As filed with the Securities and Exchange Commission on December 21, 1999
Registration No. ____-_________
================================================================================
United States Securities and Exchange Commission
Washington, DC 20549
FORM SB-2
Registration Statement under the Securities Act of 1933
CDKNET.COM, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 5961 22-3586087
-------- ---------------- ----------
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation Code Number)
or Organization)
595 Stewart Avenue
Suite 710
Garden City, New York 11530
(516) 222-8800
WWW.CDKNET.COM
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(Address and Telephone Number of Principal Executive Offices)
250 West 57th Street
Suite 1101
New York, New York 10019
(212) 547-6050
WWW.CDKNET.COM
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(Address of Principal Place of Business or Intended Principal
Place of Business)
Steven A. Horowitz
Horowitz, Mencher, & Nestler, P.C.
595 Stewart Avenue
Suite 710
Garden City, New York 11530
Phone: (516) 222-2345
Fax: (516) 222-2665
---------------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Approximate date of commencement of proposed sale to the public: As
soon as practicable after effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), check the following
box. [X] ___
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Title of Each Class Of Proposed Proposed Amount Of
Securities To Be Amount To Be Maximum Maximum Registration Fee
Registered Registered Offering Price Aggregate Offering
Per Unit(1) Price
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock offered 1,500,000 $ .60(2) $ 900,000 $237.60
for sale
by selling security
holders
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Common Stock issuable 125,056 $ .75(3) $ 93,782 $ 24.76
upon the exercise of
warrants by selling
security holders
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Common Stock issuable 2,500,000 $ .60(4) $1,500,000 $396.00
upon the conversion of
Preferred Stock by
Casa di Cura
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Total Registration Fee $658.36
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the Registration Fee
pursuant to Rule 457 (a) under the Securities Act of 1933.
(2) Pursuant to the closing price for the referenced Common Stock on the "Pink
Sheets" on December 14, 1999.
(3) The Warrant Agreement between us and certain selling stockholders sets the
purchase price at $.75 per share.
(4) Casa di Cura owns 1,500,00 shares of our preferred stock convertible into
Common Stock. The conversion price for the preferred shares is estimated to be
between $.60 and $1.30 per share. Once the stock has been converted into Common
Stock, Casa di Cura may sell the stock at market or a negotiated rate. For the
purpose of calculating the registration fee, we have assumed the stock on the
"Pink Sheets" on December 14, 1999.
================================================================================
2
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
3
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
PROSPECTUS
4,125,056 SHARES OF COMMON STOCK
CDKNET.COM, INC.
CDKNET.COM, INC., a Delaware corporation, is registering 4,125,056
shares of its common stock:
o for sale by investors who purchased 1,500,000 shares of common stock in
private placements by the Company,
o issuable upon exercise of warrants to purchase 125,056 shares of common
stock, and
o 2,500,000 shares of common stock issuable upon the conversion of
preferred stock held by Casa di Cura.
Our common stock is currently traded on the "Pink Sheets" under the
symbol "CDKX" pending review of our Registration Statement on Form 10-SB (which
we filed on October 7, 1999) by the Commission. Once the Commission has cleared
our Form 10-SB, we can apply for reinstatement on the Nasdaq Over-the-Counter
Bulletin Board.
Investing in Common Stock Involves Risks. See "Risk Factors -- Special
Considerations" Beginning on Page 11.
-------------------------------------------------
Neither the Securities and Exchange Commission nor any other Regulatory
Body has Approved or Disapproved of these Securities or Passed Upon the Accuracy
or Adequacy of this Prospectus. Any Representation to the Contrary is a Criminal
Offense.
THERE IS NO UNDERWRITER FOR ANY OF THE SECURITIES OFFERED. SEE "PLAN OF
DISTRIBUTION."
THE DATE OF THIS PROSPECTUS IS DECEMBER __, 1999.
4
<PAGE>
TABLE OF CONTENTS
PART 1
- ------
Page
----
INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS SUMMARY AND RISK FACTORS ............................ 7
USE OF PROCEEDS ................................................ 16
DETERMINATION OF OFFERING PRICE ................................ 16
SELLING SECURITY HOLDERS ....................................... 16
PLAN OF DISTRIBUTION ........................................... 18
LEGAL PROCEEDINGS .............................................. 19
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS ................................................ 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .......................................... 23
DESCRIPTION OF SECURITIES ...................................... 26
LEGAL MATTERS AND EXPERTS ...................................... 28
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ................. 28
ORGANIZATION WITHIN LAST FIVE YEARS ............................ 28
DESCRIPTION OF BUSINESS ........................................ 30
5
<PAGE>
Page
----
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION ........................................... 40
DESCRIPTION OF PROPERTY ........................................ 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 46
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ............................................ 48
EXECUTIVE COMPENSATION ......................................... 48
FINANCIAL STATEMENTS ........................................... F-1
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ......................... II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS ...................... II-1
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION .................... II-2
RECENT SALES OF UNREGISTERED SECURITIES ........................ II-2
EXHIBITS ....................................................... II-4
UNDERTAKINGS ................................................... II-8
6
<PAGE>
PROSPECTUS SUMMARY
------------------
OUR COMPANY
- -----------
We have developed a multimedia technology, called CDK(TM), which integrates
audio, video and Internet connectivity on a standard compact disc. Our
technology enables users to create their own personalized CDs simply by visiting
a Website. These custom CDs play audio and display videos on a full-screen,
using high-quality videos and digital technology. The custom CDs also include
software applications and targeted Web links.
Our targeted industries include: (1) entertainment (music, movies and TV); (2)
travel and tourism; (3) professional sports; (4) financial services; (5)
education; (6) toys/games; (7) fashion; (8) food/cooking; (9) automotive; and,
(10) healthcare. Our primary customers and/ or strategic partners include
Peterson's, AtomicPop, Central Park Media, CollegeMusic.com, Megaforce Records
and DreamWorks Records. We believe that there are six main companies currently
offering custom audio CD development. These companies are Musicmaker.com,
Customdisc.com, CDUCTIVE, Amplified.com, K-Tel.com, and EZCD.com. However, we
believe that none of these companies offers custom multi-session CD development.
We intend to establish three principal revenue streams: (1) sale of custom CDs,
(2) sale of Web links and Web advertising, and (3) development and use fees. We
are currently capable of providing services in each of these areas, however the
last represents our primary revenue stream.
We have received an infusion of $1,037,500 in capital since October 1, 1999. We
plan to decrease our need for substantial additional working capital by
continuing to outsource our production capabilities, expand business development
efforts and implement marketing programs.
7
<PAGE>
THE OFFERING
SECURITIES OFFERED:
GROSS FOUNDATION SHARES ... 714,286 shares of Common Stock which we issued
to The Gross Foundation Inc. We are also
registering 71,486 shares of Common Stock which
The Gross Foundation may obtain by exercise of
Warrants which it received with its investment.
The Warrants are exercisable at $.75 per share.
FOX DISTRIBUTION SHARES ... 107,143 shares of Common Stock which were
purchased by Fox Distribution, Inc. We are also
registering 10,714 shares of Common Stock which
Fox Distribution may obtain by exercise of
Warrants which it received with its investment.
The Warrants are exercisable at $.75 per share.
SONNENBERG SHARES ......... 142,857 shares of Common Stock which we issued
to Michael Sonnenberg. We are also registering
14,285 shares of Common Stock which Mr.
Sonnenberg may obtain by exercise of Warrants
which Mr. Sonnenberg received with his
investment. The Warrants are exercisable at
$.75 per share.
HOROWITZ SHARES ........... 285,714 shares of Common Stock which we issued
to Steven A. Horowitz. Mr. Horowitz is
Chairman, Chief Executive Officer, Chief
Financial Officer and Secretary of the Company.
We are also registering 28,571 shares of Common
Stock which Mr. Horowitz may obtain by exercise
of Warrants which he received with his
investment. The Warrants are exercisable at
$.75 per share.
8
<PAGE>
KELLY MUSIC SHARES ........ 250,000 shares of Common Stock which we issued
to Kelly Music & Entertainment Corp.
CASA DI CURA SHARES ....... 2,500,000 share of Common Stock which Casa di
Cura may obtain by the conversion of our
Preferred Stock at a conversion price between
$.60 and $1.30 per share.
SHARES OUTSTANDING ........ 17,206,157 shares of Common Stock are issued
and outstanding as of December 14, 1999. In
addition, 5,000,000 shares of Series A
Preferred Stock are authorized with 1,500,000
issued and outstanding as of December 14, 1999.
TRADING SYMBOL ............ CDKX.
RISK FACTORS .............. The Common Stock our investors are offering
involve a high degree of risk. See "Risk
Factors" beginning on page 11.
OUR EXECUTIVE OFFICE ...... 595 Stewart Avenue
Suite 710
Garden City, N.Y. 11530
(516) 222-8800
OUR PRINCIPAL PLACE
OF BUSINESS ............... 250 West 57th Street
New York, New York 10019
(212) 547-6050
9
<PAGE>
The summary financial information set forth below is derived from and should be
read in conjunction with the consolidated financial statements, including the
notes thereto, appearing elsewhere in this Prospectus. The information set forth
below should also be read in conjunction with "Management's Discussion and
Analysis of Operations." Results of operations for the periods presented are not
necessarily indicative of results of operations for future periods.
<TABLE>
<CAPTION>
THREE MONTHS PERIOD OCTOBER 1, 1997
ENDED YEAR ENDED (DATE OF INCEPTION)
SEPTEMBER 30, JUNE 30, TO JUNE 30, 1998,
1999 1999 AS RESTATED
------------ ----------- ------------
STATEMENTS OF OPERATIONS DATA -(unaudited)-
<S> <C> <C> <C>
Net revenues $ 23,663 $ 474,344 $ 616,137
Cost of revenues 14,958 288,762 415,769
------------ ----------- ------------
Gross profit 8,705 185,582 200,368
Operating expenses 1,158,330 5,238,681 1,714,254
Other (expenses) income, net 27,254 1,094,501 (329,411)
------------ ----------- ------------
Net Loss $ (1,176,879) $(6,147,600) $ (1,184,475)
============ =========== ============
Basic and diluted earnings (loss) per share $ (0.08) $ (0.46)
============ ===========
Weighted average shares outstanding - basic and diluted 14,274,175 13,282,176
============ ===========
SEPTEMBER 30, JUNE 30,
1999 1999
(unaudited)
------------ -----------
BALANCE SHEET DATA
Working capital (deficit) $ (670,469) $ (557,197)
Current Assets 49,115 271,854
Total Assets 6,864,220 7,559,897
Current Liabilities 719,584 829,051
Total Liabilities 2,585,026 2,705,467
Stockholders' equity 4,279,194 4,854,430
Common shares outstanding 14,810,979 14,046,906
</TABLE>
10
<PAGE>
CAUTIONARY STATEMENT
--------------------
All statements, trends, analyses and other information contained in this
Prospectus relative to trends in net sales, gross margin, anticipated expense
levels and liquidity and capital resources, as well as other statements,
including, but not limited to, words such as "anticipate," "believe," "predict,"
"plan," "intend," "expect," and other similar expressions constitute
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks and uncertainties that are difficult to
predict. Potential risks and uncertainties include those set forth below in
"Risk Factors." Particular attention should be paid to the cautionary statements
involving our limited operating history, the unpredictability of our future
revenues, the unpredictable and evolving nature of its business model, the
intensely competitive online commerce industry and the risks associated with
capacity constraints, systems development, management of growth and business
expansion, as well as other factors described below.
RISK FACTORS
------------
We have described several risk factors which we believe are significant and
should be given careful consideration by you when you evaluate our Company. We
consider each of these risks to be specific to us, although some are industry or
sector related issues which could also impact other businesses in our market
sector. In our case and in addition to the risks just referred to, there are two
related risks to which we wish to draw your attention specifically:
O Our independent certified public accountants have added an emphasis
paragraph to their report on our consolidated financial statements as
of June 30, 1999 and for the year ended June 30, 1999, and the period
October 1, 1997 (date of inception) to June 30, 1998, relating to
factors that raise substantial doubt about our ability to continue as a
going concern.
O We need significant additional financing.
If we are unable to obtain significant additional financing or otherwise fund
our operations, we will likely have to file for bankruptcy.
You should carefully consider the following information which outlines special
market and other risk factors affecting us and our industry.
Our ability to continue operations is in question.
- --------------------------------------------------
Our history of operating losses raises substantial doubt about our ability to
continue operations. If we are unable to obtain significant additional financing
or otherwise obtain working capital to fund our operations, we may be obliged to
seek protection of the bankruptcy courts. In particular, our independent
certified public accountants have added an emphasis paragraph to their report on
our consolidated financial statements as of
11
<PAGE>
June 30, 1999 and for the year ended June 30, 1999, and for the period October
1, 1997 (date of inception) to June 30, 1998, relating to factors that raise
substantial doubt about our ability to continue as a going concern. The factors
cited by them include the following:
O continued losses
O use of significant cash in operations
O lack of sufficient funds to execute our business plan
Our unaudited financial statement for the period July 1, 1999 to September 30,
1999 reflect $23,663 in net revenues.
Our financial condition is highly uncertain and we need to obtain significant
- -----------------------------------------------------------------------------
additional financing to avoid bankruptcy.
- -----------------------------------------
As of the fiscal quarter ending September 30, 1999, our current assets were
significantly less than our current liabilities. Despite our continued ability
to raise capital through debt and equity financing, we need to raise significant
additional financing or otherwise obtain working capital to continue operations
through the next year. If we do not raise the necessary financing, we will
probably have to seek the protection of the bankruptcy courts and holders of our
common stock would stand to lose their entire investment.
Due to changes in our business, our historical financial information is of
- --------------------------------------------------------------------------
material relevance.
- -------------------
Our ability to generate revenue and income is unproven, and changes in our
business make an evaluation of our operating history difficult. Our Company must
be considered in light of the risks, expenses and difficulties encountered by
companies in the new and rapidly evolving market for online, custom CD
technology and related enhanced services. To address these risks, among other
things, we must (1) market our services and build our brand names effectively,
(2) provide scalable, reliable and cost-effective services, (3) continue to grow
our infrastructure to accommodate additional customers and increased use of our
products and services, (4) expand our channels of distribution, (5) continue to
respond to competitive developments, and (6) retain and motivate qualified
personnel.
Future sales may have a dilutive effect on future sales of securities.
- ----------------------------------------------------------------------
Future sales of substantial amounts of our common stock in the public market
could adversely affect the market price of our common stock and our stockholders
could experience dilution in their stock ownership and in the value of their
shares. Dilution is a reduction in the value of the holder's investment measured
by the difference between the purchase price of the shares of the common stock
and the net tangible book value of the shares after the purchase takes place. As
of December 14, 1999, we had 17,206,157 shares of common stock outstanding of
which 13,604,333 are restricted or affiliate shares ("Restricted Shares"). Those
Restricted Shares will gradually be converted to free-trading
12
<PAGE>
shares, the sale of which could have a material adverse effect on the future
market price of our common stock.
Our shares are traded on the so-called "Pink Sheets."
- -----------------------------------------------------
In January 1999, the National Association of Securities Dealers imposed
eligibility requirements, which were approved by the Commission, for trading on
the Over-the-Counter Bulletin Board. As a result of these new eligibility
requirements, we were required to register under the Securities Exchange Act of
1934 in order to be traded on the Over-the-Counter Bulletin Board. The phase-in
schedule for the new eligibility requirements provides that we must have met
these requirements on or before October 7, 1999, including filing and clearing a
registration statement under the Exchange Act with the Commission. We did not
meet this deadline and, as a result, were deleted from the Over-the-Counter
Bulletin Board on October 7, 1999. There continues to be a market for our stock
because we qualify for a Commission exemption that allows us to automatically be
quoted on the National Quotation Bureau's "Pink Sheets" until we meet the
eligibility requirements for the Over-the-Counter Bulletin Board. Trading on the
"Pink Sheets" will result in a less liquid market for our stock than would exist
on the Over-the-Counter Bulletin Board.
If we do not adapt to rapid technological change, our business will be adversely
- --------------------------------------------------------------------------------
affected.
- ---------
Our success is highly dependent upon our ability to develop new and enhanced
services, and related products that meet changing customer requirements. At
present, our two main products -- CDK(TM) and MixFactory(TM)-- are both
available and for sale to the public. Nonetheless, the market for our services
is characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new and enhanced software, service and related
product introductions.
To remain successful, we must be responsive to new developments in hardware and
semiconductor technology, operating systems, programming technology, and
computer capabilities. In many instances, the new and enhanced services,
products, and technologies are in the emerging stages of development and
marketing, and are subject to the risks inherent in the development and
marketing of new software, services, and products. We may not successfully
identify new service opportunities, and develop and bring new and enhanced
services and related products to market in a timely manner; there can be no
assurance that:
o any of these services, products or technologies will develop or will be
commercially successful, or that we will benefit from these
developments, or
o services, products, or technologies developed by others will not render
our services, and related products noncompetitive or obsolete.
If we are unable, for technological or other reasons, to develop and introduce
new services and products in a timely manner in response to changing market
conditions or customer requirements, or if new or enhanced software, services,
and related products do not achieve a significant degree of market acceptance,
our business, operating results, and financial condition would be materially
adversely affected.
We face intense competition in the CD development market.
- ---------------------------------------------------------
Portions of the online, custom CD market are becoming increasingly competitive.
We expect in the coming years to face significant competition in all of our
markets. We expect new companies will emerge and compete for the same customers.
13
<PAGE>
We expect competition to increase from both established and emerging companies
and that this increased competition will result in reduced costs which could
materially adversely affect our business, operating results, and financial
condition. Moreover, our current and potential competitors, some of whom have
significantly greater financial, technical, marketing, and other resources than
we do, may respond more quickly than we do to new or emerging technologies or
could expand to compete directly against us. Accordingly, it is possible that
current or potential competitors could rapidly acquire significant market share.
There can be no assurance that we will be able to compete against current or
future competitors successfully or that competitive pressures faced by us will
not have a material adverse effect on our business, operating results, and
financial condition.
Government regulation and legal uncertainties may affect our business.
- ----------------------------------------------------------------------
Only a small body of laws and regulations currently apply specifically to
content of, access to, or commerce on, the Internet. It is possible that laws
and regulations with respect to the Internet may be adopted by governments in
any of the jurisdictions in which we can sell our products, covering issues such
as user privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. The nature of future legislation and the
manner in which it may be interpreted and enforced cannot be fully determined
and, therefore, legislation could subject us and/or our customers to potential
liability, which in turn could have a material adverse effect on our business,
results of operations and financial condition.
In addition, applicability to the Internet of existing laws governing issues
such as property ownership, copyright and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of these laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. Changes to these laws intended to
address these issues could create uncertainty in the marketplace that could
reduce demand for our services or increase the cost of doing business as a
result of costs of litigation or increased service delivery costs, or could in
some other manner have a material adverse effect on our business, results of
operations and financial condition.
And, because our services are available over the Internet virtually worldwide,
and because we facilitate sales by our customers to end users located in
multiple provinces, states and foreign countries, these jurisdictions may claim
that we are required to qualify to do business as a foreign corporation in each
of the state/province or that we have a permanent establishment in each of the
foreign countries. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties for failure to qualify and could result in the inability to enforce
contracts in these jurisdictions. Any new legislation or regulation, or the
application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could have a material adverse effect on our
business, results of operations and financial condition.
We are dependent on certain key personnel.
- ------------------------------------------
Our success depends to a significant degree upon the continued contributions of
CDKnet's key management, marketing, service and related product
14
<PAGE>
development and operational personnel, including its Chairman, Chief Executive
Officer, Chief Financial Officer and Secretary, Steven A. Horowitz; its
President, Shai Bar-Lavi; its Executive Vice President of Entertainment, Michael
W. Jolly; its President of the Entertainment Group, Tom Ross; and its Executive
Vice President and General Manager, Russell A. Kern. Our operations could be
affected adversely if, for any reason, any of these officers ceased to be active
in our management.
Effective December 17, 1999, our Senior Vice President of Software Development
and Chief Technical Officer, Keith Fredericks, resigned to pursue other
opportunities. We are currently in contract negotiations with his replacement.
We expect to finalize an agreement with him in the near future. In the meantime,
we do not expect Mr. Fredericks' departure to have a material long-term effect
on our operations.
We maintain proprietary nondisclosure and non-compete agreements with some
employees, contractors and collaborators/partners. We do not have key person
life insurance policies on directors, executive officers or key employees.
Competition for employees in the multimedia technology industry is intense, and
there can be no assurance that we will be able to attract and retain enough
qualified employees. If our business grows, it may become increasingly difficult
to hire, train and assimilate the new employees needed. Our inability to retain
and attract key employees could have a material adverse effect on our business,
operating results, and financial condition.
We may have difficulty in management of growth.
- -----------------------------------------------
We may experience a period of rapid growth which could place a significant
strain on its resources. Our ability to manage growth successfully will require
us to continue to improve our operational, management and financial systems and
controls as well as to expand our work force. A significant increase in our
customer base would necessitate the hiring of a significant number of additional
customer service care and technical support personnel as well as computer
software developers and technicians, qualified candidates for which, at the
present time, are in short supply. We must manage relationships with a growing
number of third parties as we seek to complement our service offerings and
increase its sales efforts. If our management is unable to manage growth
effectively, hire needed personnel, expand and adapt our computer infrastructure
or improve our operational, management, and financial systems and controls, our
business, operating results, and financial condition could be materially
adversely affected.
Product defects can adversely affect our business.
- --------------------------------------------------
The software products utilized by us could contain errors or "bugs" that could
adversely affect the performance of services or damage a user's data. In
addition, as we increase our share of the multisession, i.e., both audio and
video, CD market, software reliability and security demands will increase.
Attempts to limit our potential liability for warranty claims through
limitation-of-liability provisions in its customer agreements. There can be no
assurance that the measures taken by us will prove effective in limiting our
exposure to warranty claims. Despite the existence of various security
precautions, our computer infrastructure may be also vulnerable to viruses or
similar disruptive problems caused by our customers or third parties gaining
access to our processing system.
We have limited protection of proprietary technology and there is a risk of
- ---------------------------------------------------------------------------
third party claims.
- -------------------
We regard some of our services as proprietary and rely primarily on a
combination of patent, copyright, trademark and trade secret laws, employee and
third party non-disclosure agreements, and other intellectual property
protection methods to protect our services. Existing intellectual property laws
afford only limited protection, and it may be possible for unauthorized third
parties
15
<PAGE>
to copy our services and related products or to reverse engineer or obtain and
use information that we regard as proprietary. There can be no assurance that
our competitors will not independently develop services and related products
that are substantially equivalent or superior to ours.
USE OF PROCEEDS
---------------
We will not realize any proceeds from the sale of the shares by the selling
security holders. We have already received and are utilizing the proceeds
received from those shares sold in private placements in our business and
marketing.
DETERMINATION OF OFFERING PRICE
-------------------------------
All securities to be registered pursuant to this Prospectus will be sold by the
selling security holders. See "Selling Security Holders." The Shares may be
offered and sold from time to time by any selling security holder. The selling
security holder will act independently of us in making decisions with respect to
the timing, manner, and size of each sale. The shares will be sold at market
price or in negotiated transactions.
SELLING SECURITY HOLDERS
------------------------
The following provides information with respect to:
Gross Foundation Shares
- -----------------------
We are registering 714,286 shares of Common Stock which we issued to The Gross
Foundation Inc. (the "Gross Foundation") on November 2, 1999 along with 71,486
Warrants expiring on November 2, 2001 to purchase Common Stock at $.75 per share
(the "Gross Foundation Shares"). The Gross Foundation is a corporation organized
under the laws of New York. The Gross Foundation has had no material
relationship with us since our inception. The Gross Foundation Shares represent
4.1% of our issued and outstanding Common Stock. If the Gross Foundation were to
exercise all of its Warrants, it would own a total of 785,772 registered shares
which would be approximately 4.5% of our issued and outstanding Common Stock.
See "Plan of Distribution."
16
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Fox Distribution Shares
- -----------------------
We are registering 107,143 shares of Common Stock owned by Fox Distribution,
Inc. ("Fox Distribution") on November 2, 1999 along with 10,714 Warrants
expiring on November 2, 2001 to purchase Common Stock at $.75 per share (the
"Fox Distribution Shares"). Fox Distribution has had no material relationship
with us since our inception. However, Fox Distribution obtained its Shares from
Shai Bar-Lavi, President of CDK's wholly-owned subsidiary, CDKnet, LLC, on
November 2, 1999. From time-to-time, Fox Distribution does business with Mr.
Bar-Lavi that is separate and distinct from our business. The Fox Distribution
Shares represent less than one percent of our issued and outstanding Common
Stock. If Fox Distribution were to exercise all of its Warrants, it would own a
total of 117,857 registered shares which would still present less than one
percent of our issued and outstanding Common Stock. See "Plan of Distribution."
Sonnenberg Shares
- -----------------
We are registering 142,857 shares of Common Stock which we issued to Michael
Sonnenberg ("Sonnenberg") on November 2, 1999 along with 14,285 Warrants
expiring on November 2, 2001 to purchase Common Stock at $.75 per share (the
"Sonnenberg Shares"). Sonnenberg is a shareholder of the Company and has
previously loaned us funds all of which we have repaid. The Sonnenberg Shares
represent less than one percent of our issued and outstanding Common Stock. If
Sonnenberg were to exercise all of his Warrants, he would own a total of 157,142
registered shares which would still represent less than one percent of our
issued and outstanding Common Stock. See "Plan of Distribution."
Horowitz Shares
- ---------------
We are registering 285,714 shares of Common Stock which we issued to Steven A.
Horowitz ("Horowitz") on November 2, 1999 along with 28,571 Warrants expiring on
November 2, 2001 to purchase Common Stock at $.75 per share (the "Horowitz
Shares"). Horowitz is Chairman, Chief Executive Officer, Chief Financial
Officer, and Secretary of the Company. Horowitz is also managing partner of
Horowitz, Mencher, Klosowski & Nestler, P.C., a law firm which provides legal
services to us from time to time. Horowitz also owns an additional 1,809,507
shares of Common Stock which are not being registered. The Horowitz Shares
represent 1.6% of our issued and outstanding Common Stock of the Company. If
Horowitz were to exercise all of his Warrants, he would own a total of 314,285
registered shares which would be approximately 1.8% of our issued and
outstanding Common Stock. See "Plan of Distribution."
17
<PAGE>
Kelly Music Shares
- ------------------
We are registering 250,000 shares of Common Stock which we issued to Kelly Music
& Entertainment Corp. ("KME") on July 8, 1998 (the "KME Shares"). See "Company
History." KME is a Delaware corporation founded in 1995 that contributed
intellectual property to us. The KME Shares represent 1.4% of our issued and
outstanding Common Stock. See "Plan of Distribution."
Casa di Cura Shares
- -------------------
We are registering 2,500,000 shares of Common Stock which are exercisable by
Casa di Cura Dr. Pedersoli Spa ("Casa di Cura") by converting our Preferred
Stock at a conversion price ranging from $.60 to $1.30 per share (the "Casa di
Cura Shares"). Casa di Cura is the investment arm of a charitable trust for a
medical clinic in Italy. Its only relationship to us is as a shareholder. Casa
di Cura also holds our 6% Convertible Subordinated Debentures due September 1,
2003 with an aggregate value of $275,000. The Casa di Cura Shares represent 30%
of our issued and outstanding Series A Preferred Stock. If Casa di Cura were to
convert all of its Preferred Stock at $.60, it would own a total of 2,500,000
Common Stock shares which would be approximately 12.69% of our issued and
outstanding Common Stock. See "Plan of Distribution."
PLAN OF DISTRIBUTION
--------------------
All shares to be registered pursuant to this Prospectus will be sold by the
selling security holders. See "Selling Security Holders." The shares may be
offered and sold from time to time by any selling security holder. The selling
security holder will act independently of us in making decisions with
respect to the timing, manner, and size of each sale. Such sale may be made on
the Pink Sheets, Over-the-Counter Bulletin Board, or otherwise, at prices and on
terms then prevailing or at prices related to the then market price, or in
negotiated transactions. In effecting sales, the selling security holders may
use the services of broker-dealers. Such broker-dealers engaged by the selling
security holder may arrange for other broker-dealers to participate.
Broker-dealers may receive commissions or discounts from the selling security
holder in amounts to be negotiated.
In offering the shares, the selling security holder and any broker-dealers who
execute sales for the selling security holder may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales, and any
profits realized by the selling security holder and the compensation of such
broker-dealer may be deemed to be underwriting discounts and commissions. We
have advised each selling security holder that during the time they are engaged
in distribution of the securities covered by this Prospectus, they must comply
with Rule 10b-5 and Regulation M under the Exchange Act and pursuant thereto:
(i) each must not engage in any stabilization activity in connection with our
securities; (ii) each must furnish each broker through which securities covered
by this Prospectus may be offered the number of copies of this Prospectus which
are required by each broker; and (iii) each must not bid for or
18
<PAGE>
purchase any of our securities or attempt to induce any person to purchase any
of our securities other than as permitted under the Exchange Act Release
34-38067 (December 20, 1996) have been advised that they must coordinate their
sales under this Prospectus with each other and us for purposes of Regulation M.
The Shares are being offered on a continuous basis pursuant to Rule 415 under
the Securities Act of 1933, as amended. This offering will terminate on the
earlier of (a) the date on which such selling security holder's shares may be
resold pursuant to Rule 144 under the Securities Act; or (b) the date on which
all shares offered have been sold by the selling security holder. There can be
no assurance that the selling security holder will sell any or all of the shares
of Common Stock offered.
LEGAL PROCEEDINGS
-----------------
There is no litigation currently pending against us and we are not aware of any
disputes that may lead to litigation. There is, however, a disputed invoice with
OMNET Technology Corp., a supplier of CDs, for the amount of $67,323.78. The
parties are currently reviewing the matter.
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The following sets forth our directors and executive officers and key employees
as of December 14, 1999, their respective ages, the year in which each was first
elected or appointed a director, and any other office in the Company held by
each director.
NAME OF DIRECTOR/ AGE POSITION HELD DATE ELECTED
POSITION HELD OR APPOINTED
- --------------------------------------------------------------------------------
Steven Horowitz 40 Director, Chairman, May 1998
CEO, CFO and Secretary
Shai Bar-Lavi 40 President August 1999
Michael W. Jolly 31 Executive Vice President, October 1997
Entertainment Group
19
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Russell A. Kern 33 Executive Vice President, April 1998
General Manager
Tom Ross 51 President, Entertainment August 1999
Group
Andrew J. Schenker 39 Director May 1998
Anthony J. Bonomo 40 Director May 1998
No family relationship exists between or among any of our directors, executive
officers, and significant employees, as defined below, or any person
contemplated to become such.
STEVEN A. HOROWITZ, ESQ. - Chairman, Chief Executive Officer, Chief Financial
Officer and Secretary
Mr. Horowitz has served as Chairman of the Board of Directors, Chief Executive
Officer, and Secretary of the Company since May 1998, has served as Chief
Financial Officer since October 1999, and has served as the managing member of
Creative Technology and CDKnet since October, 1998 and November, 1998,
respectively. He is the founding shareholder of Horowitz, Mencher, Klosowski, &
Nestler, P.C., a Garden City, New York-based law firm with offices in
Huntington, New York and New York City. Mr. Horowitz holds a degree from Hofstra
University School of Law and a Master of Business Administration degree in
Accounting from Hofstra University School of Business. Mr. Horowitz is an
Adjunct Professor of Law at Hofstra University School of Law. In 1986 and 1987,
Mr. Horowitz was Director of Taxes for Symbol Technologies, Inc., a New York
Stock Exchange corporation. Mr. Horowitz is a member of the American Bar
Association and the New York State Bar Association.
ANTHONY J. BONOMO - Director
Mr. Bonomo has served as a director of the Company since June, 1998. He has,
since 1986, served in various executive capacities at Administrators for the
Professions, Inc., the Physicians' Reciprocal Insurers, one of the largest
medical malpractice carriers in New York States, including Executive Vice
President and Chief Operating Officer from 1993 to 1995 and President from 1995
to the present. Mr. Bonomo is a member of the Bar of the State of New York and
serves as a board member of several charitable associations and foundations.
20
<PAGE>
ANDREW J. SCHENKER - Director
Mr. Schenker became a director of the Company in May, 1998. He is the Director
of Finance for North America Sales and Services Division at Symbol Technologies,
Inc. a manufacturer and world leader in bar-code based data transaction systems
based in Holbrook, New York. Since November 1986, he has held several financial
management positions at Symbol Technologies, Inc., most recently at the position
described above. He is also the trustee for several trusts and a public
foundation, as well as an Executive Committee member of the Smithtown School
District Industry Advisory Board.
SHAI BAR-LAVI - President
Having joined CDKnet as its President in August 1999, Mr. Bar-Lavi is directing
the CDKnet's business operations and development plans. From April 1999 to July
1999, Mr. Bar-Lavi served as a consultant to the Company. Prior to joining
CDKnet, Mr. Bar-Lavi served as Chief Operating Officer of the Hungarian
Broadcasting Corporation, a publicly traded company, from January 1998 to
December 1998. From July 1990 to December 1997, he served as President of
Topline Communications. Mr. Bar-Lavi's experience with computers goes back to
the early '80s where he ran Sagy Computer Services, a mainframe-based company
providing payroll and accounting services.
MICHAEL W. JOLLY - Executive Vice President, Entertainment Group
Mr. Jolly is responsible for identifying and developing business opportunities
and strategic partnering opportunities within the entertainment industry. Mr.
Jolly joined the Company in November 1997.
Prior to joining CDKnet, Mr. Jolly served as Vice President of Marketing and
Secretary at Kelly Music and Entertainment Corp. (creator of CDK(TM) Technology)
from October 1995 to November 1997. There he developed music and entertainment
products and built a significant amount of music, movie and TV industry contact
relationships. From August 1991 to October 1995, Mr. Jolly held positions at
Cigna Financial Advisors in which he developed programing and packaging
21
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products in the network programming and in-flight entertainment markets as well
as serving as a Financial Advisor where he provided financial, statistical and
strategic planning to businesses. Mr. Jolly has a B.S. in Marketing from Hofstra
University.
RUSSELL A. KERN - Executive Vice President, General Manager
Mr. Kern joined CDKnet in April 1998 and is responsible for overseeing the
CDKnet's daily operations and identifying strategic alliance/business building
opportunities. Further, Mr. Kern works with the Business Development team and
the Technical team to ensure consistent branding is maintained through all
communications and product offerings.
Prior to joining CDKnet, Mr. Kern served from November 1995 to April 1998 as
Director of Strategic Planning at Poppe Tyson (now ModemMedia.PoppeTyson),
developing successful Web initiatives for a range of clients including IBM and
Minolta. From January 1994 to November 1995, he was Marketing Director at
Marketing Resources of America. He also served five years with BBDO Advertising
planning for clients such as Visa USA, Pepsi-Cola and Campbell's. In addition,
he has several years experience in direct-response marketing, developing DRTV,
print and direct-mail programs. Mr. Kern has a B.S. in Marketing from the
Wharton School at the University of Pennsylvania.
TOM ROSS - President, Entertainment Group
Mr. Ross, joined CDKnet in August 1999 and is responsible for identifying
business opportunities within the entertainment, music and film industries and
securing partnership agreements. From December 1998 to July 1999, Mr. Ross
served as a consultant. Prior to that, Mr. Ross was a partner of Creative
Artists Agency ("CAA") from January 1984 to November 1998.
As a founder, architect and chief of the music department at CAA, Mr. Ross
worked with some of the most celebrated artists in music: Jefferson Airplane,
Crosby, Stills & Nash, Tim McGraw, Eric Clapton, Bob Dylan, Madonna, Janet
Jackson, Reba McEntire, Bette Midler and Fleetwood Mac, to name a few. Before he
left CAA late last year, many considered him the top agent in the music
business. In his 30-year career, he had the reputation of fighting on behalf of
his clients' financial interests while enabling them to present their art
without compromise.
22
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN NON-MANAGEMENT BENEFICIAL OWNERS
The following are the Company's non-management, beneficial owners of more than 5
percent of the outstanding shares amount of its common stock as of December 14,
1999:
Name and Address of Amount and Nature Percent of
Beneficial Stockholder of Beneficial Ownership Class (1)(2)
- ---------------------- ----------------------- ------------
Kelly Music & Entertainment Corp. 1,728,745 10.05%
250 West 57th Street
New York, NY 10019
Alvin Pock 936,727 5.5%
595 Stewart Avenue
Garden City, New York 11530
Gary Segal 913,251 5.4%
6007 Ft. Hamilton Parkway
Brooklyn, New York 11219
Michael Sonnenberg (5) 1,005,020 5.84%
595 Stewart Avenue
Garden City, New York 11530
Casa di Cura Dr. Pederzoli Spa (4) 2,500,000 12.69%
c/o George Sandhu
The International Investment Group
17 State Street, 18th Floor
New York, New York 10004
Erno and Rachel Bodek (6) 3,200,000 15.68%
c/o Victoria Sales Corporation
541 West 21st Street
New York, New York 10011
Beneficial Owners as a group (3) 8,652,897 48.03%
- ------------------------------------------
Notes to table of non-management beneficial shareholders
(1) There were 17,206,157 shares of common stock outstanding as of
December 14, 1999.
23
<PAGE>
(2) Except as described in footnote (3) below, the persons named in the
table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them, subject to the
information contained in this table and these notes.
(3) As set forth in this table, there are seven individuals or entities who
are not members of our management each of whom individually owns 5% or
more of our common stock. In addition to these individuals, there is a
large group of individuals who constitute beneficial owners of our
common stock pursuant to the terms of a Stockholders Agreement dated
May 7, 1998. Under the Stockholder's Agreement, its 35 signatories are
required to vote their respective shares of stock identified in the
Agreement as a class under certain circumstances. The names of the 35
signatories and their respective ownership interests are set forth in
Exhibit 99.1 of this document. As a result, the signatories as a group
may constitute beneficial owners of our common stock although only a
few individually own more than 5% of our common stock. The voting and
certain other provisions of the Shareholders Agreement have been
rescinded by 16 of the signatories to the Shareholders Agreement. We
believe it is the position of the signatories to the Shareholders
Agreement that they do not constitute a "group" as such term is defined
under Rule 13(d)(3) promulgated under the Securities Exchange Act of
1934, as amended.
(4) Represents shares issuable upon the conversion of preferred stock to
common stock at $.60 per share. See Note 6 of the attached Financial
Statements.
(5) Includes 14,285 warrants to purchase our common stock at $.75 per
share.
(6) Includes 2,000,000 30-month warrants to purchase our common stock at
$1.25 per share and options to purchase 1,000,000 shares of common
stock at $.50 per share expiring on December 31, 1999.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the share ownership
of our common stock by its officers and directors, both individually and as a
group, and by the record and/or beneficial owners of more than 5 percent of the
outstanding amount of such stock as of December 14, 1999:
SHARES OF COMMON STOCK OWNED BENEFICIALLY AND OF
RECORD BY MANAGEMENT
Title of
Class of
Stock Name and Address Amount and Nature Percent of
Owned(1)(2) of Beneficial Owner of Beneficial Ownership Class
- ----------- ------------------- ----------------------- -----
Common Steven A. Horowitz 2,873,792(3) 15.98%
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Andrew J. Schenker 73,367(4) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Anthony J. Bonomo 50,000(5) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
24
<PAGE>
Common Shai Bar-Lavi 750,000(6) 4.18%
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Keith A. Fredericks 10,000(7) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Michael W. Jolly 10,000(7) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Russell A. Kern 143,333(8) *
c/o CDKNET.COM, INC.
595 Stewart Avenue, Suite 710
Garden City, NY 11530
Common Tom Ross 150,000(9) *
1480 San Reno Drive
Pacific Palisades, CA 90272
All officers and directors 4,060,492(10) 21.26%
as a group (8 persons)
- ---------------------------------------
Notes to table of beneficial shareholders
*Denotes less than 1%
(1) There were 17,206,157 shares of common stock outstanding as of December
14, 1999. This table does not include options to purchase 10,000 shares
of our common stock under the Plan held by Mr. Keith Fredericks,
formerly our Sr. Vice President of Software Development and Chief
Technical Officer. Mr. Fredericks resigned effective December 17, 1999.
(2) Except for the limitations set forth in the Shareholders Agreement
dated May 7, 1998, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to the information contained in
this table and these notes. See Exhibit 4.3.
(3) This table includes options to purchase 750,000 shares of the Company's
common stock under the Plan, and 28,571 two-year Warrants to purchase
common stock. Mr. Horowitz is the Chairman of the Board of Directors,
Chief Executive Officer, Chief Financial Officer and Secretary of the
Company. The total includes 750,000 stock options granted under the
Company's 1998 Equity Incentive Plan (the "Plan"). This figure does not
include 150,000 warrants issued to Horowitz, Mencher, Klosowski &
Nestler P.C., a law firm controlled by Mr. Horowitz, in connection with
a loan and loan extension. On November 16, 1999, Mr. Horowitz
renounced, for no future consideration, 750,000 options (granted on
August 1, 1999 and expiring on July 31, 2004) to purchase shares of the
Company's common stock at $1.00 per share.
(4) This table includes options to purchase 50,000 shares of the Company's
common stock under the Plan. Mr. Schenker is a director of the Company.
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<PAGE>
(5) This table includes options to purchase 50,000 shares of our common
stock under the Plan. Mr. Bonomo is one of our directors.
(6) This table includes warrants to purchase 750,000 shares of our common
stock under the Plan. Mr. Bar-Lavi is our President.
(7) This table includes options to purchase 10,000 shares of our common
stock under the Plan. Mr. Jolly is our Executive Vice President,
Entertainment Group.
(8) This table includes options to purchase 143,333 shares of our common
stock under the Plan. Mr. Kern is our Executive Vice President and
General Manager.
(9) This table includes options to purchase $150,000 shares of our common
stock pursuant to his employment agreement. Mr. Ross is President of
the Entertainment Group.
(10) Includes all stock options (1,163,333 shares of common stock) and
1,528,571 Warrants owned by officers and directors.
DESCRIPTION OF SECURITIES
-------------------------
Common Stock
- ------------
We are authorized to issue 40,000,000 shares of common stock of $0.0001 par
value, per share and 5,000,000 authorized shares of preferred stock. The
authorization to issue preferred shares were made by a resolution of the Board
of Directors and were voted upon by the shareholders. Each share of our common
stock, when fully paid for, will be validly issued and outstanding, is entitled
to one vote on all matters to be voted on by shareholders, is entitled to equal
dividends when and as declared by the Board of Directors from funds legally
available therefore, and is entitled to a pro rata share of our net assets in
the event of dissolution, liquidation or winding up of the Company.
Preferred Stock
- ---------------
Our preferred stock may be issued from time to time, by resolution or
resolutions of the Board of Directors, in one or more series. While each series
of preferred stock may be assigned different rights, conversion rights,
redemption rights, liquidation rights, voting rights and rights regarding
sinking fund or redemption or purchase accounts, all of the shares of each
series shall be identical in all respects to the other shares of such series.
Series A Preferred Stock
- ------------------------
Our Series A Preferred Stock has voting rights and ranks as follows with respect
to dividend rights and rights upon liquidation, winding up and dissolution: (a)
senior to any other series of Preferred Stock (except as established by the
Board of Directors), (b) on parity with any other series of Preferred Stock
established by the Board of Directors, and (c) prior to any other of our equity
securities, including our common stock.
Stockholders' Agreement
- -----------------------
We have entered into a Stockholders' Agreement with a group of shareholders on
May 7, 1998 which sets forth their agreement regarding the disposition of
specified shares of our common stock. The agreement provides for a right of
first refusal, initially to the non-selling shareholders and secondarily to us
on the same terms and conditions as any bona fide third party offer and also
requires a 100% disposition of the selling shareholder's interest. Excluded from
this
26
<PAGE>
provision are transfers to family members or trusts for the benefit of family
members or in the event of death. Furtherm, the shareholders agreed to sell
and/or transfer their stock pursuant to the terms of any bonafide third party
offer to acquire not less than a majority of our outstanding stock or to merge
with us. The restrictions terminate upon the closing of an initial public
offering of stock by us. The shareholders agreed to vote for Steven A. Horowitz
as a director until such time as he resigned from the position. However, 16 of
the 35 signatories to the agreement have signed an amendment to the agreement
rescinding the voting and certain other provisions of the agreement and we
anticipate obtaining the remaining signatures in the near term. See Exhibit 4.2.
To date, the Company has not paid a cash dividend.
REPORTS TO SHAREHOLDERS
-----------------------
We intend to furnish our shareholders with annual reports of our operations,
containing financial statements. We will also file annual and quarterly reports
as required by the Securities Exchange Act of 1934, as amended.
TRANSFER AGENT
--------------
Our transfer agent is Interwest Transfer Company, 1981 East 4800 South, Suite
100, Salt Lake City, UT 84117, (801) 272-9294.
AVAILABLE INFORMATION
---------------------
We are subject to the reporting requirements of the Securities Exchange Act of
1934 by virtue of the fact that on October 7, 1999 we filed a Registration
Statement on Form 10-SB -- together with all amendments and exhibits -- with the
Commission. Our Form 10-SB became effective on December 7, 1999, however, the
Commission is still reviewing it. This Prospectus, together with all attached
amendments and exhibits, is filed under the Securities Act of 1933 with respect
to the shares of common stock offered.
A copy of our filings with the Commission may be inspected by anyone without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part of our filings may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and its public reference facilities in New
York, New York and Chicago, Illinois, upon the payment of
27
<PAGE>
the fees prescribed by the Commission. Our filings are also available through
the Commission's Web site at the following address: http://www.sec.gov.
LEGAL MATTERS
-------------
The validity of the securities offered hereby will be passed upon for us by
Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
-------
Our financial statements as of June 30, 1999 and for the year then ended and the
period October 1, 1997 (date of inception) to June 30, 1998, included in this
Prospectus have been included in reliance upon the report of Grant Thornton LLP,
independent certified public accountants, given on the authority of that Firm as
experts in auditing and accounting.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
----------------------------------------------------
FOR SECURITIES ACT LIABILITIES
------------------------------
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
-----------------------------------
We are a holding company formed under the laws of the State of Delaware. Our
executive offices are located at 595 Stewart Avenue, Suite 710, Garden City, New
York 11530. The following is our corporate history:
On August 20, 1997, Creative Technology, LLC, a limited liability company
organized under the laws of the State of New York was formed to operate
technology related enterprises and began operations on October 1, 1997.
October 1, 1997, Technology Applications, LLC, a limited liability company
organized under the laws of the State of New York, was formed to operate
technology related enterprises.
In October 1997, Creative Technology contributed capital of approximately
$750,000 and subordinated loans of $750,000 in exchange for a 40% interest and
voting control in Technology Applications. Kelly Music
28
<PAGE>
and Entertainment Corp., a Delaware Corporation, was founded in 1995 to operate
technology related enterprises. Kelly Music contributed all of the intellectual
property (which now forms the core of our products and certain other assets) to
Technology Applications in exchange for a 40% member interest in Technology
Applications. Alvin Pock and Robert Kelly, both principals of Kelly Music,
contributed notes (some of which were collateralized) of Kelly Music and
received ownership interests of 12.5% and 7.5%, respectively.
On February 4, 1998, Technology Applications changed its name to CDKnet, LLC.
On May 7, 1998, Technology Horizons Corp. was formed as a Delaware corporation
to operate technology related enterprises. On that same day, Technology Horizons
purchased 100% of the ownership interests of Creative Technology in exchange for
6,000,000 shares of Technology Horizons common stock, acquiring Creative
Technology as a wholly owned subsidiary.
On May 21, 1998, Technology Horizons merged with International Pizza Group,
Inc., a Florida corporation that was inactive but had its common stock traded on
the Over-the-Counter Bulletin Board under the symbol "IPZZ." As a result of the
merger, Technology Horizons acquired the net assets of International Pizza and
began trading on the Over-the-Counter Bulletin Board on May 21, 1998, under the
symbol "THCX.".
On June 2, 1998, Creative Technology, Kelly Music, Pock, Kelly and CDKnet, LLC
agreed to covert $336,976 and $93,750 of debt which CDKnet, LLC owed to Creative
and Pock into additional ownership interests of 8% and 2.5%, respectively.
Accordingly, the ownership interests of Kelly Music and Kelly were reduced to
reflect the increased ownership of Creative Technology and Pock. Following this
debt conversion, the ownership of CDKnet, LLC was as follows; Creative
Technology 48%, Pock 15%, Kelly 5.85% and Kelly Music 31.15%. Shortly
thereafter, by Agreement dated June 3, 1998 between Creative Technology, Kelly
Music, Pock, Kelly and CDKnet, LLC, CDKnet, LLC forgave $800,000 of debt which
Kelly Music owed CDKnet, LLC in exchange for Kelly Music's surrender of a 5%
ownership interest, thereby increasing the combined ownership of Pock, Kelly and
Creative Technology by an aggregate of 5%. Following this transaction, the
ownership of CDKnet, LLC was as follows: Creative Technology 51.5%, Pock 16.1%,
Kelly 6.25% and Kelly Music 26.15%. Additionally, by agreements dated June 3,
1998, Kelly and Pock assigned their respective 6.25% and 16.1% interests in
CDKnet, LLC to Technology Horizons, receiving in exchange 363,636 and 936,727
common shares of Technology Horizons, respectively. Following these
transactions, Technology Horizons held a 22.35% direct ownership interest in
CDKnet, LLC bringing its total direct and indirect ownership to 73.85%.
On July 8, 1998, Technology Horizons entered into an agreement that was
subsequently amended to purchase Kelly Music's remaining 26.15% ownership
interest in CDKnet, LLC for $5,171,122, payable in a combination of 1,883,635
common shares of Technology Horizons and debt retirement, and a cash payment of
$65,000 raising Technology Horizons' direct interest in CDKnet, LLC to 48.5%.
Creative Technology held the remaining 51.5%.
29
<PAGE>
On December 16, 1998, Technology Horizons changed its name to CDKNET.COM, INC.
and, on December 18, 1998, began trading on the Over-the-Counter
Bulletin Board under the symbol of "CDKX".
We have not had any other material organizational changes or any additional
acquisitions or mergers since December 1998.
We currently have two wholly-owned subsidiaries, Creative Technology and CDKnet,
LLC. We directly own 100% of Creative Technology and 48.5% of CDKnet, LLC.
Creative Technology owns the remaining 51.5% ownership interest of CDKnet, LLC,
giving us an indirect 100% ownership interest of CDKnet, LLC. We conduct our
business through CDKnet, LLC. Our manufacturing, research and development is
conducted out of CDKnet, LLC's office located at 250 West 57th Street, Suite
1101, New York, New York 10019. Our offices may be contacted by telephone at
212-547-6050 or on our website at: WWW.CDKNET.COM.
DESCRIPTION OF BUSINESS
-----------------------
We have developed a multimedia technology, called CDK(TM), which integrates
audio, video and Internet connectivity on a standard compact disc. Our
technology enables users to create their own personalized CDs simply by visiting
a Website. These custom CDs play audio and display videos on a full-screen,
using high-quality videos and digital technology. The custom CDs also include
software applications and targeted Web links.
Our targeted industries include: (1) entertainment (music, movies and TV); (2)
travel and tourism; (3) professional sports; (4) financial services; (5)
education; (6) toys/games; (7) fashion; (8) food/cooking; (9) automotive; and,
(10) healthcare. Our primary customers and/ or strategic partners include
Peterson's, AtomicPop, Central Park Media, CollegeMusic.com, Megaforce Records
and DreamWorks Records. We believe that there are six main companies currently
offering custom audio CD development. These companies are Musicmaker.com,
Customdisc.com, CDUCTIVE, Amplified.com, K-Tel.com, and EZCD.com. However, we
believe that none of these companies offers custom multi-session CD development.
1. GENERAL
Our unaudited financial statements for the period July 1, 1999 to September 30,
1999, reflect $23,663 in net revenues. We generated $474,344 in net revenues in
the year ended June 30, 1999 relating to the CDK(TM) technology. $317,810 of
such revenues from CDK(TM) technology came from two customers, one of which
accounted for approximately $241,915. We
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intend to establish three principal revenue streams: (1) sale of custom CDs, (2)
sale of Web links and Web advertising, and (3) development and use fees. We are
currently capable of providing services in each of these areas.
We have received an infusion of $1,037,500 in capital since October 1, 1999. We
plan to decrease our need for substantial additional working capital by
continuing to outsource production capabilities, expand business development
efforts and implement marketing programs.
As of December 14, 1999, we had 17,206,157 shares of common stock issued and
outstanding. Of these shares, 2,191,602 shares are restricted stock owned by our
directors and key employees. The remaining 15,014,555 shares are owned by
approximately 79 shareholders, 7 of whom we believe hold more than five percent
(5%) ownership of the Company. On October 7, 1999, our stock was deleted from
the Over-the-Counter Bulletin Board. Our common stock is currently being traded
on the so-called "Pink Sheets" under the symbol "CDKX."
2. INDUSTRY
A. OVERVIEW
Internet usage has increased dramatically in the last decade. As a result, many
new personal and commercial applications have been developed for Internet users
and, increasingly, consumers are conducting business through Internet
applications. We believe that web-connected multimedia CDs will be one of the
next significant applications of the Internet. Web-connected, Multimedia CDs
contain audio, video and HTML (or, HyperText Markup Language, the underlying
"code" for Web pages) all navigable by a standard web browser. Our CDK(TM)
technology forms the foundation multimedia for CD-ROM authoring, production, and
custom online compilations.
We believe there is strong market potential for CDK(TM) technology across
various industries. Target industries include:
-- Entertainment (music, movies, TV) -- Toys/Games
-- Travel & Tourism -- Fashion
-- Professional Sports -- Food/Cooking
-- Financial Services -- Automotive
-- Education -- HealthCare
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The premiere companies in each of these industry categories have fully developed
Websites with significant user traffic, lending themselves as prime candidates
for the MixFactory(TM) operation. We believe that the industry will become more
competitive. Our inability to compete in the market will have a material affect
on its business operations.
B. COMPETITION
While other companies have the potential to develop web-based, audio and video,
custom CDs, we believe that none offer the economic, development or quality
advantages of our CDK(TM) and MixFactory(TM) technology. We believe that there
are six main companies currently offering custom audio CD development. These
companies are Musicmaker.com, Customdisc.com, CDUCTIVE, Amplified.com,
K-Tel.com, and EZCD.com. However, we believe that none of these companies offers
custom audio and video CD development. In an effort to further secure a strong
position in the marketplace, CDKnet, LLC has submitted patent requests for
certain aspects of our technology. Finally, we believe that other companies,
including established Internet companies, software companies and companies in
the entertainment business could enter this business and become competitors.
3. PRODUCTS AND SERVICES
A. PRODUCTS AND SERVICES
We have developed and are marketing the following products and services:
CDK(TM) TECHNOLOGY
CDK(TM) technology combines CD digital audio (i.e., audio tracks that are
playable on both home stereo systems and personal computers) full-screen video
and integrated web links through a browser interface. A browser interface is the
main interface page that is presented when the CD is placed in a personal
computer. Our technology allows video playback at the full-screen size of the
video monitor and at full-motion (the industry standard of 30 frames per
second). The browser interface also allows easy linking to other Web sites
through the CDK interface page.
The CDK(TM) HTML authoring system -- the process for creating Web pages -- is
used by CDKnet, LLC to produce custom HTML interface pages for specific clients
in about a day. The Company has proprietary techniques for creating full-motion,
full-screen video playback from using a CD. Any user with a PC of at least
166MHZ or Macintosh G3 can order custom audio and video CDs.
CDK(TM) has been engineered to offer compatibility with the majority of CD-ROM
drives on the market. We believe that we have achieved a high level of
reliability, as evidenced by extensive testing and major CDK(TM) releases, and
we believe this reliability will provide a major competitive advantage over
other multisession (i.e., both audio and video) CDs in the
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market. Additionally, the CDK(TM) system is engineered for mass-production. The
integration of the complete file structure of the CDK(TM) is automated. Audio,
video and HTML assets can be placed in the production templates created by us
for a fast turn-around time for the creation of CDKs.
MIXFACTORY(TM) CUSTOM MANUFACTURING
MixFactory(TM) is a custom, multi-session CD manufacturing system built upon
CDK(TM) technology. The entire system is automated so that little human
intervention is required for the custom manufacturing process. Based on our
review of current custom-CD operations in the marketplace, we believe that
MixFactory(TM) is a unique system.
To create a custom CD, a user visits a Website and selects a compilation of
audio, video, or other content titles. Titles are browsed and/or searched and
audio/video clips are previewed through an easy to use interface. After
selecting the compilation, the user personalizes the disc by selecting artwork
for the disc label, cover and HTML interface.
The MixFactory(TM) system allows multimedia content providers -- such as, music
labels, major sports leagues, pharmaceutical companies, travel-related
organizations as well as companies within the fashion industry -- to offer their
assets on a customized basis, either as promotional content or as full retail
products. For example, a visitor to the CollegeMusic.com Website will be
presented with a MixFactory(TM) link that will enable the user to develop a
custom CD consisting of available site content. This content will include video
and audio tracks of live music performances from major nightclubs across the
United States.
We plan to form agreements with multiple content providers. We are not looking
to license content through such agreements. Rather, we are looking to license
MixFactory technology to the content providers (owners). Therefore, we will not
be in danger of violating any intellectual property rights. For example, the
College Music Mixfactory website enables fans to create custom CDs containing
music videos as well as audio tracks. The CD will also contain integrated Web
links to the College Music Website driving targeted traffic.
We expect to leverage the planned MixFactory.com(TM) Website to serve as a link
(or portal) to other Web sites that provide digital entertainment content.
Initially, MixFactory.com(TM) is expected to serve as a point of content
distribution for independent music artists and labels with links to other
MixFactory(TM) sites. Ultimately, we expect the site will have extensive search
and browse capability that will guide the user to a wide range of digital
entertainment Websites and content. We also plan that the portal will provide a
custom-CD recording (also called, "burning") service for users who want to
download digital content but do not have the bandwidth and equipment to download
and burn their own CD at home.
We believe some of the specific benefits of the MixFactory(TM) model to the
content provider include:
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O a new marketing platform for goods and services that drives Web traffic and
provides valuable customer information from both buyers and non-buyers;
0 the opportunity to leverage marketable inventory that was previously
"dormant";
O attractive operating efficiencies (e.g., no added inventory costs);
O targeted mailing lists;
O new advertising revenue opportunity on customized CDs;
O return hits to the content provider's Website direct from the customized
CD; and
O cross-promotion from the MixFactory.com(TM) Website
Additional possible sources of income for us from the MixFactory(TM) operation
include advertising revenues from the MixFactory.com(TM) Website and possible
revenue sharing from advertising on our partners' MixFactory(TM) sites. We also
plan to charge content providers a nominal fee for digitizing audio and video
assets above a specified level.
The MixFactory(TM) operation is designed to be a complete end-to-end E-commerce
solution, including production, payment processing and fulfillment. Once the
user confirms the content selections and completes a credit card transaction,
the selected titles are queued from storage to a Compact Disc Recordable
("CD-R") burning workstation. The customer's tracks are formatted into the
industry standard Red Book audio session along with an iso9660 (or data session
on a CD-ROM) and transferred together to the CD-R (disc). The automated
workstation transfers the complete CD-R to the CD printer where the
user-selected label is printed onto the surface of the CD-R.
In parallel with the transfer of the tracks to the CD-R, the custom packaging
materials are printed. That is, as soon as the job is queued for burning, the
printed job is also queued to the printer. Packing and shipping of the finished
product is currently the only manually operated step in the process. We are
currently investigating equipment that will automate the packing process.
MIXFACTORY.COM(TM) PORTAL SITE
We expect MixFactory.com(TM) to serve as a Web portal for digital multimedia
content, including music, movies, and game demos. We plan to design the site so
that consumers will be able to search and browse for content, select items to
include on their custom CD and purchase the CD. Once the CD is received, the
consumer will be able to view the information on the CD via his or her personal
computer and link back to related web pages through targeted links included on
the CD.
We believe the main consumer advantage derived from the MixFactory(TM) portal
site is the ability to receive high-quality, high-bandwidth digital assets
without waiting hours for the files to download. The content provider may also
derive advantages from the MixFactory(TM) site including, possibly, a new
distribution channel, a reliable consumer database/mailing list, as well as
return hits to the content provider's website.
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We believe that from a technical standpoint, the custom-burning service that
MixFactory.com(TM) plans to provide is a unique application. The ability to
select files (from various Websites) to include on a custom CD, send that
information to the MixFactory(TM) server and then have a custom CD created and
shipped is a service that, to our knowledge, does not currently exist on the
Internet.
B. RESEARCH & DEVELOPMENT
Through the fiscal year ending June 30, 1999, we expended $343,000 on research
and development of its products and services. Between July 1, 1999 and September
30, 1999, we have expended approximately $108,000 on research and development.
We anticipate that our research and development costs will increase during
fiscal 2000.
Among our various activities, we are transitioning to a Unix-based manufacturing
system and are developing products and services which will deliver customized
and client specific information to customers. We are continuing development of
both the newly released CDK 2.0 technology as well as MixFactory(TM), our
customized multimedia CD system.
Additionally, we are currently in the process of developing a new desktop
feature called a "software based communication module" that will enabling
marketers to send targeted electronic messages to consumers. We will distribute
the module through Web-connected multimedia CDs.
During fiscal 1999 and through September 30, 1999, we continued to enhance the
value of its product/service offerings through ongoing research and development
efforts. Specifically, we are engaged in the following internal projects:
O An enhanced version of CDK(TM) (1.5) that is Macintosh compatible. This
version was released on June 10, 1999.
O Development of the next generation of CDK(TM) software. The 2.0 version
feature list includes Macintosh compatibility, a reduced installation set
as well as improved video performance. This version was released on August
9, 1999.
O Efforts are underway to integrate the new Digtial Versatile Disc (commonly
referred to as "DVD") manufacturing capability into the MixFactory(TM)
system. This effort includes DVD-R writer to the robotic manufacturing
system and the integration of DVD authoring tools into the MixFactory(TM)
system.
Recognizing that high-speed Internet access will ultimately become available to
a wider audience, we are evaluating other opportunities to take advantage of
this technology.
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4. SALES AND MARKETING
A. STRATEGY
Our business model is based on three revenue streams. The first revenue stream
is the sale of custom CDs to consumers through MixFactory.com(TM) and
MixFactory(TM) partner sites. We plan to make MixFactory(TM) technology
available to content providers enabling them to promote or sell their wares on a
customized basis. In exchange for a per disc manufacturing fee, the content
provider receives the right to utilize the Mix Factory(TM) services on their
website(s). This scenario also includes content licensed by us that is then sold
through our Website. We expect to receive direct revenue from the sale of custom
CDs. The MixFactory agreements we currently have in place including:
o Central Park Media (live site),
o Megaforce Records (live site),
o AtomicPop (scheduled to launch in January 2000),
o CollegeMusic.com (live site), and
o Peterson's (launch TBD).
Sales will be made via the Web through client-specific MixFactory sites that
will be linked from MixFactory.com.
The second revenue stream is the sale of Web links and Web advertising on
MixFactory.com(TM) and MixFactory(TM) partner sites. Digitization fees
associated with preparation of partner content is expected to add to these
proceeds.
The third and final revenue stream is expected to be derived from development
and use fees for client-specific CDK(TM)s. Client-specific CDKs refer to our
core product, the Web-connected multimedia CD. Past clients for this product
(CDK 1.0) include Citibank, Pfizer, Montana Power Company, Sandals Resorts and
the New York Knicks. We are currently developing other business in this sector
with the new version of the product, CDK 2.0.
We believe that the combination of custom-CD sales, Web advertising revenue and
client-specific CDK(TM) development fees provides a powerful, yet diverse,
revenue engine for us.
Of the three revenue streams, two are currently generating revenue --
development and use fees for client-specific CDKs and the sale of custom CDs. We
have placed significant emphasis on research and development during the first
eight months of 1999. From January 1999 to August 1999, we completed CDK 1.0
projects for companies including Pfizer and the Montana Power Company. The new
version of our product, CDK 2.0, has only been available since August. Since
that time, we have generated revenue through client-specific CDK 2.0 discs for
Maverick Records and WorldWest Communications. There are a number of CDK 2.0
projects that are currently pending. Custom CD sales, which are minimal at the
moment, are expected to increase as we sign up additional content providers. The
third revenue stream, sale of Web links and Web advertising has not yet been
achieved.
B. PLAN OF OPERATION
Effective August 1, 1999, we hired Tom Ross as President of the Entertainment
Group. Mr. Ross will head our planned office in Los Angeles, California which
will focus on
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business development within the entertainment industry. Our operational plan for
fiscal 2000 also includes: (1) moving custom, multimedia CD operations (i.e.,
MixFactory(TM)) to a higher volume, lower rent production environment; (2)
forming strategic alliances with a digital video services company to meet
increasing demand for these services; and (3) signing up MixFactory(TM) partner
sites across various industries.
We plan to raise additional financing to fund our operations through sales of
our products and services as well as through private placements of equity
securities. We need to raise such financing to continue our operations. If we
are not successful, we may have to seek protection of the bankruptcy courts.
C. MATERIAL AGREEMENTS
We consider the following agreements to be material to our ability to provide
our customers with our products and services:
O Agreement between CDKnet, LLC and Peterson's, a division of
International Thomson Publishing, Inc., executed on March 19, 1999.
Under the agreement, Peterson's will promote and provide a link on its
relevant web sites, including CollegeQuest, to the Campus Video
Program. Peterson's will also provide CDKnet, LLC video content
received from participating institutions, which CDKnet, LLC will
digitize, store and make available through its Campus Video web site.
CDKnet, LLC, in turn, will: (1) provide the technology and service
necessary to digitize and store the campus tour videos, (2) process
orders, (3) set up and replicate the CDK with the videos selected by
the student, and (4) send the completed CDK to the student. Peterson's
shall be responsible for obtaining any and all rights, licenses,
clearances, releases, or other permissions necessary for the parties to
perform their respective duties under the agreement. The parties will
divide revenues from the sales pursuant to a schedule agreed upon in
the agreement.
O Agreement between CDKnet, LLC and CollegeMusic, Inc. entered into in
August 1999 under which the parties will develop a CollegeMusic
MixFactory Web site. The new Web site will enable CollegeMusic fans to
create a custom CD containing music videos as well as audio tracks. The
CD will also create integrated Web links to the CollegeMusic Web site
driving targeted traffic. The cost of the Web site is free to
CollegeMusic, however we will keep all proceeds from shipping and
handling of the Cds.
O Agreement between CDKnet, LLC and Central Park Media Corporation dated
March 29, 1999 under which the parties will via the Internet create,
market
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and take orders for custom video-based CDs produced with CDK(TM)
technology. We will set up the Web site at no charge. In return,
Central Park Media will insert a MixFactory.com link on its Web sites
in order to promote, market, and advertise MixFactory.com's Japanese
animation, Amine and/or other content. We will receive a per CD fee for
all sales. Central Park Media shall obtain any and all rights,
licenses, clearances, releases, or other permissions necessary for the
parties to perform their respective duties under the agreement.
O Agreement between CDKnet, LLC and DreamWorks Records Corporation in
October 1999 under which DreamWorks will license from CDKnet, LLC the
CDK technology, in order to produce Web-connected CDs containing
content supplied by DreamWorks. We will receive a fee per master CD.
DreamWorks shall be responsible for obtaining any and all rights,
licenses, clearances, releases, or other permissions necessary for the
parties to perform their respective duties under the agreement.
O Agreement between CDKnet, LLC and Atomic Pop LLC dated October 25, 1999
under which we will license to Atomic Pop the CDK technology in order
to produce Web-connected CDs containing content supplied by Atomic Pop.
We will receive a fee per master CD. Atomic Pop shall be responsible
for obtaining any and all rights, licenses, clearances, releases, or
other permissions necessary for the parties to perform their respective
duties under the agreement.
O Agreement between CDKnet, LLC and Megaforce Records dated September 1,
1999 to create a Megaforce Records Web site at no charge. The Web site
will use MixFactory technology to enable users to the site to create
customized and personalized multimedia CD. Consumers will choose from
Megaforce artist's video and audio content to create a customized CD.
We will receive the proceeds of the from shipping and handling as well
as a per CD fee.
5. INTELLECTUAL PROPERTY RIGHTS
We rely on copyrights, trademarks, patents, trade secret laws and contractual
restrictions to establish and protect our proprietary rights in our services and
products. We do not have any patented technology at this time that would limit
competitors from entering our market. However, we have a patent application
pending for the basic CDK(TM) technology. The patent application covers the
format of a multisession, digital encoded recording medium navigable by an
Internet browser.
Our intellectual property counsel informed us that some claims of this patent
application have been allowed and the issue fee has been paid. Issuance of the
patent is expected soon. The intellectual property counsel has filed a
continuation application to separate
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the earlier rejected claims into a new application, which intellectual property
counsel will continue to prosecute in the U.S. Patent and Trademark Office.
No assurance can be given that a patent will issue or that if a patent does
issue that it will be broad enough to provide significant protection to the
Company. Our management believes that the steps taken by us to protect its
intellectual property are consistent with industry standards for online, custom
CD companies today.
We also rely on third-party software licenses, such as Microsoft Development
Network (MSDN), which provides software development tools. All employees and
contractors are required to and have entered into confidentiality and invention
assignment agreements. Suppliers, distributors and customers are also required
to enter into confidentiality agreements.
To date, we have received no notification that our services or products infringe
the proprietary rights of third parties. Third parties could however make claims
of infringement in the future. Any future claims that do occur may have a
material adverse affect on our business.
Our licensing agreement entered into on November 16, 1999 with Asia Pioneer,
Ltd., a Hong Kong-based Internet technology company serving the Chinese-speaking
world population. The agreement grants Asia Pioneer the right to our
Web-connected multimedia CD technology as well as MixFactory(TM) technology to
offer customized multimedia CDs through Asia Pioneer's new Web site
beatasia.com. Beatasia.com is a comprehensive music entertainment Web site and
is known as "the heartbeat of Asia." Rights extended in the agreement cover the
worldwide Chinese speaking community. In exchange for these rights, we will
receive a 4.89% in Asia Pioneer at the completion of the underlying services.
The parties also entered into a Subscription Agreement under which Asia Pioneer
will purchase shares of our common stock.
We have the following trademarks:
-- Pending
-------
TM: CDK
Serial No. 75/426,937 - Filed February 2, 1998
Our Docket No. 55716
-- Pending
-------
TM: MIX FACTORY
Serial No.
Our Docket No. 59365
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6. EMPLOYEES
As of September 30, 1999, we had 13 full-time and 1 part-time employees. While
sourcing and recruiting appropriate technical personnel is often difficult and
competitive, we expect that our need to recruit additional personnel in the
future will not negatively affect our operations. Management believes that our
employee relations are good, and none of our employees are represented by a
collective bargaining unit.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
This prospectus and the documents incorporated by reference contain
forward-looking statements based on current expectation, estimates and
projections about our industry, management's beliefs and assumptions made by
management. All statements, trends, analyses and other information contained in
this report relative to trends in the Company's financial condition and
liquidity, as well as other statements, including, but not limited to, words
such as "anticipate," "believe," "plan," "intend," "expect," "predict," and
other similar expressions constitute those statements. These statements are not
guarantees of future performance and are subject to risks and uncertainties that
are difficult to predict. Accordingly, actual results may differ materially from
those anticipated or expressed in the statements. Potential risks and
uncertainties include, among others, those set forth below. See "Risk Factors"
above. Particular attention should be paid to the cautionary statements
involving the Company's limited operating history, the unpredictability of its
future revenues, the unpredictable and evolving nature of its business model,
the competitive online, multimedia CD industry and the risks associated with
capacity constraints, systems development, management of growth and business
expansion, as well as other risk factors.
1. GENERAL
We expect to receive funds from the sale of our products and services, including
licensing agreements such as the deal with Asia Pioneer as well as private
financing. We have also funded our operations through equity financing and
convertible debt financing and have had no lines of credit or other similar
credit facility available to us. Our recent efforts to raise capital through
equity financing have been successful, providing near-term operating capital. We
intended to reduce operating expenses through our continued policy of
outsourcing of production.
Additionally, we have successfully accomplished the initial stages of our fiscal
2000 operating plan with the hiring of Tom Ross to head our Entertainment Group
in Los Angeles, California. Nevertheless, we continue to rely on our ability to
raise money through equity financing to finance all of our business endeavors.
To date, we have focused our funds on the development of CDK(TM) products
(including CDK(TM) 1.0, CDK(TM) 2.0, and Gameplayer 2.0) and our new E-commerce
facility MixFactory.com(TM).
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Our current business development efforts include both full-time employees as
well as outside consultants. Consultants are compensated on a performance basis.
From a marketing standpoint, we continue to 1) maintain a corporate Web site
which solicits feedback from potential clients; 2) appear at relevant trade
shows and seminars; and 3) retain a public relations firm to service corporate
announcements to the press. In the near term, we will continue to focus on
generating revenue from the sale of client-specific CDKs as well as MixFactory
custom CD services. Moving forward, we expect to place increasing emphasis on
the desktop, direct marketing application and the Communications Module which is
in development.
Our history of operating losses continues to raise doubt about our ability to
continue operations although success at recent financing efforts and a new
licensing agreement with Asia Pioneer has somewhat lessened that doubt. The Asia
Pioneer agreement provides us with $150,000 infusion of capital each month for
six months until May 2000 and, therefore, serves as a liquidity and capital
resource. Additionally, the parties have entered into a technology and license
agreement which gives us a 4.89% interest in Asia Pioneer at the completion of
the underlying services in exchange for a license to use certain CDK(TM)
technology. Our ownership interest in Asia Pioneer can be sold in the event we
need a cash infusion.
However, if we are unable to obtain significant additional financing or
otherwise obtain working capital to fund our operations, we may be obliged to
seek protection of the bankruptcy courts. Our independent certified public
accountants have added an emphasis paragraph to their report on our consolidated
financial statements as of June 30, 1999 and for the year ended June 30, 1999,
and in the period October 1, 1997 (date of inception) to June 30, 1998, relating
to factors that substantial doubt about our ability to continue as a going
concern. The factors cited by them include the following:
O continued losses
O use of significant cash in operations
O lack of sufficient funds to execute our business plan
During the period July 1, 1999 to September 30, 1999, we raised a total of
$310,000 from the following private placement of equity:
O On August 9, 1999, we raised $155,000 from Y2G.com, Inc. through the
issuance of 216,000 shares of common stock. On September 8, 1999, we
sold Y2G an additional 116,000 shares of common stock for $155,000.
During the period October 1, 1999 through November 16, 1999, we raised a total
of $1,037,500 from the following placement of equity:
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O On November 16, 1999, we entered into a Subscription Agreement with
Asia Pioneer where we raised $100,000 from Asia Pioneer through the
issuance of 200,000 shares of common stock, along with six allotments
to purchase an additional 300,000 shares of common stock per month at
$150,000 per allotment. The allotments will be fulfilled in May 2000.
The parties also entered into a Technology and License Agreement on the
same day.
O On November 1, 1999, we raised $500,000 from Erno and Rachel Bodek
through the issuance of 1,000,000 shares of common stock, along with
30-month Warrants to purchase an additional 200,000 shares of common
stock at $1.25 per share, and an option to purchase another 2,000,000
shares of common stock at $.50 per share which shall expire on December
31, 1999.
O On November 2, 1999, we raised $437,500 through the issuance of
1,250,000 shares of common stock to four investors (The Gross
Foundation, Inc., Fox Distribution, Inc., Steven A. Horowitz, and
Michael Sonnenberg) along with two-year warrants to these investors to
purchase an additional 125,056 shares of common stock.
During fiscal 1999, we raised a total of $2.1 million from the following private
placements of debt and equity:
O Between September 4, 1998 and January 21, 1999, we raised $600,000
through the issuance of $600,000 in 6% Subordinated Convertible
Debentures and five-year warrants to purchase 60,000 shares of common
stock at $3.00 per share.
O On February 2, 1999, we raised $1,500,000 through the issuance of
$1,500,000 in 5.75% Subordinated Convertible Debentures and four-year
warrants to purchase 100,000 shares of common stock at $1.75 per share.
During fiscal 1998, we raised a total of $224,986 from the following private
placements of debt and equity:
O On May 21, 1998, our predecessor, International Pizza Group, issued
2,999,985 common shares as consideration for $224,986 as part of a
private placement. We issued 7,300,363 common shares in connection with
the acquisition of a combined 73.85% of the equity interests in CDKnet,
LLC.
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The proceeds from these issues have and will be used to (i) continue our ongoing
operation, (ii) development of CDK(TM), Gameplayer, and MixFactory.com(TM)
product lines, and (iii) to repay our debt.
RESULTS OF OPERATIONS - JULY 1, 1999 TO SEPTEMBER 30, 1999
- ----------------------------------------------------------
During the quarter ending September 30, 1999, we incurred a net loss of
$1,176,879 on revenues of $23,663 compared to a net loss of $1,354,188 on
revenues of $158,393 in the prior period ended September 30, 1998. Revenues
declined $134,730 in the current period because our focus shifted to the
enhancement of our core technologies, such as the perfection of our
MixFactory(TM) technology and CDK(TM) version 2.0 and Macintosh compatible
CDK(TM) version 1.5, as well as the penetration of core markets. From July 1,
1999 to September 30, 1999, we have expended approximately $108,000 on research
and development.
RESULTS OF OPERATIONS - JUNE 30, 1999 COMPARED TO THE PERIOD ENDED OCTOBER 1,
- -----------------------------------------------------------------------------
1997 TO JUNE 30, 1998.
- ----------------------
During the fiscal year ending June 30, 1999, we incurred a net loss of
$6,147,600 on revenues of $474,344 compared to a net loss of $1,184,475 on
revenues of $616,137 in the prior period ended June 30, 1998. Revenues resulted
from sales of products from our CDKnet product line. Revenues declined from
$616,137 in the prior period because our financial condition restricted its
ability to promote its products. Cost of revenues in fiscal 1999 were
approximately $288,762 or 61% compared to $415,769 or 67% in the prior period.
We believe this minor improvement is within normal variances and is not
material.
Research and development expenses incurred during the year ended June 30, 1999
related to the continued new development and enhancement of the CDKnet product
line, the creation of MixFactory.com(TM), and making the E-commerce venue
operate. Selling, general and administrative expenses increased from $1,580,478
in the prior period to $3,257,551 principally because the prior period was only
nine months and because of material increases in payroll, consulting and
professional fees related to expansion of our business, research and development
activities and operating as a public company.
Depreciation and amortization expenses increased from $133,776 in the prior
period to $1,981,130 principally because of amortization of goodwill related to
the purchase of minority interests of Kelly Music and various shareholders of
Kelly Music as well as increases due to increases in fixed assets.
Other significant expenses incurred during this period arose in the form of the
fair value charges for stock options and warrants granted principally for
consulting and legal services of $450,870, include in selling, general and
administrative expenses, and the discount on convertible debentures and other
loans of $1,038,008.
43
<PAGE>
At year end June 30, 1999, cash amounted to $231,347 and current liabilities
were $829,051. We do not have sufficient funds to finance operations for the
next year. We expect to finance our operations through revenues from sales of
our products and services and through private placements of equity and debt
securities. If we are unable to raise additional financing, we may be unable to
continue operations.
In March 1999, we received approval by the United States Patent Office for
certain claims made in our patent application for CDK(TM) technology. Subsequent
to year ended June 30, 1999, a submission has been made to the United States
Patent Office for reconsideration of the unapproved claims and filing
publication and perfection of our claims.
We are now actively marketing and beginning to sell CDKnet products and have
launched the first of several MixFactory(TM) sites.
RESULTS OF OPERATIONS - OCTOBER 1, 1997 TO JUNE 30, 1998.
- ---------------------------------------------------------
From October 1, 1997 (date of inception) to June 30, 1998, we incurred a net
loss of $1,184,475 on revenues of $616,137 at year ended June 30, 1998, cash
amounted to $469,267 and current liabilities totaled $443,355.
FACTORS AFFECTING FUTURE RESULTS.
- ---------------------------------
We do not provide forward looking financial information. However, from time to
time statements are made by employees that may contain forward looking
information that involve risks and uncertainties. In particular, statements
contained in this registration statement that are not historically containing
predictions and are made under the Safe Harbor Corporate Private Sector
Litigation Reform Act of 1995. Our actual result of operations and financial
condition have varied and may in the future vary significantly from those stated
in any predictions. Factors that may cause these differences include without
limitation the risk, uncertainties and other information discussed within this
registration statement, as well as the accuracy of our internal estimate of
revenue and operating expense levels.
We face a number of risk factors which may create circumstances beyond the
control of management and adversely impact the ability to achieve our business
plan. The key risk factors are our financial condition which is discussed in
under "General" above as well as those set forth in "Item 1. Description of
Business and Special Risk Factors" above.
YEAR 2000 COMPLIANCE
- --------------------
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
Century dates from 20th Century
44
<PAGE>
dates. These date code fields will need to distinguish 21st Century dates from
20th Century dates to avoid system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. As a result, many companies' software and computer systems may need
to be upgraded or replaced in order to comply with the "Year 2000" or "Y2K"
requirements.
As of April 23, 1999, we completed the process of determining whether or not our
products, our internal systems, computers and software, and the products and
systems of our critical vendors and suppliers are Year 2000 compliant. The cost
associated with this review has been minimal, primarily because we have utilized
internal personnel to complete the review, and because our systems are
relatively new. System 1.0 was tested on Windows 95 operating system and it was
found to be fully Y2K compliant. System 2.0 was specifically designed without
date dependent code and will not be affected by Y2K. The CDK(TM) 2.0 product was
tested and found to be Y2K compliant on September 15, 1999.
Given these results of its Year 2000 review, we believe that it might experience
some disruptions in some of its peripheral operating systems or with
non-critical vendors but will otherwise be unaffected. We believe that
sufficient redundancy exists in its systems and vendor relationships to minimize
any substantial detrimental effects on the Company's operations and financial
position.
Although we believe that its Year 2000 review has identified all material Year
2000 issues, there can be no absolute assurance that the Company identified and
resolved all of these issues. If we discover Year 2000 problems in the future,
it may not be able to develop, implement, or test remediation or contingency
plans in a timely or cost-effective manner.
DESCRIPTION OF PROPERTY
-----------------------
Our executive office is located at 595 Stewart Avenue, Suite 710, Garden City,
New York 11530. The office space is donated to us by the law firm of Horowitz,
Mencher, Klosowski & Nestler, P.C., of which Steven Horowitz (our Chairman,
Chief Executive Officer, Chief Financial Officer and Secretary) is managing
partner. Our executive offices may be reached at (516) 222-8800.
Our manufacturing, research and development is conducted out of CDKnet, LLC's
office located at 250 West 57th Street, New York, New York 10019. The New York
City office consists of approximately 4,825 square feet, which is subleased from
Kelly Music pursuant to a month-to-month arrangement that will expire on April
30, 2000. The annual lease rate is approximately $135,600. This office may be
contacted by telephone at 212-547-6050. All property is insured to industry
standards.
45
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
1. TRANSACTIONS WITH MANAGEMENT AND OTHERS; CERTAIN
BUSINESS RELATIONSHIPS; PROMOTERS
O On November 2, 1999, we sold 285,714 shares of common stock for
$100,000 to Steven A. Horowitz (our Chairman, Chief Executive Officer,
Chief Financial Officer, and Secretary) along with two-year warrants to
purchase 28,571 shares of common stock.
O On November 16, 1999, Steven A. Horowitz renounced (for no future
consideration) 750,000 options (granted on August 1, 1999 and expiring
on July 31, 2004) with an exercise price of $1.00 per share) to
purchase our common stock.
O During the year ended June 30, 1999 and the period October 1, 1997 to
June 30, 1998, legal services of $168,393 and $201,039, respectively,
were provided by Horowitz, Mencher, Klosowski & Nestler, P.C.-- a law
firm in which our Chairman, Chief Executive Officer, Chief Financial
Officer, Secretary and principal stockholder is the managing partner
(the "Firm"). Further, the Firm donated office space and accounting
services for which no fees were paid by us to the Firm. The office
space and corresponding services are valued at $1,000 per month and the
accounting services are valued at $35,000 per year.
O In fiscal 1999, we into a $150,000 demand loan with the Firm at an
interest rate of 11% and issued 150,000 stock warrants at $.66
exercisable through October 1, 2003. The detachable warrants with a
fair value of $42,000 were accounted for as additional interest cost
with a credit to paid-in capital. At June 30, 1999, the outstanding
loan balance is $60,000.
O On May 15, 1998, we granted 150,000 stock options with an exercise
price of $.60 to the corporate entity of the Firm for legal services
rendered. The fair value of these services was $63,000.
O During fiscal 1999, some of our stockholders provided loans to us
aggregating $150,000. In connection with the loans, we granted 150,000
stock warrants with an exercise price of $.66, exercisable through
October 1, 2003. The detachable warrants with fair value of $42,057 was
accounted for as additional interest cost with a corresponding credit
to paid-in capital. The loans were partially repaid and the outstanding
balances were satisfied through the exercise of stock warrants.
46
<PAGE>
O During the year ended June 30, 1999 and the period October 1, 1997 to
June 30, 1998, we provided noninterest-bearing advances to Kelly Music
of $29,033 and $848,541, respectively. These advances plus the secured
notes from Kelly Music of $712,000 (see Notes to Financials 2(a) and
(d)) were extinguished as follows: (1) $600,000 was deemed
consideration in the purchase of Kelly Music's interest in CDKnet, LLC
(2) $800,000 was accounted for as repurchase by CDKnet, LLC of a
portion of Kelly Music's ownership interest in CDKnet, LLC and (3) the
remaining amounts of $29,033 in 1999 and $160,307 in 1998 were deemed
uncollectible and recorded as uncollectible advances. We made the
interest free advances against Kelly Music's capital account in the
original CDKnet, LLC joint venture. When we realized that Kelly Music
could not pay the loan, we converted Kelly Music's debt to an interest
in us. Kelly Music does not own a direct interest in us. The extent of
its interest in us is in its capacity as one of our shareholders.
O In June 1999, we entered into a Finder's Agreement (attached hereto as
Exhibit 10.13) with our president, Shai Bar-Lavi, effective as of
August 1, 1999, and a third party whereby we issued 100,000 warrants at
an exercise price of $1.00 to the third party upon execution of the
agreement and future fees for identifying financing, purchase or
venture transactions, as defined. During the year ended June 30, 1999,
we recorded an expense of $100,000 representing the fair value of the
warrants issued.
O In fiscal 1999, Steven A. Horowitz, one of our Directors and Officers,
loaned us an aggregate of $121,018, at no interest, all of which has
been repaid.
O During the period from March 27, 1998 to March 5, 1999, the Firm
advanced various sums to us, at no interest, totaling an aggregate of
$227,000, all of which has been repaid.
0 During fiscal 1999, Steven A. Horowitz deposited the sum of $145,000
with Fleet Bank to collateralize a Fleet Bank loan to us. We used the
loan proceeds to finance the purchase of manufacturing equipment from
Bandai America Incorporated.
2. INDEBTEDNESS OF MANAGEMENT
No member of our management is or has been indebted to us. No director or
executive officer is personally liable for repayment of amounts advanced any
financing received by us.
47
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
1. MARKET INFORMATION
On October 7, 1999, our common stock was deleted from the Over-the-Counter
Bulletin Board and now trades on the so called "Pink Sheets" under the symbol
"CDKX" until our registration statement has completed the Commission's review
process. As of December 14, 1999, we had 17,206,157 shares of common stock
outstanding; of this amount, 3,601,824 of these shares are nonrestricted;
13,604,333 of these shares are restricted. As of December 14, 1999, the number
of holders of record of our common stock, $0.0001 par value, was 81.
The following table sets forth the range of high and low sales prices for the
stock for each full quarterly period within the two most recent fiscal years and
any subsequent interim period covered by the financials. The sales represent
prices between dealers, do not include retail markup, mark down or other fees or
commissions, and do not necessarily represent actual transactions.
Calendar Quarter Bid Prices
Ended Low High
- -------------------------------------------------------------------------------
September 30, 1999 .968 1.843
June 30, 1999 .937 3.125
March 31, 1999 .906 2.625
December 31, 1998 .500 1.843
September 30, 1998 .500 3.625
2. DIVIDEND POLICY
To date, we have not paid a cash dividend and is currently contractually
restricted from doing so.
EXECUTIVE COMPENSATION
----------------------
1. EXECUTIVE OFFICER COMPENSATION
The following table sets forth all compensation paid by us as of fiscal year
ended June 30, 1999, to all of our executive officers:
48
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------- --------- ----------------------------------- ------------------------------------------------
Annual Compensation9 Long-Term Compensation
----------------------------------- ------------------------------------------------
Awards Payouts
------------------------- ----------------------
Securities
Other Under- All Other
Annual Restricted lying Compen-
Name And Compen- Stock Options/ LTIP sation
Principal Position Year Salary Bonus sation Award(s) SARs Payouts ($)
($) ($) ($) ($) (#) ($) (i)
(a) (b) (c) (d) (e) (f) (g) (h)
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven A. Horowitz1 FY99 7,500 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
FY98 7,500 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
Robert Kelly2 FY99 95,192.38 -- 39,600(7)
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
FY98 80,769.30 -- 39,600(7)
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
Ronald Leong3 FY99 147,534.98 -- 8,400(8)
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
FY98 75,000.00 -- 8,400(8)
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
Michael W. Jolly4 FY99 69,615.38 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
FY98 54,250.00 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
Keith A. Fredericks5 FY99 57,499.91 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
FY98 27,885.00 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
Russell A. Kern6 FY99 79,999.92 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
FY98 12,923.06 --
- --------------------------- --------- ------------- --------- ----------- ------------ ------------ ---------- -----------
</TABLE>
1 Mr. Horowitz is our Chairman, Chief Executive Officer, Chief Financial
Officer, and Secretary. Mr. Horowitz is paid as one of our consultants
because he does not keep regular hours, decides his own schedule and
otherwise fits the characteristics of a consultant as promulgated under the
relevant sections of the Internal Revenue Code and Regulations and case law.
2 Mr. Kelly was formerly President of CDKnet, LLC. His tenure ended on
March 1999.
3 Mr. Leong was our former President and his services ended on May 31, 1999.
4 Mr. Jolly is our Executive Vice President, Entertainment Group.
5 Mr. Fredericks resigned as our Senior Vice President and Chief Technical
Officer effective December 17, 1999.
6 Mr. Kern is our Executive Vice President, General Manager.
7 This figure represents compensation for an apartment for Mr. Kelly.
8 This figure represents compensation for an automobile allowance for Mr.
Leong. Mr. Leong left the Company in March 1999.
9 In fiscal 2000, each of the named officers are to receive salary compensation
as follows:
49
<PAGE>
Steven A. Horowitz $1,500 per week as a consultant
Shai Bar-Lavi $6,250 bi-monthly
Michael W. Jolly $3,541.67 bi-monthly
Russell A. Kern $3,333.33 bi-monthly
Tom Ross $150,000 annually
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
- -------------------------- ------------------ --------------------- -------------------- -------------------
Percent Of
Number Of Total Options/
Securities SARs Granted
Underlying To Employees Exercise Or
Options/SARs In Fiscal Base Price
Name Granted (#) Year ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
- -------------------------- ------------------ --------------------- -------------------- -------------------
- -------------------------- ------------------ --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Steven A. Horowitz 750,000 $ .60 5/20/08
------------------ --------------------- -------------------- -------------------
------------------ --------------------- -------------------- -------------------
Michael W. Jolly 10,000 $1.00 12/01/03
------------------ --------------------- -------------------- -------------------
------------------ --------------------- -------------------- -------------------
Russell A. Kern 10,000 $1.00 12/01/03
------------------ --------------------- -------------------- -------------------
------------------ --------------------- -------------------- -------------------
Ronald Leong 175,000 $ .80 6/07/01
------------------ --------------------- -------------------- -------------------
------------------ --------------------- -------------------- -------------------
Robert Kelly 0 0 --
------------------ --------------------- -------------------- -------------------
------------------ --------------------- -------------------- -------------------
Keith Fredericks (1) 10,000 $1.00 12/1/03
- -------------------------- ------------------ --------------------- -------------------- -------------------
</TABLE>
- -------------------
(1) Mr. Fredericks resigned as our Senior Vice President and Chief Technical
Officer effective December 17, 1999.
50
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
- -------------------------- -------------- -------------- ------------------- -------------------
Number Of
Securities Value Of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
On Value At FY-End (#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- -------------------------- -------------- -------------- ------------------- -------------------
- -------------------------- -------------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Steven A. Horowitz 0 0 750,000/0 $300,000/0
-------------- -------------- ------------------- -------------------
-------------- -------------- ------------------- -------------------
Michael W. Jolly 0 0 10,000/0 0
-------------- -------------- ------------------- -------------------
-------------- -------------- ------------------- -------------------
Russell A. Kern 0 0 10,000/0 0
-------------- -------------- ------------------- -------------------
-------------- -------------- ------------------- -------------------
Ronald Leong 0 0 0 $ 35,000/0
-------------- -------------- ------------------- -------------------
-------------- -------------- ------------------- -------------------
Keith Fredericks (1) 0 0 10,000 0
- -------------------------- -------------- -------------- ------------------- -------------------
</TABLE>
- -------------------
(1) Mr. Fredericks resigned as our Senior Vice President and Chief Technical
Officer effective December 17, 1999.
2. COMPENSATION OF DIRECTORS
None of our directors were compensated in fiscal year 1999 for their services.
51
<PAGE>
FINANCIAL STATEMENTS
C O N T E N T S
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements
Consolidated Balance Sheets at September 30, 1999 and
June 30, 1999 F-2
Consolidated Statements of Operations for the three
months ended September 30, 1999 and 1998, year ended
June 30, 1999 and period October 1, 1997 (date of inception)
to June 30, 1998 F-3
Consolidated Statement of Stockholders' Equity for the
period October 1, 1997 (date of inception) to June 30,
1998, year ended June 30, 1999 and three months ended
September 30, 1999 (unaudited) F-5
Consolidated Statements of Cash Flows for the three months
ended September 30, 1999 and 1998, year ended June 30, 1999
and period October 1, 1997 (date of inception) to June 30, 1998 F-7
Notes to Consolidated Financial Statements F-8 - F-27
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
CDKNET.COM, INC.
We have audited the accompanying consolidated balance sheet of CDKNET.COM, INC.
and Subsidiaries (the "Company") as of June 30, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 1999 and the period October 1, 1997 (date of inception)
to June 30, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. As discussed in Note 11, the Company's
consolidated statements of operations, stockholders' equity and cash flows for
the period October 1, 1997 (date of inception) to June 30, 1998 were reaudited
and restated.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CDKNET.COM, INC.
and Subsidiaries as of June 30, 1999, and the consolidated results of their
operations and their consolidated cash flows for the year ended June 30, 1999
and the period October 1, 1997 (date of inception) to June 30, 1998, in
conformity with generally accepted accounting principles.
As shown in the consolidated financial statements, since inception the Company
has sustained significant losses and used substantial amounts of cash in
operations. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
uncertainty as to the Company's ability to raise additional financing and
sustain profitable operations, as discussed in Note 1 to the consolidated
financial statements, raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from this uncertainty.
/s/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
Melville, New York
September 21, 1999, except for Note 12(c) and
(d), as to which the date is October 5, 1999
F-1
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
SEPTEMBER 30, June 30,
ASSETS 1999 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 20,513 $ 231,347
Accounts receivable 23,662 19,000
Due from officer 11,600
Prepaid expenses and other current assets 4,940 9,907
-------------- --------------
Total current assets 49,115 271,854
FURNITURE AND EQUIPMENT - at cost,
less accumulated depreciation and amortization of $184,550 and
$152,286 at September 30, 1999 and June 30, 1999, respectively 467,148 489,053
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED,
less accumulated amortization of $1,829,816 and $1,472,753
at September 30, 1999 and June 30, 1999, respectively 5,311,441 5,668,504
INTANGIBLE ASSETS, less accumulated amortization of $521,077 and
$452,467 at September 30, 1999 and June 30, 1999, respectively 851,126 919,736
OTHER ASSETS
Deferred financing costs, less accumulated amortization of $62,760
and $37,400 at September 30, 1999 and June 30, 1999, respectively 185,390 210,750
-------------- --------------
$ 6,864,220 $ 7,559,897
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 74,500 $ 220,778
Accrued expenses and other current liabilities 410,796 415,334
Due to related party 118,900 125,000
Due to officer 50,000
Current portion of long-term debt and capitalized lease obligations 65,388 67,939
-------------- --------------
Total current liabilities 719,584 829,051
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS, net of current portion 191,457 205,416
SUBORDINATED CONVERTIBLE DEBENTURES 1,673,985 1,671,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.0001 per share; authorized
5,000,000 shares; none issued -- --
Common stock - par value $.0001, per share; authorized
40,000,000 shares; 14,810,979 and 14,046,906 shares issued and
outstanding at September 30, 1999 and June 30, 1999 1,481 1,405
Additional paid-in capital 12,786,667 12,185,100
Accumulated deficit (8,508,954) (7,332,075)
-------------- --------------
4,279,194 4,854,430
-------------- --------------
$ 6,864,220 $ 7,559,897
============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-2
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
Period
October 1, 1997
(date of
inception) to
Three months ended September 30, Year ended June 30,
---------------------------- June 30, 1998,
1999 1998 1999 as restated
------------ ------------ ------------ ------------
--------(unaudited)---------
<S> <C> <C> <C> <C>
Net revenues $ 23,663 $ 158,393 $ 474,344 $ 616,137
Cost of revenues 14,958 95,816 288,762 415,769
------------ ------------ ------------ ------------
Gross profit 8,705 62,577 185,582 200,368
Selling, general and administrative expenses 675,033 784,734 3,257,551 1,580,478
Depreciation and amortization 483,297 529,585 1,981,130 133,776
------------ ------------ ------------ ------------
Loss from operations (1,149,625) (1,251,742) (5,053,099) (1,513,886)
Other expense (income)
Interest expense (income), including interest
relating to beneficial conversion and debt
discount of $2,985, $102,629 and $1,038,008 at
September 30, 1999, September 30, 1998 and June
30, 1999, respectively, net 27,254 102,446 1,094,501 (461)
Minority interest in loss of subsidiary (328,950)
------------ ------------ ------------ ------------
NET LOSS $ (1,176,879) $ (1,354,188) $ (6,147,600) $ (1,184,475)
============ ============ ============ ============
Basic and diluted earnings (loss) per share $ (.08) $ (.11) $ (.46)
============ ============ ============
Weighted-average shares outstanding -
basic and diluted 14,274,175 11,880,424 13,282,176
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period October 1, 1997 (date of inception)
to June 30, 1998, year ended June 30, 1999
and three months ended September 30, 1999
<TABLE><CAPTION>
Common stock Additional Total
--------------------------- Member paid-in Accumulated stockholders'
Shares Amount capital capital deficit equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1997
Issuance of membership interest
in Creative Technology, LLC $ 1,735,000 $ 1,735,000
Common stock issued for exchange
of member capital of Creative
Technology, LLC 6,000,000 $ 600 (1,735,000) $ 1,734,400
Common stock issued in merger with
International Pizza Group, Inc. 3,999,985 400 222,788 223,188
Common stock issued for purchase
of minority interests 1,300,363 130 3,146,571 3,146,701
Compensation related to stock
option plan 147,000 147,000
Net loss, as restated $ (1,184,475) (1,184,475)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 11,300,348 1,130 -- 5,250,759 (1,184,475) 4,067,414
Common stock and stock warrants
issued for purchase of fixed assets 75,000 8 143,742 143,750
Common stock issued for purchase of
minority interests 1,883,635 188 4,505,934 4,506,122
Debt discount 1,142,008 1,142,008
Conversion of subordinated debentures 476,358 48 324,952 325,000
Common stock and stock warrants issued
for financing costs 16,667 2 50,898 50,900
Exercise of stock options 116,084 12 69,988 70,000
Compensation related to stock
option plan 201,000 201,000
Common stock and stock warrants
issued for services 175,000 17 395,698 395,715
Common stock issued in lieu of cash
interest 3,814 9,121 9,121
Stock warrants issued for termination
agreement 91,000 91,000
Net loss (6,147,600) (6,147,600)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 (carried forward) 14,046,906 1,405 -- 12,185,100 (7,332,075) 4,854,430
</TABLE>
F-4
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Period October 1, 1997 (date of inception)
to June 30, 1998, year ended June 30, 1999
and three months ended September 30, 1999
<TABLE><CAPTION>
Common stock Additional Total
--------------------------- Member paid-in Accumulated stockholders'
Shares Amount capital capital deficit equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 (brought forward) 14,046,906 $ 1,405 $ -- $ 12,185,100 $ (7,332,075) $ 4,854,430
Issuance of common stock 332,000 33 309,967 310,000
Exercise of stock options 317,073 31 11,737 11,768
Compensation related to stock option plan 111,875 111,875
Common stock and stock warrants issued for
services 115,000 12 167,988 168,000
Net loss (1,176,879) (1,176,879)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 (unaudited) 14,810,979 $ 1,481 $ -- $ 12,786,667 $ (8,508,954) $ 4,279,194
============ ============ ============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-5
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
Period
October 1, 1997
(date of
inception) to
Three months ended September 30, Year ended June 30,
-------------------------- June 30, 1998,
1999 1998 1999 as restated
----------- ----------- ----------- -----------
-------(unaudited)--------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(1,176,879) $(1,354,188) $(6,147,600) $(1,184,475)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 483,297 529,585 1,981,130 133,776
Amortization of debt discount 2,985 102,629 1,038,008
Uncollectible advances 29,033 160,307
Compensation related to stock option plan 111,875 201,000 147,000
Common stock and stock warrants issued for services 168,000 117,150 395,715
Common stock issued in lieu of cash interest 9,121
Stock warrants issued for termination agreement 91,000
Minority interest in loss of consolidated subsidiary (328,950)
Changes in assets and liabilities
(Increase) decrease in accounts receivable (4,662) 35,852 86,744 (105,744)
(Increase) decrease in inventory 3,883 (3,883)
(Increase) decrease in due from officer 61,600 (11,600)
(Increase) decrease in prepaid expenses and other
Current assets 4,967 15,772 16,187 (26,094)
(Decrease) increase in accounts payable (146,278) (128,148) 42,020 171,258
(Decrease) increase in accrued expenses and other
Current liabilities (4,538) (167,416) 76,328 344,696
----------- ----------- ----------- -----------
677,246 505,424 3,958,569 492,366
----------- ----------- ----------- -----------
Net cash used in operating activities (499,633) (848,764) (2,189,031) (692,109)
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of furniture and equipment (10,359) (8,068) (212,407) (43,832)
Advances to related party (29,033) (848,541)
----------- ----------- ----------- -----------
Net cash used in investing activities (10,359) (8,068) (241,440) (892,373)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from notes payable 250,000 791,938 93,750
Repayment of notes payable (6,100) (491,465)
Proceeds from subordinated convertible debentures 300,000 2,100,000
Deferred financing costs (197,250)
Principal payments on long-term debt and capitalized
lease obligations (16,510) (10,672)
Proceeds from issuance of common stock 310,000 1,959,999
Proceeds from exercise of stock warrants 11,768
----------- ----------- ----------- -----------
Net cash provided by financing activities 299,158 550,000 2,192,551 2,053,749
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (210,834) (306,832) (237,920) 469,267
----------- ----------- ----------- -----------
Cash at beginning of period 231,347 469,267 469,267 --
----------- ----------- ----------- -----------
Cash at end of period $ 20,513 $ 162,435 $ 231,347 $ 469,267
=========== =========== =========== ===========
</TABLE>
F-6
<PAGE>
CDKNET.COM, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE><CAPTION>
Period
October 1, 1997
(date of
inception) to
Three months ended September 30, Year ended June 30,
-------------------------- June 30, 1998,
1999 1998 1999 as restated
----------- ----------- ----------- -----------
-------(unaudited)--------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 4,040 $ 1,083 $ 36,055 --
Income taxes -- -- -- --
Noncash investing and financing transactions:
Fixed asset acquisitions financed through capitalized
lease obligations 113,553
Common stock and stock warrants issued for purchase
of fixed assets 143,750
Common stock issued for purchase of minority interest 4,506,122 4,506,122 $ 3,146,701
Debt discount 130,318 1,142,008
Issuance of stock upon conversion of subordinated
debentures 10,000 325,000
Common stock and stock warrants issued for financing
costs 50,900
Exercise of stock options for debt extinguishment 70,000
Purchase of business, net of cash acquired 1,500,000
Contribution of notes for ownership interest 805,516
Exchange of ownership interest for outstanding debt
advances (800,000)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-7
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
CDKNET.COM, INC. and Subsidiaries, formerly named Technology Horizons, Inc.
(collectively the "Company"), is a New York-based Internet company that
provides products to its worldwide customers utilizing its internally
developed multimedia technology, CDK(TM). The technology provides for the
enhanced integration of audio, video and Internet connectivity on a
standard compact disc ("CD").
The Company's consolidated financial statements include the accounts of
CDKNET.COM, INC. ("CDK") and its wholly-owned subsidiaries, Creative
Technology, LLC ("Creative"), a limited liability company, and CDKnet, LLC
("CDKnet"), a limited liability company. CDKnet became a wholly-owned
subsidiary after a series of acquisitions completed through July 1998.
Creative commenced operations on October 1, 1997 with cash capital
contributions from investors of $1,735,000. On November 11, 1997, Creative,
Kelly Music & Entertainment, Inc. ("KME"), and certain stockholders of KME
formed CDKnet, which is the operating entity. Creative acquired a 40%
capital interest and voting control in CDKnet under terms of the operating
agreement, for $1,500,000. On May 21, 1998, CDK, which was formed to be the
corporate owner of Creative, and the members of Creative exchanged their
ownership interest for 6 million shares of CDK's common stock.
The Company has incurred net losses of $6,147,600 and $1,184,475 during the
year ended June 30, 1999 and the period October 1, 1997 (date of inception)
to June 30, 1998, respectively. Since June 30, 1999, the Company has had
limited revenues. For the year ended June 30, 1999, and the period October
1, 1997 (date of inception) to June 30, 1998, net cash used in operating
activities was $2,189,031 and $692,109, respectively. Through June 30,
1999, the Company's cash requirements were primarily financed though the
sale of subordinated convertible debentures and common stock of $2,100,000
and $1,960,000, respectively. The Company does not maintain a credit
facility with any financial institution. The Company continues to incur
expenses with respect to new product development. As a result of the
continued losses, the use of significant cash in operations and the lack of
sufficient funds to execute its business plan, among other matters, there
is substantial doubt about the Company's ability to continue as a going
concern. No adjustments have been made with respect to the consolidated
financial statements to record the results of the ultimate outcome of this
uncertainty.
F-8
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 1 (CONTINUED)
Management's plans to remain a going concern require additional financing
until such time as sufficient cash flows are generated from operations.
Financings are anticipated to be in the form of additional debt and equity;
however, there can be no assurances that the Company will be able to obtain
sufficient financing to execute its business model, which is still in an
evolving stage. However, management believes that it will be able to secure
sufficient funding for operations at least for the next twelve months.
Further, management believes that operating expenses could be reduced to
fundable levels, if necessary. Subsequent to June 30, 1999, the Company
focused primarily on new product development and implemented a marketing
plan, including the hiring of marketing and sales personnel. Further, the
Company will need to build its brand name, provide scalable, reliable and
cost-effective services, continue to grow its infrastructure to accommodate
customers and increased use of its products and services, expand its
channels of distribution, and retain and motivate qualified personnel.
Subsequent to June 30, 1999, the Company issued 332,000 shares of common
stock and received net proceeds of $310,000 (see Note 12 (e)). Further, the
Company's CEO and other parties have committed to invest $200,000 (see Note
13(b)).
In addition to the above equity financing, the Company also anticipates the
need to raise additional funds through public or private debt or equity
financing in order to take advantage of unanticipated opportunities,
including more rapid expansion or acquisitions of complementary businesses
or technologies, or to develop new or enhanced services and related
products, or otherwise respond to unanticipated competitive pressures.
There can be no assurance that additional financing will be available on
terms favorable to the Company, or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may not be
able to take advantage of unanticipated opportunities, develop new or
enhanced services and related products, or otherwise respond to
unanticipated competitive pressures and the Company's business, operating
results and financial condition could be materially adversely affected.
NOTE 2 - MERGERS AND ACQUISITIONS
a. On November 11, 1997, CDKnet acquired certain assets of KME in exchange
for issuing to KME a 40% ownership interest in CDKnet valued at
$1,500,000 (see Note 1). The assets acquired, including fixed assets
and intellectual property, represented the principal business of KME.
No liabilities were assumed in
F-9
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 2 (CONTINUED)
connection with this acquisition. The purchase price was allocated
based on the estimated fair value of the fixed assets and intangible
assets of approximately $127,000 and $1,373,000, respectively. In
addition, key employees of KME became employees of CDKnet. CDKnet
accounted for the acquisition as a purchase. Creative, which controlled
CDKnet under the terms of the operating agreement, accounted for the
results of operations from the date of acquisition. The fair values of
the intangible assets acquired are being amortized on a straight-line
basis over five years.
On the above date, certain principals of KME contributed certain
collateralized notes of KME aggregating $712,000 (see Note 2(d)) in
exchange for an equivalent dollar ownership interests in CDKnet. As
substantially all of the assets of KME consisted of membership
interests in CDKnet, the notes were recorded as a reduction of the
equity of CDKnet. Such notes were later used to redeem a portion of the
membership interest of these individuals.
b. On May 21, 1998, International Pizza Group, Inc. ("IPGI"), a
nonoperating public company with net assets (principally cash) of
approximately $225,000, acquired 100% of the outstanding common stock
of CDK (the "Acquisition") and changed its name to CDK. The Acquisition
resulted in the owners and management of CDK having effective control
of the combined entity. Under generally accepted accounting principles,
the Acquisition is considered to be a capital transaction in substance,
rather than a business combination. That is, the Acquisition is
equivalent to the issuance of stock by CDK for the net monetary assets
of IPGI, accompanied by a recapitalization, and accounted for as a
change in capital structure. Accordingly, the accounting for the
Acquisition is identical to that resulting from a reverse acquisition,
except that no goodwill is recorded. Under reverse acquisition
accounting, the post-reverse-acquisition comparative historical
financial statements of the "legal acquirer," IPGI, are those of the
"accounting acquiree," CDK. Accordingly, the financial statements of
CDK for the period from October 1, 1997 (date of inception) to June 30,
1998 are the historical financial statements of CDK for the same
period.
F-10
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 2 (CONTINUED)
c. On June 3, 1998, the Company acquired the minority interests of two
members of CDKnet for $3,146,701. The consideration was paid through
the issuance of 1,300,363 shares of common stock. As a result of the
acquisition, the sellers held a reduced percentage ownership interest
in the Company. The Company accounted for the acquisition as a
purchase. The excess of the consideration over the estimated fair value
of the net assets acquired in the amount of $2,670,135 has been
recorded as cost in excess of fair value of net assets acquired and is
being amortized on a straight-line basis over five years.
d. On July 8, 1998, the Company entered into an agreement, subsequently
amended (the "Agreement"), based on terms previously agreed upon with
KME, to acquire the remaining minority interest for $5,171,122. The
consideration was (1) the retirement of $600,000 of notes (2) issuance
of 1,883,635 shares of the Company's common stock and (3) a cash
payment of $65,000. The amendment provided for the waiver of previously
agreed upon registration rights on common stock in excess of 250,000
shares, terminated any and all demand registration rights with certain
stockholders of KME and released the Company from any and all claims,
liabilities, demands and causes of action known or unknown which KME
could assert in the future, as defined.
The Company accounted for the acquisition as a purchase. The excess
consideration over the estimated fair value of the net assets acquired
of $4,471,122 has been recorded as cost in excess of fair value of net
assets acquired and is being amortized on a straight-line basis over
five years.
The following (unaudited) pro forma information has been prepared
assuming that the acquisition of KME and the minority interests had
occurred as of October 1, 1997, after giving effect to certain
adjustments, including amortization of goodwill. The (unaudited) pro
forma information is presented for informational purposes only and is
not necessarily indicative of what would have occurred if the
transactions had been made as of October 1, 1997.
Net revenues ................... $ 616,137
Net loss ....................... (1,921,645)
F-11
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting
policies:
REVENUE RECOGNITION
The Company recognizes revenue on the date the product is shipped to the
customer.
During the year ended June 30, 1999, two customers accounted for
approximately 51% and 16% of net revenues, respectively. For the period
October 1, 1997 (date of inception) to June 30, 1998, one customer
accounted for approximately 95% of the Company's net revenues.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs include expenses incurred by the Company to
develop new products and enhance the Company's existing products. Research
and development costs are expensed as incurred. During the year ended June
30, 1999 and the period October 1, 1997 (date of inception) to June 30,
1998, such costs aggregated approximately $211,000 and $132,000,
respectively.
INCOME TAXES
CDK files separate Federal, state and city corporate income tax returns.
Creative and CDKnet file separate Federal, state and city (where
applicable) partnership income tax returns. Earnings or losses from these
limited liability companies pass through directly to CDK.
The Company follows the asset and liability method of accounting for income
taxes by applying statutory tax rates in effect at the balance sheet date
to differences among the book and tax bases of assets and liabilities. The
resulting deferred tax liabilities or assets are adjusted to reflect
changes in tax laws or rates by means of charges or credits to income tax
expense. A valuation allowance is recognized to the extent a portion or all
of a deferred tax asset may not be realizable.
USE OF ESTIMATES
The Company uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that the Company uses.
F-12
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 3 (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE
Basic loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted loss per
share is computed using the weighted average number of shares of common
stock, adjusted for the dilutive effect of potential common shares issued
or issuable pursuant to stock options and stock warrants. Loss per share
has not been shown for the period October 1, 1997 (date of inception) to
June 30, 1998, as the Company operated as a limited liability
company/partnership for substantially the entire period. All potential
common shares have been excluded from the computation of diluted loss per
share as their effect would be antidilutive and, accordingly, there is no
reconciliation of basic and diluted loss per share for each of the periods
presented. Potential common shares that were excluded from the computation
of diluted loss per share consisted of stock options and stock warrants
outstanding, aggregating 2,824,914 and 1,200,000 as of June 30, 1999 and
June 30, 1998, respectively (see Note 8).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the substantial doubt as to the Company's ability to continue as a
going concern, it is not practicable to estimate the fair value of the
Company's financial liabilities. Information concerning their terms is
contained in Notes 5 and 6.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost. Maintenance and repairs are
charged to expenses as incurred; major renewals and betterments are
capitalized. When items of furniture or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in the results of operations. Furniture and
equipment are depreciated using the straight-line method over their
estimated useful lives, which range from three to seven years. Leasehold
improvements are amortized over the term of the related lease or the useful
life of the improvements, whichever is shorter.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
The cost in excess of fair value of net assets acquired ("goodwill") is
being amortized on a straight-line basis over five years.
F-13
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 3 (CONTINUED)
INTANGIBLE ASSETS
Intangible assets, principally intellectual property acquired in connection
with an acquisition, are being amortized over the estimated useful life of
five years.
On an ongoing basis, management reviews the valuation and amortization of
goodwill and intangible assets to determine the possible impairment by
considering current operating results and comparing the carrying value to
the anticipated undiscounted cash flows of the related assets.
DEFERRED FINANCING COSTS
The costs associated with completed financings are being amortized ratably
over the term of the financing.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements as of and for the three months
ended September 30, 1999 and the three months ended September 30, 1998 have
been prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
information set forth therein, in accordance with generally accepted
accounting principles. The results of operations for the three months ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at June 30, 1999:
Furniture .................. $ 5,295
Equipment .................. 629,751
Leasehold improvements ..... 6,293
---------
641,339
Less accumulated depreciation
and amortization ........... 152,286
---------
$489,053
=========
Depreciation expense for the year ended June 30, 1999 and the period
October 1, 1997 (date of inception) to June 30, 1998 was $123,999 and
$28,287, respectively.
F-14
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 5 - LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
TERM LOAN
In June 1999, the Company entered into a term loan with a lender.
Borrowings aggregating $175,000 under the agreement, which are
collateralized by the equipment and $145,000 in cash collateral provided by
the Company's CEO, are repayable in monthly installments of approximately
$3,500 including interest at 7.86% through March 2004.
CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under leases accounted for as capital
leases. The obligations require the Company to make monthly payments of
approximately $3,000 through May 2002.
The following is a summary of aggregate annual maturities of long-term debt
and capitalized lease obligations as of June 30, 1999.
Year ending June 30,
2000 ...................................... $ 83,418
2001 ...................................... 78,745
2002 ...................................... 75,719
2003 ...................................... 42,440
2004 ...................................... 31,826
--------
312,148
Less amounts representing interest ........ 38,793
--------
273,355
Less current portion ...................... 67,939
--------
$205,416
========
Interest paid for the year ended June 30, 1999 was approximately $2,500.
NOTE 6 - SUBORDINATED CONVERTIBLE DEBENTURES
6.00% SUBORDINATED CONVERTIBLE DEBENTURES
During the period September 4, 1998 through January 21, 1999, the Company
issued $600,000 in 6% Subordinated Convertible Debentures due September 1,
2003 with detachable five-year warrants (the "Notes") to purchase 60,000
shares of common stock of the Company at an exercise price of $3.00 per
share. The Notes are immediately convertible into common stock of the
Company at an effective
F-15
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 6 (CONTINUED)
conversion price of the lower of (i) 70% of the average current market
price of the Company's common stock during the five days preceding the date
of the original issuance, or (ii) 75% of the average current market price
during the five-day trading period ending one trading day preceding the
date the Notes are converted. The agreement contains antidilution
provisions whereby the conversion price is subject to (downward) adjustment
in certain circumstances. The Company may redeem the Notes at any time for
120% of the principal amount of the Notes plus accrued interest. The Notes
are subordinated to the claims and rights of all Senior Debt, as defined by
the underlying agreement. In addition, the agreement contains covenants
limiting the Company's ability to pay dividends, incur new debt, enter into
certain transactions and reacquire common or preferred stock of the
Company. If an event of default occurs beyond a stated cure period the
notes shall become payable at the option of the holder. An event of default
includes, among others, the Company having its common stock suspended from
an exchange or over-the-counter market (see Note 12(d)).
In connection with the agreement, the Company recorded a discount on the
Notes in the aggregate amount of $238,000 resulting from the allocation of
proceeds of $203,000 to a beneficial conversion feature and the fair value
of the underlying warrants of $35,000. Due to the immediate conversion
rights under the agreement, the discount attributed to the beneficial
conversion feature was expensed on the date of issuance. The carrying value
of the Notes is being accreted to the face value of $600,000 using the
interest method over the life of the Notes. The accretion in fiscal 1999
was $20,000.
During the period from issuance to June 30, 1999, $325,000 in debentures
plus accrued interest of $2,500 was converted into 480,172 shares of the
Company's common stock.
In connection with the sale of the Notes, the Company incurred fees of
$60,000 and issued five-year warrants to purchase 30,000 shares of the
Company's common stock at $3.00 per share. The Company computed the
approximate fair value of the warrants issued to be $19,650 using the
Black-Scholes method.
5.75% SUBORDINATED CONVERTIBLE DEBENTURE
On February 2, 1999, the Company issued a $1,500,000, 5.75% Subordinated
Convertible Debenture due February 1, 2009 with detachable four-year
warrants (the "Debenture") to purchase 100,000 shares of common stock of
the Company at an exercise price of $1.75 per share. The Debenture is
immediately convertible into common stock of the Company at an effective
conversion price of the lower of (i) $1.30, or, (ii) subsequent to November
1, 1999, 75% of the average current market price during the five-day
trading period ending one trading day preceding the date the Debenture is
converted (limited to a minimum conversion price of $.60 through July 1,
2000). The agreement contains
F-16
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 6 (CONTINUED)
antidilution provisions whereby the conversion price is subject to
(downward) adjustment in certain circumstances. The Company may redeem the
Debenture at any time for 150% of the principal amount of the Debenture
plus accrued interest. In addition, the Company, at its option, may convert
the Debenture into shares of 5.75% Convertible Preferred Stock having the
same rights as the Debenture. The Debenture is subordinated to the claims
and rights of all Senior Debt, as defined by the underlying agreement. In
addition, the agreement contains covenants limiting the Company's ability
to pay dividends, incur new debt, enter into certain transactions and
reacquire common or preferred stock of the Company. If an event of default
occurs beyond a stated cure period the notes shall become payable at the
option of the holder. An event of default includes, among others, the
Company having its common stock suspended from an exchange or
over-the-counter market (see Note 12(d)).
In connection with the agreement, the Company recorded a discount on the
Debenture in the aggregate amount of $756,000, resulting from the
allocation of proceeds of $663,000 to a beneficial conversion feature and
the fair value of the underlying warrants of $93,000. The fair value
allocated to the warrants was determined based on the estimated fair value
of the debt using an effective interest rate of 14% and the fair value of
the warrants using the Black-Scholes option-pricing model. Due to the
immediate conversion rights under the agreement, the discount attributed to
the beneficial conversion feature was expensed on the date of issuance. The
carrying value of the Debenture is being accreted to the fair value of
$1,500,000 using the interest method over the life of the Debenture. The
accretion in fiscal 1999 was $4,000.
In connection with the sale of the Debenture, the Company incurred fees of
$135,000 and issued 16,667 shares of the Company's common stock having a
market value of $31,250.
Under terms of a registration rights agreement, the Company was required to
have an effective registration statement for the shares issuable upon
conversion of the Debentures by July 25, 1999 or incur daily penalties, as
stated. Effective July 26, 1999, the Company is incurring such penalties
payable monthly with the issuance of common stock.
F-17
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 7 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss and other carryforwards $ 1,510,000 $ 377,000
----------- -----------
Net deferred tax assets before valuation allowance 1,510,000 377,000
Less valuation allowance (1,510,000) (377,000)
----------- -----------
Net deferred tax asset $ - $ -
========== ===========
</TABLE>
The Company has recorded a full valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized.
The Company's effective income tax rate differs from the statutory Federal
income tax rate as a result of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Tax benefit at statutory rate $(2,090,000) $ (403,000)
Nondeductible expense/nontaxable (income) - net 1,203,000 73,000
State benefit, net of Federal tax effect (246,000) (47,000)
Valuation allowance on net operating loss 1,133,000 377,000
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The provision for Federal income taxes has been determined on the basis of
a consolidated tax return. At June 30, 1999, the Company had a net
operating loss carryforward for Federal income tax reporting purposes
amounting to approximately $3,975,000, expiring from 2018 through 2019. The
Internal Revenue Code of 1986, as amended, limits the amount of taxable
income the Company may offset with net operating loss carryforwards in any
single year. No Federal taxes were paid in the year ended June 30, 1999 and
the period October 1, 1997 (date of inception) to June 30, 1998.
NOTE 8 - STOCKHOLDERS' EQUITY
On February 2, 1999, the Company's Board of Directors amended the
certificate of incorporation, increasing the number of authorized shares
from 20 million to 45 million, of which 5 million are preferred shares.
F-18
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 8 (CONTINUED)
WARRANTS
Warrant activity for the year ended June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Weighted-
average
exercise
Shares price
------ -----
<S> <C> <C>
Outstanding at the beginning of the year - -
Issued 1,328,498 $.96
Exercised (116,084) $.66
----------
Outstanding at the end of the year 1,212,414 $.99
=========
Warrants exercisable at year-end 1,212,414 $.99
=========
Weighted-average fair value of warrants
granted during the year $.59
</TABLE>
Information, at date of issuance, regarding stock warrant grants during the
year ended June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
average average
exercise fair
Shares price value
------ ----- -----
<S> <C> <C> <C>
Exercise price exceeds market price 90,000 $3.00 $.66
Exercise price equals market price 418,498 $ .61 $.35
Exercise price is less than market price 820,000 $ .91 $.70
</TABLE>
F-19
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 8 (CONTINUED)
The following table summarizes information about warrants outstanding and
exercisable June 30, 1999:
<TABLE>
<CAPTION>
Outstanding
and exercisable
----------------------------------------------------
Weighted-
average Weighted-
remaining average
Number life in exercise
outstanding years price
----------- ----- -----
<S> <C> <C> <C>
Range of exercise prices
$.60 to $.85 877,414 3.69 $ .69
$1.00 to $1.25 145,000 4.33 1.03
$1.75 100,000 4.58 1.75
$3.00 90,000 4.17 3.00
-----------
1,212,414
===========
</TABLE>
Certain warrant agreements contain a cashless exercise provision, whereby
the warrants may be exercised solely by the surrender of the warrants, and
without the payment of the exercise price in cash, for that number of
warrant shares determined by dividing the difference of the market price of
the shares of common stock issuable upon exercise of the warrants and the
warrant exercise price by the market price of the common stock on the date
of exercise.
STOCK OPTION PLAN
In 1998, the Company adopted the 1998 Equity Incentive Plan (the "Plan")
for employees, officers, consultants and directors of the Company, pursuant
to which the Company may grant incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock or deferred stock. The
Plan provides for each director to be granted (a) director stock options to
acquire 20,000 shares of common stock upon the initial acceptance to serve
as a member of the Board and (b) director options to acquire additional
shares immediately following the date of each annual meeting of
shareholders ranging from 10,000 shares in year one to 50,000 shares in
year five and thereafter. The total number of shares of the Company's
common stock available for distribution under the Plan is 3,000,000. The
Plan is administered by the stock option committee of the board, whose
members are appointed by the board
F-20
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 8 (CONTINUED)
of directors, which has the authority to designate the number of shares to
be covered by each award, the vesting schedule of such award and cashless
exercise rights, among other terms. The option period during which an
option may be exercised shall not exceed ten years from the date of grant
and will be subject to such other terms and conditions of the Plan. In
addition, the Plan contains certain acceleration provisions in the event of
a "change in control," as defined by the underlying agreement. Unless the
stock option committee provides otherwise, option awards terminate when a
participant's employment or services end, except that a participant may
exercise an option to the extent that it was exercisable on the date of
termination for a period of time thereafter if the participant was
involuntarily terminated without cause. The Plan will terminate
automatically on June 30, 2008.
Incentive stock option awards are granted at prices equal to or above the
fair market value of the stock on the date of grant. Nonqualified stock
option awards and director options are granted at prices equal to 80% and
85%, respectively, of the fair market value of the stock on the date of
grant. As of June 30, 1999, 1,387,500 shares were available for granting of
options under the Plan.
The Company's stock option awards granted to employees, consultants and
directors for the year ended June 30, 1999 and the period October 1, 1997
(date of inception) to June 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- ----------------------------
WEIGHTED- Weighted-
AVERAGE average
EXERCISE exercise
SHARES PRICE Shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,200,000 $.60 - -
Awards granted 412,500 $.85 1,200,000 $.60
---------- ---------
Outstanding at end of year 1,612,500 $.67 1,200,000 $.60
========= =========
Options exercisable at year-end 1,612,500 $.67 1,200,000 $.60
========= =========
Weighted-average fair value
of options granted during
the year $.57 $.42
</TABLE>
F-21
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 8 (CONTINUED)
The following information applies to options outstanding and exercisable at
June 30, 1999:
<TABLE>
<CAPTION>
Outstanding
and exercisable
---------------------------------------------------
Weighted-
average Weighted-
remaining average
Number life in exercise
outstanding years price
----------- ----- -----
<S> <C> <C> <C>
$ .60 1,350,000 8.94 $ .60
$1.00 262,500 4.42 $1.00
----------
1,612,500
==========
</TABLE>
At June 30, 1999, there were approximately 5,738,000 shares of common stock
reserved for issuance pursuant to outstanding stock warrants, the stock
option plan and subordinated convertible debentures.
The Company accounts for stock-based compensation under the guidelines of
APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," as allowed by Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense was recognized concerning stock
options granted to key employees and to members of the board of directors,
as such stock options were granted to board members in their capacity as
directors. Compensation expense of $450,870 and $147,000 was recognized for
the year ended June 30, 1999 and the period October 1, 1997(date of
inception) to June 30, 1998, respectively, for stock warrants and stock
options granted to consultants.
During the year ended June 30, 1999, the Company issued 175,000 stock
warrants to CDKnet's former president in connection with a termination and
severance agreement. In addition to severance payments, the Company
recorded an expense of $91,000, representing the fair value of the stock
warrants with a credit to paid-in capital.
F-22
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 8 (CONTINUED)
If the Company had elected to recognize compensation expense based upon the
fair value at the grant date for options granted to key employees and to
members of the board of directors consistent with the "fair value"
methodology prescribed by SFAS No. 123, the Company's net loss and net loss
per share for the year ended June 30, 1999 and net loss for the period
October 1, 1997 (date of inception) to June 30, 1998 would be reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net loss
As reported $(6,147,600) $(1,184,475)
Pro forma (6,183,225) (1,541,475)
Net loss per common share - basic and diluted
As reported $(.46)
Pro forma (.46)
</TABLE>
The fair value of each stock warrant or option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions for: dividend yields of zero in 1999
and 1998; risk-free interest rates ranging from 4.30% to 5.40% in 1999 and
5.70% in 1998; expected terms of 1 to 5 years in 1999 and 5 years in 1998;
and expected stock price volatility of 85% in 1999 and 1998.
NOTE 9 - RELATED PARTY TRANSACTIONS
a. During the year ended June 30, 1999 and the period October 1, 1997
(date of inception) to June 30, 1998, legal services of $168,393 and
$201,039, respectively, were provided by a firm (the "Firm") in which
the Company's CEO and principal stockholder is the managing partner.
Further, the Firm provided office space and accounting services for
which no fees were paid.
In fiscal 1999, the Company entered into a $150,000 demand loan with
the Firm at an interest rate of 11% and issued 150,000 stock warrants
at $.66 exercisable through October 1, 2003. The detachable warrants
with a fair value of $42,000 were accounted for as additional interest
cost with a credit to paid-in capital. At June 30, 1999,the outstanding
loan balance is $60,000.
On May 15, 1998, the Company granted 150,000 stock options issued under
the Plan (see Note 8) with an exercise price of $.60 to a partner in
the aforementioned law firm for legal services rendered. The fair value
of such services was $63,000.
F-23
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 9 (CONTINUED)
b. During fiscal 1999, certain stockholders of the Company provided loans
to the Company aggregating $150,000. In connection with the loans, the
Company granted 150,000 stock warrants with an exercise price of $.66,
exercisable through October 1, 2003. The detachable warrants with fair
value of $42,057 was accounted for as additional interest cost with a
corresponding credit to paid-in capital. The loans were partially
repaid and the outstanding balances were satisfied through the exercise
of stock warrants.
c. During the year ended June 30, 1999 and the period October 1, 1997(date
of inception) to June 30, 1998, CDKnet provided noninterest-bearing
advances to KME of $29,033 and $848,541, respectively. Such advances
plus the notes from KME of $712,000 (see Note 2(a) and (d)) were
extinguished as follows: 1) $600,000 was deemed consideration in the
purchase of KME's interest in CDKnet, 2) $800,000 was accounted for as
repurchase by CDKnet of a portion of KME's ownership interest in CDKnet
and 3) the remaining amounts of $29,033 in 1999 and $160,307 in 1998
were deemed uncollectible and recorded as uncollectible advances.
d. In June 1999, the Company entered into a finder's agreement with a
consultant, who became CDKnet's president effective as of August 1,
1999, and a third party whereby the Company issued 100,000 stock
warrants at an exercise price of $1.00 to the third party upon
execution of the agreement and agreed to pay both parties future fees
upon consummation of financing, purchase or venture transactions with
entities introduced by them, as defined. During the year ended June 30,
1999, the Company recorded an expense of $100,000 representing the fair
value of the stock warrants issued.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
a. FACILITY AND EQUIPMENT
The Company occupies its New York City office space under a
month-to-month lease with KME. In addition, the Company is leasing
telephone equipment on a month-to-month lease with KME. Rent expenses
for the office space and equipment for the year ended June 30, 1999 and
the period October 1, 1997 (date of inception) to June 30, 1998 were
approximately $145,000 and $124,000, respectively.
b. LITIGATION MATTERS
The Company is involved in claims and disputes which arise in the
normal course of business. Management believes that the resolution of
these matters will not have a material adverse effect of the Company's
financial position or results of operations.
F-24
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 11 - RESTATEMENT
The Company engaged Grant Thornton LLP to reaudit the consolidated
financial statements as of June 30, 1998 and for the period October 1, 1997
(date of inception) to June 30, 1998. In connection with the reaudit,
management restated such financial statements to record adjustments
relating to, among others, the accounting for: stock warrants and options
granted, merger and acquisition transactions, and minority interests. The
effect of the adjustments increased the net loss, as previously reported
from $707,527 to $1,184,475, as restated.
NOTE 12 - SUBSEQUENT EVENTS
a. On August 1, 1999, the Company issued an aggregate of 1,030,000 stock
options to the Company's CEO and an employee at an exercise price of
$1.00. The quoted market price of the Company's stock at the date of
grant ranged from $1.00 - $1.50 (see Note 13(d)).
b. Subsequent to June 30, 1999, CDKnet entered into a two-year employment
agreement with its president. The agreement provides for a minimum
annual salary of $150,000 and the issuance of 750,000 stock options,
expiring in five years, with an exercise price of $1.00 vesting over
the term of the agreement or earlier if a change in control or CDKnet
terminates the agreement without cause. The quoted market value of the
Company's stock on the date of grant was $1.50. The agreement provides
for six months of severance pay. All payments under the agreement are
guaranteed by CDK.
Subsequent to June 30, 1999, CDKnet entered into a two-year employment
agreement with an executive vice president. The agreement provides for
a minimum annual salary of $150,000 and the issuance of 1,000,000 stock
options, expiring in five years, with an exercise price of $1.00
vesting over the term of the agreement or earlier if a change in
control or CDKnet terminates the agreement without cause. The quoted
market value of the Company's stock on the date of grant was $1.50. The
agreement provides for severance payments, under certain conditions,
for the unexpired term of the agreement. All payments under the
agreement are guaranteed by CDK.
c. On October 1, 1999, the Company gave notice to the holders of the 5.75%
Subordinated Convertible Debentures (see Note 6) and exercised its
right to call the outstanding Debentures in exchange for 5.75%
Convertible Preferred Stock. Under the terms of the Debentures, the
Convertible Preferred Stock shall have: (1) liquidation preferences
equal to the principal amount of the Debenture, (2) a 5.75% cumulative
annual dividend payable quarterly, (3) rights to convert into shares of
Common Stock at the same conversion rate as the Debentures and (4) the
same redemption rights at the option of the Company.
F-25
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 12 (CONTINUED)
d. On October 5, 1999, the Company obtained a sixty-day waiver from the
holders of the 6% and 5.75% Subordinated Convertible Debentures to
waive any event of default relating to the common stock of the Company
being suspended from an exchange or over-the-counter market.
e. During August and September 1999, the Company issued 332,000 shares of
common stock to an unrelated investor and received net proceeds of
$310,000. In connection with the transaction, the investor was given a
30-day option, which expired September 17, 1999, to purchase up to an
additional 2,668,000 shares of common stock for approximately
$3,410,000.
NOTE 13 - UNAUDITED INTERIM FINANCIAL INFORMATION
a. In August 1999, stock options to purchase 400,000 shares of common
stock were exercised, using cashless exercises pursuant to which
300,000 shares of common stock were issued.
b. On November 1, 1999, pursuant to a securities purchase agreement, the
Company issued 1,000,000 shares of common stock and received net
proceeds of $500,000. Further, in connection with the agreement, the
Company issued 200,000 stock warrants, expiring May 2002, with an
exercise price of $1.25 per share and granted the purchasers the option
to purchase an additional 2,000,000 shares of common stock for $.50 per
share through December 31, 1999.
c. On November 2, 1999, the Company issued 1,250,000 shares of common
stock and received net proceeds of $437,500. In connection with the
transaction, in which the Company's CEO and other shareholders
fulfilled a commitment to invest $200,000 in the Company, the Company
issued 125,056 stock warrants, expiring November 2, 2001, at an
exercise price of $.75 per share. The warrants include provisions for
cashless exercises and adjustments to the purchase price and the number
of shares, as defined. Further, the Company and the purchasers executed
a registration rights agreement which requires mandatory registration
of the shares issued within a specified period.
d. On November 16, 1999, the Company's CEO renounced 750,000 options
granted on August 1, 1999 to purchase the Company's common stock for no
future consideration (see Note 12(a)).
e. On November 16, 1999, pursuant to a Subscription Agreement with a third
party, the Company issued 200,000 shares of common stock and received
net proceeds of $100,000. In connection with the agreement, the
investor agreed to purchase an additional 1.6 million shares of common
stock at $.50 per share through May 2000. In addition, the Company and
the investor entered into a
F-26
<PAGE>
CDKNET.COM, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 and
September 30, 1999 (unaudited)
NOTE 13 (CONTINUED)
f. Technology and Licensing Agreement which will give the Company a 4.89%
interest in the investor and additional fees upon completion of
specified services and further, grants a license to use certain of
CDK's technology.
F-27
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
We have engaged Grant Thornton LLP as our auditors as of January 27, 1999,
replacing Wagner, Zwerman & Steinberg LLP who were dismissed as our auditors.
There were no disagreements with Wagner, Zwerman & Steinberg. Wagner, Zwerman &
Steinberg has reviewed our disclosure of its termination and agree in all
respects with our characterization of our switch to a new accounting firm to
provide audited financial reports. See Exhibit 23.1.
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Delaware law sets forth our powers to indemnify officers, directors, employees
and agents. Our Articles of Incorporation provide as follows:
"A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the Delaware General corporation law, or (iv) for
any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended after the
date of incorporation of the Corporation to authorize corporate action
further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated
or limited to the fullest extent permitted by the Delaware General
Corporation law as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall no adversely affect any right or
protection of a director of the Corporation existing at the time of the
repeal or modification.
The Corporation shall, to the fullest extent permitted by Section 145
(or any other provision) of the Delaware general corporation Law, as
the same may be amended and supplemented, or by any successor thereto,
indemnify any and all officers and directors of the corporation form
and against any and all of the expenses, liabilities or other mattes
referred to in or converted by said Section. Such right to
indemnification provided for herein shall not be deemed exclusive of
any other rights to which those seeking
II-1
<PAGE>
indemnification may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise."
Except as mentioned above, there is no charter provision, bylaw, contract,
arrangement or statute pursuant to which any director or officer is indemnified
in any manner against any liability which he may incur in his capacity as such.
We do not maintain director and officer liability policy to fund our obligations
as stated herein above.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
-------------------------------------------
The following expenses in connection with the issuance and distribution of the
securities being registered will be borne by us and are estimated to be as
follows:
Filing Fee ................................................ $ 658.36
Legal Fees ................................................ $30,000.00
Transfer Agent ............................................ $ 1,000.00
Accounting Fees ........................................... $ 7,500.00
Printing Fee .............................................. $ 3,000.00
Miscellaneous ............................................. $ 2,000.00
----------
Total ............................................ $44,158.36
==========
RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
As of December 14, 1999, there are issued and outstanding 17,206,157 shares of
common stock which were issued or sold in reliance upon the exemptions from
registration provided by the Securities Act as follows:
o During the period July 1, 1999 to present, we issued 2,947,000 shares
of common stock for cash or services of $1,502,500, issued 317,073
common shares for exercise of stock options and issued 325,056 warrants
to purchase common stock in private placements, as follows:
o On November 16, 1999, we entered into a Subscription Agreement with
Asia Pioneer where we raised $100,000 from Asia Pioneer through the
issuance of 200,000 share of common stock, along with six
allotments to purchase an additional 300,000 shares of common stock
per month at $150,000 per allotment. The allotments will be
fulfilled in May 2000.
o 30,000 shares to Cabaret Software, Inc. on August 10, 1999, and
10,000 shares on September 18, 1999 for services valued at $30,000;
o 216,000 shares to Y2G.Com, Inc. for $155,000. On September 8, 1999,
the Company sold Y2G an additional 116,000 shares of common stock
for $155,000.
II-2
<PAGE>
o 150,000 shares to Lawrence Adams Ltd. through the exercise of
cashless options on September 14, 1999;
o 40,000 shares to Michael Sonnenberg through the exercise of
cashless options on September 14, 1999;
o 110,000 shares to Steven Wildstein through the exercise of cashless
options on September 14, 1999;
o 75,000 shares to Lawrence Adams Ltd. for services valued at
$114,000 on September 14, 1999;
o 50,000 shares to Energenic, LLC for services valued at $50,000 on
October 29, 1999, in addition to an agreement to issue 50,000
shares of common stock to Energenic upon the completion of
milestones pursuant to the Software Agreement between us and
Energenic and the issuance of an additional 50,000 one-year options
exercisable at $1.00 per share for the purchase of shares of common
stock upon the completion of the project as set forth in the
Software Agreement;
o 1,000,000 shares to Erno and Rachel Bodek for $500,000 from Erno
and Rachel Bodek on November 1, 1999 through the issuance of
1,000,000 shares of common stock, along with 30-month Warrants to
purchase an additional 200,000 shares of common stock at $1.25 per
share, and an option to purchase another 2,000,000 shares of common
stock at $.50 per share which shall expire on December 31, 1999.
o 285,714 shares to Steven A. Horowitz for $100,000 on November 2,
1999 along with 28,571 two-year warrants to purchase common stock
for $.75 per share;
o 107,143 shares Fox Distribution, Inc. for $37,500 on November 2,
1999 along with 10,714 two-year warrants to purchase common stock
for $.75 per share;
o 142,857 shares Michael Sonnenberg for $50,000 on November 2, 1999
along with 14,285 two-year warrants to purchase common stock for
$.75 per share;
o 714,286 shares The Gross Foundation for $250,000 on November 2,
1999 along with 71,486 two-year warrants to purchase common stock
for $.75 per share.
o During the period from July 1, 1998 to June 30, 1999, we issued
2,746,558 common shares, 600,000 Convertible Class A Debentures,
1,500,000 Convertible Class B Debentures for cash of $2,100,000, net of
issuance costs of $248,150. During the year ended June 30, 1999, we
also issued 1,328,498 Warrants to purchase common shares from the
following transactions: (1) 75,000 common shares and 100,000 Warrants
were issued to Bandai Holdings USA for the purchase of equipment used
in our MixFactory.com(TM) E-Commerce facility, and (2) 1,883,635 common
shares were issued to Kelly
II-3
<PAGE>
Music for the purchase of its 26.15% interest in CDKnet, LLC which
resulted in securing for us 100% of the equity interests of CDKnet,
LLC.
o During the period October 1, 1997 (date of inception) to June 30, 1998,
our predecessor, International Pizza Group, issued 2,999,985 common
shares $224,986 as part of a private placement. We issued 7,300,363
common shares in connection with the acquisition of 73.85% of the
equity interests in CDKnet, LLC.
EXHIBITS
--------
3.1* Articles of Incorporation of the Registrant.
3.2* Amendment to the Articles of Incorporation.
3.3* By-Laws of the Registrant.
3.4* Certificate of Merger of the Registrant.
3.5* Amendment to the Articles of Incorporation.
3.6* Designation of Series A Preferred Stock.
4.1* Specimen of Common Stock Certificate.
4.2* Technology Horizons Corp. Stockholders Agreement dated May 7,
1998.
5.1+ Opinion of Foley, Hoag & Eliot LLP
10.1* Technology Horizons Corp. 1998 Equity Incentive Plan.
10.2* Convertible Subordinated Debenture Due February 1, 2009.
10.2.1** Amendment No. 1 to Convertible Subordinated Debenture due
February 1, 2009
10.3* Registration Rights Agreement between Technology Horizons
Corp. and Kelly Music & Entertainment Corp. dated September 4,
1998.
10.4* Assignment Agreement between Kelly Music & Entertainment Corp.
and Technology Horizons Corp. dated September 4, 1998.
10.5* Amendment to Registration Rights Agreement between Technology
Horizons Corp. and Alvin Pock dated October 15, 1998.
10.6* Amendment to Registration Rights Agreement between Technology
Horizons Corp. and Robert L. Kelly dated October 15, 1998.
10.7* Registration Rights Agreement between Technology Horizons
Corp. and Robert L. Kelly dated June 3, 1998.
10.8* Registration Rights Agreement between Technology Horizons
Corp. and Alvin Pock dated June 3, 1998.
10.9* Assignment Agreement between Robert L. Kelly and Technology
Horizons Corp. dated June 3, 1998.
10.10* Assignment Agreement between Alvin Pock and Technology
Horizons Corp. dated June 3, 1998.
10.11* Assignment Agreement between Kelly Music & Entertainment Corp.
and CDKnet, LLC, dated June 3, 1998.
10.12* Employment Agreement, dated August 1, 1999, by and between
CDKNET.COM, INC. and Shai Bar-Lavi.
II-4
<PAGE>
10.13 Finder's Agreement between the Registrant and Shai Bar-Lavi
and Frederick Smithline dated June 1, 1999.
10.14** Employment Agreement dated August 1, 1999, by and between
CDKNET, LLC and Tom Ross.
10.15 Stock Purchase Agreement between the Company and the Gross
Foundation, Inc., Steven A. Horowitz, Shai Bar-Lavi, and
Michael Sonnenberg dated November 2, 1999.
10.16# Subscription Agreement between CDKNET.COM, INC. and Asia
Pioneer Limited dated November 16, 1999.
10.17# Technology and License Agreement CDKNET.COM, INC. and Asia
Pioneer Limited dated November 16, 1999.
10.18 Agreement dated March 19, 1999 between Peterson's and CDKnet,
LLC.
10.19 Undated Registration Rights Agreement between Spiga Limited
and CDKNET.COM, INC.
10.20# Agreement dated October 25, 1999, between CDKnet, LLC and
Atomic Pop, LLC.
10.21 Agreement dated March 29, 1999, between Central Park Media
Corp. and CDKnet LLC.
10.22 Purchase Agreement dated August 9, 1999 between CDKNET.COM,
INC. and Y2G.COM.
10.23 Convertible Subordinated Debenture Due September 1, 2003.
10.24 Letter Agreement dated May 4, 1998, between Megaforce
Entertainment and CDKnet, LLC regarding the use of CDK
technology.
10.25# Agreement dated August 5, 1999 between the Company and
DreamWorks Records.
10.26# Agreement dated September 16, 1999 between the Company and
CollegeMusic, Inc.
16.1 Letter from former Accountant, Wagner, Zwerman & Steinberg LLP
21* Subsidiaries of the Registrant
23.1 Consent of Grant Thornton LLP
23.2*** Consent of Foley, Hoag & Eliot LLP
99.1 Chart of the signatories to the Company's Stockholder's
Agreement (and their interest in the Company).
* Incorporated by reference from our Registration
Statement filed on Form 10-SB on October 7, 1999.
** Incorporated by reference from our Registration
Statement filed on Form 10-SB Amendment No. 2 on
November 26, 1999.
*** Incorporated in the Opinion of Foley, Hoag & Eliot
LLP in Exhibit 5 hereto.
+ To be filed by amendment.
# Portions omitted. Confidential treatment requested.
II-5
<PAGE>
UNDERTAKINGS
------------
(a) We undertake to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to include
any Prospectus required by Section 10 (a) (3) of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) may be reflected in the form of Prospectus filed with the
Commission pursuant to Rule 424 (b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(b) We undertake that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of these securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) We undertake to remove from registration by means of a post-effective
amendment any of the securities being registered, which remain unsold at the
termination of the offering.
(d) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers, and controlling persons, we
have been advised that in the opinion of the Commission this indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
in the event that a claim for indemnification against such liabilities (other
than the payment by the company of expenses incurred or paid by one of our
directors, officers or controlling persons in the successful defense of any
action suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(e) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424 (b) (1) or (4) or 497
(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-6
<PAGE>
(f) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered,
and the offering of these securities at that time shall be deemed to be the
initial bona fide offering.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Garden
City, State of New York, on December 21, 1999.
CDKNET.COM, INC.
(Registrant)
By: /s/ Steven A. Horowitz
---------------------------------
Steven A. Horowitz
Chairman, Chief Executive Officer
Chief Financial Officer and
Secretary
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman, Chief Executive
Officer, Chief Financial
/s/ Steven A. Horowitz Officer and Secretary December 21, 1999
- ------------------------------------ ---------------------------------------- -------------------------
Steven A. Horowitz (Title) (Date)
/s/ Andrew J. Schenker Director December 21, 1999
- ------------------------------------ ---------------------------------------- -------------------------
Andrew J. Schenker (Title) (Date)
/s/ Anthony J. Bonomo Director December 21, 1999
- ----------------------------------- ---------------------------------------- -------------------------
Anthony J. Bonomo (Title) (Date)
</TABLE>
II-8
EXHIBIT 10.13
-------------
FINDERS AGREEMENT
-----------------
This Agreement (the "Agreement") is entered into as of this 1st day of
June, 1999, between CDKnet, LLC ("CDK") and its parent, CDKnet.Com, Inc. ("CDK,
Inc.") (together, hereinafter sometimes referred to as the "Company") and Shai
Bar Lavi and Frederick E. Smithline (together sometimes referred to as
"Finder").
RECITALS
--------
WHEREAS, Finder represents that it will endeavor to introduce the
Company to one or more Targets (as defined in paragraph 1 below) who may be
interested in (a) the potential financing of Company (a "Financing
Transaction"), (b) the purchase or merger with the Company ( a "Purchase
Transaction") or (c) establishment of a joint venture with the Company (a
"Venture Transaction"), collectively sometimes hereinafter referred to as (a
"Transaction"), and
WHEREAS, the Company desires to engage the services of Finder to
provide introductions to such Targets in accordance with the terms and
conditions set forth in this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. The Company engages Finder for the Term of this Agreement to find
Targets interested in effecting a Transaction with the Company and Finder will
use its best efforts to introduce the company to such Targets. For purposes of
this Agreement, "Targets" shall mean individuals or entities introduced to the
Company by Finder.
2. In order to coordinate the Company's and Finders' respective efforts
during the period of engagement hereunder, Finder will from time to time notify
the Company in writing of potential Targets. If Target has not been previously
introduced to Company, Finder will use its best efforts to introduce the Target
to the Company for the purpose of effecting a Transaction, Schedule A is an
initial Finder Target list, Schedule B are those entities the Company is
currently in negotiation with. If Finder has not commenced meaningful (defined
as meetings between Company and Target ) negotiations by October 31, 1999 with
individual Targets listed in Schedule A, Finder shall no longer be exclusive as
to such Targets and Company directly or through third parties is entitled to
approach such Targets for the purposes of effecting a transaction in which event
Finder will not receive the fees set forth below. Company and Finder may
supplement Schedules A and B respectively from time to time by notice to the
other party.
<PAGE>
3. Upon the execution of this Agreement and separate and apart from the
Success Fees described in paragraph 4, and for services rendered, the Company
shall issue to Frederick E. Smithline a five year warrant to acquire 100,000
shares of CDK, Inc. common stock at an exercise price of $1,00 per share.
4. In the event of the completion of a Transaction with a Target during
the term of this Agreement, (completion of a transaction being defined as
collection by the Company of consideration, i.e. cash or anything of value), the
Company shall pay Finder Success Fees (as defined below) in accordance with the
following:
A. In the case of a Financing Transaction:
i. Upon completion of a Financing Transaction arising
out of Finder's introduction of minimally $2 million dollars arising
out of Finder's introduction, the Company shall issue to Finder five
year warrants to purchase the greater of (a) 5000,000 shares of the
CDK, Inc.'s common stock at $1.00 per share, or (b) 2-1/2% of CDK
Inc.'s common stock outstanding after giving effect to the Financing
Transaction, on a fully diluted basis, at an exercise price of $1.00
per share. If the financing is less than $2 million dollars, the Finder
Success Fee shall be reduced proportionally.
B. In the case of a Purchase Transaction:
i. Upon completion of a Purchase Transaction arising
out of Finder's introduction, the Company shall pay to finder 5% of the
total consideration (including without limitation assumption of debt
and payment of "golden parachutes") paid to the Company or its
shareholders if a sale of its stock or assets or 5% of the total
consideration paid by the company to a third party if a purchase of
third party stock or assets such payment to be in cash or stock
depending on the form of the purchase price.
ii. For purposes hereof, a Purchase Transaction shall
include (a) the sale of all or a portion of the Company, or shares
whether by means of a sale of stock, or assets, merger, consolidation,
exchange offer, or other such transaction of a like nature, regardless
of form or (b) the acquisition by the Company of a third party in
exchange for Company stock or other assets.
C. In the case of a Venture Transaction:
i. Upon completion of a Venture Transaction arising
out of Finder's introduction, the Company shall pay finder a Success
Fee equal to 5% of that portion of the venture contributed to or
delivered to the venture by the Target without any value for the
Company contribution.
ii. For the purposes hereof, a Venture Transaction
shall include the
2
<PAGE>
establishment of any business organ involving the assets, capital
and/or personnel of the Company and the assets, personnel and/or
capital of a Target.
5. Where the Success Fee payable to Finder in Paragraph 4(A)
is payable in warrants, at the completion of the Transaction the company shall
issue a warrant agreement with the appropriate number of warrants together with
an executed Registration Rights Agreement in the forms annexed hereto.
6. Except as otherwise provided herein, all Success Fees
payable to Finder shall be allocated 50% to Shai Bar Lavi and 50% to Frederick
E. Smithline.
7. Regardless of whether or not the transactions contemplated
by this Agreement are consummated, the Company subject to its prior written
consent agrees to reimburse Finder upon request made from time to time, for its
reasonable out-of-pocket expenses incurred in connection with its activities
hereunder.
8. It is understood and agreed that the company has the right,
without any liability to Finder, to terminate discussions for the financing,
purchasing, or venture involving the Company for any reason whatsoever at any
time.
9. The Company shall indemnify Finder, its shareholders,
affiliates, officers, directors, employees, agents and controlling persons and
hold them harmless from and against any losses, claims, damages or liabilities,
including, as incurred, reasonable legal fees and other expenses, to which they
may become subject as a result of or in connection with the rendering of
services hereunder as authorized hereby to the extent that such losses, claims,
damages or liabilities are not caused by Finders or any indemnities' gross
negligence or bad faith.
10. This Agreement shall remain in full force and effect for a
period of twelve (12) months after the date hereof (subject to early termination
by the Company upon 30 days' notice after six months from the date hereof);
provided, however, that Finder shall be entitled to receive the consideration
set forth in paragraph 4 hereof in the event a Target consummates a Transaction
with the Company within one year from the expiration of this Agreement. The
provisions of paragraphs 6, 7, 9 and 11 shall also survive the termination of
this Agreement.
11. The Company acknowledges that Finder has not done any due
diligence with respect to any Target and that Finder makes no representations
whatsoever with respect to any Target (including without limitation its
financial condition or its ability to perform any obligations to which it is or
may become bound), and the company expressly agrees that Finder shall have no
liability whatsoever in connection with any Target it may introduce to the
Company. The Company and Finder agree that Finder is an independent contractor
and is not an employee or agent of the Company and it has no authority to bind
the Company in any manner whatsoever.
12. Upon the completion of a Transaction, Finder can publish a
suitable and customary announcement concerning the Transaction.
3
<PAGE>
13. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflict of law principles.
14. This Agreement constitutes the entire agreement between
the parties and supersedes any prior agreements, whether written or oral,
between the parties. No modification, extension or change in this Agreement
shall be effective unless it is in writing and signed by both Finder and the
Company.
15. The provisions of this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their heirs, legal
representatives, successors and assigns. This Agreement may not be assigned
except upon the prior written consent of the other party to this Agreement.
16. Any notice hereunder shall be in writing and delivery
thereof shall be complete if delivered in person, by facsimile or mailed by
overnight mail, or registered or certified mail, postage prepaid to the
following addresses (unless changed by written notice):
Finder: Frederick E. Smithline and Shai Bar Lavi
250 Park Avenue, 12 Floor
New York, New York 10177
Company: CDKnet, LLC
250 West 57th Street, Suite 1101
New York, New York 10019
Attn: Steven A. Horowitz
and
CDKnet.Com, Inc.
595 Stewart Avenue, Suite 710
Garden City, New York 11530
Attn: Steven A. Horowitz
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the date first above written.
THE COMPANY
CDKnet, LLC
By: /s/ Steven A. Horowitz
--------------------------------
Name: Steven A. Horowitz
Title: Chief Executive Officer
and
CDKnet.Com, Inc.
By: /s/ Steven A. Horowitz
--------------------------------
Name: Steven A. Horowitz
Title: President
THE FINDER
/s/ Shai Bar Lavi
--------------------------------
Shai Bar Lavi
/s/ Frederick E. Smithline
--------------------------------
Frederick E. Smithline
5
<PAGE>
SCHEDULE A
Proposed Targets
----------------
Sandler, Millenium, Ing. Furman & Selz, Carolina Barnes, Glenn Myles,
Chase Capital Partners, GE Capital, Flatiron Partners, SoftBank, Peter Klenner,
Kleiner Perkins, Hummer Winblad, Charterhouse, Dyson Kissner, Rick Klass, Bobby
Davidoff, J.H. Witney, Sprout, Citigrowth Funds, Dirks, Bluestone Capital
Partners, Verona Suhler, Prospect Streets Ventures, GKN, Sony On-Line Ventures,
Big Entertainment, Warburg Pincus, Lawrence Smith Horey, Access Capital, cooper
Fund, dominion Ventures, J.P. Morgan Capital, Liberty Partners, Medallion
Funding, New York Community Investment, Ava Stern, Commonwalth Associates, M.
Renner, Steve Nagler, Quorum Growth, Sirron Capital, Ticonderoga, Triumph
Capital, Whale, First Albany, Ziff Brothers 2D Partners, Gruntal, Sue Miller,
Keane Securities, Credit Research & Trading, Milestone Capital, Laundry Room,
Justin Goldberg, Mehl. Vasinkevich, Arthur Mogel, Chris Blackwell, Atomic Pops,
Ladenburg Thalman, Wit Capital, Jeff Rice, Patricoff, Richard Eisner.
This list may be supplemented from time to time by a notice from Finder
to company.
6
EXHIBIT 10.15
-------------
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of November 2, 1999 (this
"Agreement"), is entered into by and between CDKNET.COM, Inc., a Delaware
corporation, with headquarters located at 595 Stewart Avenue, Garden City, New
York 11530 (the "Company"), and the purchasers listed on Exhibit A attached
hereto (each, a "Purchaser," and collectively, the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, the Purchasers wish to purchase, and the Company wishes to
issue, upon the terms and subject to the conditions of this Agreement, the
number of shares of the Company's common stock, par value $.0001 per share
("Common Stock") set forth as Exhibit A hereto, together with warrants to
purchase the number of shares of Common Stock set forth as Exhibit A hereto,
which such warrants shall be substantially in the form of Exhibit B attached
hereto (the "Warrants"). The Warrants may be exercised for the purchase of the
Company's Common Stock on the terms set forth therein. The Common Stock and the
Warrants are referred to herein as the "Securities."
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
A. PURCHASE. Each of the Purchasers hereby agrees to purchase from the
Company the number of shares of Common Stock and Warrants to purchase the number
of shares of Common Stock set forth next to its name on Exhibit A hereto. The
purchase price for the Securities shall be $0.35 per share. The purchase price
to be paid by each Purchaser shall be set forth on Exhibit A hereto and shall be
payable by check or by wire transfer.
B. CLOSING. The shares of the Common Stock to be purchased by the
Purchasers hereunder, in definitive form, and in such denominations and
registered in such names as the Purchasers or their representative, if any, may
request upon at least forty-eight hours' prior notice to the Company, shall be
delivered by or on behalf of the Company for the account of each such
<PAGE>
Purchaser, against payment by such Purchaser or on its behalf of the purchase
price set forth on Exhibit A hereto by check or by wire transfer to an account
of the Company, all at the offices of Foley, Hoag & Eliot LLP, One Post Office
Square, Boston, MA 02109 at 10:00 a.m. on November 2, 1999, or at such other
time and date as the Purchasers or their representative, if any, and the Company
may agree upon in writing, such date being referred to herein as the "Closing
Date."
2. PURCHASER REPRESENTATIONS AND WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Each Purchaser represents and warrants to, and covenants and agrees
with, the Company as follows:
a. The Purchaser is purchasing the Securities and for investment
purposes only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof. The Purchaser has not purchased or sold shares of the Company's Common
Stock during the three months prior to the date of this Agreement;
b. The Purchase is an "Accredited Investor" as that term is defined in
Regulation D adopted pursuant to the Securities Act;
c. The Purchaser and each of its equity owners is (i) experienced in
making investments of the kind described in this Agreement and the related
documents and (ii) able, by reason of the business and financial experience of
its officers (if an entity) and professional advisors, to protect its own
interests in connection with the transactions described in this Agreement and
the related documents;
d. The Purchaser has been given the opportunity to consult with senior
management of the Company and to obtain such information as the Purchaser has
considered necessary or appropriate in order for the Purchaser to evaluate the
proposed investment in the Company's securities;
e. All subsequent offers and sales of the Common Stock and the Common
Stock issuable upon exercise of the Warrants shall be made pursuant to an
effective registration statement under the Securities Act or pursuant to an
applicable exemption from registration;
f. The Purchaser understands that the Securities are being offered and
sold to it in reliance upon exemptions from the registration requirements of the
United States federal and state securities laws, and that the Company is relying
upon the truth and accuracy of the Purchaser's representations and warranties,
and the Purchaser's compliance with its agreements, each as set forth herein, in
order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities; and
g. This Agreement has been duly and validly authorized, executed and
delivered on
2
<PAGE>
behalf of the Purchaser and is a valid and binding agreement of the Purchaser,
enforceable in accordance with its terms, except to the extent that enforcement
of this Agreement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity.
The representations of each Purchaser set forth herein are made solely
with respect to such Purchaser, and not on behalf of any other Purchaser.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to each Purchaser that, except as
set forth in the Disclosure Schedule attached hereto as Schedule 1 (the
"Disclosure Schedule"):
a. ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
the Company's subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction. The Disclosure
Schedule sets forth all of the Company's subsidiaries, together with any other
entities in which the Company holds an equity interest, or a security that is
convertible into, or exercisable for, an equity interest in such entity. Except
as set forth in the Disclosure Schedule, the Company is not a party to any joint
venture or partnership. Each of the Company and its subsidiaries is duly
qualified as a foreign corporation in all jurisdictions in which the failure to
so qualify would have a material adverse effect on the Company and its
subsidiaries taken as a whole. The Disclosure Schedule sets forth the
jurisdictions in which the Company and any of its subsidiaries are qualified to
do business as a foreign corporation.
b. CAPITALIZATION. Prior to giving effect to the transactions
contemplated by this Agreement, the authorized capital of the Company shall
consist of 40,000,000 shares of Common Stock, of which 14,706,157 shares were
issued and outstanding on October 21, 1999. Schedule 1 hereto sets forth the
options, warrants and convertible securities of the Company (the "Derivative
Securities") which are outstanding on the date hereof, including in each case
(i) the name and class of such Derivative Securities, (ii) the issue date of
such Derivative Securities, (iii) the number of Shares of Common Stock of the
Company into which such Derivative Securities are convertible or exercisable as
of the date hereof, (iv) the conversion or exercise price or prices of such
Derivative Securities as of the date hereof and (v) the expiration date of any
conversion or exercise rights held by the owners of such Derivative Securities.
All of the outstanding securities of the Company and each of its subsidiaries
were issued in transactions that were effected in compliance with the applicable
securities laws and regulations of the U.S. or any state thereof.
c. EXISTING SHAREHOLDERS; AGREEMENTS. The Disclosure Schedule sets
forth the complete capitalization table of the Company as of June 30, 1999,
prepared both on an outstanding and fully diluted basis, showing the number of
shares of the Company's issued and
3
<PAGE>
outstanding capital stock, including options and warrants, of the Company held
by any person or entity on a pro forma basis as of the date of this Agreement.
Except as described in the Disclosure Schedule, there are no agreements, written
or oral, between the Company and any holder of its capital stock, or, to the
best of its knowledge, between or among any holders of its capital stock,
relating to the acquisition, disposition, holding or voting of the capital stock
of the Company. The Company is not party to any agreement which may require the
Company to repurchase at any time any shares of its capital stock.
d. CONCERNING THE STOCK TO BE ISSUED ON THE CLOSING DATE. On the
Closing Date, the shares of Common Stock to be issued to the Purchasers, upon
payment of the purchase price therefore, shall be duly and validly issued, fully
paid and non-assessable, and will not subject the holder thereof to personal
liability by reason of being such a holder. There are no preemptive rights of
any security holder of the Company, as such, to acquire the Securities issuable
to the Purchasers hereunder.
e. CONCERNING THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF THE
WARRANTS. The Common Stock issuable upon exercise of the Warrants, when so
issued, shall be duly and validly issued, fully paid and non-assessable, and
will not subject the holder thereof to personal liability by reason of being
such a holder. There are no preemptive rights of any security holder of the
Company, as such, to acquire the Common Stock issuable to the Purchasers
pursuant to the terms of the Warrants.
f. REPORTING COMPANY STATUS. The Company's Common Stock are not
currently required to be registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") as of the date hereof.
g. AUTHORIZED SHARES. The Company has legally available a sufficient
number of authorized and unissued Common Stock as may be reasonably necessary to
effect the exercise of the Warrants.
h. LEGALITY. The Company has the requisite corporate power and
authority to enter into, and to perform its obligations under, this Agreement
and to issue and deliver the Securities. The issuance of the Securities (and the
Common Stock issuable upon exercise of the Warrants) have been duly and validly
authorized by all necessary corporate action by the Company.
i. TRANSACTION AGREEMENTS. This Agreement, and the Registration Rights
Agreement, the form of which is attached hereto as Exhibit C (the "Registration
Rights Agreement," and together with this Agreement, and the Warrants, the
"Primary Documents"), and the transactions contemplated thereby, have been duly
and validly authorized by the Company; this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the other Primary Documents,
when executed and delivered by the Company, will each be, a valid and binding
agreement of the Company, enforceable in accordance with their respective terms,
except to the extent that enforcement of each of the Primary Documents may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or
4
<PAGE>
other similar laws now or hereafter in effect relating to creditors' rights
generally and to general principles of equity.
j. APPLICABLE CONTRACTS. All of the contracts and agreements with
expected receipts, expenditures or liabilities in excess of $25,000 or involving
a license or grant of rights to or from the Company or any of its subsidiaries
involving patents, trademarks, copyrights or other proprietary information
applicable to the business of the Company and its subsidiaries as of the date
hereof and as of the date of the Closing are listed on the Disclosure Schedule.
The Company has furnished to the Purchasers true, accurate and complete copies
of all of such documents, as they are in effect as of the date hereof.
k. NON-CONTRAVENTION. The execution and delivery of this Agreement and
each of the other Primary Documents, and the consummation by the Company of the
other transactions contemplated by this Agreement and each of the other Primary
Documents, does not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
Certificate of Incorporation or By-Laws of the Company, or any indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Company or any of its subsidiaries is a party or by which they or any of their
properties or assets are bound, or any existing applicable law, rule, or
regulation or any applicable decree which is material to the Company, judgment
or order of any court, or United States federal or state regulatory body,
administrative agency, or any other U.S. or foreign governmental body having
jurisdiction over the Company, its subsidiaries, or any of their properties or
assets, except such conflict, breach or default which would not have a material
adverse effect on the business of the Company or the transactions contemplated
by this Agreement or by the other Primary Documents.
l. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Agreement and the
other Primary Documents, except (i) such authorizations, approvals and consents
that have been obtained, copies of which have been furnished to the Purchasers
and, (ii) authorizations, approvals, consents or orders of the Commission with
respect to the Registration Statements referred to in the Registration Rights
Agreement and the Company's Form 10-SB, which approvals and orders are not
required to be obtained as of each Closing Date and will be timely obtained when
required.
m. SEC FILINGS. None of the reports or documents filed by the Company
with the Commission since January 1, 1996 contained, at the time they were
filed, any untrue statement of a material fact or omitted to state any material
fact required to be stated therein, or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
n. FINANCIAL STATEMENTS. The consolidated financial statements
including the income statements and balance sheets for each of the last two
fiscal years (the most recent ending
5
<PAGE>
June 30, 1999) of the Company and its subsidiaries, together with the related
notes and schedules that have been provided to the Purchasers present fairly in
all material respects the financial position and the results of operations and
cash flows of the Company and its consolidated subsidiaries, at the indicated
dates and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved, except as
disclosed therein, and all adjustments necessary for a fair presentation of
results for such periods have been made. Grant Thornton International, which
certified the financial statements that the Company intends to file with the
Commission, are independent public accountants as required by the Securities Act
and the rules and regulations thereunder.
o. ABSENCE OF CERTAIN CHANGES. Since June 30, 1999, the date of the
last consolidated balance sheet furnished to the Purchasers, there has been no
material adverse change and no material adverse development in the business
properties, operations, financial condition, outstanding securities or results
of operations of the Company and its subsidiaries, taken as a whole.
p. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Disclosure
Schedule sets forth all real properties owned or leased by the Company or any of
its subsidiaries, together with all material tangible assets owned or leased by
the Company or any of its subsidiaries, in each case, setting forth in
reasonable detail the nature of the ownership interest of the Company or its
subsidiary, as the case may be. The Company has good and marketable title to all
of its properties and assets, both real and personal, and has good title to all
its leasehold interests, in each case subject only to mortgages, pledges, liens,
security interests, conditional sale agreements, encumbrances or charges created
in the ordinary course of business.
q. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has sufficient
title, license or ownership of all patents, trademarks, service marks, trade
names, copyrights, trade secrets, or other proprietary rights (collectively the
"Proprietary Rights") necessary for its business as now conducted. The business
as currently conducted by the Company does not infringe on the Proprietary
Rights of any third party. The Disclosure Schedule identifies all applications
and registrations heretofore made or effected by the Company or any of its
subsidiaries to protect any of the Proprietary Rights or other intangible
property rights the use of which is necessary or desirable in connection with
the business of the Company and its subsidiaries. Each person that has
heretofore performed any work or services related to the development of the
Company's Proprietary Rights has executed and delivered to the Company an
Employee Confidentiality and Assignment Agreement or a confidentiality and Trade
Secret Agreement in substantially the form that has been provided to the
Purchasers.
r. PERMITS. The Disclosure Schedule sets forth all franchises, permits,
licenses and any similar authority possessed by the Company or any of its
subsidiaries. The Company has all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now conducted, the lack
of which would materially and adversely affect the business or financial
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condition of the Company. The Company is not in default in any material respect
under any of such franchises, permits, licenses or similar authority.
s. ABSENCE OF LITIGATION. The Disclosure Schedule sets forth all
actions, suits, proceedings, inquiries or investigations before or by any court,
public board or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any of its
subsidiaries. There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company
or any of its subsidiaries, in which an unfavorable decision, ruling or finding
would have a material adverse effect on the properties, business, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, or the transactions contemplated by the Primary
Documents, or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, the
Primary Documents.
t. NO DEFAULT. Each of the Company and its subsidiaries is not in
default in the performance or observance of any material obligation, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound.
u. TRANSACTIONS WITH AFFILIATES. The Disclosure Schedule sets forth
the names of the directors and executive officers of the Company and each of its
subsidiaries, together with, to the best of the Company's knowledge, a list of
any persons or entities, who, either individually or as members of a "group," is
the beneficial owner (as determined in accordance with Rule 13d-3 under the
Exchange Act) of 5% or more of the Company's outstanding shares of common stock.
Except as set forth in the Disclosure Schedule, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors or affiliates.
v. EMPLOYEE COMPENSATION PLANS. The Disclosure Schedule sets forth all
of the employment contracts, stock option plans, bonus plans, incentive plans,
profit sharing plans, deferred compensation agreements, retirement agreements or
other employee compensation agreements. The Company has furnished to the
Purchasers true, accurate and complete copies of all of such documents, as they
are in effect as of the date hereof.
w. TAXES. All applicable tax returns required to be filed by the
Company and each of its subsidiaries have been filed, or if not yet filed have
been granted extensions of the filing dates which extensions have not expired,
and all taxes, assessments, fees and other governmental charges upon the
Company, its subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the Company or
its subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if any such taxes
have not been paid or so reserved for, the failure to so file or to pay would
not in the aggregate have a material adverse effect on the business or financial
condition of the Company and its subsidiaries, taken as a whole.
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y. INSURANCE. The Disclosure Schedule sets forth all of the insurance
policies that relate to the business of the Company and its subsidiaries. The
Company and its subsidiaries currently have insurance covering the risks
associated with their businesses in such amounts as are customary in their
respective industries. Neither the Company or any of its subsidiaries is aware
of any pending or threatened claims against the Company for personal injuries or
property damages. Except as set forth in the Disclosure Schedule, no insurance
company has ever denied any claim made by the Company or any of its subsidiaries
for any claims with respect to any insurance policy.
z. INVESTMENT COMPANY ACT. The Company is not conducting, and does not
intend to conduct its business in a manner which it would become, an "investment
company" as defined in Section 3(a) of the Investment Company Act of 1940, as
amended. The Company will not become an investment company as a result of the
transactions contemplated by this Agreement.
aa. AGENT FEES. Except for such payments or other consideration as may
be owed to Quest, Ltd., the material terms of which have been disclosed to the
Purchasers, the Company has not incurred any liability for any finder's or
brokerage fees or agent's commissions in connection with the offer and sale of
the Securities hereunder.
bb. PRIVATE OFFERING. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, the offer, sale
and issuance of the Securities as contemplated by this Agreement are exempt from
the registration requirements of the Securities Act. The Company agrees that
neither the Company nor anyone acting on its behalf will offer any of the Common
Stock or the Warrants or any other securities for issuance or sale, or solicit
any offer to acquire any of the same from anyone so as to render the issuance
and sale of the Securities subject to the registration requirements of the
Securities Act. The Company has not offered or sold the Securities by any form
of general solicitation or general advertising, as such terms are used in Rule
502(c) under the Securities Act.
cc. FULL DISCLOSURE. The representations and warranties of the Company
set forth in this Agreement do not contain any untrue statement of a material
fact or omit any material fact necessary to make the statements contained
herein, in light of the circumstances under which they were made, not
misleading.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. Each Purchaser acknowledges that (1) neither
the Common Stock, the Warrants, or the shares of Common Stock issuable upon
exercise of the Warrants, have been, and are not being, registered under the
Securities Act, except as provided in the Registration Rights Agreement, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Purchaser shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form and substance to the Company, to the effect that the
securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of securities made in reliance
upon Rule 144 under the Securities Act
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may be made only in accordance with the terms of said Rule and further, if said
Rule is not applicable, any resale of the securities under circumstances in
which the seller, or the person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the Securities Act, may require
compliance with another exemption under the Securities Act and the rules and
regulations of the Commission thereunder; and (3) neither the Company nor any
other person is under any obligation to register the securities (other than
pursuant to the Registration Rights Agreement) under the Securities Act or to
comply with the terms and conditions of any exemption thereunder. The provisions
of Section 4(a) and 4(b) hereof shall be binding upon any subsequent transferee
of the Common Stock, the Warrants, or the shares of Common Stock issuable upon
exercise of the Warrants.
b. RESTRICTIVE LEGEND. Each Purchaser acknowledges and agrees that the
Common Stock or the Warrants, and, until such time as the Common Stock issuable
upon exercise of the Warrants shall have been registered under the Securities
Act as contemplated by the Registration Rights Agreement and sold in accordance
with such Registration Statement, such securities may be subject to a
stop-transfer order placed against the transfer of such securities, and such
shares shall bear a restrictive legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Common Stock to each Purchaser as
required by United States laws and regulations, or by any domestic securities
exchange or trading market, including, if applicable, the filing of a notice on
Form D (at such time and in such manner as required by the Rules and Regulations
of the Commission), and to provide copies thereof to the Purchasers promptly
after such filing or filings.
d. REPORTING STATUS. So long as any of the Purchasers beneficially
owns any of the Securities, the Company shall file all reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act,
and, except in connection with an acquisition transaction in which at least 50%
of the Company's voting equity securities or substantially all of the assets of
the Company are acquired by another entity (a "Corporate Transaction"), the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such
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termination.
e. STATE SECURITIES FILINGS. The Company shall from time to time
promptly take such action as any of the Purchasers may reasonably request to
qualify the Securities for secondary trading under the securities laws (other
than United States federal securities laws) of such jurisdictions in the United
States as shall be so identified to the Company, and to comply with such laws so
as to permit the continuance of sales therein, provided that in connection
therewith, the Company shall not be required to qualify as a foreign corporation
or to file a general consent to the service of process in any jurisdiction.
f. USE OF PROCEEDS. The Company will use the proceeds from the
issuance of the Common Stock (excluding amounts paid by the Company for legal
fees and finder's fees in connection with the sale of the Common Stock) towards
(i) the repayment of up to $170,000 of indebtedness owed to Steven Horowitz,
(ii) the commercialization of products developed with the technologies of the
Company and (iii) working capital (including to effect potential acquisitions)
and general corporate purposes.
g. RESERVATION OF ORDINARY SHARES. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the exercise of the Warrants. The number
of shares of Common Stock reserved for issuance by the Company upon exercise of
the Warrants shall at all times be allocated pro rata among the Purchasers based
upon the aggregate purchase price of the Common Stock purchased by each
Purchaser, and no Purchaser may at any time convert its Common Stock or exercise
Warrants so as to obtain a greater number of Common Stock than its pro rata
allocation of the Company's reserved Common Stock. In the event that a Purchaser
shall sell or otherwise transfer, in whole or in part, any of its Securities
(except for Common Stock of the Company subject to an effective registration
statement under the Securities Act or otherwise freely tradable by such
Purchaser), each transferee shall, for purposes of determining such transferee's
allocation of the Company's reserved Common Stock, be allocated a pro rata
portion of the initial purchase price paid by such Transferor upon its purchase
of the Common Stock.
h. SUBSEQUENT SALE AT LOWER PRICE.
(i) REQUIRED ADJUSTMENTS. Subject to the exclusions contained
in Section 4(h)(iv) below, if during the period ending on the date of
effectiveness of the Registration Statement covering the Shares as contemplated
by the Registration Rights Agreement (the "MFN Period"), the Company sells any
shares of its Common Stock in a capital raising transaction at a Per Share
Selling Price lower than the Purchase Price per share set forth in Exhibit A
hereof, the Purchase Price per share of the Shares sold to the Investors
hereunder shall be adjusted downward to equal such lower Per Share Selling Price
and Investors shall be entitled to receive the additional shares as provided by
Section 4(h)(iii) and additional Warrants equal to 10% of the additional shares.
The Company shall give to the Investors written notice of any such sale within
24 hours of the closing of any such sale. For so long as an Investor owns 51% or
more of the Shares originally acquired by such Investor hereunder, such Investor
shall be entitled to the full
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benefit of the Purchase Price adjustment required by this Section 4(h) in
respect of all Shares originally acquired; in the event an Investor then owns
less than 51% of the Shares originally acquired by it hereunder, such Investor
shall be entitled to additional shares only with respect to the number of Shares
originally acquired and then owned by such Investor as provided in this Section
4(h). The parties agree that for purposes of this Section 4(h) (including
determination of the number of originally acquired shares held by an Investor)
shares of Common Stock sold or otherwise disposed of by an Investors shall be
deemed to be those originally acquired hereunder until that number is reduced to
zero.
(ii) DEFINITIONS.
(a) For the purposes of this Section 4(h), the term "Per Share
Selling Price" as used in this Section 4(h) shall include the amount actually
paid by third parties for each share of Common Stock. In the event a fee in
excess of 6% is paid by the Company in connection with such transaction, any
such excess amount shall be deducted from the selling price pro rata to all
shares sold in the transaction to arrive at the Per Share Selling Price. A sale
in a capital raising transaction of shares of Common Stock shall include the
sale or issuance of rights, options, warrants or convertible securities under
which the Company is or may become obligated to issue shares of Common Stock,
and in such circumstances the Per Share Selling Price of the Common Stock
covered thereby shall also include the exercise or conversion price thereof (in
addition to the consideration received by the Company upon such sale or issuance
less the excess fee amount as provided above). In case of any such security
issued within the MFN Period in a "Variable Rate Transaction" or an "MFN
Transaction" (each as defined below), the Per Share Selling Price shall be
deemed to be the lowest conversion or exercise price at which such securities
are converted or exercised or might have been converted or exercised in the case
of a Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction, each over the life of such securities. If shares are issued for
a consideration other than cash, the Per Share Selling Price shall be the fair
value of such consideration as determined in good faith by independent certified
public accountants mutually acceptable to the Company and the Investors.
(b) The term "Variable Rate Transaction" shall mean a
transaction in which the Company issues or sells (a) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (b) any securities
of the Company pursuant to an "equity line" structure which provides for the
sale, from time to time, of securities of the Company which are registered for
resale pursuant to the Securities Act.
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(c) The term "MFN Transaction" shall mean a transaction in
which the Company issues or sells any equity securities in a capital raising
transaction or series of related transactions (the "New Offering") which grants
to an investor (the "New Investor") the right to receive additional shares based
upon future equity raising transactions of the Company on terms more favorable
than those granted to the New Investor in the New Offering.
(d) The term "MFN Period" shall have the meaning set forth in
Section 4(h)(i), above.
(iii) ADJUSTMENT MECHANISM. If an adjustment of the Purchase Price is
required pursuant to Section 4(h)(i), the Company shall deliver to the Investors
within ten (10) business days of the closing of the transaction giving rise to
the adjustment ("Delivery Date") each Investor's pro-rata share of such number
of additional shares of Common Stock equal to (i) the aggregate Purchase Price
paid by such Investor divided by the adjusted per share purchase price as
required under Section 4(h)(i), minus (ii) the total number of shares of Common
Stock previously delivered to that Investor hereunder; provided however, that
the Company shall effect such adjustment in cash, in whole or in part, to the
extent required by Section 4(h)(i). In the event the Company fails to deliver
the additional shares (or cash, as the case may be) within three (3) days of the
Delivery Date, the Company shall be liable to the Investors for a penalty equal
to 2% of the aggregate Purchase Price adjustment per month (in each instance to
such Investor pro rata in accordance with its participation in this offering),
payable in Common Stock or cash, at each Investor's election.
(iv) LIMITATION ON NUMBER OF SHARES. No Investor shall be required to
accept, by way of any such adjustment a number of shares of the Company such
that the total number of such shares held by an Investor as of the date of such
adjustment would exceed 9.90% of the total outstanding Common Stock of the
Company. The Company shall effect the adjustment required by this Section by
cash refund (in an amount equal to the amount paid plus 15%) to the extent
necessary to avoid causing the aforesaid limitations to be exceeded. Only shares
acquired pursuant to this Agreement will be included in determining whether the
limitations would be exceeded for purposes of this Section 4(h)(i).
(v) CAPITAL ADJUSTMENTS. In case of any stock split or reverse stock
split, stock dividend, reclassification of the common stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of this Section 4(h) shall be applied in a fair,
equitable and reasonable manner so as to give effect, as nearly as may be, to
the purposes hereof.
(vi) EXCLUSIONS. Section 4(h)(i) shall not apply to (i) sales of shares
of Common Stock by the Company upon conversion or exercise of any convertible
securities, options or warrants outstanding prior to the date hereof pursuant to
the terms of such securities, options or warrants on the date hereof; or (ii)
sales of shares of Common Stock by the Company pursuant to the provisions of any
shareholder-approved option or similar plan existing on the date hereof.
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5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that no instruction other than the
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Sections 4(a) and 4(b) hereof prior to the registration and sale
of the Common Stock issuable upon exercise of the Warrants under the Securities
Act, will be given by the Company to the transfer agent and registrar for its
Common Stock and that such Common Stock shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing in this
Section shall affect in any way each Purchaser's obligations to comply with all
applicable securities laws upon resale of the Securities. If a Purchaser
provides the Company with an opinion of counsel reasonably satisfactory (as to
both the identity of such counsel and the content of such opinion) to the
Company that registration of a resale by the Purchaser of any of the securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the Securities Act, the Company shall (except as provided in
clause (2) of Section 4(a) of this Agreement) permit the transfer of the
securities and, in the case of the Common Stock, promptly instruct the Company's
transfer agent to issue one or more certificates for Common Stock without legend
in such names and in such denominations as specified by such Purchaser.
b. The Company will permit each Purchaser to exercise its right to
exercise the Warrants by faxing an executed and completed Form of Election to
Purchase to the Company, and delivering within three (3) business days
thereafter, the original Form of Election to Purchase (and the related original
Warrants) to the Company by hand delivery or by express courier. Each date on
which a Form of Election to Purchase is faxed to and received in accordance with
the provisions hereof shall be deemed a "Exercise Date." The Company (or its
transfer agent) will transmit the certificates representing the Common Stock
issuable upon exercise of any Warrants (together with the Warrants not so
exercised) to such Purchaser via express courier as soon as practicable, but in
all events no later than the later to occur of (the "Delivery Date") (i) three
(3) business days after the Exercise Date and (ii) three (3) business days after
receipt by the Company of the original Form of Election to Purchase (and the
related original Warrants), as applicable. For purposes of this Agreement, such
exercise of the Warrants shall be deemed to have been made immediately prior to
the close of business on the Exercise Date.
c. In lieu of delivering physical certificates representing the Common
Stock issuable upon the exercise of the Warrants, provided the Company's
transfer agent is participating in the Depositary Trust Company ("DTC") Fast
Automated Securities Transfer program, on the written request of a Purchaser who
shall have previously instructed such Purchaser's prime broker to confirm such
request to the Company's transfer agent, the Company shall use commercially
reasonable efforts to cause its transfer agent to electronically transmit such
Common Stock to the Purchaser by crediting the account of the Purchaser's prime
broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system
no later than the applicable Delivery Date.
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d. The Company understands that a delay in the issuance of Common
Stock beyond the applicable Delivery Date could result in an economic loss to
the applicable Purchaser. If, three (3) business days after receiving written
notice of noncompliance with the delivery requirements of Section 5(b), the
Company still fails to deliver the common Stock issuable upon exercise of the
Warrants, the Company agrees to pay such Purchaser the sum of $5,000 per day for
each 25,000 shares of Common Stock purchased upon the exercise of the Warrants.
e. The Company shall pay any payments incurred under this Section 5 in
immediately available funds upon demand. Nothing herein shall limit a
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver shares of Common Stock to such Purchaser. Furthermore, in addition
to any other remedies which may be available to such Purchaser, in the event
that the Company fails for any reason to effect delivery of such Common Stock
within five (5) business days after the relevant Delivery Date, the Purchaser
will be entitled to revoke the relevant Form of Election to Purchase by
delivering a notice to such effect to the Company, whereupon the Company and
such Purchaser shall each be restored to their respective positions immediately
prior to delivery of such Form of Election to Purchase. For purposes of this
Section 5, "business day" shall mean any day in which the financial markets of
New York are officially open for the conduct of business therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO ISSUE THE
SECURITIES.
Each Purchaser understands that the Company's obligation to issue the
Securities on the Closing Date to the Purchasers pursuant to this Agreement is
conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of each Purchaser contained in this Agreement as if made on such
Closing Date and the performance by each Purchaser on or before the Closing Date
of all covenants and agreements that such Purchaser is required to perform on or
before the Closing Date;
b. The absence or inapplicability of any and all laws, rules or
regulations prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE THE
SECURITIES.
The Company understands that each Purchaser's obligation to purchase
the Securities on the Closing Date is conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date, and the performance by
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the Company on or before the Closing Date of all covenants and agreements of the
Company required to be performed on or before the Closing Date;
b. On the Closing Date, the Purchaser shall have received an opinion
of counsel for the Company, Foley, Hoag & Eliot LLP, dated the Closing Date, in
form, scope and substance reasonably satisfactory to each Purchaser, to the
effect set forth in Exhibit D attached hereto;
c. The Company shall have executed and delivered a signed counterpart
to the Registration Rights Agreement;
d. On the Closing Date, the Purchasers shall have received a
certificate executed by the (i) the President or the Chairman of the Company and
(ii) the Chief Financial Officer of the Company, stating that all of the
representations and warranties of the Company set forth in this Agreement are
accurate as of the Closing Date and that the Company has performed all of its
covenants and agreements required to be performed under this Agreement on or
before the Closing Date.
e. The Company shall have retained the accounting firm of Grant
Thornton International to conduct an audit of its consolidated balance sheet as
of the end of its last two completed fiscal years, together with its related
consolidated statement of operations and consolidated statement of cash flows
for the fiscal years ending on such dates.
f. On or before the Closing Date, all shares of the Company's
convertible preferred stock shall have been converted into Common Stock in
accordance with their respective terms, and reasonable evidence of such
conversion shall have been furnished to the Purchasers.
g. On the Closing Date, the Purchasers shall have received from the
Company such other certificates and documents as they or their representative,
if applicable, shall reasonably request, and all proceedings taken by the
Company in connection with the transactions contemplated by this Agreement and
the other Primary Documents and all documents and papers relating to such
Primary Documents shall be satisfactory to the Purchasers and their counsel.
h. On or prior to any Closing Date, there shall not have occurred any
of the following: (i) a suspension or material limitation in the trading of
securities generally on the New York Stock Exchange, the American Stock Exchange
or Nasdaq; (ii) a general moratorium on commercial banking activities in New
York declared by the applicable banking authorities; (iii) the outbreak or
escalation of hostilities involving the United States, or the declaration by the
United States of a national emergency or war; or (iv) a change in international,
political, financial or economic conditions, if the effect of any such event, in
the reasonable judgment of the Purchasers, makes it impracticable or inadvisable
to proceed with the purchase of the Securities on the terms and in the manner
contemplated in this Agreement and in the other Primary Documents.
8. EXPENSES.
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The Company covenants and agrees with the Purchasers that the Company
will pay or cause to be paid the following: (a) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
issuance of the Securities, (b) all expenses in connection with the
qualification of the Securities for offering and sale under state securities
laws as provided in Section 4(f) hereof, and (c) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 8. If the Company fails to satisfy its
obligations or to satisfy any condition set forth in this Agreement, as a result
of which the Securities are not delivered to any of the Purchasers on the terms
and conditions set forth herein, the Company shall reimburse such Purchasers for
any actual, documented, out-of-pocket expenses reasonably incurred by such in
making preparations for the purchase, sale and delivery of the Common Stock not
so delivered.
9. REPORTING REQUIREMENTS.
The Company shall furnish to each Purchaser:
a. as soon as available but in any event within forty-five (45) days
after the end of each fiscal quarter of the Company, unaudited consolidated
balance sheets, as of the close of such fiscal quarter together with a statement
of operations and a statement of cash flows of the Company and its subsidiaries
setting forth in comparative form the figures for the corresponding period in
the prior year, all prepared in accordance with generally accepted accounting
principles, consistently applied;
b. promptly upon their becoming available, all press releases and
other statements made available to the public concerning material changes or
developments in the business of the Company;
c. within 90 days after the end of each fiscal year of the Company,
consolidated statements of operations and cash flow of the Company and its
subsidiaries for such fiscal year, and a consolidated balance sheet of the
Company and its subsidiaries as of the end of such fiscal year, setting forth in
each case comparisons to the preceding fiscal year, all prepared in accordance
with generally accepted accounting principles, consistently applied, and
accompanied by an unqualified opinion (except for qualifications regarding
specified contingent liabilities) of an independent accounting firm of
recognized national standing; and
d. within ten days after transmission thereof, copies of all financial
statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or any of its officers or directors file with respect to the Company,
with the Commission or with any securities exchange on which any of the
Company's securities are then listed, and copies of all press releases and other
statements made available generally by the Company to the public concerning
material developments in the Company's business.
Each of the financial statements referred to in subparagraph (a) and
(c) above will be true
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and correct in all material respects as of the dates and for the periods stated
therein, subject in the case of the unaudited financial statements to changes
resulting from normal year-end audit adjustments.
10. GOVERNING LAW; MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement or
any of the Primary Documents, and hereby waives, to the maximum extent permitted
by law, any objection, including any objections based on FORUM NON CONVENIENS,
to the bringing of any such proceeding in such jurisdictions. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference only
and shall not form part of, or affect the interpretation of this Agreement. If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or enforceability shall not affect the validity or
enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement shall
inure to the benefit of, and be binding upon the successors and assigns of each
of the parties hereto, including any transferees of the Securities. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES.
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
COMPANY: CDKNET.COM INC.
595 Stewart Avenue
Garden City, New York 11530
ATT.: Shai Bar Levi
Tel.: (212) 547-6061
Fax: (212) 265-3878
17
<PAGE>
with copies to:
FOLEY HOAG ELIOT LLP
One Post Office Square
Boston, Massachusetts 02109
ATT.: David Broadwin
Tel.: (617) 832-1000
Fax: (617) 832-7000
PURCHASERS: At the addresses set forth on the signature page of this
Agreement, as such addresses may be updated from time to
time by each of the Purchasers.
WITH COPIES TO:
EPSTEIN, BECKER & GREEN, P.C.
250 Park Avenue
New York, New York 10177
ATT: Joseph A. Smith
Tel.: (212) 351-4500
Fax: (212) 661-0989
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and each of the
Purchasers shall survive the execution and delivery of this Agreement and the
delivery of the Common Stock for a period of one (1) year.
13. CONFIDENTIALITY.
Each of the Company and the Purchasers agrees to keep confidential, and
not to disclose (except as required pursuant to the Securities Act or the
Exchange Act or the rules promulgated thereunder) to or use for the benefit of
any third party, the terms of this Agreement, any of the other Primary Documents
or any other information which at any time is designated in writing by the other
party as confidential without the prior written approval of the other party;
provided, however, that this provision shall not apply to information which, at
the time of disclosure, is already part of the public domain (except by breach
of this Agreement) and information which is required to be disclosed by law.
18
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by each of
the undersigned.
CDKNET.COM, INC.
By: /s/ Steven Horowitz
------------------------
Name: Steven Horowitz
Title: Chairman
IN WITNESS WHEREOF, this Agreement has been duly executed by each of
the undersigned.
"PURCHASERS"
/s/ Steven Horowitz
-----------------------
Steven Horowitz
/s/ Shai Bar Levi
-----------------------
Shai Bar Levi
/s/ Michael Sonnenberg
-----------------------
Michael Sonnenberg
The Gross Foundation, Inc.
By:
----------------------
Name:
---------------------
Title:
--------------------
ADDRESS:
PHONE:
FAX:
19
<PAGE>
EXHIBIT A PURCHASERS
EXHIBIT B FORM OF WARRANT
EXHIBIT C REGISTRATION RIGHTS AGREEMENT
EXHIBIT D OPINION OF FOLEY HOAG ELIOT LLP
SCHEDULE 1 DISCLOSURE SCHEDULE
20
<PAGE>
EXHIBIT A TO SECURITIES PURCHASE AGREEMENT PURCHASERS
-----------------------------------------------------
NUMBER OF
SHARES OF
COMMON STOCK NUMBER OF
NAME OF TO BE WARRANTS
PURCHASER PURCHASED PURCHASED PURCHASE PRICE
- --------- --------- --------- --------------
Steven Horowitz 285,714 28,571 $100,000
- --------------------------------------------------------------------------------
Shai Bar Levi 107,143 10,714 $ 37,500
- --------------------------------------------------------------------------------
Michael Sonnenberg 142,857 14,285 $ 50,000
- --------------------------------------------------------------------------------
The Gross 714,286 71,486 $250,000
Foundation, Inc.
- --------------------------------------------------------------------------------
TOTAL: 1,250,000 125,056 437,500
- --------------------------------------------------------------------------------
21
<PAGE>
SCHEDULE 1 TO SECURITIES PURCHASE AGREEMENT
DISCLOSURE SCHEDULE
1. Organization
------------
A. Subsidiaries
------------
State of Foreign
Name Incorporation Incorporation
---- ------------- -------------
CDKnet, LLC New York None
Creative Technologies, LLC New York None
B. Other Equity or Convertible Security Interest held by the
---------------------------------------------------------
Company
-------
None
C. Joint Ventures or Partnerships
------------------------------
Letter Agreement dated April 26, 1999 between T.B.A. Network,
Inc. and CDKnet, LLC regarding potential business (Garth
Brooks/Capitol Records- Nashville) with compensation in the
form of options to purchase common stock.
Agreement dated March 19, 1999 between Peterson's and CDKnet,
LLC regarding an affiliated marketing arrangement for
"CollegeQuest" using CDK technology.
Agreement dated January 8, 1999 between CDKnet, LLC, The Latin
Music Factory, Inc. and the American Latin Broadcasting
Company establishing a strategic marketing partnership to
create, market and distribute Latin Music video CDKs.
Undated agreement between CDKnet, LLC and the Hungarian
Broadcasting Corp. regarding the use of CDK technology and the
EMusicFactory.
2. Capitalization --
--------------
See attached chart of Options, Warrant, Convertible Securities Holders
3. Existing Shareholders; Agreements
---------------------------------
22
<PAGE>
A. Existing Shareholders
---------------------
See chart
B. Agreements between or among Company and Shareholders
----------------------------------------------------
Letter Agreement dated July 30, 1999, between CDKnet, LLC and
Cabaret Software, Inc. regarding modifications to the Custom
Software Development Agreement between the parties dated June
19, 1999 and March 19, 1999.
Consulting Agreement dated July 20, 1999 between CDKNET.COM,
Inc. and Quest Partners Ltd. regarding financing advice in
exchange for options to purchase common stock.
Mutual Release Agreement dated March 31, 1999, between
CDKNET.COM, INC. and FAB Securities of America regarding
mutual release from obligations with issuance of 318,499
warrants to purchase CDKNET.COM common stock.
Letter Agreement dated February 5, 1999 between Herbert H.
Sommer (attorney for CDKNET.COM, INC.) and George Sandu,
International Investment Group, regarding the repayment of a
bridge loan.
Letter dated February 4, 1999 to Patrick Fields, Esq. from
CDKNET.COM, INC., delivering Bandia's warrants to purchase
CDKNET.COM, INC. common stock.
CDKNET.COM, Inc. - 5.75% Convertible Subordinated Debenture
Due February 1, 2009, Issued on February 3, 1999.
Equipment Purchase Agreement dated January 22, 1999 between
CDKnet, LLC and Bandai America Incorporated regarding the
purchase of equipment in exchange for cash and common stock.
Undated Registration Rights Agreement between Spiga Limited
and CDKNET.COM, INC.
Letter dated October 23, 1998 between James Messina and Steven
A. Horowitz, President, Technology Horizons Corp. regarding
the extension of lockup period for shares.
Amendment dated October 15, 1998 to the Registration Rights
Agreement between Technology Horizons Corp. and Robert Kelly.
Registration Rights Agreement dated September 4, 1998 between
Technology Horizons Corp. and Kelly Music and Entertainment
Corp.
23
<PAGE>
Assignment Agreement dated September 4, 1998, between Kelly
Music & Entertainment Corp. and Technology Horizons Corp.
regarding the assignment of KME's interest in CDKnet, LLC in
exchange for the retirement of debt and cash or stock in
Technology Horizons Corp.
Agreement dated June 8, 1998 among Technology Horizons Corp.
and Kelly Music & Entertainment Corp. for the purchase of
KME's 26.15% interest in CDKnet, LLC.
Amendment dated June 3, 1998 to the Registration Rights
Agreement between Technology Horizons Corp. and Alvin Pock.
Registration Rights Agreement dated June 3, 1998, between
Technology Horizons Corp. and Robert L. Kelly.
Registration Rights Agreement dated June 3, 1998, between
Technology Horizons Corp. and Alvin Pock.
Assignment Agreement dated June 3, 1998, between Robert L.
Kelly and Technology Horizons Corp. regarding the purchase of
Pock's 16.1% interest in CDKnet, LLC in exchange for
Technology Horizon's common stock.
Assignment Agreement dated June 3, 1998 between Kelly Music &
Entertainment Corp. and CDKnet, LLC re: retire $800,000 Debt
swapped for 5% Int.
Assignment Agreement dated June 3, 1998, between Alvin Pock
and Technology Horizons Corp. regarding the purchase of Pock's
16.1% interest in CDKnet, LLC in exchange for Technology
Horizon's common stock.
Assignment Agreement dated June 3, 1998, between Kelly Music &
Entertainment Corp. and CDKnet, LLC regarding an exchange of
debt for interest in CDKnet, LLC.
Debt Conversion Agreement dated June 2, 1998 between CDKnet,
LLC, Creative Technology, LLC and Alvin Pock into CDKnet, LLC
stock.
Amendment dated May 8, 1998 to Stockholders' Agreement dated
May 7, 1998 between CDKNET.COM, Inc. and stockholders.
Stockholders Agreement dated May 7, 1998, among Technology
Horizons Corp. and its shareholders regarding disposition of
stock.
Letter dated May 7, 1998 to Investors and Members of Creative
Technology, LLC
24
<PAGE>
from Steven Horowitz, President, regarding company
developments.
Creative Technology, LLC Private Placement Summary dated
October 24, 1997.
4. Applicable Contracts in Excess of $25,000
-----------------------------------------
Agreement dated October 25, 1999, between CDKnet, LLC and
Atomic Pop, LLC to license CDK Technology.
Consulting Agreement dated July 20, 1999, between CDKNET.COM,
Inc. and Quest Partners Ltd. regarding financing advice in
exchange for options to purchase common stock.
Letter Agreement dated April 26, 1999 between, T.B.A. Network,
Inc. and CDKnet, LLC regarding potential business (Garth
Brooks/Capitol Records- Nashville) with compensation in the
form of options to purchase common stock.
Letter Agreement dated April 8, 1999, between CDKNET and
Arcadia Marketing Inc. regarding the marketing of CDK
technology.
Agreement dated March 29, 1999, between Central Park Media
Corp. and CDKnet LLC regarding the use of CDK technology.
Agreement dated March 19, 1999 between Peterson's and CDKnet,
LLC regarding an affiliated marketing arrangement for
"CollegeQuest" using CDK technology.
Service Contract dated March 8, 1999 between CDKnet, LLC and
David D. Madlock of Microtech for Custom CD and software
enhancements.
Letter Agreement dated January 27, 1999, between Phoenix Media
Group, Inc., and CDKnet, LLC regarding the use of CDK
technology.
Letter Agreement dated January 12, 1999, between Oxygen
Records and CDKnet, LLC regarding use of CDK technology.
Letter Agreement dated January 12, 1999, between Pet Rock
Records and CDKnet, LLC regarding use of CDK technology.
Agreement dated January 8, 1999 between CDKnet, LLC, The Latin
Music Factory, Inc. and the American Latin Broadcasting
Company establishing a strategic marketing partnership to
create, market and distribute Latin Music video CDKs.
25
<PAGE>
Letter Agreement dated December 9, 1998, between Wind-up
Entertainment and CDKnet, LLC regarding the use of CDK
technology.
Letter Agreement dated October 21, 1998, between Atlantic
Recording Corporation and CDKnet, LLC regarding use of CDK
technology.
Order Fulfillment Agreement dated July 14, 1999 between
CDKnet, LLC and Sound Delivery regarding development of a
music website.
Letter Agreement dated June 12, 1998, between Mutiny Records
and CDKnet, LLC regarding the use of CDK technology.
Letter Agreement dated June 2, 1998, between Foundation
Records and CDKnet, LLC regarding the use of CDK technology.
Agreement dated June 1, 1998 between CDKnet, LLC and
1-800-Prime CD regarding use of CDK technology.
Agreement dated May 27, 1998 between TLP, Inc. and CDKnet, LLC
regarding the use of CDK technology for Citibank's Elton John
Tour.
Letter Agreement dated May 4, 1998, between Megaforce
Entertainment and CDKnet, LLC regarding the use of CDK
technology.
Letter Agreement dated April 21, 1998, between J-Bird Records
and CDKnet, LLC regarding the use of J-Bird's album content
with Citibank Promotions.
Letter Agreement dated April 13, 1998, between Hot
Entertainment and CDKnet, LLC regarding the use of CDK
technology.
Letter Agreement dated April 13, 1998, between Y&T Music and
CDKnet, LLC regarding the use of CDK technology.
Letter Agreement dated February 25, 1998, between Ignition
Records and CDKnet, LLC regarding the use of CDK technology.
Undated Agreement between CDKnet, LLC and the Hungarian
Broadcasting Corp. regarding the use of CDK technology and the
EMusicFactory.
5. SEC, OTCBB and Other Regulatory Filings
---------------------------------------
A. SEC Filings
-----------
1. CDKNET.COM, INC.
26
<PAGE>
Form 10-SB
Registering Common Stock, par value $.0001
Filed 10/7/99
Amendment No. filed 10/25/99
2. CDKNET.COM, INC.
Rule 504 Regulation D -- Amendment
Units and Common Stock
Filed 2/22/99
3. Technology Horizons Corp.
Rule 504 Regulation D
Shares
Filed 10/30/98
4. Technology Horizons Corp.
Rule 504 Regulation D
Units
Filed 10/30/98
5. Technology Horizons Corp.
Rule 504 Regulation D
Shares
Filed 9/28/98
6. Technology Horizons Corp.
Rule 504 Regulation D
Units
Filed 9/21/98
B. OTC Bulletin Board
------------------
-- Form 211 filed on April 7, 1998 by International Pizza
Group.
C. New York State
--------------
-- Form M-11 filed May 1998 by International Pizza Group.
6. Title to Properties; Liens and Encumbrances
-------------------------------------------
A. Real Properties Owned by the Company or its Subsidiaries
--------------------------------------------------------
27
<PAGE>
None
B. Real Property Leased by the Company or its Subsidiaries
-------------------------------------------------------
1. Office Lease agreement between Kelly Music and
Entertainment, Corp. and Fisk Bldg. Associates dated
December 10, 1996 for the property at 250 West 57th
Street, Suite 1101, New York, New York.
2. Office equipment lease between Pitney Bowes Credit
Corporation & CDKNET dated February 10, 1998 for a
Mailing System at 250 West 57th Street, New York, New
York.
C. Material Tangible Assets Owned by the Company or its
----------------------------------------------------
Subsidiaries
------------
Equipment Purchase Agreement dated January 22, 1999 between
Bandia America Incorporated and CDKNET, LLC regarding the
CDKNET's purchase of Microtech Equipment.
C. Material Tangible Assets Leased by the Company or its
-----------------------------------------------------
Subsidiaries
------------
None
7. Patents and Other Proprietary Rights
------------------------------------
Patents
-------
-- Pending
-------
Enhanced Rotary Recording Medium
Serial No. 08/713,237 - Filed September 12, 1996
Our Docket No. 56046
-- Not Yet Filed
-------------
Patent Application for Security System for Internet Transfer
Our Docket No. 59624
Trademarks
----------
-- Pending
-------
TM: CDK
28
<PAGE>
Serial No. 75/426,937 - Filed February 2, 1998
Our Docket No. 55716
-- Pending
-------
TM: MIX FACTORY
Serial No.
Our Docket No. 59365
-- Not Yet Filed
-------------
TM: VIRTUAL BANDWIDTH
Our Docket No. 59614
-- Not Yet Filed - waiting on search report
-------------
TM: DIRECT ACCESS
Our Docket No.
-- Not Yet Filed - waiting on search report
-------------
TM: DIRECT BROKER
Our Docket No.
-- Not Yet Filed - waiting on search report
-------------
TM: WHERE ACCESS IS THE POINT
Our Docket No.
Misc Matters
------------
-- Kelly & Fredericks
Our Docket No. 56274
-- Patent Opinion on CDK-Live
Our Docket No. 58184
-- Copyright
8. Legal Proceedings
-----------------
None
9. Transactions with Affiliates
----------------------------
A. Executive Officers and Directors of the Company
-----------------------------------------------
29
<PAGE>
Steven A. Horowitz -- Managing Director
B. Executive Officers and Directors of Its Subsidiaries
----------------------------------------------------
Steven A. Horowitz -- Director, Chairman, CEO, CFO and
Secretary
Andrew J. Schenker -- Director
Anthony J. Bonomo -- Director
Shai Bar-Lavi -- President
Keith Fredericks -- Senior Vice President, Chief Technical
Officer
Michael Jolly -- Senior Vice President, Chief Business
Development Officer
Russell Kern -- Vice President, Director of Marketing
Tom Ross -- Executive Vice President and Entertainment
Division Chief
C. Beneficial Owners of 5% of the Company's Common Stock
-----------------------------------------------------
See list
D. Agreement, Understandings or Proposed Transactions between the
--------------------------------------------------------------
Company and any of its Officers, Directors or Affiliates
- --------------------------------------------------------
None other than those otherwise disclosed herein.
11. Employee Compensation Plans and Contracts
-----------------------------------------
Technology Horizons Corp. 1998 Equity Incentive Plan.
Employment Agreement dated August 1, 1999, between CDKnet, LLC
and Tom Ross.
Employment Agreement dated August 1, 1999, between CDKnet, LLC
and Shai Bar-Lavi.
Finder's Agreement dated June 1, 1999, between CDKNET.COM,
Inc., Shai Bar- Lavi and Frederick E. Smithline.
Termination and Settlement Agreement dated May 31, 1999,
between CDKnet,
30
<PAGE>
LLC, CDKNET.COM, Inc. and Ron Leong.
Employment Agreement dated December 1, 1997, between
Technology and Applications, LLC and Ron Leong.
12. Insurance
---------
A. Policies Held by the Company or Subsidiaries
--------------------------------------------
St. Paul Fire and Marine Insurance Co.
Policy # TEO6500522
Policyholder: CDKNET, LLC
Policy period: March 10, 1998 to March 10, 1999
B. Claims Denied by Insurance Companies
------------------------------------
None
31
<PAGE>
CDKNET.COM, INC.
WARRANT TO PURCHASE COMMON STOCK
THE TRANSFERABILITY OF THIS WARRANT IS
RESTRICTED AS PROVIDED IN SECTION 2.
Void after November 2, 2001 Right to Purchase 71,486 shares of
Common Stock (subject to adjustment)
No. W-1
PREAMBLE
CDKNet.Com, Inc. (the "Company"), a Delaware corporation, hereby certifies that,
for value received, The Gross Foundation, Inc., whose address is 1660 49th
Street, Brooklyn, New York 11204, or its registered assigns (hereinafter, the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time before 5:00 P.M. New
York time, on November 2, 2001(such time, the "Expiration Time"), _______ shares
of the Company's fully paid and nonassessable shares of common stock, par value
$0.0001 per share (the "Common Stock") of the Company, at the purchase price per
share (the "Purchase Price") of $.75 (the "Initial Purchase Price"). The number
and character of such Common Stock and the Purchase Price are subject to
adjustment as provided herein.
This Warrant is one of the Warrants to Purchase Common Stock (the "Warrants"),
evidencing the right to purchase Common Stock of the Company, issued pursuant to
a Securities Purchase Agreement (the "Securities Purchase Agreement"), dated
November 2, 1999 between the Company and the Purchasers identified therein. The
Securities Purchase Agreement contains certain additional terms that are binding
upon the Company and each Registered Holder of the Warrants. A copy of the
Securities Purchase Agreement may be obtained by any Registered Holder of the
Warrants from the Company upon written request. Capitalized terms used but not
defined herein shall have the meanings set forth in the Securities Purchase
Agreement.
As used herein the following terms, unless the context otherwise requires, have
the following respective meanings:
The term "Company" includes any corporation which shall succeed to or assume the
obligations of the Company hereunder.
The term "Common Stock" includes all shares of any class or classes (however
designated) of the Company, authorized on or after the date hereof, the holders
of which shall have the right, without
<PAGE>
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily be entitled to vote for the election of directors of the
Company (even though the right so to vote has been suspended by the happening of
a contingency).
The term "Other Securities" refers to any class of shares (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 or otherwise.
The term "Shares" means the Common Stock issued or issuable upon exercise of the
Warrants.
1. REGISTRATION RIGHTS.
The rights of the holders of Warrants to register Warrants or Shares
shall be as stated in the Registration Rights Agreement of even date herewith.
2. RESTRICTED STOCK.
2.1. If, at the time of any transfer or exchange (other than a transfer
or exchange not involving a change in the beneficial ownership of such Warrant
or Shares) of a Warrant or Shares, such Warrant or Shares shall not be
registered under the Securities Act, the Company's obligation to transfer such
Warrant or Shares shall be subject to the provisions of Section 5 of the
Securities Purchase Agreement.
3. EXERCISE OF WARRANT.
3.1. Exercise in Full. The holder of this Warrant may exercise it in
full prior to the Expiration Time by surrendering this Warrant, with the form of
Election to Purchase at the end hereof duly executed by such holder, to the
Company in the manner set forth in Section 5 of the Securities Purchase
Agreement. The surrendered Warrant shall be accompanied by payment, in cash or
by certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock called for
on the face of this Warrant (without giving effect to any adjustment therein) by
the Initial Purchase Price.
3.2. Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner provided in Subsection 3.1, except that
the exercise price shall be calculated by multiplying (a) the number of shares
of Common Stock as shall be designated by the holder in the subscription at the
end hereof by (b) the Initial Purchase Price. On any such partial exercise,
subject to the provisions of Section 2 hereof, the Company, at its expense will
forthwith issue and deliver to or upon the order of the Registered Holder hereof
a new Warrant or Warrants of like tenor, in the name of the Registered Holder
hereof or as such Registered Holder may request, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock (without giving
effect to any adjustment therein) equal to the number of such shares called for
on the face of this Warrant minus the number of such shares designated by the
Registered Holder in the applicable
2
<PAGE>
Election to Purchase.
3.3. Cashless Exercise. (a) Notwithstanding any provisions herein to
the contrary, in lieu of exercising this Warrant for cash, the Registered Holder
may elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with the properly endorsed
subscription form (in the form annexed hereto) and notice of such election in
which event the Company shall issue to the Registered Holder a number of shares
of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where:
X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under the Warrant
or, if only a portion of the Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such calculation)
A = the current market value of one share of the Company's Common Stock
(at the date of such calculation)
B = existing Purchase Price (as adjusted to the date of such
calculation)
(b) Current market value shall have the meaning set forth in
this Section 3. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Registered Holder thereof to purchase
the balance of the Warrant exercisable hereunder. Upon receipt by the Company of
this Warrant together with the cashless exercise subscription form at its
office, or by the stock transfer agent of the Company at its office, in proper
form for exercise, the Registered Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Registered Holder.
(c) For purposes of this Section 3, Current Market Value shall
mean:
If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on
such exchange or listed for trading on the Nasdaq National
Market, the current market value shall be the average of
the last reported sale price of the Common Stock on such
exchange or market for the last five trading days ending
on the last business day prior to the date of exercise of
this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on such
exchange or market; or
3
<PAGE>
(1)If the Common Stock is not so listed or admitted to
unlisted trading privileges, but is traded on any over the
counter market, the current Market Value shall be the
average of the closing bid and asked prices for such day
on such market and if the Common Stock is not so traded,
the current market value shall be the mean of the last
reported bid and asked prices reported by the National
Quotation Bureau, Inc. on the last business day prior to
the date of the exercise of this Warrant; or
(2)If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an
amount not less than book value thereof as at the end of
the most recent fiscal year of the Company ending prior to
the date of the exercise of the Warrant, determined in
such good faith reasonable manner as may be prescribed by
the Company's Board of Directors.
(3)The current market value of a share shall be determined
on a going concern basis, without any discount for lack of
liquidity or based upon the sale of a minority interest.
(4) 3.4. Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Warrant, upon the request of the
Registered Holder hereof, acknowledge in writing its continuing obligation to
afford to such Registered Holder or transferee any rights (including, without
limitation, any right to registration of the Company's shares of Common Stock)
to which such Registered Holder or transferee shall continue to be entitled
after such exercise, exchange or transfer in accordance with the provisions of
this Warrant, provided that if the Registered Holder of this Warrant shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such Registered Holder or transferee any
such rights.
4. DELIVERY OF SHARE CERTIFICATES UPON EXERCISE.
Following the exercise of this Warrant in full or in part, within the time
periods and in the manner provided by Section 5(b) of the Securities Purchase
Agreement, the Company, at its expense (including the payment by it of any
applicable issue taxes), will cause to be issued in the name of and delivered to
the Registered Holder hereof, or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable Common Stock to
which such Registered Holder shall be entitled on such exercise, plus, in lieu
of any fractional Share to which such Registered Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current market
value of one full share of Common Stock (as computed in accordance with
Subsection 5.1(d) hereof).
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK.
5.1. The Purchase Price hereof shall be subject to adjustment from time
to time as follows:
(a) In case the Company shall (i) pay a dividend on its shares
of Common Stock in Common Stock, (ii) subdivide its outstanding shares of Common
Stock or (iii) combine its
4
<PAGE>
outstanding shares of Common Stock into a smaller number of shares, then, in
such an event, the Purchase Price in effect immediately prior thereto shall be
adjusted proportionately so that the adjusted Purchase Price will bear the same
relation to the Purchase Price in effect immediately prior to any such event as
the total number of shares of Common Stock outstanding immediately prior any
such event shall bear to the total number of shares of Common Stock outstanding
immediately after to such event. An adjustment made pursuant to this Section
5.1(a) shall, (i) become effective retroactively immediately after the record
date in the case of a dividend and shall (ii) become effective immediately after
the effective date in the case of a subdivision or combination. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein.
(b) In case the Company shall issue purchase rights, options
or warrants to all its stockholders generally with respect to shares of Common
Stock entitling the holders thereof to subscribe for or purchase shares of
Common Stock at a Net Consideration Per Share (as defined in subdivision (e)
below) which is less than the Purchase Price at the time of such issuance, the
Purchase Price shall be adjusted so that the same shall equal the price
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which could be purchased at the Purchase
Price, and of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
offered for subscription or purchase. Such adjustment shall be made whenever
such purchase rights, options or warrants are issued and shall become effective
retroactively immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. In the event the
Company shall subsequently cancel or terminate such purchase rights, options or
warrants, the Purchase Price shall be readjusted to be the same as if the
Company had not issued such purchase rights, options or warrants.
(c) In case the Company shall distribute to all holders of its
shares of Common Stock, Other Securities, evidences of its indebtedness or
assets (excluding cash dividends or distributions) or purchase rights, options
or warrants to subscribe for or purchase such Other Securities, evidences of
indebtedness or assets (excluding those referred to in subdivision (b) above),
Other Securities, then in each such case, the Purchase Price in effect
thereafter shall be determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of outstanding shares of Common Stock multiplied by the current
market price per share of Common Stock (as determined in accordance with the
provisions of subdivision (d) below) on the record date mentioned below, less
the fair market value as determined by the Board of Directors (whose
determination shall be conclusive) of the Other Securities, assets or evidences
of indebtedness so distributed or of such rights or warrants, and of which the
denominator shall be the total number of outstanding shares of Common Stock
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective retroactively immediately after the record date for the determination
of shareholders entitled to receive such distribution.
(d) For the purpose of any computation under subdivisions (b)
and (c) above, the current market price per share of Common Stock shall be
deemed to be the closing price of the Company's shares of Common Stock on the
date that the computation is made.
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<PAGE>
(e) "Net Consideration Per Share" shall mean the amount equal
to the total amount of consideration received by the Company for the issuance of
such purchase rights, options, warrants or other purchase rights or convertible
or exchangeable securities, plus the minimum amount of consideration, if any,
payable to the Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all such
purchase rights, options, warrants, or other purchase rights were exercised,
exchanged or converted.
(f) No adjustment of the Purchase Price shall be made if the
amount of such adjustment shall be less than $.02 per share, but in such case,
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried forward, shall amount
to not less than $.02 per share. In case the Company shall at any time issue
shares of Common Stock by way of dividend on any class of stock of the Company
or subdivide or combine the outstanding shares of Common Stock, said amount of
$.02 per share (as theretofore increased or decreased, if the same amount shall
have been adjusted in accordance with the provisions of this subparagraph) shall
forthwith be proportionately increased in the case of a combination or decreased
in the case of such a subdivision or stock dividend so as to appropriately
reflect the same.
5.2. Upon each adjustment of the Purchase Price pursuant to
subdivisions (a) and (b) of Section 5.1, the number of shares of Common Stock
purchasable upon exercise of this Warrant shall be adjusted to the number of
shares of Common Stock, calculated to the nearest one hundredth of a share,
obtained by multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment upon the exercise of this Warrant
Certificate by the Purchase Price in effect prior to such adjustment and
dividing the product so obtained by the new Purchase Price.
5.3. In the event of any capital reorganization of the
Company, or of any reclassification of the shares of Common Stock, this Warrant
shall be exercisable after such capital reorganization or reclassification upon
the terms and conditions specified in this Warrant, for the number of shares of
stock or other securities which the shares of Common Stock issuable (at the time
of such capital reorganization or reclassification) upon exercise of this
Warrant would have been entitled to receive upon such capital reorganization or
reclassification if such exercise had taken place immediately prior to such
action. The subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares of Common Stock shall not
be deemed to be a reclassification of the shares of Common Stock of the Company
for the purposes of this Subsection 5.3.
5.4. Whenever the Purchase Price is adjusted as herein
provided, the Company shall compute the adjusted Purchase Price in accordance
with Subsection 5.1 and shall prepare a certificate signed by its Chief
Financial Officer and any other executive officer setting forth the adjusted
Purchase Price, and showing in reasonable detail the method of such adjustment
and the fact requiring the adjustment and upon which such calculation is based,
and such certificate shall forthwith be forwarded to the Registered Holder.
5.5. The form of this Warrant need not be changed because of any change
in the Purchase Price pursuant to this Section 5 and any Warrant issued after
such change may state the same Purchase Price and the same number of shares of
Common Stock as are stated in this Warrant as
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initially issued.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1. Merger, Etc. In case at any time or from time to time after the
date of issuance of this Warrant, the Company shall (a) consolidate with or
merge into any other person or (c) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company within three (3) years from the
date of such transfer (any such transaction being hereinafter sometimes referred
to as a "Reorganization"), then, in each such case, the Registered Holder of
this Warrant, upon the exercise hereof as provided in Section 3 at any time
after the consummation or effective date of such Reorganization (the "Effective
Date"), shall receive, in lieu of the shares of Common Stock issuable on such
exercise prior to such consummation or such Effective Date, the stock and other
securities and property (including cash) to which such Registered Holder would
have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such Registered Holder had so exercised this
Warrant, immediately prior thereto (all subject to further adjustment thereafter
as provided in Section 5). The Company shall not effect a transaction of the
type described in clause (a) or (b) above unless upon or prior to the
consummation thereof, the Company's successor corporation, or if the Company
shall be the surviving company in any such Reorganization but is not the issuer
of the shares of stock, securities or other property to be delivered to the
holders of the Company's outstanding shares of Common Stock at the effective
time thereof, then such issuer, shall assume in writing the obligation hereunder
to deliver to the Registered Holder of this Warrant such shares of stock,
securities, cash or other property as such holder shall be entitled to purchase
in accordance with the provisions hereof.
6.2. Dissolution. Except as otherwise expressly provided in Subsection
6.1, in the event of any dissolution of the Company following the transfer of
all or substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the holders of the Warrants after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in New York City, as trustee for the holder or holders of the Warrants.
6.3. Continuation of Terms. Except as otherwise expressly provided in
Subsection 6.1, upon any reorganization, consolidation, merger or transfer (and
any dissolution following any transfer) referred to in this Section 6, this
Warrant shall continue in full force and effect and the terms hereof shall be
applicable to the shares of stock and other securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any such
stock or other securities, including, in the case of any such transfer, the
person acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms of
this Warrant.
7. NO DILUTION OR IMPAIRMENT.
The Company will not, by amendment of its Certificate of Incorporation or
By-laws, or through any
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<PAGE>
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holders of the Warrants, as specified herein and in the
Securities Purchase Agreement, against dilution (to the extent specifically
provided herein) or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any shares of
stock receivable on the exercise of the Warrants above the amount payable
therefor on such exercise, (b) will at all times reserve and keep available out
of its authorized capital stock, solely for the purpose of issue upon exercise
of this Warrant as herein provided, such number of shares of Common Stock as
shall then be issuable upon exercise of this Warrant in full and shall take all
such action as may be necessary or appropriate in order that all shares of
Common Stock that shall be so issuable shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and (c) will not effect a subdivision
or split up of shares or similar transaction with respect to any class of the
Common Stock without effecting an equivalent transaction with respect to all
other classes of Common Stock.
8. ACCOUNTANT'S CERTIFICATE AS TO ADJUSTMENTS.
In each case of any adjustment or readjustment in the Common Stock issuable on
the exercise of the Warrants, the Company, at its expense, will promptly cause
the independent certified public accountants of recognized standing selected by
the Company to compute such adjustment or readjustment in accordance with the
terms of the Warrants and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or receivable by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the number
of shares of Common Stock (or Other Securities) outstanding or deemed to be
outstanding, and (c) the Purchase Price in effect and number and type of Shares
for which the Warrants were exercisable immediately prior to such issue or sale
and as each is adjusted and readjusted on account thereof. The Company will
forthwith mail a copy of each such certificate to each holder of a Warrant, and
will, on the written request at any time of any holder of a Warrant, furnish to
such holder a like certificate setting forth the Purchase Price and the number
and type of Shares at the time in effect and showing how it was calculated.
9. NOTICE OF RECORD DATE.
In case of
(a) any taking by the Company of a record of the
holders of any class of its securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the
8
<PAGE>
assets of the Company to or consolidation or merger of the Company with or any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
or
(c) events shall have occurred resulting in the
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any record is to
be taken for the purpose of any such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
Common Stock (or Other Securities) for securities or other property deliverable
on such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up.
10. EXCHANGE OF WARRANTS.
On surrender for exchange of any Warrant, properly endorsed, to the Company, the
Company, at its expense, will issue and deliver to or (subject to Section 2) on
the order of the holder thereof a new Warrant or Warrants of like tenor, in the
name of such holder or as such holder (on payment by such holder or any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant or Warrants so surrendered.
11. REPLACEMENT OF WARRANTS.
On receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Warrant and, in the case of any such
loss, theft or destruction of any Warrant, on delivery of an indemnity agreement
or security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
12. WARRANT AGENT.
The Company may, by written notice to each holder of a Warrant, appoint an agent
having an office in New York, New York, for the purpose of issuing shares of
Common Stock on the exercise of the Warrants pursuant to Section 3, exchanging
Warrants pursuant to Section 10, and replacing Warrants pursuant to Section 11,
or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.
13. REMEDIES.
The Company stipulates that the remedies at law of the holder of this Warrant in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
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<PAGE>
14. NEGOTIABILITY, ETC.
This Warrant is issued upon the following terms, to all of which each Registered
Holder or owner hereof by the taking hereof consents and agrees:
(a) subject to the terms of Section 4 of the Securities
Purchase Agreement, title to this Warrant may be transferred by endorsement (by
the Registered Holder hereof executing the form of assignment at the end hereof)
and delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title hereto
and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the Registered Holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
15. NOTICES.
All notices and other communications from the Company to the Registered Holder
of this Warrant shall be given in writing (unless otherwise specified herein)
and shall be effective upon personal delivery, via facsimile (upon receipt of
confirmation of error-free transmission) or two business days following deposit
of such notice with an internationally recognized courier service, with postage
prepaid and addressed, to such address as may have been furnished to the Company
in writing by such Registered Holder or, until any such Registered Holder
furnishes to the Company an address, then to, and at the address of, the last
Registered Holder of this Warrant who has so furnished an address to the
Company.
16. MISCELLANEOUS.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant is being delivered in the State of New York and, except for provisions
with respect to internal corporate matters of the Company which shall be
governed by the corporate laws of the State of [Delaware], shall be construed
and enforced in accordance with and governed by the laws of the State of New
York, without regard to principles of conflict of laws. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. All nouns and pronouns used herein shall be
deemed to refer to the masculine, feminine or neuter, as the identity of the
person or persons to whom reference is made herein may require.
17. EXPIRATION.
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The right to exercise this Warrant shall expire at 5:00 P.M., New York time, on
November 2, 2001.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
November 2, 1999.
CDKNET.COM, INC.
By: /s/ Steven A. Horowitz
----------------------------
Name:
Title:
Attest:
By: /s/ Steven A. Horowitz
----------------------------
Name:
Title:
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<PAGE>
Annex A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase ____________ shares of Common Stock and
herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of CDKNET.COM, INC.,
in the amount of $____________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such shares of Common Stock be
registered in the name of _______________________, whose address is
______________________________ and that such Certificate be delivered to
________________________, whose address is ___________________________________.
Dated:
Name:
---------------------------------
Signature:
----------------------------
(Signature must conform in all respects to the name of the
Registered Holder, as specified on the face of the Warrant.)
-----------------------------
(Insert Social Security or Other
Identifying Number of Holder)
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<PAGE>
Annex B
CASHLESS EXERCISE SUBSCRIPTION FORM
The undersigned ________________ pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe to that number of shares of Common
Stock of CDKNet, Inc. (the "Company") as are issuable in accordance with the
formula set forth in Section 3.3 of the Warrant, and makes payment therefore in
full by cancellation of Warrants to purchase _______ shares of the Company's
Common Stock. (If this is a partial exercise of the Warrant, a new Warrant for
the remaining number of unexercised Warrants shall be issued by the Company.)
The undersigned requests that a certificate for such shares of Common Stock be
registered in the name of _______________________, whose address is
______________________________ and that such Certificate be delivered to
________________________, whose address is ___________________.
Dated:
Name:
------------------------------------
Signature:
-------------------------------
(Signature must conform in all respects to the name of the
Registered Holder, as specified on the face of the Warrant.)
-----------------------------
(Insert Social Security or Other
Identifying Number of Holder)
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<PAGE>
Annex C
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO
TRANSFER THE WARRANT.)
FOR VALUE RECEIVED, ________________
hereby sells, assigns and transfers unto
- -----------------------------------
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does so
hereby irrevocably constitute and appoint _______________________ Attorney, to
transfer the within Warrant on the books of the within-named Company, with full
power of substitution.
Dated:
Name:
---------------------------------
Signature:
----------------------------
(Signature must conform in all respects to the name of the
Registered Holder, as specified on the Warrant.)
--------------------------------
(Insert Social Security or Other Identifying Number of Assignee).
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EXHIBIT C TO SECURITIES PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 2, 1999 (this
"Agreement"), is made by and among CDKNET.COM, Inc., a Delaware corporation,
with headquarters located at 595 Stewart Avenue, Garden City, New York 11530
(the "Company"), and the purchasers party hereto (each, a "Purchaser," and
collectively, the "Purchasers").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of November 2,
1999, among the Purchasers and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchasers, shares
("Shares") of common stock, par value $.0001 per share (the "Common Stock");
WHEREAS, to induce the Purchasers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Purchasers hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Purchaser" means the Purchasers party hereto, or any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the U.S. Securities and Exchange Commission
(the "Commission").
(iii) "Registrable Securities" means the Shares and the shares
of Common Stock issuable upon exercisable of the Warrants.
<PAGE>
(iv) "Registration Statement" means a registration statement
of the Company filed under the Securities Act or the Exchange Act.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
(a) REGISTRATION UNDER EXCHANGE ACT. On or prior to the Required
Effectiveness Date (as defined below), the Company shall cause its shares of
Common Stock to become subject to an effective registration statement under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act").
(b) MANDATORY REGISTRATION UNDER THE SECURITIES ACT. Within forty-five
(45) days of the Closing Date, the Company shall file with the Commission a
Registration Statement on Form SB-2 (or another appropriate form, if Form SB-2
is unavailable) covering (a) the shares of Common Stock sold under the
Securities Purchase Agreement, (b) shares of Common Stock issuable upon exercise
of the Warrants, and (c) in accordance with Rule 416 under the Securities Act,
it also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon exercise of the Warrants resulting from any adjustment
in the applicable Exercise Price of the Warrants or to prevent dilution
resulting from stock splits or stock dividends. The Company shall use its best
efforts to cause such Registration Statement or amended Registration Statement,
as the case may be, to become effective within ninety (90) days following the
Closing Date (or, if the Commission elects to conduct a review of such
Registration Statement, one hundred twenty (120) days following the Closing
Date, such date, the "Required Effectiveness Date"). Notwithstanding the
foregoing, the Company shall be required to cause any such Registration
Statement or amendment thereto to become effective within 48 hours of the time
at which the Commission advises the Company that (i) it does not intend to
review such Registration Statement or amendment or (ii) if the Commission does
conduct such a review, that it has no further comments with respect to such
Registration Statement or amendment and/or no objection to the Company's filing
of a request for acceleration with respect to such Registration Statement or
Amendment. The Company shall keep the Registration Statement effective pursuant
to Rule 415 at all times until such date as is the earlier of (i) the date on
which all of the Registrable Securities have been sold and (ii) the date on
which the Registrable Securities (in the opinion of counsel to the Company) may
be immediately sold without restriction (including without limitation as to
volume by each holder thereof) without registration under the Securities Act
(the "Registration Period").
(c) PIGGYBACK REGISTRATION. (i) If at any time or from time to time,
the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a Registration
relating solely to employee share option plans or pursuant to an acquisition
transaction on Form S-4, the Company will:
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<PAGE>
(A) provide to the Purchasers written notice thereof
as soon as practicable prior to filing the Registration Statement; and
(B) include in such Registration and in any
underwriting involved therein, all of the Registrable Securities specified in a
written request by the Purchasers made within fifteen (15) days after receipt of
such written notice from the Company.
(ii) If the Registration is for a registered public offering
involving an underwriting, the Company shall so advise the Purchasers as a part
of the written notice given pursuant to this Section. In such event, the rights
of the Purchasers hereunder shall include participation in such underwriting and
the inclusion of the Registrable Securities in the underwriting to the extent
provided herein. To the extent that a Purchaser proposes to distribute its
securities through such underwriting, such Purchaser shall (together with the
Company and any other securityholders of the Company distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section, if the managing underwriter of such underwriting determines that
marketing factors require a limitation of the number of shares to be offered in
connection with such underwriting, the managing underwriter may limit the number
of Registrable Securities to be included in the Registration and underwriting
(provided, however, that (a) the Registrable Securities shall not be excluded
from such underwritten offering prior to any securities held by officers and
directors of the Company or their affiliates, (b) the Registrable Securities
shall be entitled to at least the same priority in an underwritten offering as
any of the Company's existing securityholders and (c) the Company shall not
enter into any agreement that would provide any securityholder with parity or
priority to the Purchasers in connection with an underwritten offering greater
than the priority granted to the Purchasers hereunder. The Company shall so
advise any of its other securityholders who are distributing their securities
through such underwriting pursuant to their respective piggyback registration
rights, and the number of shares of Registrable Securities and other securities
that may be included in the registration and underwriting shall be allocated
among the Purchasers and all other securityholders of the Company in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
held by the Purchasers and such other securityholders at the time of the filing
of the registration statement. If any Purchaser disapproves of the terms of any
such underwriting, it may elect to withdraw therefrom by written notice to the
Company. Any Registrable Securities so excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
(d) PRIORITY IN FILING. The Company covenants that beginning on the
Closing Date and until the later to occur at (i) such time as a Registration
Statement pursuant to Section 2(b) of this agreement has been filed and shall
have remained effective for a period of at least 180 days or (ii) the end of the
Lock-Up Period, the Company will not file any other registration statement
without the written consent of the Purchasers holding a majority of the shares
of Common Stock purchased on the Closing Date or their representative.
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<PAGE>
(e) LIQUIDATED DAMAGES. In the event that (i) any Registration
Statement or amendment thereto required to be filed or to be declared effective
under the Securities Act or the Exchange Act pursuant to the terms of this
Agreement is not so timely filed or timely declared effective, or (ii) any of
the conditions described in Section 3(d) or 3(e) of this Agreement remains in
effect, the Company shall be required to pay to each Purchaser an amount equal
to 2.0% of the purchase price of the Registrable Securities held by such
Purchaser for every 30-day period in which such filing or effectiveness was
delayed or during which any of such conditions were in effect, adjusted pro rata
for any period of less than 30 days in which such circumstances occurred. The
Company shall make any payments required to be made pursuant to this paragraph
to each Purchaser on the last business day of each month, without demand
therefor.
(f) NON-PUBLIC INFORMATION. Notwithstanding the provisions of Section
2(f), the payments set forth in such paragraph shall not accrue during any
period not to exceed 20 days in length if the Company delivers to the Purchasers
a written notice indicating that there exists at the time material non-public
information relating to the Company which, in the reasonable opinion of the
Company, should not be publicly disclosed in a Registration Statement filed
pursuant to this Agreement, provided that there shall be not more than two such
periods in any single 12-month period, and provided that there shall be at least
30 days between such periods, and provided that the Company shall not disclose
to the Purchasers such material non-public information.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) Prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectuses used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all of the
Registrable Securities of the Company covered by the Registration Statement
until such time as all of the Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(b) Furnish to each Purchaser whose Registrable Securities are included
in the Registration Statement, and its legal counsel identified to the Company,
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, a copy of the Registration Statement,
each preliminary prospectus, each final prospectus, and all amendments and
supplements thereto, all comment letters from the Commission staff and such
other documents, as such Purchaser may reasonably request in order to facilitate
the disposition of its Registrable Securities;
(c) Use reasonable efforts to (i) register and qualify the Warrants and
the Registrable Securities covered by the Registration Statement under such
other securities or blue sky laws of
4
<PAGE>
such jurisdictions as the Purchasers who hold a majority in interest of the
Registrable Securities being offered may reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions.
(d) As promptly as practicable after becoming aware of such event,
notify each Purchaser of the occurrence of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and to use its best efforts to promptly prepare a
supplement or amendment to the Registration Statement or other appropriate
filing with the Commission to correct such untrue statement of omission, and to
deliver a number of copies of such supplement or amendment to each Purchaser as
such Purchaser may reasonably request;
(e) As promptly as practicable after becoming aware of such event,
notify each Purchaser who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission or any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time, and to use its best
efforts to promptly obtain the withdrawal of such stop order or other suspension
of effectiveness;
(f) If the offering is underwritten, at the request of a Purchaser, to
furnish on the date that Registrable Securities are delivered to the
underwriters for sale pursuant to such registration: (i) an opinion dated such
date of counsel representing the Company for the purposes of such registration,
addressed to the underwriters and to any Purchaser selling Registrable
Securities in connection with such underwriting, stating that such registration
statement has become effective under the Securities Act and that (A) to the best
knowledge of such counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act and (B) the registration
statement, the related prospectus and each amendment or supplement thereof
comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements or other financial data contained therein) and (ii) a
letter dated such date from the Company's independent public accountants
addressed to the underwriters and to such Purchasers, stating that they are
independent public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five (5) business
5
<PAGE>
days prior to the date of such letter) with respect to such registration as such
underwriters may reasonably request;
(g) Cooperate with the Purchasers who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and to enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Purchasers may reasonably
request, and registered in such names as the Purchasers may request; and, within
three (3) business days after a Registration Statement which includes
Registrable Securities is ordered effective by the Commission, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the Purchasers
whose Registrable Securities are included in such Registration Statement) an
appropriate instruction and opinion of such counsel.
4. OBLIGATIONS OF THE PURCHASERS. In connection with the registration of the
Registrable Securities, the Purchasers shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement of the Registrable
Securities of each Purchaser that such Purchaser shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities. At least seven (7) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify such
Purchaser of the information the Company requires from such Purchaser (the
"Requested Information") if such Purchaser elects to have any of its Registrable
Securities included in the Registration Statement. If, at least two (2) business
days prior to the filing date, the Company has not received the Requested
Information from a Purchaser, then the Company may file the Registration
Statement without including the Registrable Securities of such Purchaser;
(b) The Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from such Registration Statement;
(c) Each Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(d) or
3(e) above, such Purchaser will immediately discontinue disposition of its
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such copies of the supplemented or amended
prospectus contemplated by Section 3(d) or 3(e) shall be furnished to such
Purchaser; and
6
<PAGE>
(d) Each Purchaser agrees that it shall comply with all applicable
prospectus delivery requirements set forth in the Securities Act with respect to
any Registration Statement filed pursuant to this Agreement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting discounts and
commissions and other fees and expenses of investment bankers and other than
brokerage commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and accounting fees,
and the fees and disbursements of counsel for the Company shall be borne by the
Company.
6. INDEMNIFICATION. In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Purchaser, the directors, if any, of such Purchaser, the officers,
if any, of such Purchaser, each person, if any, who controls any Purchaser
within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereof or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, (ii) any untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such Registration Statement,
or contained in the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the Commission) or the
omission or alleged omission to state therein any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state or
foreign securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state or foreign securities law (the matters in foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company shall,
subject to the provisions of Section 6(b) below, reimburse each Purchaser,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal and other costs, expenses and disbursements in giving testimony
or furnishing documents in response to a subpoena or otherwise, including
without limitation, the reasonable costs, expenses and disbursements, as and
when incurred, of investigating, preparing or defending any such action, suit,
proceeding or investigation (whether or not in connection with litigation in
which such Purchaser is a party), incurred by it in connection with the
investigation or defense of any such Claim. Notwithstanding anything to the
contrary contained herein, the
7
<PAGE>
indemnification agreement contained in this Section 6(a) shall not (i) apply to
any Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof
supplement thereto; (ii) with respect to any preliminary prospectus, inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Warrants or Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected in the final prospectus, as then amended or supplemented, if such
final prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (iii) be available to the extent that such Claim is based upon a
failure of the Purchaser to deliver or to cause to be delivered the prospectus
made available by the Company, if such prospectus was timely made available by
the Company pursuant to Section 3(b) hereof; or (iv) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Purchaser pursuant to Section 9. Each
Purchaser will indemnify the Company and its officers and directors against any
Claims arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company, by or on
behalf of such Purchaser, expressly for use in connection with the preparation
of the Registration Statement, subject to such limitations and conditions are
applicable to the indemnification provided by the Company to this Section 6.
(b) Promptly after receipt by an Indemnified Person under this Section
6 of notice of the commencement of any action (including any governmental
action), such Indemnified Person shall, if a Claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and to the extent
that the indemnifying party so desires, jointly with any other indemnifying
party similarly notified, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person,
provided, however, that an Indemnified Person shall have the right to retain its
own counsel with the fees and expenses to be paid by the indemnifying party, if,
(i) the employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action at the expense
of the indemnifying party, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to such Indemnified Person to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action or (iii) such Indemnified Person or Persons shall have reasonably
concluded that the representation by such counsel for the Indemnified Person and
the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person and any other party
represented by such counsel in such proceeding, in any of which events such fees
and expenses of one additional counsel shall be borne by the indemnifying party;
provided, however, that the indemnifying party shall not, in connection with
8
<PAGE>
any one action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstance,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all such Indemnified Persons. In such event, the
Company shall pay for only one separate legal counsel for the Purchasers, and
such legal counsel shall be selected by the Purchasers holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The failure to deliver written notice to an
indemnifying party within a reasonable time after the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person under this Section 6, except to the extent that the
indemnifying party is materially prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any provisions
relating to indemnification or contribution contained in the underwriting
agreements entered into among the Company, the underwriters and any Purchasers
in connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in such underwriting agreements shall be
controlling as to the Registrable Securities included in the public offering;
provided, however, that if, as a result of this Section 6(d), any Purchaser, its
officers, directors, partners or any person controlling such Purchaser is held
liable for an amount which exceeds the aggregate proceeds received by such
Purchaser from the sale of Registrable Securities included in a registration,
pursuant to such underwriting agreement (the "Excess Liability"), the Company
shall reimburse such Purchaser for such Excess Liability.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is
prohibited or limited under applicable law, the indemnifying party agrees to
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the Indemnified Person on the other hand in connection with the
statements or omissions which resulted in such Claim, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and the Indemnified Person shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the Indemnified Person, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the forgoing, (a) no contribution
shall be made under circumstances where the payor would not
9
<PAGE>
have been liable for indemnification under the fault standards set forth in
Section 6, (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net proceeds
received by such seller from the sale of such Registrable Securities. The
Company and each Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Purchasers were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in this Section.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the Purchasers
the benefits of Rule 144 promulgated under the Securities Act or any other
similar rule or regulation of the Commission that may at any time permit the
Purchasers to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to for so long as one or more classes of its
Common Stock shall be reinstated under the Exchange Act:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Purchaser, so long as such Purchaser owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, (ii) a copy of the most recent annual or periodic
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested to
permit the Purchasers to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by each Purchaser to any transferee of all or any portion
of the Securities held by such Purchaser if: (a) such Purchaser agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment; (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the Securities with respect to which such
registration rights are being transferred or assigned; (c) at or before the time
the Company receives the written notice contemplated by clause (b) of this
sentence, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein; and (d) the transfer of the
relevant Securities complies with the restrictions set forth in Section 4 of the
Securities Purchase Agreement. In the event of any delay in filing the
Registration Statement as a result of such assignment, the Company shall not be
10
<PAGE>
liable for any damages arising from such delay.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Purchasers who hold a majority in
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Purchaser and the
Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
COMPANY: CDKNET.COM, INC.
595 Stewart Avenue
Garden City, New York 11530
ATT.: Shai Bar Levi
Tel.: (212) 547-6061
Fax: (212) 265-3878
with copies to:
FOLEY HOAG ELIOT LLP
One Post Office Square
Boston, Massachusetts 02109
ATT.: David Broadwin
Tel.: (617) 832-1000
Fax: (617) 832-7000
11
<PAGE>
PURCHASERS: At the addresses set forth on the signature
page of this Agreement, as such addresses may
be updated from time to time by each of the
Purchasers.
with copies to:
EPSTEIN, BECKER & GREEN, P.C.
250 Park Avenue
New York, New York 10177
ATT: Joseph A. Smith
Tel.: (212) 351-4500
Fax: (212) 661-0989
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on FORUM NON CONVENIENS, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such validity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. Subject to the provisions of Section 10 hereof, this
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth, or referred to
herein and in the other Primary Documents. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the
12
<PAGE>
benefit of and be binding upon the successors and assigns of each of the parties
hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company to perform
its obligations under this Agreement, or any delay in such performance could
result in direct damages to the Purchaser, and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless same is the result of force majeure.
Neither party shall be liable for consequential damages.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed.
CDKNET.COM, INC.
By: /s/ Steven Horowitz
---------------------
Name: Steven Horowitz
Title: Chairman
/s/ Steven Horowitz
------------------------
Steven Horowitz
/s/ Shai Bar Levi
------------------------
Shai Bar Levi
/s/ Michael Sonnenberg
------------------------
Michael Sonnenberg
The Gross Foundation, Inc.
By:
-----------------------
Name:
---------------------
Title:
--------------------
ADDRESS:
PHONE:
FAX:
13
EXHIBIT 10.16
-------------
Dated the day of 1999
CDKNET.COM, INC.
and
ASIA PIONEER LIMITED
-----------------------------------------------------------
SUBSCRIPTION AGREEMENT
IN RELATION TO SHARES IN
ASIA PIONEER LIMITED
-----------------------------------------------------------
AGGARWAL & ASSOCIATES,
Solicitors,
Rooms 1905-7, 19th Floor,
St. George's Building,
2 Ice House Street,
Central,
Hong Kong.
Ref.: 0203-0295/99/NA/RKW
<PAGE>
THIS AGREEMENT is made the 16th day of November 1999.
BETWEEN :-
(1) CDKNET.COM, INC., a company incorporated in the state of Delaware, the
United States of America and having its registered address at 595
Stewart Avenue, Suite 710, Garden City, New York 11530, U.S.A. ("CDK");
and
(2) ASIA PIONEER LIMITED, a company incorporated in the Cayman Islands and
having its registered office at Huntlaw Building, P.O. Box 2804, George
Town, Grand Cayman, Cayman Islands ("APL").
WHEREAS :-
(A) APL is a private company limited by shares incorporated in the Cayman
Islands.
(B) CDK is a company incorporated under the laws of the State of Delaware,
U.S.A. further particulars of which as at the date of this Agreement
are set out in Schedule 1 .
(C) APL has agreed to subscribe for the Subscription Shares (as defined
below) and CDK has agreed to issue and allot the same to APL on the
terms and conditions contained in this Agreement.
(D) APL has agreed to enter into a Licencing Agreement with CDK's
subsidiary, CDKNet, LLC for the licencing of such CDK Technology(TM) by
CDKNet, LLC to APL.
NOW IT IS HEREBY AGREED as follows :-
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 In this Agreement, unless the context otherwise requires, the following
words and expressions shall have the following meanings :-
"THIS AGREEMENT" means this agreement as amended, modified or
supplemented from time to time;
-1-
<PAGE>
"APL SHARES"
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
"ARTICLES" means the articles of association of CDK for the
time being;
"BOARD" means the board of directors of CDK for the time
being;
"DIRECTOR" means a director of CDK for the time being;
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended;
"GROUP" means CDK and any other company which is a
Subsidiary of or a holding company of or another
Subsidiary of a holding company of CDK and
"MEMBER(S) OF THE GROUP" shall be construed
accordingly;
"HONG KONG" means the Hong Kong Special Administrative Region;
"SEC" means the U.S. Securities and Exchange Commission;
"SHARES" means shares of common stock, par value US$ 0.0001
per share, of CDK;
"SUBSCRIPTION" means the subscription for the Subscription Shares
pursuant to Clause 2 and "SUBSCRIBE" shall be
construed accordingly;
"SUBSCRIPTION
SHARES"
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
"SUBSCRIPTION [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
SHARE PRICE" AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
-2-
<PAGE>
"SUBSIDIARY" for the purpose of this Agreement a company shall
be deemed to be a subsidiary of another company,
if :-
(a) that other company :-
(i) controls the composition of the board
of directors of the first-mentioned
company; or
(ii) controls more than half of the voting
power of the first-mentioned company;
or
(iii) holds more than half of the issued
share capital or issued common share
capital (as the case may be) of the
first-mentioned company (excluding any
part of it which carries no right to
participate beyond a specified amount
in a distribution of either profits or
capital);or
(b) the first-mentioned company is a subsidiary
of any company which is that other company's
subsidiary;
"US$" Means the lawful currency of the United States of
America;
"WARRANTIES" Means the representations, warranties and
undertakings on the part of each CDK and APL
respectively set out in Clause 4 .
1.2 References in this Agreement to ordinances and to statutory provisions
shall be construed as references to those ordinances or statutory
provisions as respectively modified (on or before the date hereof) or
re-enacted (whether before or after the date hereof) from time to time
and to any orders, regulations, instruments or subordinate legislation
made under the relevant ordinances or provisions thereof and shall
include references to any repealed ordinance or provisions thereof
which has been so re-enacted (with or without modifications).
1.3 The headings are inserted for convenience only and shall not affect the
construction of this Agreement.
1.4 Except where the context otherwise requires words denoting the singular
include the plural and vice versa; words denoting any one gender
include all genders; words denoting persons include incorporations and
firms and vice versa.
-3-
<PAGE>
1.5 References to Clauses, Sub-clauses, Paragraphs and Schedules are
(unless the context otherwise requires) to clauses, sub-clauses,
paragraphs of and schedules to this Agreement.
1.6 The Schedules form part of this Agreement.
2. SUBSCRIPTION AND COMPLETION
---------------------------
2.1 APL in reliance upon the representations warranties undertakings
agreements and covenants referred to in this Agreement hereby agrees
and undertakes to Subscribe for the Subscription Shares at the
Subscription Share Price subject to the Articles and the terms and
conditions contained in this Agreement.
2.2
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(i)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(ii)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(iii)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(iv)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(v)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(vi)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-4-
<PAGE>
(vii)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(The First Payment, Second Payment, Third Payment, Fourth Payment,
Fifth Payment, Sixth Payment and the Seventh Payment shall hereinafter
collectively be known as "Payments".)
(The First Allotment, Second Allotment, Third Allotment, Fourth
Allotment, Fifth Allotment, Sixth Allotment and the Seventh Allotment
shall hereinafter collectively be known as "Allotments".)
Prior to any of the relevant Payments being made by APL to CDK in
respect of any of the relevant Allotments described above, CDK shall
send to APL (by way of fax and overnight courier) a copy of the
relevant written instructions to the relevant transfer agent or share
registrar to issue the Subscription Shares to be allotted to APL along
with the relevant written confirmation of the transfer agent or share
registrar in respect of such issue instructions relating to the issue
of Subscription Shares to APL. Upon receipt of the fax, APL shall
deliver to CDK within one (1) business day the respective Payment by
way of a wire (or telegraphic transfer) of immediately available funds
to the CDK bank account as directed by CDK by a fax or email of wire
instructions thereof.
2.3 Completion of the First Allotment shall take place promptly upon
execution of this Agreement or at such other time and place as may be
agreed between the parties to this Agreement.
2.4 At completion of the First Allotment :-
2.4.1 CDK shall procure that :-
(a) a meeting of the Board is convened and duly held at which valid
resolutions are passed to authorize the issue and allotment of
the Subscription Shares relating to the First Allotment to APL
and the entering into and completing of this Agreement by CDK;
(b) CDK shall allot and issue credited as fully paid the Subscription
Shares relating to the First Allotment to APL and shall enter the
name of APL in the register of members of CDK as registered
holder of the Subscription Shares;
(c) CDK shall issue and deliver to APL appropriate share certificates
for the Subscription Shares duly executed by CDK.
-5-
<PAGE>
2.4.2 Upon payment of any of the respective Second Payment, Third Payment,
Fourth Payment, Fifth Payment, Sixth Payment and Seventh Payment by APL
to CDK shall procure that :-
(a) such meetings of the Board is convened and duly held at which
valid resolutions are passed to authorize the issue and allotment
of the relevant respective Second Allotment, Third Allotment,
Fourth Allotment, Fifth Allotment, Sixth Allotment and Seventh
Allotment.
(b) CDK shall allot and issue credited as fully paid the Subscription
Shares relating to the relevant and respective Second Allotment,
Third Allotment, Fourth Allotment, Fifth Allotment, Sixth
Allotment and Seventh Allotment in the register of members of CDK
as registered holder of the Subscription Shares relating to the
relevant and respective Second Allotment, Third Allotment, Fourth
Allotment, Fifth Allotment, Sixth Allotment and Seventh
Allotment.
(c) CDK shall issue and deliver to APL appropriate Share Certificates
for the Subscription Shares relating to the relevant and
respective Second Allotment, Third Allotment, Fourth Allotment,
Fifth Allotment, Sixth Allotment and Seventh Allotment.
2.4.3 APL shall procure that a meeting of the board of directors of APL is
convened and duly held at which valid resolutions are passed to
authorize the purchase in respect of the issue and allotment of the
Subscription Shares by CDK and the entering into and completing of this
Agreement by APL;
2.4.4 Upon the completion of the Seventh Allotment of Subscription Shares to
APL, CDK shall within 90 days from the date of the completion of the
Seventh Allotment of Subscription Shares register all the Subscription
Shares allotted to APL per Clause 2.2 above with the SEC.
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-6-
<PAGE>
3. EVENTS OF DEFAULT
-----------------
3.1 In the event that :-
3.1.1 the Shares are not (i) registered with the SEC pursuant to
Section 12(g) of the Exchange Act and (ii) eligible for trading
on the National Association of Securities Dealers
Over-the-Counter Bulletin Board ("OTCBB") or any nationally
recognized stock exchange or electronic trading system (a
"National Exchange") on or before 28 February 2000 for whatever
reasons; or
3.1.2 the Shares are delisted or otherwise become ineligible for
trading on the OTCBB or on any other National Exchange on or
prior to 1 July 2000, save and except in the following
circumstances :-
(a) the Shares cease to be so listed due to CDK ceasing to have
a class of equity securities registered under the Exchange
Act ; and
(b) the termination of such listing was as a result of a
voluntary act or decision of CDK and its shareholders and
whereby such voluntary act or decision leads to a general
offer being made to all shareholders of CDK for all the
Shares being held by such shareholders; or
3.1.3 if on or before 1 July 2000 :-
(a) CDK shall be subject to any proceedings relating to
bankruptcy, winding up or insolvency in any courts of
competent jurisdiction; or
(b) CDK shall cease, or shall threaten to cease, to carry on its
business;
(c) APL shall terminate (pursuant to the terms of the licence
agreement) such licence agreement for the licence of CDK
Technology(TM) with CDK's subsidiary, CDKNet, LLC;
then without prejudice to any other rights or remedies of APL in
respect of any antecedent breach on the part of CDK under this
Agreement, APL shall be entitled to:
(i) by notice in writing to CDK within a period of [twenty-eight
(28)]
-7-
<PAGE>
days upon APL becoming aware of the happening of any of such
events (whichever is later) to forthwith terminate this
Agreement; and/or
(ii) (if applicable) to terminate such licence agreement for the
licence of CDK Technology(TM) with CDK's subsidiary, CDKNet,
LLC and in which event CDK shall procure its subsidiary
CDKNet, LLC to allow and permit such termination without any
claims, demands or legal action against APL.
3.2 In the event that either :-
3.2.1 APL fails to make any of the Payments on their respective due
dates; or
3.2.2 On or before 1 July 2000 :-
(i) APL shall be subject to any proceedings relating to
bankruptcy, winding up or insolvency in any courts of
competent jurisdiction; or
(ii) APL shall cease, or shall threaten to cease, to carry on its
business; or
(iii) CDK's subsidiary, CDKNet, LLC shall terminate (pursuant to
the terms of the licence agreement) such licence agreement
for the licence of CDK Technology(TM) with APL;
then without prejudice to any other rights or remedies of CDK in
respect of any antecedent breach on the part of APL under this
Agreement, CDK shall :-
(a) be entitled to by notice in writing to APL within a period
of [twenty eight (28) days] upon CDK becoming aware of the
happening of any such event (whichever is later) to
forthwith terminate this Agreement; and/or
(b) (if applicable) be entitled on behalf of CDK's subsidiary
CDKNet, LLC to terminate on behalf of CDKNet, LLC any
licence agreement (in respect of CDKNet, LLC's CDK
Technology(TM)) entered into between CDKNet, LLC and APL.
4. WARRANTIES
----------
4.1 Each party hereto hereby represents and warrants to the other party that :-
-8-
<PAGE>
4.1.1 it has all the necessary capacity to enter into, perform and be
bound by the terms and conditions of this Agreement;
4.1.2 it has taken or will take all steps and action and has obtained
or will obtain all consents, approvals and waivers necessary or
required for it to enter into, perform and be bound by the terms
and conditions of this Agreement;
4.1.3 the terms and conditions of this Agreement are valid and binding
on it and are enforceable against it in accordance with the terms
and conditions set out herein.
4.2 In consideration of APL agreeing to enter into this Agreement CDK
warrants and represents to APL as at the date of this Agreement that,
to the best of CDK's knowledge :-
4.2.1 (a) the particulars of CDK contained in Schedule [1] are true
and accurate in all respects;
(b) CDK has approximately 17,000,000 shares of common stock
issued and outstanding as of 11 November 1999;
4.2.2 all returns particulars resolutions and other documents required
to be filed with the relevant authorities in the U.S.A. by CDK
have been duly filed and CDK has complied with all legal
requirements in connection with its formation and with all issues
of its shares;
4.2.3
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
4.2.4 the Subscription Shares shall be allotted and issued credited as
fully paid and on terms that they will rank pari passu in all
respects with the chartered rights with the shares of common
stock in CDK in issue as at the date of allotment of the
Subscription Shares ;
4.2.5 (a) CDK has complied with all necessary and applicable
regulations and laws of the SEC and other regulatory
authorities in the United States of America (including the
Exchange Act);
(b) CDK's stock was previously traded on the OTCBB but has
recently been removed from the OTCBB and instead has its
-9-
<PAGE>
shares currently traded on the so-called "Pink Sheets";
4.2.6 (a) the audited consolidated financial statements of CDK and its
Subsidiaries as set out in Form 10-SB filed with the SEC on
7 October 1999 ("FORM 10-SB") a copy of which financial
statements is attached hereto marked "ANNEX 1" has been
prepared in accordance with the requirements of relevant
ordinances, regulations and statutes and in accordance with
generally accepted accounting principles and practices in
U.S.A. consistently applied. Such financial statements are
hereinafter called "THE ACCOUNTS OF CDK".
CDK is now preparing to file and Amendment No. 2 to the Form
10-SB in approximately one week from the date of this
Agreement with the SEC to reflect Form 10-QSB type
disclosures. CDK undertakes to send to APL a copy of the
said Amendment No. 2 immediately after filing of the same
with the SEC;
(b) the Accounts of CDK are true and accurate in all material
respects and show a true and fair view of the assets,
liabilities, capital commitments and the state of affairs of
CDK and its Subsidiaries as at 30th June 1999;
(c) since 30th June 1999 :-
(i) each of CDK and its Subsidiaries has carried on its
business in the ordinary and usual course;
(ii) no distribution of capital or income has been declared
made or paid in respect of any share capital of each of
CDK and its Subsidiaries;
(iii) each of CDK and its Subsidiaries has not assumed or
incurred any liabilities or expenditure otherwise than
in the ordinary course of carrying on its day-to-day
business;
(iv) there has been no material adverse change in the
financial position of each of CDK and its Subsidiaries;
4.2.7 the assets and equipment included in the Accounts of CDK or
acquired by each of CDK and its Subsidiaries since 30th June 1999
are the property of and owned by CDK and/or its Subsidiaries (as
the case may be) and are not subject to any debenture, mortgage,
encumbrance or charge or any other third party interest save as
for such equipment which is leased by,
-10-
<PAGE>
or used as collateral by CDK or its Subsidiaries;
4.2.8 all the technologies and products marketed as developed by each
of CDK and its Subsidiaries are the absolute property of (or for
which the appropriate rights have been granted) CDK and/or its
Subsidiaries (as the case may be) and are not subject to any
third party interest and do not infringe on any intellectual
property rights or other rights whatsoever of any other persons;
4.2.9 all debts owed to each of CDK and its Subsidiaries will be good
and collectable in the ordinary course of business and no amount
included in the Accounts of CDK owing to each of CDK and/or its
Subsidiaries (as the case may be) at 30th June 1999 has been
released for an amount less than the value at which it was
included in the Accounts of CDK;
4.2.10(a) all necessary licences consents permits and authorities have
been obtained by each of CDK and its Subsidiaries to enable
each of them to carry on its business lawfully and
effectively in the places and in the manner in which such
business is now carried on;
(b) each of CDK and its Subsidiaries has not done or omitted to
do anything in contravention or breach of any statute, order
or regulation or the like in U.S.A. or elsewhere applicable
to it or its business and giving rise to any fine, penalty,
default proceedings or other liability on its part;
(c) each of CDK and its Subsidiaries has conducted and is
conducting its business in accordance with applicable laws
and regulations in U.S.A. or elsewhere applicable to it;
4.2.11 there are no agreements or arrangements entered into by each of
CDK and its Subsidiaries otherwise than by way of bargain at
arm's length and all contracts are entered into in the normal
course of business;
4.2.12 each of CDK and its Subsidiaries is not engaged either on its
own account or vicariously in any material litigation or
arbitration or tribunal proceedings and no such litigation
arbitration or tribunal proceedings are pending or threatened by
or against each of CDK and its Subsidiaries;
4.2.13(a) save as for the directors and/or employees set out in
Schedule 2 with particulars of such contract therein, there
are not in existence any contracts of service with directors
or employees of each of CDK and its Subsidiaries which
cannot be terminated by notice without giving rise to any
claim for damages or compensation
-11-
<PAGE>
(other than under any relevant employment legislation;
(b) each of CDK and its Subsidiaries and their respective
employees are not involved in any industrial dispute;
4.2.14(a) each of CDK and its Subsidiaries has properly made all
returns and provided all other information required for the
purposes of taxation and none of such returns is disputed by
the Internal Revenue Services, U.S.A. or any other authority
concerned;
(b) all payments by each of CDK and its Subsidiaries to any
person which ought to have been made under deduction or
withholding of tax have been so made and each of CDK and its
Subsidiaries has (where required by law to do so) accounted
to the Internal Revenue Services, U.S.A. for the tax
deducted or withheld.
4.2.15 that it is not aware of any intention and shall not on or before
1 July 2000 voluntarily (through its shareholders or Directors)
cease to be listed and which act would lead to a general offer
being made to all the shareholders for such shares of CDK being
held by the said shareholders;
4.2.16 that it shall prior to any of the relevant Payments being made
by APL to CDK in respect of any of the relevant Allotments
described in Clause 2.2, it shall send to APL (by way of fax and
overnight courier) a copy of the relevant written instructions to
the relevant issue agent or share registrar to transfer the
Subscription Shares to be allotted to APL along with the relevant
written confirmation of the issue agent or share registrar in
respect of such issue instructions relating to the transfer of
Subscription Shares to APL and not revoke or change its
instructions to the transfer agent or share registrar without the
written consent of APL;
4.2.17 that it shall upon the completion of the Seventh Allotment of
Subscription Shares to APL, use its best endeavors and take all
necessary steps to cause the Subscription Shares to be registered
with the SEC within 90 days from the date of the completion of
the Seventh Allotment of Subscription Shares.
5. ANTI-DILUTIVE PROVISIONS
------------------------
5.1 Subject to Clause 5.2, CDK hereby agrees and undertakes with APL that
it will not for a period of one (1) year from the date of this
Agreement (the "RESTRICTED PERIOD") :-
5.1.1 allot and issue any shares in CDK; or
-12-
<PAGE>
5.1.2 issue securities or any instrument convertible into shares or
debentures, or share warrants or options in respect of shares in
CDK;
at a price less than the Subscription Share Price to any other persons
without the prior consent in writing of APL Provided that the
restrictions herein contained shall not apply to the issue and
allotment of shares of CDK hereto pursuant to the exercise of any
rights under the share option plan in force from time to time for the
benefits of the executives and employees of CDK.
5.2 Notwithstanding the restrictions contained in Clause 5.1, CDK shall be
entitled to do any of the matters restricted pursuant to Clause 5.1
without the prior consent in writing of APL during the Restricted
Period Provided that it shall simultaneously upon the happening of such
event issue and allot such number of additional shares in itself
(excluding fraction of a share if any) to APL as shall be necessary to
ensure that no dilution shall take place in relation to the share
ownership and in the value of its shares held by that other party
contemplated by this Agreement by reason of its doing such matters but
not otherwise.
6. GENERAL
-------
6.1 Nothing in this Agreement shall create, or be deemed to create, any
partnership or the relationship of principal and agent or employer and
employee between the parties.
6.2 This Agreement sets out the entire agreement and understanding between
the parties in relation to the transactions hereby contemplated, and
supersedes all previous agreements, arrangements and understandings
between them with regard to such transactions and neither party is
entering into this Agreement or any of the arrangements contemplated
hereby in reliance upon any representation or warranty not expressly
set out in this Agreement.
6.3 No provision of this Agreement may be amended, modified, waived,
discharged or terminated otherwise than by the express written
agreement of the parties hereto nor may any breach of any provision of
this Agreement be waived or discharged except with the express written
consent of the party not in breach.
6.4 No failure or delay by either party in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise by either party of any right,
power or privilege preclude any further exercise thereof or the
exercise of any other right, power or privilege.
6.5 The rights and remedies of the parties herein provided are cumulative
and not exclusive of any rights and remedies provided by law.
-13-
<PAGE>
6.6 This Agreement shall be binding and enure to the benefit of each
party's successors and permitted assigns but, except as expressly
provided herein, neither party shall assign or transfer all or any of
its rights or obligations hereunder without the prior written consent
of the other party.
6.7 Each party shall be responsible for its own costs incurred in
connection with the negotiation, preparation, execution and carrying
into effect of this Agreement.
6.8 Time shall be of the essence of this Agreement, both as regards the
dates and periods specifically mentioned and as to any dates and
periods which may be substituted by agreement in writing between or on
behalf of the parties.
6.9 In the event that any provision of this Agreement is held to be
unenforceable, illegal or invalid by any court of competent
jurisdiction, the validity, legality or enforceability of the remaining
provisions shall not be affected nor shall any subsequent application
of such provisions be affected. In lieu of any such invalid, illegal or
unenforceable provision, the parties hereto intend that there shall be
added as part of this Agreement a provision as similar in terms to such
invalid, illegal or unenforceable provision as may be possible and be
valid, legal and enforceable.
6.10 This Agreement may be executed in any number of counterparts or
duplicates each of which shall be an original but such counterparts or
duplicates shall together constitute one and the same agreement.
6.11 Each of the parties hereto shall do, execute and perform all such
further deeds, documents, acts and things as the other party may
reasonably require to put into effect the transactions contemplated by
this Agreement.
6.12 All provisions of this Agreement shall so far as they are capable of
being performed and observed continue in full force and effect
notwithstanding completion except in respect of those matters then
already performed.
7. NOTICES
- -- -------
7.1 Any notice required to be given under this Agreement shall be
sufficiently given if delivered personally or forwarded by
internationally recognized overnight couriers or sent by facsimile
transmission to the relevant party at its address or fax number set out
below (or such other address as the addressee has by five days prior
written notice specified to the other parties) :-
To CDK : 595 Stewart Avenue, Suite 710,
Garden City, New York, United States
of America 11530
-14-
<PAGE>
Fax Number : (516) 222 2665
Attention : Steven A. HOROWITZ
To APL : Shop No.3A, Ground Floor
Site 4, Whampoa Garden,
Hung Hom, Kowloon
Hong Kong
Fax Number : (852) 2335 0889
Attention : Keith T.K. WONG
7.2 Any notice delivered personally shall be deemed to have been served at
the time of delivery. Any notice sent by internationally recognized
overnight couriers shall be deemed to have been served 3 business days
after the time at which it was delivered to the courier, the tracking
receipt shall be sufficient to prove such service and notices sent by
facsimile transmission shall be deemed to have been served one business
day after transmission.
8. LAW AND JURISDICTION
--------------------
8.1 This Agreement shall be governed by and construed in all respects in
accordance with the laws of the state of New York in the United States
of America ("New York") and the parties hereby irrevocably submit to
the non-exclusive jurisdiction of the Courts of New York .
8.2 Each of the following parties hereby irrevocably appoints (subject to
substitution by way of written notice) the person set opposite its name
below as its agent to acknowledge and accept service of legal process
on behalf of such party :-
PARTIES NAMES & ADDRESSES OF AGENTS
------- ---------------------------
CDKNet.Com, Inc. Steven A. HOROWITZ
595 Stewart Avenue, Suite 710,
Garden City, New York,
United States of America 11530
Asia Pioneer Limited Keith T.K. WONG
Shop No.3A, Ground Floor
Site 4, Whampoa Garden,
Hung Hom, Kowloon
Hong Kong
Telephone : (852) 9172 5700
Fax : (852) 2335 0889
-15-
<PAGE>
AS WITNESS the parties hereto have caused this Agreement to be executed the day
and year first above written in its counterpart as an Agreement.
-16-
<PAGE>
SCHEDULE 1
----------
CDK
NAME : CDKNET.COM, INC.
PLACE OF INCORPORATION : the State of Delaware, U.S.A.
AUTHORIZED COMMON SHARE CAPITAL : US$4,000 divided into 40,000,000
shares of common stock of par value
US$0.0001 each
ISSUED COMMON SHARE CAPITAL : Approximately 17,000,000 common shares
REGISTERED ADDRESS : 595 Stewart Avenue, Suite 710, Garden
City, New York 11530, U.S.A.
DIRECTORS : Steven A. HOROWITZ
Anthony BONOMO
Andrew SCHENKER
-17-
<PAGE>
SCHEDULE 2
----------
LIST OF CONTRACTS RELATING TO CLAUSE 4.2.13( A)
Name Document
- ---- --------
Shai Bar LAVI Employment Agreement
Tom ROSS Employment Agreement
-18-
<PAGE>
EXECUTION PAGE
<PAGE>
SIGNED by )
)
for and on behalf of CDKNET.COM, INC. in )
the presence of :-Chris Hanscom-Bolton ) /s/ Steven A. Horiwitz
)--------------------------------
/s/ Chris Hanscom-Bolton
- ------------------------
SIGNED by )
)
for and on behalf of ASIA PIONEER LIMITED ) /s/ illegible
in the presence of :- )--------------------------------
Authorized Signature(s)
/s/ illegible
--------------------------------
Authorized Signature(s)
/s/ Keith A. Lee
- ------------------------------
Keith A. Lee
Solicitor
Aggarwal & Associates
Hong Kong SAR
-19-
EXHIBIT 10.17
-------------
Dated the 16th day of November 1999
CDKNET, LLC
and
ASIA PIONEER LIMITED
- --------------------------------------------------------------------------------
TECHNOLOGY AND LICENCE AGREEMENT
- --------------------------------------------------------------------------------
AGGARWAL & ASSOCIATES
Rooms 1905-7, 19th Floor
St. George's Building
2 Ice House Street
Central
Hong Kong
Ref.: 0203-0295/99/NA/RKW/KAL
<PAGE>
- ii -
CONTENTS
Page
1. Definitions.........................................................1
2. Products and Services to be provided................................5
3. Conduct of the Work.................................................5
4. Implementation Plan.................................................6
5. Location Preparation................................................6
6. Provision of Hardware...............................................6
7. Delivery of Hardware................................................9
8. Installation of Hardware............................................9
9. Delivery and Installation of the Software...........................9
10. Installation Tests.................................................10
11. Delays.............................................................11
12. Licence............................................................12
13. Duration of the Licence............................................17
14. Documentation......................................................17
15. Warranties.........................................................17
16. Other Matters giving cause for Damages and/or Termination..........18
17. Terms of Payment...................................................20
18. Training...........................................................22
19. Maintenance Services...............................................23
20. Maintenance of the Hardware........................................23
21. Maintenance of the Software........................................24
22. Title to and Risk in the System....................................25
23. Proprietary Rights.................................................26
24. Copying............................................................26
25. Confidentiality....................................................26
26. Use of Data........................................................27
27. Independent Contractor.............................................27
28. Assignment.........................................................28
29. Indemnities........................................................28
30. Publicity..........................................................30
31. Sub-contracts......................................................30
32. Termination of the Agreement.......................................30
33. Effect of Termination..............................................31
34. Severability.......................................................31
35. Other Terms, Matters, and Conditions to be Fulfillied..............31
36. Duration of the Contract...........................................33
37. Hire Equipment.....................................................33
38. Entire Agreement...................................................34
39. Law and Jurisdiction...............................................34
40. Service of Notice..................................................34
41. Waiver.............................................................35
42. Force majeure......................................................35
-i-
<PAGE>
43. Extent of Liability................................................35
44. Provision of Other Software........................................35
45. Warranties as to APL Shares........................................36
Schedule 1 (Hardware).......................................................39
Schedule 2 (System).........................................................41
Schedule 3 (Implementation Plan)............................................43
Schedule 4 (Training Plan)..................................................44
Schedule 5 (Documentation)..................................................45
Schedule 6 (Location).......................................................46
Schedule 7 (Installation Tests).............................................48
Schedule 8 (Other Software).................................................49
Schedule 9 (Asia Pioneer Limited)...........................................50
-ii-
<PAGE>
THIS AGREEMENT is made on the day of , 1999
BETWEEN :-
(1) CDKNet, LLC, a New York limited liability company with offices at 250
West 57th Street, New York, New York 10019, United States of America
("CDKX"); and
(2) Asia Pioneer Limited, a company incorporated in the Cayman Islands
whose registered office is situate at Hurtlaw Building, P.O. Box 2804,
George Town, Grand Cayman, Cayman Islands and whose place of business
is located at Shop No. 3A, Ground Floor, Site 4, Whampoa Garden, Hung
Hom, Kowloon, Hong Kong ("APL").
WHEREAS :-
(1) APL has decided to exclusively license (on the terms and conditions set
forth below), the CDK Technology(TM) (as defined in Clause 1) for the
use, marketing and business of its website and any other business of
APL; and
(2) APL has elected to exclusively license, hire, use, obtain (as the case
may be) from CDKX and CDKX has agreed to grant the right of use of the
Hardware, the Other Software and the Software (as hereinbelow defined)
and supply all relevant services necessary for the maintenance and
operation of CDK Technology(TM) used by APL (on the terms and
conditions set forth below).
NOW IT IS HEREBY AGREED that in consideration of the payments to be made by APL
in the time and manner set out in Clause 17 of this Agreement, CDKX shall grant
the right of use of the Hardware and Software (as hereinbelow defined) and
supply all services necessary for the operation of the System in accordance with
the terms and conditions and other matter hereinafter set out.
1. Definitions
-----------
1.1 In this Agreement, unless the context otherwise requires, the following
expressions have the following meanings :-
"this Agreement" Means this agreement as amended, modified or
supplemented from time to time.
"Artistic Work" Means a graphic work, photograph, sculpture or
collage irrespective of artistic quality ("graphic
work" includes any painting, drawing, diagram,
map, chart or plan; "photograph" means a recording
of light of other radiation on any medium on which
an image is produced or from which an image may by
means be produced; "sculpture" includes a cast or
model made for the purpose of sculpture).
-1-
<PAGE>
"CDK
Technology(TM)" Means the engineering and technology specially
developed by CDKX whereby such technology and
engineering combines CD (compact disc) digital
audio, full motion, fullscreen video and web
linking through a browser interface. In
combination with such technology an HTML
authorizing system is used to produce custom HTML
interface pages for specific clients within a
certain time period. The technology includes all
the proprietary rights and techniques of CDKX
along with such technique and engineering for
creating full motion, fullscreen video playback
from CD Rom.
"Completion Date" Means the date specified in the Implementation
Plan by which CDKX is to provide the System Ready
for Use.
"Consideration [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
Share Price" AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
"Consideration
Shares" [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
"Data" Means all information, submission, correspondence,
copyright contents on APL's website, data and
updates generated and collected on APL's website.
"Documentation" Means the operating manuals, user instructions,
technical literature and all other related
materials in human-readable form (i.e. English)
supplied to APL by CDKX for aiding the use,
application and maintenance of the System as
specified in Schedule 5.
"Exchange Act" Means the U.S. Securities Exchange Act of 1934, as
amended.
"Films" Means a recording on any media from which a moving
image may by any means be produced. The soundtrack
accompanying a film is to be treated as part of
the film.
"Hardware" Means the equipment specified in Schedule 1 and
any other additional or replacement equipment
provided by CDKX under the provisions of this
Agreement.
"Hardware Means the delivery date specified in the
Delivery Date" Implementation Plan by which CDKX is to deliver
the Hardware.
-2-
<PAGE>
"Hardware
Installation Date" Means the delivery date specified in the
Implementation Plan by which CDKX is to install
the Hardware.
"Implementation Means the time schedule and sequence of events for
Plan" the performance of this Agreement (the details of
which are set out in Schedule 3) or such other
implementation plan as may be agreed by the
parties of this Agreement.
"Installation Means the installation tests specified in Schedule
Tests" 7 and any other installation tests as may be
agreed between the parties pursuant to Clause 10.
"Licence" Means the licence granted to APL by CDKX pursuant
to Clause 12.
"Licence Fee" Means the fee for the licence as specified in
Clause 17.2.
"Licence Period" Means the period as specified in Clause 13.
"Location" Means the location at which the Hardware is to be
installed as specified in Schedule 6.
"Maintenance Means the maintenance services to be provided by
Services" CDKX pursuant to Clauses 19, 20 and 21
respectively.
"Musical Works" Means a work consisting of music exclusive of any
words or action intended to be sung, spoken or
performed with the music.
"Other Software" Means the programs specified in Schedule 8 and any
additional or replacement programs thereto.
"Price" Means the aggregate price for the System and the
Work to be carried out by CDKX hereunder as
specified in Clause 17.1.
"Ready for Use" Means fully installed and tested and successfully
completed so as to make the System both functional
and operational within the standards as agreed by
both parties but in any event as reasonably
expected by a reasonable person taking into
account CDKX's current version of the Software,
CDK Technology(TM)and existing Hardware set up to
run its business of "MixFactory(TM)".
"SEC" Means the U.S. Securities and Exchange Commission.
-3-
<PAGE>
"Shares" Means shares of common stock, par value US$0.0001
per share of CDKNet.Com, Inc
"Share Completion" Means completion of the issue and allotment of
Consideration Shares under this Agreement.
"Software" Means the application programs developed for the
System and any other additional or replacement
programs from time to time provided and developed
by CDKX under the provisions of this Agreement and
which also includes the CDK Technology(TM).
"Software Delivery means the delivery date specified in the
Date" Implementation Plan by which CDKX is to deliver
and install the CDK 2.0 Software(C).
"System" means the Hardware and Software in one combination
with the other based on the CDK Technology(TM) in
order to make functional and operational those
processes and services described in Schedule 2.
"Training Plan" means the training to be provided by CDKX for
APL's staff the details of which are set out in
Schedule 4.
"Upgrade and means those upgrades, modifications, enhancement
Enhancements" and development of the Software and Hardware by
CDKX more particularly set out in Clause 21.3.
"US$" means the lawful currency of the United States of
America.
"Work" means all works, duties and obligations to be
carried out by CDKX pursuant to the provisions of
this Agreement.
1.2 Except where the context otherwise requires, words denoting the
singular include the plural and vice versa; words denoting persons
include firms and corporations and vice versa; words denoting any
gender include all genders.
1.3 Reference to any enactment, order, regulation or other similar
instrument shall be construed as a reference, order, regulation or
instrument as amended by any subsequent enactment, order, regulation or
instrument.
1.4 The heading to the clauses of this Agreement is for ease of reference
only and shall not affect the interpretation or construction of this
Agreement.
-4-
<PAGE>
2. Products and Services to be provided
------------------------------------
CDKX hereby agrees to :-
2.1.1 grant the right to use the Hardware to APL free from
encumbrances as per Clause 29;
2.1.2 grant to APL an exclusive licence to use the software specially
developed for or used in relation to the CDK Technology(TM) as
set out in Clause 12;
2.1.3 deliver, install and maintain the System in accordance with the
terms hereof;
2.1.4 provide the System Ready for Use by the Completion Date;
2.1.5 provide training in accordance with the Training Plan and the
Documentation;
2.1.6 provide the Maintenance Services;
2.1.7 provide assistance in developing and to develop or further
develop and customize Software for additional or change of
functions of the CDK Technology(TM) in relation to the System
as from time to time agreed with APL;
2.1.8 provide any other services hereinafter described and on the
terms and conditions hereinafter contained;
2.1.9 provide the Hardware, Software and Other Software for the
System;
2.1.10 upgrade and enhance the Software and adopt new data technology
to improve the System's performance in fulfillment of the
changes in the user requirements and market needs;
2.1.11 provide free usage to APL of those products, premises,
equipment and services set out in Clause 35.
3. Conduct of the Work
-------------------
3.1 CDKX shall carry out the Work with all due and reasonable diligence and
despatch.
3.2 CDKX shall keep APL informed on all matters related to the Work within
the knowledge of CDKX and shall answer all reasonable enquiries
received from APL.
3.3 The parties shall procure that their respective representatives will
meet at the interval specified in the Implementation Plan and after
live running of the System to discuss and minute the progress of the
System's development.
-5-
<PAGE>
3.4 CDKX shall, if reasonably practicable, attend any other meetings (by
telephone if necessary) convened by APL and shall advise and assist APL
on all matters relating to the duties and obligations it has assumed
under this Agreement at a time reasonably convenient to both parties.
4. Implementation Plan
-------------------
CDKX shall perform its obligations under this Agreement in accordance
with the Implementation Plan and shall complete each stage by the date
specified in the Implementation Plan.
5. Location Preparation
--------------------
5.1 CDKX shall supply APL in a reasonable time before delivery such
information and assistance as may be necessary to enable APL to plan to
prepare the Location for the installation of the Hardware to be
installed at APL's premises. In the event the Location is not prepared
by APL or suitable as promised by APL then APL shall procure or find an
alternate premises which is reasonably suitable for installation of the
Hardware.
5.2 APL shall, at its own expense and in a timely manner prepare the
Location and provide such reasonable equipment and reasonable
environmental and operational conditions for the Hardware which is to
be installed as per the diagram in Schedule 1, prior to installation.
APL shall provide CDKX with a list of equipment and details of the
Location to CDKX for CDKX's approval prior to delivery of the Hardware.
CDKX shall either approve the list of APL or inform APL of any
modifications or amendments thereto. Thereafter, APL shall carry out
such modifications or provide the modifications prior to delivery of
the Hardware. Shall CDKX fail to approve or make any amendments or
modifications to APL's list, the Location shall be deemed to have been
approved by CDKX and APL shall not be liable for any damages to the
Hardware as a result of the Location (if any) even if later discovered
[CDKX shall assist APL both by maintenance and replacement of any of
the defective or damaged Hardware (if any) as a result of the
Location].
6. Provision of Hardware
---------------------
6.1 CDKX shall provide as part of provision of the required service, all
Hardware and related facilities as specified in Schedule 1 for the
operation of the System.
6.2 CDKX shall be responsible to install at the Location all Hardware and
connect them to the existing hardware or equipment provided by APL (if
any) for operation and/or connection to the System. In order for CDKX
to install the Hardware to APL's existing equipment and hardware, APL
shall provide to CDKX a list of specifications of the Location and
APL's hardware and equipment (if any) prior to delivery of the Hardware
as per Clause 5.2.
-6-
<PAGE>
6.3 Upon delivery and installation of all the Hardware, APL shall have the
right to use and keep such Hardware throughout the continuing period of
eight (8) months from the Completion Date or such date when the System
is Ready for Use ("Ready for Use Date") (whichever is later) without
any costs or expenses to APL. At the expiry of the eight (8) month
period from the Completion Date or the Ready for Use Date (whichever is
later), APL shall have the option to either :-
(a) purchase all the Hardware or only certain of the units
comprising the Hardware as set out in Schedule 1 ("Units") .
Shall APL wish to exercise its option to purchase all the
Hardware or Units of the Hardware then APL shall serve notice
to CDKX not less than 30 days prior to the expiration of the
eight (8) months period of its intention to purchase such of
the Hardware (which notice shall include a list of the Hardware
it shall purchase); or
(b) lease either all the Hardware or only certain of the Units
comprising one (1) Robot Station, one (1) Database System, one
(1) Printing System and one (1) Web System as set out in
Schedule 1 ("One Set Unit") or one (1) Robot Station to CDKX.
Shall APL wish to exercise its option to lease all the Hardware
or One Set Unit of the Hardware then APL shall serve written
notice to CDKX and less than 30 days prior to the expiration of
the eight (8) months period of its intention to lease such of
the Hardware (which notice shall include a list of the Hardware
(which notice shall include a list of the Hardware it shall
lease); or
(c) purchase One (1) Robot Station and lease One Set Unit of the
Hardware. Shall APL wish to exercise its option to purchase and
lease the Hardware then APL shall serve written notice of not
less than 30 days prior to the expiration of the eight (8)
months period of its intention of purchase and lease the
Hardware; or
(d) return all of the Hardware to CDKX.
Shall APL exercise its option to purchase any Units or all the Hardware
as described in Clause 6.3(a) then APL shall pay to CDKX the relevant
amount for each Units of the Hardware being purchased as set out in
Schedule 1. Payment for the Hardware being purchased shall be payable
in six equal monthly installments per relevant Units from the date of
the expiration of the eight (8) month period described above.
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-7-
<PAGE>
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
Shall APL exercise its option under Clause 6.3 (c) then APL shall :-
(i) pay US$60,000.00 to CDKX for the one (1) Robot System, which
shall be payable in six equal monthly installments from the
date of the expiration of the eight (8) month period described
above; and
(ii) pay to CDKX US$5,000.00 per month commence from the expiry of
the initial eight (8) month period described above. The lease
term shall commence from the expiry date of the initial eight
month period described above and continue for a further eight
months period which period shall automatically renew for eight
month periods thereafter upon the same lease amount of
US$5,000.00 per month (as the case may be) until APL purchases
the either the relevant one (1) Robot Station and/or One Set
Unit of the Hardware being leased or serves at least 30 days
prior written notice of CDKX of its intention not to renew the
lease or unless earlier terminated under the provisions of this
Agreement. During the lease term, the rights of APL set out in
Clause 6.3 (a), (b) and (c) shall continue to subsist
Such of the Hardware not being purchased or leased shall be returned to
CDKX in good condition (fair wear and tear save and excepted) at APL's
own costs and expenses and shall be delivered within a reasonable time
and by such means of delivery and packaging as reasonably required to
ensure the safe and timely delivery of the returned Hardware. APL shall
ensure that proper and sufficient insurance in respect of the delivery
of the returned Hardware is taken out.
Shall APL wish to replace any of the Hardware after the expiry of eight
(8) months from the Date of Completion or Ready for Use Date (whichever
is later) then the replaced type of Hardware, delivery date thereof and
all costs to be incurred or related thereto shall be mutually agreed by
both parties failing which such costs shall be that stipulated by CDKX
provided the same are reasonable and of the same market value in the
U.S.A.
6.4 CDKX shall not remove, replace or repossess any of the Hardware during
any of the eight (8) month period mentioned in Clause 6.3 and unless
purchased by APL after the said eight (8) month period or any parts
thereof for any reason unless otherwise provided for in this Agreement.
-8-
<PAGE>
6.5 APL shall not remove or relocate any of the Hardware (save where and
when purchased by APL) once the Hardware has been installed by CDKX and
APL shall not allow any other party to operate such Hardware (unless
purchased by APL) without CDKX's prior written consent.
7. Delivery of Hardware
--------------------
On the Hardware Delivery Date, CDKX shall deliver the Hardware by any
appropriate method of transport selected by CDKX and APL shall use its
best endeavours to assist CDKX in the importation of the Hardware into
Hong Kong SAR including compliance with the Customs and Excise
Department's rules and regulation and any other regulation concerning
the importation of the Hardware. Shall there be any taxes or duties
levied by the Customs and Excise Department of the Government of the
Hong Kong Special Administrative Region ("HKSAR") or any charges of the
like levied by any government authority of HKSAR (save as to such
export taxes and duties which may be imposed and payable to any
relevant government authority of the United States of America) the said
taxes, duties and charges levied by the relevant government authority
of HKSAR shall be borne and paid by APL.
8. Installation of Hardware
------------------------
8.1 On the Hardware Installation Date, CDKX shall install the Hardware and
if applicable, install the Hardware to APL's hardware and equipment at
the Location.
8.2 If in the reasonable opinion of CDKX it is necessary to remove or
otherwise disconnect any of APL's equipment at the Location in order to
carry out the installation of the Hardware, then APL shall permit and
obtain all necessary consents for such removal or disconnection and
shall give CDKX all necessary assistance.
8.3 CDKX shall install the relevant Hardware at the Location without
unreasonably interrupting the existing computer system of APL (if any).
APL shall give to CDKX all necessary assistance to enable the
installation work to be carried out.
9. Delivery and Installation of the Software
-----------------------------------------
On the Software Delivery Date, CDKX shall deliver the CDK 2.0
Software(C) to APL and shall use reasonable endeavours to install the
same on the Hardware and the hardware provided by APL as soon as
possible after the Software Delivery Date.
CDKX shall also, in accordance with the Implementation Plan deliver the
Software and Other Software to APL and shall use reasonable endeavours
to install the same on the Hardware and hardware provided by APL by and
in accordance with such dates set out in the Implementation Plan.
-9-
<PAGE>
10. Installation Tests
------------------
10.1 APL reserves the right to conduct the Installation Tests on the
Hardware, Software and the Other Software provided CDKX has supervised
the same. Shall CDKX fail to supervise APL's Installation Tests due to
wilful or unreasonable absence or refusal to attend supervision then
APL may conduct Installation Tests on its own.
10.2 CDKX shall within a reasonable time submit the specification of such
Installation Tests including its connection to the Hardware provided by
APL for the reasonable approval of APL. If such specification does not
provide reasonably sufficient detail to test all the functions and
facilities of the Hardware, Other Software and the Software, CDKX shall
make any reasonable amendments to such specifications as is necessary
to conduct proper and reasonable testing upon request. APL shall make
ready such of its Hardware at the Location for connection to the System
and shall ensure that its Hardware is operating in full and proper
working order.
10.3 CDKX shall on the date specified in the Implementation Plan, submit the
Hardware, the Software and the Other Software to the Installation Tests
to prove to APL that the Hardware, Other Software and the Software and
every part thereof are operating in full and proper working order. CDKX
shall within a reasonable time supply to APL the results of the
Installation Tests and certify in writing whether the Hardware, Other
Software and the Software have passed the same.
10.4 If the Hardware, Other Software or the Software or any part thereof
substantially fail as a whole to pass the Installation Tests within [3
weeks] from the date of its first submission to the Installation Tests
such that the System is not Ready for Use, then :-
(a) CDKX shall use its best endeavours at its own costs and
expenses to fix the System such that the System is Ready for
Use within one month from the date of failure of the
Installation Tests. If the System is not Ready for Use within
the said one month period then Sub-Clause (b) or (c) shall
apply; and
(b) APL shall have the option to fix the System using its best
endeavours (either by themselves, their agents, contractors,
etc.) at CDKX's costs and expenses which shall be reimbursed to
APL on demand. If APL is unable to fix the System such that it
is Ready for Use within one month from the date when CDKX had
failed to fix the System (as described in Sub-Clause (a) above)
then APL shall have the right to forthwith terminate this
Agreement and upon termination CDKX shall (i) forthwith refund
to APL all sums paid to CDKX under this Agreement (if any); and
(ii) pay to APL such amount of damages which APL has suffered
as a result of the failure of the System up to a total maximum
of US$100,000.00 (save as for the events of indemnity pursuant
to Clause 29); or
(c) APL shall have the right to forthwith terminate this Agreement
and upon
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<PAGE>
termination CDKX shall forthwith refund to APL all sums paid to
CDKX under this Agreement (if any) together with interest
calculated at 8% per annum on such amounts paid by APL to CDKX
from the time such amounts were paid.
Provided always the failure of the Installation Tests are not the cause
or fault of CDKX, its agents, employees, contractors or authorized
persons. CDKX shall in no event or circumstances be liable for the
acts, faults or negligence of APL, its staff, employees, personnel or
agents.
10.5 CDKX may request for individual unit test to be performed in the
presence APL on the hardware provided by APL to prove the failure of
the Installation Tests are not caused by the Hardware, Other Software
or the Software. APL shall ensure that the hardware provided by APL
shall confirm to the specification given in Schedule 1 and be
responsible for the rectification of such hardware fault proved by CDKX
during the Installation Tests.
10.6 Within 1 week after the Ready for Use Date, APL shall if the System has
not in the meantime failed or broken down, certify in writing to CDKX
that the System is Ready for Use and satisfactorily installed upon
which certification CDKX shall not be liable for any failure of the
System's operation other than as expressly provided for in Software
Maintenance as set forth in Clause 21 below, and for training and
pass-through warranty services (if any) as set forth in Clause 20
below. At least one representative of CDKX will remain at the Location
of APL during such 1 week for training and transition purposes,
pursuant to Clause 17.3 below.
11. Delays
------
11.1 CDKX shall ensure that the System is Ready for Use on or before the
Completion Date.
11.2 If CDKX shall fail to provide the System Ready for Use by the
Completion Date then CDKX shall pay to APL as and by way of liquidated
damages for any loss or damages sustained by APL resulting from delay
during the period from the Completion Date to the date on which CDKX
provides the System Ready for Use the sum
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
Subject to the provisions of
Sub-Clause 11.3 below the payment of such sums shall be in full
satisfaction of CDKX's liability for such delay only. The payment of
liquidated damages shall not relieve CDKX from its obligation to
provide the System Ready for Use or from any other liability or
obligation under this Agreement. APL reserves the right to deduct from
any payment installments of the Price due to CDKX by APL such
liquidated damages.
11.3 If CDKX shall fail to provide the System Ready for Use within [60] days
after the Completion Date then notwithstanding anything else contained
in this Agreement APL
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<PAGE>
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
11.4 CDKX shall not be held liable for delay due to the fault of the
hardware provided by APL as described in Clause 10.5 above or the
facilities provided by APL.
12. Licence
-------
12.1 CDKX hereby grants to APL an exclusive licence to use the Software and
CDK Technology(TM) in accordance with the terms set out hereafter
throughout the duration of this Agreement.
12.2 CDKX shall grant an exclusive license to APL to use the Software and
CDK Technology(TM) for the business, operation, development, trade,
activities, marketing or promotion of APL's system and websites or
business or projects which is solely in the Chinese language including
but not limited to all forms of Chinese media, literature, audio-visual
content and all other materials and/or data that can be presented
electronically or digitally using primarily the Chinese language ("the
Chinese Content") within any place, community, territory, country, area
or venue.
12.2.1 APL'S Other Rights
12.2.1.1 Notwithstanding Clause 12.2, APL shall have the right
to use the Software and CDK Technology(TM) to provide
or allow others to provide contents in any language
other than Chinese ("Other Languages") when the
content is :-
(a) Not primarily or solely in Other Languages or
which use of Other Languages is ancillary to or
incidental to the main contents, compilation of
music, film, music artist's work or theme being
marketed, promoted or used by APL or other
parties authorized by APL; and
(b) Not considered to be in competition with CDKX's
business or activities or affect the business,
promotion, advertising or other uses of CDKX
which relate to Artistic Works or Films or
Musical Works containing or using Other Languages
(save as to Musical Works containing Other
Languages and which Other Languages being used is
incidental to or ancillary to the entire
compilation of songs or Musical Works using Other
Languages of a
-12-
<PAGE>
relevant music artist(s) or group which is
primarily in the Chinese language or of Chinese
Content).
12.2.1.2 APL shall have the right (if necessary) to use the
Software and CDK Technology(TM) to provide or allow
others to provide content in Other Languages whereby
use of Other Languages is part of an entire business
package, agreement, arrangement or deal for the
marketing, promotion or sale of a product,
merchandise or film in various different languages
and countries, venues, territories, places or areas
("Business Package") and where use of Other Languages
is only ancillary to or incidental to the entire
Business Package and where use of Other Languages is
not the primary part or objective of the entire
Business Package.
12.2.1.3 Where APL wishes to use the Software and CDK
Technology(TM)to provide or wish to allow others to
provide content in Other Languages or any content
which is not primarily of Chinese Content and where
APL is not authorized to use the Software and CDK
Technology(TM)as set out in the terms of this License
then APL may in writing request the consent of CDKX
to use the Software and CDK Technology(TM)to provide
or allow others to provide content in Other Languages
or any content which is not primarily of Chinese
Content. Should CDKX, in writing and at its sole
discretion, consent to such use or arrangement then
such use or arrangement will not be deemed as a
breach of this Agreement or License provided always
that consent shall only apply on a case by case basis
for each specific matter or request.
12.2.2 CDKX'S Reserved Rights
12.2.2.1 Save and provided always, CDKX may (if necessary) use
the Software and CDK Technology(TM) to provide or
allow others to provide Chinese Content which are:-
(a) Not primarily or solely in the Chinese language
or which use of Chinese Content is ancillary to
or incidental to the main contents compilation of
music, film, music, artist's work or theme being
marketed, promoted or used by CDKX or other
parties authorized by CDKX; and
(b) Not considered to be in competition with APL's
business or activities or affect the business,
promotion, advertising or other uses of APL which
relate to Artistic Works or Films or Musical
Works containing or using Chinese Contents (save
as to Artistic Works or Films containing
-13-
<PAGE>
Chinese Content and which Chinese Content is
incidental to or ancillary to the Other Languages
being spoken or sung, the Artistic Work being
presented or the actions being performed.
12.2.2.2 CDKX shall have the right (if necessary) to use the
Software and CDK Technology(TM) to provide or allow
others to provide Chinese Content whereby use of
Chinese Content is part of a Business Package and
where use of Chinese Content is only ancillary to or
incidental to the entire Business Package and where
use of Chinese Content is not the primary part or
objective of the entire Business Package.
Shall Chinese Content be used in any Business Package
then it is hereby agreed that CDKX shall pay to APL a
fee equivalent to 2% of the gross revenue of CDKX
which relate to Chinese Content (i.e. derived form
and attributed to the Chinese Content only and not
the entire Business Package as a whole) and which
said sum shall be paid bi-annually at the same time
as APL is required to pay a license fee as set out in
Clause 17.2 and based on the same terms of estimation
and reconciliation of accounts as APL and as set out
in Clause 17.2 of this Agreement.
12.2.2.3 Where CDKX wish to use the Software and CDK
Technology(TM)to provide or wish to allow others to
provide Chinese Content or any content which is not
primarily Other Languages and where CDKX is not
authorized to use the Software and CDK
Technology(TM)as set out in the terms of this License
then CDKX may in writing request the consent of APL
to use the Software and CDK Technology(TM) to provide
or allow others to provide Chinese Content or any
content which is not primarily in Other Languages.
Should APL, in writing and in its sole discretion,
consent to such use or arrangement then such use or
arrangement will not be deemed as a breach of this
Agreement or License provided always that consent
shall only apply on a case by case basis for each
specific matter or request.
In considering whether a party's use of the Software
or CDK Technology(TM) to provide or authorization for
another party to provide Chinese Content or content
in Other Languages (as the case may be) is in
competition with such party's business, the type of
Chinese Contents or content in Other Languages (as
the case may be), the target recipients of the
Chinese Content or content in Other Languages (as the
case may be), the likeness or similarity in business,
the intention of such relevant party, the
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<PAGE>
effect or impact on business of the relevant party
shall among other things be taken into account and
which factors must substantially in part or whole
affect such party's business or operations.
When assessing whether or not Chinese Content or
content in Other Languages (as the case may be) is
ancillary to or incidental to the main contents being
promoted, marketed or used by either party and or
such other persons authorized, the overall contents,
the amount of Chinese Content or content in Other
Languages (as the case may be) in comparison to the
amount of the Chinese Content or content in Other
Languages (as the case may be) being used, whether or
not the Chinese Content or content in Other Languages
(as the case may be) is the primary feature, whether
or not the Chinese Content or content in Other
Languages (as the case mat be ) is being used to
target recipients interested in the contents being
used promoted or marketed due primarily to or for
such Chinese Content or content in Other Languages
(as the case may be) shall among other things be
taken into account.
In considering whether or not Chinese Content or
content in Other Languages (as the case may be) is
ancillary to or incidental to the entire Business
Package and not the primary part or objective of the
Business Package, the number of different countries
(areas, venues, territories and places included), the
number of different languages, whether the Business
Package is of one agreement or several shall among
other things be taken into account.
By way of illustration only and not by way of
limitation, if for example CDKX or such other party
authorized by CDKX market, promote or use a Compact
Disc which contents contain Chinese art work of say a
picture or photograph that happens to have Chinese
language in the background or display in a small
portion of such picture or photograph then this would
not be deemed as primarily in the Chinese language
but rather incidental to the picture or photograph.
If, however, CDKX or such other party authorized by
CDKX market, promote or use the Chinese
language/Content which for example relates to music
or movies in the Chinese language and the English
language is used as subtitles or transliterations in
conjunction with the Chinese language being used then
this would be deemed as primary use of the Chinese
language and not incidental thereto.
By way of illustration only and not by way of
limitation, if for
-15-
<PAGE>
example, in relation to a Business Package CDKX enter
into agreement with a third party to market promote
or sell a "Pokemon" CD and which agreement is for the
distribution of Pokemon multimedia in US, Brazil,
France, England and Hong Kong in different languages
of say French, English, Portugese, and Chinese then
CDKX will not be in breach of this agreement but
shall be authorized to use the Software and CDK
Technology(TM) to provide or authorize others to
provide such Pokemon product in the Chinese language
provided CDKX pay a fee equivalent to
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
12.2.3 Events of Default in lieu of License
Shall either party blatantly, willfully or unreasonably intend
to use or allow others to use the Software which are deemed in
breach of clause 12.2 (save where written consent has been
given per Clauses 12.2.1.3 and 12.2.2.3) or fail to cease and
desist, prevent or remedy its acts or others acts deemed as
breach (save where written consent has been given per Clauses
12.2.1.3 and 12.2.2.3) then the non-breaching party be entitled
to terminate this Agreement forthwith on giving written notice
to defaulting party and to recover from the defaulting party
the amount of all damages and loss suffered by the
non-breaching party resulting from such breach or default. Upon
termination of this Agreement the defaulting party shall pay
the non-breaching party (without prejudice to any other rights)
such amount of damages and losses as the non-defaulting party
has incurred or suffered as a result of termination and the
breach.
APL shall not use any other technology or software which is
related to or similar to the CDK Technology(TM) or the Software
throughout the Licence Period (save as otherwise agreed in
writing by CDKX).
12.3 APL shall not transfer or distribute (whether licence, loan, rental,
sale or otherwise) all or any part of the Software or the CDK
Technology(TM) to any other person or party without CDKX's express
written consent in each case. APL shall however have the right to and
be permitted to non-exclusively licence without the consent of CDKX the
Software or any part thereof or the CDK Technology(TM) to any other
party if such license is in relation to Chinese Contents and consistent
with the License granted by CDKX to APL and in relation to :-
(a) such business or operation whereby APL is a part of such other
person's business, operation or activity and is in control,
acting jointly, has an interest, is a part of such other
party's business, activity or operation or has done so in
-16-
<PAGE>
the capacity of a business partner, a sponsor or a participant
and such business, activity or operation with such other person
is in connection with or incidental to the operation of APL's
business; or
(b) its holding company, subsidiary, associates, affiliates or
members of its group of companies ("APL's Group of Companies").
Provided always such other party shall not be entitled to or have the
right to sub-licence or licence the Software and/or CDK Technology(TM)
to any other person or party. APL shall promptly notify CDKX of each
such sub-licence.
13. Duration of the Licence
-----------------------
The Licence shall commence on the Completion Date or on Ready for Use
Date (whichever is later) and continue until the termination of this
Agreement, at which time the License will terminate. This Licence shall
not be terminated by either party unless in accordance with the terms
of this Agreement.
14. Documentation
-------------
On the date specified in the Implementation Plan, CDKX shall provide to
APL (at no additional costs of the Price) such copies of the
Documentation in the English language and text containing sufficient
information as mutually agreed by both parties for the proper use and
maintenance of the System as specified in Schedule 5. All
Documentation, and any summaries, analyses and/or syntheses, and any
and all copies thereof, shall be returned to CDKX at the termination of
this Agreement.
15. Warranties
----------
15.1 CDKX warrants that Software will be free from defects in design,
material, workmanship and installation during the Licence Period. CDKX
shall maintain the Software in full working order at no additional cost
of the Price to APL.
15.2 CDKX warrants that the Software will be of merchantable quality or will
be fit for the purpose for which it is intended.
15.3 CDKX warrants that the Software will after acceptance by APL conform
fully to its specification and purpose as set forth in this Agreement
and Schedules hereto, and that the Documentation will provide adequate
instructions to enable APL to make proper use of such facilities and
functions.
15.4 CDKX further warrants that the Software will conform fully to the
standards, reliability and performance as set forth in this Agreement
and the Schedules hereto.
15.5 If CDKX receives written notice from APL of any breach of the said
warranties then
-17-
<PAGE>
CDKX shall, without prejudice to any other rights or remedies APL may
have, at its own costs and expenses and as soon as possible after
receiving such notice, repair or, at its option, replace the Software
or such parts of it as are defective or otherwise remedy such defect.
16. Other Matters giving cause for Damages and/or Termination
---------------------------------------------------------
16.1 In the event that CDKX's parent or holding company CDKNet.Com, Inc., a
company incorporated in the state of Delaware, the United States of
America and whose registered office is situate at 595 Stewart Avenue,
Suite 710, Garden City, New York, New York 11530 ("CDKX Parent") :-
(a) fail to or not have the Shares (i) registered with the SEC
pursuant to Section 12(g) of the Exchange Act and (ii) eligible
for trading on the National Association of Securities Dealers
Over-the-Counter Bulletin Board ("OTCBB") or any nationally
recognized stock exchange or electronic trading system (a
"National Exchange") on or before 28 February 2000 for whatever
reasons; or
(b) (in respect of the Shares) fail to maintain a listed company
status or otherwise become ineligible for trading on the OTCBB
or on any other National Exchange on or prior to 1 July 2000,
save and except in the following circumstances :-
(i) the Shares cease to be so listed due to CDK ceasing to
have a class of equity securities registered under the
Exchange Act 1934 ; and
(ii) the termination of such listing was as a result of a
voluntary act or decision of CDK and its shareholders and
whereby such voluntary act or decision leads to a general
offer being made to all shareholders of CDK for all the
Shares being held by such shareholders; or
(c) on or before 1 July 2000 :-
(i) be subject to any proceedings relating to bankruptcy,
winding up or insolvency in any courts of competent
jurisdiction; or
(ii) shall cease, or shall threaten to cease, to carry on its
business; or
(iii) APL shall terminate the Subscription Agreement (in
accordance with the terms therein) as mentioned in Clause
16.2 below.
(Sub-Clauses 16.1 (a), (b) and (c) are collectively hereinafter
called "Events of Default")
-18-
<PAGE>
APL shall have the following rights and option to EITHER :-
(A) terminate this Agreement forthwith on giving written notice to
CDKX and to recover from CDKX the amount of all damages and
loss suffered by APL as a result of the Events of Default by
CDKX. Upon such termination (if applicable) shall also be
entitled to by notice in writing to CDKX Parent within a period
of [twenty-eight (28)] days upon APL becoming aware of the
happening of any of such events (whichever is later) to
terminate the Subscription Agreement hereinafter mentioned in
Clause 16.2 below between APL and the CDKX Parent;
OR
(B) elect to treat this Agreement as continuing and continue to
retain and use the Hardware, the Other Software and Software
and CDK Technology(TM) of the System so long as this Agreement
is in existence or is continued. Shall APL elect to treat this
Agreement as continuing APL shall (if applicable) also be
entitled to (at its discretion) to by notice in writing to CDKX
Parent within a period of [twenty-eight (28)] days upon APL
becoming aware of the happening of any of such events
(whichever is later) to terminate the Subscription Agreement
hereinafter mentioned in Clause 16.2 below between APL and the
CDKX Parent.
16.2 [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
(a) [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
(b) [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
(c) [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
(d) [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
(e) [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
-19-
<PAGE>
(f) [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
(g) [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
In the event that APL shall either (i) fail to make any of the payments
described in this Clause 16.2 above on their respective due dates or
(ii) CDKX Parent shall terminate the Subscription Agreement (in
accordance with the terms therein) on or before 1 July 2000 or (iii)
CDKX shall terminate this Agreement in accordance with the terms of
this Agreement , then (without prejudice to any other rights and
remedies of CDKX) :-
(a) CDKX shall have the right to forthwith terminate this
Agreement; and/or
(b) (if applicable) CDKX shall be entitled by notice in writing to
APL within a period of [twenty-eight (28)] days upon CDKX
becoming aware of the happening of any of such events
(whichever is later) (for and on behalf of the CDKX Parent) to
terminate the said Subscription Agreement between the CDKX
Parent and APL.
17. Terms of Payment
----------------
17.1 The costs and expenses in relation to the provision of the Maintenance
Services, supply of and installation of the Other Software, Software
and the Hardware, Training, Documentation, Upgrade and Enhancement and
other provisions within the scope of this Agreement (save as to the
Licence Fee) shall be :-
(a)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(b.1) APL shall issue and allot to CDKX the Consideration Shares and
credited as fully paid and on the terms that they rank pari
passu in all respects with the other shares of APL in issue as
at the date of allotment.
Share Completion shall take place on the Completion Date or on
the Ready for Use Date (whichever is later). Shall this
Agreement be terminated due to the System not being Ready for
Use as per Clause 10 then no Consideration Shares shall be
allotted and issued by APL to CDKX mentioned herein this
Clause.
-20-
<PAGE>
At the Share Completion APL shall procure that :-
(i) APL shall allot and issue credited as fully paid the
Consideration Shares to CDKX in the register of member of
APL as registered holder of the Consideration Shares; and
(ii) APL shall issue and deliver to CDKX appropriate share
certificates for the Consideration Shares duly executed
by APL.
(b.2) Subject to Clause 17.1 (b.3), APL hereby agrees and undertakes
with CDKX that it will not for a period of one (1) year after
the Share Completion or before the shares in any members of
APL's Group of Companies shall become listed on any recognized
stock exchange (whichever is earlier) ("the Restricted
Period") :-
(i) allot and issue any shares in APL; or
(ii) issue securities or any instrument convertible into
shares or debentures, or share warrants or options in
respect of shares in APL;
at a price less than the Consideration Share Price to any
other persons without the prior consent in writing of CDKX
Provided that the restrictions herein contained shall not
apply to :-
(i) the issue and allotment of approximately [10,000] common
shares of par value US$0.01 of APL by APL to Fairyoung
Holdings Limited or any of its subsidiaries and which
number of shares were contemplated in calculating the
percentage of Consideration Shares to CDKX; or
(ii) the issue and allotment of shares in any party hereto
pursuant to the exercise of any rights under the share
option plan in force from time to time for the benefits
of the executives and employees of APL.
(b.3) Notwithstanding the restrictions contained in Clause 17.1
(b.2), APL shall be entitled to do any of the matters
restricted pursuant to Clause 17.1 (b.2) without the prior
consent in writing of CDKX during the Restricted Period
Provided that it shall simultaneously upon the happening of
such event issue and allot such number of additional shares in
itself (excluding fraction of a share if any) to CDKX as shall
be necessary to ensure that no dilution shall take place in
relation to the share ownership and in the value of its shares
held by CDKX contemplated by this Agreement by reason of its
doing such matters but not otherwise.
17.2 The consideration and fees in respect of the Licence payable by APL to
CDKX in respect of the Software shall be a sum equivalent to 2% of the
gross revenue of APL
-21-
<PAGE>
and APL's Group of Companies (whether or not such revenue is directly
or indirectly related to the CDK Technology(TM)) and which said sum
shall be paid bi-annually within 15 days after the end of each 6
calendar months beginning with the 6 calendar months ending 31 December
1999. Such bi-annual payments will be based on the estimated gross
revenue, which estimate will be made by APL in good faith and which
shall be reconciled annually within 45 days of the end of each of APL's
relevant financial or accounting year which is [31 March] by a
reputable auditor or accounting firms. Such reconciliation shall be in
writing and delivered to CDKX. In the event the estimated payments are
less or more than the reconciled financial statements/accounts of APL
then the relevant party shall pay the difference between the estimated
payments made and the reconciled amount that was due, which payment
along together with interest calculated 8% per annum of any under
payment (if any) (i.e. 8% per annum on the aggregate difference between
the estimated payments made and the reconciled amount due and which
have been under paid to CDKX). The amount of the difference shall be
delivered with the reconciliation or within 7 days thereafter.
17.3 It is expressly agreed that (save as provided in this Clause 17.3)
where any installation, training or maintenance is to be provided by
CDKX within this Agreement APL shall be responsible for CDKX's
accommodation and food costs and expenses incurred (but not otherwise)
due to CDKX's staff, employee, agent or contractor travel to the
Location during such period of installations, maintenance or training.
APL shall arrange for and provide reasonably acceptable accommodations
and will promptly reimburse CDKX for such food and accommodation costs
and expenses incurred by CDKX but not otherwise and provided such
accommodation, food and costs are reasonable and reasonably and
normally expected of such person in such capacity to conduct the
Training, Installation and Maintenance Services and in any event the
total cost or expense per installation, training or maintenance (as the
case may be) do not exceed [US$3,500.00] per person, per week and such
persons do not exceed two per given period or time of training,
maintenance or installation (as the case may be).
18. Training
--------
18.1 Upon request of APL, CDKX shall provide the staff of APL with the
training as specified in the Training Plan set out in Schedule 4, if
any, provided therein.
18.2 Any additional training required by APL shall be provided by the CDKX
if requested by APL. Such additional training and support (including
that of Section 18.3) shall be by way of telecommunication or other
suitable media of communication with APL and not at the Location of APL
and at a time reasonably convenient to both parties.
18.3 Upon the request of APL, CDKX agrees to provide all necessary training,
the Other Software and Software, and technical support in order to
assist APL to support its own websites, hardware and software
applications which are related to CDK enabled products and websites.
CDKX hereby agrees to make available within a reasonable time after
request by APL such training staff, hardware and software from time to
time.
-22-
<PAGE>
19. Maintenance Services
--------------------
CDKX shall, during the continuance of this Agreement, provide training
(if possible and within CDKX's ability to) on an ongoing basis to APL
to assist APL to (i) conduct such maintenance services and (ii) to
procure such other relevant parties to carry out such maintenance
services (as applicable) as necessary to maintain the System (except
the Hardware) in its full and proper working order and (iii) to remedy
any defaults, breakdown, or System (except the Hardware) failure within
a reasonable time, all as set forth in Clause 21 below.
20. Maintenance of the Hardware
---------------------------
20.1 Within the period of eight (8) months specified in Clause 6.3 of this
Agreement and provided APL have not purchased or returned the relevant
One Set Unit or Hardware, CDKX shall provide the following :-
Where any of the Hardware is under warranty, guarantee or service
agreement by a third party to CDKX or CDKX is able to benefit in any
way or manner from such Hardware warranty, guarantee or service
agreement (as the case may be) then CDKX shall use reasonable
commercial efforts to procure the relevant party to perform such
relevant preventative maintenance or remedial maintenance which such
party is obligated to perform in respect of the Hardware (at no
additional costs, expenses or charges to APL), provided however that
CDKX shall not be obligated to incur any costs in connection therewith.
Where the Hardware is under no such warranty, guarantee or service
agreement as above or APL have in the meantime returned or purchased
the One Set Unit or Hardware then CDKX shall provide training (if
possible and can be done by CDKX) to APL within the eight (8) months
period described in Clause 6.3 of this Agreement as to how to conduct
and perform remedial or preventative maintenance of the Hardware at no
unreasonable costs, expenses or charges to APL. Training shall be given
by CDKX and at a such appropriate times and reasonable manner and at
the request of APL. The training shall be carried out at the Location
during the period of installation of the Hardware and afterwards if
possible or through some appropriate form or media of communication
with APL ("Training").
20.2 Where applicable APL shall make the Hardware at the Location accessible
to such person CDKX is able and under obligation to procure for
maintenance at regular intervals or at scheduled times to be mutually
agreed between APL and CDKX.
20.3 Unless otherwise provided for in any of the Hardware's warranty,
guarantee or service agreement (if any) APL shall at its own expense
provide all necessary replacement parts to effect all maintenance
services including the consumable parts for the Hardware.
-23-
<PAGE>
20.4 In the event that CDKX or such relevant person obligated under
warranty, guarantee or service agreement of the relevant Hardware
removes any part or parts of the Hardware away from the Location for
overhaul or repair, unless otherwise agreed by both parties APL shall
bear all the costs, including but not limited to packing, carriage and
insurance incurred in the dismantling, removal, overhaul, repair,
return and re-installation of the said part or parts.
20.5 Parts removed shall become the property of CDKX provided always that
APL shall be entitled to retain any part which is to be replaced if
CDKX is unable to erase all the data stored in any form in such parts
of the Hardware. CDKX shall, before removal of any such part, certify
to APL in writing that all information stored in such part has been
completely erased and shall be liable for any loss or damage caused by
the possession or use of any information remaining in any part of the
Hardware so removed.
20.6 Any of the Hardware not under a warranty, guarantee or service
agreement and which do not cover repair, parts, overhaul, etc. (as the
case may be) and which require repair, replacement, overhaul, etc. the
cost of such repair, part, replacement, etc. shall be borne by APL.
21. Maintenance of the Software
---------------------------
21.1 CDKX shall provide the following maintenance services in respect of the
Software on the terms and conditions as set out hereunder.
21.2 Error Correction
21.2.1 Upon receipt of notification from APL that there is any defect
or error in the Software that affect the operation of the
System, CDKX shall correct such defect or error as soon as
reasonably practicable at its own expenses.
21.2.2 Forthwith upon such correction being completed CDKX shall
deliver to APL appropriate amendments to the Documentation
specifying the nature of the correction and providing
instructions for the proper use of the corrected version of the
Software.
21.3 Upgrades and Enhancements
21.3.1 CDKX shall deliver to APL any improved version of the Software
when and as they become available.
21.3.2 In reasonable time prior to the delivery of a new release CDKX
shall make available to APL all amendments to the Software's
specification which shall be necessary to describe the
facilities and functions of the new release.
-24-
<PAGE>
21.3.3 Notwithstanding anything else contained herein, APL shall not
be obliged to accept or use the new release if its use would
result in any of the facilities and functions of the System
being diminished or curtailed or if its use would unduly
interrupt the use of the Software in which event CDKX shall
continue to perform its obligations in respect of the Software.
CDKX's obligations under this Agreement with regard to the
Software shall also apply to any such new version or
replacement thereof.
21.3.4 It is an essential term of this Agreement that CDKX shall (and
CDKX hereby agrees to) make modifications, enhancements
upgrades or further development from time to time of and on the
Software at the request in writing by APL (which request must
not be unreasonable and be within the scope of current and
available technology and software on the market and relate to
CDKX's development plan). CDKX undertakes to make complete,
available and install the same on the Hardware such upgrade,
modification, enhancement and development to the Software upon
such reasonable request by APL within a reasonable time and as
soon as possible.
21.4 CDKX shall provide and perform the Software support services in a
reasonable and timely manner.
21.5 CDKX undertakes to perform its obligations with respect to the
maintenance of the Software or any new version or replacement thereof
in accordance with the terms of this Agreement for as long as its
obligations under this Agreement to maintain the Software remain in
existence.
22. Title to and Risk in the System
-------------------------------
22.1 All copyright or other proprietary rights in the Software and Other
Software and material and Hardware hired from CDKX pursuant to the
provisions of this Agreement (except those otherwise specified and
except for the relevant Hardware purchased by APL) shall vest in and
remain the property of CDKX notwithstanding that APL has acquired the
right of use of them by this Agreement. All software and hardware
purchased and owned by APL and Data (save such Data that was collected
on or through the "Com Module" or messaging system of CDKX) collected
or used, from, in or by the System pursuant to the provisions of this
Agreement shall vest in and remain the property of the APL.
22.2 APL shall be liable for the Hardware which are hired by APL from CDKX,
except to the extent of fair wear and tear in the ordinary course of
its use.
22.3 APL shall be liable for damages to the Hardware which are hired by APL
from CDKX save for damages as a result of the Hardware itself which was
defective or the Hardware's design, workmanship, material,
installation, configuration or manufacture
-25-
<PAGE>
or caused by or as a result of CDKX's act (whether intentionally or not
or whether by CDKX's agent, employee, authorized person or contractor).
23. Proprietary Rights
------------------
The copyright and other intellectual property rights of whatever nature
in the Software (save as provided in this Agreement) are and shall
remain the property of the CDKX and CDKX reserves the right to grant a
licence to use the Software (save as provided in Clause 12 of this
Agreement) to any other party or parties.
24. Copying
-------
APL may make so many copies of the Software as are reasonably necessary
for the operational, security and use of the System and for its
reasonable course of business, all of which copies shall be returned to
CDKX upon the termination of the Licence. APL will notify CDKX in
writing of each such copy.
25. Confidentiality
---------------
25.1 APL's Confidential Information
Each party shall treat as confidential all information (hereinafter
referred to as ("the Information")) supplied by one party to the other
under this Agreement which is designated as confidential by such party
or which is by its nature clearly confidential (including without
limitation the Documentation) provided that this Clause shall not
extend to any information which was rightfully in the possession of the
relevant party prior to the commencement of the negotiations leading to
this Agreement or which is already public knowledge or becomes so at a
future date (otherwise than as a result of a breach of this Clause).
Neither party shall divulge any confidential information to any person
except to its own employees and then only to those employees who need
to know the same. Both parties shall ensure that its employees are
aware of and comply with the provisions of this Clause. The foregoing
obligations shall survive any termination of the Licence or this
Agreement.
25.2 Confidentiality of Software :-
25.2.1 APL undertakes to treat as confidential (and not use or allow
any third party to use except as set forth in this Agreement)
all information (including those related to the CDK
Technology(TM) and the Software) contained or embodied in the
Software (hereinafter collectively referred to as ("the
Information") provided that this Clause shall not extend to any
information which was rightfully in the possession of APL prior
to the commencement of the negotiations leading to this
Agreement or which is already public knowledge or becomes so at
a future date (otherwise than as a result of a breach of this
Clause).
-26-
<PAGE>
25.2.2 Neither party shall without the prior written consent of the
other party divulge any part of the Information to any person
except :-
(a) the person is the relevant parties own employee and then
only to those employees who need to know the same;
(b) any government authorities and any other persons or
bodies having a right, duty or obligation to know the
business of the relevant party and then only in pursuant
of such right, duty or obligation; and
(c) any person for the time being appointed by the relevant
party to maintain any Hardware on which the Software is
for the time being used (in accordance with the terms of
the Licence) and then only to the extent necessary to
enable such person to properly maintain such Hardware.
25.2.3 Both parties undertake to ensure that the persons and bodies
mentioned in Sub-Clauses 25.2.2(a), (b) and (c) are made aware
prior to the disclosure of any part of the Information that the
same is confidential and that they owe a duty of confidence to
each other.
25.2.4 The foregoing obligations as to confidentiality shall remain in
full force and effect notwithstanding any termination of the
Licence or this Agreement.
26. Use of Data
-----------
26.1 The Data (save as for the Data collected through the Com Module or
messaging system of CDKX) shall remain the property of APL and CDKX
shall not distribute the Data to any person or party without the prior
written consent of APL.
26.2 CDKX shall not by any means distribute or alter the Data replicated
from APL for any purpose, unless it is authorized by APL to do so for
any reason whatsoever.
26.3 The Data must be returned (if in CDKX's possession) to APL when this
Agreement is terminated.
27. Independent Contractor
----------------------
27.1 For the purpose of the Work to be performed under the Agreement, CDKX
is an independent contractor. CDKX is not an agent, partner or employee
of APL and shall not hold out as such and it has no authority to bind
APL to any other obligations.
27.2 CDKX shall have complete control of the Work and it shall efficiently
direct and supervise the Work to the full extent of its ability and
with its full attention.
-27-
<PAGE>
28. Assignment
----------
Neither party shall assign or otherwise transfer the Agreement or any
of its rights and obligations hereunder whether in whole or in part
without the prior written consent of the other. Provided however either
party may sell all or substantially all its assets or business
(including this Agreement) without consent in which event the other
party (i.e. non disposing party) shall have the right to terminate this
Agreement forthwith without any damages, claims, legal proceedings, or
action being taken or claimed by either party against each other.
29. Indemnities
-----------
29.1 CDKX warrants and undertakes :-
29.1.1 that it has good and sufficient title in the Hardware and
Software and in every part thereof to enable it to supply the
System and the Maintenance Services to APL as set out in this
Agreement; and
29.1.2 that where CDKX supplies a third party software to APL, it has
or shall have, prior to the delivery of the Software and Other
Software, a valid and continuing licence under which it is
entitled to sub-license without further payment and
intellectual property rights (including without limitation any
patent, copyright, registered design or trademark) to APL under
this Agreement; and
29.1.3 that the Other Software were properly and validly licensed to
CDKX and that CDKX is not in breach of any licence terms of
such Other Software.
29.2 CDKX shall indemnify APL and keep APL fully and effectively indemnified
against all costs, claims, demands, expenses and liabilities of
whatsoever nature arising out of or in connection with any claim that
the use or possession (in compliance with this Agreement) of the System
or any part thereof infringes the intellectual property rights
(including without limitation any patent, copyright, registered design
or trademark) of any third party, subject to the following conditions
:-
29.2.1 APL shall promptly notify CDKX in writing of any allegations of
infringement of which it has been notified and will not make
any admissions without CDKX's prior written consent provided
such consent is not unreasonably withheld so as to cause any
damages, liability, prosecution, claims, etc. by any person,
company, business, firms, entity, authority, government or body
whatsoever in addition to or in conjunction with any such
allegations;
29.2.2 APL, at the request and expense of CDKX, shall allow CDKX to
conduct
-28-
<PAGE>
and/or settle all negotiations and litigation resulting from
any such claim provided APL are informed as to the terms of
settlement and/or litigation merits prior to any such
settlement negotiations and/or litigation action by CDKX and
provided also that APL is kept informed of all matters
throughout the duration and course of settlement and/or
litigation. Shall the terms of settlement and/or litigation
proceedings as proposed by CDKX affect or possibly affect APL
or APL's Group of Companies and/or its business in any way
either in conjunction with or in addition to any
allegations/claims/ demands/proceedings etc. against APL then
APL shall have the right to revoke its consent (if given) and
to conduct such litigation/settlement/ negotiations on its own
without consent from CDKX; and
29.2.3 APL shall, at the request of CDKX, afford all reasonable
assistance with such negotiations or litigation, and shall be
reimbursed by CDKX for any expenses incurred in so doing.
29.3 If APL's use or possession of the Hardware, Other Software or Software
or any part thereof is held by a court to constitute an infringement
then the CDKX shall, without prejudice to any other rights or remedies
APL may have, promptly and at its own expense :-
29.3.1 procure (so far as is commercially viable and possible within
CDKX's ability) for APL the right to continue using and
possessing the Hardware, Other Software and Software in
relation to the System; or
29.3.2 (so far as commercially viable and possible within CDKX's
ability) modify or replace the Hardware or Software or Other
Software (without detracting from its overall performance) so
as to avoid the infringement (in which event CDKX shall
compensate APL for the amount of any loss and/or damage
sustained or incurred by APL during such modification or
replacement); or
29.3.3 if neither Sub-Clause 29.3.1 nor 29.3.2 can be accomplished,
remove the infringing Hardware, Other Software and/or Software
from APL at CDKX's own costs and expenses (and without
prejudice to any rights or remedies of APL against CDKX).
29.4 APL warrants and undertakes :-
29.4.1 that it has good and sufficient title in any software,
hardware, material, content or data and in every part thereof
which is being used by APL in respect of the System and not
derived from CDKX;
29.4.2 where APL installs, stores, or uses a third party software,
data, content or material, it has or shall have prior to such
installation, storage, or usage a valid and continuing licence
under which it is entitled to install, use or store
-29-
<PAGE>
and has all such intellectual property rights (including
without limitation patent, copyright, registered, design or
trademark).
29.5 Any and such indemnities, rights, or actions which APL have under
Clauses 29.2 and 29.3 in respect of an undertaking or breach of
warranty by CDKX in Clause 29.1 then the same such indemnities, rights
and actions shall be afforded and given to CDKX by APL in respect of
any such undertaking or breach of warranty by APL in Clause 29.4 and
which may affect CDKX.
30. Publicity
---------
Both parties shall submit to each other all advertising or other
publicity material relating to this Agreement or any hardware or
software supplied or other work done in connection with this Agreement
wherein the name of either of the respective parties is mentioned or
language used from which a connection with each other can reasonably be
inferred or implied. Both parties shall have the right to publish or
use any such reasonable advertising or other reasonable publicity
material without the prior written consent either party provided such
advertising or publicity material does not and is not capable of
damaging either parties reputation or business.
31. Sub-contracts
-------------
31.1 CDKX may, without the prior written consent of APL, enter into any
sub-contract with any person for the performance of any part of this
Agreement provided that this provision shall not apply to the purchase
by CDKX of equipment and materials.
31.2 Neither parties shall be relieved from any of its obligations hereunder
by entering into any sub-contract for the performance of any part of
this Agreement.
32. Termination of the Agreement
----------------------------
This Agreement may be terminated under the following circumstances :-
32.1 This Agreement may be terminated forthwith by either on giving notice
in writing to the other party if the other party, being a company,
shall have a receiver or liquidator appointed or shall pass a
resolution for winding-up (otherwise than for the purpose of
amalgamation or reconstruction) or a court shall make an order to that
effect or being a partnership shall be dissolved or being an individual
shall commit any act of bankruptcy or shall die or either party
(whether a company or not) shall enter into any composition or
arrangement with its creditors or shall become insolvent.
32.2 Any termination of this Agreement under Sub-Clause 32.1 shall discharge
the parties from any liability for further performance of this
Agreement and shall entitle such notifying party to recover from the
other party the amount of any loss or damage sustained or incurred by
the notifying part as a consequence of such termination.
-30-
<PAGE>
32.3 Subject to any other express provisions of this Agreement, either party
shall have the right to terminate this Agreement if the other party
commits any fundamental breach of any material term of this Agreement
and (in the case of a breach capable of being remedied) shall have
failed, within 30 days (save in the circumstances where APL is under an
obligation to pay money to CDKX then such period shall be within 7
days) after the receipt of a request in writing from the innocent party
so to do, to remedy the breach, such request to contain a warning of
the innocent party's intention to terminate.
33. Effect of Termination
---------------------
33.1 Any termination of this Agreement (however occasioned) shall not affect
any accrued rights or liabilities of either party nor shall it affect
the coming into force or the continuance in force of any provision
hereof which is expressly or by implication intended to come into or
continue in force on or after such termination. Any termination of this
Agreement (however occasioned) shall terminate the Licence.
33.2 Upon termination of this Agreement, (howsoever occasioned) CDKX shall
forthwith deliver up to APL all copies of any information and Data
supplied to CDKX by APL for the purposes of this Agreement and shall
certify to the APL that no copies of such information or data have been
retained. The Hardware not purchased and paid for by APL shall be
returned to CDKX (fair wear and tear save and except) at APL's own
costs and expenses along with any Documentation.
33.3 Upon termination of this Agreement (howsoever occasioned) APL shall
forthwith deliver to CDKX all copies of any of the Documents Software
and Other Software (including those of the CDK Technology(TM)) and any
copies or reproductions thereof (whether in writing or in any format or
medium whatsoever and whether in whole or part), and if requested by
CDKX, shall destroy the same and certify to CDKX such destruction.
Further, APL shall not use, and is prohibited from any further use of
the Documentation, Software, Other Software or CDK Technology(TM)
thereafter. Furthermore, APL shall certify to CDKX that it has no
copies of such Software or information related thereto or information
related thereto and APL shall certify that it has no copies of such
Software or information related thereto.
34. Severability
------------
In the event that any condition or clause of the contract not being of
a fundamental nature is held to be illegal or unenforceable, the
validity or enforceability of the remainder of this Agreement shall not
be affected thereby.
35. Other Terms, Matters, and Conditions to be Fulfillied
-----------------------------------------------------
35.1 It is hereby expressly agreed by CDKX that APL shall be granted a
licence and shall have the right to use CDKX's proprietary right
including all the intellectual property
-31-
<PAGE>
rights in the following trademarks and designs :-
(a) "MixFactory(TM)";
(b) the "MixFactory(TM)" device;
(c) "CDKnet(TM)"; and
(d) the "CDKnet(TM)" device
(collectively referred to as "CDK's Trademarks")
Provided always that the use of the above trademarks and designs by APL
only to be placed, copied, used or reproduced on CDs, brochures,
business cards or business advertisement or signboards, websites,
coverings and any other advertising, promotional or product material of
APL which is in relation to or connected to the CDK Technology(TM) in
conjunction with APL's business,
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
The licence and right to use the trademarks or designs described above
by APL shall commence on the date of the signing of this Agreement by
both parties and continue until the termination of this Agreement, at
which time such trademark licence shall terminate. The licence of CDK's
Trademarks shall not be terminated by either party unless in accordance
with the terms of this Agreement.
Upon the termination of this Agreement shall APL have any product,
merchandize, goods or material which contain any of CDK's Trademarks
and which is still in APL's possession, then APL shall have a period of
two (2) months from the date of termination to dispose of, sell or
transfer such merchandize, products, goods or material to any person or
party, whether or not for monetary gain or consideration and thereafter
APL shall cease and desist from using any of CDK's Trademarks or sell,
dispose, transfer or handle any goods, materials, products or
merchandize with CDK's Trademarks.
35.2 It is expressly agreed that CDKX shall use its best commercially
reasonable efforts to provide, procure, grant, allow and permit (as the
case may be) the following rights, products and facilities to APL
throughout the duration of this Agreement if requested by APL to :-
(a) procure or provide (as the case may be) hosting of a North
American mirror website to and for APL's System at suitable
site in the United States of America (the equipment for which
site will be purchased and maintained by APL); and
(b) allow APL to share the use of the existing "Real Player" video
streaming licence as CDKX may have or has licenced for its own
use; and
-32-
<PAGE>
(c) procure or provide (as the case may be) free usage and
accommodation of one office room or premises at such location
in the United States of America where CDKX shall maintain or
have an office for APL's employee or staff; and
(d) provide (at cost) usage and equipment of a "CDK robot system"
at the said premises described in Sub-Clause (c) above.
It is hereby agreed by CDKX that it shall procure, allow and make
available all of the above rights, products, facilities and software to
APL within 30 days from the date of execution of this Agreement by both
parties or by the Ready for Use Date (whichever is later).
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
35.3 It is also agreed that such of the rights APL shall have in Clause 35.2
to be procured or provided by CDKX, CDKX shall have the same rights
procured or provided by APL to CDKX save that the premises or location
shall be in Hong Kong where APL maintains an office or premises.
36. Duration of the Contract
------------------------
This Agreement shall commence from the date of this Agreement and
continue for an initial period of 5 years and after that for a further
period of 5 years unless terminated by either party or giving not less
than 3 months' prior written notice before the expiration of the
initial 5 year period (and which notice shall not be served more than 6
months prior to the expiry of the initial period) or unless terminated
in accordance with the provisions of this Agreement.
37. Hire Equipment
--------------
37.1 Risk in any hired equipment supplied by CDKX shall remain with APL
until returned to CDKX.
37.2 Upon the expiry of eight months after the Completion Date or earlier
termination of this Agreement, and unless APL have exercised its option
to lease or purchased the One Set Unit or the Hardware, APL shall
deliver the hired equipment not purchased or lease to CDKX as described
in Clause 6.3 of this Agreement.
37.3 CDKX shall accept hired equipment returned by APL in reasonable
condition with fair wear and tear expected without further payment
being required. CDKX shall provide an acknowledgement to APL of receipt
of hired equipment in accepted condition upon delivery and testing.
37.4 APL shall properly and sufficiently take out proper insurance for the
Hardware against any foreseeable damages or loss thereto save for such
events under Clause 42 and
-33-
<PAGE>
whereby such insured amount is adequate
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
38. Entire Agreement
----------------
This Agreement supersedes all prior agreements, arrangements and
undertakings between the parties and constitutes the entire agreement
between the parties relating to the subject matter hereof. No addition
to or modification of any provision of this Agreement shall be binding
upon the parties unless made by a written instrument signed by a duly
authorized representative of each of the parties.
39. Law and Jurisdiction
--------------------
39.1 This Agreement shall be governed by and construed in all respects in
accordance with the laws of the state of New York in the United States
of America ("New York") and the parties hereby irrevocably submit to
the non-exclusive jurisdiction of the Courts of New York.
39.2 Each of the following parties hereby irrevocably appoints (subject to
written notie of substitution) the person set opposite its name below
as its agent to acknowledge and accept service of legal process on
behalf of such party in :-
PARTIES NAMES OF ADDRESSES OF AGENTS
------- ----------------------------
CDKNet, LLC Steven A. HOROWITZ
595 Stewart Avenue, Suite 710,
Garden City, New York,
United States of America 11530
Asia Pioneer Limited Keith T.K. WONG
Shop No.3A, Ground Floor
Site 4, Whampoa Garden,
Hung Hom, Kowloon,
Hong Kong
40. Service of Notice
-----------------
40.1 Any notice required to be given under this Agreement shall be
sufficiently given if delivered personally or forwarded by
internationally recognized overnight couriers or sent by facsimile
transmission to the relevant party at its address or fax number set out
below (or such other address as the addressee has by five days prior
written notice specified to the other parties) :-
To CDKX : 595 Stewart Avenue, Suite 710,
Garden City, New York,
United States of America 11530
-34-
<PAGE>
Fax Number : (516) 222 2665
Attention : Steven A. HOROWITZ
To APL : Shop No.3A, Ground Floor
Site 4, Whampoa Garden,
Hung Hom, Kowloon,
Hong Kong
Fax Number : (852) 2335 0889
Attention : Keith T.K. WONG
40.2 Any notice delivered personally shall be deemed to have been served at
the time of delivery. Any notice sent by internationally recognized
overnight couriers shall be deemed to have been served 3 business days
after the time at which it was delivered to the courier, the tracking
receipt shall be sufficient to prove such service and notices sent by
facsimile transmission shall be deemed to have been served one business
day after transmission.
41. Waiver
------
No forbearance, delay or indulgence by either party in enforcing the
provisions of this Agreement shall prejudice or restrict the rights of
that party nor shall any waiver of its rights operate as a waiver of
any subsequent breach and no right, power or remedy herein conferred
upon or reserved for either party is exclusive of any other right,
power or remedy available to that party and each such right, power or
remedy shall be cumulative.
42. Force majeure
-------------
Neither party will be liable for any delay in performing or failure to
perform any of its obligations (other than a payment obligation) under
this Agreement due to any cause outside its reasonable control. Such
delay or failure will not constitute a breach of this Agreement and the
time for performance of the affected obligation will be extended by
such period as is reasonable.
43. Extent of Liability
-------------------
Notwithstanding any other terms of this Agreement, CDKX's liability to
APL (if any) arising under or out of this Agreement (save as to the
indemnities given under Clause 29 by CDKX) shall be limited to not more
than US$100,000.00 in aggregate total.
44. Provision of Other Software
---------------------------
CDKX shall provide to APL the Other Software at no additional costs and
expenses to
-35-
<PAGE>
APL. CDKX shall install the Other Software on the Hardware by the Ready
for Use Date.
Upon receipt of notification from APL that there is any error or defect
in the Other Software that affect the operation of the System, CDKX
shall use its best endeavours to procure such software manufacturer or
provider to correct such defect or error as soon as reasonably
practicable at its own expense and provided the Other Software is under
such warranty, guarantee or service agreement to be maintained or
replaced in such event of defect or error.
CDKX shall deliver to APL any improved or enhanced version of the Other
Software when and as they become available and which CDKX may have in
its possession at the request of APL at no additional cost.
45. Warranties as to APL Shares
---------------------------
45.1 In consideration of CDKX agreeing to enter into this Agreement APL
warrants and represents to CDKX as at the date of this Agreement that
:-
45.1.1 the particulars of APL contained in Schedule 9 are true and
accurate in all respects;
45.1.2 all returns particulars resolutions and other documents
required to be filed with the relevant authorities in the
Cayman Islands by APL have been duly filed and APL has complied
with all legal requirements in connection with its formation
and with all isues of its shares;
45.1.3 following the implementation Clause 17 in relation to the
Consideration Shares CDKX will be the beneficial owner of
approximately four and eighty-nine one hundredths per cent
(4.89%) of the equity share capital of APL as at the date of
allotment of the Consideration Shares to CDKX;
45.1.4 the Consideration Shares shall be allotted and issued credited
as fully paid and on terms that they will rank pari passu in
all respects with the [common] shares in APL in issue as at the
date of allotment of the Consideration Shares;
45.1.5 since the date of incorporation of APL :-
(a) each of APL and APL's Group of Companies has carried on
its business in the ordinary and usual course;
(b) no distribution of capital or income has been declared
made or paid in respect of any share capital of each of
APL and APL's Group of Companies;
-36-
<PAGE>
(c) each of APL and APL's Group of Companies has not assumed
or incurred any liabilities or expenditure otherwise than
in the ordinary course of carrying on its day-to-day
business;
(d) there has been no material adverse change in the
financial position of each of APL and APL's Group of
Companies;
45.1.6 the assets and equipment acquired by each of the APL and APL's
Group of Companies since the date of incorporation of APL are
the property of and owned by APL and/or APL's Group of
Companies (as the case may be) and are not subject to any
debenture, mortgage, encumbrance or charge or any other third
party interest;
45.1.7 all debts owed to each of APL and APL's Group of Companies will
be good and collectable in the ordinary course of business;
45.1.8 (a) all necessary licences consents permits and authorities
have been obtained by each of APL and APL's Group of
Companies to enable each of them to carry on its business
lawfully and effectively in the places and in the manner
in which such business is now carried on;
(b) each of APL and APL's Group of Companies has not done or
omitted to do anything in contravention or breach of any
statute order or regulation or the like in Cayman
Islands, Hong Kong or elsewhere applicable to it or its
business and giving rise to any fine, penalty, default
proceedings or other liability on its part;
(c) each of APL and APL's Group of Companies has conducted
and is conducting its business in accordance with
applicable laws and regulations in Cayman Islands, Hong
Kong or elsewhere applicable to it;
45.1.9 there are no agreements or arrangements entered into by each of
APL and APL's Group of Companies otherwise than by way of
bargain at arm's length and all contracts are entered into in
the normal course of business;
45.1.10 each of APL and APL's Group of Companies is not engaged either
on its own account or vicariously in any material litigation or
arbitration or tribunal proceedings and no litigation
arbitration or tribunal proceedings are pending or threatened
by or against each of APL and APL's Group of Companies;
45.1.11 (a) there are not in existence any contracts of service with
directors or employees of each of APL and APL's Group of
Companies which cannot be terminated by notice without
giving rise to any claim for damages or compensation
(other than under any relevant employment
-37-
<PAGE>
legislation);
(b) each of APL and APL's Group of Companies and their
respective employees are not involved in any industrial
dispute;
45.1.12 (a) each of APL and APL's Group of Companies has properly
made all returns and provided all other information
required for the purposes of taxation and none of such
returns is disputed by the Inland Revenue Department,
Hong Kong or any other authority concerned;
(b) all payments by each of APL and APL's Group of Companies
to any person which ought to have been made under
deduction or withholding of tax have been so made and
each of APL and APL's Group of Companies has (where
required by law to do so) accounted to the Inland Revenue
Department, Hong Kong for the tax deducted or withheld.
-38-
<PAGE>
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-39-
<PAGE>
The Hardware shall be installed and have the minimum equipment and configuration
as per diagram below.
[DIAGRAM]
-40-
<PAGE>
SCHEDULE 2
----------
(System)
Background
- ----------
Whereby CDKX has developed the software and the applications necessary and known
as CDK Technology(TM) which combines CD digital audio, fullmotion, fullscreen
video and weblinking through a browser interface. And whereas the said
technology is combined with a HTML authorizing system which is currently used by
CDKX to produce custom interface pages for specific clients within a period of
time. And whereas CDKX has the proprietary techniques and rights for creating
fullmotion, fullscreen video playback from CD Rom with such relevant hardware
system requirements. The technology employed, designed and engineered by CDKX is
engineered for mass production whereby the integration of the complete file
structure of the technology used by CDKX is automated. (Audio, video and HTML
assets can be placed in the production template for processing within a
reasonably efficient and quick development turn-around time.)
Currently CDKX has a "MixFactory(TM)" which is a custom, multi-session CD
manufacturing system built upon the CDK Technology(TM). The entire system is
automated so that minimum human intervention is required for the custom
manufacturing process. In order to create a custom CD, a user visits a website
and selects a compilation of audio, video, or other content titles. Titles are
browsed and/or searched and audio/video clips are previewed through an
interface. After selecting the compilation, the user personalizes the disc by
selecting art work for the disc label, cover and HTML interface. The
MixFactory(TM) system also allows multimedia content providers to offer their
assets on a customized basis via the website.
CDKX's MixFactory(TM) operation is designed to be a complete end-to-end
e-commerce solution, including production, payment processing and fulfillment.
Once the user confirms the content selections and completes a credit card
transaction, the selected titles are queued from storage to a Compact Disc
Recordable ("CD-R") burning workstation. The customer's tracks are formatted
into a Red Book audio session along with an iso9660 session and transferred
together to the CD-R (disc). The automated workstation transfers the complete
CD-R to the CD printer where the user-selected label is printed onto the surface
of the CD-R.
In parallel with the transfer of the tracks to the CD-R, the custom packaging
materials are printed. That is, as soon as the job is queued for burning, the
printed job is also queued to the printer. Packing and shipping of the finished
product is currently the only manually operated step in the process.
APL's System and Use
- --------------------
It is APL's intention (and CDKX has hereby agreed) to employ and use the CDK
Technology(TM) and CDKX's system as described above for the development,
marketing and operation of APL's websites and other businesses which shall be
similar in nature, operation and business as CDKX's MixFactory(TM) website and
business operations save that the contents shown offered
-41-
<PAGE>
and displayed on APL's websites and other businesses shall be for the primary
usage, business, services, marketing and promotion to persons who are interested
in Chinese content including, but not limited to all forms of Chinese media,
literature, audio-visual content and all other materials and/or data that can be
presented electronically or digitally. CDKX shall provide, install and maintain
the Hardware and Software and grant the exclusive use of the CDK Technology(TM)
in order that APL may develop its websites and other businesses for the purposes
described above in addition to being able to support the following (but not
limited to) :-
(a) Chinese contents (text, sounds, images or other type of data,
information or material);
(b) digital entertainment contents;
(c) distribution for independent music artists and labels with links to
APL's websites and other businesses;
(d) support and provide the manufacturing process for the custom CDs and CD
contents to be distributed or manufactured;
(e) website services to be provided by APL such as trading, information
content, , services, communication to or by the customers with APL and
all other foreseeable website services as similar to CDKX's
MixFactory(TM) or CDKNet websites;
(f) support content providers' contents;
(g) e-commerce including production, payment processing and fullment either
by credit card or other method;
(h) a method whereby the consumer will be able to view the information on
the CD via his or her personal computer and link back to related Web
pages through targeted links included on the CD;
(i) the ability for consumers to receive high-quality, high-bandwidth
digital assets within a quick relay time without waiting hours for the
files to download;
-42-
<PAGE>
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-43-
<PAGE>
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-44-
<PAGE>
SCHEDULE 5
----------
(Documentation)
(a) Hardware
--------
Description No. of copies
----------- -------------
"Not Applicable"
(b) Software
--------
Description No. of copies
----------- -------------
"Not Applicable"
(c) Other
-----
Description No. of copies
----------- -------------
1. System Manual One (1)
2. Operation Manual One (1)
3. Data Manual One (1)
4. User Manual One (1)
5. User Guide One (1)
-45-
<PAGE>
SCHEDULE 6
----------
(Location)
Address: Shop No.3A, Ground Floor,
Site 4, Whampoa Garden,
Hung Hom, Kowloon
Hong Kong
-46-
<PAGE>
The following is a floor plan of the above premises where the Hardware is to be
delivered and installed :-
[FLOOR PLAN]
-47-
<PAGE>
SCHEDULE 7
----------
(Installation Tests)
CDKX shall provide a test plan for the acceptance of Hardware, Software and
related facilities to be installed under this Agreement.
-48-
<PAGE>
SCHEDULE 8
----------
(Other Software)
Item Ref. No. Description Quantity Remarks
- ---- -------- ----------- -------- -------
RealPlayer G2
Windows NT Version 4.0
-49-
<PAGE>
SCHEDULE 9
----------
NAME : ASIA PIONEER LIMITED
PLACE OF INCORPORATION : Cayman Islands
COMPANY NO. : CR-93228
AUTHORIZED SHARE CAPITAL : US$50,000.00 divided into 5,000,000 [common]
shares of par value US$ 0.01each
ISSUED SHARE CAPITAL : US$1.00 comprising of one hundred (100) common
shares of par value US$0.01 as at the date of
this Agreement and to be increased to
US$1,000.00 comprising of 100,000 common shares
of par value US$0.01 at the date of the
completion of the issue and allotment of
Consideration Shares to CDKX
REGISTERED OFFICE : Huntlaw Building, P.O. Box 2804, George Town,
Grand Cayman, Cayman Islands
DIRECTORS : Keith Tak Kay WONG
Helen Shan Shan HUI
-50-
<PAGE>
AS WITNESS the parties hereto have duly executed this Agreement the day and year
first above written in its counterpart as an Agreement.
SIGNED by )
)
for and on behalf of CDKNET, LLC. )
in the presence of :- )
)
)
SIGNED by Keith T.K. Wong and )
Helen S.S. Hui )
for and on behalf of ASIA PIONEER LIMITED in the )
presence of :- )
)
/s/ Keith A. Lee
Keith A. Lee
Solicitor
Aggarwal & Associates
Hong Kong SAR
-51-
<PAGE>
AS WITNESS the parties hereto have duly executed this Agreement the day and year
first above written in its counterpart as an Agreement.
SIGNED by STEVEN A. HOROWITZ )
President of Managing Member )
for and on behalf of CDKNET, LLC. ) /s/ STEVEN A. HOROWITZ
in the presence of :- Chris Hanscom-Bolton )
)
)
SIGNED by )
)
for and on behalf of ASIA PIONEER LIMITED in the )
presence of :- )
)
-51-
EXHIBIT 10.18
-------------
This Agreement (the "Agreement") is entered between PETERSON'S, a division of
International Thomson Publishing, Inc., a Delaware corporation having its
principal place of business located at 202 Carnegie Center, Princeton, New
Jersey 08540 ("Peterson's") and CDKnet, LLC, a New York limited liability
company having its principal place of business located at 250 West 57th Street,
Suite 1101, New York, NY 10019 ("CDKnet") on this 19th day of March, 1999.
WHEREAS, Peterson's is in the business of providing information about
institutions to prospective students and participants through
various forms of media, including the Internet via its
CollegeQuest web site ("CollegeQuest"); and
WHEREAS, CDKnet has developed a process based on its CDK(TM) (patent
pending) technology (the "CDK Technology") which enables the
integration of stereo audio, full screen TV quality video and
seamless Internet Web browsing from a standard audio CD, which
process has been adapted for the mass customization of CDs based
on CDK Technology and known as CDKs ("CD-Live"); and
WHEREAS, Peterson's and CDKnet would like to enter into an affiliated
marketing arrangement in order to provide custom CDKs to
prospective students which would contain videos and information
on participant-selected institutions, as well as to provide other
Internet-based services to prospective students and participants
(collectively, the "Campus Video Program") at a web site to be
built at campusvideo.com, on the terms and conditions below,
NOW, THEREFORE,in consideration of the mutual promises of the parties hereto and
of the mutual benefits to be gained by the performance thereof,
and such other good and valuable consideration, the receipt and
sufficiency of which the parties hereto hereby acknowledge, the
parties hereto agree as follows:
1. PROMOTION BY PETERSON'S. Peterson's agrees to promote, and provide a link
on its relevant web sites, including CollegeQuest, to the Campus Video
Program. Peterson's will promote and sell the Campus Video Program to
institutions. Peterson's will provide to CDKnet video content received from
participating institutions, which CDKnet will digitize, store and make
available through its Campus Video web site. Peterson's will administer (i)
its CollegeQuest site in accordance with Peterson's standard practices, and
(ii) the associated Campus Video link, and maintain contact with
participating institutions and new and prospective participants.
2. CDKNET RESPONSIBILITIES. CDKnet will provide the technology and service
necessary to digitize and store the campus tour videos, receive videos
submitted by institutions, secure authorization from Peterson's to digitize
each video received through the Campus Video Program, process order
requests received through the campusvideo.com site, charge the credit card
provided by the user as payment, set up and replicate the CDK with the
proper videos selected by the student, and send the completed CDK to the
student.
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<PAGE>
3. PAYMENTS
3.1. PAYMENTS BY END USER CONSUMERS. Fees paid for videos will be
directed to a merchant account established and owned by
Peterson's and identified as the "CollegeQuest/CDK Campus Video
Program". Fees for videos will be established as set forth in
Schedule A, "Consumer Fees".
3.2. PAYMENTS BY PARTICIPATING INSTITUTIONS. Peterson's may collect
from institutions participating in the Campus Video Program the
following agreed-upon fees: (i) an initial program fee, the
amount of which will be determined by Peterson's; (ii) an annual
program renewal fee, the amount of which fee will be determined
by Peterson's. This fee will be collected on the anniversary date
of an institution's participation in the program; and (iii) a
reprogramming charge, if an institution requires modifications to
the video, the amount of which fee will be determined by
Peterson's.
3.3. PAYMENTS TO CDKNET. Peterson's will pay CDKnet according to the
following schedule: (i) for initial program fees, Peterson's will
pay CDKnet $500 for each new participating institution to cover
costs associated with digitization, within 15 days after the
close of the month in which Peterson's authorizes CDK to digitize
a submitted video; (ii) for annual renewal fees. Peterson's will
pay CDKnet $200 per institution continuing with the program,
within 30 days of the institution's anniversary date, to cover
costs associated with storage and continued service; (iii) for
reprogramming charges, Peterson's will remit to CDKnet 50% of
each such fee, subject to a minimum payment of $350 per video,
within 15 days after the close of the month in which collection
of the fee was made by Peterson's; (iv) for fees charged for the
purchase of CDKs, Peterson's will pay CDKnet, within 15 days
after the close of the month in which collection of the fee was
made by Peterson's, an amount equal to $3.25 per disc for
manufacturing plus the actual shipping and handling charged to
CDK by a third-party shipping company and 40% of the remaining
revenue, less any credits due to returns of defective
merchandise, or other chargebacks; and (v) in the event
Peterson's requests that CDKnet utilize a custom mailer for the
CDKs provided by Peterson's, Peterson's will pay to CDKnet an
agreed upon additional charge per CDK for the additional handling
and shipping fees.
4. CUSTOMER RELATIONSHIPS. Customers of the Campus Video Program, whether they
be institutions such as colleges and universities, end user consumers, or
others, are customers of Peterson's. Peterson's shall retain exclusive
right to market to and otherwise communicate with these customers.
Notwithstanding this provision. CDKnet shall have the right to do business
with any entity that is otherwise a customer of Peterson's, provided that
the service provided to that entity is not competitive with the offerings
of the Campus Video Program.
5. OWNERSHIP OF CONTENT
5.1. Peterson's shall be responsible for obtaining any rights,
licenses, clearances, releases, or other permissions necessary to
digitize and
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<PAGE>
distribute CDKs containing content provided to CDKnet pursuant to
the Campus Video Program.
5.2. Content provided to CDKnet for the purposes of digitization may
be owned by Peterson's, an organization providing the content, or
a third-party. Nothing in this Agreement shall be read to
reassign ownership of such content.
6. WEB LINKS FROM EACH CDK. In addition to the selected videos, the Campus
Video Program CDKs will be configured to contain Web links to one or more
Peterson's sites, CDKnet (CD-Live), selected institutions, and other links
as mutually agreed by Peterson's and CDK.
7. CONTENTS OF EACH CDK. Each CDK will contain college videos, as provided by
Peterson's and selected by students, CDK Technology, and, as mutually
agreed, software applications from third parties (e.g., Netscape
Navigator).
8. PACKAGING. The packaging and discs for any such Campus Video Program CDKs
will include trademarks and logos from CDKnet, companies from which CDKnet
licenses enabling technology, and Peterson's.
9. USE OF TECHNOLOGY AND TRADEMARKS. Peterson's agrees that it will not, and
will not permit or assist any other party to: (i) reverse engineer,
disassemble or decompile all or any part of the CDK technology, or any copy
thereof, or (ii) without the written approval of CDKnet, use any trademark
or technology of CDKnet or CDKnet's licensors other than as expressly
permitted herein. This section survives the expiration hereof.
10. USE OF CONFIDENTIAL INFORMATION. Each party acknowledges and agrees that in
connection with this Agreement, one party may be given access to or come
into possession of confidential information of the other party, which
information may contain trade secrets, proprietary data or other
confidential business or technical information. Each party acknowledges and
agrees that it will not use, duplicate or divulge to others any such
confidential information, including, without limitation, trade secrets,
without first obtaining written permission from the other party. Upon
request, all tangible embodiments of such confidential information shall be
delivered to the requesting party after any termination or expiration of
such program. This section survives the expiration hereof.
11. INDEMNIFICATION
11.1. Peterson's shall indemnify CDKnet against all claims and damages
including without limitation reasonable attorneys' fees which
CDKnet incurs as a result of any claims against CDKnet arising
out of or related to the promotion of and video content
collection for the Campus Video Program. Including whether such
promotion and content collection infringe any copyright or
proprietary right of any third party provided that (i) CDKnet
notifies Peterson's promptly in writing of any such claim; (ii)
Peterson's has sole conduct of the defense of such claim; and
(iii) CDKnet's use of the promotion services and content
collected by Peterson's as part of the
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<PAGE>
Campus Video Program has been in accordance with the restrictions
imposed under this Agreement.
11.2. CDKnet shall indemnify Peterson`s against all claims and damages
including without limitation reasonable attorneys' fees which
Peterson's incurs as a result of any claims against Peterson's
arising out of or related to the CDK Technology utilized in the
Campus Video Program, including whether CDK Technology infringes
any copyright or proprietary right of any third party provided
that (i) Peterson's notifies CDKnet promptly in writing of any
such claim; (ii) CDKnet has sole conduct of the defense of such
claim; and (iii) Peterson's use of the CDK Technology and Campus
Video has been in accordance with the restrictions imposed under
this Agreement.
11.3. NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES EITHER
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE, IN CONNECTION WITH THIS AGREEMENT. NEITHER PETERSON'S NOR
CDKNET WILL IN ANY WAY BE LIABLE TO THE OTHER FOR ANY INDIRECT
CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES, INCLUDING,
BUT NOT LIMITED TO, LOSS OF PROFITS RESULTING FROM OR RELATED TO
THIS AGREEMENT.
11.4. Peterson's will (i) make no false or misleading representations
with regard to CDKnet, the CDK Technology or any CDK product,
(ii) not publish or employ or cooperate in the publication or
employment of any misleading or deceptive advertising materials,
and (iii) make no representations, warranties or guaranties to
anyone with respect to the specifications, features or
capabilities of the CDK technology that are inconsistent with
information contained in the CDK packaging materials. This
section survives the expiration hereof.
12 GENERAL
12.1. NOTICES. All notices, requests, demands, and other communications
hereunder must be in writing and shall be deemed to have been
duly given if hand delivered or delivered or mailed, certified or
registered mail with postage prepaid or by a nationally
recognized overnight courier, to the addresses of the parties
shown in the preamble to the attention of the persons executing
this Agreement in their respective behalf. For Peterson's, the
notice will go to
Peterson's
202 Carnegie Center
Princeton, NJ 08540
ATTN: Vice President for Product Strategy
For CDKnet, the notice will go to:
CDKnet
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<PAGE>
250 West 57th Street, Suite 1101
New York, NY 10019
ATTN: Chief Executive Officer
The date of receipt of hand delivered notices shall be the date
of such action. The date of receipt of mailed or couriered
notices shall be the date of delivery shown on postal service or
courier service documentation. Either party shall promptly give
written notice of any change of its address or addresses.
12.2. TERM OF AGREEMENT. This Agreement, and the license granted
hereunder, will remain in effect for two (2) years; provided,
however, that either party may terminate this Agreement after one
(1) year upon 90 days written notice.
12.3. ASSIGNMENT. The rights and obligations of the each of the parties
hereunder shall inure to the benefit of and shall be binding upon
the successors and assignees of such party.
12.4. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereof pertaining to the subject matter
hereof, and supersedes and replaces any and all prior agreements
between the parties concerning the subject matter hereof.
12.5. CHANGES TO THIS AGREEMENT. The terms and conditions hereof may be
changed only by an agreement in writing signed by the parties
hereto.
12.6. GOVERNING LAW. This Agreement shall be governed by, construed and
enforced under the laws of the State of New York without giving
effect to the conflicts or choice of law provisions thereof.
12.7. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but
all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
For: CDKnet, LLC For: PETERSON'S,
A division of International
Thomson Publishing, Inc.
/s/ Ronald Leong 3/25/99
- ------------------------- -------------------------
Signature Signature
Ronald Leong Cristopher Maloney
Chief Executive Officer Vice President, Product Strategy
Peterson's / CDKnet Agreement
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Date: 3/25/99 Date: 3/25/99
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SCHEDULE A
Consumer Fees
Fees for CDKs and associated videos sold to end-users are as follows:
o CDK and initial video: $5.95
o Additional video: $2.95
o Shipping & Handling: $4.00
Peterson's / CDKnet Agreement
03/25/99 7 of 7
EXHIBIT 10.19
-------------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as
of_________, 1999, by and between CDKNET.COM, INC., a Delaware corporation (the
"Company"),and Spiga Limited. (the "Subscriber").
WITNESSETH:
-----------
WHEREAS, pursuant to the Securities Purchase Agreement dated as of the
date hereof (the "Subscription Agreement"), by and between the Company and the
Subscriber, the Company has agreed to issue and sell and the Subscriber has
agreed to purchase $1,500,000 of the Company's 5.75% Convertible Subordinated
Debentures (the "Debentures"), with the Debentures convertible into shares of
the Company's common stock, par value $.0001 per share (the "Shares"); and
WHEREAS, pursuant to the terms of the Debenture, the principal of the
Debenture may, at the option of the Company, be callable in exchange for
preferred shares which will also be convertible into Shares;
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Subscriber's entering into the Subscription Agreement, the Company has
agreed to provide the Subscriber with certain registration rights with respect
to the Shares;
NOW THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Subscription Agreement and this Registration Rights Agreement, the Company and
the Subscriber agree as follows:
1. Certain Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, par value $.0001
per share.
"Registrable Shares" shall mean (i) the Shares, (ii) any Common Stock
of the Company issued or issuable in respect of the Shares or upon any stock
split, stock dividend, recapitalization or similar event; provided, however,
that shares of Common Stock or other securities shall no longer be treated as
Registrable Shares if (a) they have been sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, (b)
they have been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto are removed upon consummation of
such sale or (c) the Shares are available for sale under the
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Securities Act (including Rule 144) in the opinion of counsel to the Company,
without compliance with the registration and prospectus delivery requirements of
the Securities Act so that no transfer restrictions or restrictive legends will
appear upon the Share certificates following the consummation of such sale.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses for up to five states, and
the reasonable expenses of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares.
2. Requested Registration. The Subscriber may request registration as set
forth below:
(a) Required Registration. The Company shall, as soon as practicable,
use its best efforts to effect such registration (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as would permit or facilitate the sale and distribution of all or such
Registrable Shares, provided, that the Company shall not be obligated to effect,
or to take any action to effect, any such registration pursuant to this Section
2, (i) after the Company has effected one such registration pursuant to this
Section 2(a) and such registration has been declared or ordered effective by the
Commission; or (ii) within the period starting with the date 60 days prior to
the Company's good faith estimated date of filing of, and ending 180 days
following the effective date of, any registered offering of the Company's
securities to the general public.
Subject to the foregoing limitations in clauses (i) and (ii) above,
the Company shall file a registration statement covering the Registrable Shares
so requested to be registered as soon as practicable after receipt or requests
of the holders having an aggregate initial purchase price of $750,000 or more,
but no later than 120 days following receipt of such request or requests.
2
<PAGE>
(b) Joining in Other Registrations. In addition, the Subscriber shall
have the right to include Registrable Shares in any registration statement filed
by the Company during the term of this Agreement (other than on Form S-8 or S-4)
and in such event, agrees to reduce the number of shares included therein pro
rate with other Holders, but in no event to less than 200,000 shares.
(c) Underwriters. If the Subscriber intends to distribute the
Registrable Shares by means of an underwriting, it shall so advise the Company.
(d) Penalties. If a registration statement relating to all of the
Registrable Shares is not effective by July 25, 1999, the Company shall as a
penalty issue to the Subscriber additional shares of Common Stock determined
multiplying the number of Registrable Shares by the applicable Daily Penalty set
forth in the following table:
Days after July 25, 1999 Daily
------------------------ -----
Penalty
-------
1-30 0.0334%
31-60 0.0500%
61 and thereafter 0.0667%
The penalties shall accrue commencing on the first day following July 25, 1999
and will be issued and delivered to the Subscriber not less frequently that once
a month. Penalty Shares shall be deemed fully paid and non-assessable and shall
have the same rights to be included in a registration statement as Registrable
Shares. In no event shall any penalty be in respect of Penalty Shares.
(e) Agreement Not to File Additional Registrations. The Company agrees
that it will not file, nor will it permit its securities to be included in
registration statement filed pursuant to Section 2(a), above, until six months
after the registration set forth in Section 2(a) has been declared effective,
except:
(i) with the consent of Spiga Limited;
(ii) securities issuable upon the exercise of options and warrants
outstanding on the date of this agreement;
(iii) up to 525,000 shares that are the subject of an agreement to
register such shares between the Company and Robert Kelly, Alvin
Pock and KME Entertainment; or
(iv) securities and options which may be hereafter issued under the
Company's 1998 Equity Incentive Plan which may be issued at not
less than market price on the date of issuance.
3
<PAGE>
3. Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance of the Registrable Shares pursuant to this Agreement. Selling
Expenses shall be borne by the Subscriber.
4. Registration Procedures. The Company shall advise the Subscriber of
the initiation of a registration under this Agreement and as to the completion
thereof. At its expense, the Company will:
(a) Use reasonable efforts to keep such registration effective for a
period of 180 days or until the Subscriber has completed the distribution
described in the registration statement relating thereto, whichever first
occurs.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of securities
covered by such registration statement; and
(c) Furnish such number of prospectuses and other documents incidental
thereto, including any amendment of or supplement to the prospectus, as the
Subscriber from time to time may reasonably request.
5. Indemnification.
(a) The Company will indemnify the Subscriber with respect to which
registration has been effected pursuant to this Agreement against all claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or other
document incident to any such registration, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and will reimburse the Subscriber for any legal and any other
expenses as they are reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided, however,
that the indemnity contained in this Section 5(a) shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Company, and provided, further
that the Company shall not be liable in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by the Subscriber and stated to be specifically for use in the
registration statement filed pursuant to this Agreement. The foregoing indemnity
agreement is further subject to the condition that insofar as it relates to any
untrue prospectus, such indemnity agreement shall not inure to the benefit of
the foregoing unindemnified parties if copies of a final prospectus correcting
the misstatement, or alleged misstatement, omission or alleged omission upon
which such loss, liability, claim or damage is based is timely delivered to such
indemnified party and a copy thereof was not furnished to the person asserting
the loss, liability, claim or damage.
4
<PAGE>
(b) The Subscriber will indemnify the Company, each of its directors
and officers and each person who controls the Company within the meaning of the
Securities Act and the rules and regulations thereunder against all claims,
losses, damages and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or other
document incident to any such registration or based upon any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation of
the Securities Act or any rule or regulation thereunder applicable to the
Company and will reimburse the Company, and its directors, officers, partners,
persons, underwriters or control persons for any legal or any other expense
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, and only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) relating to such holder is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by the Subscriber and stated to be specifically for use therein;
provided, however, that the obligations of the Subscriber shall be limited to an
amount equal to the proceeds to the Subscriber of Registrable Shares sold under
such registration and provided, further, that such indemnification obligations
shall not apply if the Company modifies or changes to a material extent the
written information furnished by such Holder.
(c) Each party entitled to indemnification under this Section 5 (an
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed), and the Indemnified Party may participate
in such defense at such Indemnified Party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
6. Information by Holder of Registrable Shares. The Subscriber shall
furnish to the Company such information regarding the Subscriber and the
distribution proposed by such holder of Registrable Shares as the Company may
reasonably request in writing and as shall he reasonably required in connection
with any registration referred to in this Agreement.
5
<PAGE>
7. Transfers or Assignments of Registration Rights. The Subscriber's
rights under this Agreement to cause the Company to register the Registrable
Shares may be transferred or assigned by the Subscriber only to affiliates of
the Subscriber or to a purchaser of at least 500,000 Shares and such assignment
shall only be effective upon delivery of written notice of such assignment to
the Company within thirty (30) days of the assignment. Upon such assignment the
assignee shall have all the rights and obligations of the Subscriber hereunder.
8. Miscellaneous
8.l Governing Law. This agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
conflict of laws.
8.2 Successors and As. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
8.3 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
8.4 Notices etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered by hand or by messenger or courier delivery
service, addressed (a) if to the Subscriber, at the address set forth in the
Subscription Agreement or at such other address as the Subscriber shall have
furnished to the Company in writing, or (b) if to the Company, at 595 Stewart
Avenue, Suite 710, Garden City, NY 11530 or at such other address as the Company
shall have furnished to the Subscriber in writing.
8.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Registrable Shares, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power, or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.6 Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.7 Severability. In the case any provision of this agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6
<PAGE>
8.8 Amendments. This provisions of this Agreement may be amended at
any time and form time to time, and particular provisions of this Agreement may
be waived, with and only with an agreement or consent in writing signed by the
Company and by the owners of all of the Registrable Shares as of the date of
such amendment or waiver.
8.9 Termination of Registration Rights. This Agreement shall terminate
on February 1, 2002.
The foregoing Registration Rights Agreement is hereby executed as of
the date first above written.
CDKNET.COM, INC.
By: /s/
-----------------------
Name:
Title:
Subscriber:
Spiga Limited
-----------------------
(Name - Please Print)
By:
-----------------------
Name:
Title:
7
<PAGE>
The foregoing Registration Rights Agreement is hereby executed as of
the date first above written. CDKNET.COM, INC.
CDKNET.COM, INC.
By:
-----------------------
Name:
Title:
Subscriber:
Spiga Limited
-----------------------
(Name - Please Print)
By: /s/ Clive R. Dakin
-----------------------
Name: Clive R. Dakin
Title: Director
EXHIBIT 10.20
-------------
This agreement (the "Agreement") is entered into between Atomic Pop LLC, a
Delaware limited liability company having its principal place of business
located at 1447 Cloverfield Blvd., Santa Monica, CA 90404 ("Atomic Pop") and
CDKnet, LLC, a New York limited liability company having its principal place of
business located at 260 West 57th Street, Suite 1101, New York, NY 10019
("CDKnet") on this 25th day of October, 1999.
WHEREAS, Atomic Pop is in the business of providing music and music-related
content through various forms of media, including via the Internet; and
WHEREAS, CDKnet has developed a process based on its CDK(TM) (patent pending)
technology (the "CDK Technology") which enables the integration of stereo audio,
full screen high quality video and seamless Internet Web browsing from a
standard audio CD, and which process allows for the mass customization of CD's
containing audio and / or video content; and
WHEREAS, Atomic Pop would like to license from CDKnet, and CDKnet would like to
license to Atomic Pop, the CDK technology, in order to provide multimedia CD
masters to Atomic Pop, and to provide CD's to consumers which CD's would contain
music and music-related content, on the terms and conditions below;
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto
and of the mutual benefits to be gained by the performance thereof, and such
other good and valuable consideration, the receipt and sufficiency of which the
parties hereto hereby acknowledge, the parties hereto agree as follows:
1. CDKnet will produce Web-connected multimedia CD masters containing content as
supplied by Atomic Pop. The CD masters will include interface design, player
customization, digitization and compression.
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
Atomic Pop agrees that, during the term of
this Agreement, it will utilize CDKnet to produce the masters for all
multisession commercially distributed compact discs embodying principally
content owned or controlled by Atomic Pop.
2. CDKnet will develop for Atomic Pop an Atomic Pop-branded custom multimedia CD
mini-site including site development, media asset digitization and storage,
back-end integration, and CD fulfillment. This site will allow consumers to
create customized multimedia CDs using the CDK technology with Atomic Pop
content. The CD will also contain integrated Web links to the Atomic Pop Web
site. The concept and functionality of the site will be subject to Atomic Pop's
approval.
3. CDKnet will provide the technology and service necessary to digitize and
store the content provided by Atomic Pop, process the order request received
through the Atomic Pop custom CD site, replicate the CDK selected by the
consumer and send the completed CDK to the consumer, and provide customer
technical support and service for CDKs.
4. Users of the Atomic Pop custom CD site will pay Atomic Pop directly for each
CDK purchased. Atomic Pop will determine the retail price of such CDK's.
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
Page 1 of 2
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5. The packaging and discs for any such multimedia and custom Atomic Pop CDK's
will include CDKnet's, and its licensor's, trademarks and logos. Each CDK will
incorporate track credits, copyright notices and logos as furnished by Atomic
Pop.
6. a) Atomic Pop represents that it has the rights to any and all content,
packaging, advertising and other materials (collectively, the "Content")
provided by it to CDKnet and/or utilized in connection with the Atomic Pop CDK
Program, and that such Content does not and will not (i) infringe any third
party's copyright, trademark rights, rights of privacy and publicity, moral
rights or any other proprietary or personal rights or (ii) defame or otherwise
injure the reputation of any person, organization or entity. This section
survives the expiration hereof.
b) CDKnet represents that it owns, has licensed rights to use and/or controls
the technology necessary for it to perform its obligations under this agreement.
7. Neither party shall issue any press releases for general public dissemination
without the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed.
8. This Agreement, and the license granted hereunder, will remain in effect for
three (3) years.
9. The rights and obligations of the each of the parties hereunder shall inure
to the benefit of and shall be binding upon the successors and assigns of such
party.
10. This Agreement contains the entire agreement between the parties hereof
pertaining to the subject matter hereof, and supercedes and replaces any and all
prior agreements between the parties concerning the subject matter hereof.
11. The terms and conditions hereof may be changed only by an agreement in
writing signed by the parties hereto.
12. This Agreement shall be governed by, construed and enforced under the laws
of the State of New York without giving effect to the conflicts or choice of law
provisions thereof.
13. This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
CDKnet, LLC Atomic Pop, LLC
By: /s/ Shai Bar Lavi By: /s/ illegible
---------------------------- ----------------------
Shai Bar Lavi, President
Page 2 of 2
EXHIBIT 10.21
-------------
AGREEMENT
---------
This agreement (the "Agreement ) is entered into between Central Park
Media.Corporation ("CPM"), having its principal place of business located at 250
West 57th Street, New York, New York, 10107 and CDKnet, LLC. (the "Company"), a
New York company having its principal place of business located at 250 West 57th
Street, New York, New York, 10107 on this 29th day of March 1999.
WHEREAS, CPM is in the business of creating, selling,
distributing and licensing for sale Japanese animation, Anime and other content.
WHEREAS, The Company is in the business of developing
software and Internet technologies and applications, utilizing sophisticated
video digitization and compression techniques.
WHEREAS, the Company has developed the MixFactory.com
process, a; unique Internet based ordering process, giving a consumer the
ability to create custom compiled video based CDs through the MixFactory.com Web
site (hereinafter, "MixFact"). These custom compiled discs are created with the
Company's software technology (CDK Technology) which enables the integration of
stereo audio, full screen high quality video and seamless Internet Web browsing
from a standard CD or DVD (hereinafter, "CDK Technology"); and
WHEREAS, CPM and the Company desire to create, market and
take orders via the internet, video based CDs (hereinafter, "CPMdisc") via
MixFact using the CDK Technology and audio, video and other content provided by
CPM, on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the mutual promises of the
parties hereto and of the mutual benefits to be gained by the performance
thereof, and such other good and valuable
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consideration, the receipt and sufficiency of which the parties hereto
acknowledge, the parties hereby agree as follows:
1. The Company hereby agrees to create, and develop a
seamless link from CPMsites to MixFact where consumers can create and purchase
customized video based CPM Disc produced with the CDK Technology.
2. The Company will give CPM the ability to offer custom
compiled promotional CDs to its web site visitors at no charge to CPM or
customer. Customer will be responsible for shipping and handling charges.
Shipping and handling will be collected and retained by the Company. The Company
will work in conjunction with CPM to create the format of the custom CDs
offered.
3. CPM will insert a MixFactory.com link on its UFOcity.com,
CentralParkMedia.com and Software-Sculpturs.com Web sites (hereinafter
"CPMsites") in order to market, promote and advertise MixFactory.com's ability
to custom compile iso9660 multi-session based CPMdisc for consumers to be
ordered over the Internet containing Japanese animation, Amine and or other
content (hereinafter "Content").
4. CPM hereby agrees to provide a prominent logo/link to
MixFact from CMPsites.
5. CPM hereby agrees, during the term of this Agreement on a
non exclusive basis, it will provide content to the Company as listed in exhibit
A on a continuing basis to incorporate into the MixFact database. Content will
include but is not limited to Japanese animation and Anime video segments and
clips, video and audio Documentaries, Product Catalogs, Still clips and photos
and Audio soundtracks taken from CPMs library of wholly owned content and
content licensed from third parties (hereinafter the "Content"), which the
Company will digitize, store and sell through MixFact and
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CMPsites. The amount of Content supplied, digitized and utilized for MixFact
CPMsites and the prices to be charged to consumers will be mutually agreed upon
in good faith by the Company and CPM.
6. Neither the Company or CPM grants to each other its
respective ownership or control over any copyright, trademark, patents, trade
secret or other intellectual property rights.
7. The Company will provide all the technology and service
necessary to digitize and store the Content, process the order requests received
through CPMsites and MixFact, set up and manufacture CDs and DVDs (in the
future) with the selected Content, bill customers credit card or other payment
source and ship the completed CD or DVD package. There shall be no cost to CPM
to the above survices.
8. CPM represents that it has secured all usage and other
licensing rights for Content it will provide to CDK, (collectively the
"Licenses"). CPM will also insure that the Licenses allow for the creation of
CPMdisc, and any other products created hereunder. CPM will be responsible for
payment of Licenses royalties. Its agreed and understood that CPM disc shall
only include only the linear version of the programming supplied by CPM and such
programming shall not be edited nor made interactive in any manner other than
the inclusion of menu pages or chapter stops, and such terms normally understood
in the industry.
9. Revenues from custom compiled CDs purchased through
CPMsites at MixFact will be paid out on a monthly basis first to the Company
then to CPM. Any obligations due CPM, and or any third party pursuant to
Licenses, advertising or any other reason are subordinated to payments due to
the Company.
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(a) The Company will be paid in accordance with the
following chart:
Units sold / month The Company's compensation per CMPdisc (CD)
0-10,000 $5.00/CD
10,001-50,000 $6.00/CD
50,001 and up $6.00/CD plus 5% of the
Gross per CD retail
(b) The Company's compensation per CPM disc shall not
exceed 80% of the retail price paid by the consumer.
10. In addition to the selected Content, CPMdisc will be
configured to contain Web links to CPMsites, MixFact, selected advertisers and
other possible links, which will be mutually agreed by both parties.
11. Each party shall have the right to examine at their own
cost, the books and records of the other party to the extent they pertain to
this Agreement. Such examination shall be made during reasonable business hours
upon reasonable advance written notice at the audited parties regular place of
business where such books and records are maintained. If a discrepancy of
greater than 5% (five percent) or two thousand US dollars (US $2,000.00),
whichever is larger, is discovered, the audited party shall bear the reasonable
cost of such audit as well as pay any outstanding difference owed to the
auditing party.
12. The packaging and discs for all CPMdisc will include CPM,
and the Company and their licensors trademarks and logos and appropriate
copyright notices for the content.
13. CPM acknowledges that the Company is making no
representations or warranties with respect to MixFact and the CDK Technology,
and CPM agrees that the Company shall not be liable to
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CPM or any of their customer, directly or indirectly, in connection with any
claim, or action for damages of any nature, pursuant to or in connection with
this Agreement. CPM agrees that it Will not, and will not permit or assist any
other party to: (i) reverse engineer, disassemble or decompose all or any part
of the CDK Technology, or any copy thereof, or (ii) without the written approval
of the Company, use any trademark or technology of the Company or the Company's
licensors other than as expressly permitted herein. This section survives the
expiration hereof.
14. CPM and the Company, on behalf of themselves and their
respective affiliates acknowledge and agree pursuant to this Agreement that each
of the parties may be given access to or come into possession of confidential
information of the other, which information may contain trade secrets,
proprietary data or other confidential business or technical information. CPM
and the Company, on behalf of themselves and their respective affiliates and/or
assigns acknowledge that it will not use, duplicate or divulge to others any
such confidential information, including, without limitation trade secrets
belonging to or disclosed to each other, without first obtaining written
permission from the party seeking to use the information. All tangible
embodiments of such confidential information shall be delivered to the other
party upon any termination or expiration of this Agreement, or upon request by
such party, whichever first occurs. This section survives expiration hereof.
15. CPM represents that any and all content, packaging,
advertising and other materials provided by it to the Company and/or utilized in
connection herewith do not and will not (i) infringe any third party's
copyright, trademark rights, rights of privacy and publicity, moral rights or
any other proprietary or personal rights or (ii) defame or otherwise injure the
reputation of any person, organization or entity. This section survives the
expiration hereof.
16. Neither CPM or the Company will (i) make false or
misleading representations with regard to the other parties technology or
products, (ii) publish or employ or cooperate in the
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publication or employment of any misleading or deceptive advertising materials,
(iii) make representations warranties or guaranties to anyone with respect to
the specifications, features or capabilities of the other parties technology or
products that are inconsistent with information contained in the respective
packaging materials. This section survives the expiration hereof.
17. This Agreement will remain in effect for three (3) years
if the following annual unit sales performance criteria are met by the marketing
partnership.
Year one: 50,000 units
Year two: 75,000 units
Year three: l00,000 units
If performance criteria are not met by marketing partnership each of CPM or the
Company will have the right to cancel its involvement with the other. On a
program by program basis the term of availability will be listed in exhibit one
and the Company will cease sale and marketing that program.
18. Starting year four (4), CPM will have the right to
annually renew the Agreement on the same terms and conditions provided the
marketing partnership achieves a unit sales performance of 120% of the prior
years performance criteria, and CPM exercises its option by Certified Mail
notice no later than three months prior to the end of the original term or any
extended terms.
19. CPM and the Company shall work together in order to have
CPMsites links and MixFact created and ready for release by June 15, 1999.
20. CPM and the Company hereby agree and acknowledge that the
CPMsites customer list developed from the sale of CPMdisc are proprietary to
both companies, and CPM and the Company hereby agree not to market or otherwise
profit from the sale of this customer list without both
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<PAGE>
parties express written consent. Revenue generated from the sale of customer
list will be split 50% to CPM and 50% to the Company.
21. Company represents and warrants that:
a) it is a legal corporation of the State of New York
b) it is authorized and has the power to enter into this Agreement and to the
best of its knowledge, it is not subject to any agreement or obligation which
would prevent it from entering into or performing this Agreement, or which would
be violated by its performance of this Agreement, or the performance of which
would violate this Agreement;
c) it shall not distribute the CPM Disks in any manner which may give rise to
claims against CPM with respect to any common law or other right (including,
without limitation, any copyright, trademark, trade name, service mark) of any
person or organization, or which may diminish the good will previously
established in the Program;
f) it shall engage in no action that may create a claim against CPM for payment
to third parties for the use of any content other than the Program;
g) all necessary rights in connection with the CPM Disks in the Territory
throughout the Period of this Agreement, including without limitation, all
copyright, trademark and such other rights as may be required, are owned by, or
have been acquired and fully paid for by Licensee;
h) neither CPM nor its parent or any subsidiary, affiliate, agent, distributor
or dealer shall have any responsibility or liability for the making of payments
to any person or organization (including, without
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<PAGE>
limitation, any union or guild or any member thereof, actor, director, writer,
producer, composer, craftsman, musician or performer) in connection with the
distribution of the CPM Disks, or any artwork, packaging, advertising or
promotional materials (including trailers) relating to the CPM Disks, and all
residual and other third party payments, deferred compensation and profit or
gross receipt participation shall be and are the sole responsibility of Company
and shall be paid by Company in a timely fashion so as not to give rise to any
claim against CPM.
i) Company shall maintain a link from its website to any CPM owned website that
CPM may designate
22. The Company agrees to indemnify, defend, and hold
harmless CPM or assigns, from and against any and all claims, demands, or
actions and any losses, expenses, and damages resulting directly therefrom
(including court costs and reasonable attorney fees) based on a claim against
Licensee that the MixFact or CDK Technology employed in creating the product
infringes or abridges a third-party right in the United States in a validly
issued patent, copyright, or trade secret. Any such indemnification by the
Company shall be contingent upon CPM giving the Company prompt written notice of
the claim for which indemnification is sought.
22. The rights and obligations of each of the parties
hereunder shall inure to the benefit of and shall be binding upon the successors
and assigns of such party.
23. The confidential information referred to in this
Agreement does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by the parties,
(ii) was available to the parties on a non-confidential basis prior to its
disclosure to the parties (iii) becomes available to the parties on a
non-confidential basis from a source other than the parties, provided, however,
that such source is not, to the parties reasonable knowledge, bound by a
8
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Confidentiality agreement with the either or any of its Representatives and such
source is otherwise entitled to disclose it.
24. Neither party may assign, in whole or in part, this
Agreement or its rights and obligations under it, without the written consent of
the other party, which shall not be unreasonably withheld. This language does
not apply to a sale of all or substantially all of the assets of either company.
25. CPM explicitly retains all the rights not expressly
granted to Company in this agreement, including without limitation the right to
broadcast the CPM content over network television, pay cable, free cable,
satellite telephony or computer or any other broadcast medium, now known or
developed in the future.
26. CPM will use its web sites to advertise and promote
Company's goods and services provided in this Agreement to the same extent that
it advertises and promotes other third party goods and services. Company will
use its web sites to advertise and promote CPM goods and services provided in
this Agreement to the same extent that it advertises and promotes other third
party goods and services.
27. This Agreement contains the entire agreement between the
parties hereof pertaining to the subject maker hereof, and supersedes and
replaces any and all prior agreements between the parties concerning the subject
matter hereof.
28. The terms and conditions hereof may be changed only by an
agreement in writing signed by the parties hereto.
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29. This Agreement shall be governed by construed and
enforced under the laws of the State of New York without giving effect to the
conflicts or choice of laws provisions thereof.
30. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
CDKnet, LLC Central Park Media
/s/ Michael Jolly /s/ John O'Donnell
-------------------- --------------------
By: Michael Jolly By: John O'Donnell
SVP
EXHIBIT 10.22
-------------
PURCHASE AGREEMENT
Agreement entered this 9th day of August, 1999 by and between CDKnet.Com,
Inc, {"CDKnet") and Y2G.COM, Inc. ("Y2G").
In consideration of the mutual promises of the parties hereto and over good
and valuable consideration, the receipt and sufficiency of which the parties
hereby acknowledge, He parties hereto agree as follows:
1. Y2G agrees to purchase 216,000 shares of common stock of CDKnet for the
aggregate purchase price of $155,000 (pursuant to the wire transfer insertions
attached hereto as Schedule A).
2. Y2G shall have the option for a period of thirty (30) days following the
date hereof to (i) enter into a Purchase Agreement substantially in the form of
Exhibit A hereto providing for, among other things, the purchase by Y2G of up to
an additional 2,784,000 shares of common stock of CDKnet for an aggregate
consideration of approximately $3,565,000, payable in accordance with the terms
and conditions set forth in Exhibit A; (ii) cause CDKnet to enter into an Escrow
Agreement (in connection with the Agreement set forth in Exhibit A)
substantially in the form of Exhibit B hereto; and (iii) enter into a Services
Agreement with CDKnet substantially in the form of Exhibit C hereto, but
including definitive language with respect to CDKnet's Agreement to fully
indemnify Y2G in connection with any intellectual property claims made against
Y2G arising from CDKnet's services thereunder, in each case with such additions,
modifications and revisions as the parties shall agree.
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3. During the option period at least five (5) business days prior to any
contemplated change in, and promptly upon its becoming aware of any other
significant event affecting, CDKnet's business, opinions or prospects,
including, without limitation, any of the following events: any sale of CDKnet's
assets, any sale, issuance or exchange of CDKnet's securities, any default,
breach or violation under any Agreement, corporate organizational docuthent, law
or instruthent binding on CDKnet, any plan to file for bankruptcy protection,
any plan to therge with or into another corporate entity or CDKnet's becoming
aware of actual or threatened litigation against CDKnet, CDKnct shall provide
Y2G with written notice describing any such plan or change. Upon receipt of any
such notice, Y2G shall have the option within three (3) business days of
receiving such written notice to enter into each of the Agreements set forth in
Section 2 hereof in the form of the attachthents hereto, except that with
respect to the form of Services Agreement set forth in Exhibit C, CDKnct shall
agree to fully indemnify Y2G in connection with any intellectual property claims
made against Y2G arising from CDKnet's services thereunder.
4. In the event that Y2G elects not to enter into the Agreements specified
in Section 2 hereof prior to the expiration of the option, then Y2G may elect
(within three business days following the Option Period) to cause the money paid
by Y2G to CDKnet pursuant hereto to be considered a loan, bearing interest at
the rate of 5% per annum, payable interest only for six months on a monthly
basis in arrears, win the principal due at the end of the six month period. If
Y2G makes such election, Y2G will so notify CDKnet in writing, and return to
CDKnet for cancellation all of the shares of CDKnet received hereunder.
5. CDKnet represents to Y2G the following: (a) CDKnet is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and is duly qualified as a foreign corporation
and is in. good standing in each jurisdiction in which
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such qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing could not be expected
to have a material adverse effect on CDKnet. CDKnet has the corporate power and
authority to execute and deliver this Agreement and to perform the provisions
hereof; (b) this Agreement has been duly authorized bar all necessary corporate
action on the part of CDKnet and upon the execution of this Agreement will
constitute the binding obligation of CDKnet enforceable against CDKnet in
accordance with its terms; (c) the execution, delivery and performance by CDKnet
of this Agreement will not (i) contravene, result in any breach of, or
constitute a default under, or result in a lien in respect of any property of
CDKnet under, CDKnet's corporate charter or bylaws, or any agreement or
instrument to which CDKnet is bound, (ii) conflict with or result in a breach of
any of the terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or governmental authority applicable to CDKnet
or (in) violate any provision of any statute or other rule applicable to CDKnet.
6 Except as expressly provided herein, neither party is making any
representations or warranties to the other party in connection with the
transactions contemplated hereby.
7. This Agreement, including any Exhibits and Schedules, represents the
entire agreement between the parties with respect to the subject matter hereof,
and supersedes all prior negotiations and understandings, written or oral,
relating to the subject matter hereof. This Agreement cannot be amended or
modified except in a writing executed and delivered by the party sought to be
charged therewith.
8. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the choice of laws
provisions thereof. Each party hereby consents to the exclusive personal
jurisdiction of the State of New York, and further agrees
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that the only venues for any such action shall be in the County of Nassau and
The County of New York, State of New York.
9. This Agreement may be executed in counterparts, each of which shall be
deemed an original for all purposes, but all of which collectively shall be
deemed one Agreement.
10. The parties may execute this Agreement by manual or facsimile
signature. The signature of any party transmitted to the other party by telecopy
shall be as valid and binding for all purposes as a manual signature and the
receiving party shall be unconditionally entitled to rely on the same.
11. The shares to be issued hereunder shall be imprinted with a legend
restricting their transfer unless the same are registered with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, or in the
reasonable opinion of CDKnet's counsel, registration is not necessary, are being
purchased by Y2G for investment purposes and not with a view to, or in
connection with, any distribution thereof in violation of any securities laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement first
above written.
CDKNET.COM, INC. Y2G.COM, INC.
By: /s/ Steven A. Horowitz By: /s/ Norman Weisfeld
-------------------------------- --------------------------------
Name: Steven A. Horowitz Name: Norman Weisfeld
Title: CEO Title: Principal
Address: 595 Stewart Ave, Address:350 Fifth Avenue
Garden City, NY 11530 66th floor
New York, NY
Telecopicr No. 516-222-2665 Telecopicr No. 212-868-2946
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Exhibit C
Agreement entered this ______ day of August, 1999 by and between
CDKnet.Com, Inc. ("CDKnet") and Y2G.COM, Inc. ("Y2G").
In consideration of the mutual promises of the parties hereto and other
good and valuable consideration, the receipt and sufficiency of which the
parties hereby acknowledge, the parties hereto agree as follows:
1. During the 24 month period commencing August 1, 1999, Y2G will promote
and advertise the CDKnet technology on an ongoing and exclusive basis on the Y2G
website and will promote and advertise the CDKnet website presently designated
as the Mix Factory site on the Y2G website. CDKnet agrees to pay Y2G reasonable
and customary commissions for any other services provided to CDKnet by Y2G or
any of its affiliates.
2. In consideration of the foregoing, CDKnet will pay to Y2G $5,000 per
month, payable on the tenth business day of each month during the term hereof.
3. (a) CDKnet will create (subject to Y2G's reasonable approval) and host
the Y2G/Mix Factory web site (the "Site").
(b) Y2G will obtain, at its sole cost, all of the content to be
delivered through the Site. Y2G will supply such content to CDKnct for use at
the Site. Y2G represents that any and all content, packaging, advertising and
other materials provided by it to CDKnet and/or utilized in connection with the
Site do not and will not (i) infringe any third partys copyright, trademark
rights, rights of privacy and publicity, moral rights or any other proprietary
or personal rights or (ii) defame or otherwise injure the
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reputation of any person, organization or entity. This section survives the
expiration hereof.
(c) Y2G will determine the advertising to be placed at the Site and
collect all fees in connection therewith.
(d) CDKnet will charge $4.95 (which charge will include shipping and
handling) plus a fee for content (which content fee will be determined by Y2G)
for each CD ordered through the Site. CDKnct will collect the CD fees.
(e) Y2G will remit to CDKnet by the tenth business day of each month
20% of the advertising fees collected by Y2G in the prior month in connection
with the Site.
(f) CDKnet will remit to Y2G by the tenth business day of each month
$1.00 plus 80% of the content fee in connection with each CD ordered through the
Site the fee for which was collected by CDKnet in the prior month.
(g) The packaging and discs for any CD ordered through the Site will
include the trademarks and logos of CDKnet and its licensor(s),. Y2G
acknowledges that CDKnet is making no representations or warranties win respect
to the CDK technology, and Y2G agrees that CDKnet shall not be liable to Y2G, or
any customer of Y2G, directly or indirectly, in connection with any claim, or
action for damages of any nature, pursuant to or in connection win this
Agreement, other than the non-performance by CDKnet of its obligations expressly
set forth herein. Y2G agrees that it will not, and will nor permit or assist any
other party to: (i) reverse engineer, disassemble or decompile all or any part
of the CDK technology, or any copy thereof, or(ii) without the written approval
of CDKnet, use any trademark or technology of CDKnet or CDKnet's licensors other
than as expressly permitted herein. This section survives the expiration hereof.
4. This Agreement shall be governed by and construed in accordance win the
laws of the State of New York without giving effect to the choice of laws
provisions thereof, notwithstanding that
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this Agreement and the transactions contemplated herein may not have been
negotiated or consummated in The State of New York. Each party hereby consents
to the exclusive personal jurisdiction of the State of New York, and further
agrees that the only venues for any such action shall be in the County of Nassau
or the County of New York, State of New York.
5. This Agreement may be executed in counterparts, each of which shall be
deemed an original for all proposes, but all of which collectively shall be
deemed one Agreement.
6. The parties may execute this Agreement by manual or facsimile signature.
The signature of any party transmitted to the other party by telecopy shall be
as valid and binding for all purposes as a manual signature and the receiving
party shall be unconditionally entitled to rely on the same.
7. Either party may terminate this Agreement in its sole discretion at any
time upon written notice to the other party, without any further liability to
either party other than payment outstanding, if any, for the months during the
term hereof prior to the termination.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement first
above written.
CDKNET.COM, INC. Y2G,COM, INC.
By BY
------------------------- -------------------------
Name: Name:
Title: Title:
Address: Address: 350 Fifth Avenue
66th floor
New York, NY
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Telecopicr No. Telecopicr No.
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Exhibit A
Agreement entered this day __________ of August 1999 by and between,
CDKnet.Com, Inc. ("CDKnet") and Y2G.COM, Inc. ("Y2G").
In consideration of the mutual promises of the parties hereto and other
good and valuable considerations the receipt and sufficiency of which the
parties hereby acknowledge, the parties hereto agree as follows:
1. Y2G agrees to purchase 3,000,000 shares of common stock of CDKnet
(subject to adjustment as provided below) for the aggregate purchase price of
$3,720,000, subject to adjustment as provided below, payable (pursuant to the
wire transfer instructions attached hereto as Schedule A, for a new bank account
established by CDKnet for this purpose, or as subsequently directed in writing
by CDKnet) at the rate of $155,000 per month during the twenty-four month period
commencing August 1, 1999 (the "Term"), with the first payment due upon the
execution hereof.
2. The monthly amount payable pursuant to Section 1 above (and,
correspondingly, the purchase price) shall be adjusted as follows: within three
business days of the end of each month during the Term hereof, CDKnet will
deliver to Y2G (by telecopier) a written reconciliation of such month's
collected revenues, and within one business day of delivery of such
reconciliation, Y2G will wire to CDKnet the difference between $155,000 and the
revenues collected net of cost of goods sold in connection therewith ("Net
Revenues"). For example, if in August, 1999 CDKnet collects $30,000 of Net
Revenues, then Y2G, within one business day of receiving the reconciliation,
will wire $125,000 to CDKnet for September, 1999. If Net Revenues for any month
exceed $155,000, then CDKnet will,
- 1 -
<PAGE>
within one day of preparing the reconciliation, wire to Y2G the difference
between Net Revenues for such month and $155,000; provided, however that in no
event shall CDKnet be required to wire Y2G any amount in the excess of the
aggregate amount previously paid by Y2G to CDKnet pursuant to this Agreement;
and provided further that, notwithstanding the foregoing, Y2G shall make a
payment to CDKnet pursuant to this Section 2 of not less than $5,000 per month.
3. Attached hereto as Schedule B is a pro forma present budget of CDKnet.
The exact quantification of individual expense items of such budget are subject
to change.
4. The 3,000,000 shares of CDKnet common stock to be issued to Y2G pursuant
to this agreement shall be delivered into escrow (pursuant to the escrow
agreement attached hereto) and are to be released to Y2G as follows:
a. 216,000 shares upon the execution hereof; and
b. 116,000 shares by the tenth business day of each month during the
Term hereof.
5. CDKnet is attempting to market a private placement to accredited
Investors to raise $2,000,000 - $4,000,000. These funds are anticipated to be
used primarily for acquisitions, research and development, advertising and
marketing. Y2G, in its sole discretion, may purchase up to $1,000,000 worth of
the shares being offered in this private placement at any time prior to the
close of business on August 31, 1999, Thereafter, prior to September 30, 1999,
Y2G may, in its sole discretion purchase any unsubscribed shares remaining in
the private placement.
-2-
<PAGE>
6. CDKnet represents to Y2G the following:
a. As of the date of this Agreement, there are approximately
14,300,000 shares of CDICnet common stock issued and outstanding,
as set forth in Schedule C, which Schedule will be delivered by
CDKnet within 15 days of the execution hereof,
b. As of the date of this Agreement, there are approximately
5,000,000 shares of CDKnct common stock reserved for issuance
pursuant to outstanding options and warrants at exercise ranging
from $0.60 to $2.00, as set forth in Schedule D, which Schedule
will be delivered by CDKnet within 15 days of the execution
hereof;
c, As of the date of this Agreement, CDKnet has no outstanding
indebtedness except as set forth in Schedule E hereto; and
d. The parties acknowledge that CDKnet is contemplating a possible 2
for 3 reverse stock split of its common stock. Y2G agrees to vote
its shares of CDKnet stock for such reverse stock split in the
event the CDKnet Board of Directors votes in favor of such
reverse stock split. The number of shares to be issued pursuant
to Section 4 above would be subject to adjutment in accordance
with such reverse stock split.
e. CDK currently has outstanding 5.75% convertible debentures in the
principal amount of $ l,500,000. CDKnet will use its best efforts
to secure the conversion, at a price per share not less than the
offering price in the private placement referred to in Section 5
above, of all of such outstanding convertible debentures.
-3 -
<PAGE>
In the event the conversion price of the debentures is less than
the private placement offering price per share, then the amount
of shares to be issued to Y2G hereunder will be adjusted pro
rata.
f. CPKnet is in the process of filing a registration statetment with
the Securities and Exchange Commission and will use its best
efforts to file such registration statement as promptly as
possible.
7. a. In the event that CDKnet fails to file such registration
statement and is therefore prohibited from trading in the Nasdaq
OTC market, and such failure continues for thirty (30) days after
written notice thereof from Y2G, then Y2G has the right, within
forty-five (45) days following the end of such 30-day period, to
terminate this Agreement. In the event that Y2G exercises such
right to terminate this Agreement, then (1) the money paid by Y2G
to CDKnet pursuant thereto shall be considered a loan, bearing
interest at the rate of 5% per annum, payable interest only for
two years on a quarterly basis in arrears, with the principal due
at the end of the two year period; and (ii) Y2G will return to
CDKnet for cancellation all of the shares of CDKnet received
hereunder except for the initial 216,000 shares and the escrow
agent will return to CDKnet for cancellation all shares then
still in escrow.
b. At any time subsequent to April 1, 2000, Y2G, in its sole
discretion, may give CDKnet notice of its intention to terminate
this Agreement effective three months from receipt of the notice,
in which event Y2G will retain all of the stock released to it
from escrow prior to the date of termination (with no further
rights
-4-
<PAGE>
to any stock or adjustment in number of shares) and CDKnet will
retain all of the monies paid and/or payable by Y2G to the date
of termination.
8. Y2G, Shai Bar Lavi and Steven Horowitz will enter into a shareholders
Agreement pursuant to which they will agree to vote their shares for a Board of
Directors to consist of three designees of Y2G, Steven Horowitz and two
designees of Steven Horowitz, and Shai Bar Levi and one designee of Shai Bar
Lavi. CDKnet will use its best efforts to have the investors in private
placement enter into the shareholders agreement, and Steven Horowitz will use
his best efforts to have over existing shareholders known personally to him
enter into the shareholders agreement. Such shareholders agreement will
terminate, inter alia, in the event this Agreement terminates prior to the
expiration of the Term.
9. Except as expressly provided herein, neither party is making any
representations or Guaranties to the other party in connection with the
transactions contemplated hereby.
10. This Agreemnt, including any Exhibits an Schedules, represents the
entire Agreement between the parties with respect to the subject matter hereof,
and supersedes all prior negotiations and understandings, written or oral,
relating to the subject matter hereof. This Agreement cannot be amended or
modified except in a writing executed and delivered by the party sought to be
charged therewith.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to the choice of laws
provisions thereof, not withstanding that
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<PAGE>
this Agreement and the transactions contemplated herein may not have been
negotiated or consummated in the State of New York. Each party herein consents
to the exclusive personal jurisdiction of the State of New York, and further
agrees that the only venues for any such action shall be in the County of Nassau
and the County of New York, State of New York.
12. This Agreement may be executed in counterparts, each of which shall be
deemed an original for all purposes, but all of which collectively shall be
deemed one Agreement.
13. The parties may execute this Agreement by manual or facsimile
signature. The signature of any party transmitted to the other party by telecopy
shall be as valid and binding for all purposes as a manual signature and the
receiving, party shall be unconditionally entitled to rely on the same.
14. The shares to be issued hereunder shall be imprinted with a legend
restricting their transfer unless the same are registered with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, or in the
reasonable opinion of CDKnet's counsel, registration is not necessary, are being
purchased by Y2G for investment purposes and not with a view to, or in
connection with, any distribution thereof in violation of any securities laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement first
above written.
CDKNET.COM, INC. Y2G.COM, INC.
By By
-------------------------- --------------------------
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<PAGE>
Name: Name:
Title: Title:
Address: Address: 350 Fifth Avenue
66th floor
New York, NY
Telecopier No. Telccopier No.
-7-
<PAGE>
Exhibit B
ESCROW AGREEMENT
AGREEMENT, made as of this __ day of August, 1999, by and among CDKnet.Com,
Inc. ("Seller"), Y2G.COM, Inc. ("Purchaser"), and ___________________________
(the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, The Seller and the Purchaser have entered into an Agreement (the
"Stock Purchase Agreement"), dated of even date herewith, whereby Purchaser
purchased 3,000,000 shares of Seller (subject to adjustment as set forth in The
Stock Purchase Agreement) from Seller (the "Shares");
WHEREAS, the Shares are to be held in escrow pursuant to the terms of the
Stock Purchase Agreement and this Escrow Agreement;
WHEREAS, the Escrow Agent is apprised of the terms and conditions of the
Stock Purchase Agreement and agrees to act, as an escrow agent, in accordance
with the terms and conditions set forth below;
WHEREAS, the parties hereto wish to deposit and have held in escrow, the
Shares (the "Escrow Deposit");
NOW, THEREFORE, in consideration of the mutual Agreements in this Escrow
Agreement and for other good and valuable consideration the sufficiency and
receipt of which each of the parties hereto hereby acknowledge, the parties
hereto agree as follows:
1. Appointment of Escrow Agent. The Seller and the Purchaser hereby appoint
the Escrow Agent as escrow agent for the purposes set forth herein and the
Escrow Agent hereby accepts such appointment on the terms herein provided.
2. Establishment of Escrow.
(a) Purchaser hereby deposits with the Escrow Agent all of the Shares
other than the initial delivery to Purchaser of 216,000 shares.
(b) Purchaser hereby deposits with the Escrow Agent all certificates or
instruments representing or evidencing the Shares, including stock powers signed
in blank for each such certificate or instrument;
(c) The Escrow Agent hereby acknowledges that it holds the Escrow
Deposit subject to the terms and conditions of this Escrow Agreement.
3. Stock dividends. Ownership and Voting Rights.
<PAGE>
(a) In the event that during the term of this Agreement any stock
dividend, reclassification, stock split, readjustment, warrant, option or right
to acquire additional securities are issued with respect to the Escrow Deposit
or any part thereof, or any other changes are made in the capital structure of
the corporation to which the Shares relate, all such new, substituted or
additional shares which Purchaser shall become entitled to receive as a result
thereof shall be promptly delivered to the Escrow Agent on behalf of the
Purchaser (together with appropriate instruments of transfer duly endorsed in
blank) and, from and after the time Purchaser shall be entitled to receive the
same, such shares shall be, and be deemed to be, part of the property shall be
included in the Escrow Deposit.
(b) During the terms of this Escrow Agreement, so long as no Event of
Default has occurred and is continuing, Purchaser shall be entitled to exercise
all rights to vote the Shares contained in the Escrow Deposit. In addition, in
the event of a transaction in which all or substantially all of the stock of
Seller is sold during the term of this Escrow Agreement so long as no Event of
Default has occurred and is continuing, Purchaser will have the right,
exercisable in writing within fifteen days of receiving written notice from
Seller of such transaction, to accelerate all payments outstanding under the
Stock Purchase Agreement (which will be calculated by multiplying $150,000 by a
number equal to 24 minus the number of months elapsed from the date hereof).
Purchaser must pay to Seller by wire transfer such accelerated payment within
five business days of its exercise of such acceleration, upon the collection of
which payment the remaining Shares will be released to Purchaser from the
escrow.
4. Events of Default. An Event of Default shall occur hereunder if (i)
Purchaser shall default on any monthly installment due under the Stock Purchase
Agreement and not cure such default within one business day of notice of such
default, or (ii) the Stock Purchase Agreement is terminated.
5. Application of Escrow Deposit. The Escrow Deposit shall be held in
escrow under the terms of this Escrow Agreement and released by The Escrow Agent
upon the following terms:
(a) Escrow Agent shall deliver 116,000 shares from the Escrow Deposit
to Purchaser on the tenth business day of each month commencing with August
1999.
(b) Upon joint written notice and instruction from the Seller and the
Purchaser that the Escrow Deposit, or any portion thereof, should be disbursed,
the Escrow Agent shall make such disbursement in accordance with the directions
set forth in such joint written notice and instruction.
(c) If at any time, or from time to time, the Seller delivers to the
Escrow Agent and the Purchaser written notice (the "Sellers Notice") asserting
that there has occurred an Event of Default, then the Escrow Agent shall
disburse the Escrow Deposit to the Seller on the fifteenth business day
following receipt of the Sellers Notice; provided that if the Escrow Agent
receives written notice from the Purchaser prior to such fifteenth business day
that a dispute exists with respect to the claims made in the Sellers Notice (the
"Purchaser Dispute Notice"), which purchaser Dispute Notice shall state the
basis of such dispute, the Escrow Agent shall
2
<PAGE>
continue to hold the Escrow Deposit until directed otherwise pursuant to
paragraph (b) above or (d) below.
(d) If the Escrow Agent timely receives a Purchaser Dispute Notice, the
Escrow Agent shall retain the Escrow Deposit until the first to occur of the
following:
(i) receipt by the Escrow Agent of a joint written notice from
the Seller and the Purchaser pursuant to paragraph (b) above, in which
case the Escrow Agent shall disburse the Escrow Deposit (or applicable
portions thereof) as set for in such joint written notice; or
(ii) upon a final non-appealable judgment or final
non-appealable order from a court of competent jurisdiction resolving
the dispute, in which case the Escrow Agent shall disburse the Escrow
Deposit in accordance therewith.
6. Duties of Escrow Agent.
(a) The Escrow Agent shall not be liable for any action taken in good
faith and believed by it to be authorized or within the rights and powers
conferred upon it by this Escrow Agreement and shall have full and complete
authorization and protection for any action taken or suffered by it hereunder in
good faith. The Escrow Agent shall not have duties or obligations other than as
stated herein, and shall be protected when acting upon any notice certificate or
other communication not only as to its execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information therein contained, which it shall have in good faith believed to
have been valid and to have been signed or presented by a proper person or
persons.
(b) The Escrow Agent shall not be bound by any notice or demand with
respect hereto, or any waiver, modification, amendment, termination or revision
of this Escrow Agreement unless delivered in writing to the Escrow Agent and, if
the duties of the Escrow Agent are affected, unless it shall have given its
prior written consent thereto. The Escrow Agent shall not be liable or
responsible for anything done or omitted to be done by it in good faith, it
being understood that its liability hereunder shall be limited solely to
willfull misconduct or gross negligence on its part. The Escrow Agent may rely
and shall be protected from acting or refraining from acting upon, any written
notice, instruction or request furnished to it hereunder and reasonably believed
by it to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall be under no duty to inquire into the authority
of any person acting in connection herewith or into the genuineness of any
signature.
7. Indemnification of Escrow Agent. The Seller and the Purchaser shall
jointly and severally indemnify and hold the Escrow Agent, its employees,
officers, agents, successors and assigns harmless from and against any and all
loss, cost, damages or expenses (including reasonable attorneys' fees) it may
sustain by reason of the Escrow Agent's service as escrow agent hereunder,
except such a loss, cost, damage or expense (including attorneys' fees) incurred
by reason of such acts or omissions for which the Escrow Agent is liable or
responsible under the provisions of Paragraph 6 hereof.
3
<PAGE>
8. Resignation of the Escrow Agent. The Escrow Agent, or any successor
which is hereafter appointed, may at any time resign by giving not less than
thirty (30) days written notice to the Seller and the Purchaser and shall be
discharged of its duties hereunder upon the appointment of a successor Escrow
Agent. In the event of any such resignation, a successor Escrow Agent shall be
promptly appointed by Seller and Purchaser. Any such successor Escrow Agent
shall deliver to Seller and Purchaser a written instrument accepting such
appointment hereunder and thereupon he, she or it shall succeed to all the
rights and duties of the Escrow Agent hereunder and shall be entitled to receive
all the properties held by the predecessor Escrow Agent hereunder. In the event
that Purchaser and Seller fail to appoint a successor Escrow Agent prior to the
expiration of the notice period provided in this Paragraph 8., then Escrow
Agent, upon expiration of such notice period, may file a suit in interpleader in
a court of competent jurisdiction and deliver to such Court this Escrow
Agreement and the Escrow Deposit, as set; forth in Paragraph 10 below. The
Escrow Agent will be relieved from any further obligations hereunder upon
delivery of the Escrow Deposit to such successor Escrow Agent or the Court.
9. Investment of Escrow Deposit. Any and all assets in the Escrow Deposit
that may be invested shall be invested by the Escrow Agent in an
interest-bearing account of the Escrow Agent's choosing, with any and all
interest earned on said assets added to the Escrow Deposit.
10. Remedies of the Escrow Agent.
(a) In the event of any dispute hereunder, or in the event the Escrow
Agent in good faith is in doubt as to what action it should take hereunder, the
Escrow Agent shall have the right to (i) stop all further proceedings in, and
performance of, this Escrow Agreement and instructions received hereunder,
and/or (ii) file a suit in interpleader and obtain an order from a court of
competent jurisdiction remand all persons involved to interplead and litigate in
such court their several claims and rights with respect to the Escrow Deposit
and to deliver this Escrow Agreement and Escrow Deposit into Court whereupon the
Escrow Agent will be relieved from any further obligations hereunder.
(b) While any legal proceeding arising out of this Escrow Agreement is
pending, the Escrw Agent shall have the right to stop all further proceedings
in, and performance of, this Escrow Agreement and instructions received
hereunder until all differences shall have been resolved by agreement or a final
order.
(c) The Escrow Agent may from time to time consult with legal counsel
of its own choosing in the event of any disagreement, controversy, question or
doubt as to the construction of any of the provisions hereof or its duties
hereunder, and it shall incur no liability and shall be fully protected in
acting in good faith in accordance with the opinion and instructions of such
counsel. Any such fees and expenses of such legal counsel shall be considered
part of the fees and expenses of the Escrow Agent for the proposes of Paragraph
1 of this Agreement.
11. Miscellaneous.
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<PAGE>
(a) This Escrow Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
(b) All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered by hand or if mailed, by express, certified or registered
mail, return receipt requested, with postage prepaid, or if sent priority
overnight, next day delivery, by a nationally recognized overnight courier
service that regularly maintains records of items picked up and delivered to the
addresses set forth above. Notices delivered personally shall be deemed
communicated as of the date of actual receipt, mailed notices shall be deemed
communicated as of the date two (2) business days after mailing, and notices
sent by overnight courier shall be deemed communicated as of the date one (1)
business day after sending. For purposes of notice, the addresses shall be:
If to Seller:
---------------------------------
---------------------------------
---------------------------------
If to Purchaser:
---------------------------------
---------------------------------
---------------------------------
If to Escrow Agent:
---------------------------------
---------------------------------
---------------------------------
In each case, with a
copy to:
---------------------------------
---------------------------------
---------------------------------
(c) All questions pertaining to the validity, construction, execution
and performance of this Escrow Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflicts or choice of law principles thereof. Any action, suit or of proceeding
initiated by either party hereto against the other under or in connection with
this Escrow Agreement shall be brought in either Federal or state court in the
state of New York, County of Nassau, as the party bringing such action, suit or
proceeding shall elect, having jurisdiction over the subject matter hereof. All
of the parties to this Escrow Agreement hereby submit themselves to the
jurisdiction of such court.
5
<PAGE>
d) The headings of the sections of this Escrow Agreement are inserted
for convenience only and shall not constitute a part or affect in any way the
meaning or interpretation of this Escrow Agreement.
(e) This Escrow Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute the same instrument. This Agreement shall be binding upon the
execution and delivery by facsimile by all parties to this Agreement as if the
same were manually executed and delivered by such parties. The parties agree to
promptly deliver to each other original executed counterparts of this Agreement
(f) This Escrow Agreement may be amended, modified or supplemented only
by an instrument in writing executed by the Seller, the Purchaser and the Escrow
Agent.
(g) This Escrow Agreement and the agreements contemplated hereby
constitute the entire agreement of the parties regarding the subject matter
hereof, and supersede all prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day and year first above written.
ESCROW AGENT: Seller:
By: By:
Purchaser:
By:
6
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF )
On this ___ day of _________, 199_, before me came______________ , to
me known to be the ____________________ of Y2G.COM, INC., and who executed the
foregoing agreement and acknowledged that he executed the same by the authority
of and at the direction of the board of directors of said company.
- ----------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF )
On this __ day of __________ , 199_, before me came _______________, to
me known to be the ____________________ of CDKNET.COM, INC., and who executed
the foregoing agreement and acknowledged that he executed the same by the
authority of and at the direction of the board of directors of said company.
- ----------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF )
On this __ day of __________ , 199_, before me came _______________, to
me known to be the ____________________ of _____________________, and who
executed the foregoing agreement and acknowledged that he executed the same by
the authority of and at the direction of the board of directors of said company.
- ----------------------------
Notary Public
EXHIBIT 10.23
-------------
TECHNOLOGY HORIZONS CORP.
6% CONVERTIBLE SUBORDINATED DEBENTURE
DUE SEPTEMBER 1, 2003
Number: 7
-------------------
Principal: $
-------------------
Original Issue Date:
-------------------
Registered Holder(s):
-------------------
(name)
-------------------
(name)
Technology Horizons Corp., a Delaware corporation (the "Company") with
principal offices at 595 Stewart Avenue, Suite 710, Garden City, NY 11530, for
value received, hereby promises to pay the registered holder hereof (the
"Holder") the principal sum set forth above on September 1, 2003 (the "Maturity
Date"), in such coin or currency of the United States of America as at the time
of payment shall be the legal tender for the payment of public and private
debts, and to pay interest, less any amounts required by law to be deducted or
withheld, computed on the basis of a 360-day year, on the unpaid principal
balance hereof from the date hereof (the "Original Issue Date"), at the rate of
6% per year, until such principal sum shall have become due and payable, or has
been converted by the Holder pursuant to Section 5, below. Interest payments
will be made in such number of shares of the Company's common stock, no par
value ("Common Stock") computed in accordance with Section 4.2 below and shall
be paid on Maturity, or if the principal of the Debenture is earlier converted,
upon conversion pursuant to Section 5, below. All references herein to dollar
amounts refers to U.S. dollars.
By acceptance and purchase of this Debenture, the registered holder
hereof agrees with the Company that the Debenture shall be subject to the
following terms and conditions:
1. Authorization of Debentures. The Company has authorized the issue
and sale of its 6% Convertible Subordinated Debentures due September 1, 2003
(the "Debentures," such term includes any debentures which may be issued in
exchange or in replacement thereof) in the aggregate principal amount of not
more than U.S. $600,000, issued in multiples of $50,000 in principal amount.
1
<PAGE>
2. Transfer or Exchange. Prior to due presentation to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes. The Debenture is transferable in
whole, but not in part, except may be transferred in part to one or more
investment funds in which are managed by International Investment Group LLC, or
any affiliate thereof.
3. Current Market Price.
3.l. For purposes of this Debenture, "Current Market Price" of
the Common stock means:
(a) If traded on a securities exchange, the closing price
of the Common Stock on such exchange;
(b) If traded over the counter, the high closing bid price
reported by Bloomberg from the NASDAQ OTC Bulletin
Board; or
In all other events, the market price determined by
the Board of Directors of the Company in good faith.
4. Optional Redemption of Debenture. The Company may redeem the
Debentures at any time, in whole or in part, pro rata, upon written notice given
not less than five (5) nor more than ten (10) business days prior to the
redemption date for 120% of the principal amount of the Debenture, plus any
accrued interest. The Debenture may not be converted during the period of time
between the date the notice of redemption is given to the Debenture holders and
the date set therein for payment. In the event the Company defaults upon its
obligation to pay the redemption price on the date set for payment, the variable
conversion rate shall be reduced to 70% rather than the 75% set forth in Section
5 below.
5. Conversion of Debentures.
Conversion of Debenture
(a) Right to Convert. Subject to Section 4 above, the record holder of
this Debenture shall be entitled, on or after the Date of Original Issuance, at
the option of the Holder, to convert this Debenture, in whole or in part, into
the number of fully-paid and non-assessable shares of Common Stock determined in
accordance with the Conversion Formula as set forth below:
Number of shares issued upon conversion = (Principal + Interest)/Conversion
Price, where:
*Principal = the principal amount of the Debenture(s) to be converted;
*Interest = the principal x (N/360) x .06 - (Interest paid prior to
the Date of Conversion), where N = the number of days between (i) the Original
Issuance Date and (ii) the applicable Date
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<PAGE>
of Conversion for the Debenture for which conversions is being elected
(including such date of issuance but excluding such date of conversion); and
*Conversion Price = the lesser of (A) a fixed conversion price equal
to .70 of the average Current Market Price of the Common Stock during the five
trading days preceding the date of original issuance, or (B) variable conversion
price equal to 0.75 of the average Current Market Price during the five-day
trading period ending one trading day preceding, the Conversion Date.
5.2 Exercise of Conversion Privilege In order to exercise the
conversion privilege, the Holder shall surrender such Debenture, together with
the Notice of Conversion annexed hereto as Exhibit 1 appropriately endorsed to
the Company at its principal office, accompanied by written notice to the
Company (a) stating that the Holder elects to convert the Debenture or a portion
thereof, and if a portion, the amount of such portion in multiples of $1,000 in
principal amount, and (b) setting forth the name or names (with address) in
which the certificate or certificates for shares of Common Stock issuable upon
such conversion shall be issued. Provided the Debenture is received properly
endorsed promptly by the Company, the date of conversion of such Debenture shall
be deemed to be the date of receipt of Notice of Conversion, even if the
Company's stock transfer books are at that time closed, and the converting
Holder shall be deemed to have become, on the date of conversion, the record
holder of the shares of Common Stock deliverable upon such conversion. If the
Debenture is not received, properly endorsed by the fifth business day following
the date the Company receives Notice of Conversion, the date of conversion shall
be deemed to be the date the Debenture is received, provided that such later
receipt will not lower the Conversion Price stated in the Notice of Conversion.
Within three business days after the date of conversion, the Company
shall issue and deliver to such converting Holder a certificate or certificates
for the number of shares of Common Stock due on such conversion. No adjustments
in respect of interest or cash dividends shall be made upon the conversion of
any Debenture or Debentures.
Upon conversion of the Debenture in part, the Company shall execute
and deliver to the Holder thereof, at the expense of the Company, a new
Debenture, in aggregate principal amount equal to the unconverted portion of
such Debenture, such new Debenture shall have the same terms and provisions
other than the principal amount as the Debenture or Debentures surrendered for
conversion.
5.3 Duration of Conversion Privilege. The right to subscribe for and
purchase shares of Common Stock pursuant to the conversion privilege granted
herein shall commence on the Original Issue Date and shall expire at 5:00 p.m.,
New York time on September 1, 2003.
5.4 Stock Fully Paid; Not Restricted. The Company covenants and agrees
that:
(a) all shares which may be issued upon the exercise of the
conversion privilege granted herein will, upon issuance in
accordance with the terms hereof, be fully paid,
nonassessable, and free from all taxes, liens and charges
(except for taxes, if any, upon the income of the Holder)
with respect to the issue
3
<PAGE>
thereof, and that the issuance thereof shall not give rise
to any preemptive rights on the part of the stockholders:
(b) all shares which will be issued upon the conversion
privilege granted herein will be free of all restrictions
under the Securities Act of 1933; and will not bear any
legends or be the subject of any stop transfer restrictions;
and
(c) the failure of the Company to issue shares upon the
conversion of the Debenture will cause the holder immediate
irreparable harm.
5.5 Antidilution Provisions. The following provisions apply to the
Debenture:
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iii) combine its outstanding shares
of Common Stock into a smaller number of shares of Common
Stock, (iv) make a distribution on its Common Stock in
shares of its capital stock other than Common Stock, or (v)
issue by reclassification of its Common Stock other
securities of the Company, the conversion privilege of the
Debenture and the Conversion Price then in effect
immediately prior thereto shall he adjusted so that the
Holder shall be entitled to receive the kind and number of
shares of Common Stock and other securities of the Company
which it would have owned or would have been entitled to
receive after the happening of any of the events described
above, had the Debenture been converted immediately prior to
the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this paragraph (a)
shall become effective immediately after the effective date
of such event retroactive to the record date, if any, for
such event.
(b) In case the Company shall issue rights, options, warrants or
convertible securities to all holders of its Common stock,
without any charge to such holders, entitling them to
subscribe for or to purchase shares of Common Stock at a
price per share which is lower at the record date mentioned
below than the then current Conversion Price, the Conversion
Price thereafter shall be determined by multiplying the then
current conversion Price by a fraction (but in no event
greater than 1), of which the denominator shall be (i) the
number of shares of the common stock outstanding immediately
prior to the issuance of such rights, options, warrants or
convertible securities plus (ii) the number of additional
shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be (x) the number of shares
of Common Stock outstanding immediately prior to the
issuance of such rights, options Warrants or convertible
securities plus (y) the number of shares which the aggregate
offering price of the total number of shares offered would
convert at the higher of the then current Market Price, or
then current Conversion Price. Such adjustment shall be made
whenever such rights,
4
<PAGE>
options, warrants or convertible securities are issued, and
shall become effective immediately and retroactively after
the record date for the determination of stockholders
entitled to receive such rights, options, warrants or
convertible securities.
(c) In case the Company shall distribute to all holders of its
shares of Common Stock (i) debt securities or other
evidences of its indebtedness which are not convertible into
Common Stock or (ii) assets (excluding cash dividends or
distributions out of earnings), then the Conversion Price
shall be determined by dividing the then current Conversion
Price by a fraction, of which the numerator shall be the
higher of the then current Market Price, or the Conversion
Price on the date of such distribution, and of which the
denominator shall be such Current Market Price, or such
Conversions Price on such date minus the then fair value of
the portion of the assets or evidences of indebtedness so
distributed applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is
made and shall become effective on the date of distribution
retroactive to the record date for the determination of
stockholders entitled to receive such distribution. The fair
value of such assets shall be determined in good faith by
the Board of Directors of the Company.
(d) To the extent not covered by paragraphs (b) or (c) hereof,
in case the Company shall sell or issue shares of Common
Stock, or rights, options, warrants or convertible
securities containing the right to subscribe for or purchase
shares of Common Stock, at a price per share (determined, in
the case of such rights, options, warrants or convertible
securities, by dividing (i) the total amount received or
receivable by the Company in consideration of the sale or
issuance of such rights, options, warrants or convertible
securities, plus the total consideration payable to the
Company upon exercise or Conversion thereof, by (ii) the
total number of shares covered by such rights, options,
warrants or convertible securities) lower than the
Conversion Price in effect immediately prior to such sale or
issuance, then the Conversion Price shall be reduced to a
price (calculated to the nearest cent) determined by
dividing (I) an amount equal to the Conversion Price
multiplied by the sum of (A) the number of shares of Common
stock outstanding immediately prior to such sale or issuance
plus (B) the number of shares which could have been
purchased at the Conversion Price with the consideration
received by the Company upon such sale or issuance by (II)
the total number of shares of Common Stock outstanding
immediately after such sale or issuance. For the purposes of
such adjustments, the shares of Common Stock, which the
holders of any such rights, options, warrants or convertible
securities shall be entitled to subscribe for or purchase,
shall be deemed issued and outstanding as of the date of
such sale or issuance and the consideration received by the
Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants
or convertible securities, plus the
5
<PAGE>
consideration or premiums stated in such rights, options,
warrants or convertible securities to be paid for the shares
of Common Stock covered thereby. In case the Company shall
sell or issue shares of Common Stock, or rights, options,
warrants or convertible securities containing the right to
subscribe or purchase shares of Common Stock for a
consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the
"price per share" of shares of Common Stock, any
underwriting discounts or commissions shall not be deducted
from the price received by the Company for sales of
securities registered under the Act.
(e) No adjustment in the Conversion Price shall be required in
the following events:
(i) If the amount of such adjustment would be less than
$.05 per share, provided, however, that any adjustment
which by reason of this paragraph 5.5(e)(i) is not
required to be made immediately shall be carried
forward and taken into account in any subsequent
adjustment: or
(ii) The issuance of options under the Company's existing
stock option plans and future stock option plans
approved by the Company's shareholders.
(f) When the number of shares of Common Stock or the Conversion
Price is adjusted as herein provided, the Company shall
cause to be promptly mailed to the Holder by first class
mail, postage prepaid, notice of such adjustment or
adjustments and a certificate of a firm of independent
public accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the
Company) setting forth the number of shares of Common Stock
and the Conversion Price after such adjustment, a brief
statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
(g) For the purpose of this Section 5.5, the following shall
apply:
(i) The term "Common Stock" shall mean (A) the class of stock
designated as the Common Stock of the Company at the date of
this Debenture or (B) any other class of stock resulting
from successive changes or reclassification of such Common
Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment
made pursuant to this Section 5.5, the Holder shall become
entitled to receive any securities upon conversion of the
Company other than shares of Common Stock thereafter the
number of such other securities and the Conversion Price of
such securities shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common
Stock
6
<PAGE>
contained in this Section 5.5.
(ii) If the Common Stock is traded on a securities exchange
or over the counter, the "Current Market Price" for
purposes of this section 5.5 shall mean the average of
the Current Market Prices for the five consecutive
trading days immediately prior to the date of the
event which necessitates an adjustment to the
Conversion Price.
(h) Upon the expiration of any unexercised rights,
options, warrants or conversion privileges, the
Conversion Price shall be readjusted and shall
thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment
not been required, as the case may be) on the basis of
(i) the fact that the only shares of Common Stock so
issued were the shares of Commons Stock, if any,
actually issued or sold upon the exercise of such
rights, options, warrants or conversion rights and
(ii) the fact that such shares of Common Stock, if
any, were issued or sold for the consideration
actually received by the Company upon such exercise
plus the consideration, if any, actually received by
the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion rights
whether or not exercised; provided, however, that no
such readjustment shall have the effect of increasing
the Conversion Price by an amount in excess of the
amount of the adjustment initially made in respect of
the issuance, sale or grant of such rights, options,
warrants or conversion privileges.
5.6 No Adjustment for Dividends. Except as provided in Section 5.5, no
adjustment in respect to any dividends paid shall be made during the term of the
Debenture or upon the exercise of the Debenture.
5.7 Preservation of Purchase Rights Upon Reclassification
Consolidation, etc. In the case of any consolidation of the Company with or
merger of the Company into another corporation or in the case of any sale or
conveyance to another corporation of all or substantially all of the property,
assets or business of the Company, the Company or such successor or purchasing
corporation, as the case may be, shall provide that the Holder shall have the
right thereafter upon payment of the Conversion Price in effect immediately
prior to such action to purchase upon conversion of the Debenture the kind and
amount of shares and other securities and property which the Holder would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Debenture been converted
immediately prior to such action, such agreement shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 5. The provisions of this Section 5.7 shall
similarly apply to successive consolidations, mergers, sales or conveyances.
5.8 Par Value of Common Stock. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Debenture, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue
7
<PAGE>
fully paid and nonassessable shares of Common Stock at such adjusted Conversion
Price.
5.9 Statement on Debenture Certificates. Irrespective of any
adjustments in the Conversion Price or the number of securities convertible,
this Debenture certificate or any certificates hereafter issued may continue to
express the same price and number of securities as are stated in this Debenture
certificate. However, the Company may at any time in its sole discretion (which
shall be conclusive) make any change in the form of the Debenture certificate
that it may deem appropriate and that does not affect the substance thereof; and
any Debenture certificate thereafter issued, whether upon registration or
transfer of, or in exchange or substitution for, an outstanding Debenture
certificate, may be in the form so changed.
6. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder but in lieu of such
fractional shares, the Company shall make a cash payment therefor equal in
amount to the product of the applicable fraction multiplied by the Conversion
Price then in effect.
7. Subordination. Any right of the Holder to payment of principal or
interest from the Company shall be subordinated to the claims and rights of the
holders of the Senior Debt ("Senior Debt Holders"). "Senior Debt" means all
Indebtedness of the Company other than the Debentures, whether outstanding on
the date of execution of this Debenture or thereafter created, incurred or
assumed, except (x) any such Indebtedness that by the terms of the instrument or
instruments by which such Indebtedness was created, assumed or incurred
expressly provides that it (i) is junior in right of payment to the Debentures
or (ii) ranks pari passu in right of payment with the Debentures and (y) any
amendments, modifications or supplements to, or any renewals, extensions,
deferrals, refinancing and refunding of, any of the foregoing. Any cash payment
of principal or interest to the Holder shall be collected, enforced or received
by the Holder as trustee for the Senior Debt Holders and paid over to the Senior
Debt Holders. The Holder agrees that in the event of any payment of principal or
interest by the Company to the Holder by reason of any receivership, insolvency
or bankruptcy proceeding, or proceeding for reorganization or readjustment of
the Company or its properties, or otherwise, then, in any such event, the Senior
Debt Holders shall be preferred in the payment of their claims over the claim of
the Holder to payment of principal or interest against the Company or ifs
properties, and the claims of the Senior Debt Holders shall be first paid and
satisfied in full before any payment or distribution of any kind or character,
whether in cash or property, shall be made to the Holder. Provided, however,
that this Section 7 shall not apply to any payment of principal or interest made
to the Holder while the Company is solvent and not in default with respect to
its Senior Debt.
8. Replacement of Debenture Certificate. Upon receipt of evidence
satisfactory to the Company of the certificate loss, theft, destruction or
mutilation of the Debenture certificate and, in the case of any such loss, theft
or destruction, upon delivery of a bond of indemnity satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of the Debenture certificate, the Company will issue a new Debenture
certificate, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Debenture certificate.
9. Covenants of the Company. So lone as any of the Debentures remain
outstanding, the
8
<PAGE>
Company shall
(a) At all times keep reserved the total number of shares of Common
Stock; necessary for the conversion of all of the then
outstanding Debentures at the then current Conversion Rate;
(b) Not pay any dividends in cash and/or property or other assets of
the Company in respect of its Common Stock or otherwise.
(c) Not issue any debentures of the Company other than the Debentures
unless the rights of the holders of such debentures are
subordinated to the Debentures, in which event the terms of the
subordination provision shall be similar to the terms set forth
in Section 7 of this Debenture;
(d) Not enter into a loan secured by the property and/or assets of
the Company or any of its subsidiaries with (i) any director,
officer or 5% stockholder of the Company, (ii) any entity in
which a director, officer or 5% stockholder has an interest as an
officer, director, partner, beneficiary of a trust or is a 5% or
more equity holder of such entity, or (iii) any parent, spouse,
child or grandchild of an officer, director or 5% stockholder of
the Company upon terms no less favorable to the Company than
those which could be obtained front an "arms-length" lender; and
(e) Not redeem, repurchase or otherwise acquire any shares of the
common or preferred stock of the Company.
10. Default. If any of the following events (herein called "Events of
Default") shall occur:
(a) if the Company shall default in the payment or prepayment of any
part of the principal of any of the Debentures after the same
shall become due and payable, whether at maturity or at a date
fixed for prepayment or by acceleration or otherwise, and such
default shall continue for more than 30 days after written notice
of such Default; or
(b) if the Company shall default in the payment of any installment of
interest on any of the Debentures for more than 30 days after
written notice that the same shall become due and payable; or
(c) if the Company shall make an assignment for the benefit of
creditors or shall be unable to pay its debts as they become due;
or
(d) if the Company shall dissolve; terminate its existence; become
insolvent on a balance sheet basis; commence a voluntary case
under the federal bankruptcy laws or under any other federal or
state law relating to insolvency or debtor's relief; permit the
entry of a decree or order for relief against the Company in an
involuntary case under the federal bankruptcy laws or under
9
<PAGE>
any other applicable federal or state law relating to insolvency
or debtor's relief; permit the appointment or consent to the
appointment of a receiver, trustee, or custodian of the Company
or of any of the Company's property; make an assignment for the
benefit of creditors; or admit in writing to be failing generally
to pay its debts as such debts become due;
(e) if the Company shall default in the performance of or compliance
with any agreement, condition or term contained in this Debenture
or any of the other Debentures and such default shall not have
been cured within 30 days after written notice of such default,
(f) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other statements heretofore or hereafter furnished
by or on behalf of the Company in connection with the execution
and delivery of this Debenture or the Subscription Agreement
shall be false or misleading in any material respect at the time
made; or
(g) Any money judgment, writ or warrant of attachment, or similar
process not covered by insurance in excess of Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate shall be entered or
filed against the Company or any of its properties or other
assets and shall remain unpaid, unvacated, unbonded or unstayed
for a period of thirty (30) days or in any event later than ten
(10) days prior to the date of any proposed sale thereunder; or
(h) The Company shall have its Common Stock suspended from an
exchange or over-the-counter market,
then and in any such event the Holder of this Debenture shall have the option
(unless the default shall have theretofore been cured) by written notice to the
Company to declare the Debenture to be due and payable, whereupon the Debenture
shall forthwith mature and become due and payable, at the applicable prepayment
price on the date of such notice, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived, anything
contained in this Debenture to the contrary notwithstanding. Upon the occurrence
of an Event of Default, the Company shall promptly notify the Holder of this
Debenture in writing setting out the nature of the default in reasonable detail.
11. Remedies on Default; Notice to Other Holders. In case any one or
more of the Events of Default shall occur, the Holder may proceed to protect and
enforce his or her rights by a suit in equity, action at law or other
appropriate proceeding, whether, to the extent permitted by law, for the
specific performance of any agreement of the Company contained herein or in aid
of the exercise of any power granted hereby. If any Holder of one or more of the
Debentures shall declare the same due and payable or take any other action
against the Company in respect of an Event of Default, the Company will
forthwith give written notice to the Holder of this Debenture, specifying such
action and the nature of the default alleged.
10
<PAGE>
12. Amendments. With the consent of the Holders of more than 50% in
aggregate principal amount of the Debentures at the time outstanding, the
Company, when authorized by a resolution of its Board of Directors, may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Debenture or
of any supplemental agreement or modifying in any manner the rights and
obligations of the holders of Debentures or Common Stock issued upon conversion
of the Debentures, and of the Company, provided, however, that no such
supplemental agreement shall (a) extend the fixed maturity of any Debenture, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or alter or impair the right to convert the same
into Common Stock at the rates and upon the terms provided in this Debenture,
without the consent of the Holder of each of the Debentures so affected, or (b)
reduce the aforesaid percentage of Debentures, the Holders of which are required
to consent to any supplemental agreement, without the consent of the Holders of
all Debentures then outstanding.
13. Changes, Waivers, etc. Neither this Debenture nor any provisions
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing .signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except; to the extent
provided in Section 12 of this Debenture.
14. Entire Agreement. This Debenture embodies the entire agreement and
understanding between the Holder and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
15. Governing Law, Jurisdiction, etc.
(a) It is the intention of the parties that the laws of the State of
New York shall govern the validity of this Debenture, the
construction of its terms and the interpretation of the rights
and duties of the parties.
(b) In the case of any dispute, question, controversy or claim
arising among the parties hereto which shall arise out of or in
connection with this Debenture, the same shall be submitted to
arbitration before a panel of three arbitrators in New York, New
York, in accordance with the rules of the American Arbitration
Association. One arbitrator shall be appointed by the party or
parties bringing the claims ("Claimant") and one arbitrator shall
be appointed by the party or parties defending the claim
("Respondent"). The arbitrators selected by such parties shall be
selected within thirty (30) days after notification by the
Claimant to the Respondent that it has determine to submit such
dispute, question, controversy or claim to arbitration. The two
arbitrators so selected shall select a third arbitrator within
thirty (30) days after the selection of the arbitrator selector
by such parties. Should a party fail to select an arbitrator
within the specified time period, or should the arbitrators
selected by the parties fail to select a third arbitrator, the
missing arbitrator or arbitrators shall be appointed by the New
York, New York office
11
<PAGE>
of the American Arbitration Association. The decision of the
panel shall be final and binding on the parties and enforceable
in any court of competent jurisdiction. The costs of the
arbitration will be imposed upon the Claimant and Respondent as
determined by the arbitration panel or, failing such
determination, will be borne equally by the Claimant and the
Respondent. The successful or prevailing party or parties shall
be entitled to recover reasonable attorneys fees in addition to
any other relief to which it may he entitled.
(c) In the event of any dispute, question, controversy or claim
arising among the parties hereto which shall arise out of or in
connection with this Debenture, the parties shall keep the
proceeding related to such controversy in strict confidence and
shall not disclose the nature of said dispute, the status of the
proceeding, or any testimony, documents or information obtained
or exchanged in the course of said proceeding without the express
written consent of all parties to such dispute.
[SIGNATURE PAGE FOLLOWS]
12
<PAGE>
TECHNOLOGY HORIZONS CORP.
[Corporate Seal]
By: /s/ Steven A. Horowitz
-------------------------
Steven Horowitz, President
ATTEST:
By: /s/ Steven A. Horowitz
------------------------------
Steven A. Horowitz, Secretary
Number:
--------------------------------
Name of Holder:
-------------------------
Principal: $
----------------------------
13
<PAGE>
EXHIBIT 1
---------
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby inevocably elects to convert $ ____________ of the above
Debenture No. ______ into ___________ shares of Common Stock of Technology
Horizons Corp. (the "Company") according to the conditions set forth in such
Debenture, as of the date written below.
The undersigned confirms the representations and warranties set forth in the
Subscription Agreement.
------------------------------------------
Date of Conversion*
------------------------------------------
Applicable Conversion Price**
$
------------------------------------------
------------------------------------------
Signature
------------------------------------------
Name
------------------------------------------
Address
* The original Debenture and this Notice of Conversion must be received by the
Company within five business days following the date of Conversion.
** Calculated as follows: .75 x ($ __ + $ __ + $ __ + $ __$ __ ) / 5 or $ ____.
14
EXHIBIT 10.24
-------------
September 1, 1999
Mr. Jon Zazula
Megaforce Records
3301 Windybush Road
New Hope, PA 18938
Dear Mr. Zazula:
CDKnet is pleased to submit the following proposal covering development,
implementation and cost of creating a Megaforce Records (MR) MixFactory enabled
website. The specifics are as follows:
WEBSITE
CDKnet will deliver the MR web site (at no charge on CD-Rom) that CDKnet created
for MR under a prior contract.
MIXFACTORY
The MR web site will include the MixFactory Technology. MixFactory Technology
enables visitors to the MR web site to create customized and personalized
multimedia CDs, using MR artist's video and audio content, on a one-up basis
which will be burnt and mailed out to the consumer the following day. MixFactory
allows MR to create an additional revenue stream from new and old audio, video
and graphical content it owns. The electronic files created with MR's content
will reside on the CDKnet server for production purposes. At no time will CDKnet
assume ownership or licensing ability from content provided by MR. MR will
provide all audio, video, EPK's, movie trailers and graphical source footage to
CDKnet for preparation, free from third party license and royalty obligations.
CDKnet will digitize and prepare MR's content for inclusion in the MixFacotry
portion of the site.
CDKnet will collect and retain shipping and handling charges (approx. $4.95/CD)
as well as twenty percent (20%) of the retail cost before shipping and handling
on each MR's MixFactory CD it prepares and ships. MR will determine content
pricing and retain eighty percent (80%) of retail on each MR's MixFactory CD
before shipping and handling charges. CDKnet will provide an e-commerce solution
and payment to MR along with accounting statements on a monthly basis.
Accounting statements will account for every track of content (video, audio or
other) ordered and database created by consumer purchases. Database created will
be the sole property of MR. MR will receive cross promotion via a link from
CDKnet's MixFactory.com web site.
<PAGE>
TERM
CDKnet will develop and maintain the Megaforce Records MixFactory site for a
period of 2 years on a nonexclusive basis.
Unlike our competitors, as you saw in our meeting, CDKnet offers MR an
opportunity to generate revenues from its web site subscribers using MixFactory
Technology.
Thank you for considering CDKnet and we look forward to working with MR on what
I believe will be a long-standing relationship. If you have any questions, about
CDKnet's proposal please contact me at [email protected] or (212) 547-6070.
Regards, Please show your agreement by signing below:
/s/ Michael Jolly /s/ Jon Zazula
- ----------------------- ----------------------
EVP Entertainment Group Megaforce Records
EXHIBIT 10.25
-------------
This agreement (the "Agreement") is entered into between DreamWorks Records
Corporation, a _________ corporation having its principal place of business
located at 9268 WEST 3RD STREET, BEVERLY HILLS, CA 90210 ("DreamWorks Records")
and CDKnet, LLC, a New York limited liability company having its principal place
of business located at 250 West 57th Street, Suite 1101, New York, NY 10019
("CDKnet") on this ___ day of October, 1999.
WHEREAS, DreamWorks Records is in the business of providing music and
music-related content through various forms of media, including via the
Internet; and
WHEREAS, CDKnet has developed a process based on its CDKO (patent pending)
technology (the "CDK Technology") which enables the integration of stereo audio,
full screen high quality video and seamless Internet Web browsing from a
standard audio CD.
WHEREAS, DreamWorks Records would like to license from CDKnet, and CDKnet would
like to license to DreamWorks Records, the CDK technology, in order to provide
multimedia CD masters to DreamWorks Records, on the terms and conditions below;
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto
and of the mutual benefits to be gained by the performance thereof, and such
other good and valuable consideration, the receipt and sufficiency of which the
parties hereto hereby acknowledge, the parties hereto agree as follows:
1. CDKnet will produce Web-connected multimedia CD masters containing content as
supplied by DreamWorks Records. The CD masters will include interface design,
digitization and compression.
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
3. The packaging and discs for any such multimedia and custom DreamWorks Records
CDK's will include CDKnet's, and its licensor's, trademarks and logos as well as
CDK system requirements.
4. DreamWorks Records represents that it has the rights to any and all content,
packaging, advertising and other materials (collectively, the "Content")
provided by it to CDKnet and/or utilized in connection with the DreamWorks
Records CDK Program, and that such Content does not and will not (i) infringe
any third party's copyright, trademark rights, rights of privacy and publicity,
moral rights or any other proprietary or personal rights or (ii) defame or
otherwise injure the reputation of any person, organization or entity. This
section survives the expiration hereof.
5. It is to the benefit of both parties that from time to time press releases
should be issued regarding companies and artists future projects. It is
understood that each company shall have approval of each press release before
service.
6. This Agreement, and the license granted hereunder, will remain in effect for
one year.
Page 1 of 2
<PAGE>
7. The rights and obligations of the each of the parties hereunder shall inure
to the benefit of and shall be binding upon the successors and assigns of such
party.
8. This Agreement contains the entire agreement between the parties hereof
pertaining to the subject matter hereof, and supersedes and replaces any and all
prior agreements between the parties concerning the subject matter hereof.
9. The terms and conditions hereof may be changed only by an agreement in
writing signed by the parties hereto.
10. This Agreement shall be governed by, construed and enforced under the laws
of the State of New York without giving effect to the conflicts or choice of law
provisions thereof.
11. This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
CDKnet, LLC
By: ______________________
DREAM WORKS RECORDS
By: _______________________
Page 2 of 2
EXHIBIT 10.26
-------------
COLLEGEMUSIC MIXFACTORY
1. CONCEPT
Develop a COLLEGEMUSIC MIXFACTORY Web site enabling CollegeMusic fans
to create a custom CD containing music videos as well as audio tracks.
The CD will also contain integrated Web links to the CollegeMusic Web
site driving targeted traffic.
2. CONSUMER PRICING
The cost of a CollegeMusic custom CD to consumers is an aggregate of
content cost and shipping and handling (approx. $4.95). CollegeMusic
will determine content pricing.
3. COLLEGEMUSIC, INC. PRICING
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
CollegeMusic, Inc. is free to pass along the content preparation costs
to artists submitting content for the program.
4. DEVELOPMENT
The COLLEGEMUSIC MIXFACTORY Web site as well as all multimedia files in
the database will reside on a CDKnet server for production purposes.
CollegeMusic will procure all source footage (including licenses) for
the music videos and audio tracks. CollegeMusic will include a link to
the COLLEGEMUSIC MIXFACTORY Web site on the CollegeMusic.com Web site.
<PAGE>
5. BENEFITS
In return for supporting development of a COLLEGEMUSIC MIXFACTORY Web
site, CollegeMusic, Inc. will receive the following:
- - database of all consumers requesting CollegeMusic custom multimedia CDs
- - revenue generated from sale of content
- - targeted traffic to the CollegeMusic Web site
- - cross-promotion of the COLLEGEMUSIC MIXFACTORY Web site through the
MixFactory.com portal site (under development)
Your signature below indicates acceptance of the general terms of this proposal.
A more detailed agreement will be executed prior to implementation.
- ---------------------------- ----------------------------
Russell Kern Andrew Fischel
VP, Director of Marketing President
CDKnet CollegeMusic, Inc.
EXHIBIT 10.16
-------------
Dated the day of 1999
CDKNET.COM, INC.
and
ASIA PIONEER LIMITED
-----------------------------------------------------------
SUBSCRIPTION AGREEMENT
IN RELATION TO SHARES IN
ASIA PIONEER LIMITED
-----------------------------------------------------------
AGGARWAL & ASSOCIATES,
Solicitors,
Rooms 1905-7, 19th Floor,
St. George's Building,
2 Ice House Street,
Central,
Hong Kong.
Ref.: 0203-0295/99/NA/RKW
<PAGE>
THIS AGREEMENT is made the 16th day of November 1999.
BETWEEN :-
(1) CDKNET.COM, INC., a company incorporated in the state of Delaware, the
United States of America and having its registered address at 595
Stewart Avenue, Suite 710, Garden City, New York 11530, U.S.A. ("CDK");
and
(2) ASIA PIONEER LIMITED, a company incorporated in the Cayman Islands and
having its registered office at Huntlaw Building, P.O. Box 2804, George
Town, Grand Cayman, Cayman Islands ("APL").
WHEREAS :-
(A) APL is a private company limited by shares incorporated in the Cayman
Islands.
(B) CDK is a company incorporated under the laws of the State of Delaware,
U.S.A. further particulars of which as at the date of this Agreement
are set out in Schedule 1 .
(C) APL has agreed to subscribe for the Subscription Shares (as defined
below) and CDK has agreed to issue and allot the same to APL on the
terms and conditions contained in this Agreement.
(D) APL has agreed to enter into a Licencing Agreement with CDK's
subsidiary, CDKNet, LLC for the licencing of such CDK Technology(TM) by
CDKNet, LLC to APL.
NOW IT IS HEREBY AGREED as follows :-
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 In this Agreement, unless the context otherwise requires, the following
words and expressions shall have the following meanings :-
"THIS AGREEMENT" means this agreement as amended, modified or
supplemented from time to time;
-1-
<PAGE>
"APL SHARES"
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
"ARTICLES" means the articles of association of CDK for the
time being;
"BOARD" means the board of directors of CDK for the time
being;
"DIRECTOR" means a director of CDK for the time being;
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended;
"GROUP" means CDK and any other company which is a
Subsidiary of or a holding company of or another
Subsidiary of a holding company of CDK and
"MEMBER(S) OF THE GROUP" shall be construed
accordingly;
"HONG KONG" means the Hong Kong Special Administrative Region;
"SEC" means the U.S. Securities and Exchange Commission;
"SHARES" means shares of common stock, par value US$ 0.0001
per share, of CDK;
"SUBSCRIPTION" means the subscription for the Subscription Shares
pursuant to Clause 2 and "SUBSCRIBE" shall be
construed accordingly;
"SUBSCRIPTION
SHARES"
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
"SUBSCRIPTION [PORTION OMITTED FOR CONFIDENTIAL TREATMENT
SHARE PRICE" AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.]
-2-
<PAGE>
"SUBSIDIARY" for the purpose of this Agreement a company shall
be deemed to be a subsidiary of another company,
if :-
(a) that other company :-
(i) controls the composition of the board
of directors of the first-mentioned
company; or
(ii) controls more than half of the voting
power of the first-mentioned company;
or
(iii) holds more than half of the issued
share capital or issued common share
capital (as the case may be) of the
first-mentioned company (excluding any
part of it which carries no right to
participate beyond a specified amount
in a distribution of either profits or
capital);or
(b) the first-mentioned company is a subsidiary
of any company which is that other company's
subsidiary;
"US$" Means the lawful currency of the United States of
America;
"WARRANTIES" Means the representations, warranties and
undertakings on the part of each CDK and APL
respectively set out in Clause 4 .
1.2 References in this Agreement to ordinances and to statutory provisions
shall be construed as references to those ordinances or statutory
provisions as respectively modified (on or before the date hereof) or
re-enacted (whether before or after the date hereof) from time to time
and to any orders, regulations, instruments or subordinate legislation
made under the relevant ordinances or provisions thereof and shall
include references to any repealed ordinance or provisions thereof
which has been so re-enacted (with or without modifications).
1.3 The headings are inserted for convenience only and shall not affect the
construction of this Agreement.
1.4 Except where the context otherwise requires words denoting the singular
include the plural and vice versa; words denoting any one gender
include all genders; words denoting persons include incorporations and
firms and vice versa.
-3-
<PAGE>
1.5 References to Clauses, Sub-clauses, Paragraphs and Schedules are
(unless the context otherwise requires) to clauses, sub-clauses,
paragraphs of and schedules to this Agreement.
1.6 The Schedules form part of this Agreement.
2. SUBSCRIPTION AND COMPLETION
---------------------------
2.1 APL in reliance upon the representations warranties undertakings
agreements and covenants referred to in this Agreement hereby agrees
and undertakes to Subscribe for the Subscription Shares at the
Subscription Share Price subject to the Articles and the terms and
conditions contained in this Agreement.
2.2
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(i)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(ii)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(iii)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(iv)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(v)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(vi)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-4-
<PAGE>
(vii)
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
(The First Payment, Second Payment, Third Payment, Fourth Payment,
Fifth Payment, Sixth Payment and the Seventh Payment shall hereinafter
collectively be known as "Payments".)
(The First Allotment, Second Allotment, Third Allotment, Fourth
Allotment, Fifth Allotment, Sixth Allotment and the Seventh Allotment
shall hereinafter collectively be known as "Allotments".)
Prior to any of the relevant Payments being made by APL to CDK in
respect of any of the relevant Allotments described above, CDK shall
send to APL (by way of fax and overnight courier) a copy of the
relevant written instructions to the relevant transfer agent or share
registrar to issue the Subscription Shares to be allotted to APL along
with the relevant written confirmation of the transfer agent or share
registrar in respect of such issue instructions relating to the issue
of Subscription Shares to APL. Upon receipt of the fax, APL shall
deliver to CDK within one (1) business day the respective Payment by
way of a wire (or telegraphic transfer) of immediately available funds
to the CDK bank account as directed by CDK by a fax or email of wire
instructions thereof.
2.3 Completion of the First Allotment shall take place promptly upon
execution of this Agreement or at such other time and place as may be
agreed between the parties to this Agreement.
2.4 At completion of the First Allotment :-
2.4.1 CDK shall procure that :-
(a) a meeting of the Board is convened and duly held at which valid
resolutions are passed to authorize the issue and allotment of
the Subscription Shares relating to the First Allotment to APL
and the entering into and completing of this Agreement by CDK;
(b) CDK shall allot and issue credited as fully paid the Subscription
Shares relating to the First Allotment to APL and shall enter the
name of APL in the register of members of CDK as registered
holder of the Subscription Shares;
(c) CDK shall issue and deliver to APL appropriate share certificates
for the Subscription Shares duly executed by CDK.
-5-
<PAGE>
2.4.2 Upon payment of any of the respective Second Payment, Third Payment,
Fourth Payment, Fifth Payment, Sixth Payment and Seventh Payment by APL
to CDK shall procure that :-
(a) such meetings of the Board is convened and duly held at which
valid resolutions are passed to authorize the issue and allotment
of the relevant respective Second Allotment, Third Allotment,
Fourth Allotment, Fifth Allotment, Sixth Allotment and Seventh
Allotment.
(b) CDK shall allot and issue credited as fully paid the Subscription
Shares relating to the relevant and respective Second Allotment,
Third Allotment, Fourth Allotment, Fifth Allotment, Sixth
Allotment and Seventh Allotment in the register of members of CDK
as registered holder of the Subscription Shares relating to the
relevant and respective Second Allotment, Third Allotment, Fourth
Allotment, Fifth Allotment, Sixth Allotment and Seventh
Allotment.
(c) CDK shall issue and deliver to APL appropriate Share Certificates
for the Subscription Shares relating to the relevant and
respective Second Allotment, Third Allotment, Fourth Allotment,
Fifth Allotment, Sixth Allotment and Seventh Allotment.
2.4.3 APL shall procure that a meeting of the board of directors of APL is
convened and duly held at which valid resolutions are passed to
authorize the purchase in respect of the issue and allotment of the
Subscription Shares by CDK and the entering into and completing of this
Agreement by APL;
2.4.4 Upon the completion of the Seventh Allotment of Subscription Shares to
APL, CDK shall within 90 days from the date of the completion of the
Seventh Allotment of Subscription Shares register all the Subscription
Shares allotted to APL per Clause 2.2 above with the SEC.
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
-6-
<PAGE>
3. EVENTS OF DEFAULT
-----------------
3.1 In the event that :-
3.1.1 the Shares are not (i) registered with the SEC pursuant to
Section 12(g) of the Exchange Act and (ii) eligible for trading
on the National Association of Securities Dealers
Over-the-Counter Bulletin Board ("OTCBB") or any nationally
recognized stock exchange or electronic trading system (a
"National Exchange") on or before 28 February 2000 for whatever
reasons; or
3.1.2 the Shares are delisted or otherwise become ineligible for
trading on the OTCBB or on any other National Exchange on or
prior to 1 July 2000, save and except in the following
circumstances :-
(a) the Shares cease to be so listed due to CDK ceasing to have
a class of equity securities registered under the Exchange
Act ; and
(b) the termination of such listing was as a result of a
voluntary act or decision of CDK and its shareholders and
whereby such voluntary act or decision leads to a general
offer being made to all shareholders of CDK for all the
Shares being held by such shareholders; or
3.1.3 if on or before 1 July 2000 :-
(a) CDK shall be subject to any proceedings relating to
bankruptcy, winding up or insolvency in any courts of
competent jurisdiction; or
(b) CDK shall cease, or shall threaten to cease, to carry on its
business;
(c) APL shall terminate (pursuant to the terms of the licence
agreement) such licence agreement for the licence of CDK
Technology(TM) with CDK's subsidiary, CDKNet, LLC;
then without prejudice to any other rights or remedies of APL in
respect of any antecedent breach on the part of CDK under this
Agreement, APL shall be entitled to:
(i) by notice in writing to CDK within a period of [twenty-eight
(28)]
-7-
<PAGE>
days upon APL becoming aware of the happening of any of such
events (whichever is later) to forthwith terminate this
Agreement; and/or
(ii) (if applicable) to terminate such licence agreement for the
licence of CDK Technology(TM) with CDK's subsidiary, CDKNet,
LLC and in which event CDK shall procure its subsidiary
CDKNet, LLC to allow and permit such termination without any
claims, demands or legal action against APL.
3.2 In the event that either :-
3.2.1 APL fails to make any of the Payments on their respective due
dates; or
3.2.2 On or before 1 July 2000 :-
(i) APL shall be subject to any proceedings relating to
bankruptcy, winding up or insolvency in any courts of
competent jurisdiction; or
(ii) APL shall cease, or shall threaten to cease, to carry on its
business; or
(iii) CDK's subsidiary, CDKNet, LLC shall terminate (pursuant to
the terms of the licence agreement) such licence agreement
for the licence of CDK Technology(TM) with APL;
then without prejudice to any other rights or remedies of CDK in
respect of any antecedent breach on the part of APL under this
Agreement, CDK shall :-
(a) be entitled to by notice in writing to APL within a period
of [twenty eight (28) days] upon CDK becoming aware of the
happening of any such event (whichever is later) to
forthwith terminate this Agreement; and/or
(b) (if applicable) be entitled on behalf of CDK's subsidiary
CDKNet, LLC to terminate on behalf of CDKNet, LLC any
licence agreement (in respect of CDKNet, LLC's CDK
Technology(TM)) entered into between CDKNet, LLC and APL.
4. WARRANTIES
----------
4.1 Each party hereto hereby represents and warrants to the other party that :-
-8-
<PAGE>
4.1.1 it has all the necessary capacity to enter into, perform and be
bound by the terms and conditions of this Agreement;
4.1.2 it has taken or will take all steps and action and has obtained
or will obtain all consents, approvals and waivers necessary or
required for it to enter into, perform and be bound by the terms
and conditions of this Agreement;
4.1.3 the terms and conditions of this Agreement are valid and binding
on it and are enforceable against it in accordance with the terms
and conditions set out herein.
4.2 In consideration of APL agreeing to enter into this Agreement CDK
warrants and represents to APL as at the date of this Agreement that,
to the best of CDK's knowledge :-
4.2.1 (a) the particulars of CDK contained in Schedule [1] are true
and accurate in all respects;
(b) CDK has approximately 17,000,000 shares of common stock
issued and outstanding as of 11 November 1999;
4.2.2 all returns particulars resolutions and other documents required
to be filed with the relevant authorities in the U.S.A. by CDK
have been duly filed and CDK has complied with all legal
requirements in connection with its formation and with all issues
of its shares;
4.2.3
[PORTION OMITTED FOR CONFIDENTIAL TREATMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]
4.2.4 the Subscription Shares shall be allotted and issued credited as
fully paid and on terms that they will rank pari passu in all
respects with the chartered rights with the shares of common
stock in CDK in issue as at the date of allotment of the
Subscription Shares ;
4.2.5 (a) CDK has complied with all necessary and applicable
regulations and laws of the SEC and other regulatory
authorities in the United States of America (including the
Exchange Act);
(b) CDK's stock was previously traded on the OTCBB but has
recently been removed from the OTCBB and instead has its
-9-
<PAGE>
shares currently traded on the so-called "Pink Sheets";
4.2.6 (a) the audited consolidated financial statements of CDK and its
Subsidiaries as set out in Form 10-SB filed with the SEC on
7 October 1999 ("FORM 10-SB") a copy of which financial
statements is attached hereto marked "ANNEX 1" has been
prepared in accordance with the requirements of relevant
ordinances, regulations and statutes and in accordance with
generally accepted accounting principles and practices in
U.S.A. consistently applied. Such financial statements are
hereinafter called "THE ACCOUNTS OF CDK".
CDK is now preparing to file and Amendment No. 2 to the Form
10-SB in approximately one week from the date of this
Agreement with the SEC to reflect Form 10-QSB type
disclosures. CDK undertakes to send to APL a copy of the
said Amendment No. 2 immediately after filing of the same
with the SEC;
(b) the Accounts of CDK are true and accurate in all material
respects and show a true and fair view of the assets,
liabilities, capital commitments and the state of affairs of
CDK and its Subsidiaries as at 30th June 1999;
(c) since 30th June 1999 :-
(i) each of CDK and its Subsidiaries has carried on its
business in the ordinary and usual course;
(ii) no distribution of capital or income has been declared
made or paid in respect of any share capital of each of
CDK and its Subsidiaries;
(iii) each of CDK and its Subsidiaries has not assumed or
incurred any liabilities or expenditure otherwise than
in the ordinary course of carrying on its day-to-day
business;
(iv) there has been no material adverse change in the
financial position of each of CDK and its Subsidiaries;
4.2.7 the assets and equipment included in the Accounts of CDK or
acquired by each of CDK and its Subsidiaries since 30th June 1999
are the property of and owned by CDK and/or its Subsidiaries (as
the case may be) and are not subject to any debenture, mortgage,
encumbrance or charge or any other third party interest save as
for such equipment which is leased by,
-10-
<PAGE>
or used as collateral by CDK or its Subsidiaries;
4.2.8 all the technologies and products marketed as developed by each
of CDK and its Subsidiaries are the absolute property of (or for
which the appropriate rights have been granted) CDK and/or its
Subsidiaries (as the case may be) and are not subject to any
third party interest and do not infringe on any intellectual
property rights or other rights whatsoever of any other persons;
4.2.9 all debts owed to each of CDK and its Subsidiaries will be good
and collectable in the ordinary course of business and no amount
included in the Accounts of CDK owing to each of CDK and/or its
Subsidiaries (as the case may be) at 30th June 1999 has been
released for an amount less than the value at which it was
included in the Accounts of CDK;
4.2.10(a) all necessary licences consents permits and authorities have
been obtained by each of CDK and its Subsidiaries to enable
each of them to carry on its business lawfully and
effectively in the places and in the manner in which such
business is now carried on;
(b) each of CDK and its Subsidiaries has not done or omitted to
do anything in contravention or breach of any statute, order
or regulation or the like in U.S.A. or elsewhere applicable
to it or its business and giving rise to any fine, penalty,
default proceedings or other liability on its part;
(c) each of CDK and its Subsidiaries has conducted and is
conducting its business in accordance with applicable laws
and regulations in U.S.A. or elsewhere applicable to it;
4.2.11 there are no agreements or arrangements entered into by each of
CDK and its Subsidiaries otherwise than by way of bargain at
arm's length and all contracts are entered into in the normal
course of business;
4.2.12 each of CDK and its Subsidiaries is not engaged either on its
own account or vicariously in any material litigation or
arbitration or tribunal proceedings and no such litigation
arbitration or tribunal proceedings are pending or threatened by
or against each of CDK and its Subsidiaries;
4.2.13(a) save as for the directors and/or employees set out in
Schedule 2 with particulars of such contract therein, there
are not in existence any contracts of service with directors
or employees of each of CDK and its Subsidiaries which
cannot be terminated by notice without giving rise to any
claim for damages or compensation
-11-
<PAGE>
(other than under any relevant employment legislation;
(b) each of CDK and its Subsidiaries and their respective
employees are not involved in any industrial dispute;
4.2.14(a) each of CDK and its Subsidiaries has properly made all
returns and provided all other information required for the
purposes of taxation and none of such returns is disputed by
the Internal Revenue Services, U.S.A. or any other authority
concerned;
(b) all payments by each of CDK and its Subsidiaries to any
person which ought to have been made under deduction or
withholding of tax have been so made and each of CDK and its
Subsidiaries has (where required by law to do so) accounted
to the Internal Revenue Services, U.S.A. for the tax
deducted or withheld.
4.2.15 that it is not aware of any intention and shall not on or before
1 July 2000 voluntarily (through its shareholders or Directors)
cease to be listed and which act would lead to a general offer
being made to all the shareholders for such shares of CDK being
held by the said shareholders;
4.2.16 that it shall prior to any of the relevant Payments being made
by APL to CDK in respect of any of the relevant Allotments
described in Clause 2.2, it shall send to APL (by way of fax and
overnight courier) a copy of the relevant written instructions to
the relevant issue agent or share registrar to transfer the
Subscription Shares to be allotted to APL along with the relevant
written confirmation of the issue agent or share registrar in
respect of such issue instructions relating to the transfer of
Subscription Shares to APL and not revoke or change its
instructions to the transfer agent or share registrar without the
written consent of APL;
4.2.17 that it shall upon the completion of the Seventh Allotment of
Subscription Shares to APL, use its best endeavors and take all
necessary steps to cause the Subscription Shares to be registered
with the SEC within 90 days from the date of the completion of
the Seventh Allotment of Subscription Shares.
5. ANTI-DILUTIVE PROVISIONS
------------------------
5.1 Subject to Clause 5.2, CDK hereby agrees and undertakes with APL that
it will not for a period of one (1) year from the date of this
Agreement (the "RESTRICTED PERIOD") :-
5.1.1 allot and issue any shares in CDK; or
-12-
<PAGE>
5.1.2 issue securities or any instrument convertible into shares or
debentures, or share warrants or options in respect of shares in
CDK;
at a price less than the Subscription Share Price to any other persons
without the prior consent in writing of APL Provided that the
restrictions herein contained shall not apply to the issue and
allotment of shares of CDK hereto pursuant to the exercise of any
rights under the share option plan in force from time to time for the
benefits of the executives and employees of CDK.
5.2 Notwithstanding the restrictions contained in Clause 5.1, CDK shall be
entitled to do any of the matters restricted pursuant to Clause 5.1
without the prior consent in writing of APL during the Restricted
Period Provided that it shall simultaneously upon the happening of such
event issue and allot such number of additional shares in itself
(excluding fraction of a share if any) to APL as shall be necessary to
ensure that no dilution shall take place in relation to the share
ownership and in the value of its shares held by that other party
contemplated by this Agreement by reason of its doing such matters but
not otherwise.
6. GENERAL
-------
6.1 Nothing in this Agreement shall create, or be deemed to create, any
partnership or the relationship of principal and agent or employer and
employee between the parties.
6.2 This Agreement sets out the entire agreement and understanding between
the parties in relation to the transactions hereby contemplated, and
supersedes all previous agreements, arrangements and understandings
between them with regard to such transactions and neither party is
entering into this Agreement or any of the arrangements contemplated
hereby in reliance upon any representation or warranty not expressly
set out in this Agreement.
6.3 No provision of this Agreement may be amended, modified, waived,
discharged or terminated otherwise than by the express written
agreement of the parties hereto nor may any breach of any provision of
this Agreement be waived or discharged except with the express written
consent of the party not in breach.
6.4 No failure or delay by either party in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise by either party of any right,
power or privilege preclude any further exercise thereof or the
exercise of any other right, power or privilege.
6.5 The rights and remedies of the parties herein provided are cumulative
and not exclusive of any rights and remedies provided by law.
-13-
<PAGE>
6.6 This Agreement shall be binding and enure to the benefit of each
party's successors and permitted assigns but, except as expressly
provided herein, neither party shall assign or transfer all or any of
its rights or obligations hereunder without the prior written consent
of the other party.
6.7 Each party shall be responsible for its own costs incurred in
connection with the negotiation, preparation, execution and carrying
into effect of this Agreement.
6.8 Time shall be of the essence of this Agreement, both as regards the
dates and periods specifically mentioned and as to any dates and
periods which may be substituted by agreement in writing between or on
behalf of the parties.
6.9 In the event that any provision of this Agreement is held to be
unenforceable, illegal or invalid by any court of competent
jurisdiction, the validity, legality or enforceability of the remaining
provisions shall not be affected nor shall any subsequent application
of such provisions be affected. In lieu of any such invalid, illegal or
unenforceable provision, the parties hereto intend that there shall be
added as part of this Agreement a provision as similar in terms to such
invalid, illegal or unenforceable provision as may be possible and be
valid, legal and enforceable.
6.10 This Agreement may be executed in any number of counterparts or
duplicates each of which shall be an original but such counterparts or
duplicates shall together constitute one and the same agreement.
6.11 Each of the parties hereto shall do, execute and perform all such
further deeds, documents, acts and things as the other party may
reasonably require to put into effect the transactions contemplated by
this Agreement.
6.12 All provisions of this Agreement shall so far as they are capable of
being performed and observed continue in full force and effect
notwithstanding completion except in respect of those matters then
already performed.
7. NOTICES
- -- -------
7.1 Any notice required to be given under this Agreement shall be
sufficiently given if delivered personally or forwarded by
internationally recognized overnight couriers or sent by facsimile
transmission to the relevant party at its address or fax number set out
below (or such other address as the addressee has by five days prior
written notice specified to the other parties) :-
To CDK : 595 Stewart Avenue, Suite 710,
Garden City, New York, United States
of America 11530
-14-
<PAGE>
Fax Number : (516) 222 2665
Attention : Steven A. HOROWITZ
To APL : Shop No.3A, Ground Floor
Site 4, Whampoa Garden,
Hung Hom, Kowloon
Hong Kong
Fax Number : (852) 2335 0889
Attention : Keith T.K. WONG
7.2 Any notice delivered personally shall be deemed to have been served at
the time of delivery. Any notice sent by internationally recognized
overnight couriers shall be deemed to have been served 3 business days
after the time at which it was delivered to the courier, the tracking
receipt shall be sufficient to prove such service and notices sent by
facsimile transmission shall be deemed to have been served one business
day after transmission.
8. LAW AND JURISDICTION
--------------------
8.1 This Agreement shall be governed by and construed in all respects in
accordance with the laws of the state of New York in the United States
of America ("New York") and the parties hereby irrevocably submit to
the non-exclusive jurisdiction of the Courts of New York .
8.2 Each of the following parties hereby irrevocably appoints (subject to
substitution by way of written notice) the person set opposite its name
below as its agent to acknowledge and accept service of legal process
on behalf of such party :-
PARTIES NAMES & ADDRESSES OF AGENTS
------- ---------------------------
CDKNet.Com, Inc. Steven A. HOROWITZ
595 Stewart Avenue, Suite 710,
Garden City, New York,
United States of America 11530
Asia Pioneer Limited Keith T.K. WONG
Shop No.3A, Ground Floor
Site 4, Whampoa Garden,
Hung Hom, Kowloon
Hong Kong
Telephone : (852) 9172 5700
Fax : (852) 2335 0889
-15-
<PAGE>
AS WITNESS the parties hereto have caused this Agreement to be executed the day
and year first above written in its counterpart as an Agreement.
-16-
<PAGE>
SCHEDULE 1
----------
CDK
NAME : CDKNET.COM, INC.
PLACE OF INCORPORATION : the State of Delaware, U.S.A.
AUTHORIZED COMMON SHARE CAPITAL : US$4,000 divided into 40,000,000
shares of common stock of par value
US$0.0001 each
ISSUED COMMON SHARE CAPITAL : Approximately 17,000,000 common shares
REGISTERED ADDRESS : 595 Stewart Avenue, Suite 710, Garden
City, New York 11530, U.S.A.
DIRECTORS : Steven A. HOROWITZ
Anthony BONOMO
Andrew SCHENKER
-17-
<PAGE>
SCHEDULE 2
----------
LIST OF CONTRACTS RELATING TO CLAUSE 4.2.13( A)
Name Document
- ---- --------
Shai Bar LAVI Employment Agreement
Tom ROSS Employment Agreement
-18-
<PAGE>
EXECUTION PAGE
<PAGE>
SIGNED by )
)
for and on behalf of CDKNET.COM, INC. in )
the presence of :-Chris Hanscom-Bolton ) /s/ Steven A. Horiwitz
)--------------------------------
/s/ Chris Hanscom-Bolton
- ------------------------
SIGNED by )
)
for and on behalf of ASIA PIONEER LIMITED ) /s/ illegible
in the presence of :- )--------------------------------
Authorized Signature(s)
/s/ illegible
--------------------------------
Authorized Signature(s)
/s/ Keith A. Lee
- ------------------------------
Keith A. Lee
Solicitor
Aggarwal & Associates
Hong Kong SAR
-19-
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 21, 1999, except for Note 12(c) and
(d), as to which the date is October 5, 1999, accompanying the consolidated
financial statements of CDKNET.COM, INC. contained in the Registration Statement
and Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus and to the use of our name as it appears
under the caption "Experts".
GRANT THORNTON LLP
Melville, New York
December 16, 1999
EXHIBIT 99.1
------------
Share Interest of Signatories to the Stockholders' Agreement
------------------------------------------------------------
- ------------------------------------------------------------------------
STOCKHOLDER SHARES PERCENTAGES
- ------------------------------------------------------------------------
Steven A. Horowitz 2,095,221 12.177%
- ------------------------------------------------------------------------
Gary Segal 913,251 5.307%
- ------------------------------------------------------------------------
David Wolf 524,471 3.048%
- ------------------------------------------------------------------------
Albert Horowitz 91,324 .530%
- ------------------------------------------------------------------------
Fred Horowitz 182,690 1.061%
- ------------------------------------------------------------------------
Jack Zemel 55,220 .320%
- ------------------------------------------------------------------------
Marc Zemel 55,219 .320%
- ------------------------------------------------------------------------
Jane Zemel 55,220 .320%
- ------------------------------------------------------------------------
Rona Zemel 126,738 .736%
- ------------------------------------------------------------------------
Alexander Zemel 462,267 2.686%
- ------------------------------------------------------------------------
Edward Papier 144,120 .837%
- ------------------------------------------------------------------------
Michael Sonnenberg 142,857 .830%
- ------------------------------------------------------------------------
Dan Myers 150,509 .874%
- ------------------------------------------------------------------------
Cecile Rosman 91,966 .534%
- ------------------------------------------------------------------------
T. Finnegan/M. Gindel 46,896 .272%
- ------------------------------------------------------------------------
Guadalupe Soguero IRA 71,592 .416%
- ------------------------------------------------------------------------
Dr. Andrew Sirlin 91,259 .530%
- ------------------------------------------------------------------------
Ludwig Sperling 91,181 .529%
- ------------------------------------------------------------------------
Mark Shefts 182,179 1.058%
- ------------------------------------------------------------------------
Dan Finnegan 51,059 .296%
- ------------------------------------------------------------------------
Ira Grunther 36,346 .211%
- ------------------------------------------------------------------------
Andrew Schenker 23,367 .135%
- ------------------------------------------------------------------------
Jerry Swartz 361,739 2.102%
- ------------------------------------------------------------------------
Stephen Birbiglia 85,274 .495%
- ------------------------------------------------------------------------
Craig Conversano 90,860 .528%
- ------------------------------------------------------------------------
Bruce Goldberg 198,463 1.153%
- ------------------------------------------------------------------------
James Messina 86,697 .503%
- ------------------------------------------------------------------------
Newbridge Coverage: Capone, J. 84,336 .490%
Glanzman & J. Murphy, Jr.
- ------------------------------------------------------------------------
Lawrence Raskin 85,176 .495%
- ------------------------------------------------------------------------
Peterson CRT 108,678 .631%
- ------------------------------------------------------------------------
Swartz CRT 202,629 1.177%
- ------------------------------------------------------------------------
