products
and systems predominantly for public safety and law enforcement
agencies. The Company's customers, to date, are primarily
located in New York State. The Company entered into a second
line of business, the eTV business, on January 8, 1999. Through
June 1999 the Company, through its wholly owned subsidiary, eTV
Commerce, Inc., ("eTV"), operated in the Internet, e-commerce
and telecommunications business (the "e.TV Business), marketing
and selling its products and services primarily using a person
to person sales approach with the services of commissioned
sales representatives in a multi-level referral network
marketing organization. From July through September 1999 the
Company has primarily derived revenues through the sale of
Internet access services while focusing its efforts on working
towards closing the asset purchase transaction with GlobalPC,
Inc. described in Note 3 below, and on fund raising efforts.
At December 31, 1998, the Company had written down a loan
receivable from LocalNet Communications, Inc., ("LocalNet") ,
an unaffiliated Florida corporation, to approximately $750,000,
the represented fair value of the assets collateralizing the
loan. On January 7, 1999, the Company assigned its interest in
this loan from LocalNet to e.TV, a newly formed subsidiary of
the Company. On January 8, 1999, LocalNet surrendered the
assets representing the collateral underlying this loan.
In March 1999, the Company determined that the fair value for
the assets received by LocalNet aggregated $244,000 and
accordingly the Company recorded a further write-down of the
loan of approximately $592,000 which included additional
advances of approximately $100,000, made to LocalNet in 1999
prior to the surrender of assets.
In May 1999, the Company decided to divest itself of its public
safety software business and on July 2, 1999 the Company
consummated the sale of this division to an unaffiliated third
party. The Company received $500,000 in cash, for a net gain of
$287,732, and is entitled to receive software royalty payments
for five years ranging from 6.25% to 10% from future sales of
products containing the Company's technology or to former
customers of the Company's public safety software business. To
date, royalty payments have been inconsequential.
On June 29, 1999, the Company discontinued its network referral
marketing operations, the e.TV subsidiary, in order to focus on
developing Internet related products and services and selling
them through retail channels. In July 1999, the Company sold
its independent representative database and assigned its long
distance business to another network marketer of
telecommunication products for $250,000 in cash.
6
<PAGE>
As a result of the events and transactions described above, the
results from the public safety software segment and the network
referral marketing segment are shown as discontinued operations
with prior years restated. Components of amounts reflected in
the income statements, balance sheets and cash flow statements
are presented in the following table.
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Income statement data
Revenues $2,404,202 $ 916,129
Cost and expenses (9,380,210) (1,989,393)
---------- ----------
Loss from discontinued operations ($6,976,008) ($1,073,264)
============ ===========
September 30, 1999 December 31, 1998
------------------ -----------------
Balance sheet data
Current assets $ - $1,123,982
Fixed assets - net - 218,374
Other assets - 21,525
Current liabilities (455,796) (400,134)
Non-current liabilities - (44,227)
--------- -----------
Net assets (liabilities) of discontinued
operations $(455,796) $919,520
========== ========
September 30, 1999 September 30, 1998
------------------ ------------------
Cash flow data
Cash flows from operations ($3,471,701) ($1,141,010)
Cash flows from investments
(Including sales proceeds) 591,964 (21,186)
---------- -------------
Cash used in discontinued operations ($2,879,737) ($1,162,196)
============ ===========
</TABLE>
The accounting policies followed by the Company are set forth in
Note 2 to the Company's annual report filed on Form 10-KSB for
the year ended December 31, 1998. Specific reference is made to
this report for a description of the Company's securities and the
notes to the financial statements included therein.
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of Compu-DAWN, Inc.,
contain all adjustments, consisting of normal and recurring
adjustments considered necessary to present fairly the Company's
financial position as of September 30, 1999 and the results of
its operations for the three and nine month periods ended
September 30, 1999 and 1998, and its cash flows for the nine
month period ended September 30, 1999 and 1998.
The results of operations for the three and nine month periods
ended September 30, 1999 and 1998 are not necessarily indica-
tive of the results to be expected for the full year.
7
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - CAPITAL STOCK AND EQUIVALENTS:
In January 1999, holders of 1,575 Series A preferred shares and
270 Series B preferred shares converted such shares into 315,000
and 50,467 shares of common stock, respectively.
In January 1999, the Company granted 133,000 stock options to
non-employees. The fair value of these stock options, using the
Black-Scholes valuation model, amounted to approximately $423,000
and is recognized in the revised and restated results of the
first quarter.
In February 1999, the Company issued the following:
(a) 10,000 shares of common stock to a consultant for services
rendered in October 1998. The value of these services,
$15,000, was accrued at December 31, 1998:
(b) 117,398 shares of common stock to a supplier of inventory
to e.TV as an inducement to enter into a contract with the
Company. These shares were valued at the market price at
the date of issuance, for an aggregate of $606,815: and
(c) 30,000 shares of common stock to an entity in connection
with a one year consulting contract. These shares were
valued at $120,000, the aggregate market value at the date
of issuance.
In May 1999, the Company transferred 62,500 shares of common
stock to a former officer out of the Company's treasury, and in
July 1999 the Company issued 75,000 shares of common stock to
such former officer as consideration for consulting services
valued at $662,500.
In May and June 1999, options and warrants were exercised to
purchase 97,500 and 8,000 shares of common stock, respectively,
for which the Company received $384,000 in cash proceeds.
In June 1999, holders of 600 Series A preferred shares conv-
erted such shares into 120,000 shares of common stock.
In July 1999 the Company issued 75,000 shares of Common Stock,
valued at approximately $380,000, to an unaffiliated party in
consideration of such party's agreement to provide certain
support and administrative services to the Company after the
acquisition of the e.TV Business.
In July and August 1999, options and warrants were exercised to
purchase 9,250 and 18,100 shares of common stock, respectively,
for which the Company received $87,050 in cash proceeds.
In August, 1999, the Company issued 62,500 shares of common stock
in a private placement to an unaffiliated third party for an
aggregate of $96,875, or $1.55 per share.
8
<PAGE>
NOTE 3 - POTENTIAL ACQUISITION:
On July 30, 1999 the Company signed an asset purchase agreement
to acquire substantially all tangible and intangible assets of
GlobalPC, Inc. of Alameda, California. GlobalPC has developed
enhancements to GEOS, a simplified, user friendly, low cost
computer operating system owned by Geoworks, Inc. In addition,
GlobalPC has developed a series of software applications. The
GEOS operating software is to be embedded in a low cost "easy to
use" personal computer (the "GlobalPC Device"), along with the
application software developed by GlobalPC. A closing of the
asset purchase is based on several conditions being met,
including, among others, the determination of the Company's board
of directors that the transaction is fair to the Company and its
stockholders, and obtaining a GEOS license agreement which
contains terms satisfactory to the Company.
In consideration for the assets and the assumption of certain
liabilities from GlobalPC, the Company has agreed to issue a
number of shares of common stock ranging from 624,284 to 699,284
Shares, and Class A Warrants to purchase up to 2,269,284 Common
Shares, Class B Warrants to purchase up to 1,901,400 Common
Shares and Class C Warrants to purchase up to 383,000 Common
Shares. All the warrants are exercisable at $4.875 per share, the
closing price of the Company's common stock on July 29, 1999.
The Class A Warrants are exercisable from July 1, 2001 to June
30, 2006 to the extent of 50%, 75% or 100% of the underlying
Common Shares provided the Company reaches certain performance
milestones by June 30, 2001. The milestones require that there
are 150,000 to 200,000, 200,001 to 250,000, or 250,001 or more
subscribers to the Company's Internet services who access the
Internet through the GlobalPC Device by June 30, 2001,
respectively. If there are less than 150,000 of such subscribers
by June 30, 2001, the Class A Warrants will not be exercisable
and shall be automatically canceled.
The Class B Warrants are exercisable (i) to the extent of 30% of
the underlying Common Shares during the period commencing 90 days
after the issuance of the Class B Warrant and ending on the day
before the fifth anniversary of the issuance date (the
"Expiration Date") and (ii) to the extent of 23 1/3% of the
underlying Common Shares from each of the first, second and third
anniversary of the issuance date and ending on the Expiration
Date.
The Class C Warrants are exercisable from the first anniversary
of the date of issuance to the Expiration Date.
Furthermore, the exercise of all the warrants is also subject to
stockholder approval to the extent that the number of shares of
common Stock to be issued upon the exercise of the warrants and
otherwise in connection with the transaction are more than 20% of
the Company's' outstanding shares of common Stock.
On June 22, 1999, the Company entered into a loan and security
agreement pursuant to which the Company initially loaned GlobalPC
$135,000. Subsequently, the Company increased the loan, amending
the loan and security agreement each time. As of September 30,
1999, the Company had advanced an aggregate of $611,573 under the
loan and security agreement, as amended. Each principal tranche
loaned is represented by a secured promissory note from GlobalPC,
which bears interest at an annual rate of 10% and is payable on
June 22, 2000.
During the third quarter of 1999, the Company purchased inventory
and funded software design and development as well as the other
related costs pertaining to the potential acquisition of assets
from GlobalPC, amounting to $64,832 and $157,676, respectively.
NOTE 4 - CONTINGENCIES AND COMMITMENTS
In July 1999, the Company was notified by a third party
manufacturer of products previously sold by its discontinued
subsidiary, e.TV, that the Company allegedly owes such third
party approximately $285,000. The Company disputes this claim. If
an action is ultimately brought against the Company, the Company
believes it has meritorious defenses and will vigorously defend
against such an action. The Company has accrued for potential
settlement costs determined to be sufficient to cover the
resolution of this claim.
9
<PAGE>
The Company is a party to an indemnification agreement dated
January 8, 1999 (the "Indemnification Agreement") with Rudy C.
Theale, Jr., the Vice Chairman of the Board and a Director of the
Company. Pursuant to the Indemnification Agreement, the Company
has agreed to indemnify Mr. Theale up to $170,000 for any
liability incurred by Mr. Theale out of the action encaptioned
James B. Palmer v. LocalNet Communications, Inc. Rudy C. Theale,
Jr., et al. Mr. Theale has advised the Company that settlement
negotiations have been ongoing but that the ultimate settlement
or outcome cannot be predicted. The Company has accrued for
potential settlement costs in the third quarter, determined to be
sufficient to cover its potential obligation under the contract.
On October 27, 1999, the litigation encaptioned Rugby National
Corp. ("Rugby") Harvey Weinstein, and Credomarka Corp. v.
Compu-DAWN, Inc., Rugby Acquisition Corp. and Mark Honigsfeld was
settled. Pursuant to the related settlement agreement, the
Company issued 25,000 Common Shares to Harvey Weinstein and
forgave $297,000 loaned to Rugby which the Company had written
off in 1998. As part of the settlement agreement, the parties
exchanged general releases. The settlement costs have been
accrued for as of September 30, 1999.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company was incorporated in the State of New York on March
31, 1983 under the name Coastal Computer Systems, Inc. The
Company was reincorporated in the State of Delaware under its
present corporate name Compu-DAWN, Inc. on October 18, 1996.
During the first two quarters of fiscal 1999, the Company was
engaged in two separate lines of business. In one, the Company
engaged in the designing, developing, licensing, installing and
servicing of computer software products and systems predominantly
for public safety and law enforcement agencies. In its other line
of business, the Company, through its wholly owned subsidiary,
e.TV Commerce, Inc. ("e.TV") operated in the Internet, e-commerce
and telecommunications business marketing products and services
primarily using a referral network marketing organization of
independent representatives.
In May 1999, the Company decided to divest itself of its public
safety software business since the major focus of the Company's
business had shifted to Internet services, e-commerce and
telecommunication services. On July 2, 1999, the Company
consummated the sale of the public safety software business
division to an unaffiliated third party. In the transaction, the
Company received $500,000 in cash, and is entitled to receive
quarterly software royalty payments ranging from 6.25% to 10%
from future sales of products containing the Company's technology
or to former customers of the Company's public safety software
business. The royalty is based on the funds actually received by
the public safety software business buyer from those orders it
receives during the five years subsequent to the closing of the
sale. To date, royalty payments have been inconsequential.
On June 29, 1999, the Company discontinued its network referral
marketing operations, e.TV, in order to focus on developing
Internet related products and services and selling them through
retail channels. This decision was made after the Company
determined, among other things, that e.TV would not meet its
revenue projections in 1999. Additionally, it was determined that
a substantial capital infusion would have been required to
sustain the business at current levels and to have been able to
achieve future growth. Even with a substantial capital infusion,
the growth in e.TV's revenues would not have been assured in the
short or long term.
In July 1999, the Company sold its independent representative
database and assigned its UniDial Communications, Inc.
("UniDial") long distance business to another network marketer of
telecommunication products for $250,000 in cash.
On July 30, 1999 the Company signed an asset purchase agreement
to acquire substantially all tangible and intangible assets of
GlobalPC, Inc. ("GlobalPC") of Alameda, California. GlobalPC has
developed enhancements to GEOS, a simplified, user friendly, low
cost computer operating system owned by Geoworks, Inc. The
GlobalPC technology, the GEOS software and other software, offers
a complete hardware and integrated software solution including
the operating system and a set of applications such as: an
Internet browser, e-mail capabilities, word processing,
spreadsheet functionality and gaming. The GEOS operating software
is to be embedded in a low cost "easy to use" personal computer,
along with the application software developed by GlobalPC (the
"GlobalPC Device"). A closing of the asset purchase is based on
several conditions being met, including, among others, the
determination of the Company's board of directors that the
transaction is fair to the Company and its stockholders, and
obtaining a GEOS license agreement which contains terms
satisfactory to the Company. Upon consummating the acquisition of
assets from GlobalPC, which, if pre-closing conditions are met,
is expected to close in the middle to the end of the fourth
quarter of 1999, the Company plans to enter into agreements with
mass merchant and other retailers. The GlobalPC Device is
anticipated to enter retail channels by mid 2000, not in the
fourth quarter of 1999, as previously reported. Moreover, a
limited number of systems will be offered for sale on a direct
basis to consumers through its Internet site commencing early in
the first quarter of 2000. The re-scheduled product introduction
will allow the Company to enhance its web portal content,
solidify manufacturing and network service alliances as well as
validate critical technical support and customer service.
11
<PAGE>
Following the closing of the purchase of assets from GlobalPC,
the Company plans to focus market efforts to those consumers who
currently do not have a personal computer or for those who are
seeking an affordable second unit. The Company plans to create an
"Online Community" by bundling the Company's' Internet services
with the sale of the GlobalPC appliance. The Company believes
that the demographic composition of the consumer will largely
embody first time personal computer users and Internet
subscribers. In so doing, it is anticipated that the Company
expects to realize a variety of additional marketing
opportunities such as financial, transactional and commercial
services, on-line banking, web shopping, and a host of new and
innovative services which are emerging as the e-commerce market
matures.
The Company plans to recruit, train and maintain an experienced
team of software and hardware engineers to support the
development of its expected GlobalPC business. This development
team will be largely responsible for any future modifications,
enhancements and/or changes to the operating system. The "Team"
will also focus on four major areas: ease-of-use, the online
service and Internet access, performance and software integration
compatibility.
In the near-term, the Company intends to manufacture a limited
number of GlobalPC Devices to be sold on a direct basis to
consumers through its Internet site commencing early in the first
quarter of 2000. The Company's long-term objective is to be a
sublicensor of the GEOS operating system and hardware reference
designs with its integrated suite of productivity applications to
national brand-name consumer-oriented hardware manufacturers.
Currently, no such relationship is in place. Accordingly, in
order to meet the anticipated first quarter 2000 direct sales and
second quarter retail sales demand, the Company is in the process
of establishing a relationship with an unaffiliated third party
to outsource its manufacturing efforts on a contract basis. The
Company is in discussions with various entities about such
contract manufacturing, but no agreement with any entity has been
reached. The Company anticipates, but cannot assure, that it will
be able to enter into such a relationship.
Provided that the GlobalPC asset acquisition is consummated, the
Company expects revenue, beginning in mid 2000, from five key
areas:
Monthly online subscription fees - Internet subscription
revenue bundled with the sale of the GlobalPC appliance.
Banner advertising - the sale of advertising.
Keyboard real estate "Hot-Buttons" sales - the Company will
have a unique opportunity to sell individual keys on its
proprietary PC keyboard to category specific vendors. These
"Hot-Buttons" will immediately launch the user to that
vendor's web site.
License royalties - revenue derived from the Company's
manufacturing partner who will manufacture the GlobalPC
product on an OEM basis.
Residuals from online shopping - as a full service Internet
Service provider, the Company intends to seek residual
commissions and overrides associated with online e-commerce
sales transacted through its portal.
In consideration for the assets and the assumption of certain
liabilities from GlobalPC the Company has agreed to issue a
number of shares of common stock ranging from 624,284 to 699,284
shares, and Class A Warrants to purchase up to 2,269,284 Common
Shares, Class B Warrants to purchase up to 1,901,400 Common
Shares and Class C Warrants to purchase up to 383,000 Common
Shares. All the warrants are exercisable at $4.875 per share, the
closing price of the Company's common stock on July 29, 1999.
The Class A Warrants are exercisable from July 1, 2001 to June
30, 2006 to the extent of 50%, 75% or 100% of the underlying
Common Shares provided the Company reaches certain performance
milestones by June 30, 2001. The milestones require that there
are 150,000 to 200,000, 200,001 to 250,000, or 250,001 or more
subscribers to the Company's Internet services who access the
Internet through the GlobalPC Device by June 30, 2001
respectively. If there are less than 150,000 of such subscribers
by June 30, 2001, the Class A Warrants will not be exercisable
and shall be automatically canceled.
12
<PAGE>
The Class B Warrants are exercisable: (a) to the extent of 30% of
the underlying Common Shares during the period commencing 90 days
after the issuance of the Class B Warrant and ending on the day
before the fifth anniversary of the issuance date (the
"Expiration Date"), (b) to the extent of 23 1/3% of the
underlying Common Shares from each of the first, second and third
anniversary of the issuance date and ending on the Expiration
Date.
The Class C Warrants are exercisable from the first anniversary
of the date of issuance to the Expiration Date.
Furthermore, the exercise of all the warrants is also subject to
stockholder approval to the extent that the number of Common
Shares to be issued upon the exercise of the warrants and
otherwise in connection with the transaction are more than 20% of
the Company's' outstanding Common Shares.
Results of Operations:
As noted above, the Company discontinued its e.TV subsidiary and
divested itself of its public safety software business.
Accordingly, the Results of Operations discussed below represent
only the continuing operations of the Company.
Revenues:
Revenues for the three months ended September 30, 1999, from
continuing operations, were $30,000 as compared to $0 for the
three months ended September 30, 1998 and $ 358,000 for the
nine-month period ended September 30, 1999 versus $0 for the same
period in the previous year. The revenue is primarily comprised
of Internet subscription fees.
Interest and other income for the three month period ended
September 30, 1999 aggregated approximately $12,000 as compared
to approximately $55,000 for the same period in 1998. The nine
month balances were $193,000 and $121,000 for 1999 and 1998,
respectively. These decreases were due to the increase in cash in
1998 which resulted from the Company's private offering of
preferred stock.
Costs and Expenses:
The total costs and expenses for the three month period ended
September 30, 1999 were $1,260,000 as compared to $304,000 for
the comparative period of the prior year. Additionally, the
Company's total costs and expenses for the nine month period
ended September 30, 1999 and 1998 were $2,255,000 and $315,000,
respectively. The costs and expenses are directly related to
those charges supporting the Internet access book of business
that began operations in January of 1999.
The Company's third quarter consolidated operating loss from
continuing operations for 1999 was $1,218,000 as compared to
$249,000 for the same period in 1998. For the nine month period
ended September 30, 1999 the consolidated operating loss was
$1,704,000 versus $194,000 compared to the same period last year.
The losses are largely attributable to the expenses realized in
conjunction with the Internet access business that began
operations in January of 1999.
Income (Loss)
For the three months ended September 30, 1999 the Company
reflected a net loss of $1,686,000 ($.40 per share) as compared
to a loss of $368,000 ($.12 per share) for the corresponding
period of the previous year. For the nine month period ended
September 30, 1999, the Company realized a net loss of $8,142,000
($2.09 per share) as compared to a loss of $1,267,000 ($.42 per
share) for the nine month period ended September 30, 1998.
These losses are primarily a result of the operating losses
sustained by the discontinued businesses (discussed earlier)
which reflected aggregate loss $6,976,000 for the and nine month
periods ended September 30, 1999.
13
<PAGE>
Also impacting the above mentioned one-time events, is the
mutually agreed upon termination of the Company's former
President, Chief Executive Officer and Secretary, Mark
Honigsfeld. During the period, Mr. Honigsfeld received $167,000
in cash and 137,500 shares (valued at $662,000) in this
transaction. In addition, Mr. Honigsfeld also has the right to
80% of the royalty to be received by the Company from the buyer
of the public safety and law enforcement division.
Liquidity and Capital Resources
At September 30, 1999, the Company had a working capital deficit
of $753,0000, a current ratio of (.38):1 and a debt to net worth
ratio of .06:1. At its year ended December 31, 1998, the Company
had working capital of $5,502,382, a current ratio of 13.8:1 and
a debt to net worth ratio of .1:1. The erosion of the Company's
working capital is attributable to the losses experienced by the
Company during the second and third quarter of this year.
In October and November 1999, the Company undertook a private
placement of its Common Shares through its placement agent,
Hornblower & Weeks, Inc. ("Hornblower"). This offering was for a
minimum of 370,000 Common Shares and a maximum of 2,960,000
Common Shares, at a price of $1.375 per share. Investors are
entitled to "piggy-back" registration rights for Common Shares
purchased in the offering. Furthermore, investors are entitled to
an additional number of Common Shares if the five day average
trading price of the Company's Common Shares prior to the
effective date of the registration statement covering the resale
of those Common Shares is less than $1.375 per share (the
"Adjustment Price"). The number of additional common shares to
which an investor would be entitled to in that event would be
calculated as follows. Firstly, the percentage of the shortfall
of the Adjustment Price per share from $1.375 per share, with an
Adjustment Price floor of $1.00 per share, is calculated. Because
of the Adjustment Price floor, that percentage will be no more
than 27.3%. The shortfall percentage is then multiplied by the
number of Common Shares the investor received in the offering to
get the number of additional shares he is entitled to.
In such private offering, the Company raised $1,017,500 for
740,000 Common Shares, and the offering was then terminated by
mutual agreement of the Company and Hornblower. Hornblower
received a 10% commission and 3% non-accountable expense
allowance of the gross proceeds of the offering.
On November 3, 1999, the Company commenced a private placement of
units, each consisting of 25,000 Common Shares and 12,500 common
stock purchase warrants. Each warrant is exercisable for a period
of five years to purchase one common share at a price of $2.00
per share. The units are being sold through Hornblower as its
placement agent. This offering is for a minimum of 20 units and a
maximum of 27 units. Investors are entitled to "piggy-back"
registration rights for Common Shares purchased in the offering,
and underlying the warrants.
The Company raised $1,350,000 from the sale of 27 units in such
offering.
The Company anticipates it will need additional capital in
approximately 60 days to continue to develop its business and to
sustain its business at current levels. The Company believes that
obtaining additional funding is essential for it to implement
both its short-term and long-range business plans, and this is
one of the focuses of Management. The Company is continuing to
explore sources of capital, including debt and equity
investments. There can be no assurance that any investor will
make a debt or equity investment in the Company. If future
investments are made, the Company cannot assure that they will be
made on terms as favorable as the Company would like nor can the
Company predict at this time the size of such an investment. If
the Company is unable to secure additional financing within 60
days, it will not be able to continue to develop its current
business plan. Consequently, the Company will have to scale back
its operations.
14
<PAGE>
Additionally, the Company's warrants to purchase 363,100 Common
Shares which were issued in a bridge financing transaction in
December 1996, are currently exercisable at $3.00 per share. To
date, warrants to purchase 26,100 Common Shares have been
exercised, generating $78,300 to the Company, of which $54,300
was received in the third quarter of 1999. Although the Company
hopes the remaining warrants will be exercised, if the market
price of the Company's publicly traded Common Shares is less than
$3.00 per share and if the price does not increase above $3.00
per share, it is unlikely that the warrants will be exercised.
Even if the market price of the Company's publicly traded stock
is above $3.00 a share, there can be no assurance that any of the
warrants will be exercised, and if any are exercised, the Company
cannot predict the number of warrants that would be exercised or
when the warrants would be exercised.
Cash Flows
For the nine months ended September 30, 1999, the Company
utilized cash for continuing operations of $1,074,000. For the
corresponding period of the prior year the Company used cash for
discontinued operations of $1,141,000.
The Company also advanced to GlobalPC during the current period
raising the cumulative amount to $612,000. Additionally, in
anticipation of the closing of the GlobalPC, asset acquisition,
the Company has entered into certain agreements with hardware
component suppliers and software engineers/consultants. Towards
this effort, the Company provided financing for $223,000.
Cash provided by financing activities during the nine-month
period ended September 30, 1999 was primarily a result of the
exercise of stock options. For the nine months ended September
30, 1998, the Company received cash from an offering of shares.
Year 2000 Issues
The Year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the
applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in
miscalculations or system failures. The Company has instituted a
Y2K compliance program, the objective of which is to determine
and assess the risks of the Y2K issue, and plan and institute
mitigating actions to minimize those risks. The Company's
standard for compliance requires that, for a computer system or
business process to be Y2K compliant, it must be designed to
operate without error in date and date-related data prior to, on
and after January 1, 2000. The Company believes it is fully Y2K
compliant with respect to all significant business systems.
The Company's Y2K plan consists of four phases: (1) assessment
and analysis of "mission critical" systems and equipment; (2)
remediation of systems and equipment, through strategies that
include the enhancement of new and existing systems, upgrades to
operating systems already covered by maintenance agreements and
modifications to existing systems; (3) testing of systems and
equipment; and (4) contingency planning which will address
possible adverse scenarios and the potential financial impact to
the Company's results of operations, liquidity or financial
position.
Contingency Plans
The Company's management has developed a "worst-case scenario"
with respect to Y2K noncompliance and developed contingency plans
designed to minimize the effects of such scenario. Although
management believes that it is very unlikely that any of these
worst-case scenarios will occur, contingency plans will be
developed and will address both IT system and non-IT system
failure.
If suppliers of services that are critical to the Company's
operations were to experience business disruptions as a result of
their lack of Y2K readiness, their problems could have a material
adverse effect on the financial position and results of
operations of the Company. The impact of a failure of readiness
by critical suppliers cannot be estimated with confidence, and
the effectiveness of contingency plans to mitigate the effect of
any such failure is largely untested. Management cannot provide
an assurance that there will be no material adverse effects to
the financial condition or results of operations of the Company
as a result of Y2K issues.
15
<PAGE>
Forward Looking Statements
Certain information contained in the matters set forth above 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. The Company cautions readers
that certain important factors may affect the Company's actual
results and could cause such results to differ materially from
any forward-looking statements which may be deemed to have been
made above and elsewhere in this Quarterly Report or which are
otherwise made by or on behalf of the Company. For this purpose,
any statements contained above and elsewhere in this Quarterly
Report that are not statements of historical fact may be deemed
to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate," "plan,"
or "continue" or the negative variations of those words or
comparable terminology are intended to identify forward-looking
statements. Factors which may affect the Company's results
include, but are not limited to, the risks and uncertainties
associated with and the ability of the Company to raise
additional capital which will be required in the next 60 days to
continue to develop and sustain business at current levels, the
ability of the Company to consummate the acquisition of the
GlobalPC assets, the ability of the Company to establish an
alliance with a manufacturer to produce the GlobalPC Device, the
ability of the Company to enter into arrangements to sell
products through mass retail market channels. The Internet and
Internet-related technology and products, new technology
developments, developments and regulation in the
telecommunications industry, the competitive environment within
the Internet and telecommunications industries, the ability of
the Company to expand its operations, the level of costs incurred
in connection with the Company's planned expansion efforts, the
financial strength of the Company's customers and suppliers,
unascertainable risks related to possible unspecified
acquisitions, the competence required and experience of
management, the risk of loss of management and personnel,
economic conditions, the risks and uncertainties inherent in
litigation. The Company is also subject to other risks detailed
herein or detailed from time to time in the Company's Securities
and Exchange Commission filings. Readers are also urged to
carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors
which affect the Company's business.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
On October 27, 1999, the litigation encaptioned Rugby National
Corp. ("Rugby") Harvey Weinstein, and Credomarka Corp. v.
Compu-DAWN, Inc., Rugby Acquisition Corp. and Mark Honigsfeld was
settled. Pursuant to the related settlement agreement, the
Company issued 25,000 Common Shares to Harvey Weinstein and
forgave $297,000 loaned to Rugby which the Company had written
off in 1998. As part of the settlement agreement, the parties
exchanged general releases.
ITEM 2. Changes in Securities
The Company sold the following unregistered securities during the
period covered by this report.
In July 1999, the Company issued 75,000 Common Shares to Atlantic
TeleServices, LP as an inducement to enter into a relationship
with its subsidiary, e.TV Commerce, Inc. This issuance was
pursuant to an agreement dated July 8, 1999 between the Company
and Atlantic TeleServices, LP.
In July and August 1999, the Company's warrants to purchase
18,100 Common Shares, which were included in the warrants issued
in the Company's bridge financing prior to its initial public
offering, were exercised by Mark Honigsfeld for $54,300, or $3.00
per share.
In August 1999 the Company issued 62,500 Common Shares to Odyssey
Capital, LLC in a private placement for an aggregate of $96,875
or $1.55 per share.
These transactions were private transactions not involving public
offerings and were exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof. The Company
determined that each recipient was an accredited and
sophisticated investor. Such issuance's of Common Shares were
without the use of an underwriter, and the certificates
evidencing such Common Shares bear restrictive legends permitting
the transfer thereof only upon registration of such securities or
pursuant to an exemption under the Securities Act. The Common
Shares issued upon the exercise of the warrants by Mr. Honigsfeld
are registered for resale.
ITEM 5. Other Information
In October 1999, the Company signed a one-year engagement letter
with PricewaterhouseCoopers, LLP to serve as its independent
accountants.
In November 1999 the Company began conducting its business under
the assumed name MyTurn.com.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Description of Exhibit
2 Agreement of Merger between the Company and Coastal
Computer Systems, Inc., a New York corporation.*
3.1 Articles of Incorporation of the Company.*
3.2 Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock, filed with the
Secretary of State of the State of Delaware on June 5,
1998.**
3.3 Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock, filed with the
Secretary of State of the State of Delaware on
September 2, 1998. ***
3.4 Amended and Restated By-Laws of the Company.****
4.1 Specimen Common Share Certificate.*
4.2 Form of Underwriter's Common Share Purchase Warrant.*
10.1 Asset Purchase Agreement dated July 2, 1999 between the
Company and Admit Computer Systems, Inc. *****
10.2 Purchase Agreement dated July 15, 1999 between e.TV
Commerce, Inc. and the Free Network, Inc. *****
10.3 Asset Purchase Agreement dated July 30, 1999 (the
"Asset Purchase Agreement") between Compu-DAWN, Inc.,
GPC, Acquisition Corp., GlobalPC, Inc., Mark Bradlee
and Brian Dougherty.
10.4 Amendment to Asset Purchase Agreement
dated September 24, 1999.
10.5 Second Amendment to Asset Purchase Agreement dated
________.
11 Computation of Earnings Per Common Share.
27 Financial Data Schedule.
- ------------
* Previously filed as an exhibit to the Company's Registration Statement on Form
SB-2, Registration No. 333-18667.
** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1998.
17
<PAGE>
*** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1998.
**** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1999.
***** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1999
(b)Current Report on Form 8-K
Current Reports on Form 8-K were filed by the Company during the three
month period ended September 30, 1998 as follows:
Date of Event: July 6, 1999
Item Reported: 5
Date of Event: July 27, 1999
Item Reported: 5
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused the Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 18,1999 Compu-DAWN, Inc.
By:
\s\ R.E. (Teddy) Turner, IV
-------------------------------
Chairman of the Board
\s\ David Greenspan
-------------------------------
Chief Financial Officer
19
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
COMPU-DAWN, INC.
GPC ACQUISITION CORP.
GLOBAL PC, INC.
MARK BRADLEE
AND
BRIAN DOUGHERTY
July 30, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
RECITALS:..........................................................................................................
ARTICLE I
DEFINED TERMS......................................................................................................
1.1 Defined Terms....................................................................................
ARTICLE II
PURCHASE AND SALE..................................................................................................
2.1 Agreement to Sell................................................................................
2.1.1 Third Party Consents....................................................................
2.2 Agreement to Purchase............................................................................
2.3 Purchase Price...................................................................................
2.3.1 Purchase Price..........................................................................
2.3.2 Payment of Purchase Price...............................................................
2.3.3 Allocation of Purchase Price............................................................
2.4 Limited Assumption of Liabilities................................................................
2.4.1 Assumed Liabilities.....................................................................
2.4.2 Excluded Liabilities....................................................................
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
AND PRINCIPAL SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1 Valid Existence; Qualification...................................................................
3.2 Subsidiaries; Affiliated Entities................................................................
3.3 Consents.........................................................................................
3.4 Authority; Binding Nature of Agreement...........................................................
3.5 Financial Statements.............................................................................
3.6 Liabilities......................................................................................
3.7 Actions Since the Balance Sheet Date.............................................................
3.8 Adverse Developments.............................................................................
3.9 Taxes............................................................................................
3.10 Ownership of Assets; Trademarks, Patents, etc....................................................
3.10.1 Assets Generally.........................................................................
3.10.2 Trademarks, Patents, etc................................................................
3.11 Insurance........................................................................................
3.12 Litigation; Compliance with Law..................................................................
3.13 Real Property....................................................................................
3.14 Agreements and Obligations; Performance..........................................................
(i)
<PAGE>
3.15 Condition of Assets..............................................................................
3.16 Permits and Licenses.............................................................................
3.17 Occupational Heath and Safety and Environmental Matters..........................................
3.18 Interest in Assets...............................................................................
3.19 Compensation Information.........................................................................
3.20 Employee Benefit Plans...........................................................................
3.21 No Breach........................................................................................
3.22 Brokers..........................................................................................
3.23 Employment Relations.............................................................................
3.24 Prior Names and Addresses........................................................................
3.25 Distributors and Suppliers.......................................................................
3.26 Payments.........................................................................................
3.27 Books and Records................................................................................
3.28 Americans with Disabilities Act Compliance.......................................................
3.29 Untrue or Omitted Facts..........................................................................
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER .....................................................
4.1 Valid Corporate Existence........................................................................
4.2 Capitalization...................................................................................
4.3 Consents.........................................................................................
4.4 Corporate Authority; Binding Nature of Agreement.................................................
4.5 No Breach........................................................................................
4.6 Brokers..........................................................................................
ARTICLE V
PRE-CLOSING COVENANTS.....................................................................................
5.1 Seller Covenants.................................................................................
(a) Access......................................................................................
(b) Conduct of Business.........................................................................
(c) Insurance...................................................................................
(d) Liabilities.................................................................................
(e) Preservation of Business....................................................................
(f) No Breach...................................................................................
(g) Consents....................................................................................
(h) Shareholder Approval.........................................................................
(i) No Negotiations; No Solicitation............................................................
(j) Unaudited Financial Statements..............................................................
(k) Warn ........................................................................................
(l) Amendment to GEOS(R) License Agreement. ......................................................
(ii)
<PAGE>
5.2 Purchaser and Compu-DAWN Covenants...............................................................
(a) Access......................................................................................
(b) No Breach...................................................................................
(c) Consents....................................................................................
(d) Stockholder Approval.......................................................................
ARTICLE VI
Intentionally omitted.....................................................................................
ARTICLE VII
Intentionally omitted.....................................................................................
ARTICLE VIII
CONDITIONS PRECEDENT TO THE
OBLIGATION OF PURCHASER AND COMPU-DAWN TO CLOSE................................................................
8.1 Representations and Warranties...................................................................
8.2 Covenants........................................................................................
8.3 Certificate......................................................................................
8.4 Assignment and Bill of Sale; Certificate of Title................................................
8.5 Assignment of License Rights ....................................................................
8.6 Audited Financial Statements.....................................................................
8.7 Interim Financial Statements.....................................................................
8.8 Principal Shareholder Employment Agreements......................................................
8.9 Certain Payments ................................................................................
8.10 Stockholder Approval ............................................................................
8.11 Retail Indications of Interest ..................................................................
8.12 Creditor Agreements..............................................................................
8.13 GEOS(R)License Agreement Amendment................................................................
8.14 Subscription Agreements..........................................................................
8.15 "Lock-up" Agreements.............................................................................
8.16 Opinion of Counsel...............................................................................
8.17 No Actions.......................................................................................
8.18 Consents; Licenses and Permits...................................................................
8.19 Section 4(2) Compliance..........................................................................
8.20 Actions..........................................................................................
8.21 Satisfactory Due Diligence.......................................................................
8.22 Compliance with Bulk Sales Laws..................................................................
8.23 Escrow Agreement.................................................................................
(iii)
<PAGE>
8.24 Fairness Determination...........................................................................
8.25 Additional Documents.............................................................................
8.26 Approval of Counsel..............................................................................
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATION OF
SELLER TO CLOSE..............................................................................................
9.1 Representations and Warranties...................................................................
9.2 Covenants........................................................................................
9.3 Certificate......................................................................................
9.4 Shares...........................................................................................
9.5 Warrants ........................................................................................
9.6 Principal Shareholder Employment Agreements......................................................
9.7 Other Employment Offers; Options.................................................................
9.8 Stockholder Approval ............................................................................
9.9 No Actions.......................................................................................
9.10 Consents; Licenses and Permits...................................................................
9.11 Corporate Actions................................................................................
9.12 Additional Documents.............................................................................
9.13 Approval of Counsel..............................................................................
ARTICLE X
CLOSING......................................................................................................
10.1 Time and Location................................................................................
10.2 Items to be Delivered to Purchaser...............................................................
10.3 Items to be Delivered to Seller and Others.......................................................
ARTICLE XI
POST-CLOSING MATTERS.........................................................................................
11.1 Stockholder Approval.............................................................................
11.2 Further Assurances...............................................................................
11.3 Power of Attorney................................................................................
11.4 Board Position...................................................................................
11.5 Restrictive Covenant.............................................................................
11.6 Taxes............................................................................................
11.7 Financing by Seller or Designees ................................................................
(iv)
<PAGE>
ARTICLE XII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION .................................................................
12.1 Survival.........................................................................................
12.2 Indemnification..................................................................................
12.2.1 General Indemnification Obligation of
Seller and Principal Shareholders.................................................
12.2.2 General Indemnification Obligation of Purchaser..........................................
12.2.3 Method of Asserting Claims, Etc..........................................................
12.2.4 Escrow Agreement ........................................................................
12.3 Payment; Right of Setoff.........................................................................
12.4 Other Rights and Remedies Not Affected...........................................................
ARTICLE XIII
BULK SALE.................................................................................................
13.1 Bulk Sales.......................................................................................
ARTICLE XIV
TERMINATION AND WAIVER......................................................................................
14.1 Termination......................................................................................
14.2 Waiver...........................................................................................
14.3 Liquidated Damages...............................................................................
ARTICLE XV
DEFINED TERMS..............................................................................................
15.1 Defined Terms....................................................................................
ARTICLE XVI
MISCELLANEOUS PROVISIONS....................................................................................
16.1 Expenses.........................................................................................
16.2 Confidential Information.........................................................................
16.3 Sales, Transfer and Documentary Taxes............................................................
16.4 Equitable Relief.................................................................................
16.5 Publicity........................................................................................
16.6 Entire Agreement.................................................................................
16.7 Notices..........................................................................................
16.8 Choice of Law; Severability......................................................................
16.9 Successors and Assigns; No Assignment............................................................
16.10 Counterparts.....................................................................................
(v)
<PAGE>
16.11 Facsimile Signatures.............................................................................
16.12 Representation by Counsel; Interpretation........................................................
16.13 Headings; Gender.................................................................................
SIGNATURES.......................................................................................................
SCHEDULES
2.3.2(a)(i) Persons to Deliver Subscription Agreements
2.3.2(a)(ii) Persons to Deliver "Lock-Up" Agreement
2.4.1 Assumed Liabilities
3.1 List of Security Holders
3.2 Affiliate Investments
3.3 Consents Required to be Received by Seller
3.5 Financial Statements
3.6 Liabilities
3.7 Actions since the Balance Sheet Date
3.8 Adverse Developments
3.9 Taxes
3.10.1 Restrictions as to Transferability
3.10.2 Proprietary Rights
3.11 Insurance
3.12 Litigation; Compliance with Law
3.13 Real Property
3.14 Listed Agreements
3.16 Permits and Licenses
3.19 Compensation Information
3.23 Employment Relationship Terminations
3.25 Distributors and Suppliers
4.3 Consents to Required to be Received by Purchaser and Compu- DAWN
8.11 Mass Retailers
8.23 Persons Escrowing Escrowed Securities
9.7 Persons to be Offered Employment
EXHIBITS
2.3.1(a) Form of Class A Warrants
2.3.1(b) Form of Class B Warrants
2.3.1(c) Form of Class C Warrants
2.3.2(a)(i) Form of Subscription Agreement
2.3.2(a)(ii) Form of "Lock-up"
8.8(a) Form of Mark Bradlee Employment Agreement
8.8(b) Form of Brian Dougherty Employment Agreement
(vi)
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT, dated July 30, 1999 (the "Agreement"), by and
among COMPU-DAWN, INC., a Delaware corporation ("Compu-DAWN"), GPC ACQUISITION
CORP. a Delaware corporation ("Purchaser"), GLOBAL PC, INC., a California
corporation ("Seller"), and Mark Bradlee and Kevin Dougherty (collectively the
"Principal Shareholders").
RECITALS:
Seller is engaged in the business of developing, marketing and licensing
certain proprietary computer software (the "Business"), including without
limitation a Graphic Task Oriented Operating System called GEOS(R) ("GEOS(R)")
which, together with application software is utilized in a low cost Internet /
computing appliance (the "Global PC Device").
On the terms and conditions hereinafter set forth, Seller desires to sell
to Purchaser, and Purchaser desires to purchase from Seller, substantially all
of Seller's assets.
NOW, THEREFORE, in consideration of the recitals and the respective
covenants, representations, warranties and agreements herein contained and
intending to be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
DEFINED TERMS
1.1 Defined Terms. Capitalized terms used in this Agreement will have the
meanings given such terms in Article XV or elsewhere in the text of this
Agreement, and variants and derivatives of such terms shall have correlative
meanings.
ARTICLE II
PURCHASE AND SALE
2.1 Agreement to Sell. At the Closing, except for the Excluded Assets, Seller
shall grant, sell, convey, assign, transfer and deliver to Purchaser, upon and
subject to the terms and conditions of this Agreement, free and clear of all
Liens except for the Permitted Liens, all of its right, title and interest in,
to and under all of the properties, assets and rights of any kind, whether
tangible or intangible, real, personal or mixed and constituting, or used in,
the Business owned by Seller and/or in which Seller has an interest, as finally
determined by the Purchaser (collectively the "Assets"), including, without
limitation, all of Seller's right, title and interest in, to and under the
following:
(a) All rights to any leases or other occupancy agreement ("Leases")
and the fee simple to any real estate owned by Seller, with respect to any
warehouses or other premises currently occupied by the Seller, together
with all tenant improvements thereto and all fixtures and other
installations within such property and any rights of tenant arising from
the use, occupancy or leasing of such
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property and necessary to continue the operation of the Business; provided
however that the Purchaser shall have the right to reject such Leases as it
does not find acceptable or necessary for the Purchaser's operations of the
Business, in Purchaser's sole discretion.
(b) All tangible personal property used in the operation of the
Business, including, but not limited to, all of the following:
(i) All equipment, vehicles, machinery, tools, storage racks and
bins, furniture, computer hardware and disks, telephone systems,
portable phones, communication devices, business forms, display
materials and other tangible personal property utilized in the
operation of the Business (collectively the "Fixed Assets");
(ii) All current inventory of the Business held for resale
including all components thereof, such as parts, manuals, computer
disks and software (collectively, the "Inventory");
(c) Intangible Property. All intangible property ("Intangible
Property") related to the operations of the Business, including, but not
limited to:
(i) Accounts receivables, if any;
(ii) Such contract rights of the Business as Buyer may elect to
acquire after examination of same, including, without limitation, the
GEOS(R) License Agreement, all rights arising under purchase orders
placed by Seller with vendors, suppliers and licensors and purchase
orders from customers and licensees accepted by Seller, rights under
any warranty agreements and rights under any insurance contract;
(iii) All goodwill and going concern value of the Business,
including, without limitation, all customer lists, vendor lists,
pricing data, warranty records, advertising and marketing materials
and other trade information of whatever type;
(iv) All computer software and related assets to the extent these
are owned by Seller or any affiliate thereof;
(v) All rights of Seller to any software licensed to Seller,
including without limitation the GEOS(R) License Agreement; provided
that if such licenses are not transferable without licensor's consent,
Seller shall obtain such consent and/or a new license agreement in the
name of Purchaser on substantially the same terms currently available
to Seller (except with respect to the GEOS(R) License Agreement as
more fully described in Section 8.13 hereinbelow);
(vi) All licenses and Permits of any type whatsoever used in the
Business or the release of same so as to permit the issuance to the
Buyer of such license or Permit for the locations of the Business.
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(vii) All trademarks and trade names and other Proprietary Rights
related to the Business.
2.1.1 Third Party Consents. To the extent that Seller's rights under any
Contract, Permit or other Asset to be assigned to Purchaser hereunder may not be
assigned without the consent of another person which has not been obtained, this
Agreement shall not constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof or be unlawful, and each of Seller
and Principal Shareholder, at its or his respective expense, shall use best
efforts to obtain any such required consent(s) as promptly as possible. If any
such consent shall not be obtained or if any attempted assignment would be
ineffective or would impair Purchaser's rights in, to and/or under the Asset in
question so that Purchaser would not in effect acquire the benefit of all such
rights, Seller, to the maximum extent permitted by law and the Asset, and
without having to incur any costs or expenses, shall act after the Closing as
Purchaser's agent in order to obtain for it the benefits thereunder and shall
cooperate, to the maximum extent permitted by law and the Asset, with Purchaser
in any other reasonable arrangement designed to provide such benefits to
Purchaser. The foregoing shall not be construed to limit or modify any of the
conditions precedent to Purchaser's obligation to consummate the transactions
contemplated hereby pursuant to the provisions of Article VIII hereof.
2.2 Agreement to Purchase. At the Closing, upon and subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants of Seller and the Principal Shareholders contained herein,
Purchaser shall purchase the Assets from Seller in exchange for the Purchase
Price.
2.3 Purchase Price.
2.3.1 Purchase Price. Subject to the terms and conditions hereof, the
purchase price (the "Purchase Price") for the Assets shall be an aggregate of
Six Hundred Thirty Four Thousand Two Hundred Eighty Four (634,284) Common Shares
plus up to an additional Seventy-Five Thousand (75,000) Common Shares (the
"Additional Shares"), and Class A Common Stock Purchase Warrants (the "Class A
Warrants"), Class B Common Stock Purchase Warrants (the "Class B Warrants"), and
Class C Common Stock Purchase Warrants (the "Class C Warrants" and together with
the Class A Warrants and Class B Warrants, the "Warrants"), which Class A
Warrants, Class B Warrants and Class C Warrants are exercisable to purchase,
subject to adjustment, Two Million Two Hundred Sixty Nine Thousand Two Hundred
Eighty Four (2,269,284), One Million Nine Hundred One Thousand Four Hundred
(1,901,400) and Three Hundred Eighty Three Thousand (383,000) Common Shares (the
"Warrant Shares") of Compu-DAWN respectively, and which Warrants shall contain
the agreements, conditions, provisions and terms contained in, and shall be in,
or substantially in, the forms attached hereto as Exhibits 2.3.1(a), (b) and
(c).
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2.3.2 Payment of Purchase Price.
(a) Subject to the terms and conditions hereof, on account of the
Purchase Price, Compu-DAWN shall deliver to the extent set forth in Section
2.3.2(b) to (i) the Persons listed on Schedule 2.3.2(a)(i), provided each
such Person completes executes and delivers to Compu-DAWN a Subscription
Agreement in, or substantially in the form annexed hereto as Exhibit
2.3.2(a)(i), and Compu-DAWN is satisfied that the offer and issuance of the
Common Shares and/or Warrants to each such Person is exempt from the
registration provisions of Section 5 of the Securities Act, pursuant to
Section 4(2) of the Securities Act and Regulation D promulgated thereunder,
and exempt from the registration provisions of any state securities laws,
rules or regulations and Compu-DAWN accepts the subscription, or (ii) if
any Person does not deliver to Compu-DAWN a completed and executed
Subscription Agreement which is satisfactory to, and/or accepted by,
Compu-DAWN, then the Common Shares and/or Warrants, as the case may be,
allocated to such Person shall instead be issued to the Seller. The
delivery of Common Shares by Compu-DAWN to any Person who is an accepted
subscriber for Common Shares is further conditioned upon the Persons,
and/or the Seller listed on Schedule 2.3.2(a)(ii), executing and delivering
to Compu-DAWN a one (1) year "lock-up" agreement in, or substantially in,
the form annexed hereto as Exhibit 2.3.2(a)(ii) which restricts the
transferability of the Common Shares for one (1) year following the Closing
Date.
(b) Compu-DAWN shall deliver the certificates for the Common Shares
and Warrants to the Seller on behalf of the Accepted Subscribers as set
forth next to their respective names on Schedule 2.3.2(a)(i),(X) to the
extent of the maximum number of Common Shares and/or Warrants to purchase
the maximum number of Warrant Shares without violating Rule 4310(c)(25)(H)
of the Nasdaq Stock Market, Inc. at the Closing, and (Y) the remaining
Common Shares and/or the Warrants to purchase the remaining Warrant Shares
as promptly as possible following the approval of the stockholders of
Compu-DAWN of the issuance of the remaining Common Shares and/or Warrants
to purchase the remaining Warrant Shares which are not issued at the
Closing, if such approval is required by Rule 4310(c)(25)(H) of the Nasdaq
Stock Market, Inc.
2.3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets acquired hereunder as determined by the Board of
Directors of Compu-DAWN in its sole good faith discretion, provided however,
Purchaser and Seller shall use best efforts to minimize the value allocated to
goodwill. It is agreed that the apportionments will properly reflect the
respective fair market values of the Assets. Seller and Purchaser each hereby
covenants and agrees that it will not take a position on any income tax return,
before any governmental agency charged with the collection of any income tax, or
in any judicial proceeding that is in any way inconsistent with the terms of
this Section 2.3.3 and the allocation of the Purchase Price as determined by
Compu- DAWN's Board of Directors.
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2.4 Limited Assumption of Liabilities
2.4.1 Assumed Liabilities. At the Closing, subject to the terms and
conditions hereof, Purchaser shall assume and agree to pay the Assumed
Liabilities which are listed on Schedule 2.4.1 attached hereto.
2.4.2 Excluded Liabilities. In no event shall Purchaser assume or incur
any Liability under this Section 2.4 or otherwise in respect of any Liability of
Seller, other than the Assumed Liabilities, including, without limitation:
(a) any product Liability or similar claim for injury to person or
property, or any other Liability based on tortious or illegal conduct,
regardless of when made or asserted, which arises out of or is based upon
any express or implied representation, warranty, agreement or guarantee
made by Seller, or alleged to have been made by Seller, or which is imposed
or asserted to be imposed by operation of law, in connection with any
service performed and/or product sold, leased or delivered by or on behalf
of Seller, or any claim seeking recovery for consequential damage, lost
revenue or income;
(b) any Liability with regard to any federal, state, local or foreign
income or other tax, including without limitation, any interest or
penalties thereon, (i) payable with respect to the Business, Seller or the
Assets or (ii) incident to or arising as a consequence of the negotiation
or consummation by Seller of this Agreement and the transactions
contemplated hereby;
(c) any Liability under or in connection with the Excluded Assets;
(d) any Liability arising prior to or as a result of the Closing to
any employees, agents or independent contractors of Seller, whether or not
employed by Purchaser after the Closing, or under any benefit arrangement
with respect thereto;
(e) any Liability of Seller arising or incurred in connection with the
negotiation, preparation and execution of this Agreement and the
transactions contemplated hereby and fees and expenses of counsel,
accountants and other experts; and/or
(f) any Liability which is not an Assumed Liability.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE PRINCIPAL SHAREHOLDERS
Seller and the Principal Shareholders, jointly and severally, make the
following representations and warranties to Purchaser and Compu-DAWN, each of
which shall be deemed material, and each of Purchaser and Compu-DAWN, in
executing, delivering and consummating this
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Agreement, has relied upon the correctness and completeness of each of such
representations and warranties:
3.1 Valid Existence; Qualification.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Seller has the power to
carry on its Business as now conducted and to own the Assets. To the best of
Seller's and/or the Principal Shareholders' knowledge, Seller is not required to
qualify in any other jurisdiction in order to own the Assets or to carry on the
Business as now conducted, and there has not been any claim by any other
jurisdiction to the effect that Seller is required to qualify or otherwise be
authorized to do business as a foreign Corporation therein. The copies of the
Seller's Certificate of Incorporation, as amended to date (certified by the
Secretary of the State of California), and the Seller's By-Laws, as amended to
date (certified by the Secretary of the Seller), which have been delivered to
Purchaser, are true and complete copies of those documents as in effect on the
date hereof. Schedule 3.1 sets forth all of the holders of capital stock and
Derivative Securities of the Seller and their respective holdings.
3.2 Subsidiaries; Affiliated Entities. Except as set forth on Schedule 3.2
attached hereto neither Seller, the Principal Shareholders nor any Affiliate has
made any investments in, or owns, any of the capital stock of, or any other
proprietary interest in, any other corporation, partnership or other business
entity engaged in any business which is similar to or competitive with the
Business.
3.3 Consents. Except as set forth on Schedule 3.3 attached hereto and made a
part hereof, no consents of any Body, and/or of other parties are required to be
received by or on the part of Seller, or either of the Principal Shareholders to
enable it or any of them to enter into and carry out this Agreement and the
transactions contemplated hereby, including, without limitation, the transfer to
Purchaser of all of Seller's right, title and interest in and to the Assets.
3.4 Authority; Binding Nature of Agreement. Seller, and each of the Principal
Shareholders has the power to enter into this Agreement and to carry out its or
his respective obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors and the Shareholders of Seller and no
other proceedings, corporate or otherwise, on the part of Seller are necessary
to authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby. This Agreement constitutes the valid
and binding obligation of Seller, and the Principal Shareholders and is
enforceable in accordance with its terms.
3.5 Financial Statements. The Financial Statements, which have previously been
delivered, or are being delivered herewith, to Compu-DAWN and Purchaser, a copy
of which is attached hereto as Schedule 3.5, (i) are true, correct and complete
in all material respects, (ii) are in accordance with the Books and Records of
Seller, (iii) fairly present the financial position of Seller as of June 30,
1999 and 1998, respectively and the results of its operations for such years in
all material respects, (iv) were prepared in conformity with generally accepted
accounting principles consistently applied
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throughout the periods covered thereby and (v) are in conformity with Regulation
S-X or S-B, whichever is applicable to Compu-DAWN.
3.6 Liabilities. As at the Balance Sheet Date, Seller had no Material
Liabilities, other than those Liabilities reflected or reserved against in
Seller's Balance Sheet, and, except as set forth on Schedule 3.6 attached hereto
and made a part hereof, there was no basis for the assertion against Seller of
any Material Liability not so reflected or reserved against therein.
3.7 Actions Since the Balance Sheet Date. Except as otherwise expressly provided
or set forth in, or required by, this Agreement, or as set forth in Schedule 3.7
attached hereto and made a part hereof, since the Balance Sheet Date, Seller 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 Assets, or permitted any of its Assets to be subjected to any Lien; (iv)
sold, assigned or transferred any of its Assets, 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 Assets, Seller's Liabilities or the Business; (vii)
revalued any of the Assets, 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 Assets or the Business which would result in a material adverse
change in the Assets and/or the Business; (ix) canceled any indebtedness or
waived or released any right or claim of Seller relating to its activities or
properties which had or will have a Material Adverse Effect on the Assets and/or
the Business; (x) amended, canceled or terminated any Contract or Permit
relating to the Assets of the Business or entered into any Contract or Permit
relating to the Assets 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 Assets and/or Business;
(xi) increased or changed its assumptions underlying, or methods of calculating,
any doubtful account contingency or other reserves of Seller; (xii) paid,
discharged or satisfied any Liabilities of Seller other than the payment,
discharge or satisfaction in the ordinary course of business of Liabilities set
forth or reserved for on the December Balance Sheet or incurred in the ordinary
course of business; (xiii) made any capital expenditure, entered into any lease
or incurred any obligations to make any capital expenditure; (xiv) failed to pay
or satisfy when due any Liability of Seller; (xv) 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 knowledge.
3.8 Adverse Developments. Except as set forth on Schedule 3.8 attached hereto
and made a part hereof, since the Balance Sheet Date, to the best of Seller's
and the Principal Shareholders' knowledge, there have been no material adverse
changes in the Assets or Business of Seller, there has been no act or omission
on the part of Seller or others which would form the basis for the assertion
against Seller of any Material Liability or obligation, no other event has
occurred which could be reasonably expected to have a Materially Adverse Effect
upon the Assets and/or Business and neither Seller nor any Principal Shareholder
have any knowledge of any development or
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threatened development of a nature which could be reasonably expected to have a
Material Adverse Effect upon the Assets or Business.
3.9 Taxes. Except as set forth on Schedule 3.9, all taxes, including, without
limitation, income, property, sales, use, utility, franchise, capital stock,
excise, value added, employees' withholding, social security and unemployment
taxes imposed by the United States, any state, locality or any foreign country,
or by any other taxing authority, which have or may become due or payable by
Seller, and all interest and penalties thereon, whether disputed or not, have
been paid in full or adequately provided for by reserves shown in its books of
account; all deposits required by law to be made by Seller or with respect to
estimated income, franchise and employees' withholding taxes have been duly
made; and all tax returns, including estimated tax returns, required to be filed
have been duly and timely filed. No extension of time for the assessment of
deficiencies for any year is in effect. No deficiency notice is proposed, or to
the knowledge of Seller, or either Principal Shareholder, threatened against
Seller. The tax returns of Seller have never been audited. No sales or use taxes
are required to be collected in connection with the operation of the Business.
3.10 Ownership of Assets; Trademarks, Patents, etc.
3.10.1 Assets Generally. Seller owns outright, and has good and marketable
title to, all of the Assets (including, without limitation, all assets reflected
in the December Balance Sheet, except as the same may have been disposed of in
the ordinary and usual course of business consistent with past practice since
the December Balance Sheet Date), free and clear of all Liens other than
Permitted Liens. Upon consummation of the transactions contemplated by this
Agreement, Purchaser will own the Assets free and clear of all Liens other than
Permitted Liens. The Assets are sufficient to permit Seller to conduct its
Business as now conducted, provided sufficient funding is provided following the
Closing; sufficient funding shall be at least $3,000,000. Except as set forth on
Schedule 3.10.1 attached hereto and made a part hereof, none of the Assets to be
transferred hereunder are subject to any restriction with regard to
transferability. There are no agreements, options, commitments or understandings
with, of or to any person to acquire any of the Assets or any rights or interest
thereon. Seller has no tangible Assets with a fair market value of Five Thousand
($5,000) Dollars or more.
3.10.2 Trademarks, Patents, etc. Schedule 3.10.2 sets forth a true and
complete list (including, without limitation, each application number, serial
number or registration number, the class of goods or services covered and the
expiration date for each country in which a Proprietary Right has been
registered) and brief description of all Proprietary Rights which are owned by
Seller or in which, or regard to which, it has any right or interest. No other
person, firm or corporation has any proprietary or other interest in any such
Proprietary Rights and Seller is not a party to or bound by any contract
requiring the payment to any person, firm or corporation of any royalty. Seller
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 Seller, and neither Seller nor the
General Partner is aware of any claim, alleging any such violation. There are no
pending applications with regard to any Proprietary Right. Seller has taken all
reasonable and
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prudent steps to protect the Proprietary Rights from infringement by any other
person. No other person, except as set forth on Schedule 3.10.2 attached hereto
and made a part hereof, (i) has the right to use any of Seller's Trademarks on
the goods on which they are now being used, either in identical form or, to the
best of Seller's or Principal Shareholder's knowledge, in such near resemblance
thereto as to be likely, when applied to the goods of any such person, to cause
confusion with such Trademarks or to cause a mistake or to deceive, (ii) has a
license or the right to use any Proprietary Right of Seller, whether by license,
sublicense or other rights (iii) has notified Seller that it is claiming any
ownership of or right to use such Proprietary Rights, or (iv) to the best of
Seller's and/or either of the Principal Shareholders' knowledge, is infringing
upon any such Proprietary Rights in any way.
3.11 Insurance. Schedule 3.11 attached hereto sets forth a true and complete
list and brief description of all policies of fire, liability and other forms of
insurance held by Seller. Except as set forth in Schedule 3.11, such policies
are valid, outstanding and enforceable policies, as to which premiums have been
paid currently, and are consistent with the practices of similar concerns
engaged in substantially similar operations as those currently conducted by
Seller. Except as set forth in Schedule 3.11, to the best of Seller's and/or
either of the Principal Shareholders' knowledge, there exists no state of facts,
and no event has occurred, which might reasonably (i) form the basis for any
claim against Seller not fully covered by insurance for liability on account of
any express or implied warranty or tortious omission or commission, or (ii)
result in any material increase in insurance premiums.
3.12 Litigation; Compliance with Law. Except as set forth on Schedule 3.12
attached hereto there are no Actions relating to Seller or any of its Assets or
Business pending or, to the knowledge of Seller and/or either principal
Shareholder threatened, or any order, injunction, award or decree outstanding,
against Seller or against or relating to any of its Assets or and/or Business,
and there exists no basis for any such Action, which would have a material
adverse effect on the Assets or and/or Business. To the best of Seller's and/or
either Principal Shareholder's knowledge, Seller is not in violation of any law,
regulation, ordinance, order, injunction, decree, award, or other requirement of
any governmental or other regulatory body, court or arbitrator relating to its
Assets and/or Business, the violation of which would have a material adverse
effect on such Assets or and/or Business.
3.13 Real Property. Schedule 3.13 attached hereto and made a part hereof sets
forth a brief description of all real properties which are leased to Seller and
the terms of the respective leases, including the identity of the lessor, the
rental rate and other charges, and the term of the lease. Seller does not own
outright the fee simple title in and to any real property. To the best of the
Seller's and/or either Principal Shareholder's knowledge all amounts payable
thereunder have been paid. All uses of such real property by Seller conform in
all material respects to the terms of the leases relating thereto and conform in
all material respects to all applicable building and zoning ordinances, laws and
regulations. None of such leases may be expected to result in the expenditure of
material sums for the restoration of the premises upon the expiration of their
respective terms.
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3.14 Agreements and Obligations; Performance. Except as listed and briefly
described in Schedule 3.14 attached hereto and made a part hereof (the "Listed
Agreements"), Seller 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 officer, director or shareholder,
of Seller; (iii) Contract which is in violation of applicable law, which
violation will have a material Adverse Effect on the Purchaser, the Assets
and/or the Business; (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) except as set forth in Schedule 3.13, 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 Seller 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
government or any agency or department thereof, (xix) Derivative Securities for
the purchase of voting securities of the Seller, and/or (xx) other Contract
which materially affects any of its Assets 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. A true and correct copy of
each of the written Listed Agree ments has been delivered, or made available, to
Purchaser. Except as set forth on Schedule 3.14, Seller 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. Neither Seller nor either Principal Shareholder knows
of any Default under any of the Listed Agreements by any other party thereto or
by any other person, firm or corporation bound thereunder. Each of the Listed
Agreements is freely assignable to Purchaser.
3.15 Condition of Assets. Except for normal breakdowns and servicing
requirements, all machinery, equipment and vehicles used by Seller in the
conduct of its Business are in good operating condition, ordinary wear and tear
excepted. Seller has no inventory. All computer software (whether operating or
application) owned or licensed to Seller which is included in the Assets is free
of defects which would have a Material Adverse Effect and such software conforms
to all current specifications relating thereto.
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3.16 Permits and Licenses. Schedule 3.16 attached hereto sets forth a true and
complete list of all Permits from all Bodies held by Seller. Seller has all
Permits of all Bodies required to carry on its Business as presently conducted
and to offer and sell its products and services; all such Permits are in full
force and effect, and, to the knowledge of Seller and/or either Principal
Shareholder, no suspension or cancellation of any of such Permits is threatened;
and Seller 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 Seller, or either
Principal Shareholder in connection with the execution, delivery or performance
of this Agreement and the consummation of the transactions contemplated hereby.
3.17 Occupational Heath and Safety and Environmental Matters. The operations of
the Business do not require, and Seller does not have, any Permits from any
Bodies relating to occupational health and safety or environmental matters to
lawfully conduct the Business. There is no litigation, investigation or other
proceeding pending or, to the knowledge of Seller and/or Principal Shareholder,
threatened or known to be contemplated by any Body in respect of or relating to
the Business or the Assets with respect to occupational health and safety or
environmental matters. All operations of the Business have been conducted in
compliance with all, and Seller 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. Neither Seller nor either Principal
Shareholder has received any notice of a possible claim or citation against or
in respect of any real property leased by Seller, or with regard to the Assets
or the Business relating to occupational health and safety or environmental
matters and neither Seller nor the Principal Shareholder is aware of any basis
for any such Action.
3.18 Interest in Assets. Except as set forth on Schedule 3.2, no Affiliate of
Seller owns any property or rights, tangible or intangible, used in or related,
directly or indirectly, to the Business.
3.19 Compensation Information. Schedule 3.19 attached hereto and made a part
hereof contains a true and complete list of the names and current salary rates
of, bonus commitments to, and other compensatory arrangements with, all present
officers of Seller and all other persons employed and/or retained by Seller.
3.20 Employee Benefit Plans. Seller does not maintain, has never maintained, and
is not and has never been required to maintain, any "pension" or "welfare" plans
(within the meaning of ERISA), whether or not a multiemployer plan, nor has
Seller ever been, nor required to have been, a "Substantial Employer" (within
the meaning of Section 4001(a)(2) of ERISA).
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3.21 No Breach. Neither the execution and delivery of this Agreement nor
compliance by Seller, and/or either of the Principal Shareholders with any of
the provisions hereof nor the consummation of the transactions contemplated
hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or By- Laws of the Seller;
(b) violate or, alone or with notice or the passage of time, or both,
result in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a Default under, the
terms of any Contract to which Seller, or either of the Principal
Shareholders is a party or by which any of them or the Assets may be bound;
(c) result in the creation of any Lien upon any of the Assets;
(d) violate any judgment, order, injunction, decree or award against,
or binding upon, Seller, or either of the Principal Shareholders or upon
the Assets; and/or
(e) violate any law or regulation of any jurisdiction relating to
Seller, the Assets or the Business.
3.22 Brokers. Neither Seller nor either Principal Shareholder has engaged,
consented to, or authorized any broker, finder, investment banker or other third
party to act on its behalf, directly or indirectly, as a broker or finder in
connection with the transactions contemplated by this Agreement.
3.23 Employment Relations. (a) To the best of Seller's and/or either Principal
Shareholder respective knowledge, Seller 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 hours,
and has not engaged in any unfair labor practice which, in any of the foregoing
cases, could have a Material Adverse Effect on the Assets or Business; (b) there
is not pending, or to the best of Seller's and/or either Principal Shareholders'
respective knowledge, threatened any unfair labor practice charge or complaint
against Seller by or before the National Labor Relations Board or any comparable
state agency or authority; (c) there is no labor strike, dispute, slowdown or
stoppage pending or, to the best of Seller's and/or either Principal
Shareholders' respective knowledge, threatened against or involving Seller; (d)
neither Seller either of the Principal Shareholders is aware of any union
organization effort respecting the employees of Seller; (e) no grievance which
might have an adverse effect on Seller or the conduct of its Business, nor any
arbitration proceeding arising out of or under any collective bargaining
agreement, is pending and no claim therefor has been asserted; (f) no
litigation, arbitration, administrative proceeding or governmental investigation
is now pending, and, to the best of Seller's and/or either Principal
Shareholder's respective knowledge, no person or party has made any claim or has
threatened litigation, arbitration, administrative proceeding or governmental
investigation against Seller arising out of any law relating to discrimination
against employees or employment practices; (g) no collective bargaining
agreement is currently being negotiated by Seller. Except as set forth
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on Schedule 3.23 attached hereto no officer or key employee of the Seller has
announced or otherwise indicated that he/she will terminate his/her relationship
with the team as a result of the announcement of the transactions contemplated
by this Agreement. Without limiting the foregoing, to the best of Seller's
and/or either Principal Shareholder's respective knowledge, Seller 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 employee hired after November 9, 1986.
3.24 Prior Names and Addresses. Except as set forth on Schedule 3.24, since
inception, Seller has used no business name and has had no business address
other than its current name and the business address set forth in Section 16.7.
3.25 Distributors and Suppliers. Schedule 3.25 sets forth a complete and
accurate list of the names and addresses of the twenty largest suppliers and,
vendors and licensors of the Business showing the approximate total purchases in
dollars by Seller from each such supplier, vendor or licensor during the fiscal
year ended the December Balance Sheet Date. Seller has not received any
communication from any distributor, supplier, vendor or licensor named on
Schedule 3.25 that it will terminate or materially reduce or limited sales or
licenses of supplies products or Software to Seller.
3.26 Payments. Neither Seller nor any Affiliate on behalf of or for the benefit
of, Seller has, 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, supplier, government official or other Person, in the
United States or any other country in which the Business is conducted, which is
illegal under any federal, state or local laws of the United States (including,
without limitation, the U.S. Foreign Corrupt Practices Act) or such other
country.
3.27 Books and Records. Seller has made and kept (and given Compu-DAWN and
Purchaser access to) Books and Records and accounts, which, in reasonable
detail, accurately and fairly reflect the activities of the Business. Seller has
not engaged in any material transaction, maintained any bank account or used any
corporate funds in connection with the Business except for transactions, bank
accounts and funds which have been and are reflected in the normally maintained
Books and Records of Seller.
3.28 Americans with Disabilities Act Compliance. Neither Seller nor either
Principal Shareholder has received any notice to the effect that, or otherwise
been advised that, any facilities owned, leased or used by Seller are not in
compliance with the ADA.
3.29 Untrue or Omitted Facts. No representation, warranty or statement by
Seller, or the Principal Shareholders in this Agreement contains any untrue
statement of a material fact, or omits to state a fact necessary in order to
make such representations, warranties or statements not materially misleading.
Without limiting the generality of the foregoing, there is no fact known to
Seller and/or either Principal Shareholder that has had, or which may be
reasonably expected to
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have, a materially adverse effect on Seller, any of the Assets or Business that
has not been disclosed in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser makes the following representations and warranties to Seller,
each of which shall be deemed material, and Seller, in executing, delivering and
consummating the Agreement, has relied upon the correctness and completeness of
each of such representations and warranties:
4.1 Valid Corporate Existence. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is a wholly-owned subsidiary of Compu-DAWN.
4.2 Capitalization. The authorized capital stock of Compu-DAWN consists of
Twenty Million (20,000,000) Shares of Common Stock, of which Three Million Nine
Hundred Thousand Nineteen (3,900,019) shares are issued and outstanding as of
the date hereof. All of such issued and outstanding Shares of Common Stock are
duly authorized, validly issued, fully paid and nonassessable. The Common Shares
and the Warrants to be issued and delivered as contemplated by Section 2.3.1
hereof will be duly and validly authorized and, when so issued and delivered,
will be duly and validly issued fully paid and nonassessable, and the Warrant
Shares, upon exercise of the Warrants and payment in full of the exercise price
therefor, upon issuance and delivery, will be duly and validly authorized, and
fully paid and non assessable.
4.3 Consents. Schedule 4.3 attached hereto sets forth a true and complete list
of all consents and approvals of governmental and other regulatory agencies,
foreign or domestic, and of other third parties required to be received by or on
the part of Purchaser and Compu-DAWN to enable it to enter into and carry out
this Agreement and the transactions contemplated hereby. Except as set forth on
Schedule 4.3 attached hereto, all such requisite consents and approvals have
been, or prior to the Closing will have been, obtained.
4.4 Corporate Authority; Binding Nature of Agreement. Each of Compu-DAWN and
Purchaser has the corporate power to enter into this Agreement and to carry out
its obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Purchaser and Compu- DAWN and no other corporate
proceedings on the part of Purchaser or Compu-DAWN are necessary to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, except for any consent or approval of the
stockholders of Compu-DAWN required by Rule 4310(c)(25)(H) of the Nasdaq Stock
Market, Inc. This Agreement constitutes the valid and binding obligation of
Purchaser and Compu-DAWN and is enforceable in accordance with its terms.
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4.5 No Breach. Neither the execution and delivery of this Agreement nor
compliance by Purchaser or Compu-DAWN with any of the provisions hereof nor the
consummation of the transactions contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or By- Laws of Purchaser or Compu-DAWN;
(b) violate any judgment, order, injunction, decree or award against,
or binding upon, Purchaser or Compu-DAWN or their respective properties or
assets, the violation of which would have a Material Adverse Effect on
Purchaser or Compu-DAWN; or
(c) subject to the accuracy of the representations made by the Persons
or Seller in their respective Subscription Agreements to be delivered by
the Persons listed on Schedule 2.3.2(a)(i) attached hereto, violate any law
or regulation of any jurisdiction relating to Purchaser or Compu-DAWN, the
violation of which would have a Material Adverse Effect on Compu-DAWN or
Purchaser.
4.6 Brokers. Neither Purchaser nor Compu-DAWN has engaged, consented to, or
authorized any broker, finder, investment banker or other third party to act on
its behalf, directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement.
ARTICLE V
PRE-CLOSING COVENANTS
5.1 Seller Covenants. Seller hereby covenants that from and after the date
hereof and until the Closing or earlier termination of this Agreement:
(a) Access. Seller shall, afford to the officers, attorneys,
accountants and other authorized representatives of Compu-DAWN and
Purchaser free and full reasonable access, during regular business hours
and upon reasonable notice, to all of its Books, Records, information
systems, technology (owned or licensed by Seller) personnel and properties
so that Compu-DAWN and Purchaser, at its own expense, may have full
opportunity to make such review, examination and investigation as
Compu-DAWN and Purchaser may desire of Seller and its Business and affairs.
Seller will cause the employees, accountants, attorneys and other agents
and representatives of Seller to cooperate fully with said review,
examination and investigation and to make full disclosure to Compu-DAWN and
Purchaser and their representatives of all material facts affecting its
Business operations. Seller, and each of the Principal Shareholders
acknowledges and agrees that no review, examination or investigation
heretofore or hereafter undertaken by Compu-DAWN and Purchaser or their
representatives shall limit or affect any representation or warranty made
by Seller, and/or the Principal Shareholders in, or otherwise relieve
Seller, and/or the Principal Shareholders from any liability under, this
Agreement. Neither Compu-DAWN nor Purchaser shall disrupt Seller's business
in connection with any such investigation.
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(b) Conduct of Business. Seller shall (i) conduct its Business only in
the ordinary and usual course and make no change in any of its business
practices and policies without the prior written consent of Purchaser.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, prior to the Closing, Seller will
not, and nor the Principal Shareholders shall not permit Seller to, without
the prior written consent of Purchaser:
(i) amend its Certificate of Incorporation or By-Laws;
(ii) enter into, adopt or amend any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock
purchase, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any director, officer
or employee, or (except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to
Seller) increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by
any plan and arrangement as in effect as of the date hereof;
(iii) acquire, sell, lease or dispose of any Assets outside the
ordinary course of business or any assets which in the aggregate are
material to Seller;
(iv) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership, limited liability company or
other business organization or division thereof or any material
interest therein;
(v) issue, sell or redeem any capital stock or Derivative
Securities or otherwise change the capitalization of Seller.
(vi) pledge any of the Assets or subject the Assets to any Lien;
(vii) acquire or lease any assets;
(viii) enter into any material transaction not in the ordinary
and usual course of business consistent with past practice.
(ix) take any other action outside the ordinary course of
business consistent with past practice;
(x) not to take any actions which would adversely effect the
value of the Assets; or
(xi) adopt any resolution, or enter into or amend any Contract,
with respect to any of the foregoing.
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(c) Insurance. Seller shall maintain, in force the insurance policies
listed in Schedule 3.11, except to the extent that they may be replaced
with equivalent policies at the same or lower rates approved by Purchaser,
it being acknowledged by Purchaser.
(d) Liabilities. Seller shall not, incur any Liability, except for
those incurred in the ordinary and usual course of its Business consistent
with past practice which are not Material Liabilities, without the prior
written consent of Purchaser; nor shall Seller pay, any Liability other
than: (i) the foregoing Liabilities; (ii) Liabilities set forth in the
Balance Sheet; (iii) Liabilities arising after the December Balance Sheet
Date in the ordinary and usual course of the Business consistent with past
practice; and (iv) Liabilities with respect to which Seller shall have
received the prior written consent of Purchaser.
(e) Preservation of Business. Seller shall, and the Principal
Shareholders shall cause Seller to, use its best efforts to preserve intact
its business organization and keep available the services of its present
officers, managers, employees and consultants, maintain and reserve intact
good relationships with customers, suppliers, vendors and licensors and
preserve its goodwill.
(f) No Breach.
(i) Seller, and the Principal Shareholders will each (A) use his
or its best efforts to assure that all of his or its representations
and warranties contained herein are true in all material respects as
of the Closing as if repeated at and as of such time, that no breach
or Default shall occur with respect to any of his or its covenants,
representations or warranties contained herein that has not been cured
by the Closing and that all conditions to Purchaser's and/or
Compu-DAWN's obligation to enter into and complete the Closing are
satisfied in a timely manner; (B) not voluntarily take any action or
do anything which will cause a breach of, or Default respecting, such
covenants, representations or warranties or would impede the
satisfaction of such conditions; and (C) promptly notify Purchaser of
any event or fact which represents or is likely to cause such a breach
or Default or result in such an impediment.
(ii) Without limiting the generality of the foregoing, Seller and
each of the Principal Shareholders agrees to use his or its best
efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including, without
limitation, taking such actions as may reasonably be required to be
taken under applicable state securities or Blue Sky laws in connection
with the issuance of the Shares.
(g) Consents. Promptly following the execution of this Agreement, the
Seller shall, and the Principal Shareholders shall cause Seller to, use its
best efforts to obtain consents of all third parties and governmental and
other regulatory authorities necessary to the consummation of the
transactions contemplated by this Agreement.
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(h) Shareholders Approval. Subject to fiduciary duty obligations of
the Board of Directors of Seller, Seller will use its best efforts, in
accordance with applicable legal requirements and the Certificate of
Incorporation and Bylaws of Seller, to have the transaction contemplated
hereby approved by the holders of the capital stock to the extent required
by law, or the Certificate of Incorporation or Bylaws, or each of them.
Seller will notify the Purchaser and Compu-DAWN of the date set for any
shareholder action to be taken in connection with approval of the
transaction not later than thirty (30) days prior to such date. The Board
of Directors of Seller will, subject to fiduciary duty obligations under
applicable legal requirements, recommend that holders of its voting
securities vote to approve the transaction contemplated hereby and will use
best efforts to solicit from such holders proxies in favor of such approval
and adoption and take all other action necessary or helpful to secure such
favorable vote. Such efforts will include, if required by applicable law,
causing a proxy statement/prospectus to include the recommendation of the
Board of Directors of Seller that its shareholders approve the transaction
contemplated hereby; provided however, that the Board of Directors of
Seller may withhold, modify or withdraw its recommendation if it
determines, with the advice of outside counsel, that it may be required to
do so in the exercise of its fiduciary duties. Seller shall use its best
efforts to cause the Principal Shareholders and all its other Affiliates to
all to enter into a voting agreement in which they will agree to vote all
of their shares of Seller stock held by them in favor of the transaction
described herein concurrently with the execution of this Agreement.
(i) No Negotiations; No Solicitation. For as long as this Agreement
shall remain in effect and until it is terminated in accordance with its
terms, neither Seller nor or any of its officers, directors,
representatives or agents will take any action to (i) initiate the
submission of any acquisition, sale, merger financing or capital
transaction, (ii) enter into any agreement with respect to any acquisition,
sale, merger, financing or capital transaction or (iii) participate in
negotiations with, or provide information concerning Seller, its Assets,
liabilities or Business to, any Person in connection with any acquisition,
sale, merger financing or capital transaction. Seller will promptly
communicate to Purchaser any solicitation or inquiry received by Seller and
the terms of any proposal or inquiry that it may receive in respect of any
acquisition, sale, merger financing or capital transaction, or of any such
information requested from it or of any such negotiations or discussions
being sought to be initiated with it. Nothing in this Section 5.1(i) shall
be construed as prohibiting the Board of Directors of Seller from (i)
making any disclosure to Seller's shareholders, or (ii) responding to any
unsolicited proposal or inquiry by advising the Person making such proposal
or inquiry of the terms of this Section 5.1(i). "Acquisition, sale, merger
financing or capital transaction" means any proposed (i) acquisition, sale,
merger, consolidation, financing or similar transaction involving Seller,
(ii) sale, lease or other disposition, directly or indirectly, acquisition,
sale, merger, consolidation, financing, share exchange or otherwise of all
or any substantial part of the assets of Seller, (iii) issue, sale or other
disposition of securities representing 5% or more of the voting power of
Seller capital stock or (iv) transaction in which any Person proposes to
acquire beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of, or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under the Exchange Act) shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, 5% or more of the outstanding Seller capital stock.
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(j) Unaudited Financial Statements. Seller will provide Purchaser with
such unaudited financial statements and other financial information of
Seller up to and including the Closing Date as Purchaser may reasonably
request.
(k) Warn. Seller shall comply with the requirements of the Worker
Adjustment and Retraining Notification Act of 1988 ("WARN") with respect to
any "plant closing" or "mass layoff," as those terms are defined in WARN,
which may result from Seller's termination of the employment of any of the
employees of the Business in connection with Seller's sale of the Assets to
Purchaser or any of the other transactions contemplated by this Agreement.
(l) Amendment to GEOS(R) License Agreement. Seller shall, and the
Principal Shareholders shall cause Seller to, use best effects to obtain an
amendment to the GEOS(R) License Agreement as provided in Section 8.13
hereof.
5.2 Purchaser and Compu-DAWN Covenants. It is hereby agreed that, from and after
the date hereof and until the Closing or earlier termination of this Agreement:
(a) Access. Upon request, Purchaser and Compu-DAWN will cause its
officers, attorneys, accountants and other agents and representatives to
meet with the officers, attorneys and accountants and other agents and
representatives of Seller during regular business hours and upon reasonable
notice, to discuss the financial condition and business operations of
Compu-DAWN and Purchaser. Compu-DAWN shall provide Seller with copies of
all non-confidential filings with the SEC made by Compu-DAWN following the
date hereof and prior to the Closing Date.
(b) No Breach.
(i) Purchaser will (A) use its best efforts to assure that all of
its representations and warranties contained herein are true in all
material respects as of the Closing as if repeated at and as of such
time, that no material breach or Default shall occur with respect to
any of its covenants, representations or warranties contained herein
that has not been cured by the Closing and that all conditions to
Seller's obligation to enter into and complete the Closing are
satisfied in a timely manner; (B) not voluntarily take any action or
do anything which will cause a breach of or Default respecting such
covenants, representations or warranties or would impede the
satisfaction of such conditions; and (C) promptly notify Seller of any
event or fact which represents or is likely to cause such a breach or
Default or result in such an impediment.
(ii) Without limiting the generality of the foregoing, Purchaser
agrees to use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement.
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(c) Consents. Promptly following the execution of this Agreement,
Purchaser will use its best efforts to obtain consents of all third parties
and governmental and other regulatory authorities necessary to the
consummation of the transactions contemplated by this Agreement.
(d) Stockholder Approval. Subject to fiduciary duty obligations of the
Boards of Directors of Compu-DAWN and Purchaser, respectively, will use
their best efforts, in accordance with applicable legal requirements and
the Certificate of Incorporation and Bylaws of each of them to have the
transaction contemplated hereby approved by the holders of the capital
stock to the extent required by law, Nasdaq rules or the Certificate of
Incorporation or Bylaws, or each of them, if required prior to the Closing
of this Agreement. Compu-DAWN and Purchaser will notify the Seller of the
date set for any shareholder action to be taken in connection with approval
of the transaction not later than thirty (30) days prior to such date. The
Board of Directors of Compu-DAWN and Purchaser will, subject to fiduciary
duty obligations under applicable legal requirements, recommend that
holders of its stock vote to approve the transaction contemplated by this
Agreement and will use best efforts to solicit from such holders proxies in
favor of such approval and adoption and take all other action necessary or
helpful to secure such favorable vote. Such efforts will include, if
required by applicable law, causing a Proxy Statement/Prospectus to include
the recommendation of the Board of Directors of Seller that its
stockholders approve the transaction and or the issuance of securities as
contemplated in and by this Agreement; provided however, that the Board of
Directors of Compu-DAWN may withhold, modify or withdraw its recommendation
if it determines, with the advice of outside counsel, that it may be
required to do so in the exercise of their fiduciary duties.
ARTICLE VI
Intentionally Omitted
ARTICLE VII
Intentionally Omitted
ARTICLE VIII
CONDITIONS PRECEDENT TO THE
OBLIGATION OF PURCHASER AND COMPU-DAWN TO CLOSE
The obligation of Purchaser and Compu-DAWN to consummate the transactions
contemplated hereby is subject to the fulfillment, prior to or at the Closing,
of each of the following conditions, any one or more of which may be waived by
Purchaser (except when the fulfillment of such condition is a requirement of
law):
8.1 Representations and Warranties. All representations and warranties of
Seller, and the Principal Shareholders contained in this Agreement and in any
written statement (including financial statements), exhibit, certificate,
schedule or other document delivered pursuant hereto or in
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connection with the transactions contemplated hereby shall be true and correct
as at the Closing Date, as if made at the Closing and as of the Closing Date.
8.2 Covenants. Seller, and each of the Principal Shareholders shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by it or them prior to or at the
Closing.
8.3 Certificate. Purchaser shall have received a certificate, dated the Closing
Date, signed by the Chairman, Chief Executive Officer, President or Principal
Executive Officer of Seller and each of the Principal Shareholders, as to the
satisfaction of the conditions contained in Sections 8.1 and 8.2 hereof.
8.4 Assignment and Bill of Sale; Certificate of Title. Seller shall have
executed and delivered to Purchaser an assignment and bill of sale, in form
satisfactory to the Purchaser (the "Bill of Sale"), and Certificate(s) of Title
with respect to motor vehicles, in the form satisfactory to the Purchaser (the
"Certificate(s) of Title"), pursuant to which Seller shall convey to Purchaser
all of its right, title and interest in and to the Assets which it owns as
contemplated hereby.
8.5 Assignment of License Rights. Seller shall have delivered to the Purchaser
valid and binding assignments (the "License Assignments") of all Proprietary
Rights of which Seller is the licensee included in the Assets, duly consented to
by all licensors of Proprietary Rights, including, without limitation the
GEOS(R) License Agreement, pursuant to which Seller shall convey to Purchaser
all of its right, title and interest in and to the Proprietary rights of which
Seller is a licensee, as contemplated hereby.
8.6 Audited Financial Statements. Purchaser shall have received the Audited
Financial Statements .
8.7 Interim Financial Statements. Purchaser shall have received the Interim
Financial Statements.
8.8 Principal Shareholder Employment Agreements. The Principal Shareholders
shall have executed and delivered to Purchaser the Principal Shareholder
Employment Agreements in, or substantially in, the form attached hereto as
Exhibits 8.8(a) and 8.8(b) respectively.
8.9 Certain Payments. Seller shall be satisfied with the amounts of federal and
state payroll taxes and state of California sales taxes, due by Seller as of the
Closing Date with regard to accrued sales tax and payroll tax obligations.
8.10 Stockholder Approval. This Agreement and the transactions contemplated
hereby shall have been duly approved by a majority of the holders of the
outstanding voting shares of Seller and, if required prior to the Closing by
applicable law, or Nasdaq rules, the requisite holders of the outstanding Common
Shares of Compu-DAWN.
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8.11 Retail Indications of Interest. Seller shall have secured bona fide written
or e-mail communications from the mass retailers listed on Schedule 8.11
attached hereto stating that they will participate in the 1999 4th quarter
roll-out of the Global PC Device product.
8.12 Creditor Agreements. Seller shall have agreements with a sufficient number
of its creditors such that its total trade and accounts payable and other
liabilities can be liquidated by the payment of not more than 75,000 Common
Shares of Compu-DAWN in the aggregate.
8.13 GEOS(R) License Agreement Amendment. Geoworks and Seller shall have amended
the GEOS License Agreement to the satisfaction of Purchaser.
8.14 Subscription Agreements. The Persons listed on Schedule 2.3.2(a)(ii) and/or
Seller shall have delivered Subscription Agreements which are acceptable to the
Purchaser and Compu-DAWN.
8.15 "Lock-up" Agreements. The Persons and/or the Seller set forth on Schedule
2.3.2(a)(ii) attached hereto who are to be issued Common Shares and Warrants
pursuant to the provisions herein shall have executed and delivered a one (1)
year "lock-up" agreement in, or substantially in, the form attached hereto as
Exhibit 2.3.2(a)(ii).
8.16 Opinion of Counsel. Purchaser and Compu-DAWN shall have received an opinion
of counsel to Seller, which counsel is reasonably satisfactory to Buyer, opining
on matters which are reasonably satisfactory to Purchaser and Purchaser's
counsel.
8.17 No Actions. No Action shall have been instituted, and be continuing before
a court or before or by a governmental or other regulatory body or agency, or
shall have been threatened and be unresolved, to restrain, or to prevent, or to
obtain any material amount of damages in respect of, the carrying out of the
transactions contemplated hereby, or which might materially affect the right of
Purchaser to own or be a licensee of, any of the Assets or to operate or control
the Assets and Business after the Closing Date, or which might have a Material
Adverse Effect thereon.
8.18 Consents; Licenses and Permits. Seller, Purchaser and Compu-DAWN shall have
each obtained all consents, licenses and Permits of third parties, including,
without limitation, regulatory authorities and the Nasdaq Stockmarket, Inc.
necessary for the performance by each of them of all of their respective
obligations under this Agreement, including, without limitation, the transfer of
the Assets as contemplated hereby, and such other consents, if any, to prevent
(i) the occurrence of a breach under any agreement of Seller with any person,
the termination of which would have a Material Adverse Effect on the Business or
Assets or (ii) any Assumed Liability from becoming due or being subject to
becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provision of this Agreement to the
contrary notwithstanding.
8.19 Section 4(2) Compliance. Seller and/or the Persons listed on Schedule
2.3.2(a) shall have delivered to Compu-DAWN evidence reasonably satisfactory to
Compu-DAWN that its or his
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representations set forth in their respective Subscription Agreements are true
and correct and that the issuance by Compu-DAWN of the Common Shares and
Warrants pursuant hereto and thereto will be in conformity with the requirements
of Section 4(2) of the Securities Act.
8.20 Actions. All actions necessary to authorize the execution, delivery and
performance of this Agreement by Seller, and the Principal Shareholders and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken and Seller, and the Principal Shareholders shall have full power
and right to consummate the transactions contemplated by this Agreement.
8.21 Satisfactory Due Diligence. Compu-DAWN and the Purchaser shall have
completed a due diligence investigation of Seller, the Assets or the Business,
the results of which shall be reasonably satisfactory to Compu-DAWN and the
Purchaser in their good faith sole discretion, provided however, that if
Compu-DAWN or the Purchaser does not inform Seller in writing by the earlier of
(a) the Closing Date or (b) on or before the sixtieth (60) day following the
date hereof that such due diligence investigation is not satisfactory, then such
due diligence investigation shall be deemed to be satisfactory.
8.22 Compliance with Bulk Sales Laws. Seller shall have complied in all respects
with applicable state bulk sales laws as provided in Section 13.1 hereof.
8.23 Escrow Agreement. Seller and the Representative shall have executed and
tendered to Compu-DAWN an escrow agreement (the "Escrow Agreement') in the form
and substance reasonably acceptable to Compu-DAWN, Purchaser, Seller and the
Principal Shareholders, providing for, among other things, that the Common
Shares and Warrants of Compu-DAWN issuable to the Persons set forth on Schedule
8.23 on account of a portion of the Purchase Price as provided in Section
2.3.2(a) hereof, as provided for below (the "Escrow Securities"), will be placed
in escrow with an escrow agent satisfactory to Compu-DAWN and held in accordance
with the terms set forth below and shall be held as security for the
indemnification obligations of the Principal Shareholders pursuant to Section
12.2.1 hereof for a period of eleven (11) months from the Closing Date.
8.24 Fairness Determination. The Board of Directors of Compu-DAWN, in its sole
determination, has determined that the transactions contemplated by this
Agreement and the exhibits attached hereto are fair in all respects to
Compu-DAWN, Compu-DAWN's stockholders, and Purchaser.
8.25 Additional Documents. Seller, and the Principal Shareholders shall have
delivered all such certified resolutions, certificates and documents with
respect to the Business and the Assets as Purchaser or its counsel may have
reasonably requested.
8.26 Approval of Counsel. All actions, proceedings, instruments and documents
required to carry out this Agreement, or incidental thereto, and all other
related legal matters, shall have been
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approved as to form and substance by counsel to Purchaser, which approval shall
not be unreasonably withheld or delayed.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATION OF
SELLER TO CLOSE
The obligation of Seller to consummate the transactions contemplated hereby
is subject to the fulfillment, prior to or at the Closing, of each of the
following conditions, any one or more of which may be waived by Seller (except
when the fulfillment of such condition is a requirement of law):
9.1 Representations and Warranties. All representations and warranties of
Purchaser contained in this Agreement and in any written statement (including
financial statements), exhibit, certificate, schedule or other document
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be true and correct as at the Closing Date, as if made at the
Closing and as of the Closing Date.
9.2 Covenants. Purchaser and Compu-DAWN shall have performed and complied with
all covenants and agreements required by this Agreement to be performed or
complied with by it prior to or at the Closing.
9.3 Certificate. Seller shall have received a certificate, dated the Closing
Date, signed by the Chairman of the Board or President of Purchaser, as to the
satisfaction of the conditions contained in Sections 9.1 and 9.2 hereof.
9.4 Shares. Compu-DAWN shall have tendered the Closing Common Shares to the
Seller on behalf of the Persons who are Accepted Subscribers for the Common
Shares to the extent of the number of Common Shares which may be issued at the
Closing without violating Rule 4310(c)(25)(H) of the Nasdaq Stock Market, Inc.
9.5 Warrants. Compu-DAWN shall have tendered the Warrants to the Seller on
behalf of the Persons who are Accepted Subscribers for the Warrants to the
extent of the number of Warrants which may be issued at the Closing without
violating Rule 4310(c)(25)(H) of the Nasdaq Stock Market, Inc.
9.6 Principal Shareholder Employment Agreements. Purchaser shall have executed
and tendered to each of the Principal Shareholders their respective Principal
Shareholders Employment Agreement.
9.7 Other Employment Offers; Options. The Purchaser shall have tendered to the
Persons listed on Schedule 9.7 attached hereto offers of employment, upon the
terms set forth in Schedule
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9.7, and provided each such Person accepts employment by the Purchaser,
Compu-DAWN shall have tendered Options to purchase Common Shares of Compu-DAWN
pursuant to Compu-DAWN's 1996 Stock Option Plan upon the terms and conditions
(i) described in Schedule 9.7 and (ii) currently contained in Compu-DAWN's forms
of Stock Option Agreement related to the Options granted under Compu-DAWN's 1996
Stock Option Plan.
9.8 Stockholder Approval. This Agreement and the transactions contemplated by
this Agreement shall have been duly approved by a majority of the holders of the
outstanding voting Common Shares of Seller and, if required by applicable law,
or Nasdaq rules, prior to Closing, the requisite holders of the outstanding
Common Shares of Compu-DAWN.
9.9 No Actions. No Action shall have been instituted, and be continuing, before
a court or by a governmental or other regulatory body or agency, or have been
threatened, and be unresolved, to restrain or prevent, or obtain any material
amount of damages in respect of, the carrying out of the transactions
contemplated hereby.
9.10 Consents; Licenses and Permits. Purchaser and Compu-DAWN shall have
obtained all consents, licenses and permits of third parties, including, without
limitation, regulatory authorities, necessary for the performance by it of all
of its obligations under this Agreement.
9.11 Corporate Actions. All actions necessary to authorize the execution,
delivery and performance of this Agreement by Purchaser and Compu-DAWN and the
consummation of the transactions contemplated hereby other than the approval of
Compu-DAWN's stockholders pursuant to Rule 4310(c)(25)(H) of the Nasdaq Stock
Market, Inc. with respect to the issuance of any Common Shares or Warrants,
shall have been duly and validly taken and Purchaser and Compu- DAWN shall have
full power and right to consummate the transactions contemplated by this
Agreement.
9.12 Additional Documents. Purchaser and Compu-DAWN shall have delivered all
such certified resolutions, certificates and documents with respect to Purchaser
as Seller or counsel to Seller may have reasonably requested.
9.13 Approval of Counsel. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental thereto, and all other
related legal matters, shall have been approved as to form and substance by
counsel to Seller, which approval shall not be unreasonably withheld or delayed.
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ARTICLE X
CLOSING
10.1 Time and Location. The closing (the "Closing") provided for herein shall
take place at the offices of Seller at 10:00 a.m. on September 30, 1999 or a
date prior thereto as mutually determined by the parties, or on such other date
and at such other place as may be mutually agreed to by the parties (the
"Closing Date").
10.2 Items to be Delivered to Purchaser. At or prior to the Closing, Seller will
deliver or cause to be delivered to Purchaser:
(a) the certificates required by Section 8.3 hereof;
(b) the Bill of Sale and Certificate(s) of Title required by Section
8.4 hereof;
(c) the Assignment by Section 8.5 hereof;
(d) the Audited Financial Statements required by Section 8.6 hereof;
(e) the Interim Financial Statements required by Section 8.7 hereof;
(f) the Principal Stockholder Employment Agreements required by
Section 8.8 hereof;
(g) all keys to the Assets, including, without limitation, motor
vehicles;
(h) satisfactory evidence of all actions required by Section 8.16
hereof;
(i) satisfactory evidence required by Section 8.18 hereof;
(j) satisfactory evidence of all actions required by Section 8.19
hereof;
(k) satisfactory evidence of the compliance with bulk sales laws as
required by Sections 8.22 and 13.1 hereof.
(l) the Escrow Agreement required by Section 8.23 hereof
(m) such other certified resolutions, documents and certificates as
are required to be delivered to Purchaser or Compu-DAWN pursuant to the
provisions of this Agreement or which otherwise confirm that all
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of the conditions precedent to the obligation of Purchaser and Compu-DAWN
to close have been satisfied.
10.3 Items to be Delivered to Seller and Others. At the Closing, Purchaser will
deliver or cause to be delivered to Seller or the Principal Shareholders or the
persons set forth below, as the case may be:
(a) the certificate required by Section 9.3;
(b) certificates representing the Closing Common Shares to the Seller
on behalf of the Accepted Subscribers for the Closing Common Shares;
(c) Certificates representing the Closing Warrants to the Seller on
behalf of the Accepted Subscribers for the Closing Warrants;
(d) the Principal Shareholder Employment Agreements required by
Section 9.6 hereof;
(e) the Options to the new employees listed on Schedule 10.3(e)
attached hereto required by Section 9.7 hereof;
(f) certified copies of all corporate action required by Section 9.9
and 9.11 hereof; and
(g) such other certified resolutions, documents and certificates as
are required to be delivered by Purchaser pursuant to the provisions of
this Agreement or otherwise confirm that all of the conditions precedent to
the obligation of Seller to close have been satisfied.
ARTICLE XI
POST-CLOSING MATTERS
11.1 Stockholder Approval. To the extent the approval of the stockholders of
Compu-DAWN is required for the issuance of any of the Common Shares and/or
Warrants by Rule 4310(c)(25)(H) of the Nasdaq Stock Market, Inc., Compu-DAWN
shall hold a meeting of its stockholders as promptly as possible following the
Closing Date, but in no event later than December 31, 1999, at which such
approval shall be sought. Compu-DAWN and its Board of Directors shall act in the
same manner with respect to recommending that the stockholders vote their
approval of the issuance of the Common Shares and/or Warrants as set forth in
Section 5.2(d) hereof.
11.2 Further Assurances. On and after the Closing Date, (a) upon the request of
Purchaser, Seller shall take all such further actions and execute, acknowledge
and deliver all such further
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instruments and documents as may be necessary or desirable to convey and
transfer to, and vest in, Purchaser, and to protect Purchaser's right, title and
interest in and to, and enjoyment of, the Assets intended to be assigned,
transferred, conveyed and delivered pursuant to this Agreement, and (b) the
parties shall take all such further actions and execute and deliver all such
further instruments and documents as may be necessary or appropriate to carry
out the transactions contemplated by this Agreement.
11.3 Power of Attorney. Without limitation of any provision of this Agreement,
effective upon the Closing, Seller constitutes and appoints Purchaser and its
successors and assigns, and each of them, the true and lawful attorney of the
Seller, with full power of substitution, in their own names or in the name of
the Seller, but for their own benefit and at their own expense, (i) to institute
and prosecute all proceedings which any of them may deem proper in order to
collect, assert or enforce any claim, right or title of any kind in or to the
Assets transferred or intended to be transferred to Purchaser hereunder, and to
do all such acts and things in relation thereto as any of them shall deem
advisable, and (ii) to take all actions which they may deem proper in order to
provide for them the benefits under any claims, contracts, agreements,
arrangements, licenses, commitments, sales orders, purchase orders or other
documents or instruments transferred or intended to be transferred to Purchaser
hereunder. Seller acknowledges that the foregoing powers are coupled with an
interest and, upon the Closing, shall not be revocable in any manner or for any
reason.
11.4 Board Position. The Board of Directors of Compu-DAWN shall be comprised of
seven (7) directors following the Closing. The two (2) vacancies currently on
the Board shall be filled by Brian Dougherty and Mark Bradlee at the Closing.
11.5 Restrictive Covenant.
(a) In order to induce Purchaser and Compu-DAWN to enter into and
complete the Closing and to consummate the transactions contemplated by
this Agreement, each of Seller and each Principal Shareholder (for purposes
of this Section 11.5, collectively the "Seller Parties") hereby represents
and warrants to, and covenants and agrees with, Purchaser and Compu-DAWN as
follows:
(i) The Seller Parties will not at any time reveal, divulge, or
make known to any person, firm, corporation, or business organization
other than Purchaser and Compu-DAWN, or use for his or its own
account, any customer lists, trade secrets, or any secret or
confidential information of any kind used by the Seller and/or
Purchaser and, made known to him or it. The Seller Parties further
covenant and agree that he or it shall retain such knowledge and
information which he or it has acquired with respect to Seller and/or
Purchaser relative to such customer lists, trade secrets, and secret
or confidential information in trust for the sole benefit of Purchaser
and Compu-DAWN, their respective successors and assigns;
(ii)(A) Each of the Seller Parties will not at any time within
the Restrictive Period, without the prior written approval of the
Purchaser, directly or indirectly, anywhere, whether
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individually or as a principal, officer, employee, partner, member,
director, agent of or consultant for any entity, (i) engage or
participate in a Competitive Business and shall not make any
investments in any entity which is engaged in a Competitive Business
(provided, however that the foregoing shall not prohibit such Seller
Party from acquiring in the aggregate up to five (5%) percent of the
outstanding capital stock of any such entity if the securities of such
entity are listed on a national securities exchange or quoted on the
NASDAQ system, and further provided as set forth in Schedule
11.5(a)(ii)(A)) ; (ii) cause or seek to persuade any director,
officer, employee, customer, licensee, account, agent, sponsor,
supplier, vendor or licensor of the Seller and/or Purchaser to
discontinue the status, employment or relationship of such person or
entity with the Purchaser, or to become employed in any activity
similar to or competitive with the activities of the Seller and/or
Purchaser; (iii) cause or seek to persuade any prospective customer,
licensee, supplier, vendor and/or licensor of the Seller and/or
Purchaser (which as of the Closing Date and/or Termination Date was
then actively being solicited by the Seller and/or Purchaser) to
determine not to enter into a business relationship with Purchaser;
(iv) hire or retain any director, officer or employee of the Purchaser
and/or Seller; or (v) solicit or cause or authorize to be solicited,
for or on behalf of him or any third party, any business which is
competitive, directly or indirectly, with the Purchaser and/or Seller
from (a) others who are, or were within three (3) years prior to the
Closing Date and/or Termination Date, customers, sponsors, vendors,
licensors or accounts of the Seller and/or Purchaser, or (b) any
prospective customer, sponsor, vendor, licensor or account of the
Seller and/or Purchaser which at the Closing Date and/or Termination
Date was then actively being solicited by the Seller and/or Purchaser.
(B) For purposes of this Section 11.5 the term "Restrictive
Period" shall mean the period commencing as of the Closing Date and
terminating on the date (the "Termination Date") which is two (2)
years following the Closing Date.
(C) For purposes of this Section 11.5, the term "Competitive
Business " shall mean the ownership, operation, management and/or
promotion of and/or other engagement in any business of selling
Internet service and PC devices through mass merchandise retail
channels.
(iii) The restrictive covenants contained in this Section 11.5
are material elements of the consideration to be paid by Purchaser and
Compu-DAWN under this Agreement and are reasonable and properly
required for the adequate protection of the business interest of
Seller being acquired thereby;
(iv) The covenants contained herein are separate and independent
from any other covenants contained in any other agreement and may be
enforced irrespective of any other such covenants; and
(v) If any provision of this Section is held to be unenforceable
because of the scope, duration or area of its applicability, the court
making such determination shall have the power to modify such scope,
duration or area or all of them, and such provision shall then be
applicable in such modified form as fully as if herein so contained.
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(b) The parties recognize that, because of the nature of the subject
matter of this Agreement, it would be impracticable and extremely difficult
to determine actual damages to Purchaser and Compu-DAWN in the event of a
breach of this Agreement by any Seller Party. Accordingly, in the event of
a dispute between any Seller Party and Purchaser or Compu-DAWN concerning
the alleged commission or alleged threat to commit a breach by such Seller
Party of any of the provisions hereof, the Purchaser and Compu-DAWN shall
have the following rights and remedies:
(i) The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, by way
of injunctive relief or otherwise, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable
injury to Purchaser and Compu-DAWN and that money damages will not
provide an adequate remedy to Purchaser and Compu-DAWN except as
provided in Section 14.3;
(ii) The right and remedy to require the Seller Parties to
account for and pay over to Purchaser all profits derived or received
by the Seller Parties as a result of any transactions constituting a
breach of any of the provisions of this Section 11.5, and the Seller
Parties hereby agree to account for and pay over such profits to
Purchaser and Compu-DAWN; and
(iii) The right to recover attorney's fees incurred in any action
or proceeding in which it seeks to enforce its rights hereunder.
(c) The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in this Section 11.5 upon the courts of any
jurisdiction, country, province, or governmental entity, etc. (a
"Jurisdiction") within the geographical scope of such covenants. In the
event that the courts of any one or more of such Jurisdictions shall hold
such covenants wholly unenforceable by reason of the breadth of their scope
or otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect Purchaser and Compu-DAWN's right
to the relief provided above in the courts of any other Jurisdiction within
the geographical scope of such covenants as to breaches of such covenants
as they relate to each Jurisdiction being, for this purpose, severable into
diverse and independent covenants.
11.6 Taxes. The Purchaser shall, on behalf of Seller, after the Closing Date,
pay any Taxes set forth on Schedule 3.9 attached hereto, but only to the extent
of the amounts set forth on Schedule 3.9 hereof, to the appropriate federal,
state or local taxing authorities, in accordance with any payment schedule
agreed to by the Seller and/or any Principal Shareholder on the one hand, and
the applicable taxing authority on the other hand. It is acknowledged that
Purchaser is not assuming any obligation or liability with respect to the Taxes,
or any interest or penalties accrued thereon.
11.7 Financing by Seller or Designees. If the Purchaser does not have, or is
unable to provide, sufficient funds to conduct the Business and fund the
pre-roll out market launch of the Global PC Device product and the Seller or its
designees have to provide the necessary funds therefor, Compu- DAWN will issue
Seller or its designees one common stock purchase warrant, exercisable at the
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closing price of Compu-DAWN's Common Shares on the date hereof on the NASDAQ
Small Cap Market for every Common Share which Compu-DAWN agrees to issue for the
necessary funds invested in Compu-DAWN; provided however that in any event any
offering and sale of securities by Compu-DAWN and/or Purchaser in connection
therewith shall be upon terms mutually agreeable to Compu-DAWN and the
Purchaser, and Seller and/or its designees, and shall be in compliance with
federal and state securities laws and the rules of the Nasdaq Stockmarket, Inc.
or any other exchange upon which Compu-DAWN's or Purchaser's securities are
included or listed.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
12.1 Survival. The parties agree that their respective representations and
warranties contained in this Agreement shall survive the Closing.
12.2 Indemnification.
12.2.1 General Indemnification Obligation of Seller and Principal
Shareholders. From and after the Closing, Seller, and each Principal Shareholder
jointly and severally, will reimburse, indemnify and hold harmless Purchaser and
Compu-DAWN (in each case, an "Indemnified Purchaser Party") against and in
respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by any Indemnified Purchaser Party that
result from, relate to or arise out of:
(i) any and all liabilities and obligations of Seller of any
kind, nature and description whatsoever, fixed or contingent, inchoate
or otherwise, except for those liabilities of Seller which Purchaser
specifically assumes pursuant to this Agreement;
(ii) any and all Actions against any Indemnified Purchaser Party
that relate to the Business or the Assets in which the principal event
giving rise thereto occurred prior to the Closing Date or which result
from or arise out of any action or inaction prior to the Closing Date
of Seller or any partner (general or limited), director, officer,
employee, shareholder, agent or representative of Seller;
(iii) any misrepresentation, breach of warranty or nonfulfillment
of any agreement or covenant on the part of Seller, the General
Partner or either Shareholder under this Agreement, or from any
misrepresentation in or omission from any certificate, schedule,
statement, document or instrument furnished to Purchaser or Compu-DAWN
pursuant hereto or in connection with the negotiation, execution or
performance of this Agreement;
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(iv) any untrue statement or omission of a material fact which
was included in any of Compu-DAWN's public disclosures which was based
on information furnished in writing to Compu-DAWN by Seller or its
representatives or agents.
(v) any failure to comply with any "bulk sales" law applicable to
the transactions contemplated by this Agreement; and
(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
12.2.1.
(c) The Principal Shareholders' indemnification obligation hereunder
shall be limited to the Escrowed Securities.
12.2.2 General Indemnification Obligation of Purchaser. From and after
the Closing, Purchaser and Compu-DAWN will reimburse, indemnify and hold
harmless Seller and its successors or assigns and the Principal Shareholders (an
"Indemnified Seller Party") against and in respect of:
(a) Any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by any Indemnified Seller Party that result
from, relate to or arise out of:
(i) any and all liabilities and obligations of Seller which have
been specifically assumed by Purchaser pursuant to this Agreement;
(ii) any misrepresentation, breach of warranty or non-fulfillment
of any agreement or covenant on the part of Purchaser under this
Agreement, or from any misrepresentation in or omission from any
certificate, schedule, statement, document or instrument furnished to
Seller 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
12.2.2.
12.2.3 Method of Asserting Claims, Etc.
(a) In the event that any claim or demand for which Seller or the
Principal Shareholders would be liable to an Indemnified Purchaser Party
hereunder is asserted against or sought to be collected from an Indemnified
Purchaser Party by a third party, the Indemnified Purchaser Party shall
notify Seller and the Principal Shareholders of such claim or demand,
specifying the nature of such claim or demand and the amount or the
estimated amount thereof to the extent then feasible (which estimate shall
not be conclusive of the final amount of such claim and demand) (the "Claim
Notice"). Seller and the Principal Shareholders shall thereupon, at their
sole
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cost and expense, defend the Indemnified Purchaser Party against such claim
or demand with counsel reasonably satisfactory to the Indemnified Purchaser
Party.
(b) Neither Seller nor the Principal Shareholders shall, without the
prior written consent of the Indemnified Purchaser Party, consent to the
entry of any judgment against the Indemnified Purchaser Party or enter into
any settlement or compromise which does not include, as an unconditional
term thereof (i.e., there being no requirement that the Indemnified
Purchaser Party pay any amount of money or give any other consideration),
the giving by the claimant or plaintiff to the Indemnified Purchaser Party
of a release, in form and substance satisfactory to the Indemnified
Purchaser Party, as the case may be, from all liability in respect of such
claim or litigation. If any Indemnified Purchaser Party desires to
participate in, but not control, any such defense or settlement, it may do
so at its sole cost and expense. If, in the reasonable opinion of the
Indemnified Purchaser Party, any such claim or demand or the litigation or
resolution of any such claim or demand involves an issue or matter which
could have a materially adverse effect on the business, operations, assets,
properties or prospects of the Indemnified Purchaser Party or its
affiliates, then the Indemnified Purchaser Party shall have the right to
control the defense or settlement of any such claim or demand and its costs
and expenses shall be included as part of the indemnification obligation of
Seller and/or the Principal Shareholders hereunder; provided, however, that
the Indemnified Purchaser Party shall not settle any such claim or demand
without the prior written consent of Seller or the Principal Shareholder,
which consent shall not be unreasonably withheld or delayed. If the
Indemnified Purchaser Party should elect to exercise such right, Seller or
the Principal Shareholders shall have the right to participate in, but not
control, the defense or settlement of such claim or demand at their sole
cost and expense.
(c) In the event an Indemnified Purchaser Party should have a claim
against Seller, and/or the Principal Shareholders hereunder that does not
involve a claim or demand being asserted against or sought to be collected
from it by a third Party, the Indemnified Purchaser Party shall send a
Claim Notice with respect to such claim to Seller, and the Principal
Shareholders. If Seller or the either Principal Shareholder, as the case
may be, does not notify the Indemnified Purchaser Party, within ten (10)
days from receipt of notice of a claim, that it or he disputes such claim,
the amount of such claim shall be conclusively deemed a liability of Seller
and any Principal Shareholder hereunder.
(d) All claims for indemnification by an Indemnified Seller Party
under this Agreement shall be asserted and resolved under the procedures
set forth hereinabove by substituting in the appropriate place "Indemnified
Seller Party" for "Indemnified Purchaser Party" and variations thereof and
"Purchaser" for "Seller and/or the "Principal Shareholder(s)" and
variations thereof.
12.2.4 Escrow Agreement. In order to provide further security for the
indemnification rights of any Indemnified Purchaser Party under this Article
XII, the Escrowed Securities shall be held in escrow and disposed of as provided
in the Escrow Agreement described in Section 8.23 hereof.
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12.3 Payment; Right of Setoff. Upon the determination of the liability under
Section 12.2 hereof, the appropriate party shall pay to the other, within ten
(10) days after such determination, the amount of any claim for indemnification
made hereunder. Notwithstanding the foregoing and any other rights that
Purchaser and/or Compu-DAWN may have against any other person, firm or
corporation, Purchaser and/or Compu-DAWN shall have the right to setoff the
unpaid amount of any such claim against any amounts owed by it under any
agreements or instruments entered into pursuant to this Agreement. Further,
pending final determination of any claims, demands or disputes in accordance
with the provisions of this Article XII, Purchaser and/or Compu-DAWN shall have
the right to withhold from any amounts due pursuant to this Agreement or any
other agreement, if any, the amount of such claims, demands and/or disputes.
Upon the final payment in full of any claim, either by setoff or otherwise, the
entity making payment shall be subrogated to the rights of the indemnified party
against any person, firm or corporation with respect to the subject matter of
such claim.
12.4 Other Rights and Remedies Not Affected. The indemnification rights of the
parties under this Article XII are independent of and in addition to such rights
and remedies as the parties may have at law or in equity or otherwise for any
misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto, including without limitation
the right to seek specific performance, rescission or restitution, none of which
rights or remedies shall be affected or diminished hereby.
ARTICLE XIII
BULK SALE
13.1 Bulk Sales. The Seller shall comply in all respects with the provisions of
the bulk sales law of any state and the Seller and the Principal Shareholder
jointly and severally, covenant and agree to pay and discharge, when due, or
contest in good faith by appropriate proceedings, all claims of creditors which
could be asserted against the Purchaser or the Assets by reason of any
noncompliance herewith. The foregoing notwithstanding, nothing herein shall stop
or prevent Purchaser from asserting, as a bar or defense to any actions or
proceedings brought under any of such laws, that such laws are not applicable to
the transactions contemplated by this Agreement. Simultaneously with the
execution of this Agreement (and in any event, not less than ten (10) days prior
to Closing), the parties shall complete the appropriate California State tax
form relating to notification of sales, transfers or assignments in bulk and the
Purchaser may promptly file it in the appropriate office.
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ARTICLE XIV
TERMINATION; WAIVER AND LIQUIDATED DAMAGES
14.1 Termination. Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and the transactions provided for herein
abandoned at any time prior to the Closing:
(a) By mutual consent of the respective Boards of Directors of
Purchaser and the Seller;
(b) By Purchaser if any of the conditions set forth in Article VIII
hereof shall not have been fulfilled on or prior to September 30, 1999 or
shall become incapable of fulfillment, in each case except as such shall
have been the result, directly or indirectly, of any action or inaction by
Purchaser or its officers and Directors.
(c) By Seller, if any of the conditions set forth in Article IX hereof
shall not have been fulfilled on or prior to September 30, 1999 or shall
have become incapable of fulfillment, in each case except as such shall
have been the result, directly or indirectly, of any action or inaction by
Seller or its officers and partners, whether in their capacity as partners
or otherwise, and shall not have been waived.
If this Agreement is terminated as described above, this Agreement
shall be of no further force and effect, without any liability or
obligation on the part of any of the parties except for any liability which
may arise pursuant to Sections 16.1 and 16.2 hereof or as a result of a
party's willful failure to consummate the transactions contemplated hereby.
14.2 Waiver. Any condition to the performance of the parties which legally may
be waived on or prior to the Closing Date may be waived at any time by the party
entitled to the benefit thereof by action taken or authorized by an instrument
in writing executed by the relevant party or parties. The failure of any party
at any time or times to require performance of any provision hereof shall in no
manner affect the right of such party at a later time to enforce the same. No
waiver by any party of the breach of any term, covenant, representation or
warranty contained in this Agreement as a condition to such party's obligations
hereunder shall release or affect any liability resulting from such breach, and
no waiver of any nature, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such condition or of any breach of any other term, covenant,
representation or warranty of this Agreement.
14.3 Liquidated Damages. Seller and the Principal Shareholders acknowledge that
Purchaser and Compu-DAWN are investing a significant amount of resources, time,
expense and reputation in pursuing the potential acquisition contemplated
hereby. Seller further acknowledges that Purchaser would be irreparably harmed
by a breach of Section 5.1(i) hereof and that monetary damages to Purchaser for
such breach would be immeasurable. Accordingly, in the event Seller breaches
this
35
<PAGE>
Section 5.1(i), Seller shall pay Purchaser the sum of $1,000,000 as liquidated
damages immediately. Seller acknowledges that Seller has received good, valuable
and sufficient consideration for the foregoing agreement, and that Purchaser and
Compu-DAWN is relying on the Agreement in Section 5.1(i) and the enforceability
and the Principal Shareholders in entering into this Agreement and pursuing the
transaction contemplated hereby.
ARTICLE XV
DEFINED TERMS
15.1 Defined Terms. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Accepted Subscriber " shall mean the Persons listed on Schedule 2.3.2(a)
who have subscribed for Common Shares and/or Warrants, whose Subscription
Agreements have been accepted by Compu-DAWN.
"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.
"ADA" shall mean the Americans with Disabilities Act of 1990.
"Additional Shares" shall have the meaning ascribed to it in Section 2.3.1
hereof.
"Affiliate" shall have the meaning set forth in the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder.
"Agreement" shall have the meaning ascribed to it in the heading.
"Assets" shall have the meaning ascribed to it in Section 2.1 hereof.
"Assumed Liabilities" shall mean the Liabilities listed on Schedule 2.4.1
attached hereto.
"Audited Financial Statements" shall mean Seller's balance sheets at
December 31, 1997 and 1998, Statements of Earnings and Shareholders Equity and
Statements of Cash Flows for the years ended December 31, 1997 and 1998 and
notes thereto together with an audit report of and independent auditor. Such
Audited Financial Statements shall be in conformity with Regulation S-X or S-B,
whichever is applicable to Compu-DAWN, consistent (including, without
limitation, as to format, presentation and results) with the Financial
Statements and, upon or as of the delivery
36
<PAGE>
thereof by Seller to Purchaser, subject to the representations relating to the
Financial Statements set forth in Section 3.5 hereof.
"Balance Sheet" shall mean Sellers balance sheet as of the December Balance
Sheet Date which is attached hereto as part of the December Financial
Statements.
"Balance Sheet Date" shall mean June 30, 1999.
"Bill of Sale" shall have the meaning ascribed to it in Section 8.4 hereof.
"Body" shall mean all federal, state, local, and foreign governmental and
other regulatory bodies.
"Books and Records" shall mean (a) all records and lists of Seller
pertaining to the Assets, (b) all records and lists pertaining to the Assets,
Business, customers, licensees, suppliers, vendors, licensors or personnel of
the Business, (d) all books, ledgers, files, reports, plans, drawings and
operating records computer software programs and specifications of every kind
maintained by Seller relating to the Business, all work papers of Seller's
accountants pertaining to the Business.
"Business" shall have the meaning ascribed to in the Recitals hereof.
"Certificate(s) of Title" shall have the meaning ascribed to it in Section
8.4 hereof.
"Claim Notice" shall have the meaning ascribed to it in Section 12.2.3
hereof.
"Class A Warrants" shall have the meaning ascribed to it in Section 2.3.1
hereof.
"Class B Warrants" shall have the meaning ascribed to it in Section 2.3.1
hereof.
"Class C Warrants" shall have the meaning ascribed to it in Section 2.3.1
hereof.
"Closing" shall have the meaning ascribed to it in Section 10.1 hereof.
"Closing Common Shares" means the Common Shares which may be issued at the
Closing without the requirement of stockholder approval pursuant to Rule
4310(c)(25)(H) of the Nasdaq Stock Market, Inc.
"Closing Date" shall have the meaning ascribed to it in Section 10.1
hereof.
"Closing Warrants" means the Warrants which may be issued at the Closing
without the requirement of stockholder approval pursuant to Rule 4310(c)(25)(H)
of the Nasdaq Stock Market, Inc.
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<PAGE>
"Contract" shall mean any agreement, contract, note, loss, 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 Seller is a party or is bound and which relates to the
Business or the Assets, whether oral or written.
"Competitive Business" shall have the meaning ascribed to it in Section
11.5(a)(ii)(C) hereof.
"Compu-DAWN" shall have the meaning ascribed to it in the heading hereof.
"Contract Rights" shall mean all of Seller's rights under the Contracts.
"Copyrights" shall mean registered copyrights, copyright applications and
unregistered copyrights relating to the Business.
"Default" shall mean any breach, default and/or other violation of the
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.
"Derivative Securities" means any and all securities, evidences or
indebtedness, subscriptions, options, warrants, rights calls or other
commitments or agreements that are convertible into or exchangeable for shares
of Common Stock or any other voting or equity securities.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" shall have the meaning ascribed to it in Section 8.23
hereof.
"Escrowed Securities" shall have the meaning ascribed to it in Section 8.23
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Assets" shall mean none.
"Financial Statements" shall mean the Financial Statements of Seller
attached hereto as Schedule 3.5.
"Fixed Assets" shall have the meaning ascribed to it in Section 2.1(b)(i)
hereof.
"GEOS(R)" shall have the meaning ascribed to it in the Recitals.
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<PAGE>
"GEOS License Agreements" shall mean that certain license agreement between
Geoworks, Inc. and Seller dated May 8, 1998, as it may be amended from time to
time, relating to the worldwide license for GEOS(R) by Geoworks, Inc. to Seller.
"Global PC Device" shall have the meaning ascribed to it in the recitals
hereof.
"Indemnified Purchaser Party shall have the meaning ascribed to it in
Section 12.2.1 hereof.
"Indemnified Seller Party" shall have the meaning ascribed to it in Section
12.2.2 hereof.
"Information" shall have the meaning ascribed to it in Section 16.2 hereof.
"Intangible Property shall have the meaning ascribed to it in Section
2.1(c) hereof.
"Interim Financial Statements" shall mean the unaudited balance sheet of
Seller as of June 30, 1999 and the Statements of Earnings and Shareholder Equity
and Statements of Cash Flows for the three (3) and six(6) month periods ended
June 30, 1999 in such form as Purchaser may request, which shall be, in
Purchaser's sole and absolute discretion (which shall be final, conclusive and
binding), acceptable to Purchaser.
"Inventory" shall have the meaning ascribed to it in Section 2.1(h)(ii)
hereof.
"Jurisdiction" shall have the meaning ascribed to it in Section 11.5(c)
hereof.
"Leases" shall have the meaning ascribed to it in Section 2.1(a) hereof.
"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.
"License Assignments" shall have the meaning ascribed to it in Section 8.5
hereof.
"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 3.14.
39
<PAGE>
"Material Adverse Effect" shall mean any material adverse effect on the
business properties, operations, assets, liabilities, condition (whether
financial or otherwise), or prospects of Seller or the Business on one hand, or
Compu-DAWN and Purchaser on the other hand.
"Materials of Environmental Concern" shall mean pollutants, contaminants,
hazardous or noxious or toxic materials or wastes.
"Material Liability" shall mean a liability singly or in the aggregate with
other liabilities of $5,000 or more.
"New Employees" shall mean the Persons listed on Schedule 9.7 attached
hereto who accept offers of employment by the Purchaser.
"Options" shall mean common stock purchase options granted under Compu-
DAWN's 1996 Stock Option Plan, which may be incentive stock options or non
qualified stock options, as determined by the Board of Directors of Compu-DAWN
or the Stock Option Committee of Compu-DAWN.
"Patents" shall mean all patents and patent applications and registered
design and registered design applications used in the 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
Business.
"Permitted Liens" shall mean none.
"Principal Shareholders" shall mean Mark Bradlee and Brian Dougherty.
"Principal Shareholders Employment Agreements" shall mean the Employment
Agreements between Compu-DAWN and/or the Purchaser and each of the Principal
Shareholders in, or substantially in, the form attached hereto as Exhibit
15.1(a).
"Proprietary Rights" shall mean all of the Copyrights, Patents, Trademarks,
technology rights and licenses (including, without limitation, the GEOS(R)
License Agreement) 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 Business or under development, including, without limitation, the
Proprietary Right set forth on Schedule 15.16(c) attached hereto.
"Purchase Price" shall have the meaning ascribed to it in Section 2.3.1
hereof.
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"Purchaser" shall have the meaning ascribed to it in the header hereof.
"Regulation S-B" shall mean Regulation S-B, as amended, promulgated by the
SEC.
"Regulation S-X" shall mean Regulation S-X, as amended, promulgated by the
SEC
"Representative" shall mean the Person duly appointed by the Persons set
forth in Schedule 8.23 to act as each of their representative to execute and
deliver the Escrow Agreement.
"Restrictive Period" shall have the meaning ascribed to it in Section
11.5(a)(ii)(B) hereof.
"Rule 144" shall mean Rule 144 as promulgated by the SEC.
"Rule 144 Holding Period" shall mean the period of time that the Shares
must be held by the Seller before it can resell them, or any portion thereof,
pursuant to Rule 144, promulgated under the Act.
"SEC Reports" shall mean Compu-DAWN's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 and its Quarterly Reports on Form 10-QSB for
the quarterly periods ended March 31 and June 30, respectively, and current
report for events dated May 12, June 9 June 29, 1999 and July 6, 1999,
respectively.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning ascribed to it in the header hereof.
"Seller Parties" shall have the meaning ascribed to it in Section 11.5(a)
hereof.
"Subscription Agreement" shall mean the Subscription Agreement of each
Person listed on Schedule 2.3.2(a) relating to the issuance of Common Shares
and/or Warrants as provided in Section 2.3.2(a).
"Termination Date" shall have the meaning ascribed to it in Section
11.5(a)(ii)(B) hereof.
"Trademarks" shall mean registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks used in the Business.
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"UCC" shall mean the Uniform Commercial Code of the State of California, as
amended.
"WARN" shall have the meaning ascribed to it in Section 5.1(k) hereof.
"Warrants" shall have the meaning ascribed to it in Section 2.3.1 hereof.
"Warrant Shares" shall have the meaning ascribed to it in Section 2.3.2
hereof.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 Expenses. Each of the parties shall bear its or his own expenses in
connection herewith and with respect to any transactions and negotiations
contemplated hereby, whether or not consummated for any reason.
16.2 Confidential Information. Each party agrees that such party and its
representatives at all times hereafter will hold in a fiduciary capacity and in
strict confidence all information, data and documents received from the other
parties (collectively, "Information") and will not, without the consent of the
disclosing party, use or disclose, directly or indirectly, the Information in
any manner whatsoever, in whole or in part. If the transactions herein
contemplated shall not be consummated, in addition to continuing to hold such
Information in strict confidence, the receiving party will return to such other
parties all such Information then in its possession without retaining copies
thereof. Notwithstanding the foregoing, the obligations under this Section 16.2
to maintain such confidentiality shall not apply to any Information (a) that is
in the public domain at the time furnished by the disclosing party, (b) that
becomes in the public domain thereafter through any means other than as a result
of any act of the receiving party or of its agents, officers, directors or
shareholders which constitutes a breach of this Agreement, or (c) that is
required by applicable law to be disclosed.
16.3 Sales, Transfer and Documentary Taxes. Seller shall pay all federal, state
and local sales, documentary and other transfer taxes, if any, due as a result
of the purchase, sale and transfer of the Assets in accordance herewith whether
imposed by law on Seller or Purchaser and Seller shall indemnify, reimburse and
hold harmless Purchaser in respect of the liability for payment of or failure to
pay any such taxes or the filing of or failure to file any reports required in
connection therewith.
16.4 Equitable Relief. The parties agree that the remedy at law in any breach or
threatened breach of the provisions of Section 16.2 will be inadequate and the
aggrieved party shall be entitled to injunctive relief to compel the breaching
party to perform or refrain from action required or prohibited thereunder.
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16.5 Publicity. The parties agree that no publicity, release or other public
announcement concerning the transactions contemplated by this Agreement shall be
issued by any party without the advance approval of both the form and substance
of the same by the other parties and their respective counsel, which approval,
in the case of any publicity, release or other public announcement required by
applicable law, shall not be unreasonably withheld or delayed, except as
provided in Section 16.2(c). The parties agree further that the terms of this
Agreement shall be divulged only to such of their employees and representatives
who shall have a "need to know", unless such terms have been publicly released
in accordance with the provisions hereof.
16.6 Entire Agreement. This Agreement, including the schedules and exhibits
attached hereto, which are a part hereof, constitutes the entire agreement of
the parties with respect to the subject matter hereof. The representations,
warranties, covenants and agreements set forth in this Agreement and in the
financial statements, schedules or exhibits delivered pursuant hereto constitute
all the representations, warranties, covenants and agreements of the parties and
upon which the parties have relied, shall not be deemed waived or otherwise
affected by any investigation made by any party hereto and, except as may be
specifically provided herein, no change, modification, amendment, addition or
termination of this Agreement or any part thereof shall be valid unless in
writing and signed by or on behalf of the party to be charged therewith.
16.7 Notices. Any and all notices or other communications or deliveries required
or permitted to be given or made pursuant to any of the provisions of this
Agreement shall be deemed to have been duly given or made for all purposes when
in writing and hand delivered or sent by certified or registered mail, return
receipt requested and postage prepaid, overnight mail, nationally recognized
overnight courier or telecopier as follows:
If to Purchaser and/or Compu-DAWN at:
12735 Gran Bay Parkway West, Building 200
Jacksonville, Florida 32258
Attention: Chairman of the Board
Telecopier: (904) 680-6693
With a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Gavin C. Grusd, Esq.
Telecopier: (516) 296-7111
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If to Seller:
960 Atlantic Avenue, Suite 200
Alameda, California 95401
Attention: Mark Bradlee
Telecopier: (510) 814-4289
If to the Principal Shareholders:
c/o Global PC, Inc.
960 Atlantic Avenue, Suite 200
Alameda, California 95401
Attention: Mark Bradlee
Telecopier: (510) 814-4289
In each case with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Arthur Schneiderman, Esq.
Telecopier: (650) 496-4088
or at such other address as any party may specify by notice given to the other
party in accordance with this Section 16.7.
16.8 Choice of Law; Venue; Severability. This Agreement shall be governed by,
and interpreted and construed in accordance with, the laws of the State of
Florida, excluding choice of law principles thereof. Venue for any court or
other proceeding hereunder shall be had in Duval County, Florida. In the event
any clause, section or part of this Agreement shall be held or declared to be
void, illegal or invalid for any reason, all other clauses, sections or parts of
this Agreement which can be effected without such void, illegal or invalid
clause, section or part shall nevertheless continue in full force and effect.
16.9 Successors and Assigns; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns; provided, however, that neither Seller, nor the Principal Shareholders
may assign any of its rights or delegate any of its duties under this Agreement
without the prior written consent of Purchaser and Compu-DAWN.
16.10 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
16.11 Facsimile Signatures. Signatures hereon which are transmitted via
facsimile shall be deemed original signatures.
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16.12 Representation by Counsel; Interpretation. Seller, and each Principal
Shareholder, acknowledges that each has been represented by counsel or has had
the opportunity to be represented by counsel in connection with this Agreement
and the transactions contemplated by this Agreement. Accordingly, any rule or
law or any legal decision that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived by such parties. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the intent of
the parties hereto.
16.13 Headings; Gender. The headings, captions and/or use of a particular gender
under sections of this Agreement are for convenience and reference only and do
not in any way modify, interpret or construe the intent of the parties or affect
any of the provisions of this Agreement.
[Rest of Page Intentionally Left Blank]
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<PAGE>
WITNESS the execution of this Agreement as of the date first above written.
COMPU-DAWN, INC.
By: /s/ Rudy C. Theale
------------------------------
GPC ACQUISITION CORP.
By: /s/ Rudy C. Theale
------------------------------
GLOBAL P.C.
By: /s/ Mark Bradlee
------------------------------
/s/ Mark Bradlee
---------------------------------
MARK BRADLEE
--------------------------------
BRIAN DOUGHERTY
46
<PAGE>
EXHIBIT 10.4
AMENDMENT
TO THE ASSET PURCHASE AGREEMENT
BETWEEN
COMPU-DAWN, INC. AND GLOBAL PC, INC.
Both parties have agreed to extend the closing date of the asset purchase
transaction from September 30, 1999 to November 30, 1999 per section 10.1 of the
Asset Purchase Agreement between Compu- DAWN, Inc., Global PC, Inc., Brian
Dougherty and Mark Bradlee dated July 30, 1999, provided, however, in the event
that Compu-DAWN, Inc. files for protection under the United States Bankruptcy
laws, which is not contemplated, Global PC, Inc. may terminate the agreement on
the date that such bankruptcy protection is sought by Compu-DAWN, Inc. All
references in the Asset Purchase Agreement between Compu-DAWN, Inc., Global PC,
Inc., Brian Dougherty and Mark Bradlee to September 30 shall hereby be amended
to November 30, 1999.
Compu-DAWN, Inc. Global PC, Inc.
/s/ Rudy C. Theale /s/ Mark Bradlee 9-24-99
- --------------------------------- ----------------------------------
Rudy C. Theale Date Mark Bradlee Date
Vice Chairman Chief Executive Officer
<PAGE>
EXHIBIT 10.5
SECOND AMENDMENT
TO THE ASSET PURCHASE AGREEMENT
BETWEEN
COMPU-DAWN, INC. AND GLOBAL PC, INC.
Both parties have agreed that in the event Compu-DAWN, Inc. does not
successfully close bridge financing and transfer a minimum of $500,000 to Global
PC's Silicon Valley Bank account by Friday, October 1, 1999, which is not
contemplated, Global PC, Inc. may terminate the Asset Purchase Agreement between
Compu-DAWN, Inc., and Global PC, Inc., Brian Dougherty and Mark Bradlee dated
July 30, 1999 and amended on September 24, 1999. In the event that the Asset
Purchase Agreement does need to be terminated, Compu-DAWN, Inc. will use its
best efforts to expedite that process to enable Global PC, Inc. to attempt to
find alternative interim and long term financing quickly.
It is further agreed by both parties that in the event the Asset Purchase
Agreement between Compu-DAWN, Inc. and Global PC, Inc., Brian Dougherty and Mark
Bradlee is terminated by Global PC, Inc. under the aforementioned conditions,
Global PC, Inc. will grant to Compu- DAWN, Inc. equity in Global PC in the 10%
to 20% range based on and in consideration for Compu-DAWN's significant
financial, management and third party relationship building contributions made
to Global PC, Inc. during the past 120 days. The exact percentage will not be
solely based on the financial contribution, but will take into consideration all
the contributions that helped move the Global PC project forward during the
timeframe of the relationship.
Compu-DAWN, Inc. Global PC, Inc.
- ---------------------------- ---------------------------
Rudy Theale Date Mark Bradlee Date
Vice Chairman Chief Executive Officer
<PAGE>
Compu-DAWN, Inc.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic net income (loss) per common share computation:
Income available to common shareholders from
continuing operations (1,218,173) (249,063) (1,703,628) (193,646)
----------- -------- ----------- ---------
Income available to common shareholders from
discontinued operations (1,005,917) (118,809) (6,976,008) (1,073,264)
----------- ---------- ----------- -----------
Income available to common shareholders from
gain on sale of discontinued operations 537,732 - 537,732 -
------- ---------- ------- -----------
Average common shares outstanding 4,192,489 3,148,730 3,887,625 2,988,978
Basic loss per common share from continuing operations $(.29) $(.08) $ (0.44) $(.06)
Basic loss per common share from discontinued operations (.24) ( .04) (1.79) ( .36)
Basic income per common share from gain from
sale of discontinued operations .13 - .14 -
--- ---- ---
Basic net loss per common share $(.40) $(.12) $(2.09) $(.42)
===== ===== ====== =====
Diluted net income (loss) per common share computation:
Income available to common shareholders from
continuing operations (1,218,173) (249,063) (1,703,628) (193,646)
----------- -------------- --------------- -------------
Income available to common shareholders from
discontinued operations (1,005,917) (118,809 ) (6,976,008) (1,073,264)
----------- ---------- ----------- -----------
Income available to common shareholders from
gain on sale of discontinued operations 537,732 - 537,732 -
------- ---------- ------- -----------
Average common shares outstanding 4,192,489 3,148,730 3,887,625 2,988,978
Incremental shares from assumed conversions:
Preferred shares 491,760 977,250 491,760 977,250
Stock options 1,436,486 327,250 1,994,460 91,843
Warrants 48,128 - 102,365 180,494
------ --------- ------- -------
Diluted average common shares outstanding 6,168,863 4,453,230 6,476,210 4,238,565
Diluted loss per common share from continuing operations $(.29) $(.08) $ (0.44) $(.06)
Diluted loss per common share from discontinued operations (.24) ( .04) (1.79) ( .36)
Diluted income per common shares from gain on
sale of discontinued operations .09 - .08 -
--- - ---
Diluted net loss per common share $(.44) $(.12) $(2.15) $(.42)
===== ===== ====== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001028079
<NAME> Compu-DAWN, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 362,092
<SECURITIES> 0
<RECEIVABLES> 7,198
<ALLOWANCES> 0
<INVENTORY> 64,832
<CURRENT-ASSETS> 480,900
<PP&E> 108,223
<DEPRECIATION> 12,269
<TOTAL-ASSETS> 1,374,395
<CURRENT-LIABILITIES> 1,233,541
<BONDS> 0
26
0
<COMMON> 42,537
<OTHER-SE> 38,600
<TOTAL-LIABILITY-AND-EQUITY> 1,374,395
<SALES> 357,960
<TOTAL-REVENUES> 550,979
<CGS> 296,136
<TOTAL-COSTS> 2,155,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,517
<INCOME-PRETAX> (8,141,904)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,703,628)
<DISCONTINUED> (6,438,276)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,141,904)
<EPS-BASIC> (2.09)
<EPS-DILUTED> (2.15)
</TABLE>
