As filed with the Securities and Exchange Commission on June 10, 1999
Registration No. 333-18667
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
COMPU-DAWN, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-3344575
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification
Number)
12735 Gran Bay Parkway West, Building 200
Jacksonville, Florida 32258
Telephone: (904) 680-6606
Telecopier: (904) 680-6693
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Robert E. (Teddy) Turner, IV
Chairman of the Board
Compu-DAWN, Inc.
12735 Gran Bay Parkway West, Building 200
Jacksonville, Florida 32258
Telephone: (904) 680-6606
Telecopier: (904) 680-6693
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies of all communications and notices to:
--------
Gavin C. Grusd, Esq.
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Telephone: (516) 296-7000
Telecopier: (516) 296-7111
<PAGE>
EXPLANATORY NOTE
The Registration Statement on Form SB-2, Registration No. 333-18667 (the
"Registration Statement") covers, among other securities, the registration of
(i) the issuance of 120,000 Common Shares issuable upon the exercise of warrants
(the "Underwriter's Warrants") issued by Compu-DAWN to the underwriter of the
initial public offering, and (ii) the resale of 389,200 Common Shares issuable
upon the exercise of warrants (the "Bridge Warrants") issued to lenders in
connection with a bridge financing transaction in October 1996.
The sole purpose of this Post-Effective Amendment is to reflect in the
prospectus facts or events which individually or together, represent a
fundamental change in the information set forth in the Registration Statement,
in accordance with Compu-DAWN's undertaking contained in the Registration
Statement.
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Subject to Completion Dated June 10, 1999
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the post-effective amendment to the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
PROSPECTUS
----------------
COMPU-DAWN, INC.
509,200 SHARES OF COMMON STOCK
- 120,000 shares of common stock are issuable under warrants issued to
the underwriter of Compu-DAWN, Inc.'s initial public offering which
closed on June 16, 1999.
- 389,200 shares of common stock offered by this prospectus are
issuable upon the exercise of warrants issued by Compu-DAWN in
its October 1996 bridge financing and are being sold by stockholders of
Compu-DAWN.
A purchase of these securities involves a high degree of risk. See "Risk
Factors," beginning on page 2.
The common stock of Compu-DAWN, Inc. is traded
on the Nasdaq SmallCap Market under the symbol "ETVC"
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Compu-DAWN, Inc.
12735 Gran Bay Parkway West
Building 200
Jacksonville, Florida 32258
(904) 680-6680
June 10, 1999
<PAGE>
THE COMPANY
Compu-DAWN, Inc. is engaged in two lines of business. In one, Compu- DAWN,
through its wholly owned subsidiary, e.TV Commerce, Inc. ("e.TV"), operates in
the Internet, e-commerce and telecommunications business (the "e.TV Business"),
marketing products and services primarily using a person to person sales
approach with the services of commissioned sales representatives in a
multi-level referral network marketing organization. Key services and products
in this line of business include the following:
- Interactive 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;
- Sales of long distance telephone service;
- Sales of Internet access service;
- Online shopping; and
- Web page design.
In its other line of business, Compu-DAWN is engaged in the business of
designing, developing, licensing, installing and servicing computer software
products and systems predominantly for public safety and law enforcement
agencies (the "Public Safety Software Business"). Compu-DAWN's public safety
customers are primarily located in New York State.
Compu-DAWN's Board of Directors has determined that Compu-DAWN's efforts
should be focused on the e.TV Business. Accordingly, Compu-DAWN is currently
seeking to sell the Public Safety Software Business. Compu-DAWN has signed a
letter of intent to sell primarily all of the assets which make up Compu- DAWN's
public safety division to an unrelated third party which is in a business
similar to that of Compu-DAWN's public safety division.
Compu-DAWN decided to divest itself of its public safety division since the
main focus of its business has shifted to Internet services, e-commerce and
telecommunications services. The public safety division accounted for
approximately 14% of Compu-DAWN's revenues during the first quarter of 1999. The
letter of intent contemplates a cash payment and a royalty related to future
sales of products containing Compu-DAWN's technology or to current Compu-DAWN
customers. Although Compu-DAWN anticipates negotiating and entering into a
contract based on the letter of intent, there can be no assurance such a
contract will be entered into and the transaction closed.
Compu-DAWN was incorporated under the name Coastal Computer Systems, Inc.
in New York on March 31, 1983 and was reincorporated in Delaware under its
present name on October 18, 1996.
Compu-DAWN's executive offices are located at 12735 Gran Bay Parkway West,
Building 200, Jacksonville, Florida 32258 (904) 680-6680.
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RISK FACTORS
An investment by you in the shares offered by this prospectus is
speculative and involves a high degree of risk. You should only purchase these
securities if you can afford to lose your entire investment. Before making an
investment, you should carefully consider the following risks and speculative
factors, as well as the other information contained in this prospectus. As
discussed below, this prospectus contains forward-looking statements that
involve risks and uncertainties. The actual results of Compu-DAWN's operations
could be significantly different from the information contained in those
forward-looking statements. Those differences could result from the risk factors
discussed immediately below, as well as factors discussed in other places in
this prospectus.
In this "Risk Factors" section, "we," "our" and "ours" refer to Compu-DAWN,
and "you," "your" and "yours" refer to a purchaser of the shares of Compu-DAWN
offered by this prospectus.
1. Lack of Significant Revenues; Recent and Anticipated Continuing Losses.
<TABLE>
<CAPTION>
Period Ended Revenues Net Loss
------------ -------- --------
<S> <C> <C>
December 31, 1997 (year) $ 591,375 $ 4,436,745
December 31, 1998 (year) 1,248,489 2,783,552
March 31, 1999 (three months) 1,489,588 3,269,425
</TABLE>
The table above sets out our revenues and net losses for the periods
indicated in the first column. We believe that we will be unable to achieve
enough revenues to offset operating costs for the foreseeable future; therefore,
we anticipate that operating losses will continue for at least the next 12
months. We cannot predict how long these operating losses will continue or what
impact they will have on our financial condition and results of operations. We
cannot assure you that our products and services will be able to compete
successfully in the marketplace or that they will generate significant revenue;
nor can we assure you that our business will be able to operate profitably.
The net losses are the result of significant expenses, including the
following relating to our public safety business in 1997 and 1998:
- research and development expenses;
- enhancing and refining our product line;
- marketing costs; and
- employment agreement costs and general administrative expenses.
In addition, the 1997 loss reflects approximately $1,588,000 in non-recurring
deferred financing charges incurred in connection with a debt offering we made.
Furthermore, the net loss figure for 1998 was higher than it would have been
otherwise because we did not generate significant revenues, but did incur
expenses regarding contemplated business ventures.
Net losses in the first three months of 1999 are the result of significant
expenses including expenses related to our acquiring and operating the business
of our subsidiary e.TV Commerce, Inc. and marketing costs, employment agreement
costs and general and administrative expenses. Also, the net loss amount for the
first three
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months of 1999 includes a $1,498,400 operating loss of e.TV and a one-time
charge of $834,133 largely related to issuing common stock to suppliers of e.TV.
2. Compu-DAWN Needs More Capital to Grow and to Sustain Current Operations.
Compu- DAWN's cash requirements have been and will continue to be significant.
Based on historical performance, we currently anticipate that our available cash
resources and funds from operations will be sufficient to meet our presently
anticipated and projected working capital and capital expenditure requirements
for at least ninety days. We expect we will need to raise additional funds
through private debt or equity financings within ninety days in order to
continue to support current operations and develop our business plan. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders at that time will be reduced. Such
equity securities may have rights, preferences or privileges senior to those of
the holders of the Common Shares. We cannot assure that additional financing
will be available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, Compu-DAWN may not be able
to
- fund then existing operations;
- take advantage of new opportunities;
- develop new or enhanced services and related products;
- continue to develop its business plan; and
- otherwise respond to competitive pressures.
As a result, Compu-DAWN's business, operating results and financial condition
could be materially adversely affected. Additionally Compu-DAWN may be forced to
scale back operations.
Compu-DAWN's Bridge Warrants to purchase 389,200 Common Shares, which are
covered by this prospectus are exercisable on and after June 10, 1999 at $3.00
per share. Although we hope the Bridge Warrants will be exercised, if the market
price of our publicly traded Common Shares is less than $3.00 per share, it is
unlikely that the Bridge Warrants will be exercised. Even if the market price of
Compu-DAWN's publicly traded Common Shares is above $3.00 a share, there can be
no assurance that any of the Bridge Warrants will be exercised, and if any are
exercised, we cannot predict the number of Bridge Warrants that would be
exercised or when the Bridge Warrants would be exercised. Even if all of the
Bridge Warrants are exercised, we anticipate we will still need to raise
additional capital.
3. Limited Operating History. We were incorporated in New York on March 31,
1983 and reincorporated in Delaware on October 18, 1996. Until January 1999, we
were engaged primarily in the business of designing, developing, licensing,
installing and servicing computer application software systems for law
enforcement and public safety agencies. In January 1999 we commenced the
Internet, e-commerce, and telecommunications portion of our business (the "e.TV
Business"). In May 1999 we entered into a letter of intent to sell the public
safety software business. The e.TV Business has a limited operating history on
which to base an evaluation of our business and prospects. Our prospects in the
e.TV Business must be considered in light of the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages of a
new line of business, particularly companies in new and rapidly evolving markets
such as the sale of high technology and telecommunications products and
services, and online e-commerce. To address these risks and uncertainties, we
must, among other things
- maintain and increase the number of our telecommunications and
Internet services and e-commerce users;
- enhance our brand-name recognition for our interactive tv
set-top box product;
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- continue to enhance the various e.TV Business services to meet
the needs of a changing and evolving market;
- maintain and enhance the number of vendors and variety of
products that are available on our on-line shopping mall;
- implement and execute our business and marketing strategy
successfully;
- continue to develop and upgrade our technology and
information-processing systems;
- provide superior customer service; and
- respond to competitive developments.
There can be no assurance that we will be successful in accomplishing all of
these things, and the failure to do so could have a material adverse effect on
our business, results of operations and financial condition.
4. No Assurance of Profitability. We believe that our continued growth and
our achieving profitability will depend in large part on our ability to
- increase our market share; and
- our achieving provide our customers with superior
telecommunications and Internet services and on-line commerce
experiences.
We currently rely on our independent sales representatives to market and promote
our products and services. We also intend to invest in the development of our
operating infrastructure. Although we have experienced significant revenue
growth and significant growth in the number of our customers in the first three
months of 1999 mainly because of the operation of the e.TV Business, such growth
rates may not be sustainable and may decrease in the future. Also, the increase
in revenues in the first three months was accompanied by significant expenses
which are inherent in a developing network marketing referral business such as
the e.TV Business. We believe that period-to-period comparisons of our operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance because of
- our recent acquisition of the e.TV Business;
- our announced intent to sell our public safety software
division, which has been all of our business before the e.TV
Business;
- the rapidly evolving nature of the e.TV Business; and
- our limited operating history in that area.
5. Management of Potential Growth; New Management Team; Dependence on Key
Personnel. We anticipate that expansion of our infrastructure, independent sales
representative force and product and services mix will be required to address
potential growth in our customer base and market opportunities. This expansion
has placed a significant strain on our management, operational and financial
resources, and is expected to continue to do so.
Certain members of our management, including our Chairman of the Board,
Executive Vice President, Chief Financial Officer and Chief Operating Officer,
have joined us within the last six months. Additionally, our new employees
include a number of key managerial, marketing, planning, technical and
operations personnel who have not yet been fully integrated into our company,
and we expect to add additional key personnel in the near future. Additionally,
the tenure of Compu-DAWN's former Chairman of the Board and Chief Executive
officer since August 1996 ended on May 11, 1999 when Compu-DAWN and he mutually
terminated his employment agreement.
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To manage the expected growth of our operations and personnel, we will be
required to improve existing operational and financial systems and controls,
implement new ones, and expand, train and manage our growing employee base. We
also will be required to expand our finance, administrative and operations
staff. Further, we may be required to enter into relationships with various
strategic partners, suppliers and vendors and other third parties necessary to
the maintenance and growth of our business. There can be no assurance that our
current and planned personnel, systems, procedures and controls will be adequate
to support our future operations; or that our management will be able to
identify and exploit existing and potential strategic relationships and market
opportunities. Our failure to manage growth effectively could have a material
adverse effect on our business, results of operations and financial condition.
Our performance is substantially dependent on the continued services and on
the performance of our senior management and other key personnel. Our
performance also depends on our ability to retain and motivate our other
officers and key employees. The loss of the services of any of our executive
officers or other key employees could have a material adverse effect on our
business, results of operations and financial condition. We maintain no "key
person" life insurance policies except on Louis Libin, the Chief Technology
Officer and Senior Executive Vice President. Our current management does not
have significant experience in operating a publicly traded company. Our future
success also depends on our ability to hire, train, retain and motivate other
highly skilled personnel including management, investor relations, technical,
managerial, marketing and customer service personnel. Competition for such
personnel is intense, and there can be no assurance that we will be able to
successfully attract, integrate or retain sufficiently qualified personnel. Our
failure to retain and attract the necessary personnel could have a material
adverse effect on our business, results of operations and financial condition.
6. Frequent Changes in the Market for Our Products and Services. The
markets for our products and services are characterized by rapid technological
change and frequent introductions of new products and services. Our ability to
compete will depend on our ability to adapt, enhance and improve our existing
products and services, and to develop and introduce new products and services in
a timely and cost-competitive manner. We cannot predict whether or not our
competitors will develop services or products that will render ours outmoded or
otherwise less marketable, or whether we will be able to enhance and adapt our
products and services successfully. Any one of these factors may render one or
more of our products or services obsolete. Other companies may be developing
products or services of which we are unaware and which may be similar or
superior to some or all of the products and services we offer.
7. Potential Problems in Developing and Identifying New Products. All the
risks inherent in developing or identifying of new products and services will
accompany our development efforts. These risks include unanticipated delays,
expenses and technical problems associated with the manufacture of technology-
related products, and the research, marketing and other risks related to the
launching of new services and products. We cannot assure you that
- we can develop additional products or services or identify
services or products of other parties which we would like to
sell within a reasonable schedule;
- we will have sufficient resources to complete that
development;
- we will have access to sufficient funding to complete
development; and
- we can make economically reasonable arrangements for the
completion of new products or the introduction of new services
by third parties.
Therefore, we can make no assurances as to when, or whether, new products and/or
services will be successfully developed or will become available.
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8. Emerging TV Set-Top Box Market May Adversely Effect Product Acceptance.
The tv set-top box market is a relatively new and growing niche in the personal
computing industry. We began selling tv set-top boxes in January 1999. During
the first quarter of 1999 sales of tv set-top boxes accounted for 7 1/4 % of our
sales. If our interactive tv set-top box product does not maintain a
proportionate degree of acceptance or the market or it fails to grow or grows
more slowly than anticipated, or if we unable to adapt our tv set-top box to
meet changing customer requirements or technological changes in this emerging
market, our business, operating results and financial condition could be
materially adversely affected.
9. Developing Market; Dependence on Continued Growth of Internet
Communication and Online Commerce. Rapid growth in the use of and interest in
the world-wide web, the Internet and other online services is a recent
phenomenon and there can be no assurance that this acceptance and use will
continue to develop; nor can there be any assurance that a sufficiently broad
base of consumers will adopt, and continue to use, the Internet as a medium of
commerce. The Internet may prove not to be a viable means of conducting commerce
or communications for a number of reasons, including potentially unreliable
network infrastructure and poor performance. In addition, if the Internet
continues to experience significant growth in the number of users and level of
use, the Internet infrastructure may not be able to support the demands placed
on it by such growth. Furthermore, the Web has experienced a variety of outages
and other delays, and could face such outages and delays in the future,
including outages and delays resulting from Year 2000 problems. These outages
and delays could adversely affect the level of Internet usage. The Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity, or due to
increased governmental regulation.
Even if the infrastructure, standards or protocols are developed and the
Internet continues to be a viable commercial marketplace in the long term, we
might need to incur substantial expenditures in order to adapt our Internet
service and tv set-top box product to changing Web technologies, which could
have a material adverse effect on our business, results of operations and
financial condition. The Internet may also lose viability or flexibility as a
market place due to increased governmental regulation. Furthermore, changes in,
or insufficient availability of, telecommunications services to support the
Internet or other online services also could result in slower response times and
adversely affect usage of the Internet and other online services generally.
The market for the sale of goods over the Internet, particularly through
online shopping malls, is a new and emerging market. Our future revenues and
profits from our online shopping mall service are substantially dependent upon
the widespread acceptance and use of the Internet and other online services as a
medium for commerce by consumers. Additionally, the security and privacy
concerns of existing and potential customers, including the use of credit cards
over the Internet, may inhibit the growth of the online shopping mall market in
general and the Company's customer base and revenues in particular. We need to
educate users that electronic transactions use encryption technology and other
electronic security measures that make electronic transactions more secure than
paper-based transactions. While we believe that it is utilizing proven
applications designed for premium data security and integrity to process
electronic transactions, there can be no assurance that our use of such
applications will be sufficient to address the changing market conditions or the
security and privacy concerns of existing and potential customers.
Growth in our user base relies on obtaining consumers who have historically
used traditional means of commerce to purchase goods and obtain information. For
us to be successful, these consumers must accept and use novel ways of
conducting business and exchanging information.
If use of the Internet and other online services does not continue to grow
or grows more slowly than expected, if our infrastructure for our Internet and
other online services does not effectively support growth that may
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occur, or if the Internet and other online services do not become a viable
commercial marketplace, our business, results of operations and financial
condition would be materially adversely affected.
10. Intense Competition for Our Products and Services. The markets for our
telecommunications and Internet products and services are intensely competitive.
We compete directly with
- companies that manufacture and sell personal computers and web
tv products; and
- providers of long distance telephone services and Internet
access services.
We compete with other companies in the long distance telephone service and
Internet access industries by emphasizing the value and premium quality of our
products and services and the convenience and opportunities of our network
referral marketing and distribution system of independent sales representatives.
Many of our competitors have much greater name recognition and financial
resources than we do. In addition, long distance telephone services, Internet
access products and services and personal computers can be purchased in a wide
variety of channels of distribution. While we believe that consumers appreciate
the convenience of ordering products and services from home through a sales
person, the buying habits of many consumers accustomed to purchasing products
through traditional retail channels are difficult to change. Our product
offerings in each product category are also relatively small compared to the
wide variety of products offered by many other telecommunications companies and
hardware and software manufacturers. There can be no assurance that our business
and results of operations will not be affected materially by market conditions
and competition in the future.
The e-commerce market is new, rapidly evolving and intensely competitive,
and we expect competition to intensify further in the future. Barriers to entry
are relatively low, and current and new competitors can launch new websites at a
relatively low cost using commercially available software. Our direct
competitors include various online shopping services, including Amazon.com. We
also face competition from a number of large online communities and services
that have expertise in developing online commerce. Certain of these competitors,
including Compaq, America Online, Inc., Microsoft Corporation and Yahoo! Inc.,
currently operate online shopping services and offer businesses the means to
establish their own Websites to participate in e-commerce independently.
Many of the our current and potential competitors in all of our markets
have longer operating histories, larger customer bases, and significantly
greater financial, marketing, technical and other resources than we do.
Furthermore, some of these competitors enjoy greater brand recognition than we
do. In addition, certain of our competition may be acquired by, receive
investments from, or enter into, other commercial relationships with larger,
well-established and well-financed companies as use of the Internet and other
online services increases. We cannot assure you that we will be able to compete
successfully against current and future competitors.
11. Competition for Sales Representatives with Other Network Marketing
Companies. We also compete with other direct selling organizations, some of
which have a longer operating history, higher visibility, name recognition and
financial resources, including Amway Corporation and its affiliates, Big Planet,
ExcelCom, Nu-Skin Enterprises Inc. and Prepaid Legal Services Inc. We compete
for new independent marketing representatives on the basis of our financial
compensation plan and our premium quality products and services. We believe many
more direct selling organizations will enter into the marketplace as this
channel of marketing and distribution expands over the next several years. There
can be no assurance that we will be able to maintain or expand our force of
independent marketing representatives or keep our representatives motivated to
successfully meet the challenges posed by this increased competition.
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12. Dependence on Productivity of Our Independent Representatives. We sell
our products and services exclusively through independent network marketing
referral sales representatives, and we depend upon them directly for
substantially all of our revenue. Thus, to increase our revenue our
representatives must increase in number and/or become more productive. We cannot
assure you that our representatives will maintain or increase their
productivity, or that we will be able to maintain or increase the number of our
representatives. Our representatives may terminate their services to us at any
time, and we may experience high turnover among our representatives from year to
year. We also cannot accurately predict how the number and productivity of our
representatives may fluctuate because we rely upon existing representatives to
sponsor and train new representatives and to motivate new and existing
representatives. The number and productivity of our representatives depend on
several additional factors, including:
- The public's perception of our products and services;
- The public's perception of our representatives and network
marketing referral businesses in general;
- Adverse publicity regarding us, our products or our
competitors; and
- General economic and business conditions.
In addition, the number of representatives as a percentage of the population in
a given market could theoretically reach levels that become difficult to exceed
due to the finite number of persons inclined to pursue a network marketing
referral business opportunity.
13. Loss of Key High-Level Representatives. Although we have over 18,000
independent sales representatives, we estimate that approximately 77
representatives, together with their extensive networks of downline-sponsored
representatives, account for substantially all of our revenues. As a result, the
loss of a high-level representative or a group of leading representatives in
such representatives' network of downline representatives could significantly
reduce our revenues.
14. Adverse Publicity Could Reduce the Size of Our Marketing Force and
Consequently Reduce Our Revenue. Adverse publicity in the future could reduce
the size of our distribution force and consequently reduce our revenues.
Specifically, we are susceptible to adverse publicity concerning:
- The legality of network referral marketing;
- Regulatory investigations of network referral marketing
generally, or as practiced by us or our competitors;
- The quality of our and competitors' products and services; and
- Public perception of network referral marketing businesses
generally.
15. Independent Sales Representatives Action Could Subject Us to Liability.
Our sales representatives are independent contractors and not employees.
Accordingly, we cannot provide to them the same level of direction and oversight
as we would to our employees. Although we have established guidelines for them
to follow in conducting network marketing activities for us, we do not have
supervisory contract over their sales methods. We may have difficulties
enforcing our policies and procedures governing our representatives because of
their independence and their large number. In addition, there may be laws and
regulations in some states that limit our ability to monitor and control the
sales practices of representatives or terminate relationships with
representatives.
Representatives who sell telecommunications services could expose us to
liability for "slamming abuses" if a representative causes a change of a
customer's preferred telephone company to another company without the customer's
knowledge and consent. Additionally, representatives could expose us to private
litigation
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or state or federal regulation action if they do not follow our sales guidelines
and they market our referral network marketing opportunity to other individuals
as "pyramid" or "chain sales schemes" that may promise quick rewards for little
or no effort, or use high pressure recruiting methods.
16. Network Marketing Laws and Regulations May Prohibit or Severely
Restrict Our Direct Marketing Efforts And Cause Our Sales and Profitability to
Decline. Various State and federal government agencies, may claim authority to
regulate network marketing, intending generally to prevent fraud. If we are
unable to continue our business in our existing markets or commence operations
in new markets because of these laws, our revenue and profitability will
decline. Additionally, government agencies and courts may use their powers and
discretion in interpreting and applying laws in a manner that limits our ability
to operate or otherwise harms our business. Also, if any governmental authority
brings a regulatory enforcement action against us that interrupts our direct
sales efforts, there could be a material adverse effect on our business, results
of operations and financial position.
17. Challenges by Private Parties to the Form of Our Network Marketing
System Could Harm Our Business. We may be subject to challenges by private
parties, including our representatives, to the form of our network marketing
system. We are aware of lawsuits against other network marketing companies which
involve claims under federal securities laws and state anti-pyramid laws.
Adverse judicial decisions in these lawsuits, a determination that our marketing
system constitutes a security, or the initiation of lawsuits against us
challenging the legality of our network marketing system would harm our
business. In the United States, the network marketing industry and regulatory
authorities have generally relied on the implementation of representative rules
and policies designed to promote retail sales, to protect consumers and to
prevent inappropriate activities in order to distinguish between legitimate
network marketing distribution plans and unlawful pyramid schemes. We have
adopted rules and policies based on those the Federal Trade Commission have
found acceptable in reviewing the legality of Amway Corporation's marketing
system and those established in the Federal Trade Commission v. Jewelway action.
------------------------------------
Legal and regulatory requirements concerning network marketing systems, however,
involve a high level of subjectivity, are inherently fact based, and are subject
to judicial interpretation. Because of the foregoing, we cannot assure you that
we will not be harmed by the application or interpretation of statutes or
regulations governing network marketing.
18. Reliance on Third Party for Back Office Operations and Administrative
Support. We currently rely upon Atlantic Teleservices LP for back office
administrative support services, including
- the processing of sales orders;
- processing independent representative applications;
- independent sales representative support telephone services;
- customer service;
- passing along orders for telephone services to our telephone
service reseller vendors;
- distribution of commission checks to our independent
representatives; and
- The administration of service relationships between our
customers and our service vendors.
We do not believe that the loss of Atlantic Teleservices' services would
have a material adverse effect on us in the long term since we could establish
an infrastructure to provide these services ourselves or engage another third
party to provide these services. However, we could suffer a material disruption
to our business in the short term until we find a replacement or we develop our
own infrastructure. Developing our own infrastructure would be very costly.
Accordingly, based on our current negative cash flow and need for financing in
the near future, we cannot assure we would be able to develop our own
infrastructure at this time or in the future to
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adequately provide the level of back office operations and administrative
support necessary to grow or even maintain our business.
19. Obstacles to the Growth and Development of Our OnLine Shopping Mall.
Currently, our online system mall sales account for less than 1% of our
revenues. However, we seek to generate a high volume of traffic and transactions
in our on-line shopping mall. Accordingly, the satisfactory performance,
reliability and availability of our Web site, processing systems and network
infrastructure are critical to our reputation and to our ability to attract and
retain large numbers of users and vendors. Any system interruptions that result
in the unavailability of our online service or reduced Internet access would
reduce the attractiveness of our services, which could, in turn, negatively
affect our business, results of operations or financial condition. Conversely,
any substantial increase in the volume of traffic on our Web site or in our
online shopping mall may require us to expand and upgrade our technology and
network infrastructure. There can be no assurance that we will be able to
accurately project the rate or timing of increases, if any, in the use of our
Website or online shopping service. Furthermore, there can be no assurance that
we will be able to expand and upgrade our systems and infrastructure to
accommodate any increases in a timely manner. Our failure to expand or upgrade
our systems could have a material adverse effect on our future prospects and our
future business, results of operations and financial condition.
The success of Compu-DAWN's online shopping mall is dependent on
- Compu-DAWN's ability to sign up and retain a wide variety of
well-known merchants;
- the reliability of delivery of goods by
merchants;
- Compu-DAWN's ability to provide web site
convenience and accessability; and
- the reliability of Compu-DAWN's online shopping mall technology
20. Risks Associated with Information Disseminated Through the Company's
Internet Access Service. The law relating to the liability of online service
companies for information carried on or disseminated through their services is
currently unsettled. It is possible that claims could be made against Internet
access and online service companies for defamation, libel, invasion of privacy,
negligence, copyright or trademark infringement, or other theories based on the
nature and content of the materials disseminated through their services. In
addition, legislation has been proposed that prohibits or imposes liability for
the transmission over the Internet of certain types of information. The
potential imposition upon us and other Internet access and online services
providers of liability for information carried on or disseminated through
Internet access and online services could require us to take measures to reduce
that exposure. There measures may require substantial expenditures and/or the
consideration of the discontinuance of certain service offerings. Furthermore,
the increased attention focused upon liability issues as a result of these
lawsuits and legislative proposals could impede the growth of Internet use.
While we carry liability insurance, it may not be adequate to fully compensate
us in the event we become liable for information carried on or disseminated
through our service. Any costs not covered by insurance incurred as a result of
such liability or asserted liability could have a material adverse effect on our
business, results of operations and financial condition.
21. Governmental Regulation and Legal Uncertainties. We are not currently
subject to direct federal, state or local regulation, and laws or regulations
applicable to access to or commerce on the Internet, other than regulations
applicable to businesses generally. However, due to the increasing popularity
and use of the Internet and other online services, it is possible that a number
of laws and regulations may be adopted with respect to the Internet or other
online services covering issues such as
- user privacy;
- freedom of expression;
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- pricing;
- content and quality of products and services;
- taxation;
- advertising;
- intellectual property rights; and
- information security.
The adoption of any such laws or regulations might also decrease the rate of
growth of Internet use, which in turn could decrease the demand for our tv
set-top box, Internet services and online shopping service, increase our cost of
doing business or in some other manner have a material adverse effect on our
business, results of operations and financial condition.
In addition, the applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, and personal privacy is uncertain. The vast majority of
such laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not address the unique issues raised by use of
the Internet and related technologies. We cannot predict whether the federal
government or one or more states will attempt to impose these laws upon us in
the future or whether such imposition will have a material adverse effect on our
business, results of operations and financial condition.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new 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, or could in some other
manner have a material adverse effect on the Company's business, results of
operations and financial condition.
Any such new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to the
Company's business, could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company is qualified to do business in Delaware, New York, Florida and
Georgia in the United States. 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 the failure to qualify, and could result in our being unable to
enforce contracts in those jurisdictions.
22. Year 2000 Problems Within our Business and in the Businesses of
Important Suppliers. Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date code field.
Beginning on January 1, 2000, these code fields will need to accept four-digit
entries to distinguish 21st century dates from 20th century dates. Many
companies' software and/or computer systems may have to be upgraded or replaced
in order to correctly process dates beginning in 2000 and to comply with the
Year 2000 requirements. We may not accurately identify all potential Year 2000
problems within our business, and the corrective measures we may implement may
be ineffective of incomplete. Any such problems could interrupt our operations
and could have a material adverse effect on our business, results of operations
and financial condition. Similar problems and consequences could result if any
of our key vendors and suppliers, such as telecommunication and Internet service
providers, and the manufacturer of our tv set-top box product experience Year
2000 problems. We are particularly vulnerable to the Year 2000 readiness of our
supplier of back-office and administrative services.
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We also cannot control or otherwise predict the Year 2000 readiness of federal,
state and local governments, utility companies and other parties unrelated to us
that could impact our operations.
23. Loss of Supplier of TV Set-Top Box Could Cause Delay in Filling Orders.
Our tv set-top product is manufactured for us by Boca Research, Inc. We believe
that if we lost Boca Research as a supplier and we secured another supplier,
which we believe is readily available to manufacture a tv set-top box to our
specifications, we could experience a delay of approximately 90 days in
replenishing inventory, which, if inventory levels are low, could delay the
filing of orders. This in turn, could erode customer and independent
representative relationships and confidence, and cause us to lose customers and
independent representatives.
24. Loss of Vendors and Suppliers could Erode Customer and Representative
Confidence in Us. We currently act as a sales agent in the United States for
UniDial Incorporated and in Canada for Vir-tec each a reseller of
telecommunication services. The Internet access services we sell are provided by
StarNet, Inc., an Internet access provider and a reseller of GTE Wholesale
Internet access services. We believe that the loss of UniDial or Vir-tec as
vendor to our customers, or the loss of StarNet as a supplier of our Internet
access services would not, by itself have a material adverse effect on our
business, results of operations and financial condition because we believe
substitutes are available. However, if we lost any one of these vendors or
suppliers, we may experience a material adverse effect to our business results
of operations, financial conditions based on
- the interruption of Internet Access Service to our customers
as we switch suppliers;
- the inability to provide customer service support to
customers who remain with former vendors of telephone services;
- the loss of customer loyalty and confidence because of
interruptions to Internet Access services or our inability to
provide customer service support; and
- the loss of the independent representatives' confidence in
our management resulting from any customer dissatisfaction in
our services which could cause a decrease in independent
representative productivity or the loss of representatives.
Furthermore, although we feel we can replace these vendors and suppliers we
cannot assure we could do so on terms which are as favorable as those we have
with our current vendors and suppliers.
25. Reliance on Third Party Software Systems. We rely on computer software
systems operated by Atlantic Teleservices in the provision of back room
operations and administrative support services to us. We may periodically need
to request that these systems be enhanced or modified in order to accommodate
any growth or change in the way we operate. Furthermore, in the future, we may
want to add additional features and function to our services and we may need to
develop or license additional technologies to do this. Our inability to add
additional software and hardware or to develop and further upgrade our existing
technology or network infrastructure to accommodate such growth and changes, may
cause
- unanticipated system disruptions;
- slower response times;
- degradation in levels of customer and independent
representative service;
- impaired quality of the user's experience of our products and
services; and
- delays in reporting accurate financial information.
We cannot be certain that we or Atlantic Teleservices will be able to
effectively upgrade and expand these systems or to integrate smoothly any new
technologies with existing systems. The inability to do so could have a material
adverse effect on our business, results of operations and financial condition.
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26. System Failures. Our success depends largely on the efficient and
uninterrupted operation of our computer and communications hardware systems.
Substantially all of the computer hardware used by us and Atlantic Teleservices
to provide services to us is currently located at the facilities of Atlantic
Teleservices in Jacksonville, Florida, where our principal offices are also
located. These systems and operations are vulnerable to damage or interruption
from natural disasters, power loss, telecommunication failures, sabotage, acts
of vandalism and similar events. We do not presently have systems that are fully
backed up, a formal disaster recovery plan or alternative providers of hosting
services, and do not carry any business interruption insurance to compensate us
for losses that may occur. Despite our taking precautions and making additional
emergency plans, the occurrence of a natural disaster or other unanticipated
problems at the Jacksonville facility could result in interruptions or
disruptions in our services or Atlantic Teleservices services to us which could
have a material adverse effect on our business, results of operations and
financial condition.
In the case of frequent or persistent system failures, our reputation and
name brand could be materially adversely affected. Although we have implemented
certain network security measures, the servers used in the e.TV Business are
also vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions, which could lead to interruptions, delays in providing
service to customers, loss of data or the inability to complete customer
transactions, and the inability to provide support and process commission
payments to our independent representatives any and all of which could have a
material adverse effect on our business, results of operations and financial
condition.
27. Risks Relating to Unspecified Acquisitions. We are exploring and will
continue to explore opportunities to add or acquire
- technology or products consistent with our current product
line; and
- businesses that make and/or market products or services not in
our current line of business.
If any such opportunity involves the acquisition of a business, we cannot be
certain that
- we will successfully integrate the operations of the acquired
business with ours;
- all the benefits expected from such integration will be
realized;
- delays or unexpected costs related to the integration will not
have a detrimental affect on our combined business,
operating results or financial condition;
- our respective operations, management and personnel will be
compatible; and
- we will not lose key personnel.
If we acquire technology or products in the early stage of development or
growth, including technology or products that have not been fully tested or
marketed, we will be subject to numerous risks inherent in developmental
technology, plus the additional high level of risk associated with high
technology industries. Furthermore, these acquisitions may require us to obtain
additional financing from banks or other financial institutions or to undertake
debt or equity financing. We cannot assure you that we will be able to obtain
financing on commercially reasonable terms or at all. Moreover, equity financing
will result in a dilution to our existing stockholders, i.e., the number of
Common Shares that you own will represent a smaller percentage of our
outstanding Common Shares. The degree of dilution may be significant. In the
case of debt financing, we run the risks of interest rate fluctuations and
insufficiency of cash flow to pay principal and interest, along with other risks
traditionally associated with incurring indebtedness.
28. We Will Usually Accomplish Acquisitions Without Prior Stockholder
Approval.
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The Board of Directors will decide whether any opportunity to add technology,
products or a business is in the best interest of our stockholders. We cannot be
certain that any such opportunities will arise, or that, if they do, we will be
able to reach an agreement on terms acceptable to us. In most cases, an
acquisition will be concluded without stockholder approval and our stockholders
will not have an opportunity to review the financial statements of, or other
information relating to, the acquisition candidate. Although we will attempt to
evaluate the risks inherent in a particular acquisition, we cannot be certain
that we will properly ascertain or assess such significant risk factors.
29. Control By Management and Preferred Stockholders. Our directors and
executive officers beneficially own approximately 1.7% of our outstanding Common
Shares. Mark Honigsfeld, the former Chief Executive Officer and a Director,
currently owns approximately 11% of our outstanding Common Shares. Additionally,
Mr. Honigsfeld has given Rudy C. Theale, Jr., the Executive Vice President and a
Director of Compu- DAWN, a proxy to vote any Compu-DAWN Common Shares he owns
during a period of 12 months ending in May 1999 on matters brought to the
stockholders for a vote involving a change in control of Compu-DAWN or a
replacement of a majority of the Board of Directors, without Board of Director
approval. The proxy currently covers approximately 457,500 Common Shares. Mr.
Honigsfeld is not contractually restricted from disposing or acquiring any
Common Shares during the 12 month period or otherwise. If certain of the
executive officers, directors and Mr. Honigsfeld exercised options and warrants
which are currently exercisable, or exercisable within 60 days, they would own
an aggregate of approximately 10% and 23% of the outstanding Common Shares,
respectively. The holders of our Series A convertible preferred stock, Series B
convertible preferred stock and certain warrants held by such holders have the
right, if they waive certain limitations, to acquire approximately 12% of the
Common Shares that would be outstanding following conversion or exercise of
their securities.
Thus, these three groups of stockholders, if acting together, have the
potential voting strength to exert significant influence over the election of
our directors and over other matters submitted to our stockholders for approval.
The percentages given in this paragraph do not account for some of the rights
given to the holders of the Series A and Series B stock and warrants issued to
the Series A and Series B stockholders.
30. No Dividends. We have never paid any dividends on our common stock and
do not intend to in the foreseeable future. We anticipate retaining any earnings
which we may realize in the foreseeable future to finance our growth.
FORWARD-LOOKING STATEMENTS
Certain information contained in the matters set forth above are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and is subject to the safe harbor created by that
act. The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements which may be deemed to have been made above and
elsewhere in this Quarterly Report or which are otherwise made by or on behalf
of the Company. For this purpose, any statements contained above and elsewhere
in this Quarterly Report that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate," or "continue" or the negative variations of those
words or comparable terminology are intended to identify forward- looking
statements. Factors which may affect the Company's results include, but are not
limited to, the risks and uncertainties associated with multi-level network
marketing, the Internet and Internet-related technology and products, new
technology developments, developments and regulation in the telecommunications
industry, the competitive environment within the Internet and telecommunications
industries, the level of spending by law enforcement and public safety agencies
for computer application software and hardware, the competitive environment
within the public safety technology industry, the ability of the Company to
expand its operations, the
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level of costs incurred in connection with the Company's planned expansion
efforts, the financial strength of the Company's customers and suppliers,
unascertainable risks related to possible unspecified acquisitions, the
competence required and experience of management, the risk of loss of management
and personnel, economic conditions, the risks and uncertainties inherent in
litigation, and the ability of the Company to raise additional capital which
will be required in the near term to continue to develop and sustain business at
current levels and other risks described under "Risk Factors" above. The Company
is also subject to other risks detailed herein or detailed from time to time in
the Company's Securities and Exchange Commission ("SEC") filings. Readers are
also urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Compu-DAWN files reports, proxy and information statements and other
information with the SEC. Such reports, statements and other information filed
by Compu-DAWN with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the SEC: 7 World
Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Furthermore, the SEC maintains a Web site that contains reports, proxy
and information statements and other information regarding Compu-DAWN. The
address of such Web site is http://www.sec.gov.
The documents listed below have been filed by Compu-DAWN with the SEC under
the Securities Exchange Act of 1934 and are incorporated herein by reference:
(a) Compu-DAWN's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998.
(b) Compu-DAWN's Quarterly Report on Form 10-QSB for
the three months ended March 31, 1999.
(c) Compu-DAWN's Current Report on Form 8-K for an
event dated May 12, 1999.
(d) Compu-DAWN's Current Report on Form 8-K for an
event dated June 9, 1999.
(e) The description of Compu-DAWN's common stock
contained in Compu-DAWN's Registration Statement on
Form 8-A (File No. 000-22611), which was declared
effective by the SEC on June 10, 1997.
All documents filed by Compu-DAWN pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus, and prior to the
termination of the offering of the 509,200 shares of common stock of Compu-DAWN
offered hereby, shall be deemed to be incorporated by reference into this
prospectus and to be a part hereof from their respective dates of filing.
Compu-DAWN will provide without charge to each person to whom a copy of
this prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents referred to above which have been
incorporated into this prospectus by reference, other than exhibits to such
documents.
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Requests for such copies should be directed to the Secretary, Compu-DAWN, Inc.,
12735 Gran Bay Parkway, West Building 200, Jacksonville, Florida 32258;
telephone number: (904) 680-6680.
This prospectus was created after all of the documents listed in items (a)
through (d) above were filed with the SEC. Therefore, there may be certain
conflicts between the information contained in this prospectus and information
contained in those other documents. If there are any inconsistencies, then the
statements in those earlier documents should be read as if they agree with the
statements in this prospectus.
USE OF PROCEEDS
All the shares issuable upon the exercise of warrants issued in
Compu-DAWN's October 1996 bridge financing are being offered for the account of
the warrant holders. Accordingly, Compu-DAWN will not receive any proceeds of
any sales made hereunder. Based on currently available information, Compu-DAWN
intends to utilize any proceeds received from the exercise of underwriter's
warrants for working capital and general corporate purposes. Compu-DAWN may use
all or a portion of such proceeds for other purposes, should a reappointment or
redirection of funds be determined to be in the best interests of Compu-DAWN. We
cannot assure that the underwriter's warrants will be exercised, or if
exercised, as to the number that will be exercised or as to the time of
exercise.
NASDAQ LISTING AND "PENNY STOCK" RULES
THAT COULD AFFECT COMMON STOCK
Nasdaq Listing. Our common stock is currently traded on the Nasdaq SmallCap
Market. If we are unable to satisfy the requirements for continued quotation on
that market, trading of our common stock would be conducted in the
over-the-counter market, in what is commonly referred to as the "pink sheets" or
on the NASD OTC Electronic Bulletin Board. If you buy the common stock offered
by this prospectus and our common stock is afterwards traded only in the "pink
sheets" or on the Electronic Bulletin Board, you may find it more difficult to
dispose of the shares or obtain accurate quotations as to their price.
For continued listing on the Nasdaq SmallCap Market, we are required to
have, among other things, all of the following:
either net tangible assets of $2,000,000, or market capitalization of
$35,000,000, or net income for two of the last three fiscal years of $500,000
- minimum market value or public float of $1,000,000
- minimum bid price of $1.00 per share
Nasdaq also requires that we have at least two independent directors and an
Audit Committee, a majority of whose members must also be independent directors.
We currently satisfy all of the above requirements.
"Penny Stock" Rules. The SEC has regulations that generally define "penny
stock" to be common stock that has a market price of less than $5.00 per share.
Our common stock currently trades below $5.00 per share. The common stock
offered by this prospectus is authorized for quotation on the Nasdaq SmallCap
Market; therefore, it is exempt from the definition of "penny stock." However,
if our common stock is removed from the SmallCap Market at any time, then, based
on the current market price of our common stock, it will be subject to rules
that impose additional sales practice requirements. The "penny stock" rules may
restrict the ability of broker-
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dealers to sell our common stock, and may affect your ability to sell our common
stock in the secondary market as well as the price at which such sales can be
made. Also, some brokerage firms will decide not to effect transactions in
"penny stocks" and it is unlikely that any bank or financial institution will
accept "penny stock" as collateral.
For transactions covered by these rules, the broker-dealer must make a
special determination that a purchaser is suitable to purchase the common stock
and must have received the purchaser's written consent to the transaction prior
to the purchase. The "penny stock" rules also require the delivery, prior to the
transaction, of a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker-dealer must also disclose (a) the commission
payable to both the broker-dealer and the registered representative, (b) current
quotations for the common stock, and (c) if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. These rules would apply to
sales by broker-dealers to persons other than established customers and
accredited investors until our common stock trades above $5.00 per share.
Accredited investors are generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their spouse.
CERTIFICATE OF INCORPORATION, BY-LAW AND STATE LAW PROVISIONS
THAT COULD ADVERSELY AFFECT COMMON STOCKHOLDERS
Our Certificate of Incorporation provides that a director shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions. These provisions may
discourage stockholders from suing a director for breach of fiduciary duty and
may reduce the likelihood of derivative lawsuits against any director. A
"derivative lawsuit" is one in which a stockholder sues an officer or director
of the corporation on behalf of the corporation, claiming that the officer or
director did some harm to the corporation. In addition, our Certificate of
Incorporation provides for mandatory indemnification of directors and officers
to the fullest extent permitted or not prohibited by Delaware law.
Our Certificate of Incorporation also allows us to issue additional
preferred stock without approval of the holders of common stock. If we issue
preferred stock, it could discourage a third party from buying a majority of our
outstanding common stock. This, in turn, could prevent our stockholders from
selling their shares at a price above the market price. The rights that the
holders of common stock have will be subject to, and may be negatively affected
by, the rights that holders of preferred stock might be given. In addition, our
being governed by a staggered Board of Directors, certain provisions of our
By-Laws, and certain provisions of Delaware law that are applicable to us all
could delay or complicate a merger, tender offer or proxy contest involving us.
LEGAL MATTERS
Certain matters relating to the legality of the securities being offered
hereby are being passed upon for Compu-DAWN by Certilman Balin Adler & Hyman,
LLP, 90 Merrick Avenue, East Meadow, New York 11554.
EXPERTS
The consolidated financial statements of Compu-DAWN appearing in
Compu-DAWN's 1998 Form 10-KSB have been audited by Lazar Levine & Felix, LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated
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herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Compu-DAWN has filed a Post Effective Amendment No. 1 to the Registration
Statement on Form SB-2 on Form S-3 with the SEC under the Securities Act with
respect to the securities offered hereby. This prospectus does not contain all
of the information set forth in the registration statement. For further
information with respect to Compu-DAWN and the securities offered hereby,
reference is made to the registration statement and to the exhibits filed
therewith, copies of which may be obtained upon payment of a fee prescribed by
the SEC, or may be examined free of charge at the public reference facilities
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Each statement made in this prospectus referring to a document filed
as an exhibit to the registration statement is qualified by reference to the
exhibit for a complete statement of its terms and conditions.
No one has been authorized to give any information or make any
representation not contained in, or incorporated by reference into, this
prospectus. Therefore, you cannot rely on any information you receive or
representations made that are not in, or incorporated by reference into, this
prospectus.
If the laws of the place where you live require (a) the authorization of
any offer to sell our shares, or the solicitation of any offer to buy our
shares, through this prospectus, or (b) the qualification of the person making
the offer or solicitation, and that authorization or qualification has not been
obtained, then this prospectus is not an offer to sell our shares or the
solicitation of an offer to buy our shares. Also, if it is unlawful for us to
offer our shares to, or solicit an offer to buy our shares from, a particular
person, this prospectus is not an offer to or solicitation from such a person.
Under no circumstances should you assume that the information in this prospectus
is correct after the date on the cover page.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with
the offering described in the Registration Statement:
Accountants' Fees and Expenses..................................... $1,000.00
Legal Fees and Expenses........................................... 6,000.00
Miscellaneous..................................................... 1,500.00
--------
Total............................................................. $8,500.00
=========
Item 15. Indemnification of Directors and Officers.
Article X of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the Company and its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by Section 102 of the Delaware General Corporation Law, provided that
this provision shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
Delaware General Corporation Law (with respect to unlawful dividend payments and
unlawful stock purchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
Additionally, the Company has included in its Certificate of Incorporation
and its by-laws provisions to indemnify its directors, officers, employees and
agents and to purchase insurance with respect to liability arising out of the
performance of their duties as directors, officers, employees and agents as
permitted by Section 145 of the Delaware General Corporation Law. The Delaware
General Corporation Law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which the
directors, officers, employees and agents may be entitled under the Company's
by-laws, any agreement, vote of stockholders or otherwise.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers, directors, employees and agents of
the Company for any claim arising against such persons in their official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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Item 16. Exhibits.
Exhibit Number Description of Exhibit
2 Agreement of Merger between the Company and Coastal
Computer Systems, Inc., a New York corporation.*
3.1 Articles of Incorporation of the Company.*
3.2 Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock, filed with
the Secretary of State of the State of Delaware on
June 5, 1998.**
3.3 Certificate of Designations, Preferences and Rights
of Series B Convertible Preferred Stock, filed with
the Secretary of State of the State of Delaware on
September 2, 1998. ***
3.4 Amended and Restated By-Laws of the Company.****
4.1 Specimen Common Share Certificate.*
4.2 Form of Underwriter's Common Share Purchase Warrant.*
5. Opinion of Certilman Balin Adler & Hyman, LLP*
10.1 Restated and Amended Employment Agreement dated as of
October 1, 1996 between the Company and Mark
Honigsfeld.*
10.2 Form of Warrant between the Company and each of the
Bridge Lenders.*
10.3 1996 Stock Option Plan.*
10.4 Lease dated October 1, 1996 between Summit Equities
Corp. and the Company.*
10.5 Credit Agreement dated January 20, 1997 between the
Company and Mark Honigsfeld.*
10.6 Form of Promissory from the Company to Mark
Honigsfeld relating to amounts borrowed under the
Credit Agreement.*****
10.7 Form of Indemnification Agreement between the Company
and the Company's directors and officers.*
10.8 Employment Agreement dated January 6, 1997 between
the Company and Louis Libin.*
10.9 Amended and Restated Credit Agreement dated
April 30, 1997 between the Company and Mark
Honigsfeld.*
10.10 Termination Agreement dated as of March 17, 1998
between the Company and Dong Lew.**
II - 2
<PAGE>
10.11 Agreement and Plan of Merger dated as of
April 22, 1998 among the Company, Rugby Acquisition
Corp., Rugby National Corp. and Harvey Weinstein.**
10.12 Loan and Security Agreement dated as of
April 22, 1998 between the Company and Rugby
National Corp. **
10.13 Stock Purchase Agreement dated as of May 31, 1998
between the Company, and JNC Opportunity Fund Ltd.
and JNC Strategic Fund Ltd. **
10.14 Registration Rights Agreement dated as of
May 31, 1998 between the Company, and JNC
Opportunity Fund Ltd. and JNC Strategic Fund Ltd. **
10.15 Securities Exchange Agreement between the Company and
JNC Strategic Fund Ltd. dated September 25, 1998. ***
10.16 Registration Rights Agreement Amendment dated as of
September 25, 1998 between the Company and JNC
Opportunity Fund Ltd. and JNC Strategic Fund Ltd. ***
10.17 Loan and Security Agreement dated as of
October 6, 1998 between the Company and LocalNet
Communications, Inc. ****
10.18 Amendment No. 1 to Loan and Security Agreement dated
as of October 23, 1998 between the Company and
LocalNet Communications, Inc. ****
10.19 Amendment No. 2 to Loan and Security Agreement dated
as of November 12, 1998 between the Company and
LocalNet Communications, Inc. ****
10.20 Peaceful Surrender Agreement dated January 8, 1999
between e.TV Commerce, Inc. and LocalNet
Communications, Inc. ******
10.21 Amendment to Restated and Amended Employment
Agreement dated as of January 8, 1999 between the
Company and Mark Honigsfeld. ****
10.22 Amendment No. 1 to Employment Agreement dated as of
January 8, 1999 between the Company and
Louis Libin.****
10.23 Employment Agreement dated as of January 8, 1999
between the Company, e.TV Commerce, Inc. and
Robert E. (Teddy) Turner, IV.****
10.24 Employment Agreement dated as of January 8, 1999
between the Company, e.TV Commerce, Inc. and
Rudy C. Theale, Jr. ****
10.25 1999 Restricted Stock Rights Grant Plan.****
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10.26 Agreement dated February 4, 1999 between e.TV
Commerce, Inc. and Boca Research, Inc. ****
10.27 Wholesale Service Agreement dated December 17, 1998
between e.TV Commerce, Inc. and StarNet, Inc. ****
10.28 Termination Agreement dated May 11, 1999 between the
Company and Mark Honigsfeld
23.1 Consent of Lazar, Levine & Felix LLP, independent
auditors.
23.2 Consent of Certilman Balin Adler & Hyman, LLP
(included in its opinion filed as Exhibit 5)
24 Powers of Attorney (included in the signature page
forming a part hereof).
* Previously filed as an exhibit to the Company's Registration Statement of
Form SB-2, Registration No. 333-18667.
** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1998.
*** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1998.
**** Previously filed as an exhibit to the Company's Annual Report on Form
10-KSBfor the year ended December 31, 1998.
*****Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
******Previously filed as an exhibit to the Company's Current Report on Form 8-K
for an event dated January 8, 1999.
Item 17. Undertakings.
The undersigned Company hereby undertakes:
(l) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events which, individually
or together 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 the
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
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 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
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<PAGE>
(iii) Include any additional or changed material information on the
plan of distribution; provided, however, that paragraphs (l)(i) and (l)(ii)
do not apply if the Registration Statement is on Form S-3 or Form S-8, and
the information required in a post-effective amendment is incorporated by
reference from periodic reports filed by the Company under the Exchange
Act.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities being registered which remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 15 above, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities 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 a director, officer or controlling person of the
Company 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, the Company 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 and will be governed by
the final adjudication of such issue.
II - 5
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Compu-DAWN, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
amendment to its registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Jacksonville, Florida, on the 10th
day of June, 1999.
COMPU-DAWN, INC.
By: /s/ Robert E. (Teddy) Turner
------------------------------
Robert E. (Teddy) Turner IV
Chairman of the Board
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Mark Honigsfeld as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Robert E. (Teddy) Turner Chairman of the Board June 10, 1999
- ---------------------------- (Principal Executive Officer
Robert E. (Teddy) Turner, IV and Director
/s/ Louis Libin Chief Tecnology Officer, June 10, 1999
- ---------------------------- Senior Executive Vice President
Louis Libin and Director
/s/ Rudy C. Theale Jr. Executive Vice President June 10, 1999
- ---------------------------- and Director
Rudy C. Theale, Jr.
/s/ Christopher Liston Director June 10, 1999
- ---------------------------
Christopher Liston
- --------------------------- Director June __, 1999
Harold Lazarus, Ph.D.
- -------------------------- Director June __, 1999
Faith Griffin
/s/ David Greenspan Chief Financial Officer June 10, 1999
- --------------------------- (Principal Financial and
David Greenspan Accounting Officer)
<PAGE>
TERMINATION AGREEMENT
TERMINATION AGREEMENT dated as of May 11, 1999 between MARK HONIGSFELD
(hereinafter the "Executive"), residing at 969 East End, Woodmere, New York
11598 and COMPU-DAWN, INC., a Delaware corporation ( the "Company"), having its
principal place of business at 77 Spruce Street, Cedarhurst, New York 11516.
RECITALS
WHEREAS, Executive is employed by the Company as its President, Chief
Executive Officer and Secretary in accordance with a Restated and Amended
Employment Agreement dated March 4, 1997, as amended as of January 8, 1999 ( the
"Employment Agreement").
WHEREAS, Executive and the Company desire to terminate the Employment
Agreement on the basis herein provided.
NOW, THEREFORE, upon the agreements and covenants set forth herein, the
parties hereto agree as follows:
1. Employment Termination. The parties acknowledge and agree that,
effective at the close of business on the date hereof, the Executive's
employment with the Company as its President, Chief Executive Officer and
Secretary is hereby terminated. Accordingly, the Employment Agreement is hereby
terminated and of no further force or effect, and neither the Executive nor the
Company shall have any further liability or obligation thereunder, except for
any salary and benefits which are earned, accrued and unpaid as of the date
hereof.
2. Payments; Accounting. (a) For and in consideration of the Executive's
entering into this Termination Agreement and performing his obligations
hereunder, the Company agrees to pay to Executive:
(i) the sum of Five Hundred Thousand Dollars ($500,000) (the
"Base Termination Amount"). The Base Termination Amount shall be
payable as follows:
(A) One Hundred Thousand Dollars ($100,000) payable to the
Executive simultaneously with the execution and delivery hereof;
and
(B) Four Hundred Thousand Dollars ($400,000) payable,
subject to the provisions of Section 3 hereof, in twelve (12)
equal semi-monthly installments of Thirty-Three Thousand Three
Hundred Thirty-Three Dollars and Thirty-Three Cents ($33,333.33).
Each such monthly installment shall be payable at the same time
and in the same manner
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as payments of the Company's normal payroll cycle, but not less
than semi-monthly.
(ii) In addition to the Base Termination Amount, in the event the
Company sells its Public Safety Business (as defined in Section 3
hereof), it is contemplated that such sale shall provide for the
payment by the buyer thereof (the "Buyer") to the Company of a royalty
(the "Royalty") based on the revenues derived by the Buyer from the
sale or licensing of products and/or assets acquired in connection
with its purchase of the Public Safety Business, or derived from
services related to the sale of such products and/or assets. In such
event, the Company shall pay the Executive an amount equal to eighty
percent (80%) of the Royalty, (the "Installment Termination Amount"
and, together with the Base Termination Amount, the "Termination
Amount"), for so long as the Royalty shall be payable by the Buyer,
subject to the provisions of Section 3 hereof.
(b) The Company shall irrevocably direct the Buyer of the Public
Safety Business to pay that portion of the Royalty comprising the
Installment Termination Amount directly to the Executive contemporaneously
with the Buyer's payment of the balance of the Royalty to the Company. The
Company agrees to execute an irrevocable collateral assignment or other
documents sufficient to insure assignment of the Installment Termination
Amount, if deemed necessary by the Executive.
(c) The Company shall designate the Executive as one of its duly
authorized representatives to review and audit the books of account of the
Buyer, or otherwise conduct an accounting of the Buyer with respect to the
Royalty, pursuant to any right to any accounting the Company obtains with
respect to the Royalty in any Agreement between the Company and the Buyer
relating to the sale of the Public Safety Business (a "Public Safety Sale
Agreement"). The Company hereby covenants that it will include an
accounting provision in the Public Safety Sales Agreement which allows the
Company to conduct an accounting of the Buyer with respect to the
Royalties.
(d) The Company shall pay all of the reasonable legal fees and
expenses of the Executive incurred by him in connection with the
negotiation, preparation and delivery of this Termination Agreement
including, without limitation, all reasonable fees and expenses due and
payable to Jackson Walker L.L.P. in connection herewith.
3. Acceleration of Payment of Termination Amount. The Company and the
Executive acknowledge that the Company is negotiating the sale of its business
of designing, developing, licensing, installing and servicing computer software
products and systems predominantly for public safety and law enforcement
agencies (the "Public Safety Business"). The Company hereby agrees that, if a
sale of the Public Safety Business is consummated prior to the payment to the
Executive of the Base Termination Amount, the obligation to make the payments
contemplated by Section 2(a)(i)(B) above shall be accelerated, and all such
payments remaining shall, three (3) days after the consummation of such sale, be
due and payable to Executive, out of the proceeds of such sale. The Company and
the Executive further agree that if the proceeds of the sale of the Public
Safety Business are insufficient to fund such payments, such proceeds shall
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<PAGE>
nevertheless be applied in full and in reverse order of payment toward the
payment of the Base Termination Amount, and any balance of the Termination
Amount remaining shall be payable to the Executive in the manner contemplated by
Section 2(a)(i)(B) above in semi-monthly installments of $33,333.33 until the
Base Termination Amount has been paid in full (such installment may be less if a
lesser amount will pay the remaining Base Termination Amount in full).
4. Security Interest. (a) The Company hereby grants to the Executive a
valid and binding security interest in any and all tangible and intangible
assets in which the Company has or shall have an interest, now or hereafter
existing or acquired, and wherever located, together with all additions and
accessions thereto and replacements and substitutions thereof and all proceeds
and products of the foregoing, as security for the payment or performance of the
obligations of the Company to the Executive hereunder. Simultaneously with the
execution of this Agreement, the parties are entering into First Amendment to
Security Agreement to evidence the security interest granted herein.
(b) Notwithstanding the foregoing, the Executive shall relinquish his
security interest in, and consent to the transfer of, assets of the Company
comprising the Public Safety Business in connection with a bona fide sale
thereof; provided, however, that such consent shall be conditioned upon the
Executive receiving an assignment (the "Assigned Security Interest") from
the Company to the Executive of all of the Company's rights and interest in
a security agreement between the Company and the Buyer contemplated to be
entered into in connection with such sale. The parties hereto agree to
amend, or cause to be amended, any UCC Financing Statement naming the
Executive as the Secured Party and the Company as the Debtor presently
filed against the assets of the Company to reflect the provisions of this
Termination Agreement, if deemed reasonably necessary by the Executive. The
Assigned Security Interest shall terminate upon the earlier to occur of (i)
the fulfillment of the Company's obligation to pay the Termination Payment
or (ii) the termination and/or fulfillment of any and all obligations of
the Buyer to the Company in connection with the sale of the Public Safety
Business.
5. Resignation. By executing this Termination Agreement, the Executive
voluntarily resigns, effective immediately, from all capacities and positions
with the Company, including but not limited to the offices of Chief Executive
Officer, President and Secretary and Director of the Company, the Chief
Executive Officer, Secretary, and Director of e.TV Commerce, Inc., and all
officerships and directorships of Rugby Acquisition Corp. and ETEL
Communications Corp.
6. Representations of the Executive. The Executive represents, warrants,
and agrees with the Company as follows:
(a) To his knowledge, after due investigation, no consents of
governmental and other regulatory agencies, foreign or domestic, or of
other parties, are required to be received by or on the part of the
Executive to enable him to enter into and carry out this Agreement and the
transactions contemplated hereby.
3
<PAGE>
(b) The Executive has the power to enter into this Agreement and to
carry out his obligations hereunder. This Agreement constitutes the valid
and binding obligation of the Executive, and is enforceable in accordance
with its terms.
(c) There is no unfulfilled agreement or commitment, written or oral,
made by the Executive for or on behalf of the Company pursuant to which the
Company is obligated to pay more than $5,000 singly, or $15,000 in the
aggregate, or which contractually restricts in any way the Company's
ability to enter into any agreement in the future (i) that since December
31, 1998 has not been disclosed in writing to the Company and (ii) prior to
December 31, 1998 has not been disclosed in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998 or the audited annual
financial statements of the Company in connection therewith.
(d) There is no liability or obligation incurred on behalf of the
Company by the Executive that has not been disclosed in writing to the
Company.
(e) No acts or omissions finally determined by a court of competent
jurisdiction prior to or following the date hereof to constitute fraud,
gross negligence, or other illegality which has a material adverse effect
on the Company, have been committed by the Executive for or on behalf of,
or in his capacity as a director or officer of, the Company.
(f) Neither the execution and delivery of this Agreement, nor
compliance by the Executive with any of the provisions hereof, nor the
consummation of the transactions contemplated hereby, will:
(i) violate any judgment, order, injunction, decree or award
against, or binding upon, the Executive;
(ii) violate or otherwise breach the terms of any agreement or
understanding, written or oral, to which the Executive is a party or
is otherwise bound; or
(iii) violate any law or regulation of any jurisdiction relating
to the Executive.
(g) No representation, warranty or statement by the Executive in this
Agreement intentionally contains any untrue statement of a material fact,
or omits to state a fact necessary in order to make such representations,
warranties or statements not misleading.
7. Representations of the Company. The Company represents, warrants, and
agrees with the Executive as follows:
(a) To the Company's knowledge, after due investigation, no consents
of governmental and other regulatory agencies, foreign or domestic, or of
other parties, are required to be received by or on the part of the Company
to enable it to enter into and carry out this Agreement
4
<PAGE>
and the transactions contemplated hereby.
(b) The Company has the requisite corporate power to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
the Company, and no other corporate proceedings are necessary to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement constitutes the valid and
binding obligation of the Company, and is enforceable in accordance with
its terms.
(c) Neither the execution and delivery of this Agreement nor
compliance by the Company with any of the provisions hereof, nor the
consummation of the transactions contemplated hereby, will:
(i) violate the Certificate of Incorporation or By-Laws of the
Company;
(ii) violate any judgment, order, injunction, decree or award
against, or binding upon, the Company;
(iii) violate or otherwise breach the terms of any agreement or
understanding, written or oral, to which the Company is a party or is
otherwise bound; or
(iv) violate any law or regulation of any jurisdiction relating
to the Company.
(d) No representation, warranty or statement by the Company in this
Agreement contains any untrue statement of a material fact, or omits to
state a fact necessary in order to make such representations, warranties or
statements not misleading.
8. Restrictive Covenants. (a) The Executive covenants that for a period of
twenty-four (24) months following the date hereof, he will not, either directly
or indirectly, (i) disclose or otherwise make known to any person or entity the
names and addresses of any of the customers of the Company, or (ii) call on,
solicit, or take away, or attempt to call on, solicit, or take away, any of the
customers of the Company or its subsidiaries with whom he became acquainted
during his employment with the Company, either for himself or for any other
person, firm, corporation or other entity.
(b) The Executive acknowledges that the Company and/or its
subsidiaries have developed unique skills, concepts, sales presentations,
marketing programs, marketing strategy, business practices, methods of
operation, trademarks, licenses, technical information, proprietary
information, computer software programs, tapes and disks concerning its or
their operations, systems, customer lists, customer leads, documents
identifying past, present and future customers, hiring and training
methods, investment policies, financial and other confidential and
proprietary information concerning its operations and expansion plans
("Trade Secrets"). The Executive agrees and covenants that, except with the
prior written consent of the Company, the Executive shall not, directly or
indirectly, use for the Executive's own benefit or for the benefit of
another, or disclose,
5
<PAGE>
disseminate, or distribute to another, any Trade Secret (whether or not
acquired, learned, obtained, or developed by the Executive alone or in
conjunction with others) of the Company or its subsidiaries. All memoranda,
notes, records, drawings, documents, or other writings whatsoever
(including copies thereof) made, compiled, acquired, or received by the
Executive during his employment by the Company, arising out of, in
connection with, or related to any activity or business of the Company or
its subsidiaries, including, but not limited to, the customers, suppliers,
or others with whom the Company or its subsidiaries has a business
relationship, the arrangements of the Company or its subsidiaries with such
parties, and the pricing and expansion policies and strategy of the Company
or its subsidiaries, are, and shall continue to be, the sole and exclusive
property of the Company and its subsidiaries, and shall be returned to the
Company within five (5) days of the execution of this Agreement.
(c) The Executive hereby covenants and agrees that for a period of
twenty four (24) months following the date hereof, he will not, either
directly or indirectly, as an employee, employer, consultant, agent,
principal, partner, shareholder (other than through ownership of publicly
traded capital stock of a corporation which represents less than five
percent (5%) of the outstanding capital stock of such corporation),
corporate officer, director, investor, financier or in any other individual
or representative capacity, engage or participate in any business which is
directly competitive with the business of the Company or any of its
subsidiaries in the Internet service provider, e-commerce and
telecommunications business marketing products and services through a
multi-level referral network marketing organization.
9. Other Agreements. (a) The parties hereto acknowledge and agree that,
except as expressly provided in, or contemplated by, this Termination Agreement,
and except for (i) any rights of indemnification to which the Executive may be
entitled by law or under the By-Laws or Certificate of Incorporation of the
Company, and any rights of indemnification to which the Executive is entitled
pursuant to the Indemnification Agreement by and between the Executive and the
Company (the "Indemnification Agreement"), (ii) the obligation of the Company to
pay to the Executive [Twelve Thousand Five Hundred Dollars ($12,500) ]in
principal amount, plus interest, pursuant to that certain Amended and Restated
Loan Agreement dated April 30, 1997, by and between the Company and the
Executive (the "Loan Agreement"), and (iii) unreimbursed expenses of the
Executive, which the Company hereby agrees to pay, there are no outstanding
unfulfilled contracts, commitments, or other obligations of whatsoever nature as
between the Executive and the Company or any outstanding indebtedness owed by
either party to the other; and the parties hereto hereby further agree that any
and all disputes, claims, open accounts and other unresolved matters with
respect to any of the foregoing which may exist on the date hereof, shall be,
and hereby are, in all respects resolved, satisfied and settled as between the
parties.
(b) Simultaneously with the execution and delivery hereof, the parties
shall enter into a Consulting Agreement pursuant to which the Executive
shall agree to provide consulting services to the Company, upon the terms
and conditions, and for the consideration, set forth in the Consulting
Agreement in or substantially in, the form annexed hereto as Exhibit 9(b)
(the "Consulting Agreement").
(c) The Company shall, at its expense, provide to the Executive until
at least
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<PAGE>
December 31, 1999, such office space at its executive offices in
Cedarhurst, New York (the Cedarhurst Premises") as shall, in the reasonable
opinion of the Board of Directors, be suitable and adequate for the
Executive's use and shall be comparable in amenities to, his current office
space. In the event that the Company subleases or reconfigures the
Cedarhurst Premises prior to such date, the Company shall provide to the
Executive an amount of space and amenities approximately equivalent to
those provided to the Executive before such sublease or reconfiguration.
The foregoing notwithstanding, the Company shall have no obligation to
provide the Executive with such office space if, and from the time that,
the Company subleases the entire Cedarhurst Premises to an unaffiliated
third party.
(d) The Company hereby agrees to employ Gina Shaughnessy
("Shaughnessy") through at least December 31, 1999, and as full
compensation for services rendered by Shaughnessy shall pay to her the
salary, and provide the benefits, currently being received by her as of the
date hereof. In the event that the Company terminates Shaughnessy's
employment on or after December 31, 1999, and Shaughnessy is not employed
by the Executive or by any affiliate of the Executive within one week of
such termination, Shaughnessy shall be entitled to receive a severance
payment in an amount equal to three month's salary, payable by the Company
within seven (7) days of such termination. During the period of
Shaughnessy's employment, the Company shall allow the Executive the use of
the services of Gina Shaughnessy as required by the Executive, provided
however that the Company may utilize a reasonable amount of Shaughnessy's
working time and under the supervision of the Executive from time to time
during normal business hours to attend to certain administrative matters of
the Company of the same nature as those matters which Shaughnessy currently
attends.
10. Releases.
(a) The Company hereby remises, releases, and forever discharges and
by these presents does for itself and its successors and assigns, remise,
release, and forever discharge the Executive and his heirs, successors and
assigns from all manner of action and actions, cause and causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, executions, claims and demands
whatsoever, in law or in equity, which it ever had, now has or which may
hereafter accrue or which it, its successors or assigns, hereafter can,
shall or may have for, upon or by reason of any matter from the beginning
of the world to the day of the date of these presents; provided, however,
it is confirmed herewith that this release does not affect the rights or
obligations of the Company or the Executive under or pursuant to (i) the
Consulting Agreement, (ii) the Loan Agreement the related Security
Agreement, the associated promissory note and other related documents,
(iii) the Indemnification Agreement, or (iv) this Termination Agreement
(the "Excluded Agreements").
(b) The Executive hereby remises, releases, and forever discharges and
by these presents does for himself and his successors and assigns, remise,
release, and forever discharge the Company, its subsidiaries, affiliates,
directors, officers and stockholders (collectively, the "Company
7
<PAGE>
Releasees") and successors and assigns of Company Releasees from all manner
of action and actions, cause and causes of action, suits, debts, dues, sums
of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses,
damages, judgments, executions, claims and demands whatsoever, in law or in
equity, which the Executive ever had, now has or which may hereafter accrue
or which the Executive, his successors or assigns, hereafter can, shall or
may have for, upon or by reason of any matter from the beginning of the
world to the day of the date of these presents; provided, however, it is
confirmed herewith that this release does not affect the rights or
obligations of the Executive or the Company Releasees under or pursuant to
the Excluded Agreements.
(c) The Company and the Executive affirm that no representation of
fact or opinion has been made to induce the giving of the releases provided
by this Section 10 (the "Releases") other than as specifically set forth
herein and that it is therefore specifically agreed that the Releases shall
be a complete bar to any and all claims, suits or damages whatsoever, other
than with respect to the Excluded Agreements.
11. Nondisparagement. The Company agrees that neither the Company nor any
officer, director, employee, consultant, affiliate or agent of the Company shall
make any statement, written or oral, to any person or entity, or otherwise in
general to the public, or to the business or financial community, or take any
action, directly or indirectly, that disparages or is likely to diminish the
reputation of the Executive, or which could adversely affect the ability of the
Executive to enter into or consummate any business transaction, or the business
or reputation of the Executive; provided, however, that the foregoing shall not
preclude the Company from making any statement which is required (i) to
accurately comply with a court order, subpoena or other discovery necessary in
an action or proceeding in a court of competent jurisdiction, or (ii) by an
administrative agency or the Nasdaq Stock Market, Inc., or (iii) to accurately
comply with the Company's reporting requirements under the Securities Exchange
Act of 1934, as amended.
12. Choice of Law and Venue. The parties agree that this Termination
Agreement is made and entered into in Nassau County, New York and shall be
governed by and construed in accordance with the laws of the State of New York,
and that any litigation, special proceeding or other proceeding as between the
parties that may be brought, or arise out of, in connection with or by reason of
this Termination Agreement shall be brought in the applicable state court in and
for Nassau County, New York which Courts shall be the exclusive courts or
jurisdiction and venue.
13. Entire Agreement. This Termination Agreement contains the full and
complete understanding and agreement of the parties hereto with respect to the
subject matter contained herein and supersedes all prior or contemporaneous
written or oral understandings or agreements with respect to the subject matter
hereof. No modification of this Termination Agreement shall be binding unless
made in writing and signed by the party sought to be charged.
14. Binding Effect. This Termination Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors, assigns and legal representatives.
8
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Shaugnessy is an intended third-party beneficiary of Section 9(d) hereof.
15. Equitable Relief; Breach. The Executive acknowledges and agrees that,
in the event the Executive shall violate or threaten to violate any of the
restrictions of Section 8 hereof, the Company will be without an adequate remedy
at law and will therefore be entitled to enforce such restrictions by temporary
or permanent injunctive or mandatory relief in any court of competent
jurisdiction without the necessity of proving damages and without prejudice to
any other remedies which it may have at law or in equity, it being understood
that such remedy shall be in addition to any other remedies which the Company
may have at law or in equity.
16. Waiver; Severability. The waiver by either party of a breach of any
provision of this Termination Agreement shall not operate or be construed as a
waiver of any subsequent breach. If any provision of this Termination Agreement,
or part thereof, shall be held to be invalid or unen forceable, such invalidity
or unenforceability shall attach only to such provision and not in any way
affect or render invalid or unenforceable any other provisions of this
Termination Agreement, and this Termination Agreement shall be carried out as if
such invalid or unenforceable provision, or part thereof, had been reformed, and
any court of competent jurisdiction is authorized to so reform such invalid or
unenforceable provision, so that it would be valid, legal and enforceable to the
fullest extent permitted by applicable law.
17. Notices; Deliveries. Any notice, delivery or other communication
required or permitted hereunder shall be sufficiently given if delivered by hand
or sent by certified mail, return receipt requested, facsimile transmission,
overnight mail or nationally recognized overnight courier, addressed as follows:
If to the Company:
c/o e.TV Commerce, Inc.
12735 Gran Bay Parkway West, Bldg. 200
Jacksonville, Florida 32241
Attention: Chairman of the Board
Telecopier Number: (904) 680-6442
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Gavin C. Grusd, Esq.
Telecopier Number: (516) 296-7111
If to the Executive:
969 East End
Woodmere, New York 11598
Telecopier Number: (516) 569-7639
9
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with a copy to:
Jackson Walker L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
Attention: Charles Maguire, Esq.
Telecopier Number: (214) 953-5822
or such other address as shall be furnished in writing by either party, and any
notice, delivery or communication given pursuant to the provisions hereof shall
be deemed to have been given as of the date delivered or so mailed or
transmitted.
18. Counterparts; Headings. This Termination Agreement may be executed in
counterparts, each of which shall be an original, but all of which taken
together shall constitute one agreement. The headings contained in this
Termination Agreement are solely for the convenience of the parties, and are not
intended to and do not limit, construe or modify any of the terms and conditions
hereof.
19. Waiver of Jury Trial. THE COMPANY AND THE EXECUTIVE ACKNOWLEDGE THAT
THE RIGHT TO A TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY
BE WAIVED. THE COMPANY AND THE EXECUTIVE EACH KNOWINGLY, VOLUNTARILY,
IRREVOCABLY AND WITHOUT COERCION, WAIVES ALL RIGHTS TO TRIAL BY JURY OF ALL
DISPUTES BETWEEN THEM. NEITHER THE COMPANY NOR THE EXECUTIVE SHALL BE DEEMED TO
HAVE GIVEN UP THIS WAIVER OF JURY TRIAL UNLESS THE PARTY CLAIMING THAT THIS
WAIVER HAS BEEN RELINQUISHED HAS A WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY
STATING THAT THIS WAIVER HAS BEEN GIVEN UP. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY THE COURT.
IN WITNESS WHEREOF, the parties have executed this Termination Agreement as
of the day and year first above written.
COMPU-DAWN, INC.
By: /s/ Robert E. (Teddy) Turner
-----------------------------
Robert E. (Teddy) Turner, IV
Chairman of the Board
/s/ Mark Honigsfeld
--------------------------------
MARK HONIGSFELD
10
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CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference, in the Post-Effective
Amendment No. 1 to Form SB-2 Registration Statement on Form S-3, of our report
dated February 25, 1999 (except as to Note 14 which is dated March 4, 1999)
which appears on page F-2 of the annual report on Form 10-KSB of Compu-DAWN,
Inc. for the year ended December 31, 1998.
/s/ Lazar Levine & Felix, LLP
-----------------------------
LAZAR LEVINE & FELIX, LLP
New York, New York
June 7, 1999
<PAGE>
