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 June 30, 1999
Commission file number 000-22611
Compu-DAWN, Inc.
(Exact name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3344575
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
12735 Gran Bay Parkway West, Building 200, Jacksonville, Florida 32258
(Address of principal executive offices)
Issuer's telephone number, including area code (904) 680-6680
(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 August 5, 1999: 3,817,519
Transitional Small Business Disclosure Format (check one): Yes (_) No (X)
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
- INDEX -
<TABLE>
Page(s)
<S> <C>
PART I Financial Information 3
Item 1 Financial Statements 3
Consolidated Condensed Balance Sheets - June 30, 1999 (unaudited) and
December 31, 1998 3
Consolidated Condensed Statements of Operations - Three and Six Months
Ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Condensed Statements of Cash Flows - Six Months Ended
June 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 9
PART II Other Information 15
Item 2 Changes in Securities 15
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 17
</TABLE>
2
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
Compu-DAWN, Inc. AND SUBSIDIARY
CONDENSED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 258,813 $ 2,528,400
Marketable securities 891,100 1,850,000
Accounts receivable, net of allowances for doubtful accounts of $13,635
for 1999 and 1998 222,353 319,392
Prepaid expenses 48,678 68,272
Inventory 99,099 -
Loan receivable re: potential acquisition (Note 3) 120,000 -
Loan receivable - other (Note 1) - 736,318
------------- ------------
TOTAL CURRENT ASSETS 1,640,043 5,502,382
FIXED ASSETS - NET 419,631 218,374
OTHER ASSETS:
Security deposits 37,068 21,525
------------- ------------
$ 2,096,742 $ 5,742,281
============= ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 631,040 $ 169,519
Deferred revenue 237,580 173,953
Current portion of note payable - officer - 50,000
Capitalized lease payable - current 14,208 6,662
------------- ------------
TOTAL CURRENT LIABILITIES 882,828 400,134
------------- ------------
NON-CURRENT LIABILITIES:
Capitalized lease payable 30,848 15,779
Deferred rent liability 26,058 28,448
------------- ------------
56,906 44,227
------------- ------------
COMMITMENTS AND CONTINGENCIES
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 14 17
Common stock, $.01 par value, 20,000,000 shares authorized,
4,088,813 and 3,265,448 shares issued for 1999 and 1998, respectively 40,888 32,654
Additional paid-in capital 15,267,052 13,661,649
Accumulated deficit (13,653,048) (7,620,721)
Accumulated other comprehensive income (loss) (46,900) (150,000)
------------- ------------
1,608,017 5,923,632
Less: treasury stock, 277,544 and 340,044 shares at cost for 1999
and 1998, respectively (451,009) (625,712)
------------- ------------
1,157,008 5,297,920
------------- ------------
$ 2,096,742 $ 5,742,281
============= ============
</TABLE>
See notes to financial statements.
3
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
Products and services $ 158,083 $ - $ 327,887 $ -
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of revenues 131,811 - 195,236 -
General and administrative expenses 255,570 - 488,691 -
Interest expense 91,287 7,268 98,103 10,705
Interest and other income (54,929) (45,335) (181,487) (66,122)
------------ ------------ ------------ ------------
423,739 (38,067) 600,543 (55,417)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION (CREDIT)
FOR INCOME TAXES (265,656) 38,067 (272,656) 55,417
Provision (credit) for income taxes - - - -
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (265,656) 38,067 (272,656) 55,417
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss from operations of public safety division disposed of (1,117,758) (460,778) (2,526,492) (954,455)
Loss from operations of network marketing division
disposed of (1,379,488) - (3,233,179) -
------------ ------------ ----------- ------------
(2,497,246) (460,778) (5,759,671) (954,455)
------------ ------------ ------------ ------------
NET LOSS $ (2,762,902) $ (422,711) $ (6,032,327) $ (899,038)
============ ============ ============ ============
BASIC (LOSS) PER COMMON SHARE:
Continuing operations $ (.07) $ .01 $ (0.07) $ .02
Discontinued operations (.65) (.15) (1.53) (.33)
------------ ------------ ------------ ------------
$ (.72) $ (.14) $ (1.60) $ (.31)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 3,857,380 2,936,312 3,763,554 2,888,445
============ ============ ============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1999 1998
--------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers $ 2,763,074 $ 530,102
Cash paid to suppliers and employees (6,193,344) (1,530,131)
Interest paid (6,473) (10,705)
Interest and other income received 181,487 66,122
----------- -------------
Net cash (utilized) by operating activities (3,255,256) (944,612)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans and advances (120,000) -
Purchase of fixed assets (181,065) (16,019)
----------- -------------
Net cash (utilized) by investing activities (301,065) (16,019)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from offering of shares - 4,743,462
Repayment of officer's loan (50,000) (50,000)
Payments of capital lease obligations (6,166) (2,782)
Proceeds from exercise of stock options 384,000 14,335
----------- -------------
Net cash provided by financing activities 327,834 4,705,015
----------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,228,487) 3,744,384
Cash and cash equivalents, at beginning of year 4,378,400 3,081,253
----------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,149,913 $ 6,825,637
=========== =============
RECONCILIATION OF NET (LOSS) TO NET CASH (UTILIZED)
BY OPERATING ACTIVITIES:
Net (loss) $(6,032,327) $ (899,038)
Adjustments to reconcile net (loss) to net cash (utilized) by operating activities:
Depreciation and amortization 58,091 41,406
Deferred rent (2,390) 162
Write-off of impaired loan 593,941 -
Compensatory shares 1,389,315 81,696
Gain on sale of securities 103,100 -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 97,039 (41,687)
Decrease (increase) in prepaid expenses and other assets 160,206 (17,386)
(Increase) in inventory (38,379) -
Increase (decrease) in accounts payable and accrued expenses 352,521 (145,664)
Increase in deferred revenue 63,627 35,899
----------- -------------
NET CASH (UTILIZED) BY OPERATING ACTIVITIES $(3,255,256) $ (944,612)
=========== =============
</TABLE>
See notes to 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 June 1999, the Company was engaged
in two lines of business. In one, the Company, through its
wholly owned subsidiary e.TV Commerce, Inc., ("e.TV") 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. The
Company entered into this business since January 8, 1999. In
its other line of business, the Company was engaged in the
designing, developing, licensing, installing and servicing
computer software products and systems predominantly for public
safety and law enforcement agencies.
At December 31, 1998, the Company had written down a loan
receivable from LocalNet Communications, Inc., ("LocalNet") 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, an
unaffiliated Florida corporation, to e.TV, a newly formed
subsidiary of the Company. On January 8, 1999, LocalNet
peacefully surrendered the assets representing the collateral
underlying this loan. The fair value of the assets received
aggregated $244,000 (including cash of $83,778) and accordingly
the Company recorded a further write-down of the loan of
approximately $592,000 which also includes additional advances
made in 1999.
In May 1999, the Company decided to divest itself of its public
safety software business and on July 2, 1999, subsequent to the
balance sheet date, the Company consummated the sale of this
division to an unaffiliated third party. 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 shall be 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.
On June 29, 1999, e.TV discontinued it's network referral
marketing operations in order to focus on developing Internet
related products and services and selling them through retail
channels. In July 1999, subsequent to the balance sheet date,
e.TV sold its independent representative database and assigned
its long distance business to another network marketer of
telecommunication products for $250,000 in cash.
See Note 3 for additional subsequent events.
As a result of the events and transactions described above, the
operations of these two divisions are being accounted for as
discontinued operations and accordingly, amounts in the
financial statements for all periods shown have been restated
to reflect discontinued operations accounting.
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.
6
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY (Continued):
In the opinion of management, the accompanying unaudited
interim consolidated condensed financial statements of
Compu-DAWN, Inc., contain all adjustments necessary to present
fairly the Company's financial position as of June 30, 1999 and
the results of its operations for the three and six month
periods ended June 30, 1999 and 1998, and its cash flows for
the six month periods ended June 30, 1999 and 1998.
The results of operations for the three and six month periods
ended June 30, 1999 and 1998 are not necessarily indicative of
the results to be expected for the full year.
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 common shares, respectively, as provided for
in the agreements.
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 issued 62,500 shares of common stock
to a former officer as consideration for consulting services
valued at $312,500. These shares were issued from the Company's
treasury. In June 1999, in connection with an amended and
restated termination agreement, this officer received an
additional 75,000 shares of common stock, valued at $350,000.
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
converted such shares into 120,000 shares of common stock as
provided for in the agreements.
NOTE 3 - POTENTIAL ACQUISITION:
On July 30, 1999, subsequent to the balance sheet date, the
Company signed an Asset Purchase Agreement to acquire
substantially all tangible and intangible assets of Global PC,
Inc. ("Global PC") of Alameda, California. Global PC, Inc. is a
co-developer and worldwide licensee of GEOS, a simplified, user
friendly, low cost computer operating system and software
suite. A closing of the asset purchase is based on several
conditions being met, including, among others, completion of
satisfactory due diligence by the Company, the determination of
the Company's board of directors that the transaction is fair
to the Company and its stockholders, and obtaining an
assignment of the GEOS license agreement which contains terms
satisfactory to the Company.
7
<PAGE>
Compu-DAWN, Inc. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - POTENTIAL ACQUISITION (Continued):
In consideration for the assets and the assumption of certain
liabilities from Global PC the Company has agreed to issue a
number of Common Shares 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 385,000 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 Global PC 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") (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 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.
On June 22, 1999, the Company received a secured promissory
note from Global PC in the amount of $135,000. Advances made
pursuant to this note bear interest at an annual rate of 10%
and are payable one year from the date of the loan. As of June
30, 1999, the Company had advanced an aggregate of $120,000
under this note.
8
<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 name Compu-DAWN, Inc. on October 18, 1996.
During the first two quarters of fiscal 1999, the Company was
engaged in two lines of business. In one, the Company engaged
in the designing, developing, licensing, installing and serving
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 shall be 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.
On June 29, 1999, e.TV discontinued it's network referral
marketing operations 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
that (a) anticipated second quarter of 1999 revenues from
e.TV's operations would not be realized, (b) second quarter
revenues were relatively flat compared to first quarter
revenues, (c) the third quarter, which includes the summer
months, is historically slow in the network referral industry
as compared to the rest of the year, (d) the Company would
require a substantial capital infusion and management time
commitment to sustain e.TV's operations at current levels and
to possibly achieve future growth and (e) even with a
substantial capital infusion, a growth in e.TV's revenues are
not assured in the short or long term. The Company was able to
reduce cost of goods and moderately decrease overhead, however
these savings were not significant enough to overcome the
decline in e.TV's gross receipts.
In July 1999, e.TV 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. Through this
arrangement, the Company believes e.TV's former independent
network referral representatives will continue to receive their
residual commissions they established with UniDial while
continuing to build their home based business, provided that
the former e.TV independent representative is a representative
with the assigned network marketing company.
On July 30, 1999, the Company signed an Asset Purchase
Agreement to acquire substantially all tangible and intangible
assets of Global PC, Inc. ("Global PC") of Alameda, California.
Global PC, Inc. is a co- developer and worldwide licensee of
GEOS, a simplified, user friendly, low cost computer operating
system and software suite. The Global PC technology offers
complete software solutions including the operating system and
a set of applications such as: an Internet browser, email
capabilities, word processing, spreadsheet functionality and
gaming. The software will reside in a low cost "easy-to-use"
personal computer (the "Global PC Device") targeted for
residential users. A closing of the asset purchase is based on
several conditions being met, including, among others,
completion of satisfactory due diligence by the Company, the
determination of the Company's board of directors that the
transaction is fair to the Company and its stockholders, and
obtaining an assignment of the GEOS license agreement which
contains terms satisfactory to the Company. Upon consummating
the acquisition of Global PC, Inc. the Company plans to enter
into agreements with mass merchant and other retailers. The
Global PC appliance is anticipated to enter retail channels in
the fourth quarter of 1999.
9
<PAGE>
Following the closing of the purchase of assets from Global PC,
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 Global PC 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 Global PC 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.
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. The
Company is currently seeking strategic partners to manufacture
the Global PC product. Currently, no such relationship is in
place. Accordingly, in order to meet the anticipated fourth
quarter 1999 projected sales demands, the Company is in the
process of establishing a relationship with an unaffiliated
third party to outsource its manufacturing efforts.
The Company expects revenue, beginning in the fourth quarter of
1999, from five key areas:
o Monthly online subscription fees - Internet subscription
revenue bundled with the sale of the Global PC appliance.
o Banner advertising - the sale of advertising.
o 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
vendors web site.
o License royalties - revenue derived from the Company's
manufacturing partner who will manufacture the Global PC
product on an OEM basis
o 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 Global PC the Company has agreed to issue a
number of Common Shares 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 385,000 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 Global PC 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: (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.
10
<PAGE>
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 Commerce,
Inc. 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 June 30, 1999, from
continuing operations, were $158,000 as compared to $0 for the
three months ended June 30, 1998 and $328,000 for the six-month
period ended June 30, 1999 versus $0 for the same period in the
previous year. The revenue is primarily comprised of Internet
subscription fees of the e.TV Commerce, Inc., subsidiary
Costs and Expenses:
The total costs and expenses for the three-month period ended
June 30, 1999 were $479,000 as compared to $7,000 for the
comparative period of the prior year. Additionally, the
Company's total costs and expenses for the six-month period
ended June 30, 1999 and 1998 were $783,000 and $11,000,
respectively. The costs and expenses are directly related to
those charges supporting the Internet access book of business.
The Company's second quarter consolidated operating loss from
continuing operations for 1999 was $266,000 as compared to
income of $38,000 for the same period in 1998 and for the
six-month period ended June 30, 1999 the consolidated operating
loss was $273,000 versus income of $55,000 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.
Interest and other income for the three-month period ended June
30, 1999 aggregated approximately $55,000 as compared to
approximately $45,000 for the same period in 1998. The six
month balances were $181,000 and $66,000 for 1999 and 1998,
respectively. These increases were due to the increase in cash
which resulted from the Company's private offering of preferred
stock during 1998.
Income (Loss)
For the three months ended June 30, 1999 the Company reflected
a net loss of $2,763,000 ($.72 per share) as compared to a loss
of $423,000 ($.14 per share) for the corresponding period of
the previous year. For the six-month period ended June 30,
1999, the Company realized a net loss of $6,032,000 ($1.60 per
share) as compared to a loss of $899,000 ($.31 per share) for
the six-month period ended June 30, 1998.
These losses are primarily a result of the operating losses
sustained by the discontinued businesses (discussed earlier)
which reflected aggregate losses of $2,497,000 and $5,760,000
for the three and six month periods ended June 30, 1999,
respectively.
Also impacting the above mentioned one-time events, is the
mutually agreed upon termination of the Company's President,
Chief Executive Officer and Secretary, Mark Honigsfeld. During
the period, Mr. Honigsfeld received $167,000 in cash and 75,000
shares (valued at $350,000) 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.
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Liquidity and Capital Resources
At June 30, 1999, the Company had working capital of $757,215,
a current ratio of 1.86:1 and a debt to net worth ratio of
.8:1. At its year ended December 31, 1998, the Company had
working capital of $5,102,248, 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 current period.
Based on historical performance, the Company anticipates it
will need additional capital in approximately 30 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 currently exploring sources of
capital, including debt and equity investments. Currently the
Company has not identified any investors, and if the Company
does, there can be no assurance that any investor will make a
debt or equity investment in the Company. If an investment is
made, the Company cannot assure that it 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 30
days, it will not be able to continue to develop its current
business plan. Consequently, the Company will have to scale
back its operations.
Additionally, the Company's warrants to purchase 389,200 Common
Shares which were issued in a bridge financing transaction in
December 1996 are currently exercisable at $3.00 per share.
Although the Company hopes the warrants will be exercised, if
the market price of the Company's publicly traded Common Shares
is less than $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 six months ended June 30, 1999, the Company utilized
cash for operating activities of $3,255,256. For the
corresponding period of the prior year the Company used cash
for operating activities of $944,612.
The Company utilized cash of approximately $301,000 during the
six months ended June 30, 1999 for investing activities
primarily to acquire fixed assets. The Company also advanced
$120,000 to Global during the current period.
Cash provided by financing activities during the six-month
period ended June 30, 1999 was primarily a result of the
exercise of stock options. For the six months ended June 30,
1998, the Company received cash from an offering of shares.
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Year 2000 Issues
The Year 2000 ("Y2K") problem is the result of computer
programs being written using two digits (rather than four) to
define the applicable year. Any of 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 expects to
be fully Y2K compliant with respect to all significant business
systems prior to May 31, 1999.
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 is in the process of developing a
"worst-case scenario" with respect to Y2K noncompliance and to
develop 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.
The Company intends to request assurances of Y2K readiness from
its telephone and electrical suppliers. However, management has
been informed that some suppliers have either declined to
provide the requested assurances, or have limited the scope of
assurances that they are willing to give. 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.
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," 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 near term to continue to develop and sustain business at
current levels, the ability of the Company to consummate the
acquisition of the Global PC assets, the ability of the Company
to partner with a manufacturer to produce the Global PC 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
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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 ("SEC") 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.
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PART II
OTHER INFORMATION
ITEM 2. Changes in Securities
The Company sold the following unregistered securities during
the period covered by this report.
On May 11, 1999, the Company transferred out of treasury
62,500 Common Shares to Mark Honigsfeld ("Honigsfeld") pursuant to a Consulting
Agreement dated May 11, 1999 (the "Honigsfeld Consulting Agreement") between the
Company and Honigsfeld.
On June 22, 1999 the Company issued 75,000 Common Shares to
Honigsfeld pursuant to the Amended and Restated Termination Agreement relating
to the termination of Honigsfeld's employment agreement with the Company and the
termination of Honigsfeld Consulting Agreement.
These transactions were private transactions not involving a
public offering and were exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof. The Company determined that
Mark Honigsfeld was an accredited and sophisticated investor. Such issuances of
Common Shares was 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.
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 Termination Agreement dated May 11, 1999 between the
Company and Mark Honigsfeld.
10.2 Consulting Agreement dated May 11, 1999 between the
Company and Mark Honigsfeld.
10.3 Amended and Restated Termination Agreement dated July 2,
1999 between the Company and Mark Honigsfeld.
10.4 Assets Purchase Agreement dated July 2, 1999 between the
Company and Admit Computer Systems, Inc.
10.5 Purchase Agreement dated July 15, 1999 between e.TV
Commerce, Inc. and the Free Network, Inc.
11 Computation of Earnings Per Common Share.
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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.
*** 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.
(b) Current Report on Form 8-K
Current Reports on Form 8-K were filed by the Company during the three
month period ended June 30, 1998 as follows:
Date of Event: May 12, 1999
Item Reported: 5
Date of Event: June 9, 1999
Item Reported: 5
Date of Event: June 29, 1999
Item Reported: 5
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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: August 16,1999 Compu-DAWN, Inc.
By: /s/ R.E. (Teddy) Turner, IV
-------------------------------
Chairman of the Board
/s/ David Greenspan
-------------------------------
Chief Financial Officer
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TERMINATION AGREEMENT
TERMINATION AGREEMENT dated as of May 11, 1999 between MARK HONIGSFELD
(hereinafter the "Executive"), residing at 969 East End, Woodmere, New York
11598 and COMPU-DAWN, INC., a Delaware corporation ( the "Company"), having its
principal place of business at 77 Spruce Street, Cedarhurst, New York 11516.
RECITALS
WHEREAS, Executive is employed by the Company as its President, Chief
Executive Officer and Secretary in accordance with a Restated and Amended
Employment Agreement dated March 4, 1997, as amended as of January 8, 1999 ( the
"Employment Agreement").
WHEREAS, Executive and the Company desire to terminate the Employment
Agreement on the basis herein provided.
NOW, THEREFORE, upon the agreements and covenants set forth herein, the
parties hereto agree as follows:
1. Employment Termination. The parties acknowledge and agree that,
effective at the close of business on the date hereof, the Executive's
employment with the Company as its President, Chief Executive Officer and
Secretary is hereby terminated. Accordingly, the Employment Agreement is hereby
terminated and of no further force or effect, and neither the Executive nor the
Company shall have any further liability or obligation thereunder, except for
any salary and benefits which are earned, accrued and unpaid as of the date
hereof.
2. Payments; Accounting.
(a) For and in consideration of the Executive's entering into this
Termination Agreement and performing his obligations hereunder, the Company
agrees to pay to Executive:
(i) the sum of Five Hundred Thousand Dollars ($500,000) (the
"Base Termination Amount"). The Base Termination Amount shall be
payable as follows:
(A) One Hundred Thousand Dollars ($100,000) payable to the
Executive simultaneously with the execution and delivery hereof;
and
(B) Four Hundred Thousand Dollars ($400,000) payable,
subject to the provisions of Section 3 hereof, in twelve (12)
equal semi-monthly installments of Thirty-Three Thousand Three
Hundred Thirty-Three Dollars and Thirty-Three Cents ($33,333.33).
Each such monthly installment shall be payable at the same time
and in the same manner
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as payments of the Company's normal payroll cycle, but not less
than semi-monthly.
(ii) In addition to the Base Termination Amount, in the event the
Company sells its Public Safety Business (as defined in Section 3
hereof), it is contemplated that such sale shall provide for the
payment by the buyer thereof (the "Buyer") to the Company of a royalty
(the "Royalty") based on the revenues derived by the Buyer from the
sale or licensing of products and/or assets acquired in connection
with its purchase of the Public Safety Business, or derived from
services related to the sale of such products and/or assets. In such
event, the Company shall pay the Executive an amount equal to eighty
percent (80%) of the Royalty, (the "Installment Termination Amount"
and, together with the Base Termination Amount, the "Termination
Amount"), for so long as the Royalty shall be payable by the Buyer,
subject to the provisions of Section 3 hereof.
(b) The Company shall irrevocably direct the Buyer of the Public
Safety Business to pay that portion of the Royalty comprising the
Installment Termination Amount directly to the Executive contemporaneously
with the Buyer's payment of the balance of the Royalty to the Company. The
Company agrees to execute an irrevocable collateral assignment or other
documents sufficient to insure assignment of the Installment Termination
Amount, if deemed necessary by the Executive.
(c) The Company shall designate the Executive as one of its duly
authorized representatives to review and audit the books of account of the
Buyer, or otherwise conduct an accounting of the Buyer with respect to the
Royalty, pursuant to any right to any accounting the Company obtains with
respect to the Royalty in any Agreement between the Company and the Buyer
relating to the sale of the Public Safety Business (a "Public Safety Sale
Agreement"). The Company hereby covenants that it will include an
accounting provision in the Public Safety Sales Agreement which allows the
Company to conduct an accounting of the Buyer with respect to the
Royalties.
(d) The Company shall pay all of the reasonable legal fees and
expenses of the Executive incurred by him in connection with the
negotiation, preparation and delivery of this Termination Agreement
including, without limitation, all reasonable fees and expenses due and
payable to Jackson Walker L.L.P. in connection herewith.
3. Acceleration of Payment of Termination Amount. The Company and the
Executive acknowledge that the Company is negotiating the sale of its business
of designing, developing, licensing, installing and servicing computer software
products and systems predominantly for public safety and law enforcement
agencies (the "Public Safety Business"). The Company hereby agrees that, if a
sale of the Public Safety Business is consummated prior to the payment to the
Executive of the Base Termination Amount, the obligation to make the payments
contemplated by Section 2(a)(i)(B) above shall be accelerated, and all such
payments remaining shall, three (3) days after the consummation of such sale, be
due and payable to Executive, out of the proceeds of such sale. The Company and
the Executive further agree that if the proceeds of the sale of the Public
Safety Business are insufficient to fund such payments, such proceeds shall
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<PAGE>
nevertheless be applied in full and in reverse order of payment toward the
payment of the Base Termination Amount, and any balance of the Termination
Amount remaining shall be payable to the Executive in the manner contemplated by
Section 2(a)(i)(B) above in semi-monthly installments of $33,333.33 until the
Base Termination Amount has been paid in full (such installment may be less if a
lesser amount will pay the remaining Base Termination Amount in full).
4. Security Interest.
(a) The Company hereby grants to the Executive a valid and binding
security interest in any and all tangible and intangible assets in which
the Company has or shall have an interest, now or hereafter existing or
acquired, and wherever located, together with all additions and accessions
thereto and replacements and substitutions thereof and all proceeds and
products of the foregoing, as security for the payment or performance of
the obligations of the Company to the Executive hereunder. Simultaneously
with the execution of this Agreement, the parties are entering into First
Amendment to Security Agreement to evidence the security interest granted
herein.
(b) Notwithstanding the foregoing, the Executive shall relinquish his
security interest in, and consent to the transfer of, assets of the Company
comprising the Public Safety Business in connection with a bona fide sale
thereof; provided, however, that such consent shall be conditioned upon the
Executive receiving an assignment (the "Assigned Security Interest") from
the Company to the Executive of all of the Company's rights and interest in
a security agreement between the Company and the Buyer contemplated to be
entered into in connection with such sale. The parties hereto agree to
amend, or cause to be amended, any UCC Financing Statement naming the
Executive as the Secured Party and the Company as the Debtor presently
filed against the assets of the Company to reflect the provisions of this
Termination Agreement, if deemed reasonably necessary by the Executive. The
Assigned Security Interest shall terminate upon the earlier to occur of (i)
the fulfillment of the Company's obligation to pay the Termination Payment
or (ii) the termination and/or fulfillment of any and all obligations of
the Buyer to the Company in connection with the sale of the Public Safety
Business.
5. Resignation. By executing this Termination Agreement, the Executive
voluntarily resigns, effective immediately, from all capacities and positions
with the Company, including but not limited to the offices of Chief Executive
Officer, President and Secretary and Director of the Company, the Chief
Executive Officer, Secretary, and Director of e.TV Commerce, Inc., and all
officerships and directorships of Rugby Acquisition Corp. and ETEL
Communications Corp.
6. Representations of the Executive. The Executive represents, warrants,
and agrees with the Company as follows:
(a) To his knowledge, after due investigation, no consents of
governmental and other regulatory agencies, foreign or domestic, or of
other parties, are required to be received by or on the part of the
Executive to enable him to enter into and carry out this Agreement and the
transactions contemplated hereby.
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<PAGE>
(b) The Executive has the power to enter into this Agreement and to
carry out his obligations hereunder. This Agreement constitutes the valid
and binding obligation of the Executive, and is enforceable in accordance
with its terms.
(c) There is no unfulfilled agreement or commitment, written or oral,
made by the Executive for or on behalf of the Company pursuant to which the
Company is obligated to pay more than $5,000 singly, or $15,000 in the
aggregate, or which contractually restricts in any way the Company's
ability to enter into any agreement in the future (i) that since December
31, 1998 has not been disclosed in writing to the Company and (ii) prior to
December 31, 1998 has not been disclosed in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998 or the audited annual
financial statements of the Company in connection therewith.
(d) There is no liability or obligation incurred on behalf of the
Company by the Executive that has not been disclosed in writing to the
Company.
(e) No acts or omissions finally determined by a court of competent
jurisdiction prior to or following the date hereof to constitute fraud,
gross negligence, or other illegality which has a material adverse effect
on the Company, have been committed by the Executive for or on behalf of,
or in his capacity as a director or officer of, the Company.
(f) Neither the execution and delivery of this Agreement, nor
compliance by the Executive with any of the provisions hereof, nor the
consummation of the transactions contemplated hereby, will:
(i) violate any judgment, order, injunction, decree or award
against, or binding upon, the Executive;
(ii) violate or otherwise breach the terms of any agreement or
understanding, written or oral, to which the Executive is a party or
is otherwise bound; or
(iii) violate any law or regulation of any jurisdiction relating
to the Executive.
(g) No representation, warranty or statement by the Executive in this
Agreement intentionally 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 misleading.
7. Representations of the Company. The Company represents, warrants, and
agrees with the Executive as follows:
(a) To the Company's knowledge, after due investigation, no consents
of governmental and other regulatory agencies, foreign or domestic, or of
other parties, are required to be received by or on the part of the Company
to enable it to enter into and carry out this Agreement
4
<PAGE>
and the transactions contemplated hereby.
(b) The Company has the requisite 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
the Company, and no other corporate proceedings 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 the Company, and is enforceable in accordance with
its terms.
(c) Neither the execution and delivery of this Agreement nor
compliance by the Company with any of the provisions hereof, nor the
consummation of the transactions contemplated hereby, will:
(i) violate the Certificate of Incorporation or By-Laws of the
Company;
(ii) violate any judgment, order, injunction, decree or award
against, or binding upon, the Company;
(iii) violate or otherwise breach the terms of any agreement or
understanding, written or oral, to which the Company is a party or is
otherwise bound; or
(iv) violate any law or regulation of any jurisdiction relating
to the Company.
(d) No representation, warranty or statement by the Company 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 misleading.
8. Restrictive Covenants. (a) The Executive covenants that for a period of
twenty-four (24) months following the date hereof, he will not, either directly
or indirectly, (i) disclose or otherwise make known to any person or entity the
names and addresses of any of the customers of the Company, or (ii) call on,
solicit, or take away, or attempt to call on, solicit, or take away, any of the
customers of the Company or its subsidiaries with whom he became acquainted
during his employment with the Company, either for himself or for any other
person, firm, corporation or other entity.
(b) The Executive acknowledges that the Company and/or its
subsidiaries have developed unique skills, concepts, sales presentations,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, technical information, proprietary
information, computer software programs, tapes and disks concerning its or
their operations, systems, customer lists, customer leads, documents
identifying past, present and future customers, hiring and training
methods, investment policies, financial and other confidential and
proprietary information concerning its operations and expansion plans
("Trade Secrets"). The Executive agrees and covenants that, except with the
prior written consent of the Company, the Executive shall not, directly or
indirectly, use for the Executive's own benefit or for the benefit of
another, or disclose,
5
<PAGE>
disseminate, or distribute to another, any Trade Secret (whether or not
acquired, learned, obtained, or developed by the Executive alone or in
conjunction with others) of the Company or its subsidiaries. All memoranda,
notes, records, drawings, documents, or other writings whatsoever
(including copies thereof) made, compiled, acquired, or received by the
Executive during his employment by the Company, arising out of, in
connection with, or related to any activity or business of the Company or
its subsidiaries, including, but not limited to, the customers, suppliers,
or others with whom the Company or its subsidiaries has a business
relationship, the arrangements of the Company or its subsidiaries with such
parties, and the pricing and expansion policies and strategy of the Company
or its subsidiaries, are, and shall continue to be, the sole and exclusive
property of the Company and its subsidiaries, and shall be returned to the
Company within five (5) days of the execution of this Agreement.
(c) The Executive hereby covenants and agrees that for a period of
twenty four (24) months following the date hereof, he will not, either
directly or indirectly, as an employee, employer, consultant, agent,
principal, partner, shareholder (other than through ownership of publicly
traded capital stock of a corporation which represents less than five
percent (5%) of the outstanding capital stock of such corporation),
corporate officer, director, investor, financier or in any other individual
or representative capacity, engage or participate in any business which is
directly competitive with the business of the Company or any of its
subsidiaries in the Internet service provider, e-commerce and
telecommunications business marketing products and services through a
multi-level referral network marketing organization.
9. Other Agreements. (a) The parties hereto acknowledge and agree that,
except as expressly provided in, or contemplated by, this Termination Agreement,
and except for (i) any rights of indemnification to which the Executive may be
entitled by law or under the By-Laws or Certificate of Incorporation of the
Company, and any rights of indemnification to which the Executive is entitled
pursuant to the Indemnification Agreement by and between the Executive and the
Company (the "Indemnification Agreement"), (ii) the obligation of the Company to
pay to the Executive [Twelve Thousand Five Hundred Dollars ($12,500) ]in
principal amount, plus interest, pursuant to that certain Amended and Restated
Loan Agreement dated April 30, 1997, by and between the Company and the
Executive (the "Loan Agreement"), and (iii) unreimbursed expenses of the
Executive, which the Company hereby agrees to pay, there are no outstanding
unfulfilled contracts, commitments, or other obligations of whatsoever nature as
between the Executive and the Company or any outstanding indebtedness owed by
either party to the other; and the parties hereto hereby further agree that any
and all disputes, claims, open accounts and other unresolved matters with
respect to any of the foregoing which may exist on the date hereof, shall be,
and hereby are, in all respects resolved, satisfied and settled as between the
parties.
(b) Simultaneously with the execution and delivery hereof, the parties
shall enter into a Consulting Agreement pursuant to which the Executive
shall agree to provide consulting services to the Company, upon the terms
and conditions, and for the consideration, set forth in the Consulting
Agreement in or substantially in, the form annexed hereto as Exhibit 9(b)
(the "Consulting Agreement").
(c) The Company shall, at its expense, provide to the Executive until
at least
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December 31, 1999, such office space at its executive offices in
Cedarhurst, New York (the Cedarhurst Premises") as shall, in the reasonable
opinion of the Board of Directors, be suitable and adequate for the
Executive's use and shall be comparable in amenities to, his current office
space. In the event that the Company subleases or reconfigures the
Cedarhurst Premises prior to such date, the Company shall provide to the
Executive an amount of space and amenities approximately equivalent to
those provided to the Executive before such sublease or reconfiguration.
The foregoing notwithstanding, the Company shall have no obligation to
provide the Executive with such office space if, and from the time that,
the Company subleases the entire Cedarhurst Premises to an unaffiliated
third party.
(d) The Company hereby agrees to employ Gina Shaughnessy
("Shaughnessy") through at least December 31, 1999, and as full
compensation for services rendered by Shaughnessy shall pay to her the
salary, and provide the benefits, currently being received by her as of the
date hereof. In the event that the Company terminates Shaughnessy's
employment on or after December 31, 1999, and Shaughnessy is not employed
by the Executive or by any affiliate of the Executive within one week of
such termination, Shaughnessy shall be entitled to receive a severance
payment in an amount equal to three month's salary, payable by the Company
within seven (7) days of such termination. During the period of
Shaughnessy's employment, the Company shall allow the Executive the use of
the services of Gina Shaughnessy as required by the Executive, provided
however that the Company may utilize a reasonable amount of Shaughnessy's
working time and under the supervision of the Executive from time to time
during normal business hours to attend to certain administrative matters of
the Company of the same nature as those matters which Shaughnessy currently
attends.
10. Releases.
(a) The Company hereby remises, releases, and forever discharges and
by these presents does for itself and its successors and assigns, remise,
release, and forever discharge the Executive and his heirs, successors and
assigns from all manner of action and actions, cause and causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, executions, claims and demands
whatsoever, in law or in equity, which it ever had, now has or which may
hereafter accrue or which it, its successors or assigns, hereafter can,
shall or may have for, upon or by reason of any matter from the beginning
of the world to the day of the date of these presents; provided, however,
it is confirmed herewith that this release does not affect the rights or
obligations of the Company or the Executive under or pursuant to (i) the
Consulting Agreement, (ii) the Loan Agreement the related Security
Agreement, the associated promissory note and other related documents,
(iii) the Indemnification Agreement, or (iv) this Termination Agreement
(the "Excluded Agreements").
(b) The Executive hereby remises, releases, and forever discharges and
by these presents does for himself and his successors and assigns, remise,
release, and forever discharge the Company, its subsidiaries, affiliates,
directors, officers and stockholders (collectively, the "Company
7
<PAGE>
Releasees") and successors and assigns of Company Releasees from all manner
of action and actions, cause and causes of action, suits, debts, dues, sums
of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses,
damages, judgments, executions, claims and demands whatsoever, in law or in
equity, which the Executive ever had, now has or which may hereafter accrue
or which the Executive, his successors or assigns, hereafter can, shall or
may have for, upon or by reason of any matter from the beginning of the
world to the day of the date of these presents; provided, however, it is
confirmed herewith that this release does not affect the rights or
obligations of the Executive or the Company Releasees under or pursuant to
the Excluded Agreements.
(c) The Company and the Executive affirm that no representation of
fact or opinion has been made to induce the giving of the releases provided
by this Section 10 (the "Releases") other than as specifically set forth
herein and that it is therefore specifically agreed that the Releases shall
be a complete bar to any and all claims, suits or damages whatsoever, other
than with respect to the Excluded Agreements.
11. Nondisparagement. The Company agrees that neither the Company nor any
officer, director, employee, consultant, affiliate or agent of the Company shall
make any statement, written or oral, to any person or entity, or otherwise in
general to the public, or to the business or financial community, or take any
action, directly or indirectly, that disparages or is likely to diminish the
reputation of the Executive, or which could adversely affect the ability of the
Executive to enter into or consummate any business transaction, or the business
or reputation of the Executive; provided, however, that the foregoing shall not
preclude the Company from making any statement which is required (i) to
accurately comply with a court order, subpoena or other discovery necessary in
an action or proceeding in a court of competent jurisdiction, or (ii) by an
administrative agency or the Nasdaq Stock Market, Inc., or (iii) to accurately
comply with the Company's reporting requirements under the Securities Exchange
Act of 1934, as amended.
12. Choice of Law and Venue. The parties agree that this Termination
Agreement is made and entered into in Nassau County, New York and shall be
governed by and construed in accordance with the laws of the State of New York,
and that any litigation, special proceeding or other proceeding as between the
parties that may be brought, or arise out of, in connection with or by reason of
this Termination Agreement shall be brought in the applicable state court in and
for Nassau County, New York which Courts shall be the exclusive courts or
jurisdiction and venue.
13. Entire Agreement. This Termination Agreement contains the full and
complete understanding and agreement of the parties hereto with respect to the
subject matter contained herein and supersedes all prior or contemporaneous
written or oral understandings or agreements with respect to the subject matter
hereof. No modification of this Termination Agreement shall be binding unless
made in writing and signed by the party sought to be charged.
14. Binding Effect. This Termination Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors, assigns and legal representatives.
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Shaugnessy is an intended third-party beneficiary of Section 9(d) hereof.
15. Equitable Relief; Breach. The Executive acknowledges and agrees that,
in the event the Executive shall violate or threaten to violate any of the
restrictions of Section 8 hereof, the Company will be without an adequate remedy
at law and will therefore be entitled to enforce such restrictions by temporary
or permanent injunctive or mandatory relief in any court of competent
jurisdiction without the necessity of proving damages and without prejudice to
any other remedies which it may have at law or in equity, it being understood
that such remedy shall be in addition to any other remedies which the Company
may have at law or in equity.
17. Waiver; Severability. The waiver by either party of a breach of any
provision of this Termination Agreement shall not operate or be construed as a
waiver of any subsequent breach. If any provision of this Termination Agreement,
or part thereof, shall be held to be invalid or unen forceable, such invalidity
or unenforceability shall attach only to such provision and not in any way
affect or render invalid or unenforceable any other provisions of this
Termination Agreement, and this Termination Agreement shall be carried out as if
such invalid or unenforceable provision, or part thereof, had been reformed, and
any court of competent jurisdiction is authorized to so reform such invalid or
unenforceable provision, so that it would be valid, legal and enforceable to the
fullest extent permitted by applicable law.
18. Notices; Deliveries. Any notice, delivery or other communication
required or permitted hereunder shall be sufficiently given if delivered by hand
or sent by certified mail, return receipt requested, facsimile transmission,
overnight mail or nationally recognized overnight courier, addressed as follows:
If to the Company:
c/o e.TV Commerce, Inc.
12735 Gran Bay Parkway West, Bldg. 200
Jacksonville, Florida 32241
Attention: Chairman of the Board
Telecopier Number: (904) 680-6442
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Gavin C. Grusd, Esq.
Telecopier Number: (516) 296-7111
If to the Executive:
969 East End
Woodmere, New York 11598
Telecopier Number: (516) 569-7639
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<PAGE>
with a copy to:
Jackson Walker L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
Attention: Charles Maguire, Esq.
Telecopier Number: (214) 953-5822
or such other address as shall be furnished in writing by either party, and any
notice, delivery or communication given pursuant to the provisions hereof shall
be deemed to have been given as of the date delivered or so mailed or
transmitted.
19. Counterparts; Headings. This Termination Agreement may be executed in
counterparts, each of which shall be an original, but all of which taken
together shall constitute one agreement. The headings contained in this
Termination Agreement are solely for the convenience of the parties, and are not
intended to and do not limit, construe or modify any of the terms and conditions
hereof.
20. Waiver of Jury Trial. THE COMPANY AND THE EXECUTIVE ACKNOWLEDGE THAT
THE RIGHT TO A TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY
BE WAIVED. THE COMPANY AND THE EXECUTIVE EACH KNOWINGLY, VOLUNTARILY,
IRREVOCABLY AND WITHOUT COERCION, WAIVES ALL RIGHTS TO TRIAL BY JURY OF ALL
DISPUTES BETWEEN THEM. NEITHER THE COMPANY NOR THE EXECUTIVE SHALL BE DEEMED TO
HAVE GIVEN UP THIS WAIVER OF JURY TRIAL UNLESS THE PARTY CLAIMING THAT THIS
WAIVER HAS BEEN RELINQUISHED HAS A WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY
STATING THAT THIS WAIVER HAS BEEN GIVEN UP. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY THE COURT.
IN WITNESS WHEREOF, the parties have executed this Termination Agreement as
of the day and year first above written.
COMPU-DAWN, INC.
By:/s/ Robert E. (Teddy) Turner, IV
--------------------------------
Robert E. (Teddy) Turner, IV
Chairman of the Board
/s/ Mark Honigsfeld
--------------------------------
MARK HONIGSFELD
10
<PAGE>
CONSULTING AGREEMENT (the "Agreement") dated as of May 11, 1999 (the
"Effective Date") by and between, COMPU-DAWN, INC., a Delaware corporation (the
"Company") and, MARK HONIGSFELD (the "Consultant").
The Company is engaged in the telecommunications and e-commerce business
(the "Business").
The Company desires to retain the Consultant to perform consulting services
with respect to providing the Company with guidance and advice from time to time
in the general management, administration and operation of the Company, and the
Consultant is willing to perform such services, upon the terms and conditions
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
hereinafter set forth, the parties hereto have agreed, and do hereby agree, as
follows:
1. Retention; Duties. Subject to the terms and conditions set forth herein,
the Company hereby retains the Consultant, and the Consultant hereby accepts
such retention, to act as a consultant with respect to providing the Company
guidance and advice in the areas of management, administration, business
strategy, sales and marketing, from time to time during the term of the
Agreement (as hereinafter defined) as the Company and the Consultant shall
mutually agree. It is acknowledged however that such services shall not include
any services, advice or guidance relating to capital raising related business
strategy, financing, investor relations, shareholder communications, or
promotion of the Company in the securities markets. The Consultant shall also
provide guidance and advice in connection with the negotiation and sale of the
public safety division of the Company. In connection with his services relating
to the sale of the public safety division, the Consultant shall use his best
efforts to close such transaction by June 4, 1999 or as soon as possible
thereafter, and in connection therewith he shall use the same care as he would
if he were the Chief Consultant Officer and a Director of the Company. The
Consultant may provide services in person or by telephone from any location
which is convenient to him. The Consultant will be provided with an office at 77
Spruce Street, Cedarhurst, New York 11516, through during the term of this
Agreement (the "Premises") until the earlier of (i) the date the Company ceases
to lease space in the Premises, or (ii) the day prior to the date the Company
subleases all of its space in the Premises to an unaffiliated third party, or
(iii) December 31, 1999, provided however that after December 31, 1999 and
during the term of this Agreement, Consultant will be allowed to remain in such
office until the earlier of the events described in Section 1(i) or (ii) occurs
or 30 days after receipt by the Consultant of written notice to abandon such
office space. The office provided need not be the Consultant's current office if
the Company either subleases space in the Premises including such current office
or the Company needs the use of such current office for a bona fide business
purpose. However, such office should be comparable in amenities to his current
office space.
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2. Term.
(a) The term of this Agreement shall commence as of the Effective Date
and subject to Sections 2(b), 2(c) and 2(d) below, continue until the last
of any common stock purchase options of the Company (the "Options") granted
to the Consultant prior to the date hereof which are unexercised at the
Effective Date are exercised or expire.
(b) Notwithstanding Section 2(a) above, the Consultant shall have the
right to immediately terminate this Agreement at any time upon thirty (30)
days' prior written notice.
(c) Notwithstanding Section 2(a) above, the Company shall have the
right to terminate this Agreement for "Cause". For purposes of this
Agreement, "Cause" shall include, but not be limited to: (i) the grossly
negligent performance by the Consultant of his duties to the Company, if
such grossly negligent performance is reasonably determined by the
Company's Board of Directors, in good faith, to have had or to be
reasonably likely to have a material adverse effect on the Company's
business, prospects and/or financial condition of the Company; (ii) the
Consultant's commission of any act finally determined by a court of
competent jurisdiction to constitute common law fraud or a felony which has
a materially adverse effect on the Company's business, prospects, financial
condition and/or reputation; (iii) any material misrepresentation or
material breach of any representation made by the Consultant hereunder
which is not cured within thirty (30) days following prior written notice
given by the Company to the Consultant in accordance with Section 9 hereof,
which results in a material adverse effect on the Company, its business,
prospects, or financial condition and/or reputation; or (iv) the
Consultant's engaging in misconduct which is materially injurious to the
Company, its business, operations and/or financial condition. Following any
notice and opportunity to cure contemplated by this Section 2(c) above, the
Company may terminate this Agreement for Cause by giving one (1) day's
prior written notice to the Consultant in accordance with Section 9 hereof.
During the pendency of any good faith action brought in a court of
competent jurisdiction to determine whether any act of the Consultant is a
common law fraud or a felony as described in Section 2(c)(ii), all payments
due to the Consultant hereunder shall accrue and the Consultant may not
exercise any Options without the prior written consent of the Company and
if such court finds that such acts constitute a common law fraud or felony,
the Company may terminate the Agreement for Cause upon one (1) day's notice
as of the date such act was committed. If such act is not deemed to
constitute a common law fraud or felony, the Company shall pay the
Consultant all accrued amounts, the Consultant may exercise his Options in
accordance with the terms hereof, and the Company and Consultant shall
thereafter continue to have all of their rights and obligations hereunder.
(d) This Agreement shall terminate automatically as of the date of the
Consultant's death.
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<PAGE>
3. Compensation.
(a) In compensation for his services hereunder, the Company shall (i)
pay the Consultant fifteen hundred dollars ($1,500) per month during the
term of this Agreement and (ii) shall issue to the Consultant 62,500 Common
Shares of the Company (the "Consulting Shares").
(b) The Company shall provide the Consultant with disability,
hospitalization, accident, major medical, term life insurance in the amount
of $1,000,000, and dental insurance which is the same as that which the
Company is providing to the Consultant as of the day prior to the date
hereof under Section 1.5(c) of the Restated and Amended Employment
Agreement dated as of March 4, 1997, as amended on January 8, 1999
(collectively, the "Employment Agreement") and with respect to disability
insurance, if any, then the same as such disability insurance provided by
the Company to the Consultant prior to the date hereof, until the earlier
of December 31, 1999, or the date the Consultant obtains substantially
similar benefit(s) from a source other than the Company. With regard to the
term life insurance policy referenced above, any annual premium amount in
excess of $3,000 will be paid by the Consultant. Following termination of
this Agreement to the extent the Consultant does not receive any similar
health insurance benefits from a source other than the Company, the Company
shall provide the Consultant with COBRA rights, provided that the Company
is permitted to provide such rights to a consultant, and further provided
that if the Consultant exercises such COBRA rights it will not obligate the
Company to pay anything in connection therewith.
(c) If this Agreement is terminated by the Consultant pursuant to
Section 2(b) hereof, then, the Consultant shall be paid all amounts accrued
but unpaid as of the date on which this Agreement shall terminate, and no
further payments under Section 3(a) hereof shall be made hereunder.
(d) If this Agreement is terminated by the Company pursuant to Section
2(c) hereof, then, the Consultant shall be paid all amounts accrued but
unpaid as of the date on which this Agreement shall terminate, and no
further payments under Section 3(a) hereof shall be made hereunder.
(e) If this Agreement is terminated by operation of Section 2(d)
hereof, then, the Consultant's estate shall be paid all amounts, accrued
but unpaid as of the date on which this Agreement shall terminate, and no
further payments under Section 3(a) hereof shall be made hereunder.
4. Options.
(a) It is hereby acknowledged that services to be provided by the
Consultant pursuant to this Agreement are continuing services to the
Company by a consultant as contemplated in the Company's 1996 Stock Option
Plan and therefore all unexercised options held by the
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<PAGE>
Consultant (the "Options") are immediately vested (if not already vested)
as of the date hereof and shall continue in full force and effect in
accordance with their respective terms.
(b) The Company hereby agrees to reprice the Consultant's Options that
are currently exercisable at more than $3.25 per share (the "Affected
Options") to an exercise price of $3.25 per share, the closing price of the
Company's Common Shares on The Nasdaq SmallCap Market on the date preceding
the Company's Board of Director's authorization of the Company's entry into
this Consulting Agreement, and the Company shall execute and deliver
amended Option Agreements relating to the Affected Options to that effect
as soon as is practicably possible.
5. Registration.
(a) The Company shall prepare and, on or before the thirtieth (30th)
day following the date hereof (the "Filing Date"), file with the Securities
and Exchange Commission (the "SEC") a Registration Statement on Form S-8 or
other appropriate form to effect a registration of (i) the resale of all of
Consulting Shares, and (ii) if requested by the Consultant, to the extent
not precluded by the Securities Act of 1933, as amended (the "Securities
Act"), any rule or regulation promulgated thereunder, the resale of any
Common Shares issued upon the exercise of any of the Options which were
previously registered on the Company's previous Form S-8 registration
statement, which registration provided for hereunder shall follow
deregistration of the resale of such Common Shares under the Company's
previously filed Form S-8 registration statement.
(b) If, subject to Section 5(c), the Registration Statement required
to be filed by the Company pursuant to Section 2(a) hereof is not filed
with the SEC on or before the Filing Date then the Consultant shall have
the option to cause the Company to redeem 7,692 Consulting Shares at a
price of $3.25 per share or an aggregate of $25,000 in cash for each thirty
day period after the Filing Date that the Registration Statement has not
been filed.
(c) If, at any time prior to the Filing Date, in the good faith
reasonable judgment of Compu-DAWN's Board of Directors, the premature
disclosure of material non-public information which may reasonably be
expected to have an adverse effect on Compu-DAWN would be required in order
for any Registration Statement to be accurate and not misleading, then
Compu-DAWN shall not be required to file the Registration Statement for a
period (a "Disclosure Delay Period") expiring upon the earlier to occur of
(A) the date on which such material information is disclosed to the public
or ceases to be material or (B) thirty (30) calendar days after the date on
which Compu-DAWN provides a notice to the Consultant of the Commencement of
a Disclosure Delay Period.
6. Independent Contractor. The relationship created hereunder is that of
the Consultant acting as an independent contractor. It is expressly acknowledged
and agreed that the Consultant shall have no authority to bind the Company to
any agreement or obligation with any third party. Consultant acknowledges and
agrees further that, since it is not an employee of the Company, the Company
shall not be responsible for the withholding or payment of any taxes.
4
<PAGE>
7. Representations and Warranties of the Consultant. The Consultant hereto,
hereby represents and warrants to the Company:
(a) he has the power and authority to execute and deliver this
Agreement and to perform the duties and responsibilities contemplated
hereby;
(b) that neither the execution of this Agreement nor performance
hereunder will (A) violate, conflict with or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under the terms,
conditions or provisions of any contract, agreement or other instrument or
obligation to which he is a party, or by which he may be bound, or (B)
violate any order, judgment, writ, injunction or decree applicable to him.
(c) With respect to the issuance of the Consulting Shares:
(i) Consultant represents and warrants that the Common Shares are
being acquired for his own account, for investment purposes and not
with a view to any distribution. Consultant will not sell, assign,
mortgage, pledge, hypothecate, transfer or otherwise dispose of any of
the Consulting Shares unless (A) a registration statement under the
Securities Act, with respect thereto is in effect and the prospectus
included therein meets the requirements of Section 10 of the
Securities Act, or (B) the Company has received a written opinion of
its counsel that, after an investigation of the relevant facts, such
counsel is of the opinion that such proposed sale, assignment,
mortgage, pledge, hypothecation, transfer or disposition does not
require registration under the Securities Act.
(ii) Consultant represents and warrants further that (A) he is
either an "accredited investor," as such term is defined in Rule
501(a) promulgated under the Securities Act, or, either alone or with
its purchaser representative, has such knowledge and experience in
financial and business matters that he is capable of evaluating the
merits and risks of the acquisition of the Consulting Shares; (B) he
is able to bear the economic risks of an investment in the Consulting
Shares, including, without limitation, the risk of the loss of part or
all of his investment and the inability to sell or transfer the
Consulting Shares for an indefinite period of time; (C) he has
adequate financial means of providing for current needs and
contingencies and has no need for liquidity in his investment in the
Consulting Shares; and (D) he does not have an overall commitment to
investments which are not readily marketable that is excessive in
proportion to net worth and an
5
<PAGE>
investment in the Consulting Shares will not cause such overall
commitment to become excessive.
(iii) Consultant has obtained and reviewed the Company reports
filed under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") including, without limitation, the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, and has
been afforded the opportunity to obtain such information with regard
to the Company he has requested to evaluate the merits and risks of
his investment in the Consulting Shares.
(d) Consultant acknowledges that a restrictive legend will be placed
on any instrument, certificate or other document evidencing the Consulting
Shares in, or substantially in, the following form:
"The securities represented by this certificate have not been
register ed under the Securities Act of 1933 and may not be
sold, transferred, pledged, hypothecated or otherwise disposed
of in the absence of (i) an effective registration statement
for such securities under said act or (ii) an opinion of
Company counsel that such registration is not required."
(e) Consultant acknowledges that the Company will be relying upon the
foregoing with regard to the issuance of the Consulting Shares to
Consultant and any subsequent transfer of the Consulting Shares by
Consultant and agrees to advise the Company in writing in the event of any
change in any of the foregoing.
8. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Consultant:
(a) the execution, delivery and performance of this Agreement has been
duly authorized by its Board of Directors and no other corporate approvals
are necessary;
(b) that neither the execution of this Agreement nor performance
hereunder will (A) violate, conflict with or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under the terms,
conditions or provisions of its Certificate of Incorporation or By-Laws or
any contract, agreement or other instrument or obligation to which it is a
party, or by which it may be bound, or (B) violate any order, judgment,
writ, injunction or decree applicable to it.
6
<PAGE>
9. Waiver of Jury Trial. THE COMPANY AND THE CONSULTANT ACKNOWLEDGE THAT
THE RIGHT TO A TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY
BE WAIVED. THE COMPANY AND THE CONSULTANT EACH KNOWINGLY, VOLUNTARILY,
IRREVOCABLY AND WITHOUT COERCION, WAIVES ALL RIGHTS TO TRIAL BY JURY OF ALL
DISPUTES BETWEEN THEM. NEITHER THE COMPANY NOR THE CONSULTANT SHALL BE DEEMED TO
HAVE GIVEN UP THIS WAIVER OF JURY TRIAL UNLESS THE PARTY CLAIMING THAT THIS
WAIVER HAS BEEN RELINQUISHED HAS A WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY
STATING THAT THIS WAIVER HAS BEEN GIVEN UP. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY THE COURT.
10. Assignment. This Agreement shall not be assigned by the Consultant
without the prior written consent of the Company.
11. Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be deemed to have been duly given when delivered by hand or sent
by certified or registered mail, return receipt requested and postage prepaid,
overnight mail or telecopier as follows:
If to the Company: Compu-DAWN, Inc.
12735 Gran Bay Parkway West
Building 200
Jacksonville, Florida 32241
Telephone: (904) 680-6680
Telecopier: (904) 680-6642
Attention: R. E. (Teddy) Turner IV
Chairman of the Board
With a copy to: Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Gavin C. Grusd, Esq.
Telecopier Number: (516) 296-7111
If to the Consultant: Mark Honigsfeld
969 East End
Woodmere, New York 11598
Telephone: (516) 569-8370
Telecopier: (516) 569-7639
With a copy to: Jackson Walker, L.L.P.
901 Main Street
Suite 6000
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<PAGE>
Dallas, Texas 75202
Attention: Charles Maguire
Telecopier Number: (214) 953-5822
or at such other address as any party shall designate by notice to the other
party given in accordance with this Paragraph 11.
12. Choice of Law and Venue. The parties agree that this Consulting
Agreement is made and entered into in Nassau County, New York and shall be
governed by and construed in accordance with the laws of the State of New York,
and that any litigation, special proceeding or other proceeding as between the
parties that may be brought, or arise out of, in connection with or by reason of
this Consulting Agreement shall be brought in the applicable state court in and
for Nassau County, New York which Courts shall be the exclusive courts or
jurisdiction and venue.
13. Waiver of Breach; Partial Invalidity. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach. If any provision, or part thereof, of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and not in any way affect
or render invalid or unenforceable any other provisions of this Agreement, and
this Agreement shall be carried out as if such invalid or unenforceable
provision, or part thereof, had been reformed, and any court of competent
jurisdiction or arbiters, as the case may be, are authorized to so reform such
invalid or unenforceable provision, or part thereof, so that it would be valid,
legal and enforceable to the fullest extent permitted by applicable law.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto relating to the
transactions contemplated by this Agreement. This Agreement may be amended only
by a writing executed by the parties hereto.
15. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but both of which
together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank
Signature Page Follows]
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IN WITNESS WHEREOF, the Consultant and the Company have executed or have
caused to be duly executed, this Agreement as of the day and year above written.
/s/ Mark Honigsfeld
----------------------------------
MARK HONIGSFELD
COMPU-DAWN, INC.
By: /s/ R.E. (Teddy) Turner, IV
---------------------------------
R. E. (Teddy) Turner, IV
Chairman of the Board
9
<PAGE>
AMENDED AND RESTATED TERMINATION AGREEMENT
AND TERMINATION OF CONSULTING AGREEMENT
AMENDED AND RESTATED TERMINATION AGREEMENT (the "Agreement") dated as of
July 2, 1999 (the "Effective Date") between MARK HONIGSFELD (the "Executive"),
residing at 969 East End, Woodmere, New York 11598 and COMPU-DAWN, INC., a
Delaware corporation (the "Company"), having its principal place of business at
77 Spruce Street, Cedarhurst, New York 11516.
RECITALS
WHEREAS, Executive was employed by the Company as its President, Chief
Executive Officer and Secretary in accordance with that certain Restated and
Amended Employment Agreement dated March 4, 1997, as amended as of January 8,
1999 ( the "Employment Agreement"); and
WHEREAS, the Company and Executive entered into that certain Termination
Agreement (the "Termination Agreement") dated as of May 11, 1999 whereby, among
other things, the Company and Executive agreed to terminate the Employment
Agreement; and
WHEREAS, the Company and Executive entered into that certain Consulting
Agreement (the "Consulting Agreement") dated as of May 11, 1999 whereby, among
other things, Executive agreed to provide consulting services to the Company and
the Company issued and agreed to register 62,500 shares of common stock of the
Company; and
WHEREAS, the Company and Executive desire to terminate the Consulting
Agreement on the basis herein provided; and
WHEREAS, the Company and Executive desire to amend and restate the
Termination Agreement on the basis herein provided; with the provisions of this
Agreement to supercede and control, in all respects, the Consulting Agreement
and the Termination Agreement.
NOW, THEREFORE, upon the agreements and covenants set forth herein, the
parties hereto agree as follows:
1. Employment Termination. The parties acknowledge and agree that,
effective at the close of business on May 11, 1999, the Executive's employment
with the Company as its President, Chief Executive Officer and Secretary was
terminated. Accordingly, the Employment Agreement was terminated and remains of
no further force or effect, and neither the Executive nor the Company shall have
any further liability or obligation thereunder, except for any salary and
benefits which are earned, accrued and unpaid as of May 11, 1999.
2. Consulting Termination. The parties acknowledge and agree that, as of
the Effective Date, the Executive will no longer be retained by the Company as a
consultant.
<PAGE>
Accordingly, except as otherwise provided in this Agreement, the Consulting
Agreement is hereby terminated and of no further force and effect, and neither
the Executive nor the Company shall have any further liability or obligation
thereunder.
3. Payments, Accounting. (a) For and in consideration of the Executive's
entering into this Agreement and performing his obligations hereunder, the
Company has paid to the Executive $166,666.00 (the "Cash Payment") and agrees to
pay to Executive:
(i) Seventy Five Thousand (75,000) shares (the "Shares") of
the Company's common stock (collectively, the Cash Payment and the Shares are
referred to hereinafter as the "Base Termination Amount"). The Base Termination
Amount shall be payable as follows:
(A) Executive acknowledges that the Cash Payment has been
paid to and received by Executive prior to the date hereof;
and
(B) The Shares shall be issued to Executive on the Effective
Date. The Company and Executive acknowledge and agree that
the Shares have not been registered under the Securities Act
of 1933, as amended, and the Company is not under any
obligation to register the Shares at any time in the future.
The Company and the Executive further acknowledge and agree
that, pursuant to Rule 16b-3(d) of the rules promulgated
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Shares are exempt from Section 16(b) of
the Exchange Act.
(ii) In addition to the Base Termination Amount, the Company
simultaneously herewith is selling its business of designing, developing,
licensing, installing and servicing computer software products and systems
predominately for public safety and law enforcement agencies (the "Public Safety
Business") and such sale provides for the payment by Admit Computer Services,
Inc., the buyer thereof (the "Buyer"), to the Company of a royalty (the
"Royalty") based on the revenues derived by the Buyer from the sale or licensing
of products and/or assets acquired in connection with its purchase of the Public
Safety Business, or derived from services related to the sale of such products
and/or assets. The Company agrees that it shall pay to the Executive an amount
equal to eighty percent (80%) of the Royalty (subject to any set-off right Buyer
may have pursuant to the Public Safety Sales Agreement (as hereinafter
defined)), (the "Installment Termination Amount" and, together with the Base
Termination Amount, the "Termination Amount"), for so long as the Royalty shall
be payable by the Buyer, subject to the provisions of Section 4 hereof.
(b) In connection with the sale of the Public Safety Business,
the Company has irrevocably directed the Buyer of the Public Safety Business to
either (i) pay that portion of the Royalty comprising the Installment
Termination Amount directly to the Executive contemporaneously with the Buyer's
payment of the balance of the Royalty to the Company or (ii) pay the entire
Royalty to a third party who will pay to Executive and the Company the portions
of the Royalty to which they are entitled pursuant to this Agreement. The
Company agrees to execute
<PAGE>
an irrevocable collateral assignment or other documents sufficient to insure
assignment of the Installment Termination Amount, if deemed necessary by the
Executive.
(c) The Company has designated the Executive as one of its
duly authorized representatives to review and audit the books of account of the
Buyer, or otherwise conduct an accounting of the Buyer with respect to the
Royalty, pursuant to the right to an accounting the Company has obtained with
respect to the Royalty in the Assets Purchase Agreement between the Company and
the Buyer relating to the sale of the Public Safety Business (the "Public Safety
Sale Agreement"). The Company hereby represents and warrants that such an
accounting provision is contained in the Public Safety Sales Agreement which
allows the Company to conduct an accounting of the Buyer with respect to the
Royalties.
(d) The Company shall, upon execution of this Agreement, wire
transfer $10,000.00 (the "Fee Payment") to Jackson Walker L.L.P. in partial
payment of the reasonable legal fees and expenses of the Executive incurred by
him in connection with the negotiation, preparation and delivery of this
Agreement including, without limitation, all reasonable fees and expenses due
and payable to Jackson Walker L.L.P. and Ruskin, Moscou, Evans & Faltischek,
P.C. in connection herewith. The Company is under no obligation to pay any
amount for such fees and expenses in excess of the Fee Payment. The Fee Payment
shall be wire transferred as follows:
Bank of America
901 Main Street
Dallas, Texas 75202
ABA #111000025
Credit to: Jackson Walker Trust Account
Account #018-07-1344-6
Such amount shall be held in the above referenced trust account until Jackson
Walker L.L.P. receives notice from the Company (or its counsel) and Executive
that the closing has occurred. If the closing has not occurred by 5:00 p.m.
Eastern time on July 9, 1999, Jackson Walker L.L.P. shall return the Fee Payment
to the Company.
4. Security Interest. The Company has granted to the Executive a valid,
binding and enforceable security interest (the "Security Interest") in any and
all tangible and intangible assets in which the Company has or shall have an
interest, now or hereafter existing or acquired, and wherever located, together
with all additions and accessions thereto and replacements and substitutions
thereof and all proceeds and products of the foregoing, as security for the
payment or performance of the obligations of the Company to the Executive
hereunder. The Parties amended the Security Interest by entering into First
Amendment to Security Agreement dated May 11, 1999 to evidence the security
interest granted in connection with that Amended and Restated Loan Agreement
dated April 30, 1997 by and between the Executive and the Company and the
security interest granted under the Termination Agreement, which amendment was
executed and delivered in connection with the
<PAGE>
execution of the Termination Agreement. Upon execution of this Agreement, the
Executive agrees to terminate and relinquish the Security Interest, as amended,
and therefore the security interests described therein will be of no further
force and effect; provided, however, that such termination and relinquishment of
the Security Interest is expressly conditioned upon the Executive receiving (i)
the Shares and (ii) an assignment (the "Assigned Security Interest") from the
Company to the Executive of all of the Company's rights and interest in the
security agreement between the Company and the Buyer contemplated to be entered
into in connection with the consummation of the transactions contemplated by the
Public Safety Sales Agreement. The Assigned Security Interest shall terminate
upon receipt by the Executive of all payments due under the Royalty.
5. Resignation. The Executive acknowledges that he voluntarily resigned,
effective as of May 11, 1999, from all capacities and positions with the
Company, including but not limited to the offices of Chief Executive Officer,
President and Secretary and Director of the Company, the Chief Executive
Officer, Secretary, and Director of e.TV Commerce, Inc., and all officerships
and directorships of Rugby Acquisition Corp. and ETEL Communications Corp.
6. Representations of the Executive. The Executive represents, warrants,
and agrees with the Company as follows:
(a) To his knowledge, after due investigation, no consents of
governmental and other regulatory agencies, foreign or domestic, or of other
parties, are required to be received by or on the part of the Executive to
enable him to enter into and carry out this Agreement and the transactions
contemplated hereby.
(b) The Executive has the power to enter into this Agreement
and to carry out his obligations hereunder. This Agreement constitutes the valid
and binding obligation of the Executive, and is enforceable in accordance with
its terms.
(c) There is no unfulfilled agreement or commitment, written
or oral, made by the Executive for or on behalf of the Company pursuant to which
the Company is obligated to pay more than $5,000 singly, or $15,000 in the
aggregate, or which contractually restricts in any way the Company's ability to
enter into any agreement in the future (i) that since December 31, 1998 has not
been disclosed in writing to the Company and (ii) prior to December 31, 1998 has
not been disclosed in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998 or the audited annual financial statements of the
Company in connection therewith.
(d) There is no liability or obligation incurred on behalf of
the Company by the Executive that has not been disclosed in writing to the
Company.
(e) Except as set forth in Schedule 6(e) attached hereto, no
acts or omissions finally determined by a court of competent jurisdiction prior
to or following the date hereof constituting fraud, gross negligence, or other
illegality which has a material adverse effect on the Company, have been
committed by the Executive for or on behalf of, or in his capacity as a director
or officer of, the Company.
<PAGE>
(f) Neither the execution and delivery of this Agreement, nor
compliance by the Executive with any of the provisions hereof, nor the
consummation of the transactions contemplated hereby, will:
(i) violate any judgment, order, injunction, decree or award
against, or binding upon, the Executive;
(ii) violate or otherwise breach the terms of any agreement
or understanding, written or oral, to which the Executive is
a party or is otherwise bound; or
(iii) violate any law or regulation of any jurisdiction
relating to the Executive.
(g) No representation, warranty or statement by the Executive in this
Agreement intentionally (i) contains any untrue statement of a material fact, or
(ii) omits to state a fact necessary in order to make such representations,
warranties or statements not misleading.
(h) With respect to the issuance of the Shares:
(i) Executive represents and warrants that the Shares are
being acquired for his own account, for investment purposes
and not with a view to any distribution. Executive will not
sell, assign, mortgage, pledge, hypothecate, transfer or
otherwise dispose of any of the Shares unless (A) a
registration statement under the Securities Act, with
respect thereto is in effect and the prospectus included
therein meets the requirements of Section 10 of the
Securities Act, or (B) the Company has received a written
opinion of its counsel that, after an investigation of the
relevant facts, such counsel is of the opinion that such
proposed sale, assignment, mortgage, pledge, hypothecation,
transfer or disposition does not require registration under
the Securities Act.
(ii) Executive represents and warrants further that (A) he
is either an "accredited investor," as such term is defined
in Rule 501(a) promulgated under the Securities Act, or,
either alone or with its purchaser representative, has such
knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the
acquisition of the Shares; (B) he is able to bear the
economic risks of an investment in the Shares, including,
without limitation, the risk of the loss of part or all of
his investment and the inability to sell or transfer the
Shares for an indefinite period of time; (C) he has adequate
financial means of providing for current needs and
contingencies and has no need for liquidity in his
investment in the Shares; and (D) he does not have an
overall commitment to investments which are not readily
marketable that is excessive in proportion to net worth and
an investment in the Shares will not cause such overall
commitment to become excessive.
(iii) Executive has obtained and reviewed the Company
reports filed under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") including, without limitation,
the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998, the Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1999, and the Current
<PAGE>
Reports on Form 8-K, date of event reported May [12], 1999,
June 9, 1999 and June [30], 1999, and has been afforded the
opportunity to obtain such information with regard to the
Company he has requested to evaluate the merits and risks of
his investment in the Shares.
7. Representations of the Company. The Company represents, warrants, and
agrees with the Executive as follows:
(a) To the Company's knowledge, after due investigation, no
consents of governmental and other regulatory agencies, foreign or domestic, or
of other parties, are required to be received by or on the part of the Company
to enable it to enter into and carry out this Agreement and the transactions
contemplated hereby.
(b) The Company has the requisite 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 the
Company, and no other corporate proceedings are necessary to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated
(c) Neither the execution and delivery of this Agreement nor
compliance by the Company with any of the provisions hereof, nor the
consummation of the transactions contemplated hereby, will:
(i) violate the Certificate of Incorporation or By-Laws of
the Company;
(ii) violate any judgment, order, injunction, decree or
award against, or binding upon, the Company;
(iii) violate or otherwise breach the terms of any agreement
or understanding, written or oral, to which the Company is a
party or is otherwise bound; or
(iv) violate any law or regulation of any jurisdiction
relating to the Company.
(d) No representation, warranty or statement by the Company in
this Agreement intentionally (i) contains any untrue statement of a material
fact, or (ii) omits to state a fact necessary in order to make such
representations, warranties or statements not misleading.
8. Restrictive Covenants. (a) The Executive covenants that for a period
ending May 10, 2001, he will not, either directly or indirectly, (i) disclose or
otherwise make known to any person or entity the names and addresses of any of
the customers of the Company, or (ii) call on, solicit, or take away, or attempt
to call on, solicit, or take away, any of the customers of the Company or its
subsidiaries with whom he became acquainted during his employment with the
Company, either for himself or for any other person, firm, corporation or other
entity.
<PAGE>
(b) The Executive acknowledges that the Company and/or its
subsidiaries have developed unique skills, concepts, sales presentations,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, technical information, proprietary information,
computer software programs, tapes and disks concerning its or their operations,
systems, customer lists, customer leads, documents identifying past, present and
future customers, hiring and training methods, investment policies, financial
and other confidential and proprietary information concerning its operations and
expansion plans ("Trade Secrets"). The Executive agrees and covenants that,
except with the prior written consent of the Company, the Executive shall not,
directly or indirectly, use for the Executive's own benefit or for the benefit
of another, or disclose, disseminate, or distribute to another, any Trade Secret
(whether or not acquired, learned, obtained, or developed by the Executive alone
or in conjunction with others) of the Company or its subsidiaries. All
memoranda, notes, records, drawings, documents, or other writings whatsoever
(including copies thereof) made, compiled, acquired, or received by the
Executive during his employment by the Company, arising out of, in connection
with, or related to any activity or business of the Company or its subsidiaries,
including, but not limited to, the customers, suppliers, or others with whom the
Company or its subsidiaries has a business relationship, the arrangements of the
Company or its subsidiaries with such parties, and the pricing and expansion
policies and strategy of the Company or its subsidiaries, are, and shall
continue to be, the sole and exclusive property of the Company and its
subsidiaries, and shall be returned to the Company within five (5) days of the
execution of this Agreement.
(c) The Executive hereby covenants and agrees that for a
period ending May 10, 2001, he will not, either directly or indirectly, as an
employee, employer, consultant, agent, principal, partner, shareholder (other
than through ownership of publicly traded capital stock of a corporation which
represents less than five percent (5%) of the outstanding capital stock of such
corporation), corporate officer, director, investor, financier or in any other
individual or representative capacity, engage or participate in any business
which is directly competitive with the business of the Company or any of its
subsidiaries in the Internet service provider, e-commerce and telecommunications
business marketing products and services through a multi-level referral network
marketing organization.
9. Other Agreements. (a) General Agreements. The parties hereto acknowledge
and agree that, except as expressly provided in, or contemplated by, this
Agreement, and except for (i) any rights of indemnification to which the
Executive may be entitled by law or under the By-Laws or Certificate of
Incorporation of the Company, and any rights of indemnification to which the
Executive is entitled pursuant to the Indemnification Agreement by and between
the Executive and the Company (the "Indemnification Agreement") a copy of which
will be re-executed simultaneously with the execution of this Agreement, and
(ii) unreimbursed expenses of the Executive, which the Company hereby agrees to
pay, there are no outstanding unfulfilled contracts, commitments, or other
obligations of whatsoever nature as between the Executive and the Company or any
outstanding indebtedness owed by either party to the other; and the parties
hereto hereby further agree that any and all disputes, claims, open accounts and
other unresolved matters with respect to any of the foregoing which may exist on
the date hereof, shall be, and hereby are, in all respects resolved, satisfied
and settled as between the parties.
<PAGE>
(b) Options. It is hereby acknowledged that all unexercised
options held by the Executive (the "Options") are immediately vested (if not
already vested) as of the Effective Date and shall continue in full force and
effect in accordance with their respective terms. Simultaneously with the
execution of this Agreement, the Company and Executive are entering into Amended
and Restated Stock Option Agreements with respect to the Options. The Company
shall, simultaneously with the execution of this Agreement, deliver irrevocable
instructions to the Company's transfer agent (and any successor transfer agent)
directing the transfer agent to issue shares of the Company's common stock to
Executive when Executive delivers to the transfer agent a notice of exercise as
provided in the Company's 1996 Stock Option Plan together with the payment of
the exercise price for such Options in accordance with the terms of the
agreements evidencing such Options.
.
(c) Registration. The Company shall prepare and, on or before
July 5, 1999 (the "Filing Date"), file with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-8 or other appropriate
form (the "Registration Statement") to effect a registration of (i) the resale
of the 62,500 shares of common stock of the Company issued to Executive in
connection with the Consulting Agreement (the "Consulting Shares"), and (ii) if
requested by Executive, to the extent not precluded by the Securities Act of
1933, as amended (the "Securities Act"), any rule or regulation promulgated
thereunder, the resale of any shares of common stock of the Company issued upon
the exercise of any of the Options which were previously registered on the
Company's previous Form S-8 registration statement, which registration provided
for hereunder shall follow deregistration of the resale of such Shares of common
stock of the Company under the Company's previously filed Form S-8 registration
statement including, without limitation, the filing of a reoffer prospectus as a
post-effective amendment as required from time to time to permit sales by the
Executive on a delayed or continuous basis. If the Registration Statement is not
filed with the SEC on or before the Filing Date, then the Executive shall have
the option to cause the Company to redeem 7,692 Consulting Shares at a price of
$3.25 per share (or an aggregate of $25,000) for each thirty day period after
the Filing Date that the Registration Statement has not been filed. The
Executive may elect to exercise the remedy provided for in this Section 9(c) at
any time with respect to the Company's failure to file the Registration
Statement. If, at any time prior to the Filing Date, in the good faith
reasonable judgment of Compu-DAWN's Board of Directors, the premature disclosure
of material non-public information which may reasonably be expected to have an
adverse effect on Compu-DAWN would be required in order for any Registration
Statement to be accurate and not misleading, then Compu-DAWN shall not be
required to file the Registration Statement for a period (a "Disclosure Delay
Period") expiring upon the earlier to occur of (A) the date on which such
material information is disclosed to the public or ceases to be material or (B)
thirty (30) calendar days after the date on which Compu-DAWN provides a notice
to the Executive of the Commencement of a Disclosure Delay Period.
(d) Benefits. For a period of 90 days from the Effective Date,
the Company shall provide the Executive with disability, hospitalization,
accident, major medical, term life insurance in the amount of $1,000,000, and
dental insurance which is the same as that which the Company is providing to the
Executive as of the day prior to the date hereof under Section 1.5(c) of the
Employment Agreement and with respect to disability insurance, if any, then the
same as such disability insurance provided by the Company to the Executive prior
to the date hereof. With regard
<PAGE>
to the term life insurance policy referenced above, the Executive has incurred
expenses in the amount of $3,000 for the annual premium amount of such policy.
The Company hereby agrees to reimburse Executive such amount.
(e) Office Space. The Company shall, at its expense, provide
to the Executive until at least December 31, 1999, such office space at its
executive offices in Cedarhurst, New York (the "Cedarhurst Premises") as shall,
in the reasonable opinion of the Board of Directors, be suitable and adequate
for the Executive's use and shall be comparable in amenities to, his current
office space. In the event that the Company enters into an arm's length sublease
with respect to or reconfigures the Cedarhurst Premises prior to such date, the
Company shall provide to the Executive an amount of space and amenities
approximately equivalent to those provided to the Executive before such sublease
or reconfiguration. The foregoing notwithstanding, the Company shall have no
obligation to provide the Executive with such office space if, and from the time
that, the Company subleases the entire Cedarhurst Premises to an unaffiliated
third party.
(f) Employment of Gina Shaughnessy. The Company hereby agrees
to employ Gina Shaughnessy ("Shaughnessy") through at least December 31, 1999,
and as full compensation for services rendered by Shaughnessy shall pay to her
the salary, and provide the benefits, currently being received by her as of the
date hereof. In the event that the Company terminates Shaughnessy's employment
on or after December 31, 1999, and Shaughnessy is not employed by the Executive
or by any affiliate of the Executive within one week of such termination,
Shaughnessy shall be entitled to receive a severance payment in an amount equal
to three month's salary, payable by the Company within seven (7) days of such
termination. During the period of Shaughnessy's employment, the Company shall
allow the Executive the use of the services of Gina Shaughnessy as required by
the Executive, provided however that the Company may utilize a reasonable amount
of Shaughnessy's working time and under the supervision of the Executive from
time to time during normal business hours to attend to certain administrative
matters of the Company of the same nature as those matters which Shaughnessy
currently attends.
10. Releases.
(a) The Company hereby remises, releases, and forever
discharges and by these presents does for itself and its successors and assigns,
remise, release, and forever discharge the Executive and his heirs, successors
and assigns from all manner of action and actions, cause and causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, executions, claims and demands
whatsoever, in law or in equity, which it ever had, now has or which may
hereafter accrue or which it, its successors or assigns, hereafter can, shall or
may have for, upon or by reason of any matter from the beginning of the world to
the day of the date of these presents; provided, however, it is confirmed
herewith that this release does not affect the rights or obligations of the
Company or the Executive under or pursuant to (i) the Security Agreement and
other related documents, (ii) the Indemnification Agreement, (iii) the Options,
or (iv) this Agreement (the "Excluded Agreements").
<PAGE>
(b) The Executive hereby remises, releases, and forever
discharges and by these presents does for himself and his successors and
assigns, remise, release, and forever discharge the Company, its subsidiaries,
affiliates, directors, officers and stockholders (collectively, the "Company
Releasees") and successors and assigns of Company Releasees from all manner of
action and actions, cause and causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever, in law or in equity, which the
Executive ever had, now has or which may hereafter accrue or which the
Executive, his successors or assigns, hereafter can, shall or may have for, upon
or by reason of any matter from the beginning of the world to the day of the
date of these presents; provided, however it is confirmed herewith that this
release does not affect the rights or obligations of the Executive or the
Company Releasees under or pursuant to the Excluded Agreements.
(c) The Company and the Executive affirm that no
representation of fact or opinion has been made to induce the giving of the
releases provided by this Section 10 (the "Releases") other than as specifically
set forth herein and that it is therefore specifically agreed that the Releases
shall be a complete bar to any and all claims, suits or damages whatsoever,
other than with respect to the Excluded Agreements.
11. Nondisparagement. The Company agrees that, since May 11, 1999 and for
all time, neither the Company nor any officer, director, employee, consultant,
affiliate or agent of the Company (a "Representative") has made or shall make
any statement, written or oral, to any person or entity, or otherwise in general
to the public, or to the business or financial community or take any action,
directly or indirectly, that (a) disparages or is likely to diminish the
reputation of the Executive, or which could adversely affect the ability of the
Executive to enter into or consummate any business transaction, or the business
or reputation of the Executive, or (b) references any current or future
investigations by state or federal securities officials with regard to the
trading activities of the Executive; provided, however, that the foregoing shall
not preclude the Company from making any statement which is required (i) to
accurately comply with a court order, subpoena or other discovery necessary in
an action or proceeding in a court of competent jurisdiction, or (ii) by an
administrative agency or the Nasdaq Stock Market, Inc., or (iii) to accurately
comply with the Company's reporting requirements under the Securities Exchange
Act of 1934, as amended. The Company agrees to take reasonable steps to notify
its Representatives of the obligations and provisions of this Section 10.
Notwithstanding the generality of the foregoing, the Company agrees that, since
May 11, 1999 and for all time, neither the Company, nor any Representative has
made or shall make any statement, written or oral, to any person or entity, or
otherwise in general to the public regarding the Order to Cease and Desist (the
"Order"), Document No. CF-99-5359, issued by the State of Connecticut,
Department of Banking, concerning messages posted on Internet message boards or
any similar administrative or similar proceeding whether state or federal,
involving Executive except as required by clause (i), (ii) and (iii) above.
12. Choice of Law and Venue. The parties agree that this Agreement is made
and entered into in Nassau County, New York and shall be governed by and
construed in accordance with the laws of the State of New York, and that any
litigation, special proceeding or other
<PAGE>
proceeding as between the parties that may be brought, or arise out of, in
connection with or by reason of this Agreement shall be brought in the
applicable state court in and for Nassau County, New York which Courts shall be
the exclusive courts or jurisdiction and venue, and all parties hereto consent
to the in personam jurisdiction of such Courts.
13. Entire Agreement. This Agreement contains the full and complete
understanding and agreement of the parties hereto with respect to the subject
matter contained herein and supersedes all prior or contemporaneous written or
oral understandings or agreements with respect to the subject matter hereof. No
modification of this Agreement shall be binding unless made in writing and
signed by the party sought to be charged.
14. Binding Effect. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors, assigns
and legal representatives. Shaughnessy is an intended third-party beneficiary of
Section 9(f) hereof.
15. Public Disclosure. The Company agrees to publicly disclose the basic
terms of this Agreement and all documents contemplated hereunder by filing a
Form 8-K with the Securities and Exchange Commission containing such disclosure.
16. Equitable Relief; Breach; Specific Performance. The Executive
acknowledges and agrees that, in the event the Executive shall violate or
threaten to violate any of the restrictions of Section 8 hereof, the Company
will be without an adequate remedy at law and will therefore be entitled to
enforce such restrictions by temporary or permanent injunctive or mandatory
relief in any court of competent jurisdiction without the necessity of proving
damages and without prejudice to any other remedies which it may have at law or
in equity, it being understood that such remedy shall be in addition to any
other remedies which the Company may have at law or in equity. The Company
acknowledges and agrees that, in the event the Company or any Representative
shall violate or threaten to violate any of the restrictions of Section 11
hereof, the Executive will be without an adequate remedy at law and will
therefore be entitled to enforce such restrictions by temporary or permanent
injunctive or mandatory relief in any court of competent jurisdiction without
the necessity of proving damages and without prejudice to any other remedies
which it may have at law or in equity, it being understood that such remedy
shall be in addition to any other remedies which the Executive may have at law
or in equity. Furthermore, the Company and Executive acknowledge that a refusal
by either party to consummate the transactions contemplated hereby will cause
irreparable harm to the other party, for which there may be no adequate remedy
at law and for which the ascertainment of damages would be difficult. Therefore,
the parties shall be entitled, in addition to, and without having to prove the
inadequacy of, other remedies at law, to specific performance of this Agreement,
as well as ex parte injunctive relief (without being required to post bond or
other security).
17. Waiver, Severability. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach. If any provision of this Agreement, or part thereof, shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
attach only to such provision and not in any way affect or render invalid or
<PAGE>
unenforceable any other provisions of this Agreement, and this Agreement shall
be carried out as if such invalid or unenforceable provision, or part thereof,
had been reformed, and any court of competent jurisdiction is authorized to so
reform such invalid or unenforceable provision, so that it would be valid, legal
and enforceable to the fullest extent permitted by applicable law.
18. Notices; Deliveries. Any notice, delivery or other communication
required or permitted hereunder shall be sufficiently given if delivered by hand
or sent by certified mail, return receipt requested, facsimile transmission,
overnight mail or nationally recognized overnight courier, addressed as follows:
If to the Company:
12735 Gran Bay Parkway West, Bldg. 200
Jacksonville, Florida 32241
Attention: Chairman of the Board
Telecopier Number:(904) 680-6442
with a copies to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Gavin C. Grusd, Esq.
Telecopier Number: (516)296-7111
Smith Hulsey & Busey
225 Water Street
Jacksonville, Florida 32202
Attention: John R. Smith, Jr., Esq.
Telecopier Number: (904)359-7712
If to the Executive:
969 East End
Woodmere, New York 11598
Telecopier Number: (516) 569-7639
with a copy to:
Jackson Walker L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
<PAGE>
Attention: Charles D. Maguire, Jr., Esq.
Telecopier Number: (214) 953-5822
or such other address as shall be furnished in writing by either party, and any
notice, delivery or communication given pursuant to the provisions hereof shall
be deemed to have been given as of the date delivered or so mailed or
transmitted.
19. Counterparts; Headings. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which taken together shall
constitute one agreement. The headings contained in this Agreement are solely
for the convenience of the parties, and are not intended to and do not limit,
construe or modify any of the terms and conditions hereof.
20. Waiver of Jury Trial. THE COMPANY AND THE EXECUTIVE ACKNOWLEDGE THAT
THE RIGHT TO A TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY
BE WAIVED. THE COMPANY AND THE EXECUTIVE EACH KNOWINGLY, VOLUNTARILY,
IRREVOCABLY AND WITHOUT COERCION, WAIVES ALL RIGHTS TO TRIAL BY JURY OF ALL
DISPUTES BETWEEN THEM. NEITHER THE COMPANY NOR THE EXECUTIVE SHALL BE DEEMED TO
HAVE GIVEN UP THIS WAIVER OF JURY TRIAL UNLESS THE PARTY CLAIMING THAT THIS
WAIVER HAS BEEN RELINQUISHED HAS A WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY
STATING THAT THIS WAIVER HAS BEEN GIVEN UP. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY THE COURT.
21. Further Assurances. The parties hereto agree to execute and deliver
such other instruments as shall be appropriate, as the other party or its
counsel shall reasonably request, to carry out the purpose and intent of this
Agreement and to vest in Executive good and marketable title to the Shares.
IN WITNESS WHEREOF, the parties have execute this Agreement as of the
day and year first above written.
COMPU-DAWN, INC.
By:/s/ Robert E.(Teddy) Turner, IV
----------------------------------
Robert E. (Teddy) Turner, IV
Chairman of the Board
/s/ Mark Honigsfeld
-------------------
MARK HONIGSFELD
<PAGE>
The undersigned hereby agree to be bound individually to the provisions
of Section 11 of this Agreement.
/s/ Robert E. (Teddy) Turner, IV
-------------------------------------
Robert E. (Teddy) Turner, IV
/s/ Rudy Theale
-------------------------------------
Rudy Theale
<PAGE>
<PAGE>
ASSETS PURCHASE AGREEMENT
ASSETS PURCHASE AGREEMENT, dated as of July 2, 1999 by and between
COMPU-DAWN, INC., a Delaware corporation ("Seller"), having its principal place
of business at 77 Spruce Street, Cedarhurst, New York 11516 and ADMIT COMPUTER
SERVICES, INC. a New York corporation ("Purchaser"), having its principal place
of business at 185 Merritts Road, Farmingdale, New York 11735.
WHEREAS, Seller is engaged, in part, in the business of designing,
developing, licensing, installing and servicing computer software products and
systems predominantly for public safety and law enforcement agencies; and
WHEREAS, Purchaser is engaged, in part, in the business of designing,
developing, licensing, installing and servicing computer software for public
safety and municipal government agencies, and desires to purchase all of the
above-described Public Safety Software Business assets of Seller (as hereinafter
defined); and
WHEREAS, subject only to the limitations and exclusions contained in this
Agreement and on the terms and conditions hereinafter set forth, Seller desires
to sell and Purchaser desires to purchase the Public Safety Software Business
and the assets of Seller used therein.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants, representations, warranties and agreements herein contained for other
good and valuable consideration receipt of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
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ARTICLE I - PURCHASE AND SALE
1.1 Agreement to Sell. Seller hereby grants, sells, conveys, assigns,
transfers and delivers to Purchaser, upon and subject to the terms and
conditions of this Agreement, all right, title and interest of Seller in
and to: (a) all assets, rights and properties, tangible and intangible, of
Seller's Public Safety Software Business (excluding cash and cash
equivalents) wherever situated used or usable in connection with the
design, development, licensing, installation and servicing computer
application software systems for law enforcement and public safety
agencies, including, without limitation, computer-aided dispatching ("CAD"
and "V-CAD"), computer interfacing with local, state and national crime
information databases, advanced wireless mobile on-line communications
computing ("AMO"), automatic vehicle location ("AVL"), records management,
and photo-imaging database systems, the foregoing systems marketed under
product lines 'ALECS I", "ALECS II", "ALECS 2000", "AFFECT", "PISTOL",
"AVL", "AMO", "CAD", "V-CAD" and "ARMS" (the "Public Safety Software
Business"), all as more particularly described in the Seller's Annual
Report on Form 10-KSB dated March 31, 1999 as filed with the Securities and
Exchange Commission; (b) the names "ALECS I", "ALECS II", "ALECS 2000",
"AFFECT", "PISTOL", "AVL", "AMO", "CAD", "V-CAD", "ARMS" and "Compu-DAWN"
(except that Compu-DAWN has the right to use the name Compu-DAWN for
corporate purposes, but not with respect to products or services which
compete directly or indirectly with the Public Safety Software Business,
until Compu-DAWN changes its name as required in the Agreement) and all
goodwill associated therewith; and (c) the Business as a going concern
(which Public Safety Software Business, names, goodwill, assets, properties
and rights are herein sometimes called the "Assets"), free and clear of all
mortgages, liens, pledges, security interests, charges, claims,
restrictions and encumbrances of any nature whatsoever except Permitted
Liens as defined in Section 3.1.13 hereof.
1.1.1 Included Assets. The Assets shall include without
limitation the following assets, properties and rights of Seller used
directly or indirectly in the conduct of, or generated by or
constituting, the Public Safety Software Business, except as otherwise
expressly set forth in Section 1.1.2 hereof:
(a) trade marks, trade names, patents, inventions, designs,
drawings, specifications, object and source codes, know how and
technical information, software to the extent owned by Seller,
and all copyright and all other intellectual property rights used
or usable in the Public Safety Software Business or under
development;
(b) the exclusive right for Purchaser to represent itself as
carrying on the Public Safety Software Business in succession to
Seller;
(c) all contract rights, including all outstanding orders,
work, work-in-progress and maintenance/support work together with
all fees payable thereon and licenses to use third party owned
software used by Seller in the development of the products;
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(d) all accounts receivables as the date hereof ;
(e) all literature, inventory and supplies on hand and on
order;
(f) certain computer hardware (including development server,
communications server, certain personal computers, demonstration
equipment) described on Schedule 1.1.1(f) annexed hereto;
(g) all rights under any patent, trademark, service mark,
trade name or copyright, whether registered or unregistered, and
any applications therefor;
(h) trade show displays on hand or on order;
(i) lists of customers, suppliers and accounting and other
records;
(j) all rights or choses in actions arising out of
occurrences before or after the Closing, including without
limitation all rights under express or implied warranties
relating to the Assets;
(k) all information, files, records, data, plans, contracts
and recorded knowledge related to the foregoing.
1.1.2 Notwithstanding the foregoing, the Assets shall not include
any of the following:
(a) all cash or cash equivalents of the Seller in hand or in
bank accounts at the Closing and all marketable securities;
(b) loans receivable;
(c) the corporate seals, certificates of incorporation,
minute books, stock books, tax returns, books of account or other
records having to do with corporate organization of Seller;
(d) the rights which accrue or will accrue to Seller under
this Agreement;
(e) the rights to any of Seller's claims for any federal,
state, local, or foreign tax refunds; or
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(f) the assets, properties or rights of Seller in and to its
business carried on under the name "e.TV Commerce, Inc.".
1.2 Agreement to Purchase. Purchaser hereby purchases the Assets from
Seller, upon and subject to the terms and conditions of this Agreement and
in reliance on the representations, warranties and covenants of Seller
contained herein, in exchange for the Purchase Price (hereinafter defined
in Section 1.3 hereof). Except as specifically provided in section 1.4
hereof, Purchaser shall not assume or be responsible for any liabilities or
obligations of the Business or Seller.
1.3 The Purchase Price.
1.3.1 Purchase Price. The Purchase Price shall be the following:
(a) The sum of Five Hundred Thousand ($500,000) Dollars.
Seller and Purchaser acknowledge that Purchaser has heretofore
paid Fifty Thousand ($50,000) Dollars (the "Downpayment") of said
Purchase Price that is on deposit with Seller's attorneys (the
"Escrow Agent") which sum shall be delivered to Seller by the
Escrow Agent pursuant to the terms of the Escrow Agreement upon
consummation of the Closing; and
(b) Purchaser shall pay Seller a royalty in the manner
provided for in Section 8.1 as follows:
(i) Ten (10%) percent of the amount actually received
by Purchaser (excluding sales tax, if any) from present
customers of Seller during the five-year period after the
date of the Closing (the "Post Closing Five-Year Period")
who are identified in Schedule 1.3.1 (b)(i) annexed hereto
from (a) new sales or licensing orders placed during the
Post Closing Five-Year Period of the following (i) Seller's
Public Safety Software Systems; and (ii) Purchaser's Impact
public safety software products and/or consulting services
relating to public safety software, and (b) maintenance
services provided.
(ii) Ten (10%) percent of the amount actually received
by Purchaser (excluding sales tax, if any) from sales or
licensing orders placed during such Post Closing Five-Year
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Period of any of Seller's Public Safety Software
Systems and modules thereof to any customer together with
the maintenance fees allocable to said product of Seller for
services provided during the Post Closing Five-Year Period.
(iii) Six and one-quarter (6.25%) percent of the amount
actually received by Purchaser (excluding sales tax, if any)
from any customer who purchases or licenses during the Post
Closing Five-Year Period a public safety software system
which is the result of a redesigned software system
combining in one system elements of Seller intellectual
property and Purchaser intellectual property.
Seller and Purchaser agree that the royalties provided for in this Section
1.3 shall apply to amounts actually received by Purchaser after the expiration
of the Post Closing Five-Year Period in respect of new sales or licensing orders
that were firm orders during the Post Closing Five-Year Period.
1.3.2 Payment of Purchase Price. (a) On the Closing Date
Purchaser shall pay (i) to Seller, on account of the Purchase
Price, the amount of $450,000 (the "Seller Closing Payment")
payable by certified or bank cashier's check or by wire transfer
of immediately available funds to Seller , and (ii) the Purchaser
and Seller shall cause the Escrow Agent to remit the Downpayment
to Seller.
(b) Purchaser shall make Royalty Payments to Seller in
accordance with Section 8.1 hereof.
1.3.3 Allocation of Purchase Price. The Purchase Price and
the liabilities assumed by Purchaser in accordance with Section
1.4 hereof (together, the "Total Consideration") as finally
determined shall be allocated among the Assets acquired hereunder
as described on Schedule 1.3.3 hereof. Seller and Purchaser each
hereby covenant and agree 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
1.3.3.
1.4 Purchaser hereby assumes only the obligations of Seller set
forth in contracts listed in Schedule 1.4 annexed hereto to be
performed on or after the date hereof (the "Assumed Liabilities"),
including, without
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limitation, to install, service and maintain software systems
specified in such assumed contracts. Purchaser shall not assume or
agree to pay, discharge or perform any:
(i) accounts, loans, notes and other payables and all
liabilities of whatsoever character existing as of the
Closing Date; or
(ii) liabilities or obligations arising out of any
breach by Seller of any provision of any agreement,
contract, commitment or license, including but not limited
to liabilities or obligations arising out of Seller's
failure to perform any agreement, contract, commitment or
license in accordance with its terms prior to the Closing,
but excluding however any liability arising out of the
assignment to Purchaser of such agreements, contracts,
commitments or leases in violation of the terms thereof to
the extent that the agreement, contract, commitment or lease
is listed on Schedule 1.4 annexed hereto.
(iii) any product liability or similar claim for injury
to person or property, 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 or product sold or
licensed by or on behalf of Seller on or prior to the
Closing, including without limitation any claim relating to
any product delivered in connection with the performance of
such service and any claim seeking recovery for
consequential damage, lost revenue or income;
(iv) any federal, state or local income or other tax
(a) payable with respect to the business, assets, properties
or operations of Seller or any member of any affiliated
group of which Seller is a member for any period prior to
the Closing Date, or (b) incident to or arising as a
consequence of the negotiation or consummation by Seller or
any member of any affiliated group of which either is a
member of this Agreement and the transactions contemplated
hereby;
(v) any liability or obligation under or in connection
with the assets excluded from the Assets under Section
1.1.2;
(vi) any liability or obligation 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; or
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(vii) any liability or obligation 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.
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ARTICLE II - CLOSING, ITEMS TO BE DELIVERED, THIRD PARTY
CONSENTS, CHANGE IN NAME AND FURTHER ASSURANCES
2.1 The closing (the "Closing") of the sale and purchase of the Assets
shall take place at 10:00 A.M., on the date the date hereof at the offices
of Certilman Balin Adler & Hyman, LLP, The Financial Center, 90 Merrick
Avenue, East Meadow, New York 11554. The date of the agreed Closing is
sometimes herein referred to as the "Closing Date".
2.2 Items to be Delivered at Closing. At the Closing and subject to
the terms and conditions herein contained:
(a) Seller shall deliver to Purchaser the following:
(i) such bills of sale with covenants of warranty,
assignments, endorsements, and other good and sufficient
instruments and documents of conveyance and transfer, in form
reasonably satisfactory to Purchaser and its counsel, as shall be
necessary and effective to transfer and assign to, and vest in,
Purchaser all of Seller's right, title and interest in and to the
Assets, including without limitation, (A) good and valid title in
and to all of the Assets owned by Seller, (B) all of Seller's
rights under all agreements, contracts, commitments, licenses,
proposals, and other documents included in the Assets to which
Seller is a party or by which it has rights on the Closing Date;
and
(ii) all of the agreements, contracts, commitments,
licenses, plans, bids, quotations, proposals, instruments,
computer programs and software, data bases whether in the form of
computer tapes or otherwise, related object and source codes,
manuals and guidebooks, price books and price lists, customer and
subscriber lists, supplier lists, sales records, files,
correspondences, legal opinions, rulings issued by governmental
entities, and other documents, books, records, papers, files,
office supplies and data belonging to Seller which are part of
the Assets;
and simultaneously with such delivery, all such steps will be taken as may be
required to put Purchaser in actual possession and operating control of the
Assets.
(b) Purchaser shall deliver to Seller the following:
(i) the Seller Closing Payment in accordance with Section
1.3.2 hereof;
(ii) an undertaking whereby Purchaser will assume and agree
to pay, discharge or perform, as appropriate, Seller's
liabilities and obligations to the extent and as provided in
Section 1.4 hereof in form reasonably satisfactory to Seller and
its counsel;
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(iii) a security agreement granting the Seller a security
interest in the Assets in forms reasonably satisfactory to Seller
and subordinate to the first priority security interest of
Purchaser's lender, State Bank of Long Island;
(c) Purchaser shall direct the Escrow Agent to deliver the
Downpayment to Seller as provided in Section 1.3.2 (ii) hereof.
(d) The items in Article V hereof have been delivered.
2.3 Third Party Consents. To the extent that Seller's rights under any
agreement, contract, commitment, license, Authorization (as defined in
Section 3.1.15) 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 Seller, at its expense, shall use its 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 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, 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.
2.4 Change in Name. On or before December 31,1999, Seller shall
convene a meeting of its stockholders at which the Seller will present to
its stockholders for approval, among any other things, the amendment to
Seller's Certificate of Incorporation to change Seller's name to another
name bearing no similarity to "Compu-DAWN" and the Seller shall cause its
Board of Directors to recommend such name change to its stockholders and if
such name change is approved, the Seller shall promptly thereafter file an
Amendment to Seller's Certificate of Incorporation effectuating such name
change (the "Name Change Amendment") with the Secretary of State of
Delaware and an appropriate name change notice for each state where Seller
is qualified to do business. Seller hereby appoints Purchaser as its
attorney-in-fact effective upon the filing of the Name Change Amendment by
the Seller to file all such State name change notices on or after the
Closing Date.
2.5 Further Assurances. Seller from time to time after the Closing, at
Purchaser's request, will execute, acknowledge and deliver to Purchaser
such other instruments of conveyance and transfer and will take such other
actions and execute and deliver such other documents, certifications and
further assurances as Purchaser may reasonably require in order to vest
more effectively in Purchaser, or to put Purchaser more fully in possession
of, any of the Assets, or to better enable Purchaser to complete, perform
or discharge any of the liabilities or obligations assumed by Purchaser at
the Closing pursuant to Section 1.4 hereof. Each of the parties hereto will
cooperate with the other and execute and deliver to the other parties
hereto such other instruments and documents and take such other actions as
may be reasonably
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requested from time to time by any other party as necessary to carry out or
evidence the intended purposes of this Agreement.
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ARTICLE III - REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Seller. The Seller hereby
represents and warrants to Purchaser as:
3.1.1 Corporate Existence. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Seller is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction where the conduct of the Public Safety Software Business
by it requires it to be so qualified, all of which jurisdictions are
listed on Schedule 3.1.1 annexed hereto.
3.1.2 Corporate Power; Authorization; Enforceable Obligations.
Seller has the corporate power, authority and legal right to execute,
deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Seller has been duly authorized by
all necessary corporate action. This Agreement has been, and the other
agreements, documents and instruments required to be delivered by
Seller in accordance with the provisions hereof (the "Seller's
Documents") will be, duly executed and delivered on behalf of Seller
by duly authorized officers or agents (including without limitation
Mark Honigsfeld) of Seller, and this Agreement constitutes, and the
Seller's Documents when executed and delivered will constitute, the
legal, valid and binding obligations of Seller enforceable in
accordance with their respective terms.
3.1.3 No Interest in Other Entities. No shares of any corporation
or any ownership or other investment interest, either of record,
beneficially or equitably, in any association, partnership, joint
venture or other legal entity are included in the Assets.
3.1.4 Validity of Contemplated Transactions, etc. The execution,
delivery and performance of this Agreement by Seller does not and will
not violate, conflict with or result in the breach of any term,
condition or provision of, or require the consent of any other person
under, (a) any existing law, ordinance, or governmental rule or
regulation to which Seller is subject, (b) any judgment, order, writ,
injunction, decree or award of any court, arbitrator or governmental
or regulatory official, body or authority which is applicable to
Seller, (c) the charter documents of Seller or any securities issued
by Seller, or (d) any mortgage, indenture, agreement, contract,
commitment, lease, plan, Authorization (hereinafter defined in Section
3.1.15), or other instrument, document or understanding, oral or
written, to which Seller is a party, by which Seller may have rights
or by which any of the Assets may be bound or affected, or give any
party with rights thereunder the right to terminate, modify,
accelerate or otherwise change the existing rights or obligations of
Seller thereunder, except as set forth on Schedule 3.1.4 annexed
hereto. No authorization, approval or consent of, and no registration
or filing with, any governmental or regulatory official, body or
authority is required in connection with the execution, delivery or
performance of this Agreement by Seller.
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3.1.5 No Third Party Options. There are no existing agreements,
options, commitments or rights with, of or to any person to acquire
any of Seller's assets, properties or rights included in the Assets or
any interest therein, except for those contracts entered into in the
normal course of business consistent with past practice for the sale
of inventory of Seller.
3.1.6 Financial Statements. Seller has delivered to Purchaser
true and complete copies of the Seller's Annual Report on Form 10- KSB
for the year ended December 31, 1998, the "Form 10-KSB" as filed with
the Securities and Exchange Commission and containing therein the
balance sheet of Seller at December 31, 1998 and December 31, 1997 and
the related statements of operations, cash flow and statement of
shareholders equity for the fiscal years then ended, certified by
Seller's Auditors (the Audited Financial Statement") and the Seller's
Quarterly Report on Form 10-QSB for the three month's ended March 31,
1999 as filed with the Securities and Exchange Commission containing
therein the balance sheet of Seller at March 31, 1999 (the "Balance
Sheet") and March 31, 1998 and the related consolidated condensed
statements of operations and cash flows (together with the Audited
Financial Statements, the "Financial Statements") for the three months
then ended, together with current reports on Form 8K for events dated
May 11, 1999 and June 9, 1999 respectively referred to as the "SEC
Reports"). Such financial statements, including the related notes,
fairly present the financial position, assets and liabilities (whether
accrued, absolute, contingent or otherwise) of Seller at the dates
indicated and such statements fairly present the results of
operations, cash flow and changes in shareholders equity of Seller for
the periods indicated.
3.1.7 Accounts Receivable. The accounts receivable of Seller
arising from the Public Safety Software Business as set forth on the
Balance Sheet or arising since the date thereof are valid and genuine;
have arisen solely out of bona fide sales and deliveries of goods,
performance of services and other business transactions in the
ordinary course of business consistent with past practice; are not
subject to valid defenses, set-offs or counterclaims; and are
collectible within 90 days after billing at the full recorded amount
thereof less the recorded allowance for collection losses determined
in accordance with generally accepted accounting principles consistent
with-past practice, except as set forth on Schedule 3.1.7 annexed
hereto.
3.1.8 Inventory. Seller has no inventory.
3.1.9 Absence of Undisclosed Liabilities. Seller has no
liabilities or obligations with respect to the Public Safety Software
Business, either direct or indirect, matured or unmatured or absolute,
contingent or otherwise, except:
(a) liabilities and obligations detailed or set forth in the
Financial Statements, elsewhere in the SEC Reports, in this
Agreement or the Schedules annexed hereto;
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(b) those accounts payable, notes, loans and other payables
and liabilities or obligations set forth in the Financial
Statements and the SEC Reports or Schedule 3.1.9 (b) annexed
hereto and not heretofore paid or discharged;
(c) liabilities arising in the ordinary course of business
under any agreement, contract, commitment, lease or plan unless
specifically disclosed on the Schedules annexed hereto or
disclosed in the SEC Reports; and
For purposes of this Agreement, the term "liabilities" shall include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
fixed or unfixed, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
3.1.10 Tax and Other Returns and Reports. There are no tax liens
(other than any lien for current taxes not yet due and payable) on any
of the Assets. Seller has no knowledge of any basis for any additional
assessment of any federal, state, local or foreign taxes, assessments,
interest, penalties, deficiencies, fees and other governmental charges
or impositions, (including without limitation all income tax,
unemployment compensation, social security, payroll, sales and use,
excise, privilege, property, ad valorem, franchise, license, school
and any other tax or similar governmental charge or imposition under
laws of the United States or any state or municipal or political
subdivision thereof or any foreign country or political subdivision
thereof). Seller has made all deposits required by law to be made with
respect to employees' withholding and other employment taxes,
including without limitation the portion of such deposits relating to
taxes imposed upon Seller.
3.1.11 Books of Account. The books, records and accounts of
Seller maintained with respect to the Public Safety Software Business
accurately and fairly reflect, in reasonable detail, the transactions
and the assets and liabilities of Seller with respect to the Public
Safety Software Business. Seller has not engaged in any transaction
with respect to the Public Safety Software Business, maintained any
bank account for the Business or used any of the funds of Seller in
the conduct of the Public Safety Software Business except for
transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the
business, except those which will not have a material adverse effect
on the Assets.
3.1.12 Existing Condition. Except as set forth in the SEC
Reports, since the Balance Sheet Date, Seller with respect to the
Public Safety Software Business has not:
(a) incurred any liabilities, other than liabilities
incurred in the ordinary course of business consistent with past
practice, or discharged or satisfied any lien or encumbrance, or
paid any liabilities, other than in the ordinary course of
business consistent with past practice,
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or failed to pay or discharge when due any liabilities of which
the failure to pay or discharge has caused or will cause any
material damage or risk of material loss to any of the Assets;
(b) sold, encumbered, assigned or transferred any assets or
properties which would have been included in the Assets if the
Closing had been held on the Balance Sheet Date or on any date
since then, except for the sale of inventory in the ordinary
course of business consistent with past practice;
(c) mortgaged, pledged or subjected any of its Assets to any
mortgage, lien, pledge, security interest, conditional sales
contract or other encumbrance of any nature whatsoever, except
for Permitted Liens (hereinafter defined in Section 3.1.13);
(d) made or suffered any amendment or termination of any
material agreement, contract, commitment, lease or plan to which
it is a party or by which it is bound, or cancelled, modified or
waived any substantial debts or claims held by it or waived any
rights of substantial value, whether or not in the ordinary
course of business included in the Assets or the liability
assumed by the Purchaser hereunder;
(e) [Intentionally left Blank];
(f) suffered any damage, destruction or loss, whether or not
covered by insurance, (i) materially and adversely affecting its
Public Safety Software Business, or the Assets or (ii) of any
item or items carried on its books of account individually or in
the aggregate at more than $25,000 related to the Public Safety
Software Business or the Assets or suffered any repeated,
recurring or prolonged shortage, cessation or interruption of
supplies or utility or other services required to conduct its
Public Safety Software Business;
(g) suffered any material adverse change in its Public
Safety Software Business, or the Assets, (financial or
otherwise);
(h) received notice or had knowledge of any actual or
threatened labor trouble, strike or other occurrence, event or
condition of any similar character which has had or might have an
adverse effect on its Public Safety Software Business or the
Assets;
(i) made commitments or agreements for capital expenditures
or capital additions or betterments
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exceeding in the aggregate $50,000 in connection with the Public
Safety Software Business or the Assets except such as may be
involved in ordinary repair, maintenance or replacement of any
Assets;
(j) [Intentionally left Blank];
(k) changed any of the accounting principles followed by it
or the methods of applying such principles; or
(1) entered into any transaction other than in the ordinary
course of business consistent with past practice.
3.1.13 Title to Properties. Seller has good and valid title to
the Assets, real, personal and mixed, which it purports to own,
including without limitation all Assets reflected in the Balance Sheet
(except for inventory sold since the date thereof in the ordinary
course of business consistent with past practice) free and clear of
all mortgages, liens, pledges, security interests, charges, claims,
restrictions and other encumbrances and defects of title of any nature
whatsoever, except for (i) liens for current real or personal property
taxes not yet due and payable, and (ii) liens disclosed in Schedule
3.1.13 in response to this Section ("Permitted Liens").
3.1.14 Condition of Tangible Assets. All material items of
tangible Assets are in good operating condition and repair, subject to
normal wear and maintenance, are usable in the regular and ordinary
course of business and conform to all applicable laws, ordinances,
codes, rules and regulations, and Authorizations relating to their
construction, use and operation. No person other than Seller owns any
equipment or other tangible assets or properties situated on the
premises of Seller or necessary to the operation of the business of
Seller at 77 Spruce Street, Cedarhurst, New York, except for leased
items disclosed in Schedule 3.1.14 and for items of immaterial value.
3.1.15 Compliance with Law; Authorizations. Seller has complied
with each, and is not in violation of any, law, ordinance, or
governmental or regulatory rule or regulation, whether federal, state,
local or foreign, to which Seller's business, operations, assets or
properties is subject ("Regulations") the violation of which
Regulations would have a material adverse effect on the Public Safety
Software Business, the Assets or the Seller's ability to consummate
the transactions contemplated by this
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Agreement. Seller owns, holds, possesses or lawfully uses in the
operation of its Public Safety Software Business all franchises,
licenses, permits, easements, rights, applications, filings,
registrations and other authorizations ("Authorizations") which are in
any manner necessary for it to conduct its Public Safety Software
Business as now or previously conducted or for the ownership and use
of the assets owned or used by Seller in the conduct of the Public
Safety Software Business of Seller, free and clear of all liens,
charges, restrictions and encumbrances and in compliance with all
Regulations. Seller is not in default, nor has it received any notice
of any claim of default, with respect to any such Authorizations. All
such Authorizations are renewable by their terms or in the ordinary
course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine
filing fees. None of such Authorizations will be adversely affected by
consummation of the transactions contemplated hereby. No shareholder,
director, officer, employee or former employee of Seller or any
affiliates of Seller, or any other person, firm or corporation owns or
has any proprietary, financial or other interest (direct or indirect)
in any Authorization which Seller owns, possesses or uses in the
operation of the business of Seller as now or previously conducted.
3.1.16 Transactions With Affiliates. No shareholder, director,
officer or employee of Seller, or any member of his or her immediate
family or any other of its, his or her affiliates, owns or has a 5% or
more ownership interest in any corporation or other entity that is or
was during the last three years a party to, or in any property which
is or was during the last three years the subject of, any material
contract, agreement or understanding, business arrangement or
relationship with Seller, except as set forth in the SEC Reports and
those which would not have a material adverse effect on the Public
Safety Software Business, the Assets or the ability of the Seller to
consummate the transactions contemplated by this Agreement.
3.1.17 Litigation. No litigation, including any arbitration,
investigation or other proceeding of or before any court, arbitrator
or governmental or regulatory official, body or authority is pending
or, to the best knowledge of Seller, threatened against Seller or
which relates to the Assets of Seller or the transactions contemplated
by this Agreement, nor does Seller know of any reasonably likely basis
for any such litigation, arbitration, investigation or proceeding, the
result of which could adversely affect the Public Safety Software
Business, its Assets or the transactions contemplated hereby. Seller
is not a party to or subject to the provisions of any judgment, order,
writ, injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which may
adversely affect The Public Safety Software Business, its Assets or
the transactions contemplated hereby.
3.1.18 Insurance. The Assets and Public Safety Software Business,
properties and operations of Seller are insured under various policies
of general liability and other forms of insurance, all of which are
described in Schedule 3.1.18 annexed hereto, which discloses the risks
insured against, coverage limits, each policy deductible amounts, all
outstanding claims thereunder, and whether the terms of such policy
provide
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for retrospective premium adjustments. All such policies are in full
force and effect in accordance with their terms, no notice of
cancellation has been received, and there is no existing event which,
with the giving of notice or lapse time or both, would constitute a
default thereunder. Such policies are in amounts which are adequate in
relation to the Public Safety Software Business and Assets of Seller
and all premiums to date have been paid in full. Seller has not been
refused any insurance, nor has its coverage been limited, by any
insurance carrier to which it has applied for insurance or with which
it has carried insurance during the past five years. Schedule 3.1.18
annexed hereto also contains a true and complete description of all
outstanding bonds and other surety arrangements issued or entered into
in connection with the Public Safety Software business the Assets and
the Assumed Liabilities of Seller.
3.1.19 Contracts and Commitments. Except as set forth in the SEC
Reports, and except to the extent that the following shall not have a
material adverse effect on the Public Safety Software Business, the
Assets, the Assumed Liabilities and the ability of Seller to
consummate the transactions contemplated by this Agreement, Seller is
not a party to any written or oral:
(a) agreement, contract or commitment with any present or
former employee or consultant or for the employment of any
person, including any consultant, who is engaged in the conduct
of the Public Safety Software Business;
(b) agreement, contract or commitment for the future
purchase of, or payment for, supplies or products, or for the
performance of services by a third party which supplies, products
or services are used in the conduct of the Public Safety Software
Business involving in any one case $5,000 or more;
(c) agreement, contract or commitment to sell or supply
products or to perform services in connection with the Public
Safety Software Business except as listed on Schedule3.1.19 (c)
annexed hereto;
(d) agreement, contract or commitment relating to the Public
Safety Software Business not otherwise listed on the Disclosure
Schedule and continuing over a period of more than six months
from the date hereof or exceeding $5,000 in value;
(e) distribution, dealer, representative or sales agency
agreement, contract or commitment relating to the Public Safety
Software Business;
(f) lease under which Seller is either lessor or lessee
relating to the Assets or any property at which the Assets are
located except for the lease to the premises located at 77 Spruce
Street, Cedarhurst, New York;
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(g) note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or
commitment for the borrowing or lending of money relating to the
Public Safety Software Business or agreement or arrangement for a
line of credit or guarantee, pledge or undertaking of the
indebtedness of any other person relating to the Public Safety
Software Business;
(h) agreement, contract or commitment for any charitable or
political contribution relating to the Public Safety Software
Business;
(i) commitment or agreement for any capital expenditure or
leasehold improvement in excess of $5,000 relating to the Public
Safety Software Business;
(j) agreement, contract or commitment limiting or
restraining Seller, or any successor thereto from engaging or
competing in any manner or in any aspect of the Public Safety
Software Business, nor, to Seller's knowledge, is any employee of
Seller engaged in the conduct of the Public Safety Software
Business subject to any such agreement, contract or commitment;
(k) license, franchise, distributorship or other agreement
which relates in whole or in part to any software, patent,
trademark, trade name, service mark or copyright or to any ideas,
technical assistance or other know-how of or used by Seller in
the conduct of the Public Safety Software Business except as set
forth on Schedule 3.1.19(k) annexed hereto; or
(1) material agreement, contract or commitment relating to
the Public Safety Software Business not made in the ordinary
course of business.
Each of the agreements, contracts, commitments, leases, licenses,
plans and other instruments, documents and undertakings described in
the SEC Reports or listed in the Schedules in response to this Section
under which Purchaser is to acquire rights or assume obligations
hereunder is valid and enforceable in accordance with its terms;
Seller is, and to Seller's knowledge all other parties thereto are, in
compliance with the provisions thereof; Seller is not, and to Seller's
knowledge no other party thereto is, in default in the performance,
observance or fulfillment of any material obligation, covenant or
condition contained therein; and no event has occurred which with or
without the giving of notice or lapse of time, or both, would
constitute a default thereunder. Furthermore, no such agreement,
contract, commitment, lease, license, plan or other
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instrument, document or undertaking, in the reasonable opinion of
Seller, contains any contractual requirement with which there is a
reasonable likelihood Seller or any other party thereto will be unable
to comply. No written or oral agreement, contract or commitment
described therein requires the consent of any party to its assignment
in connection with the transactions contemplated hereby, except as set
forth in Schedule 3.1.19(m) annexed hereto.
Each agreement, contract or commitment referred to in Section
3.1.19(c) hereof is in one of the forms attached to Schedule 3.1.19(c)
or as an Exhibit to the SEC Reports (whether filed with the SEC
Reports or incorporated therein by reference from reports,
registration statements or other documents filed by the Seller with
the SEC prior to the filing of the SEC Reports) with only such changes
thereto as are necessary to reflect applicable fees, products, and
time periods and such other changes therein as do not materially
affect the rights or obligations of Seller thereunder.
The Term Sheets relating to each such agreement, contract or
commitment referred to in Section 3.1.19(c) hereof which have been
previously delivered to Purchaser accurately disclosed the following:
the customer name; whether or not the contract amount is fixed or may
be varied based on services performed; if the contract amount is
fixed, the contract amount, or, if the contract amount is not fixed, a
good faith, reasonable estimate of the contract amount and the
estimated contract amount most recently communicated to the customer;
a good faith, reasonable estimate of the work completed and total
costs incurred to the date hereof thereunder; the total billings as of
the date hereof under such contract; the estimated completion dates
therefor; whether or not Seller has any reason to believe that its
profit margin with respect to such contract might be less than it has
customarily achieved in the past for similar contracts; and whether
such contract requires the furnishing of goods or services by persons
other than the employees of Seller.
3.1.20 Additional Information. Schedule 3.1.20 contains accurate
lists and summary descriptions of the following:
(a) all inventory, equipment and furniture and fixtures of
Seller included in the Assets as of the Balance Sheet Date,
specifying such items as are owned and such as are leased and,
with respect to the owned property, specifying its aggregate cost
or original value and the net book value as of Balance Sheet Date
and, with respect to the leased property as to which Seller is
lessee, specifying the identity of the lessor, the rental rate
and the unexpired term of the lease;
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(b) the names and titles of and current annual base salary
or hourly rates for all employees of Seller engaged in the
conduct of the Public Safety Software Business, together with a
statement of the full amount and nature of any other
remuneration, whether in cash or kind, paid to each such person
during the past or current fiscal year or payable to each such
person in the future and the bonuses accrued for, the vacation
and severance benefits to which, each such person is entitled.
(c) all names under which Seller has conducted any business
or which it has otherwise used during the last five years.
3.1.21 [Intentionally Omitted]
3.1.22 Employee Benefit Plans and Arrangements. Schedule 3.1.22
annexed hereto contains a complete list of all employee benefit plans,
whether formal or informal, whether or not set forth in writing, and
whether covering one person or more than one person, sponsored or
maintained by the Seller. For the purposes hereof, the term "employee
benefit plan" includes all plans, funds, programs, policies,
arrangements, practices customs and understandings providing benefits
of economic value to any employee, former employee, or present or
former beneficiary, dependent or assignee of any such employee or
former employee other than regular salary, wages or commissions paid
substantially concurrently with the performance of the services for
which paid. Without limitation, the term "employee benefit plan"
includes all employee welfare benefit plans within the meaning of
section 3(i) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), all employee pension benefit plans within the
meaning of section 3(2) of ERISA. Each plan providing benefits which
are funded through a policy of insurance is indicated by the word
"insured" placed by the listing of the plan in Schedule 3.1.22.
3.1.23 Intellectual Property Matters. The Seller in the conduct
of the Public Safety Software Business did not and does not utilize
any patent, trademark, tradename, service mark, copyright, computer
software, trade secret or know-how except for those described in the
SEC Reports and listed on Schedule 3.1.23(a) annexed hereto (the
"Intellectual Property"), all of which are owned by the Seller free
and clear of any liens, claims, charges or encumbrances or are
licensed by Seller from third parties. The Seller does not infringe
upon or unlawfully or wrongfully use any patent, trademark, tradename,
service mark, copyright or trade secret owned or claimed by another.
The Seller is not in default under, and has not received any notice of
any claim of infringement or any other claim or proceeding relating to
any such patent, trademark, tradename, service mark, copyright or
trade secret. No present or former employee of the Seller and no other
person owns or has any proprietary, financial or other interest,
direct or indirect, in whole or in part, in any patent, trademark,
tradename, service mark or copyright, or in any application therefor,
or in any trade secret, which the
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Seller owns, possesses or uses in its operations as now or heretofore
conducted. Schedule 3.1.23(b) annexed hereto lists all confidentiality
or nondisclosure agreements to which the Seller or any of Seller's
employees engaged in the Public Safety Software Business is a party
which relates to the Public Safety Software Business.
3.1.24 The Software.
(a) Performance. The computer software of Seller included in
the Intellectual Property (the "Software") performs in accordance
with the documentation and other written material used in
connection with the Software and is free of defects in
programming and operation is year 2000 compliant as that phrase
is more fully described in Seller's Form 10-KSB is in
machinereadable form, contains all current revisions of such
software, and includes all computer programs, materials, tapes,
know-how, object and source codes, other written materials,
know-how and processes related to the Software. Seller has
delivered, or is delivering to Purchaser herewith, complete and
correct copies of all user and technical documentation related to
the Software.
(b) Enhancements, New Products. Neither Seller nor, to the
best knowledge of Seller, any employee or agent thereof has
developed or assisted in the enhancement of the Software except
for enhancements included in the Software as delivered to
Purchaser pursuant hereto or the development of any program or
product based on the Software or any part thereof.
(c) Development. No employee of Seller is, or is now
expected to be, in default under any term of any employment
contract, agreement or arrangement relating to the Software or
noncompetition arrangement, or any other Contract or any
restrictive covenant relating to the Software or its development
or exploitation. The Software was developed entirely by the
employees of Seller during the time they were employees only of
Seller and such Software does not include any inventions of the
employees made prior to the time such employees became employees
of Seller nor any intellectual property of any previous employer
of such employee.
(d) Title. All right, title and interest in and to the
Software, other than Software licensed by Seller from third
parties, is owned by Seller, free and clear of all liens, claims,
charges or encumbrances, are fully transferable to the Purchaser,
and no party other than Seller has any interest in the Software,
including without limitation, any security interest, license,
contingent interest or otherwise. Seller's development, use, sale
or exploitation of the Software does not violate, any rights of
any other person or entity and Seller has not received any
communication alleging such a violation. Seller does not have any
obligation to compensate any Person for the development, use,
sale or exploitation of the Software nor has Seller granted to
any other person or entity any license, option or other rights to
sell or exploit in any manner the Software, whether requiring the
payment of royalties or not.
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(e) Proprietary Nature of Software. Seller has kept secret
and has not disclosed the source code for the Software owned by
it to any person or entity other than certain employees of Seller
who are subject to the terms of a binding confidentiality
agreement with respect thereto. Seller has taken all appropriate
measures to protect the confidential and proprietary nature of
the Software, including without limitation the use of
confidentiality agreements with all of its employees having
access to the Software source and object code. There have been no
patents applied for and no copyrights registered for any part of
the software. There are no trademark rights of any person or
entity in the names "ALECS I", "ALECS II", "ALECS 2000",
"AFFECT", "PISTOL", "AVL", "AMO", "CAD", "V-CAD", and "ARMS".
(f) Delivery of All Copies. All copies of the Software
embodied in physical form are being delivered to the Purchaser.
3.1.25 [Intentionally Omitted].
3.1.26 [Intentionally Omitted].
3.1.27 Availability of Documents. Seller has made available to
Purchaser copies of all documents, including without limitation all
agreements, contracts, commitments, insurance policies, plans,
instruments, undertakings, authorizations, permits, licenses, patents,
trademarks, tradenames, service marks, copyrights and applications
therefor described in the SEC Reports and listed in the Schedules
referred to herein, except those which are subject to a
confidentiality agreement, which has not been waived by the other
party thereto. Such copies are true and hereto or complete and include
all amendments, supplements and modifications thereto or waivers
currently in effect thereunder.
3.1.28 Assets. The Assets include all rights and property
necessary to the conduct of the Public Safety Software Business by
Purchaser in the manner it is presently conducted by Seller and no
property excluded from the Assets under Section 1.1.2 hereof
constitutes property or rights material to the Public Safety Software
Business.
3.1.29 Restrictions. Seller is not a party to any indenture,
agreement, contract, commitment, lease, plan, license, permit,
authorization or other instrument, document or understanding, oral or
written, or subject to any charter or other corporate restriction or
any judgment, order, writ, injunction, decree or award which
materially adversely affects or materially restricts or, so far as
Seller can now reasonably foresee, may in the future materially
adversely affect or materially restrict, the Public Safety Software
Business, operations, assets, properties, prospects or condition
(financial or otherwise) of the Public Safety Software Business after
consummation of the transactions contemplated hereby.
3.1.30 Conditions. There is no fact, development or threatened
development with respect to the markets, products, services, clients,
customers, facilities, computer software, data bases, personnel,
vendors, suppliers, operations, assets or prospects of the Public
Safety Software Business which are known to Seller which would
materially adversely
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affect the Public Safety Software Business other than such conditions
as may affect as a whole the economy generally and as disclosed in the
SEC Reports. Seller has used its best efforts to keep available for
Purchaser the services of the employees, agents, customers and
suppliers of Seller active in the conduct of the Public Safety
Software Business. Seller does not have any reason to believe that any
loss of any employee, agent, customer or supplier or other
advantageous arrangement will result because of the consummation of
the transactions contemplated hereby which will have a material
adverse effect on the future operation of the Public Safety Software
Business by the Purchaser after the Closing.
3.1.31 Completeness of Disclosure. No representation or warranty
by Seller in this Agreement nor any certificate, schedule, statement,
document or instrument furnished or to be furnished to Purchaser
pursuant hereto, or in connection with the negotiation, execution or
performance of this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material
fact required to be stated herein or therein or necessary to make any
statement herein or therein not misleading.
3.2 Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller as follows:
3.2.1 Corporate Existence. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York.
3.2.2 Corporate Power, Authorization, Enforceable Obligations.
Purchaser has the corporate power, authority and legal right to
execute, deliver and perform this Agreement. The execution, delivery
and performance of this Agreement by Purchaser has been duly
authorized by all necessary corporate action. This Agreement has been,
and the other agreements, documents and instruments required to be
delivered by Purchaser in accordance with the provisions hereof (the
"Purchaser's Documents") will be, duly executed and delivered on
behalf of Purchaser by duly authorized officers or agents of
Purchaser, and this Agreement constitutes, and the Purchaser's
Documents when executed and delivered will constitute, the legal,
valid and binding obligations of Purchaser enforceable in accordance
with their respective terms.
3.2.3 Validity.of Contemplated Transactions, etc. The execution,
delivery and performance of this Agreement by Purchaser does not and
will not violate, conflict with or result in the breach of any term,
condition or provision of, or require the consent of any other party
to, (a) any existing law, ordinance, or governmental rule or
regulation to which Purchaser is subject, (b) any judgment, order,
writ, injunction, decree or award of any court, arbitrator or
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governmental or regulatory official, body or authority which is
applicable to Purchaser, (c) the charter documents or ByLaws of, or
any securities issued by, Purchaser, or (d) any mortgage, indenture,
agreement, contract, commitment, lease, plan or other instrument,
document or understanding, oral or written, to which Purchaser is a
party or by which Purchaser is otherwise bound. Except as aforesaid,
no authorization, approval or consent of, and no registration or
filing with, any governmental or regulatory official, body or
authority is required in connection with the execution, delivery and
performance of this Agreement by Purchaser.
3.2.4 Litigation. No litigation, including any arbitration,
investigation or other proceeding of or before any court, arbitrator
or governmental or regulatory official, body or authority is pending
or, to the best knowledge of Purchaser, threatened against Purchaser
which may adversely affect the Purchaser's ability to perform its
obligations hereunder, nor does Purchaser know of any reasonably
likely basis for any such litigation, arbitration, investigation or
proceeding, the result of which could adversely affect the Purchaser's
ability to perform its obligations hereunder. Purchaser is not a party
to or subject to the provisions of any judgement, order, writ,
injunction, decree or award of any court, arbitrator or governmental
or regulatory official, body or authority which may adversely affect
Purchaser's ability to perform its obligations hereunder.
3.2.5 Restrictions. Purchaser is not a party to any indenture,
agreement, contract, commitment, lease, plan, license, permit,
authorization or other instrument, document or understanding, oral or
written, or subject to any charter or other corporate restriction or
any judgement, order, writ, injunction, decree or award which
materially adversely affects or materially restricts or, so far as
Purchaser can now reasonably foresee, may in the future materially
adversely affect or materially restrict, the Purchaser's ability to
perform its obligations hereunder.
3.2.6 Solvency. As of the Closing and immediately after the
Closing, Purchaser shall be solvent, and so far as Purchaser can
reasonably foresee, Purchaser will be able to pay and perform its
obligations hereunder as they become due.
3.2.7 Completeness of Disclosure. No representa-tion or warranty
by Purchaser in this Agreement nor any certificate, schedule,
statement, document or instrument furnished or to be furnished to
Seller pursuant hereto, or in connection with the negotiation,
execution or performance or this Agreement, contains or will contain
any untrue statement of a material fact or omits or will
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omit to state a material fact required to be stated herein or therein
or necessary to make any statement herein or therein not misleading.
3.3 Survival of Representations and Warranties. All representations
and warranties made by the parties in this Agreement or in any certificate,
schedule, statement, document or instrument furnished hereunder or in
connection with the negotiation, execution and performance of this
Agreement shall survive the Closing for a period of three years
notwithstanding any investigation or audit conducted before or after the
Closing Date or the decision of any party to complete the closing, each
party shall be entitled to rely upon the representations and warranties set
forth herein and therein.
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ARTICLE IV
[Intentionally Omitted]
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ARTICLE V -ADDITIONAL DOCUMENTS TO BE DELIVERED AT THE CLOSING
5.1 Conditions To Closing At the Closing the following additional
documents will be delivered:
5.1.1 Opinions of Counsel for Seller. Counsel for Seller, shall
have delivered to Purchaser a written opinion, dated the Closing Date,
in the form of [Exhibit A] hereto with only such changes as shall be
in form and substance reasonably satisfactory to the Purchaser and its
counsel.
5.1.2 Consents and Approvals. Seller shall have delivered to
Purchaser Consents required by the terms of the contracts,
commitments, agreements or licenses listed in Disclosure Schedule 5.1.
2 hereto, or the holders of any indebtedness of Seller.
5.1.3 Purchaser Borrowing. Purchaser shall have executed
appropriate documents and obtained commercially acceptable financing
in the sum of Five Hundred Thousand ($500,000) Dollars to be available
at Closing.
5.1.4 Corporate Matters. Seller shall have delivered to Purchaser
a Certificate of the Secretary of the Seller certifying that all
corporate action required to carry out this Agreement or incidental
thereto have been duly approved.
5.1.5 Opinion of Counsel for Purchaser. Counsel to Purchaser,
shall have delivered to Seller a written opinion, dated the Closing
Date, in the form of [Exhibit B] hereto with only such changes as
shall be in form and substance reasonably satisfactory to Seller and
its counsel.
5.1.6 Corporate Matters. Purchaser shall have delivered to Seller
a Certificate of the Secretary of the Purchaser certifying that all
corporate action required to carry out this Agreement or incidental
thereto have been duly approved.
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ARTICLE VI - INDEMNIFICATION
6.1 General Indemnification Obligation of Seller. From and after the
Closing, Seller will reimburse, indemnify and hold harmless Purchaser and
its successors and assigns (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 nature whatsoever, except for those liabilities and
obligations of Seller which Purchaser specifically assumes
pursuant to this Agreement;
(ii) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other
proceedings or investigations against any Indemnified
Purchaser Party that relate to the Public Safety Software
Business 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 director, officer, employee, agent,
representative or subcontractor of Seller, except for those
which Purchaser specifically assumes pursuant to this
Agreement; or
(iii) any misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part of
Seller under this Agreement, or from any misrepresentation
in or omission from any certificate, schedule, statement,
document or instrument furnished to Purchaser pursuant
hereto or in connection with the execution or performance of
this Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation,
reasonable legal fees and expenses) incident to any of the
foregoing or to the enforcement of this Section 6.1.
6.2 General Indemnification Obligation of Purchaser. From and after
the Closing, Purchaser will reimburse, indemnify and hold harmless Seller
and its successors or assigns (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 to this Agreement;
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(ii) (a) 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 execution
or performance of this Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments,
costs and other expenses (including, without limitation,
reasonable legal fees and expenses) incident to any of the
foregoing or to the enforcement of this Section 6.2.
6.3 Method of Asserting Claim. In the event that any claim or demand
for which Seller 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
promptly notify Seller 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 shall have
ten (10) days from the personal delivery or mailing of the Claim Notice
(the "Notice Period") to notify the Indemnified Purchaser Party, (A)
whether or not they dispute their liability to the Indemnified Purchaser
Party hereunder with respect to such claim or demand and (B)
notwithstanding any such dispute, whether or not they desire, at their sole
cost and expense, to defend the Indemnified Purchaser Party against such
claim or demand.
(a) If Seller disputes its liability with respect to such
claim or demand or the amount thereof (whether or not Seller
desires to defend the Indemnified Purchaser Party against such
claim or demand as provided in paragraphs (b) and (c) below),
such dispute shall be resolved in accordance with Section 6.5
hereof. Pending the resolution of any dispute by Seller of its
liability with respect to any claim or demand, such claim or
demand shall not be settled without the prior written consent of
the Indemnified Purchaser Party.
(b) In the event that Seller notifies the Indemnified
Purchaser Parties within the Notice Period that it desires to
defend the Indemnified Purchaser Party against such claim or
demand then, except as hereinafter provided, Seller shall have
the right to defend the Indemnified Purchaser Party by
appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by it to a final conclusion in such a
manner as to avoid any risk of Indemnified Purchaser Party
becoming subject to liability for any other matter; provided,
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however, Seller shall not, 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, 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,
including without limitation the administration of the tax
returns and responsibilities under the tax laws of any
Indemnified Purchaser Party, then the Indemnified Purchaser Party
shall have the right to control the defense or settlement of any
such claim or demand and its reasonable costs and expenses shall
be included as part of the indemnification obligation of Seller
hereunder; provided, however, that the Indemnified Purchaser
Party shall not settle any such claim or demand without the prior
written consent of Seller which consent shall not be unreasonably
withheld. If the Indemnified Purchaser Party should elect to
exercise such right, Seller shall have the right to participate
in, but not control, the defense or settlement of such claim or
demand at its sole cost and expense.
(c) (i) If Seller elects not to defend the Indemnified
Purchaser Party against such claim or demand, whether by not
giving the Indemnified Purchaser Party timely notice as provided
above or otherwise, then the amount of any such claim or demand,
or if the same be defended by Seller or by the Indemnified
Purchaser Party (but none of the Indemnified Purchaser Party
shall have any obligation to defend any such claim or demand),
then that portion thereof as to which such defense is
unsuccessful, in each case shall be conclusively deemed to be a
liability of Seller hereunder, unless Seller shall have disputed
its liability to the Indemnified Purchaser Party hereunder, as
provided in (a) above, in which event such dispute shall be
resolved as provided in Section 6.5 hereof.
(ii) In the event an Indemnified Purchaser Party should
have a claim against Seller 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 promptly send a Claim Notice with
respect to such claim to Seller. If Seller disputes its
liability with respect to such claim or demand, such dispute
shall be resolved in accordance with Section 6.5 hereof; if
Seller does not notify the Indemnified Purchaser Party
within the Notice Period that it disputes such claim, the
amount of such claim shall be conclusively deemed a
liability of Seller hereunder.
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(d) All claims for indemnification by an Indemnified Seller
Party under this Agreement shall be asserted and resolved under
the procedures set forth above substituting in the appropriate
place "Indemnified Seller Party" for "Indemnified Purchaser
Party" and variations thereof and "Purchaser" for "Seller".
6.4 Payment. Upon the determination of the liability under Section 6.3
or 6.5 hereof, the appropriate party shall pay to the other, as the case
may be, within ten (10) days after such determination, the amount of any
claim for indemnification made hereunder. In the event that the indemnified
party is not paid in full for any such claim pursuant to the foregoing
provisions promptly after the other party's obligation to indemnify has
been determined in accordance herewith, it shall have the right,
notwithstanding any other rights that it may have against any other person,
firm or corporation, to setoff the unpaid amount of any such claim against
any amounts owed by it under any agreements entered into pursuant to this
Agreement. Upon the payment in full of any claim, either by setoff or
otherwise, the entity making payment shall be subrogated to the rights of
an indemnified party against any person, firm or of the corporation with
respect to the subject matter of such claim.
6.5 Arbitration. (i) All disputes under this Article VI shall be
settled by arbitration in Nassau County, New York, before a single
arbitrator pursuant to the rules of the American Arbitration Association.
Arbitration may be commenced at any time by any party hereto giving to each
other party to a dispute written notice that such dispute has been referred
to arbitration under this Section 6.5. The arbitrator shall be selected by
the joint agreement of Seller and Purchaser, but if they do not so agree
within 20 days after the date of the notice referred to above, the
selection shall be made pursuant to the rules from the panels of
arbitrators maintained by such Association. Any award rendered by the
arbitrator shall be conclusive and binding upon the parties hereto;
provided, however, that any such award shall be accompanied by a written
opinion of the arbitrator giving the reasons for the award. This provision
for arbitration shall be specifically enforceable by the parties and the
decision of the arbitrator in accordance herewith shall be final and
binding and there shall be no right of appeal therefrom. Each party shall
pay its own expenses of arbitration and the expenses of the arbitrator
shall be equally shared; provided, however, that if in the opinion of the
arbitrator any claim for indemnification or any defense or objection
thereto was unreasonable, the arbitrator may assess, as part of his award,
all or any part of the arbitration expenses of the other party (including
reasonable attorneys' fees) and of the arbitrator against the party raising
such unreasonable claim, defense or objection.
(ii) To the extent that arbitration may not be legally
permitted hereunder and the parties to any dispute hereunder may
not at the time of such dispute mutually agree to submit such
dispute to arbitration any party may commence a civil action in a
court of appropriate jurisdiction to
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solve disputes hereunder. Nothing contained in this Section 6.5
shall prevent the parties from settling any dispute by mutual
agreement at any time.
6.6 Compliance with Bulk Sales Laws. Purchaser and Seller hereby waive
compliance by Purchaser and Seller with the bulk sales law and any other
similar laws in any applicable jurisdiction in respect of the transactions
contemplated by this Agreement. Seller shall indemnify Purchaser in the
manner set forth in Section 6.3 herein from, and hold it harmless against,
any liabilities, damages, costs and expenses resulting from or arising out
of (i) the parties' failure to comply with any of such laws in respect of
the transactions contemplated by this Agreement, or (ii) any action brought
or levy made as a result thereof, other than those liabilities which have
been expressly assumed, on such terms as expressly assumed, by Purchaser
pursuant to this Agreement.
6.7 Other Rights and Remedies Not Affected. The indemnification rights
of the parties under this Article VI 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.
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ARTICLE VII - POST CLOSING MATTERS
7.1 Employee Benefits. Seller shall pay directly to each employee of
the Public Safety Software Business that portion of all benefits (including
the arrangements, plans and programs set forth in Schedule 3.1.22) which
has been accrued on behalf of that employee (or is attributable to expenses
properly incurred by that employee) as of the Closing Date, and Purchaser
shall assume no liability therefor. No portion of the assets of any plan,
fund, program or arrangement, written or unwritten, heretofore sponsored or
maintained by Seller (and no amount attributable to any such plan, fund,
program or arrangement) shall be transferred to Purchaser, and Purchaser
shall not be required to continue any such plan, fund, program or
arrangement after the Closing Date. The amounts payable on account of all
benefit arrangements (other than as specified in the following subsections)
shall be determined with reference to the date of the event by reason of
which such amounts become payable, without regard to conditions subsequent,
and Purchaser shall not be liable for any claim for insurance,
reimbursement or other benefits payable by reason of any event which occurs
prior to the Closing Date. All amounts payable directly to employees, or to
any fund, program, arrangement or plan maintained by Seller therefor shall
be paid by Seller within 30 days after the Closing Date to the extent that
such payment is not inconsistent with the terms of such fund, program,
arrangement or plan. All employees of Seller who are employed by Purchaser
on or after the Closing Date shall be new employees of Purchaser and any
prior employment by Seller of such employees shall not affect entitlement
to, or the amount of, salary or other cash compensation, current or
deferred, which Purchaser may make available to its employees.
7.2 Names of Employees. As of the Closing Date, Purchaser shall offer
employment to, and Seller shall use its reasonable best efforts to assist
Purchaser in employing as new employees of Purchaser, all persons presently
engaged in the Public Safety Software Business who are identified by
Purchaser in Schedule 7.2 annexed hereto (the "New Employees"). Seller
shall terminate effective as of the Closing Date all employment agreements
it has with any of the New Employees. Until the fifth anniversary of the
Closing Date, (a) Seller will not directly or indirectly solicit or offer
employment to anyone (i) who is then an employee of Purchaser, or (ii) who
has terminated such employment with Purchaser without the consent of
Purchaser within 180 days of such solicitation or offer; and, (b) Purchaser
will not directly or indirectly solicit or offer employment to any person
who after the Closing Date (i) is then an employee of Seller, or, (ii) who
has terminated such employment with Seller without the consent of Seller
within 180 days of such solicitation or offer.
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7.3 Discharge of Obligations. From and after the Closing Date Seller
shall pay and discharge, in accordance with past practice but not less than
on a timely basis, all obligations and liabilities incurred prior to the
Closing Date in respect of the Public Safety Software Business, or the
Assets (except for those expressly assumed by Purchaser hereunder),
including without limitation any liabilities or obligations to employees,
trade creditors and customers of the Public Safety Software Business unless
Seller disputes name, is pursuing a resolution or contesting same in good
faith and has adequately reserved against such obligation or liability.
7.4 Maintenance of Books and Records. Each of Seller and Purchaser
shall preserve until the fifth anniversary of the Closing Date all records
possessed or to be possessed by such party relating to any of the assets,
liabilities or business of the Public Safety Software Business prior to the
Closing Date. After the Closing Date, where there is a legitimate purpose,
such party shall provide the other parties with access, upon prior
reasonable written request specifying the need therefor, during regular
business hours, to (i) the officers and employees of such party and (ii)
the books of account and records of such party, but, in each case, only to
the extent relating to the assets, liabilities or business of the Public
Safety Software Business prior to the Closing Date, and the other parties
and their representatives shall have the right to make copies of such books
and records; provided, however, that the foregoing right of access shall
not be exercisable in such a manner as to interfere unreasonably with the
normal operations and business of such party; and further, provided, that,
as to so much of such information as constitutes trade secrets or
confidential business information of such party, the requesting party and
its officers, directors and representatives will use due care to not
disclose such information except (i) as required by law, (ii) with the
prior written consent of such party, which consent shall not be
unreasonably withheld, or (iii) where such information becomes available to
the public generally, or becomes generally known to competitors of such
party, through sources other than the requesting party, its affiliates or
its officers, directors or representatives. Such records may nevertheless
be destroyed by a party if such action is consistent with past practice and
such party sends to the other parties written notice of its intent to
destroy records, specifying with particularity the contents of the records
to be destroyed. Such records may then be destroyed after the 30th day
after such notice is given unless another party objects to the destruction
in which case the party seeking to destroy the records shall deliver such
records to the objecting party.
7.5 Payments Received. Seller and Purchaser each agree that after the
Closing they will hold and will promptly transfer and deliver to the other,
from time to time as and when received by them, any cash, checks with
appropriate endorsements (using their best efforts not to convert such
checks into cash), or other property that they may receive on or after the
Closing which properly belongs to the other party, including without
limitation any insurance proceeds, and
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will account to the other for all such receipts. From and after the
Closing, Purchaser shall have the right and authority to endorse without
recourse the name of Seller on any check or any other evidences of
indebtedness received by Purchaser on account of the Public Safety Software
Business and the Assets transferred to Purchaser hereunder.
7.6 [Intentionally left Blank].
7.7 UCC Matters. From and after the Closing Date, Seller will promptly
refer all inquiries with respect to ownership of the Assets or the Public
Safety Software Business to Purchaser. In addition, Seller will execute
such documents and financing statements as Purchaser may request from time
to time to evidence transfer of the Assets to Purchaser, including any
necessary assignments of financing statements.
7.8 [Intentionally Omitted]
7.9 Covenant Not to Compete. Seller and each of its affiliates agrees
that for a period of five years after the Closing Date, neither it nor any
of its affiliates will, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control
of, any business whether in corporate, proprietorship or partnership form
or otherwise as more than a five percent owner in such business where such
business is competitive with the Public Safety Software Business. The
parties hereto specifically acknowledge and agree that the remedy at law
for any breach of the foregoing will be inadequate and that the Purchaser,
in addition to any other relief available to it, shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damage. In the event that the provisions of this Section 7.9 should
ever be deemed to exceed the limitation provided by applicable law, then
the parties hereto agree that such provisions shall be reformed to set
forth the maximum limitations permitted.
7.10 Right of Setoff. In addition to any other rights and remedies
the Purchsaer has hereunder, in the event any claim, suit, or legal
administrative, arbitration or other proceeding is made or brought against the
Purchaser or the Assets (each an "Action") arising out of any actions of Mark
Honigsfeld relating to Seller's securities, which Action is brought following
the date of this Agreement and prior to December 31, 1999, Purchaser shall have
the right to set off the amount of liabilities or damages suffereed by Purchaser
arising from any Action against any Royalty Payments payable pursuamt to Section
1.3.1(b) hereof.
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ARTICLE VIII - MISCELLANEOUS
8.1 Royalty Payments to Seller (a) On or before the fifteenth day
following the end of each calender month after the Closing Date, Purchaser
shall submit to the Seller a written statement of sales and license orders
during such calender month to which Seller is entitled to receive a Royalty
Payment as provided in Section 1.3.1(b) hereof, which, among other things,
details the nature of the transaction giving rise to the Royalty Payment
and calculates the Royalty Payment related to each transaction. Purchaser
shall remit all or part of the Royalty Payment together with said written
statement to Seller or to any person to whom Seller directs by written
notice to Purchaser.
(b) For a period of sixty (60) days following receipt of any
statement referred to in Section 8.1 hereof, Seller shall have the
right to review Purchaser's books and records to verify the accuracy
of the statement. Purchaser shall, and Purchaser shall cause its
directors, attorneys, employees, agents and representatives to fully
cooperate with seller in such accounting. Any such review shall be at
Seller's sole cost and expense (excluding Purchaser's salaries,
consultation and professional fees payable by Seller to its employees,
consultants, attorneys, accountants and other professional advisors)
and shall be made upon reasonable notice to Purchaser and during
Purchaser's usual business hours; provided, however, if any inaccuracy
or error in the amount of Royalty Payments is discovered by Seller,
during any accounting, Purchaser shall promptly reimburse Seller for
its costs and expenses of such accounting.
(c) In the event that the Seller and Purchaser disagree on the
amount payable to Seller, the dispute shall be resolved as provided in
Section 6.5 hereof.
8.2 Purchaser's Use of Seller's Office Space. In order to facilitate
an orderly transition of the Public Safety Software Business, following the
Closing and through July 31, 1999, Seller shall permit Purchaser, at
Purchaser's option, to use up to sixty (60%) percent of Seller's office
space at 77 Spruce Street, Cedarhurst, New York. Purchaser shall pay Seller
pro rata under Seller's lease for, and utilities and maintenance costs
relating to, said space as set forth on Schedule 8.2 annexed hereto.
Purchaser shall give Seller ten (10) days notice of its intent to vacate
the premises.
8.3 Consultation with Seller's employees. In order to provide for an
orderly transition of the Public Safety Software
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Business and service of Seller's customers, for a period of up to six (6)
months after the Closing, Seller shall, to the best of its ability, make
available to Purchaser employees of Seller to assist in the transfer, use
and operation of Seller's Public Safety Software Systems. Purchaser shall
pay Seller a standard hourly rate for the services provided by such
employees.
8.4 Brokers' and Finders' Fees.(a) Seller represents and warrants to
Purchaser that all negotiations relative to this Agreement have been
carried on by it directly without the intervention of any person, who may
be entitled to any brokerage or finder's fee or other commission in respect
of this Agreement or the consummation of the transactions contemplated
hereby, and Seller agrees to indemnify and hold harmless Purchaser against
any and all claims, losses, liabilities and expenses which may be asserted
against or incurred by it as a result of Seller's dealings, arrangements or
agreements with any such person.
(b) Purchaser represents and warrants that all negotiations
relative to this Agreement have been carried on by it directly without
the intervention of any person who may be entitled to any brokerage or
finder's fee or other commission in respect of this Agreement or the
consummation of the transactions contemplated hereby, and Purchaser
agrees to indemnify and hold harmless Seller against any and all
claims, losses, liabilities and expenses which may be asserted against
or incurred by it as a result of Purchaser's dealings, arrangements or
agreements with or any such person.
8.5 Sales, Transfer and Documentary Taxes, etc. Seller shall pay all
federal, state and local sales, documentary and other transfer taxes, if
any, due as a result of the purchase, sale or 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 the filing of or failure to
file any such taxes or reports required in connection therewith.
8.6 Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses incidental to the preparation of
this Agreement, the carrying out of the provisions of this Agreement and
the consummation of the transactions contemplated hereby.
8.7 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between Seller and Purchaser
and supersedes any prior understandings, agreements, or representations by
or between Seller and Purchaser, written or oral, to the extent they
related in any way to the subject matter hereof.
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8.8 Succession and Assignment. This Agreement may not be assigned
prior to the Closing by any party hereto without the prior written consent
of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the successors and assigns of Seller and
Purchaser.
8.9 Waiver. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
8.10 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given only if delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or
sent by confirmed facsimile transmission, overnight mail or nationally
recognized overnight courier as follows:
If to Purchaser, to:
Admit Computer Services, Inc.
185 Merritts Road
Farmingdale, New York 11735
Attention: Dennis Labriola, President
Telecopier Number: (516) 249-1288
With a required copy to:
Geoffrey H. Ward, Esq.
230 Park Avenue
Suite 2215
New York, New York 10169
Telecopier Number: (212) 697-0946
If to Seller to:
Compu-DAWN, Inc.
c/o e.TV Commerce, Inc.
12735 Grand Bay Parkway West
Building 200
Jacksonville, Florida 32241
Attention: Chief Financial Officer
Telecopier Number: (904) 680-6442
With a required copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Gavin C. Grusd, Esq.
Telecopier Number: (516) 296-7111
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or to such other address as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication will
be deemed to have been given as of the date so delivered, or, in the
case of mailing, except overnight mail, three days after it is mailed.
8.11 New York Law to Govern. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of New
York, excluding choice of law principles thereof. Venue for all court
proceedings hereunder shall be in Nassau County, State of New York.
8.12 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and, in the case of Article VI hereof, the other Indemnified
Parties, and their heirs, executors, administrators, legal representatives,
successors and assigns, and they shall not be construed as conferring any
rights on any other persons.
8.13 Headings and Gender. All section headings contained in this
Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of
this Agreement. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context requires.
8.14 All Exhibits and Schedules. The Exhibits and schedules identified
in this Agreement are incorporated herein by reference and made a part
hereof.
8.15 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
8.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
8.17 Publicity. Neither Seller nor Purchaser will issue any report,
statement, release or other public announcement pertaining to the matters
contemplated by this Agreement or otherwise disclose the terms hereof
without the prior written consent of the other. Notwithstanding the
foregoing, Seller is permitted to make any disclosures or public
announcements of the transactions contemplated hereby and/or the terms
thereof without the prior written consent and approval of Purchaser if
Seller shall determine that such disclosure is required in order for Seller
to comply with applicable securities laws and regulations.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first written.
ATTEST: ADMIT COMPUTER SERVICES, INC.
By: /s/ Geoffrey Ward By /s/ Dennis Labriola
- --------------------- ----------------------
As its As its President
ATTEST: Compu-DAWN, Inc.
By By /s/ Rudy C. Theale, Jr.
- ------------------- --------------------------
As its As its Vice Chairman
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PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") dated July 15, 1999, by and between
e.TV, Inc., a Delaware corporation ("ETV") with offices at 12735 Gran Bay
Parkway, Building 200, Jacksonville, Florida 32258 and The Free Network LLC, a
Michigan limited liability company ("TFN") with offices at 1607 Big Beaver Road,
Suite 201, Troy, Michigan 48083.
Recitals
TFN has agreed to acquire certain independent network marketing sales
representatives, customers and obligations of ETV and ETV will aid TFN in the
successful transition of said representatives, customers and obligations.
Neither TFN or ETV is subject to any agreement or understanding which would
prevent any aspect of this Agreement, except as set forth herein.
Now, therefore, in consideration of the foregoing recitals, which are true
and correct and are incorporated herein, and the mutual covenants and promises
contained herein, the parties agree as follows:
1) Definitions
(a) "Customer" shall mean one who authorizes an Independent
Representative of TFN to maintain or switch their long distance
telephone service and/or Internet service to the carrier of TFN's
choice, the long distance telephone service carrier for purposes of
this Agreement is Unidial Communications, Inc., a Kentucky corporation
("Unidial").
(b) "TFN Representative" shall mean one who executes a TFN Independent
Representative agreement and abides by the TFN Independent
Representative policies and procedures.
(c) "Purchased Assets" shall mean the ETV network of Independent
Representatives and a list of customers of Unidial's long distance
telephone services signed up by ETV's Independent Representatives
which will be encouraged to become TFN Independent Representatives,
there being no requirement, obligation, or guaranty that the customers
will remain Unidial customers or the ETV Independent Representatives
will become and/or remain TFN Independent Representatives, and ETV's
right title and interest in and to that certain Agent's Agreement, as
amended and restated, between ETV and Unidial (the "Unidial
Agreement").
<PAGE>
(d) "Independent Representative" shall mean an independent network
marketing sales representative.
<PAGE>
2) Purchase Price
(a) The aggregate purchase price for the Purchased Assets shall be
$250,000.00 (the "Purchase Price"). The Purchase Price shall be
deposited into an escrow account at closing in the form of a wire
transfer of immediately available funds and held pursuant to that
certain Escrow Agreement of even date herewith (the "Escrow
Agreement") among TFN, ETV and Certilman Balin Adler & Hyman, LLP, as
escrow agent (the "Escrow Agent").
(b) ETV will, following confirmation of the Escrow Agent's receipt of
the Purchase Price, supply a computer diskette containing a hierarchy
report listing ETV's Independent Representatives and their respective
customers billing telephone numbers to TFN at closing.
(c) While this Agreement is in effect, and for a period of two (2)
years after its termination, ETV shall not, whether as principal,
agent, partner, joint venturer or in any other capacity and whether
acting in its own name or through any other person, corporation or
entity in which ETV has or will have an interest, compete with TFN its
owners, subsidiaries, affiliates or their successors or assigns, in
any way in the "Network Marketing" or "Multilevel" arena in the United
States.
(d) ETV will assign ETV's rights under its Agent's Agreement with
UniDial to TFN, subject to Unidial's consent thereto.
3) Right to Purchase Inventory
(a) TFN shall have an option for 45 days from the date of this
Agreement to purchase a maximum of 500 units of ETV's inventory of TV
set-top boxes produced by Boca Research, Inc. (the "Inventory") for a
purchase price of $200.00 per unit on terms and conditions to be
determined by ETV and TFN upon notice of TFN's intent to purchase the
Inventory (the "Option").
(b) In the event that TFN exercises its Option, ETV agrees that each
unit purchased by TFN will be properly programmed to comply with TFN's
internet provider. All costs and expenses of the purchase of the
Inventory by ETV from Boca Research, Inc. and programming of the
Inventory shall be paid by ETV.
(c) The parties acknowledge that if TFN does not purchase the
Inventory pursuant to the Option, ETV shall have a substantial risk of
loss since in all likelihood it will be unable to sell the Inventory
without its Independent Representatives for which ETV has negotiated
an increased Purchase Price to compensate for this risk. TFN
acknowledges that ETV is relying on TFN's performance of its
obligations in entering into this Agreement upon the terms and
conditions hereof.
<PAGE>
4) Survival
(a) The terms of this Agreement shall survive for the periods set
forth herein and the representations and warranties shall survive
until the expiration of their applicable statutes of limitation except
that the terms of Section 2(c) and Sections 8 through 19 shall survive
indefinitely.
(b) TFN shall not be liable to ETV for loss of profits or damages of
any kind whatsoever or for any kind of compensation on account of or
arising directly or indirectly from termination of this Agreement in
accordance with the terms hereof, or for any expenditures, investments
or commitments made by ETV, and all rights and claims of that nature
as may otherwise exist are hereby unconditionally and irrevocably
waived by ETV.
(c) Notwithstanding any other provision of this Agreement, upon
termination of this Agreement the parties will comply with all
requirements of law applicable to such termination.
5) Representations and Warranties of ETV
(a) ETV represents and warrants to the TFN that the following
representations and warranties are true and correct on the date of
this Agreement:
(i) Corporate Organization and Authorization. ETV is duly
incorporated, validly existing and in good standing under
the laws of the State of Delaware, with all requisite
corporate power and authority to own, operate and lease its
properties (including the Purchased Assets) and to carry on
its business as is now being conducted, and is qualified or
licensed to do business in each jurisdiction in which the
property owned, leased or operated by it in connection with
its business or the nature of its business makes such
qualification or licensing necessary. ETV has all requisite
corporate power and authority 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 all necessary corporate action of ETV.
(ii) Title to the Purchased Assets. ETV has all right, title
and interest in the Purchased Assets free and clear of any
liens, security interests, charges and encumbrances.
(iii) Material Contracts. ETV is not in default under, and
has received no notice of default with respect to, any
material contracts, leases, purchase orders and other
agreements in effect on the date hereof which materially
affect any of the Purchased Assets, except as set forth in
Schedule 5(a)(iii).
(iv) Tax Returns and Payments. ETV has received no notice
from any taxing authority of any material obligation that
may constitute or result in any lien or encumbrance on the
Purchased Assets.
(v) Binding Agreement. This Agreement has been duly executed
and delivered by ETV. This Agreement, assuming it is the
valid and binding agreement of TFN, is the valid and binding
obligation of ETV enforceable against ETV in accordance with
its terms, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and general equitable
principles. The execution and delivery by ETV of this
Agreement and the consummation by ETV of the transactions
contemplated hereby (i) will not violate ETV's Articles of
Incorporation or ByLaws or, assuming the obtaining of
necessary consents, any material contract, agreement or
other instrument to which ETV is a party or by which it is
bound, or, to ETV's knowledge, any judgment, order or decree
of any court to which ETV is subject or any law or
regulation of any governmental authority to which ETV is
subject, the violation of which could reasonably be expected
to have a material adverse effect on the Purchased Assets
and (ii) will not result in the creation or imposition of
any lien or encumbrance against any of the Purchased Assets.
(vi) No Litigation. There is no litigation, proceeding or
governmental investigation pending or, to the knowledge of
ETV, threatened against ETV relating to any of the Purchased
Assets which could reasonably be expected to have a
materially adverse effect on the consummation of the
transactions contemplated hereby or result in any material
adverse effect on the Purchased Assets.
(vii) Permits and Licenses. To the knowledge of ETV, ETV is
in possession of all material permits, licenses or other
authorizations of governmental authorities required for the
conduct of its business and its business has been conducted
in accordance with the material requirements of such
permits, licenses or other authorizations of governmental
authorities in effect on the date hereof.
(viii) No Condemnation Pending. ETV has not received any
notice from any Federal, state, county or municipal agency
or authority with respect to the taking of any of the
Purchased Assets and there is no proceeding pending or, to
the knowledge of ETV, threatened with respect thereto.
(ix) Brokers. ETV has not paid or become obligated to pay
any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the
transactions contemplated by this Agreement.
(x) Compliance with Law. ETV is in substantial compliance in
all material respects with all applicable Federal, state and
local laws, ordinances and published rules and regulations
of any governmental entity having jurisdiction over its
business and any judgments, injunctions, orders or decrees
applicable to its business except in all cases for
noncompliance that could not reasonably be expected to have
a material adverse effect on the Purchased Assets.
(xi) Bankruptcy, etc. ETV has not commenced proceedings
under any bankruptcy, reorganization, arrangement, debt or
receivership law, been deemed insolvent, or consented to the
appointment of a receiver or assignment for the benefit of
creditors.
6) Representations and Warranties of TFN
(a) TFN represents and warrants to ETV that the following
representations and warranties are true and correct on the date
of this Agreement:
(i) Organization, Good Standing and Power. TFN is a limited
liability company duly organized, validly existing and in
good standing under the laws of the State of Michigan and
has all requisite power and authority to own its properties
and to carry on its business as it is presently being
conducted. TFN has all requisite power and authority to
purchase and own the Purchased Assets and perform the other
covenants and agreements of TFN under this Agreement. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary action of TFN.
(ii) Binding Agreement. This Agreement has been duly
executed and delivered by TFN. This Agreement, assuming it
is the valid and binding agreement of ETV, is a valid and
binding obligation of TFN, enforceable against TFN in
accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting
creditors' rights generally and general equitable
principles. The execution and delivery of this Agreement by
TFN and the consummation by TFN of the transactions
contemplated hereby will not violate the Articles of
Organization or Operating Agreement of TFN or any material
contract, agreement or other instrument to which TFN is a
party or by which it or any of its properties are bound, or,
to TFN's knowledge, any judgment, order or decree of any
court to which TFN is subject or any law or regulation of
any governmental authority to which TFN is subject, the
violation of whic could reasonably be expected to have a
material adverse effect on TFN.
(iii) Required Consents. There are no governmental or other
third party consents or approvals required to be obtained by
TFN or any legal, contractual or other limitations on TFN's
purchase of the Purchased Assets.
(iv) Brokers. TFN has not paid or become obligated to pay
any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the
transactions contemplated by this Agreement. TFN represents
that ETV shall have no obligations whatsoever to any broker
resulting from this Agreement or the transactions
contemplated hereby.
7) Conditions of Closing
(a) The obligations of TFN under this Agreement are subject to
the satisfaction of all the following conditions as of the date
of this Agreement, any of which may be waived in writing by TFN:
(i) all representations and warranties of ETV contained in
this Agreement shall be true and correct in all material
respects as of the date of this Agreement; and
(ii) ETV shall have performed in all material respects all
of its covenants and agreements hereunder and shall deliver
or cause to be delivered the required documents,
information, files, and instruments as set forth in this
Agreement.
(b) The obligations of ETV hereunder are subject to the
satisfaction of all of the following conditions as of the date of
this Agreement, any of which may be waived in writing by ETV:
(i) all representations and warranties of TFN contained in
this Agreement shall be true and correct in all material
respects as of the date of this Agreement;
(ii) TFN shall have performed in all material respects all
of its covenants and agreements hereunder and shall deliver
or cause to be delivered the required documents,
information, files, and instruments as set forth in this
Agreement; and
(iii)the payment of the Purchase Price described in Section
1 shall have been paid by TFN.
8) Confidentiality and Nonuse of Proprietary Information
The parties acknowledge that in connection with this Agreement, each party
may have disclosed or may disclose information to the other party, in written,
oral, visual or other form, relating to technical information, drawings,
descriptions, specifications, techniques, manuals, and marketing and sales
information (all such information being referred to as the "Confidential
Information"), provided, however, that the term Confidential Information shall
not include such portions thereof which (i) ar or become generally available to
the public through no fault of the parties or materials such as general
informational brochures that are prepared by the parties for distribution to the
public, (ii) such information that becomes available to the other party on a
nonconfidential basis from a source which is not prohibited from disclosing such
information to the other party, (iii) is required to be disclosed pursuant to
court or administrative agency orders or subpoena, (iv) is required to be
disclosed by law, rule or regulation or the rules and regulations of any
governmental or quasi-governmental agency, or self-regulating organization,
including without limitation, the NASDAQ Stock Market, or (v) other disclosures
made in accordance with Section 19(a) hereof. Each party agrees that they will
not, without the other party's prior written consent, disclose any Confidential
Information to any other person and will not use any of the Confidential
Information for any purpose. Each part will disclose the Confidential
Information only to the other party's employees and others within that party's
organization who need to know for the purpose of this Agreement and each party
will assure compliance by such persons with the terms of this Agreement. Each
party's respective Confidential Information will remain the property of that
party and each party agrees to return all Confidential Information, including
copies thereof, to the other party on demand. In addition to other remedies,
each party shall be entitled to specific performance and injunctive and
equitable relief as a remedy for any breach of this Section 8. Upon expiration
or termination of this Agreement, each party shall return the Confidential
Information to the other party immediately without need for demand.
9) Governing Law
This agreement shall be interpreted, construed, governed and enforced
according to the internal laws of the State of Michigan without regard to
conflict or choice of laws of Michigan or any other jurisdiction. This Agreement
shall be executed in Michigan and is intended to be performed in Michigan.
10) Attorney's Fee
In the event of any arbitration or litigation or appeal process concerning
any controversy, claim, or dispute between the parties hereto, arising out of or
relating to this Agreement or the breach thereof, or the interpretation thereof,
the prevailing party shall be entitled to recover from the non-prevailing party
reasonable expenses, and attorney's fee and costs incurred therein whether by
judgment or settlement or in the enforcement or collection of any judgment or
award rendered therein. The term "prevailing party" means the party determined
by the court or arbitrator to have most substantially prevailed, even if such
party did not prevail in all matters.
11) Amendments
Any amendment or modification of this Agreement, or any waiver or consent
granted hereunder, must be in writing and signed by the party to be bound
thereby to be valid for purposes of this Agreement, and any such amendment,
modification, waiver or consent shall be valid only in the specific
circumstances for which it is given.
12) Successors and Assigns
Neither this Agreement, nor any of the rights and duties of ETV hereunder,
are assignable or transferable without the prior written consent of TFN and any
purported assignment or transfer by ETV without such consent shall be void. TFN
may assign its rights or delegate its performance hereunder, in whole or in
part, to any affiliated company.
13) No Waiver
If any party to this Agreement fails to, or elects not to enforce any
rights or remedy to which it may be entitled hereunder or by law, such right or
remedy shall not be waived, nor shall such non-action be construed to confer a
waiver as to any continued or future acts, nor shall any other right or remedy
be waived as a result thereof. No right under this Agreement shall be waived
except as evidenced by a written document signed by the party waiving such
right.
14) Arbitration
Any dispute, controversy or claim arising out of or related to this
Agreement, or the breach, termination, or invalidity hereof, that is not
resolved amicably by the parties shall be finally determined and settled by the
American Arbitration Association in accordance with the arbitration rules in
effect the date of the Agreement, with such arbitration taking place in Oakland
County, Michigan. The American Arbitration Association shall be the appointing
authority. The number of arbitrators shall be one. The judgment of such
arbitration proceeding shall be binding upon the parties and may be entered and
enforced in any jurisdiction within or without the United States. The arbitrator
shall, in his or her decision, state all relevant and material findings of fact
and conclusions of law necessary or desirable to explain and support said
decision. Actions seeking injunctive relief shall be non-arbitrable.
15) Injunction
It is mutually acknowledged, understood and agreed that the Confidential
Information and talents and abilities of, and the services to be rendered
hereunder by, TFN and ETV respectively are exceptional, unique and
irreplaceable, and that any breach, violation or evasion by ETV or TFN of the
terms of this Agreement will result in immediate and irreparable injury and harm
to TFN or ETV respectively. Accordingly, the parties hereto agree that in the
event of any breach, violation or evasion of this Agreement by ETV or TFN, TFN
or ETV respectively shall be entitled to the remedies of injunction and specific
performance as well as to all other legal or equitable remedies to which TFN or
ETV respectively may legally be entitled, including, without limitation, the
immediate termination of this Agreement.
16) Compliance With Laws
ETV and TFN shall at all times comply with applicable laws in connection
with this Agreement. ETV and TFN represent and warrant to each other that it is
fully authorized and qualified to perform its obligations set forth in this
Agreement in accordance with all applicable laws and agrees to maintain such
authorization and qualification at all times.
17) Indemnification
(a) ETV agrees to indemnify and hold harmless TFN and its
affiliates against all claims, demands, suits, liabilities,
losses, costs and expenses, including attorneys' fees and
disbursements, arising out of or from any acts or omissions
of any nature whatsoever of ETV or its shareholders,
directors, officers, agents, representatives or employees.
(b) TFN agrees to indemnify and hold harmless ETV and its
affiliates against all claims, demands, suits, liabilities,
losses, costs and expenses, including attorneys' fees and
disbursements, arising out of or from any acts or omissions
of any nature whatsoever of TFN or its shareholders,
directors, officers, agents, representatives or employees.
18) Notices
All notices given in connection with this Agreement shall be made in
writing, sent by certified, registered mail, express mail, or by courier,
messenger or overnight carrier addressed as follows or as may, from time to time
be designated in writing by either party:
e.TV, Inc.
P.O. Box 2772
Ponte Vedra, Florida 32004-2772
Attention: Chief Financial Officer
THE FREE NETWORK L.L.C.
1607 Big Beaver Rd. Suite #201
Troy, Michigan 48083
Attention: Vitaliano Terracciano
Notice shall be deemed given when served personally, or if either mailed
via certified mail, return receipt requested or surrendered to a federally
licensed common carrier for same or next day delivery, then two days after said
mailing or surrender. Either party to this contract/agreement can change their
address for purposes of receiving notice, in accordance with notice provision.
19) Miscellaneous
(a) Any public announcements or similar publicity with
respect to this Agreement or the transactions contemplated
hereby shall only be made at such time and in such manner as
the parties hereto shall agree in writing; provided,
however, that nothing herein shall prevent either party upon
notice to the other from making such public announcements as
such party's counsel may advise such party in writing to
make in order to satisfy any legal obligations of such
party.
(b) From time to time after the date of this Agreement, as
and when requested by either party hereto, TFN and ETV shall
execute and deliver, or cause to be executed and delivered,
such documents and instruments and shall take, or cause to
be taken, such further or other actions as ETV or TFN may
deem necessary or desirable to carry out the intent and
purposes of this Agreement, to convey, transfer, assign and
deliver to TFN, the Purchased Assets (or to evidence any of
the foregoing) and to consummate and give effect to the
other transactions, covenants and agreements contemplated
hereby.
(c) This Agreement sets forth the entire agreement and
understanding between the parties concerning the subject
matter hereof. In case any one or more of the rights or
obligations under this Agreement shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining rights and obligations
shall not in any way be affected or impaired thereby, and
such invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or
enforceability of such rights and obligations under this
Agreement in any other jurisdiction.
(d) Neither ETV nor TFN shall authorize, permit or acquiesce
in any action, which would otherwise constitute a breach of
this Agreement if such action were taken by ETV or TFN
respectively, to be taken by (i) any person controlling,
controlled by or under common control with, ETV or TFN
respectively, or (ii) any relative of any such person, or
(iii) any other person in which or with whom ETV or TFN
respectively, or any such person or relative has a legal or
beneficial interest or arrangement
(c) The provisions of this Agreement are intended to be severable. In the
case one or more of the provisions contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained in this Agreement shall not
in any way be affected or impaired thereby.
(d) The titles appearing in this Agreement are for convenience only, and
shall have no effect on the construction or interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, TFN and ETV have caused this Agreement to be
executed by the undersigned officers, duly authorized on the date written above.
e.TV, Inc. The Free Network, L.L.C.
By: /s/ David S. Greenspan By:/s/ Vitaliano Terracciano
-------------------------------- ---------------------------
David S. Greenspan Vitaliano Terracciano
Its: Chief Financial Officer Its: President of Business
Development
<PAGE>
Compu-DAWN, Inc.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ---------- ----------- ----------
NET (LOSS):
<S> <C> <C> <C> <C>
Continuing operations $ (265,656) $ 38,067 $ (272,656) $ 55,417
Discontinued operations (2,497,246) (460,778) (5,759,671) (954,455)
------------ ---------- ----------- ----------
$ (2,762,902) $ (422,711) $(6,032,327) $ (899,038)
============ ========== =========== ==========
BASIC LOSS PER COMMON SHARE:
Continuing operations $(.07) $ .01 $(0.07) $ .02
Discontinued operations (.65) (.15) (1.53) (.33)
------------ ---------- ----------- ----------
$ (.72) $ (.14) $ (1.60) $ (.31)
============ ========== =========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,857,380 2,936,312 3,763,554 2,888,445
============ ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the six months ended June 30, 1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 258,813
<SECURITIES> 891,100
<RECEIVABLES> 235,988
<ALLOWANCES> 13,635
<INVENTORY> 99,099
<CURRENT-ASSETS> 1,640,043
<PP&E> 734,243
<DEPRECIATION> 314,612
<TOTAL-ASSETS> 2,096,742
<CURRENT-LIABILITIES> 882,828
<BONDS> 56,906
0
25
<COMMON> 40,888
<OTHER-SE> 1,116,095
<TOTAL-LIABILITY-AND-EQUITY> 2,096,742
<SALES> 327,887
<TOTAL-REVENUES> 327,887
<CGS> 195,236
<TOTAL-COSTS> 488,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,103
<INCOME-PRETAX> (272,656)
<INCOME-TAX> 0
<INCOME-CONTINUING> (272,656)
<DISCONTINUED> (5,759,671)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,032,327)
<EPS-BASIC> (1.60)
<EPS-DILUTED> (1.60)
</TABLE>
