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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number: 0001-22563
CDSI HOLDINGS INC.
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(Name of issuer as specified in its charter)
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<S> <C>
DELAWARE 95-4463937
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(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 S.E. SECOND STREET, MIAMI, FLORIDA 33131
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(Address) (Zip Code)
Issuer's telephone number 305-579-8000
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Securities registered under Section 12(b) of the Exchange Act:
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Title of each class Name of each exchange on which registered
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NONE NONE
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of class)
Redeemable Class A Common Stock Purchase Warrants
(Title of class)
The Issuer hereby amends its Annual Report on Form 10-KSB for the year
ended December 31, 1998 to include the information required by Part III.
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MANAGEMENT
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the Company's
directors and executive officers as of April 26, 1999.
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NAME AGE POSITION
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Richard J. Lampen...................... 45 President, Chief Executive Officer and Director
J. Bryant Kirkland III................. 33 Vice President, Chief Financial Officer,
Secretary and Treasurer
Robert M. Lundgren..................... 40 Director
Henry Morris........................... 45 Director
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RICHARD J. LAMPEN, age 45, has served as President and Chief Executive
Officer of the Company since November 1998 and as a director of the Company
since January 1997. Since October 1995, Mr. Lampen has been the Executive Vice
President of New Valley Corporation ("NVC"), a publicly held company engaged in
the investment banking and brokerage business, in the ownership and management
of commercial real estate in the United States and Russia and in the computer
software business. Since July 1996, he has served as the Executive Vice
President of NVC affiliates, Brooke Group Ltd. ("Brooke"), a New York Stock
Exchange listed holding company, and BGLS Inc., a wholly-owned subsidiary of
Brooke. From May 1992 to September 1995, Mr. Lampen was a partner at Steel
Hector & Davis, a law firm located in Miami, Florida. From January 1991 to April
1992, Mr. Lampen was a Managing Director at Salomon Brothers Inc, an investment
bank, and was an employee at Salomon Brothers Inc from 1986 to April 1992. Mr.
Lampen is a director of NVC, Thinking Machines Corporation, a developer and
marketer of data mining and knowledge discovery software and services in which
NVC indirectly holds a controlling interest, and PANACO INC., an independent oil
and gas exploration and production company. Mr. Lampen has served as a director
of a number of other companies, including U.S. Can Corporation, The
International Bank of Miami, N.A. and Spec's Music Inc., as well as a
court-appointed independent director of Trump Plaza Funding, Inc. Mr. Lampen
received a Bachelor of Arts degree from The Johns Hopkins University in 1975 and
received a Juris Doctorate degree in 1978 from Columbia Law School.
J. BRYANT KIRKLAND III, age 33, has served as the Company's Vice
President, Chief Financial Officer, Secretary and Treasurer since January 1998
and as a director of the Company since November 1998. Mr. Kirkland has served in
various financial capacities with NVC since November 1994 and since January 1998
as the Vice President, Treasurer and Chief Financial Officer of NVC. From July
1992 to November 1994, Mr. Kirkland served in various financial positions at
Liggett Group Inc., a subsidiary of Brooke. Mr. Kirkland received a Bachelor of
Science in Business Administration from the University of North Carolina in May
1987.
ROBERT M. LUNDGREN, age 40, has served as a director of the Company
since January 1997. He also served as Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company from January 1997 through January 14,
1998. Since January 14, 1998, Mr. Lundgren has been employed by Solar Cosmetic
Labs, Inc. as Chief Financial Officer. From November 1994 through January 14,
1998, Mr. Lundgren was employed by NVC where he served as Vice President and
Chief Financial Officer
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since May 1996. From November 1992 through November 1994, Mr. Lundgren worked
for Deloitte & Touche as a Senior Manager in the audit practice. Mr. Lundgren
has been a certified public accountant since 1981 and holds a Bachelor of
Science in Accounting from Wake Forest University.
HENRY MORRIS, age 45, became a director of the Company in May 1997.
Since 1989, Mr. Morris has been the Chairman and President of Morris & Carrick,
Inc., a political and media consulting firm. Mr. Morris is also Chairman of the
Board and Chief Executive Officer of Curran & Connors, Inc., a designer and
producer of annual reports and corporate literature. Mr. Morris received a
Bachelor of Arts degree in 1974 from Columbia College and a Juris Doctorate
degree in 1978 from Columbia Law School.
Each director of the Company holds office until the next annual meeting
of stockholders, or until his successor is elected and qualified. At present,
the Company's By-laws provide for not less than two directors or more than nine
directors. Currently, there are four directors. Biltmore Securities, Inc., the
underwriter in connection with the initial public offering of shares of the
Company's Common Stock (the "IPO"), has the right to designate a director to
serve on the Company's Board of Directors for the three year period beginning on
the date the IPO was effective. The By-laws permit the Board of Directors to
fill any vacancy and such director may serve until the next annual meeting of
stockholders or until his successor is elected and qualified. Officers serve at
the discretion of the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms which they file. Based solely on review of the copies of such forms
furnished to the Company, or written representations that no Forms 5 were
required, the Company believes that, during and with respect to the fiscal year
ended December 31, 1998, all Section 16(a) filing requirements applicable to its
officers and directors were complied with, except a Form 3 with respect to Mr.
Kirkland's election as an executive officer was filed late.
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ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the combined remuneration paid or
accrued by the Company during its last three fiscal years to those persons who
were, at December 31, 1998, the Company's Chief Executive Officer or who were
executive officers whose cash compensation exceeded $100,000 (the "named
executive officers").
SUMMARY COMPENSATION TABLE
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Long Term
Compensation
Annual Compensation ------------------
Name and ---------------------- Common Shares All Other
Principal Position Year Salary Bonus Underlying Options Compensation
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Richard J. Lampen 1998 --- --- --- ---
President and Chief
Executive Officer(1)
Dean R. Eaker 1998 $152,934 --- --- ---
President and Chief 1997 155,149 --- 364,000 ---
Executive Officer(2)
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(1) Richard J. Lampen, who has served as President and Chief Executive
Officer of the Company since November 5, 1998, did not receive any
salary or other compensation from the Company in 1998, other than the
normal compensation paid to directors of the Company. See "Compensation
of Directors."
(2) Mr. Eaker resigned as an executive officer and director of the Company
on November 5, 1998. See "Certain Relationships and Related
Transactions." In connection with such resignation, Mr. Eaker agreed
that all options previously granted to him, whether vested or unvested,
would be cancelled.
STOCK OPTIONS
In order to attract and retain persons necessary for the business of
the Company, the Company adopted the 1997 Stock Option Plan (the "Option Plan")
covering up to 750,000 shares, pursuant to which officers, directors and key
employees of the Company and consultants to the Company are eligible to receive
incentive and/or non-incentive stock options. The Option Plan, which expires ten
years from the date of its adoption, is administered by the Board of Directors
or the Compensation Committee. The selection of participants, allotment of
shares, determination of price and other conditions relating to the grant of
options is determined by the Board of Directors or the Compensation Committee.
Incentive stock options granted under the Option Plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the
Option Plan to a stockholder owning more than 10% of the outstanding Common
Stock may not exceed five years and its exercise price may be not less than 110%
of the fair market value of the shares on the date of the grant. The Company had
granted options under the Option Plan to Mr. Eaker to acquire 364,000 shares of
Common Stock at an exercise price of $4.40 per share. One-third of such options
became exercisable upon consummation
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of the IPO and one-third were exercisable at the end of each of the first and
second year following consummation of the IPO. In connection with Mr. Eaker's
resignation as an executive officer and director of the Company on November 5,
1998, Mr. Eaker entered into an agreement with the Company which, among other
things, cancelled the options granted to him under the Option Plan, whether
vested or unvested.
Under the Option Plan, each director who is not an a full-time employee
of the Company, immediately upon first taking office, is granted options to
purchase 6,000 shares of Common Stock exercisable at the fair market value of
such shares on the date of grant. Options for 3,000 shares covered thereby are
exercisable immediately and options for 3,000 shares become exercisable on the
first anniversary of the date of grant. Subsequently, the Option Plan provides
for annual grants of options to purchase 3,000 shares of Common Stock upon
reelection as a director of the Company.
There were no stock options granted to or exercised by any of the named
executive officers during 1998.
EMPLOYMENT AGREEMENTS
The Company had entered into an employment agreement (the "Employment
Agreement") with Dean R. Eaker, its President and Chief Executive Officer until
his resignation on November 5, 1998. The Employment Agreement had an initial
term that expired on June 30, 1998, with automatic renewals thereafter for
additional one-year periods unless notice of non-renewal was given by either
party within the ninety-day period prior to the termination date. The Employment
Agreement provided for a base salary of $180,000 which may be supplemented by
discretionary and performance increases as may be determined by the Board of
Directors. The Employment Agreement provided, among other things, for
participation in an equitable manner in any profit sharing or retirement, life
insurance and disability plans for employees or executives and for participation
in other employee benefits applicable to employees and executives of the
Company. Pursuant to the Employment Agreement, termination of employment by the
Company without "cause", or by the executive following a material adverse change
in title, duties or benefits, would subject the Company to liability for
liquidated damages in an amount equal to six months' base salary. The Employment
Agreement contained a non-competition covenant with the Company for a period of
one-year following termination of employment.
In connection with Mr. Eaker's resignation, Mr. Eaker entered into an
agreement with the Company which terminated his employment agreement as of
November 5, 1998.
COMPENSATION OF DIRECTORS
The Company pays each director who is not a full-time employee of the
Company an annual retainer of $5,000, payable quarterly, and reimburses the
directors for reasonable travel expenses incurred in connection with their
activities on behalf of the Company.
Under the Company's Option Plan, each director who is not an executive
officer of the Company, immediately upon first taking office, is granted options
for 6,000 shares of Common Stock exercisable at the fair market value of such
shares on the date of grant. Options for 3,000 shares covered thereby are
exercisable immediately and options for 3,000 shares will be exercisable on the
first anniversary of the date of grant. Subsequently, annual grants of options
to purchase 3,000 shares of Common Stock will be made upon such person's
reelection as a director of the Company.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 26, 1999, the beneficial
ownership of the Company's Common Stock (the only class of voting securities) by
(i) each person known to the Company to own beneficially more than five percent
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's named executive officers (as such term is defined in the Summary
Compensation Table above) and (iv) all directors and executive officers as a
group. Unless otherwise indicated, each person possesses sole voting and
investment power with respect to the shares indicated as beneficially owned, and
the business address of each person is 100 S.E. Second Street, Miami, Florida
33131.
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NUMBER OF SHARES OF
NAME AND ADDRESS(1) COMMON STOCK PERCENTAGE OF OWNERSHIP
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New Valley Corporation(2)(3)..................... 2,990,000 64.7%
Direct Assist Holding, Inc.
Dean R. Eaker(4)................................. -0- --
67 Stonehedge Drive South
Greenwich, CT 06831
*
J. Bryant Kirkland III(5)........................ 9,000
*
Richard J. Lampen(5)............................. 9,000
*
Henry Morris(5).................................. 9,000
271 Madison Avenue
New York, NY 10016
*
Robert Lundgren(5)............................... 16,333
4920 N.W. 165th Street
Miami, FL 33014
All executive officers and directors
as a group (4 persons)(5).................. 43,333 1.4%
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* Less than 1%
(1) Unless otherwise indicated, each named person has sole voting and
investment power with respect to the shares set forth opposite such
named person's name.
(2) Includes 500,000 shares subject to options and 1,000,000 shares subject
to warrants which are currently exercisable or exercisable within 60
days of the date hereof.
(3) Both NVC and Direct Assist Holding, Inc. ("DAH"), a wholly-owned
subsidiary of NVC, have shared voting and investment power with regard
to such shares. J. Bryant Kirkland III, an executive officer and a
director of the Company, serves as Vice President, Chief Financial
Officer and Treasurer of NVC and DAH and Richard J. Lampen, an
executive officer and a director of the Company, serves as Executive
Vice President of NVC and DAH and as a director of NVC. Neither Mr.
Kirkland nor Mr. Lampen has investment authority or voting control over
the Company's securities owned by NVC or DAH. The other executive
officers and directors of NVC and DAH are Bennett S. LeBow, Chairman
and Chief Executive Officer of NVC; Howard M. Lorber, President of NVC
and a director of NVC and Chairman, President
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and Chief Executive Officer of DAH; Marc N. Bell, Vice President,
Associate General Counsel and Secretary of NVC; and Henry C. Beinstein,
Arnold I. Burns, Ronald J. Kramer, and Barry W. Ridings, directors of
NVC.
(4) Mr. Eaker resigned as President, Chief Executive Officer and a director
of the Company on November 5, 1998.
(5) Includes shares subject to options and/or warrants currently
exercisable or exercisable within 60 days of the date hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DAMI TRANSACTION. On November 5, 1998, the Company contributed the
non-cash assets and certain liabilities of its on-line data delivery service
business (the "PC411 Service") to Digital Asset Management, Inc. ("DAMI"). DAMI
was a newly formed corporation organized by Dean Eaker, the former President,
Chief Executive Officer and a director of the Company, and Edward Fleiss, the
former Vice President and Chief Technology Officer of the Company, to continue
to operate and develop the PC411 Service. The Company received preferred stock
representing an initial 42.5% interest in DAMI in exchange for the contribution
of the PC411 Service. Acxiom Corporation ("Acxiom") purchased preferred stock
representing a 42.5% interest in DAMI for $1,250,000 and will initially
designate a majority of the Board of Directors of DAMI. DAMI's management,
including Messrs. Eaker and Fleiss, will hold an initial 15% interest in DAMI
with options to increase their ownership position to 50% upon satisfaction of
certain operational and financial benchmarks over a three-year period.
The Company has agreed, under certain conditions, to fund up to
$200,000 of an $800,000 working capital line to be provided to DAMI by Acxiom,
the Company and Dean R. Eaker, and has received a request for this funding from
DAMI.
Effective with the closing of the DAMI transaction, Dean R. Eaker and
Edward A. Fleiss resigned their positions with the Company and entered into an
agreement with the Company terminating their employment agreements. The Board of
Directors of the Company elected Richard J. Lampen, a director of the Company,
as President and Chief Executive Officer, and J. Bryant Kirkland III, Vice
President and Chief Financial Officer of the Company, as a director. Messrs.
Lampen and Kirkland also serve as executive officers of NVC.
NEW VALLEY CORPORATION. The Company and DAH, a wholly owned subsidiary
of NVC, entered into an agreement dated as of May 10, 1995, as amended, pursuant
to which the Company sold and DAH purchased 1,820 shares of the Company's
authorized Preferred Stock for an aggregate of $1,001,000 ($550 per share).
Initially, the Preferred Stock was convertible into shares of Common Stock on a
one for one basis. In connection with the Loan Agreement (defined below), the
conversion ratio on the Preferred Stock was increased to 4.7395 shares of Common
Stock for each share of Preferred Stock. The holder of the Preferred Stock was
entitled to receive an annual cash dividend of $55 for each share of Preferred
Stock. The right to receive dividends was cumulative. Approximately $170,000 in
accrued and unpaid dividends was paid in May 1997 out of the net proceeds of the
IPO.
The Company entered into a Loan and Security Agreement, dated as June
27, 1996, as amended (the "Loan Agreement"), with NVC pursuant to which NVC
agreed, from time to time and in its absolute and sole discretion, to lend the
Company up to an aggregate of $750,000. From June 27, 1996 to May 15, 1997 NVC
made 23 advances aggregating $659,148. Each advance was evidenced by a demand
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promissory note issued by the Company and payable to NVC with interest at a rate
of 12% per annum (the "NVC Notes"). The NVC Notes were secured by all of the
assets of the Company. In May 1997 the Company issued 1,000,000 warrants (the
"NVC Warrants") to NVC in satisfaction of $250,000 of the indebtedness owed to
NVC. The NVC Warrants are of the same class and have the same terms and
conditions as the warrants offered in the IPO. Accordingly, each NVC Warrant
entitles the holder thereof to purchase one share of Common Stock at a price
equal to $6.10 per share beginning one year from the date of the IPO, May 14,
1998, and ending four years thereafter, May 13, 2002. Upon consummation of the
IPO, the remaining amount due to NVC, including accrued interest, $447,064, was
repaid out of the proceeds of the IPO and the Loan Agreement was terminated.
In January 1997, the Company issued to DAH options to purchase 500,000
shares of Common Stock at an exercise price of $5.75 per share. The Company has
agreed with DAH that, upon its written request, the Company will file a
registration statement with respect to the shares of Common Stock acquired upon
the exercise of such options. The Company has agreed, to the extent permitted by
law, to indemnify and hold harmless each of DAH and NVC against certain
liabilities in connection with the registration and offering of the Company's
securities, including liabilities arising under the Securities Act of 1933, the
Securities Exchange Act of 1934 or any comparable state securities laws. The
Company has further agreed to pay all fees and expenses incident to the
registration of such securities, except selling commissions and fees and
expenses of counsel and any other professional advisors, if any, to each of DAH
and NVC.
Certain accounting and related financial functions are performed on
behalf of the Company by employees of NVC. Expenses incurred relating to these
functions are allocated to the Company and paid as incurred to NVC based on
management's best estimate of the cost involved. The amounts so allocated for
the Company's fiscal years ended December 31, 1997 and 1998 were immaterial.
OTHER. In 1997, the Company reimbursed $10,000 to Matthew E. Stasior, a
former director of the Company, for expenses in connection with the IPO.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d), the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
April 28, 1999, on its behalf by the undersigned, thereunto duly authorized.
CDSI HOLDINGS INC.
By: /s/ J. Bryant Kirkland III
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Vice President, Chief Financial Officer and
Treasurer
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