COMPU-DAWN, INC.
77 SPRUCE STREET
CEDARHURST, NEW YORK 11516
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF
THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about March 11, 1999 to
all stockholders of record of Compu-DAWN, Inc. ("Compu-DAWN" or the "Company"),
at the close of business on February 28, 1999. You are receiving this
information in connection with the election of certain persons to a majority of
the seats on the Board of Directors of the Company as a result of the
transactions discussed below. This Information Statement is required by Section
14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1
promulgated thereunder ("Rule 14f- 1"). YOU ARE URGED TO READ THIS INFORMATION
STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION.
FUTURE CHANGE IN MAJORITY OF DIRECTORS
Introduction
On January 8, 1999, e.TV Commerce, Inc. ("e.TV"), a wholly owned subsidiary
of Compu-DAWN, acquired certain assets of LocalNet Communications, Inc.
("LocalNet") pursuant to a Peaceful Surrender Agreement. The LocalNet assets
were acquired to satisfy $750,000 in principal of a $1,800,000 secured loan
previously made by Compu-DAWN to LocalNet pursuant to a Loan and Security
Agreement (the "Loan Agreement) as of October 6, 1998 and as amended as of
October 23, 1998 and November 12, 1998 (the "Loan"). The Loan was secured by all
of the assets of LocalNet.
At that time e.TV commenced operations of the same type of business
previously conducted by LocalNet. Contemporaneously, Compu-DAWN and e.TV entered
into employment agreements with certain persons who were formerly part of
LocalNet's management. Additionally, Compu-DAWN agreed to expand its Board of
Directors from five to seven members, comprised of: Mark Honigsfeld and Louis
Libin, who are currently directors of Compu-DAWN, Robert E. (Teddy) Turner IV
and Rudy C. Theale, Jr., two of the founders and former management personnel of
LocalNet, Faith Griffin, who was nominated by Messrs. Honigsfeld and Libin,
Chris Liston, who was nominated by Messrs. Turner and Theale and one person to
be nominated by Messrs. Honigsfeld, Libin, Turner and Theale who has not been
named yet. Messrs. Turner, Theale and Liston and Ms. Griffin will be elected to
the Board at least ten days after the mailing of this Information Statement.
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Acquisition of LocalNet's Assets
During the first week of January, 1999, Compu-DAWN became aware that
LocalNet was in default of certain representations and warranties and covenants
under the Loan Agreement. On January 8, 1999 e.TV, as assignee of Compu-DAWN's
interest under the Loan Agreement and LocalNet entered into a Peaceful Surrender
Agreement pursuant to which LocalNet surrendered certain of its assets to e.TV
in satisfaction of $750,000 in principal of the Loan.
The LocalNet assets acquired by e.TV included, among other things,
LocalNet's accounts receivable, other earned revenue, obligations and accounts
owed to LocalNet, furniture, equipment, inventory, insurance claims, tax refunds
and rebates owed to LocalNet, all funds and deposits of LocalNet, computer
software and internet domain names and website addresses.
Compu-DAWN, through e.TV, is using the assets acquired to operate in the
internet, e-commerce and, telecommunications business (the "e.TV Business"),
which is similar to the business operated by LocalNet up to the time of the
asset acquisition. e.TV markets and sells its products and services primarily
using a person to person sales approach with the services of commissioned sales
representatives in a multi-level network marketing organization. Key services
and products include:
o Interactive advanced digital tv set top boxes which enable the consumer
to access the internet through the consumer's tv set over a telephone line,
conduct electronic commerce through e.TV's own e-commerce shopping mall, and
access a variety of different software applications through network computing
capabilities; and
o Sales of access to the internet as a reseller for an internet
service provider;
o Sales of long distance telephone service.
Employment Agreements.
Contemporaneously with the consummation of the Peaceful Surrender
Agreement, Compu-DAWN and e.TV entered into three-year employment agreements
with Robert E. (Teddy) Turner, IV, Chairman of the Board and co-founder of
LocalNet, and Rudy C. Theale, Jr., President and co-founder of LocalNet. Mr.
Turner was appointed Chairman of the Board of Compu-DAWN and a director e.TV.
Mr. Theale was appointed Executive Vice President of Compu-DAWN, and President
and a director of e.TV. These employment agreements are more particularly
described under "Executive Compensation - Employment Contracts, Termination of
Employment and Change- in-Control Arrangements" below.
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Board of Directors.
Compu-DAWN has agreed to expand its Board of Directors to seven directors
and cause the board to be comprised of Messrs. Honigsfeld, Libin, Turner and
Theale, one person nominated by Messrs. Honigsfeld and Libin, one person
nominated by Messrs. Turner and Theale and one person nominated by Messrs.
Honigsfeld, Libin, Turner and Theale. Faith Griffin has been nominated by
Messrs. Honigsfeld and Libin and Chris Liston has been nominated by Messrs.
Turner and Theale. Messrs. Honigsfeld, Libin, Turner and Theale have not yet
named a nominee for the remaining seat. In order to facilitate the
reconstitution of the Board, three of Compu-DAWN's current directors, William
Rizzardi, Harold Lazarus and Alfred Luciani have indicated they will resign as
directors of the Company when their successors have been nominated. Ms. Griffin
and the yet unnamed nominee will be independent directors. Mr. Liston has been
the Vice President of Business Development of e. TV since January 8, 1999. He
was a consultant to, and then an officer of, LocalNet prior to the asset
acquisition. It is anticipated that Ms. Griffin and the unnamed nominee will
succeed Mr. Rizzardi and Dr. Lazarus as members of Compu-DAWN's audit committee.
Until such time as the unidentified nominee has been named, Dr. Lazarus will
continue as a director of Compu-DAWN and an audit committee member. The
reconstitution of the Board is anticipated to be effective at the time
Compu-DAWN complies with Rule 14f-1 under the Securities Exchange Act of 1934,
i.e. at least ten days after the mailing of this Information Statement.
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The names and the positions held by, each present executive officers and
director of the Company, and Faith Griffin and Chris Liston (collectively the
"Nominees") his or her ages as of February 12, 1999 are set forth below.
Class of
Name Age Position Held Dictatorship
- ---- --- ------------- ------------
Mark Honigsfeld 44 Chief Executive Officer, II
President, Secretary and Director of
Compu-DAWN; Chief Executive
Officer, Secretary, Treasurer and
Director of e.TV
Louis Libin 39 Chief Technology Officer, Senior III
Executive Vice President and Director of
Compu-DAWN; Senior Executive Vice
President and Director of e.TV
William D. Rizzardi(1) 55 Director I
Harold Lazarus, Ph.D.(2) 71 Director II
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Alfred Luciani(1) 53 Director I
David Greenspan 33 Chief Financial Officer of Compu-DAWN; -
Chief Financial Officer and Treasurer of e.TV
Robert E.(Teddy)
Turner IV(3) 35 Chairman of the Board, Director of e.TV -
Rudy C. Theale, Jr.(3) 24 Executive Vice President of Compu-DAWN; -
President and Director of e.TV
Faith Griffin(4) 49 None (4) -
Christopher Liston(4) 38 Vice President Business Development -
of e.TV
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(1) He has indicated that he will resign as a director when Compu-DAWN has
complied with the requirements of Rule14f-1.
(2) He has indicated that he will resign as a director when his successor
has been nominated and the Compu-DAWN has complied with the
requirements of Rule 14f-1.
(3) He will be elected by the current board members to fill a vacancy
created on the Board when the Board of Directors was expanded from five
to seven to members by resolution of the Board adopted at a meeting of
the Board of Directors on January 7, 1999, at the time Compu- DAWN has
complied with Rule 14f-1.
(4) Will be elected as a director to fill the vacancy created by the
anticipated resignation of Mr. Rizzardi or Mr. Luciani as described in
footnote 1.
Mark Honigsfeld
Mr. Honigsfeld joined the Company as Chairman of the Board, Secretary and a
director in August 1996 and, effective October 1, 1996, he was elected Chief
Executive Officer of the Company and effective January 8, 1999, he was elected
President of Compu-DAWN. Mr. Honigsfeld has also been the Chief Executive
Officer, Treasurer and Secretary and a director of e.TV since January 7, 1999.
In 1978, he founded Facelifters Home Systems, Inc. ("FACE"), a cabinet
manufacturing and installation company for which he served as Chief Executive
Officer and Chairman of the Board until April 25, 1996. On such date, FACE, a
publicly-traded company, was acquired by a New York Stock Exchange company in a
transaction valued at approximately $70 million to FACE's stockholders. Prior to
the merger, FACE's revenues on an annualized basis approached $50 million. As
the founder, Chief Executive Officer and Chairman of the Board, Mr.
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Honigsfeld was directly involved in the planning and development of almost all
areas of FACE's business, including corporate finance, public offerings,
investor relations, mergers and acquisitions, licensing, product design and
engineering, sales and marketing, manufacturing, field installation, customer
service, management information services and management training. Prior to the
sale transaction, FACE had approximately 600 employees and associates
representing its products and services at 28 locations in 14 states,
approximately 135 telemarketing personnel, 180 direct sellers, 120 manufacturing
employees and 165 supervisory, management and administrative personnel. In
addition, FACE had working arrangements with approximately 175 independent
contracting companies nationwide. Mr. Honigsfeld holds a Bachelor of Science
Degree in Industrial Arts, magna cum laude, and a Master of Science Degree in
Industrial Arts, with honors, from City College of the City University of New
York.
Louis Libin
Mr. Libin joined the Company in January 1997 on a per diem basis as Chief
Technology Officer and a director. Effective March 10, 1997, he began to serve
as the Company's Chief Technology Officer on a full-time basis. Effective
January 7, 1999, Mr. Libin was elected Senior Executive Vice President of
Compu-DAWN. Effective January 8, 1999, he was elected Senior Executive Vice
President and a director of e.TV. Since 1989, Mr. Libin has represented the
United States on satellite and transmission issues at the International
Telecommunications Union (the "ITU") in Geneva, Switzerland. Mr. Libin has also
been Chairman of the Expert Group On Broadcast Interactive Services of the ITU
since 1991. From 1987 to 1997, Mr. Libin served as the Director of Technology
(specializing in broadcast transmission systems) for the General Electric
Corporation ("GE") and the National Broadcasting Corporation. From 1995 to 1997,
Mr. Libin also served as Assistant Secretary of all of GE's wholly-owned
subsidiaries that are involved in broadcast media, with the responsibility for
technical developments and all Federal Communications Commission (the "FCC")
issues and licenses. From 1983 to 1986, Mr. Libin was a project manager for
Radio Corporation of America ("RCA") until RCA's acquisition by GE. From 1981 to
1982, Mr. Libin was employed by the Loral Corporation as an electronic design
engineer where he designed radio frequency systems for the United States
military. From 1980 to 1981, Mr. Libin was a design engineer for the Chryon
Corporation, a computer graphics company. From 1979 to 1980, he worked for
Burroughs Computer Systems, Inc. (now part of Unisys) as a field engineer.
Additionally, since 1988, Mr. Libin has acted as a consultant and advisor to the
FCC in connection with the planning of communications systems and logistics for
major events in the United States and abroad, including political conventions,
presidential inaugurations, and the 1996 Summer Olympics in Atlanta. Mr. Libin
is an active member of the National Society of Professional Engineers and the
Association of Federal Communications Consulting Engineers. He also sits on the
Engineering Advisory Board of the National Association of Broadcasters. Mr.
Libin received a B.S.E.E. Degree in Electrical Engineering from the Pratt
Institute and completed his graduate studies in optical electronics at M.I.T.'s
Executive Program in 1991. Mr. Libin has planned and managed telecommunications
projects in the United States and in Europe. Mr. Libin was responsible for the
planning and implementation of a new television and telecommunications network
in New Zealand in 1990. Mr. Libin has also provided expert consulting on
satellite issues in certain of the republics of the former
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Soviet Union. Mr. Libin was also instrumental in the development of the new
transmission technology and the algorithms for software modeling of the new
North American digital terrestrial television system which was approved by the
FCC in 1996. Since January 1999, Mr. Libin has served as a director of NetWolves
Corp., a publicly traded, Tampa Florida based computer manufacturer. Mr. Libin
has published numerous scientific papers in radio frequency and
telecommunications.
William D. Rizzardi
Mr. Rizzardi joined the Company in January 1997 as a director. Since
December 1996, Mr. Rizzardi has been the President of Perlucid Corporation
(f/k/a Environmental Solutions Corporation), a privately held bio-remediation
company. From 1995 to 1996, Mr. Rizzardi was an independent management
consultant to the Long Island Research Institute, a not-for-profit technology
development laboratory. From 1979 to 1994, Mr. Rizzardi held various positions
with Northrop Grumman Corporation and its affiliates, including a Vice President
of Grumman Data Systems Division, where he was responsible for the development,
operations and support of all information systems for the Grumman Corporation,
Corporate Vice President of Information Management and Chief Information Officer
of Grumman Corporation, and a Vice President of Northrop Grumman Corporation -
Data Systems and Services Division following the acquisition of Grumman
Corporation by Northrop Corporation. Mr. Rizzardi received a Bachelor of Science
Degree in Nuclear Physics from City College of the City University of New York
and a P.S.E.E. Degree in Management from the Sloan School of M.I.T.
Harold Lazarus, Ph.D
Dr. Lazarus joined the Company as a director in March 1997. Dr. Lazarus has
been a Professor of Management at the Hofstra University Frank G. Zarb School of
Business (the "Hofstra Business School") since 1980. From 1973 to 1980, Dr.
Lazarus served as Dean of the Hofstra Business School. Dr. Lazarus is an
organization development consultant who lectures in Europe, Asia, North America
and South America on leadership, time management, total quality management,
managing change, effective meetings, problem solving, decision making, mission
statements, management by objectives, and communications. Dr. Lazarus was
Professor of Management at the New York University Leonard N. Stern School of
Business for ten years, and he also taught at Columbia University Graduate
School of Business and Harvard University Business School. Dr. Lazarus has
served on several boards of directors of public companies in the past, including
FACE, Ideal Toy Corporation, Superior Surgical Manufacturing Company, Stage II
Apparel Corporation, and Graham-Field Health Products, Inc. Dr. Lazarus has
published seven books and 65 articles on business management. He also chairs the
board of Phi Beta Kappa Alumni of Long Island (New York). Dr. Lazarus received a
Masters of Science Degree and a Doctor of Philosophy Degree in Management and
Marketing from Columbia University.
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Alfred Luciani
Mr. Luciani joined the Company in May 1998 as a director. Since January
1996, Mr. Luciani has been providing consulting services and management and
development expertise to the gaming industry through Luciani and Associates and
AJL Corp. From April 1993 to December 1995, Mr. Luciani was President and
Chairman of American Gaming and Entertainment, Ltd. ("American Gaming"), an
entity engaged in the gaming management business. From 1983 to 1994, Mr. Luciani
held several positions in the gaming industry, including President and Chief
Executive Officer of the Golden Nugget Casino Hotel in Las Vegas and the
Mashantucket Pequot Gaming Enterprise, and Executive Vice President of the
Golden Nugget and Resorts Casino Hotels in Atlantic City. Mr. Luciani's
involvement in the gaming industry extends back to 1976 when, as an Assistant
Attorney General for the State of New Jersey, he was extensively involved with
the drafting of the Casino Control Act of New Jersey. In 1995, American Gaming
and Resorts of Mississippi, a subsidiary of American Gaming, was placed in an
involuntary Chapter 11 proceeding due to a disagreement with certain of its
creditors as to a payment plan. In 1996, the Gold River Hotel and Casino
Corporation, of which Mr. Luciani was a director, filed a voluntary petition in
bankruptcy under Chapter 11.
David Greenspan
Mr. Greenspan was elected as Chief Financial Officer of the Company on
December 22, 1998. From December 1997 until February 12, 1999, Mr. Greenspan has
served as Chief Financial Officer and a director of LocalNet. From March 1997 to
December 1997, Mr. Greenspan served as the Chief Operating Officer of PGA Tour
Radio Network, a national sport broadcasting company based in Atlanta Georgia.
Prior to that, from August 1996 to March 1997, he was the Vice President,
Business Affairs Turner Media Consultants, a broadcast consulting company. From
March 1994 to August 1996, Mr. Greenspan served as a project manager for Atlanta
Olympic Broadcasting, with responsibility for planning and coordinating all
television and radio operations for the 1996 summer Olympic games. Mr. Greenspan
holds a Bachelor of Science in Accounting from Troy State University in Alabama.
Robert E. (Teddy) Turner IV
Mr. Turner joined the Company on January 8, 1999 as Chairman of the Board.
Mr. Turner was the founder of, and served from December 1997 until September
1998, as Chairman of the Board and President of, Zekko Corp. ("Zekko"). Zekko
operated predominantly in the areas of technology acquisition, development and
marketing. From October 1996 until December 1997, Mr. Turner served as the
President of Turner Telecommunication, an organization which concentrated in the
acquisition and development of telecommunication products. Mr. Turner
specialized in the research and analysis of potential telecommunication product
acquisitions. From June 1993 until October 1996, Mr. Turner was a manager with
Turner Home Entertainment, a domestic home video company where he was
responsible for the Southeastern United States sales and promotional divisions.
Mr. Turner has been a director of All Seasons Vehicles, Inc., a publicly traded
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manufacturer of track driven all season vehicles, since April 1997, and Chairman
of the Board of U.S. Bison Co. an Atlanta Georgia based bison ranching company.
Mr. Turner sits on the Boards of several foundations including The Turner
Foundation, Inc., Jane Smith Turner Foundation, and the Georgia Chapter of
Juvenile Diabetes Foundation. He also sits on the Board of Trustees of St.
Mary's College of Maryland. Mr. Turner holds a Bachelor of Science Degree in
Business Administration from the Citidel.
Rudy C. Theale, Jr.
Mr. Theale joined the Company on January 8, 1999 as an Executive Vice
President. From such date he has also served as President and a Director of
e.TV. Mr. Theale is primarily responsible for the sales and marketing at e.TV.
He is also a nominee to become a director of the Company. Mr. Theale has served
as President and a Director of LocalNet since April 1997, where he has been
primarily responsible for sales and marketing, the general oversight of daily
operations. Prior to then, from February 1996 until January 1997, Mr. Theale
served as President of SDI, Inc. where he was primarily responsible for the
sales and marketing management as well as the general oversight of daily
operations.
Faith Griffin
Ms. Griffin is a nominee to become a director of the Company. Ms. Griffin
has over 25 years of broad based investment banking experience with a special
concentration in private and public offerings and merger and acquisitions
advisory for small and medium sized companies. Ms. Griffin currently acts as a
financial advisor and investment banking consultant to the Company. From 1996 to
September 1998, Ms. Griffin served as a managing director of Laidlaw Global
Securities, Inc., in the corporate finance division, where she has been
responsible for new business development, merger and acquisition advisory
assignments, private placements and public equity offerings. From 1990 until
1996, Ms. Griffin served as a Senior Vice President in the Corporate Finance
Division of Josephthal Lyon & Ross, Inc. Ms. Griffin holds a Bachelor of the
Arts Degree in Mathematics from Franklin L. Marshall College, and a Master of
Business Administration from New York University Graduate School of Finance.
Christopher Liston
Mr. Liston is a nominee to become a director of the Company. He has been
the Vice President of Business Development of e.TV since January 8, 1999. From
December 1998 he has been the Vice President, Business Development of LocalNet.
From May 1993 to September 1998, Mr. Liston was a Vice President of Osprey
Capital, Inc. an investment banking company. Mr. Liston received a Bachelor of
Arts in Political Science from the College of Charleston in South Carolina.
The Company's Certificate of Incorporation provides for three classes of
directors, each having a three year term. Each director will hold office until
the next annual meeting of stockholders during the year in which the term of his
class of directorship expires and until his
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successor is elected and qualified. The terms of the Class I, Class II and Class
III directorships expire at the Company's annual meeting in 2000, 2001 and 1999,
respectively. Executive officers serve at the pleasure of the Board of
Directors.
There is no family relationship among any of the Company's executive
officers and directors.
Board Committees
The Audit Committee is responsible for reviewing and making recommendations
regarding the Company's employment of independent auditors, the annual audit of
the Company's financial statements and the Company's internal accounting
controls, practices and policies. The members of the Audit Committee are Messrs.
Honigsfeld and Rizzardi, and Dr. Lazarus. Faith Griffin, who will be Mr.
Rizzardi's successor as director following his resignation will also succeed him
on the Audit Committee. Dr. Lazarus will continue as a member of the Audit
Committee until his successor has been nominated and elected. Such person, who
will be an independent director will also succeed Dr. Lazarus as an Audit
Committee member.
The Company has neither a nominating committee, charged with the search for
and recommendation to the Board of potential nominees for Board positions, nor a
compensation committee, charged with periodically reviewing the compensation of
the Company's officers and employees and recommending appropriate adjustments.
These functions are performed by the Board as a whole. The Board will consider
stockholder recommendations for Board positions which are made in writing to the
Company's Chairman of the Board.
Meetings
The Board held one meeting during 1997. The Board also acted on eleven
occasions during 1997 by unanimous written consent in lieu of a meeting. The
Audit Committee met once during 1997.
The Board held seven meetings during 1998. The Audit Committee met once
during 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended ("Section
16"), requires that reports of beneficial ownership of capital stock and changes
in such ownership be filed with the Securities and Exchange Commission (the
"SEC") by Section 16 "reporting persons," including directors, certain officers,
holders of more than 10% of the outstanding Common Shares and certain trusts of
which reporting persons are trustees. Compu-DAWN is required to disclose in this
Information Statement each reporting person whom it knows to have failed to file
any required reports under Section 16 on a timely basis during the fiscal year
ended December 31, 1997. To
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Compu-DAWN's knowledge, based solely on a review of copies of Forms 3, 4 and 5
furnished to it and written representations that no other reports were required,
during the fiscal year ended December 31, 1997, Compu-DAWN's officers, directors
and 10% stockholders complied with all Section 16(a) filing requirements
applicable to them except that each of the six directors and executive officers
of the Company in office at the time of Compu-DAWN's initial public offering in
June, 1997 (the 'IPO") filed his Form 3 ten days late.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information for the fiscal years
ended December 31, 1997, 1996 and 1995 concerning the compensation of Mark
Honigsfeld, Chairman of the Board and Chief Executive Officer of the Company,
and the other persons who were the Company's most highly compensated executive
officers during the 1997 fiscal year. No other executive officer of the Company
had a combined salary and bonus in excess of $100,000 for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards
Name and Common Shares
Principal Position Year Salary Bonus Underlying Options
<S> <C> <C> <C> <C>
Mark Honigsfeld(1) 1997 $250,000 - 100,000
Chairman of the Board 1996 $ 62,500(2) - 233,000
and Chief Executive 1995 - - -
Officer
Dong W. Lew(3) 1997 $125,000 - 8,561
President 1996 $ 87,500 $15,000(4) 156,950
1995 $ 70,980 - -
Louis Libin 1997 $178,651 - 100,000
Chief Technology 1996 - - -
Officer 1995 - - -
</TABLE>
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(1) Mr. Honigsfeld was elected Chief Executive Officer of the Company and
was entitled to compensation effective as of October 1, 1996.
(2) Represents accrued and unpaid salary relating to 1996 (based on a
salary of $250,000 per annum) that was converted into 12,500 Common
Shares upon the closing of the Company's IPO.
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(3) Mr. Lew acted as the Company's Chief Executive Officer during 1994,
1995 and from the period January 1, 1996 to September 30, 1996 and
resigned as an officer and director of the Company in April 1998 when
he retired.
(4) Represents an accrued and unpaid signing bonus (relating to the
execution of Mr. Lew's employment agreement in October 1996) that was
converted into 3,000 Common Shares upon the closing of the IPO.
Option Grants in 1997
See "Executive Compensation - Employment Contracts; Termination of
Employment and Change-in-Control Assignments" for a description of Messrs.
Honigsfeld's, Libin's, Turner's and Theale's employment agreement and stock
options.
The following table sets forth certain information concerning individual
grants of stock options during the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
Number of Common Percentage of Total
Shares Underlying Options Granted to
Name Options Granted Employees in Fiscal Year Exercise Price Expiration Date
----- ---------------------- ------------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Mark Honigsfeld 100,000 35.9% $3.00 January 6, 2007
Dong W. Lew 8,561(1) 3.1% $5.50 August 27, 2002
Louis Libin 50,000 18.0% $3.00 January 6, 2007
50,000 18.0% $6.75 December 1, 2007
</TABLE>
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(1) These options were granted as a reload feature at the time Mr. Lew
surrendered 8,561 Common Shares valued in the aggregate at $47,085 (or
$5.50 per share) to exercise options to purchase 156,950 Common Shares.
These options were exercised by Mr. Lew in April 1998, at which time
Mr. Lew surrendered 4,380 Common Shares valued in the aggregate at
$47,085 per share (or $10.75 per share), in payment of the exercise
price.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
Table
The following table sets forth certain information concerning the value of
options unexercised as of December 31, 1997:
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<TABLE>
<CAPTION>
Number of Common Shares Value of Unexercised
Number of Common Underlying Unexercised In-the-Money Options
Shares Acquired Value Options at December 31, 1997 at December 31, 1997
Name on Exercise Realized Exercisable/Unexercisable Exercisable /Unexercisable
<S> <C> <C> <C> <C>
Mark Honigsfeld 233,000 $629,100 0 / 100,000 0 / $625,000
Dong W. Lew 156,950 $816,140 8,561 / 0 $32,104 / 0
Louis Libin - - 0 / 100,000 0 / $437,500
</TABLE>
Certain of the stock options held by Messrs. Honigsfeld and Libin, Rizzardi
and Luciani and Dr. Lazarus, will vest upon a change in control of the Company
(as defined in their respective applicable stock option agreements). The Options
granted to Messrs. Rizzardi and Luciani and Dr. Lazarus, the current outside
directors, will also vest at the time their directorships terminate for any
reason. See "Security Ownership of Certain Beneficial Owners and Management."
Compensation of Directors
Each non-employee director of the Company is entitled to receive a
director's fee of $1,000 per meeting attended in person and $500 per meeting
attended by telephone and options to purchase 5,000 Common Shares of the Company
each year, except that Alfred Luciani was entitled to receive options to
purchase 10,000 Common Shares of the Company each year. The options granted to
directors are exercisable for a period of ten years from the date of grant at an
exercise price equal to the market price of the Company's Common Shares on the
date of grant. Additionally, each non-employee director is entitled to be
reimbursed for reasonable out-of-pocket expenses incurred in attending meetings
of the Board of Directors of the Company. The members of the Board of Directors
meet regularly, as needed.
Employment Contracts; Termination of Employment and Change-in-Control
Arrangements
Mark Honigsfeld
The Company is a party to an Employment Agreement with Mark Honigsfeld for
a term of three years commencing as of October 1, 1996, subject to continuing,
annual, automatic one-year extensions, unless either the Company or Mr.
Honigsfeld notifies the other, at least 90 days prior to any annual anniversary
date, of its or his desire not to extend the term thereof. The Employment
Agreement also provides for earlier termination as discussed below. Pursuant to
his Employment Agreement, Mr. Honigsfeld serves as Chief Executive Officer and
President of the Company.
The Employment Agreement provides for base annual compensation of $250,000.
In addition to such base compensation, up until January 8, 1999, Mr. Honigsfeld
was entitled to
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receive (i) an annual bonus amount equal to a percentage of base salary (ranging
from 7% to 20%) based upon the Company achieving certain sales levels (ranging
from $3,750,000 to $6,000,000 in the initial year, with $1,000,000 increased
sales level thresholds per year if the bonus is earned in a particular year) and
(ii) an annual bonus based on the Company's EBITANC (as defined below), if any.
Such latter bonus for each year ranges from 5% to 10% of EBITANC based on
EBITANC thresholds ranging from $250,000 to $1,500,000. EBITANC is an amount
equal to the Company's earnings before deducting the following: interest
expense, taxes, and any one time nonrecurring charges resulting from
divestitures, acquisitions, consolidations, restructurings and changes in
accounting principles. The use of EBITANC, as opposed to earnings, has the
effect of increasing the earnings base (by the amount of the excluded
deductions) for the purpose of calculating the bonus.
Mr. Honigsfeld never received any such bonus.
Also, up until January 8, 1999, Employment Agreement provided that Mr.
Honigsfeld was entitled to receive, for each year thereof, options for the
purchase of 5,000 Common Shares of the Company for each $100,000 of EBITANC.
Such options were to be exercisable for a five year period at an exercise price
of no less than 110% of the market value of the Common Shares on the date of the
grant. Mr. Honigsfeld never received any such options.
Mr. Honigsfeld is also entitled to receive an expense allowance of up to
$500 per month and an automobile allowance in the amount of $1,000 per month. He
is also entitled to reimbursement of accountable customary business expenses.
The Employment Agreement provides that, notwithstanding the rolling
three-year term thereof, it may be terminated prior to the expiration date under
the following circumstances: (i) death; (ii) total disability (as provided for
in the Employment Agreement); (iii) termination by the Company for "cause" (as
defined in the Employment Agreement); (iv) termination by the Company at any
time upon written notice to Mr. Honigsfeld; (v) termination by Mr. Honigsfeld
upon 30 days written notice to the Company; (vi) termination by Mr. Honigsfeld
at any time for "good reason" (as defined in the Employment Agreement); or (vii)
termination by the Company at any time within 12 months after a "change in
control" (as defined in the Employment Agreement). Additionally, the Employment
Agreement allows Mr. Honigsfeld to devote up to 10% of his working time to other
endeavors that are not in competition with the Company.
The Employment Agreement provides for compensation under certain
circumstances upon termination of employment (in addition to accrued but unpaid
compensation) as follows: (i) in the event of Mr. Honigsfeld's death, his estate
or spouse shall be entitled to receive an amount equal to his monthly salary as
of the date of death multiplied by the number of full years that he was an
employee of the Company or a subsidiary or a predecessor in interest thereof;
(ii) in the event of termination of the Employment Agreement due to disability,
Mr. Honigsfeld shall be entitled to receive an amount equal to his monthly
salary as of the date of termination of the Employment Agreement, multiplied by
the number of full years that he was an employee of the Company or a subsidiary
or a predecessor in interest thereof (but, in no event, would he be entitled to
an amount equal to less than six months of salary); and (iii) in the event of
termination of employment by the
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Company following a "change of control" or for any reason other than death,
disability or "cause," or in the event of termination of an Employment Agreement
by Mr. Honigsfeld for "good reason," he shall be entitled to receive his full
salary for the unexpired term of such agreement, without mitigation of damages
based upon employment obtained elsewhere.
The Employment Agreement provides for a restriction on the solicitation of
customers of the Company for a period of two years following termination
thereof, and a covenant not to compete with the Company for a period of six
months following termination of employment for cause.
Effective as of January 8, 1999, the Employment Agreement was amended to
terminate the bonus compensation terms. Instead, Mr. Honigsfeld will be entitled
to a bonus, the details of which have not yet been determined, which will allow
Mr. Honigsfeld to earn a bonus of up to 50% of his salary in each year, based on
performance thresholds. Additionally, Mr. Honigsfeld was issued options to
purchase 200,000 Common Shares. The Options will vest over three years and are
exercisable at $5.82 per share, the market price at determined under
Compu-DAWN's 1996 stock option plan. Furthermore, Mr. Honigsfeld was included as
a participant in the Company's 1999 Stock Rights Grant Plan which is described
below.
Louis Libin
Effective January 6, 1997, the Company and Louis Libin entered into a
three-year Employment Agreement. Such Employment Agreement provides for a salary
of $200,000, $225,000 and $250,000 per annum in the first, second and third
years, respectively. Additionally, Mr. Libin's Employment Agreement allows him
to devote up to one day each week to other endeavors that are not in competition
with the Company. Other terms of Mr. Libin's Employment Agreement conform in
structure to the material provisions of Mr. Honigsfeld's, such as renewal,
benefits, restrictive covenants and termination.
Mr. Libin has waived the increase in salary in the second year and
accordingly, his salary for the 12 months period beginning on March 1, 1999 will
remain $25,000. Additionally, effective on January 8, 1999, the current bonus
terms under Mr. Libin's Employment Agreement were terminated and instead he is
entitled to a bonus upon the same terms and conditions as Mr. Honigsfeld's
bonus. He was also granted options to purchase 200,000 Common Shares upon the
same terms and conditions as the options granted to Mr. Honigsfeld. Additionally
he was included as a participant in the Company's 1999 Stock Rights Grant Plan.
Mr. Libin never received any bonus or options under the pre-January 8, 1999
Employment Agreement terms.
Robert E. ("Teddy") Turner, IV
Effective January 8, 1999, the Company and Robert E. (Teddy) Turner, IV
entered into a three-year Employment Agreement pursuant to which Mr. Turner
serves as the Company's Chairman of the Board. Such employment agreement
provides for a salary of $208,000.00 per
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annum. Mr. Turner's employment agreement does not require Mr. Turner to devote
all of his time to the Company's business and allows him to participate in other
activities which do not prevent Mr. Turner from fulfilling his obligations to
the Company. In addition to salary, Mr. Turner is entitled to receive a sales
and marketing bonus upon the same terms and conditions as Mr. Honigsfeld's
bonus. Mr. Turner was also issued options to purchase 200,000 Common Shares upon
the same terms and conditions as the options granted to Mr. Honigsfeld.
Additionally, he was included as a participant in the Company's 1999 Stock
Rights Grant Plan. Other terms of Mr. Turner's Employment Agreement conform in
structure to the material provisions of Mr. Honigsfeld's, such as renewal,
benefits, restrictive covenants and termination, without any requirements to
mitigate any damages.
Rudy C. Theale, Jr.
Effective January 8, 1999, the Company and Rudy C. Theale, Jr. entered into
a three-year employment agreement pursuant to which Mr. Theale serves as the
Company's Executive Vice President and President of e.TV on a full-time basis.
Such Employment Agreement provides for a salary of $208,000 per annum. In
addition to salary, Mr. Theale is entitled to receive a sales and marketing
bonus upon the same terms and conditions as Mr. Honigsfeld's bonus. Mr. Theale
was also issued options to purchase 650,000 Common Shares upon the same terms
and conditions as the options granted to Mr. Honigsfeld. Additionally, he was
included as a participant in the Company's 1999 Stock Rights Grant Plan. Other
terms of Mr. Theale's employment agreement conform in structure to the material
provisions of Mr. Honigsfeld's such renewal, benefits, restrictive covenants and
termination.
Stock Rights Grant Plan.
Effective January 8, 1998, Compu-DAWN was adopted its 1999 Restricted Stock
Rights Grant Plan (the "Rights Plan"). The Rights Plan provides for the issuance
of up to 2,000,000 Common Shares to the Rights Plan participants based on a
formula which provides for the participants to share up to 2,000,000 Common
Shares (the "Performance Shares") if Compu-DAWN generates up to $10,000,000 in
earnings before taxes by December 31, 2001, including making up any losses
during the years 1999 through 2001, if any. If Compu-DAWN earns less than
$10,000,000, the number of Performance Shares will be pro rated based on one
share for each $5.00 in earnings before taxes. The Rights Plan participants
include Mark Honigsfeld, Rudy C. Theale, Jr., Robert E. (Teddy) Turner, IV,
Louis Libin, David Greenspan, Paul Danner and Chris Liston and any other person
who is employed by or is providing services to Compu-DAWN or its subsidiaries
and who is elected as a participant by the above named initial participants.
Messrs. Turner, Theale, Greenspan, Danner and Liston were formerly employees of
LocalNet. The participants will be issued the Performance Shares based on their
pro rata ownership of Compu-DAWN securities on the date the Rights Plan was
adopted. However, each participant must be employed by or providing services to
Compu-DAWN or its subsidiaries in connection with the e.TV Business on December
31, 2001 in order to receive any Performance Shares. In addition, the issuance
of the Performance Shares is subject to, among other things, any consent or
approval of any regulatory body or the stockholders of Compu-DAWN, if such
consents or approvals are necessary.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Common Shares
The following table sets forth, to the knowledge of the Company based
solely upon records available to it, certain information as of February 28, 1999
regarding the beneficial ownership of the Company's Common Shares (i) by each
person who the Company believes to be the beneficial owner of more than 5% of
its outstanding Common Shares, (ii) by each current director, (iii) by each
nominee, (iv) by each person listed in the Summary Compensation Table under
"Executive Compensation" and (v) by all current executive officers, directors
and nominees as a group:
Name and Address
of Beneficial Owner Number Percent
Mark Honigsfeld 873,200(1) 22.9%
77 Spruce Street
Cedarhurst, New York
Louis Libin 100,001(2) 2.8%
77 Spruce Street
Cedarhurst, New York
Dong W. Lew 100,000 2.8%
1350 Grand Summit Drive
Reno, Nevada
Robert E. (Teddy) Turner, IV 30,000(3) *
12735 Gran Bay Parkway
Jacksonville, Florida
Rudy C. Theale, Jr. 25,000(4) *
12735 Gran Bay Parkway
Jacksonville, Florida
Christopher Liston 10,000(4) *
12735 Gran Bay Parkway
Jacksonville, Florida
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William D. Rizzardi 6,001(5) *
77 Spruce Street
Cedarhurst, New York
Harold Lazarus 5,001(6) *
134 Hofstra University
Hempstead, New York
Alfred Luciani 0 -
Bayport One, Suite 300
West Atlantic City, New Jersey
Faith Griffin 0 -
264 Oak Ridge Avenue
Summit, New Jersey
All executive officers, directors and
nominees as a group (10 persons) 1,054,203(1)(2)(3)(4)(5)(6) 26.7%
- -------------------
* Represents less than 1%.
(1) Includes (i) 423,200 shares held by the Mark Honigsfeld Living Trust
(the "Honigsfeld Trust") whose sole beneficiary is Mr. Honigsfeld's
wife; Mr. Honigsfeld, the settlor and trustee of the trust, has the
right to terminate the Honigsfeld Trust and receive the shares; (ii)
200,000 shares held by the Mardee Charity Fund Foundation, a private
charitable foundation of which Mr. Honigsfeld and his wife are the sole
trustees; (iii) 100,000 shares issuable upon the exercise of currently
exercisable options; and (iv) 25,000 shares issuable upon the exercise
of options which are exercisable within 60 days.
(2) Includes (i) 50,001 shares issuable upon the exercise of currently
exercisable options; and (ii) 25,000 issuable upon the exercise of
options exercisable within 60 days.
(3) Includes 25,000 shares issuable upon the exercise of options which are
exercisable within 60 days.
(4) Represents shares issuable upon the exercise of options which are
exercisable within 60 days.
(5) Includes 5,001 shares issuable upon the exercise of currently
exercisable options.
(6) Represents shares issuable upon the exercise of currently exercisable
options.
Common Shares Giving Effect to the Exercise of All Options and Warrants
The following table sets forth, to the knowledge of the Company based
solely upon records available to it, certain information as of February 28, 1999
regarding the beneficial ownership of the Company's Common Shares, giving effect
to the exercise of all options and warrants granted to each person named herein
(i) by each person who the Company believes to be the beneficial owner of more
than 5% of its outstanding Common Shares, (ii) by each current
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director, (iii) by each nominee, (iv) by each person listed in the Summary
Compensation Table under "Executive Compensation" and (v) by all current
executive officers, directors and nominees as a group:
Name and Address
of Beneficial Owner Number Percent
Mark Honigsfeld 1,206,800(1) 29.2%
77 Spruce Street
Cedarhurst, New York
Louis Libin 351,667(2) 9.3%
77 Spruce Street
Cedarhurst, New York
Rudy C. Theale, Jr. 650,000(3) 15.9%
12735 Gran Bay Parkway
Jacksonville, Florida
Robert E. (Teddy) Turner, IV 205,000(4) 5.6%
12735 Gran Bay Parkway
Jacksonville, Florida
Dong W. Lew 100,000 2.8%
1350 Grand Summit Drive
Reno, Nevada
Christopher Liston 50,000(5) 1.4%
12735 Gran Bay Parkway
Jacksonville, Florida
Faith Griffin 25,000(6) *
264 Oak Ridge Avenue
Summit, New Jersey
William D. Rizzardi 11,000(7) *
77 Spruce Street
Cedarhurst, New York
Harold Lazarus 10,000(7) *
134 Hofstra University
Hempstead, New York
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Alfred Luciani 10,000(6) *
Bayport One, Suite 300
West Atlantic City, New Jersey
All executive officers, directors and
nominees as a group (10 persons) 2,554,467(1)(2)(3)(4) 46.8%
(5)(6)(7)(8)
- -------------------
* Represents less than 1%.
(1) Includes (i) 423,200 shares held by the Mark Honigsfeld Living Trust
(the "Honigsfeld Trust") whose sole beneficiary is Mr. Honigsfeld's
wife; Mr. Honigsfeld, the settlor and trustee of the trust, has the
right to terminate the Honigsfeld Trust and receive the shares; (ii)
200,000 shares held by the Mardee Charity Fund Foundation, a private
charitable foundation of which Mr. Honigsfeld and his wife are the sole
trustees; (iii) 100,000 shares issuable upon the exercise of currently
exercisable options; (iv) 25,000 shares issuable upon the exercise of
options which are exercisable within 60 days; and (v) 336,000 shares
issuable upon the exercise of options and warrants which become
exercisable in more than 60 days.
(2) Includes (i) 50,001 shares issuable upon the exercise of currently
exercisable options; (ii) 25,000 shares issuable upon the exercise of
options exercisable within 60 days; and (iii) 251,666 shares issuable
upon the exercise of options which become exercisable in more than 60
days.
(3) Includes (i) 25,000 shares issuable upon the exercise of options which
are exercisable within 60 days; and (ii) 625,000 shares issuable upon
the exercise of options which become exercisable in more than 60 days.
(4) Includes (i) 25,000 shares issuable upon the exercise of currently
exercisable options; and (ii) 175,000 shares issuable upon the exercise
of options which become exercisable in more than 60 days.
(5) Includes 10,000 shares issuable upon the exercise of currently
exercisable options; and (ii) 40,000 shares issuable upon the exercise
of options which become exercisable in more than 60 days.
(6) Includes shares issuable upon the exercise of options which become
exercisable in more than 60 days.
(7) Includes (i) 5,001 shares issuable upon the exercise of currently
exercisable options and (ii) 4,999 shares issuable upon the exercise of
options which become exercisable in more than 60 days.
(8) Includes (i) 5,000 shares issuable upon the exercise of options which
are exercisable within 60 days and (ii) 30,000 shares which are
issuable upon the exercise of options which become exercisable in more
than 60 days, to David Greenspan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1997, the Company entered into a secured Credit Agreement with
Mr. Honigsfeld. Pursuant to the Credit Agreement, the Company initially borrowed
$200,000. In April 1997, the Company and Mr. Honigsfeld amended the Credit
Agreement to provide for an additional line of credit of $500,000. Outstanding
principal under the Credit Agreement bears interest at the rate of 10% per
annum. The repayment of up to $200,000 under the Credit Agreement is secured by
a first priority security interest in all the assets of the Company. The Company
entered into the Credit Agreement because it required additional financing to
fund the Company's working capital needs and no other sources of financing were
available at that time. Contemporaneously with the closing of the IPO, $200,000
of indebtedness was converted into 40,000 Common Shares pursuant to an agreement
between the Company and Mr. Honigsfeld. In May 1997, the Company borrowed an
additional $200,000 under the Credit Agreement. As of December 31, 1998,
$100,000 in principal was outstanding under the Credit Agreement. In 1997 and
1998, the Company paid Mr. Honigsfeld an aggregate of $9,316 and $11,250
respectively in interest under the Credit Agreement. The Company believes that
the terms of the Credit Agreement are commercially reasonable and are at least
as favorable to the Company as it could have obtained from an unrelated third
party. The Credit Agreement was approved by, among others, all the disinterested
directors of the Company.
On December 22, 1998, the Company elected David Greenspan Chief Financial
Officer. At that time Mr. Greenspan was and he continued to serve as the Chief
Financial Officer and a Director of LocalNet until he resigned on February 12,
1999. Other than the Loan Agreement and Peaceful Surrender Agreement, the
Company had and has no relationship with LocalNet.
To the extent that the Company may enter into any agreements with related
parties in the future (of which none are presently contemplated), the Board of
Directors of the Company has determined that the terms of such agreements must
be commercially reasonable and no less favorable to the Company than it could
obtain from unrelated third parties. Additionally, the Board of Directors of the
Company has further determined that such agreements must be approved by a
majority of the disinterested directors of the Company.
Cedarhurst, New York
February 28, 1999
K:\WPDOC\CORP\COMPUDAW\SECFILE\14F-1.DR5
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