As filed with the Securities and Exchange Commission on
September 8, 1997
Registration No. 33324511
============================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 25409
Amendment No. 1 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------
mrcdrom.com, inc.
(Exact Name of the Company as specified in Its Charter)
Delaware 5960 75-2699241
(State or Other (Primary Standard (IRS Employer
Jurisdiction) Industrial Identification No.)
of Incorporation Classification
or Organization) Code Number)
2415 Midway, Suite 115
Carrollton, Texas 75006
(972) 713-2609
(Address and Telephone number of Principal Executive Officers)
Ms. Jeanette Fitzgerald
17770 Preston Road
Dallas, Texas 75252
(972) 733-3005
(Address and Telephone number of Agent for Service)
- -----------------------
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date
of this Registration Statement.
If any of the securities being registered on this form are to
be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following :{x }
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities
Act of 1933, check the following box and list the
Securities Act registration statement number of the
earlier registration statement for the same offering. { }
If this Form is a post-effective amendment filed pursuant to
Rule 462( c) under the Securities Act of 1933, check the
following box and list the Securities Act Registration
statement number of the earlier effective registration
statement for the same offering. { }
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. { }
CALCULATION OF REGISTRATION FEE
TITLE OF EACH AMOUNT PROPOSED PROPOSED AMOUNT
OF
CLASS TO BE MAXIMUM MAXIMUM
REGISTRATI
OF SECURITIES TO REGISTER OFFERING AGGREGATE ON FEE
BE REGISTERED ED PRICE PER OFFERING
SHARE (1) PRICE (1)
Common Stock,
$0.01 par
value per share 3,000,000 $4.00 $12,000,000 $3,636
(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457 (c).
The Company hereby amends this Registration Statement on
such date or dates as may be necessary to delay its
effective date until the Company shall file a further
amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective
on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
=======================================================
PRELIMINARY PROSPECTUS
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION
OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
mrcdrom.com, inc.
Up to 3,000,000 Shares of Common Stock
mrcdrom.com, inc. (the "Company") an Internet catalogue
Company which intends to offer over 10,000 computer software
titles by means of a site on the World Wide Web, and which
presently has very limited revenues, is offering for sale
up to 3,000,000 Shares of its Common Stock, par value $0.001
("Common Stock" or "Shares". The minimum offering by the
Company will be 62,500 shares ($250,000) and the maximum
offering will be 3,000,000 shares ($12,000,000). A minimum
investment of 50 Shares ($200) is required of each investor.
See "Description of Capital Stock" and "Plan of Distribution".
The Shares are being offered on a "maximum/minimum best
efforts" basis. Pending the payment for not less than 62,500
Shares, all proceeds of this offering will be deposited in a
non interest bearing escrow account with The Oaks Bank and
Trust Company, 4849 Greenville Avenue, Dallas, Texas 75206,
(214) 361-7400("Escrow Agent").
Prior to this offering, there has been no public market for
the Common Stock and the Company does not have any
arrangements, commitments or understanding with respect to the
creation of a public market for the Common Stock. Therefore,
there can be no assurance that a public market will develop
by reason of this offering. If such a market should develop,
there is no assurance that it will be sustained, or that it
will develop into a market greater than a limited market. It
is currently estimated that the initial public offering price
will be $4.00 per share. The initial public offering price for
the Shares has been determined solely by the Company, and does
not necessarily bear any direct relationship to the Company's
assets, operations, book or other established criteria of
value. See "Risk Factors", "Dilution" and "Plan of
Distribution".
It is intended that the Company's Stock will be traded on
the NASDAQ OTC Bulletin Board and an investor would likely
find it more difficult to dispose of the Shares, or to
obtain current quotations as to the value of the Shares. See
"RISK FACTORS-NO PUBLIC MARKET" and "PLAN OF DISTRIBUTION."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION FROM THE OFFERING PRICE.
FOR
INFORMATION CONCERNING THESE AND OTHER RISK FACTORS WHICH
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" PAGE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
Price to Public Underwriting Proceeds to
Discount Company
Per Share $4.00 $ - $4.00
Total Minimum $250,000 $ - $200,000
Total Maximum $12,000,000 $ - $11,900,000
(4)
</TABLE>
The offering of the Shares hereunder will terminate not
later than _______________, 1997 (the "Termination Date"),
provided that, in the sole discretion of the Company, the
offering period may be extended for an additional period not
to exceed 90 days. The Company has entered into an escrow
agreement with The Oaks Bank and Trust Company to hold any
proceeds from this offering in a non-interest bearing escrow
account subject to certain terms
and conditions. If subscriptions for the minimum number
of Shares offered hereby have not been received and accepted by
the Company by the Termination Date, no Shares will be sold,
and all funds held in escrow will be returned promptly to
investors without any interest accrued thereon. See
"Plan of Distribution".
(1) Shares are being offered for sale at $4.00 per Share.
A minimum investment of 50 Shares ($200) is required of
each investor, provided that the Company, in its
discretion, may reduce the size of the minimum investment.
Payment in full is due upon subscription. Stock purchase
funds will initially be held in a non-interest bearing
escrow account with The Oaks Bank and Trust Company. This
offering will terminate on or before a date 90 days from the
date of this prospectus unless the maximum amount of Shares
offered hereby is sold prior to such date or unless this
offering is otherwise extended at the discretion of the
Company for a period not to exceed 90 days. When
subscriptions for the minimum amount of Shares offered
hereby
have been received and accepted by the Company, such funds
will be released from escrow to the Company, and investors
whose subscriptions for Shares have been accepted by the
Company will be issued Common Stock certificates evidencing
the number of Shares acquired, and the initial escrow will
close. The payment for accepted subscriptions after the
closing of the escrow will be deposited directly into the
Company's accounts. See "Stock Purchase Information" and
"Plan of Distribution".
(2) The Shares are being offered by the Company on a
"maximum/minimum best efforts" basis. There is no underwriter
or independent broker-dealer involved in the distribution of
the Shares. The offering of the Shares will be made by the
Company's officers and directors without the use of an
underwriter or any independent broker-dealer. No underwriting
discounts or commissions will be paid to such officers and
directors. It is the intention of the Company to offer and
sell the Shares by contacting prospective investors through
appropriate newspaper and magazine and Internet advertisements
as well as through the use of the Internet to electronically
deliver copies of this Prospectus to the prospective investors.
See "Stock Purchase Information" and "Plan of Distribution".
(3) This amount is after deduction of offering and related
expenses incurred by the Company in this offering which are
estimated to be approximately $50,000 if a minimum is sold or
up to $100,000 if the maximum amount is sold and include
filing,printing, legal, electronic delivery and other
miscellaneous fees.
mrcdrom.com, inc.
2415 Midway, Suite 115
Carrollton, Texas 75006
Telephone (972) 713-2609
e-mail: [email protected]
Internet address: http://www.mrcdrom.com
SUBJECT TO COMPLETION DATED SEPTEMBER 8, 1997
The Company is not currently a reporting company under
the Securities Exchange Act of 1934, as amended. Upon
completion of the offering of the Shares, the Company intends
to deliver annual reports to the holders of its securities.
The annual reports will contain financial information that
has been examined and reported upon by an independent
certified public accountant.
mrcdrom is a trademark of the Company. This Prospectus
also includes product names and other trade names and
trademarks of the Company, as well as the names and product
names of companies other than the Company.
- ---------------
STOCK PURCHASE INFORMATION
Shares are being offered for sale at $4.00 per Share. A
minimum investment of 50 Shares ($200) is required of
each investor,
provided that the Company, in its discretion, may reduce the
size of the minimum investment. Payment in full is due
upon
subscription. Stock purchase funds will initially be held in
a non-interest bearing escrow account with The Oaks Bank &
Trust Company. There are two methods by which
subscriptions and funds may be submitted. Firstly, investors
may purchase Shares by making checks payable to
"mrcdrom.com Escrow Account".
Purchasers should also complete a Stock Purchase Agreement in
the form included as Appendix A to this Prospectus. For
convenience, an actual Stock Purchase Agreement has been
included with this Prospectus. Additional copies of the
Stock Purchase Agreement
may be obtained by writing or calling the Company at
its executive office, 2415 Midway, Suite 115, Carrollton,
Texas 75006, telephone number (972) 713-2609, or via its World
Wide Web site on the Internet at http://www.mrcdrom.com, or
through e-mail communication directed to [email protected].
All checks and Stock Purchase Agreements should be
forwarded to the Escrow Agent, The Oaks Bank and Trust
Company, 4849 Greenville Avenue, Dallas, Texas 75206.
Secondly, investors may pay for your stock by executing a
Stock Purchase Agreement online and paying by means of an
electronic funds transfer similar to paying for items for the
catalogue on-line. The funds can be automatically debited
from your checking account or credit card. No shares will
be issued until payment is confirmed.
- ---------------
ELECTRONIC FORMAT OF PROSPECTUS
An electronic version of this Prospectus is available on
the Company's Internet World Wide Web site at
http://www.mrcdrom.com. The paper format of this Prospectus is
substantially the same as the electronic format of this
Prospectus.
- ---------------
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and
is qualified in its entirety by, the more detailed information
and financial statements and notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
mrcdrom.com, inc. was formed by Camelot Corporation
("Camelot") on March 27, 1997 and was established to offer
over 2,000 titles of computer software to the public by means
of a site on the World Wide Web ("Web"). The Company
is developing a new catalogue which will offer more than
10,000 titles. mrcdrom.com intends to offer its customers the
widest selection of one stop computer software shopping
through a secure site. A secure site uses encryption
technology to encode, decode and recode messages sent between
the site and the customer's computer. The
purpose
of the encryption is to prevent third parties from
intercepting and reading the messages sent between the
computers. Shoppers will be able to receive information
and purchase the latest computer software titles in addition
to many hard-to-find titles. mrcdrom.com will have unlimited
shelf space through relationships with vendors who will
supply titles as needed, without the accompanying expense
of a store front, and related personnel. Purchasing software
from mrcdrom.com is more convenient because on-line shopping
can occur 24 hours a day with no reason for shoppers to
leave the comfort of their own home.
mrcdrom.com began test marketing its Internet catalogue on
April 3, 1997. Through August 1, 1997, the Company, made no
marketing efforts and attained catalogue sales of $5,164.00.
On March 31, 1997, the Company acquired $511,428 of
computer software inventory, proprietary web design
software, the trademark "mrcdrom", cash, and other assets for
the issuance of 6,000,000 common shares from Camelot.
THE OFFERING
Common Stock Offered.......... 3,000,000 shares at a price of
$4.00 per share and a minimum
investor subscription of 50
shares ($200).
Common Stock to be Outstanding
after this 9,000,000 shares (1)(2)
offering.................
Use of Proceeds............ For working capital and other
general corporate purposes.
(1) Excludes 408,860 shares of Common Stock issuable
upon exercise of options outstanding at March 28, 1997
under the Company's Stock Option Plans at an exercise price
of $4.00 per share. See "Executive
Compensation" and "Directors
Compensation".
(2) Assumes maximum shares offered are sold.
RISK FACTORS
The securities offered hereby involve a high degree of risk.
The Company has just recently completed the web site through
which its operations will be conducted, thus this method of
operation has not been proven and may not be viable. Further
the methods of displaying product and collecting payment may
not be adequate if volume increases. The Company will be
operating in a new, not yet widely accepted market. Some
people who would otherwise be investors or customers will
not purchase because they do not trust computers. There can
be no assurance that the Company will have profitable
operations. Other risk factors include, but are not limited
to, new and rapidly changing technology, which may make the
Company's web site, inventory and other information obsolete
requiring expensive investments in hardware
and
software. Retail operations historically have seasonal
sales and there is specific seasonality for Internet usage.
Computer systems have a risk of a system failure thereby
effectively locking the door on customers ability to purchase,
view product and/or pay for the product. Further, the
Internet, itself, on which the site operates has suffered
brown outs and black outs. Though encryption technology is
changing what can be used for international activities is
still limited. Though the government is discussing making
changes to what encryption technology can be exported, at
the present time the exportable encryption technology is
limited. This means information sent encrypted by these
methods has a certain amount of risk that the information can
be read by third parties. Thus there are online commerce
security risks which affect the operations of the
Company. Control of the Company will not change even if all
shares offered are sold as Camelot will retain
approximately 67% of the outstanding shares if all
shares offered are sold. There currently is no market
and one may not develop for the shares offered hereby.
Further even if a market develops the price may be extremely
volatile. An investment in the securities offered hereby
should be considered only by investors who can afford the loss
of their entire investment.
<TABLE>
Summary Financial Data
For the year ended April 30,
<S> <C> <C>
1997 1996 1995
Statement of Operations
Revenues $1,158,408 483,842 94,070
Net loss (2,464,292)(1,393,788)(167,233)
Net loss per share (.41) (.23) (.03)
Shares used in
calculation 6,000,000 6,000,000 6,000,000
Balance Sheet Data
As As
Adjusted Adjusted
Actual Minimum Maximum
(1) (2)
Cash $ 76,538 $276,538 $11,976,538
Working Capital 454,323 654,323 12,354,323
Total Assets 767,300 967,300 12,667,300
Total Shareholders 553,363 753,363 12,453,363
Equity
</TABLE>
(1) To give effect to the sale of 62,500 Shares by the
Company in this offering less offering expenses of $50,000.
(2) To give effect to the sale of 3,000,000 Shares by the
Company in this offering less offering expenses of $100,000.
(3) Including subsidiaries operating six retail store units
(now closed) and software distribution to third parties (now
discontinued).
THE COMPANY
mrcdrom.com was founded on March 27, 1997 by Camelot to
offer over 2,000 titles of computer software to the public by
means of a site on the World Wide Web ("Web"). The
Company is developing
a new catalogue which will offer more than 10,000
titles.
mrcdrom.com intends to offer its customers the widest
selection of one stop computer software shopping through a
secure site. A secure site uses encryption technology to
encode, decode and recode messages sent between the site and
a customer's computer. The purpose of the encryption is to
prevent third parties from intercepting and reading the
messages sent between the computers. Shoppers will be able to
receive information and purchase the latest computer
software titles including many hard-to-find titles.
mrcdrom.com will have unlimited shelf space through
relationships with vendors who will supply titles as
needed, without the accompanying expense of a store front,
and related personnel. mrcdrom.com has an agreement
with a major
distributor, and in excess of 130 publishers which enable it
to expand its product line without carrying any
additional inventory. The distributor will provide direct
shipment to the customer if required by mrcdrom.com. The
publishers will require mrcdrom.com or subsidiaries to
purchase and ship to customers. Purchasing software from
mrcdrom.com is more convenient because on-line shopping can
occur 24 hours a day with no reason for
shoppers to leave the comfort of their own home.
mrcdrom.com began test marketing its Internet catalogue on
April 3, 1997. The Company is still refining the catalogue
and with no
marketing effort has had sales of $5,164 from April 3, 1997
until August 1, 1997. On March 31, 1997, it acquired $
511,428 of computer software inventory, proprietary web design
software, the trademark "mrcdrom", cash, and other assets for
the issuance of 6,000,000 common shares from Camelot.
Camelot also transferred all shares owned by it in related
retail and wholesale companies which became wholly owned
subsidiaries of the Company. As a result of these actions
by Camelot and the Company, the Company has had previous
operations but not in the Internet commerce market.
Management believes that mrcdrom.com is one of a few
Internet catalogues offering over 2,000 software titles
through its web site. The
Company is developing a new catalogue which is
intended to offer over 10,000 items. By offering customers
an authoritative selection of more than 10,000 software
titles, as well as competitive pricing and outstanding
customer service, mrcdrom.com believes it has the ability
to achieve the most recognized and used Internet
catalogue among online software retailers.
Customers can access the mrcdrom.com catalogue through the
web site http://www.mrcdrom.com. A customer can order
software, run searches in various categories, and can
check order status. Customers simply click on buttons to add
or remove software in their virtual shopping baskets up to
the time of making the final purchase decision. To execute an
order, customers click on the buy button and are prompted
to supply shipping and payment details through secure order
processing. Shipping is generally done through United
Parcel Service though the Company has the ability to ship
through the U. S. Post Office, or Federal Express, if
requested by a customer or otherwise required. Customers
provide payment to the Company prior to shipment to reduce
the Company's exposure to credit risk. The Company uses a
secure unaffiliated third party proprietary software
which obtains payment electronically, from the customers
checking account or credit card as determined by the
customer. This method permits the Company to confirm payment
prior to shipment thereby reducing any credit risk. A
customer has the option to return the product or dispute the
charge so not all risk is eliminated.
The market for computer software has grown dramatically in
recent years but online selling represents only a small
percentage. According to Forrester Research, a market research
firm, online sales of computer products are expected to
increase from $140 million to $2,105 million from 1996 to
2000.
Projected Growth in Online Commerce ($millions)
1996 1997 1998 1999 2000
Computer $140 323 701 1,228 2,105
Products
Total 518 1,138 2,371 3,990 6,579
Products
Source: Forrester Research, Inc., Cambridge, MA
Total U.S. sales of computer products through retailers grew
20.4 percent in 1996 to a record $28.2 billion, according to
Computer Retail Week, a trade publication. Software sales grew
16 percent to $4.5 billion worldwide, International Data
Corporation ("IDC") reported. The
Internet is an increasingly significant global
medium for communications, content and online commerce.
IDC
estimates that the number of Web users grew to approximately
35 million by the end of 1996 and will grow to approximately
163 million by 2000. The increasing functionality,
accessibility and overall usage of the Internet and online
services have made them an attractive commercial medium.
The Internet and other online services are evolving into a
unique sales and marketing channel, just as retail stores,
mail-order catalogues and television shopping have done.
Unlike traditional retail channels, online retailers do not
have the burdensome costs of managing and maintaining a
significant retail store infrastructure or the continuous
printing and mailing costs of catalogue marketing. Because
of the above advantages over traditional retailers, i.e.
ability to reach customers worldwide simply by being on the
Web and decreased overhead costs, online retailers have the
potential to build a large, global customer base quickly and
to achieve economic returns generally better than store
front retailers over the long term. An increasingly broad
base of products is being sold successfully online,
including computers, travel services, brokerage
services,
automobiles, music, and books. However, as the Internet is
a fairly new commercial medium there can be no assurance of
wide spread acceptance in the volumes necessary for the
Company to make a profit. Additionally, the technology both
in terms of the medium on which the products are sold and the
products themselves may have an adverse impact on the
Company's ability to sell enough product in a volume
sufficient to make a profit for the Company. The Company
will initially have the catalogue available in just English.
Management believes that a majority of those areas around the
world which use computers and the Internet speak English.
However, management anticipates the need to add
additional languages thereby reaching more of the globe
and increasing its potential customer base.
Camelot, which previously operated retail stores
selling primarily CD-ROM software, established the Company to
move out of what it considered to be a highly competitive,
saturated market to a new much larger market. The Company
believes that as Internet users are already computer users
they provide a ready market. Further, the economics of
having a wide range of titles without the overhead of real
estate costs and personnel to staff the stores offers a chance
for profits with a profit margin lower than traditional store
front retailing. These factors will allow the Company to reach
more potential customers at a lower cost per customer. The
provision of publisher descriptions offered in the catalogue
enables customers to make informed decisions.
The Company believes the Internet is a new means of
communication and is beginning to become an accepted
method of commerce. However, not all households and
businesses have access to the Internet nor have all
individuals who purchase software accepted the Internet for
making purchases, i.e. completing the sale. By
having the catalogue solely on the Internet, the Company
limits its reach to a specific consumer base i.e. computer
users who accept and use the Internet to locate and purchase
goods.
It is expected, that the initial growth rate of web "hits"
[i.e. visits to the site without necessarily any purchases]
will be relatively large with that rate stabilizing at a
lower growth rate. It is expected that a percentage of hits
on a web site will result in sales. As the number of
hits increases the opportunity for a purchase from the
public increases. For instance, if ten percent of all hits
result in a purchase, having 100 hits results in 10 purchases
but 1,000 hits results in 100 purchases. The
rate at which hits result in a purchase may
decrease as the number of hits increases so in the last
example 1,000 hits may only result in 90 purchases. An analogy
would be the mailing of marketing material results in
contacts by
potential customers. The increase in the number of pieces
mailed does not increase the percentage of potential customer
contacts. Thus Management believes that as the number of hits
increases the number of purchases will increase, even if the
percentage of conversions from hits to purchases decreases.
The Company was incorporated on March 27, 1997 in Delaware.
The Company was incorporated by Camelot Corporation and is
presently a wholly owned subsidiary. Further Camelot
exchanged the common shares
it owned in Mr. CD-ROM Stores, Inc. and Camelot
Distributing, Inc. and two other inactive companies for
preferred shares of mrcdrom.com, inc. The Company's
headquarters are located at 2415 Midway, Suite 115,
Carrollton, Texas 75006. Its telephone number is (972) 713-
2609. Information other than the Prospectus contained on the
Company's web site will not be deemed to be a part of this
Prospectus but is available for review at
http://www.mrcdrom.com. mrcdrom is a trademark of the
Company and all other trademarks are the respective trademarks
of their owners.
RISK FACTORS
In addition to the other information contained in
this Prospectus, Investors should carefully consider the
following risk factors before making an investment decision
concerning the common stock.
LIMITED OPERATING HISTORY The Company has no prior history
in the Internet commerce field upon which investors may
evaluate the Company's performance.
To date the Company has engaged in
primarily organization efforts in relation to its
Internet operations. Though it has previously operated in the
retail area through its subsidiaries, the Company believes
Internet commerce is substantially different from operating a
store front. The
Company has had no material sales from the Internet
catalogue. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered
by companies in their early stage of new market
development, particularly companies in new and rapidly
evolving markets such as online commerce. Such risks for
the Company include, but are not limited to, an evolving
and unpredictable business model and the management of growth.
To address these risks, the Company must, among other
things, obtain, maintain and increase its customer base,
implement and successfully execute its business
and
marketing strategy, continue to develop and upgrade
its
technology and transaction-processing systems, improve its
web site, provide superior customer service and order
fulfillment, respond to competitive developments, and
attract, retain and motivate qualified personnel. There can
be no assurance that the Company will be successful in
addressing such risks, and the failure to do so could
have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
The Company believes that its success will depend to large
extent on its ability to (a) extend its brand position, (b)
provide its customers with outstanding value and a
superior shopping experience, and (c) achieve sufficient
sales volume to realize
economies of scale. Accordingly, the Company intends to
invest in site development and technology and operating
infrastructure development. The Company also intends to
offer attractive pricing programs, which will reduce its
gross margins. As a result, the Company believes that it
will incur operating losses for the next twelve (12) months.
The Company expects to use a portion of the net proceeds
of this offering to fund its operating losses. If such
net proceeds, together with cash generated by
operations, are insufficient to fund future
operating losses, the Company may be required to raise
additional funds. There can be no
assurance that such financing will be
available in amounts or on terms acceptable to the Company, if
at all.
POTENTIAL FLUCUATIONS IN QUARTERLY OPERATING RESULTS;
SEASONALITY As a company beginning operations in a new and
rapidly changing market, the Company is unable to
accurately forecast its
revenues. The Company's current and future expense levels
are
based largely on its investment plans and estimates of
future revenues. Sales and operating generally depend on the
volume of, timing of and ability to fulfill orders
received, which are difficult to forecast without any
historical trends. Further in an industry such as software
new developments come at a rapid pace resulting in even
historical comparisons being of limited value. The
Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues
in relation to the Company's planned expenditures would
have an immediate adverse effect on the Company's business,
prospects, financial condition and results of operation.
Further, as a strategic response to changes in the
competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions that
could have a material adverse effect on its business,
prospects, financial condition and results
of
operations. See "Business - Competition."
The Company expects to experience significant fluctuations in
its future quarterly operating results due to a variety of
factors, many of which are outside the Company's control.
Factors that may adversely effect the Company's quarterly
operating results include (a) the Company's ability to retain
existing customers, attract new customers at a steady rate
and maintain customer satisfaction, (b) the Company's
ability to manage inventory and fulfillment operations and
maintain gross margins, (c) the announcement or
introduction of new sites, services and products by the
Company and its competitors, (d) price competition or higher
wholesale prices in the industry, (e) the level of use of the
internet and online services and increasing consumer
acceptance of the Internet and other online services for
the purchase of consumer products such as those offered
by the Company (f) the Company's ability to upgrade and
develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (g) the level of
traffic on the Company's web site (h) technical difficulties,
system downtime or Internet brownouts, (i) the amount and
timing of operating costs and capital expenditures
relating to expansion of the Company's business,
operations and infrastructure, (j) the number of popular
software titles introduced, (k) the level of merchandise
returns, (l) governmental regulation and (m) general
economic conditions specific to the Internet, online
commerce and the software industry in total.
The Company expects seasonality in its sales. Traditional
retail sales are greatest in the fourth quarter of the calendar
year and software sales, in particular, seem to increase in
the first quarter of the
calendar year. Further, Internet usage
historically drops during the summer months. As the
operations of the Company in this market are new, there is
no historical data to suggest the affect of seasonality on
the revenues and profits of the Company.
RISK OF CAPACITY CONSTRAINTS; SYSTEM DEVELOPMENT RISKS In
order to maximize the revenues from the sale of low margin
products, high volumes must be achieved on the web site.
Thus, the satisfactory performance, reliability and
availability of the Company's web
site, transaction-processing systems, and network
infrastructure are critical to the Company's reputation
and ability to attract and retain customers and maintain
adequate customer service levels. Any system interruptions
that result in the unavailability of the web site or reduced
order fulfillment performance would reduce the volume of
goods sold and the attractiveness of the Company's product
and service offering. Web sites experience periodic system
interruptions, which the Company believes will occur from
time to time. Any substantial increase in the volume of
traffic on the Company's web site or the number of orders
place by customers will require the Company to expand and
upgrade further its technology, transactionprocessing
systems and network infrastructure. There can be no
assurance that the Company will be able to accurately project
the rate or timing to increases, if any, in the use of its web
site or timely expand and upgrade its systems and
infrastructure to accommodate such increases.
The Company uses systems for its web site developed by
the Company's product development personnel, and software
developed
by outside non affiliated vendor for the secured transactions.
There can be no assurance that the software developed
internally will perform satisfactorily at the volume levels
that are required to attain profits for the Company. The
Company has expended salaries and license fees for both the
internal and external software. Further, there can be no
assurance that the Company will be able to modify either
software to adapt to the increased volume if it occurs or
any other standards that may later be adopted in order for
online commerce to occur on the Internet.
RISK OF SYSTEM FAILURE; SINGLE SITE AND ORDER INTERFACE
The
Company's success, in particular its ability to
successfully
receive and fulfill orders and provide high-quality
customer service, largely depends on the efficient and
uninterrupted operation of
its computer and communications hardware systems.
Its computer and communications hardware system was acquired
from Camelot as part of Camelot's subscription for Company
common shares.
Substantially all of the Company's computer and
communications hardware is located at a single leased facility
in Carrollton, Texas. The Company's system could experience
failure due to flood, power loss, telecommunications failure,
break-ins, earthquake, and similar events. The Company
presently has redundant
systems however, they are located at the same site.
Despite the implementation of network security measures by
the Company, its servers are vulnerable to computer viruses,
physical or electronic break-ins, and similar disruptions,
which could lead to interruptions, delays, loss of data or
the inability to accept and fulfill customer orders. The
occurrence of any of the foregoing risks
could have a material adverse effect on the
Company's business, prospects, financial condition and results
of operations.
RISK OF MANAGING POTENTIAL GROWTH; NEW MANAGEMENT TEAM;
LIMITED SENIOR MANAGEMENT
RESOURCES The Company anticipates that
significant expansion of its operations will be required
to address potential growth in its customer base and
market
opportunities. This expansion will place a significant strain
on the Company's management, operational and financial
resources. To manage the expected growth of its operations, the
Company will be required to improve existing and implement
new transactionprocessing, operational and financial
systems, procedures and controls, and to train and manage its
employee base. The Company also will be required to expand its
finance, administrative, and operations staff. Further, the
Company's management will be required to maintain and
expand its relationships with various distributors and
publishers, freight companies, other web sites and other
web service providers, the Internet and other online service
providers and other third parties necessary to the
Company's business. There can be no assurance that the
Company's current and planned personnel, systems, procedures
and controls will be adequate to support the Company's future
operations, that management will be able to hire, train,
motivate and exploit existing and potential market
opportunities. If the Company is unable to manage growth
effectively, its business, prospects, financial condition and
results of operations will be materially adversely affected.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
RISK OF DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE
The
Company's future revenues and any future profits
are
substantially dependent upon the widespread acceptance and use
of the Internet and other online services as an effective
medium of commerce by consumers. Rapid growth in the use of
and interest in the Internet, the web and online
services is a recent phenomenon, and there can be no
assurance that acceptance and use will continue to develop or
that a sufficiently broad base of consumers will adopt, and
continue to use the Internet and other online services.
Products over the Internet are subject to a high level of
uncertainty and there exist few proven services and products.
The Company relies on consumers who have historically used
traditional means of commerce to purchase merchandise. For
the Company to be successful, these consumers must accept
and utilize novel ways of conducting business and
exchanging
information.
In addition, the Internet and other online services may not
be accepted as a viable commercial marketplace for a
number of reasons, including potentially inadequate
development of the necessary network infrastructure or
delayed development of
enabling technologies and performance improvements. To
the
extent that the Internet and other online services continue
to experience significant growth in the number of users,
their frequency of use or an increase in their bandwidth
requirements, there can be no assurance that the
infrastructure for the Internet and online services will be
able to support the demands placed upon them. In addition,
the Internet or other online services could lose their
viability due to delays in the development or adoption of
new standards and protocols required to handle increased
levels of Internet activity, or due to increased
governmental regulation. 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 online series generally and mrcdrom.com in
particular. If use of the Internet and other online services
does not continue to grow or grows more slowly than expected,
if the infrastructure for the Internet and other online
services does not effectively support growth that may
occur, or if the Internet and other online services do
not become a viable commercial marketplace, the Company's
business, prospects, financial condition and results of
operations would be materially adversely affected.
RISK OF RAPID TECHNOLOGICAL CHANGE To remain competitive,
the Company must continue to enhance and improve the
responsiveness, functionality and features of the mrcdrom.com
online catalogue. The Internet and the online commerce
industry are characterized by rapid technological change,
changes in user and customer requirements and preferences,
frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and
practices that could render the Company's existing web site
and proprietary technology and systems
obsolete. The Company's success will depend, in part, on
its ability to license technologies useful in its business,
enhance its existing services, develop new services and
technology that address the increasingly sophisticated and
varied needs of its prospective customers, and respond to
technological advances and emerging industry standards and
practices on a cost-effective and timely basis. The
development of web site and other proprietary technology
entails significant technical and business risks. The
development of web site and other proprietary technology
entails significant technical and business risks. There
can be no assurance that the Company will successfully use
new technologies effectively or emerging industry standards.
If the Company is unable, for technical, legal, financial
or other reasons, to adapt in a timely
manner in response to changing market
conditions or customer requirements, its business,
prospects, financial condition and results of operations would
be materially adversely affected. See "Business-Technology".
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The
Company's performance is substantially dependent on the
continued services and on the performance of its senior
management and other key personnel,
particularly Daniel Wettreich, Chief
Executive Officer and Chairman of the Board. The
Company's performance also depends on the Company's ability to
retain and motivate its other officers and key employees. The
loss of the services of any of its executive officers or
other key employees could have a material adverse effect on
the Company's business, prospects, financial condition and
results of operations. The
Company does not have long-term employment agreements with any
of its key personnel, other than Mr. Wettreich, and
maintains no "key person" life insurance policies. The
Company's future success also depends on its ability to
identify, attract, hire, train, retain and motivate other
highly skilled technical, managerial, merchandising,
marketing and customer service
personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to
successfully attract, assimilate or retain sufficiently
qualified personnel. The failure to retain and attract
the necessary technical, managerial, merchandising,
marketing and customer service
personnel could have a material adverse effect on the
Company's business, prospects, financial condition and
results of
operations. See "Business - Employees" and "Management".
ONLINE COMMERCE SECURITY RISKS A significant barrier to
online commerce and communications is the secure
transmission of
confidential information over public networks. The
Company relies on encryption and authentication technology
licensed from third parties to
provide the security and authentication
necessary to effect secure transmission to
confidential
information, such as customer credit card and checking
account numbers. There can be no assurance that advances in
computer capabilities, new discoveries in the field of
cryptography, or other events or developments will not result
in a compromise or breach of the algorithms used by the
Company to protect customer transaction data. If any such
compromise of the Company's security were to occur, it
could have a material adverse effect on the Company's
reputation, business, prospects, financial
condition and results of operations. A party who is able
to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions
in the Company's operations. The
Company may be required to expend significant
capital and other resources to protect against such
security breaches or to alleviate problems caused by such
breaches. Concerns over the security of the Internet and
other online services generally, and the web in particular,
especially as a means of conducting commercial transactions.
To the extent that activities of the Company or third-party
contractors involve the storage and transmission of
proprietary information, such as credit card or checking
account numbers, security breaches could damage the Company's
reputation and expose the Company to a risk of loss or
litigation and possible liability. There can be no assurance
that the Company's security measures will prevent security
breaches or that failure to prevent such security
breaches will not have a material adverse effect on the
Company's business, prospects, financial condition and
results of
operations. See "Business-Technology".
RISK OF COMPETITION The online commerce market,
particularly
over the Internet, is new, rapidly evolving and
intensely competitive, which competition the Company expects
to intensify in the future. Barriers to entry are minimal,
and current and new competitors can launch new sites at a
relatively low cost. In addition, the software industry is
intensely competitive. The Company will compete with a
variety of other companies. These competitors include
a) various other online vendors and
publishers; b) indirect online commerce providers like AOL
and Microsoft who offer software of their own and others; c)
retail vendors of software such as CompUSA, Computer City, and
Best Buy.
The Company believes that the principal competitive factors
in its market are brand recognition, selection, customer
service, convenience, price, accessibility, reliability and
speed of fulfillment. The Company's competitors have
longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial,
marketing and other resources than the Company. In
addition, online retailers 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. Certain of the Company's
competitors may be able to secure merchandise from
publishers on more favorable terms, devote greater
resources to marketing and promotional campaigns, adopt more
aggressive pricing or inventory availability policies and
devote substantially more resources to web site and systems
development than the Company. Increased competition may
result in reduced operating margins, loss of market
share and a diminished brand franchise. There can be no
assurance that the Company will be able to compete
successfully against current and future competitors, and
competitive pressures faced by the Company may have a
material adverse effect on the Company's business,
prospects, financial condition and results of
operation. Further, as a strategic response to changes in
the
competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on
its business, prospects, financial condition and results of
operations. New
technologies and the expansion of existing technologies
may increase the competitive pressures on the Company. For
example, companies that control access to transactions
through network access or web browsers could promote the
Company's competitors or charge the Company a substantial fee
for inclusion.
RISK RELATING TO RELIANCE ON SUPPLIERS The Company
carries
minimal inventory and relies to a large extent on
rapid fulfillment from vendors. The Company has no long-term
contracts or arrangements with any of its vendors that
guarantee the availability of merchandise, the
continuation of particular payment terms or the extension of
credit limits. The Company, through one of its subsidiaries,
has an relationship with Ingram Micro a major distributor.
The relationship permits purchasing, but does not include a
long term contract. If this relationship were terminated the
Company would be severely impacted in its ability to
fulfill orders. In most cases the relationship is with a
distributor and not the publisher of the software. There can
be no assurance that the Company's current vendors will
continue to sell merchandise to the Company on current terms
or that the Company will be able to establish new or extend
current vendor relationships to ensure acquisition of
merchandise in a timely and efficient manner and on
acceptable commercial terms. If the Company were unable to
develop and maintain relationships with vendors that would
allow it to obtain sufficient quantities of merchandise on
acceptable commercial terms, its business, prospects,
financial condition and results of operation would be
materially adversely affect. See "Business - Warehousing
and Fulfillment".
RISKS ASSOCIATED WITH ENTRY INTO NEW BUSINESS AREAS The
Company may choose to expand its operations by developing new
web sites, promoting new or complementary products or
sales formats, expanding its market presence through
relationships with third parties. In addition, the Company
may pursue the acquisition of new or complementary business,
products or technologies, although it has no present
understanding, commitments or agreements with respect to any
material acquisitions or investments. There can be no
assurance that the Company would be able to expand its
efforts and operations in a cost-effective or timely manner
or that any such efforts would increase overall market
acceptance. Furthermore, any new business or web site launched
by the Company that has not been favorably received by
consumers could damage the Company's reputation or the
mrcdrom.com brand. Expansion of the Company's operations
in this manner would also require significant additional
expenses and development, operations and editorial resources
and would strain the Company's management, financial and
operational resources. The lack of market acceptance of
such efforts or the Company's inability to generate
satisfactory revenues from such expanded services or products
to offset their cost would have a material adverse effect on
the Company's business, prospects, financial condition and
results of operations.
RISKS OF TRADEMARKS AND PROPRIETARY RIGHTS INFRINGEMENT.
The
Company regards its copyrights, service marks, trademarks,
trade dress, trade secrets and similar intellectual
property as
critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality
and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. The
Company currently copyrights its catalogue and owns the
trademark "mrcdrom.com". Applications have been made for
international filings of mrcdrom.com. There can be no
assurance that such international filings will result in
granted trademarks. The Company pursues the registration of
its trademarks and service marks in the U.S. and
internationally, and has applied for the registration of
certain of its trademarks and service marks. Effective
trademark, service mark, copyright and trade secret protection
may not be available in every country in which the Company's
products and services are made available online. The Company
expects that it may license in the future, certain of its
proprietary rights or reputation, which could have a material
adverse effect on the Company's business, prospects,
financial condition and results of operations. There can be
no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's
copyrights,
trademarks, trade dress and similar proprietary rights. In
addition, there can be assurance that other parties will
not assert infringement claims against the Company. The
Company is not currently aware of any legal proceedings
pending against it. See "Business - Intellectual Property".
RISK OF CHANGING GOVERNMENTAL REGULATION AND LEGAL
UNCERTAINTIES The Company is not currently subject to direct
regulation by a domestic or foreign governmental agency,
other than regulations applicable to business generally,
and laws or regulations directly applicable to access to
online commerce. 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, pricing, content,
copyrights, distribution and characteristics and quality of
products and services. Furthermore, the growth and
development of the market for online commerce may prompt
calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting
business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand
of the Company's products and services and increase the
Company's cost of doing business, or otherwise have an
adverse effect on the Company's business, prospects,
financial condition and results of
operations.
Moreover, the applicability to the Internet and other
online services of existing laws in various jurisdictions
governing issues such as property ownership, sales tax, libel
and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions
whose laws do not currently apply to the Company's business,
or the application of existing laws and regulations to the
Internet and other online services could have a material
adverse effect on the Company's business, prospects,
financial condition and results of operations.
RISK OF SALES TAX COLLECTION UNCERTAINTIES The Company does
not currently collect sales or other similar taxes in
respect of shipments of goods into states other than Texas.
However, one or more states may seek to impose sales tax
collection obligations on out-of-state companies such as the
Company which engage in online commerce. In addition, any
new operation in states outside Texas could subject
shipments into such state sales taxes. A
successful assertion by one or more state or any
foreign county that the Company should collect sales or
other similar taxes on the sale of merchandise could have a
material adverse effect on the Company's business, prospects,
financial condition and results of operations.
RISK OF CONCENTRATED CONTROL OF THE COMPANY Immediately
upon completion of this offering the outstanding Common Stock
will be beneficially owned approximately 67% by Camelot
Corporation ("Camelot"). Camelot will hold an aggregate of
approximately 67% of the outstanding voting power of the
Company immediately upon completion of this offering. As a
result, upon completion of this offering, Camelot will be
able to (a) elect, or defeat the election of, any of the
Company's directors, (b) amend or prevent amendment of the
Company's certificate of Incorporation or Bylaws, or (c)
effect or prevent a merger, sale of assets or other
corporate transaction, and the Company public stockholders, for
so long as they hold less than 50% of the outstanding voting
power of the Company, will not be able to control the outcome
of such transactions. The extent of ownership by Camelot may
have the effect of preventing a change in control of the
Company or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the
market price of the Common Stock. See "Management,"
"Certain Transactions" and "Principal Stockholder".
NO PUBLIC MARKET Prior to this offering there has been no
public market for the Company's Common Stock and there
can be no assurance that an active public market for the
Common Stock will develop, or if developed, be sustained
after the offering, or that the market price of the Common
Stock will not decline below the initial public offering price.
See "Plan of Distribution".
POSSIBLE VOLATILITY OF STOCK PRICE The trading price of
the Common Stock is likely to be highly volatile and could be
subject to wide fluctuations in response to factors such as
actual or anticipated variations
in quarterly operating results,
announcements or technological innovations, new sales formats
or new products or services by the Company or its
competitors, changes in financial estimates by securities
analysts, conditions or trends in the Internet and online
commerce industries, changes in the market valuations of
other Internet, online service or retail companies,
announcements by the Company of significant acquisitions,
strategic partnerships, joint ventures or capital
commitments, additions or departures of key personnel, sales
of common stock and many other factors many of which are beyond
the Company's control. In addition, the stock market in
general, and the market for Internet-related and technology
companies in particular, has experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such
companies.
RISK RELATED TO NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's common stock
in the public market after this offering could
adversely affect
prevailing market prices for the Common Stock. The
3,000,000 shares of Common Stock offered hereby will be
freely tradable without restriction in the public market.
Taking into account restrictions imposed by the Securities
Act of 1933, as amended (the "Securities Act"), and rules
promulgated by the Securities and Exchange Commission (the
"Commission") thereunder the number of additional shares that
will be available for sale in the public market, subject
in some cases to the volume and other restrictions of Rule
144 under the Securities Act, will be as follows:
approximately 6,000,000 additional shares will be eligible
for sale beginning March 28, 1998. In addition, the Company
intends to file a registration statement on Form S-8 under
the Securities Act approximately 180 days after the date of
this Prospectus to register approximately 500,000 shares
of Common Stock reserved for issuance under the Company Stock
Option Plans. See "Description of Capital Stock" and "Shares
Eligible
for Future Sale".
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS Upon
the closing of this offering, the Company's Board of Directors
will have the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or
action by the stockholders. The
rights of holders of Common Stock will be subject to, and may
be adversely affected by the rights of the holders of any
Preferred Stock that may be issued in the future. The
issuance of Preferred Stock may have the effect of delaying,
deferring or
preventing a change in control of the Company without
further action by the stockholders and may adversely affect
the voting and other rights of the holders of Common Stock.
The Company has no present plans to issue shares of Preferred
Stock. Further, certain provisions of the Company's
Certificate of Incorporation and Bylaws and Delaware law could
delay or make more difficult a merger, tender offer or proxy
contest involving the Company. See "Description of Capital
Stock".
MANAGEMENT HAS BROAD DISCRETION IN USE OF PROCEEDS The
Company has not designated any specific use for the net
proceeds from the sale by the Company of the Common Stock
offered hereby.
The
Company expects to use the net proceeds for general
corporate purposes, including working capital to fund
anticipated operating losses, marketing expenses and capital
expenditures. A portion of net proceeds may also be used
to acquire or invest in complementary businesses, products
and technologies. From time to time, in the ordinary course
of business, the Company expects to evaluate potential
acquisitions or such business, products or technologies.
However, the Company has no present understandings,
commitments, or agreements with respect to any material
acquisition or investment. Accordingly, management will have
significant flexibility in applying the net proceeds of this
offering. The failure of management to apply such
funds effectively could have a material adverse effect on the
Company's business, prospects, financial condition and
results
of
operations. See "Use of Proceeds".
IMMEDIATE AND SUBSTANTIAL DILUTION The initial public
offering price is substantially higher than the book value per
outstanding share of Common Stock. Accordingly, purchasers in
this offering will suffer an immediate and substantial
dilution of $3.882 per share
and $2.62 per share (minimum and maximum offering
respectively) in the net tangible book value of the Common
Stock from the initial public offering price. Additional
dilution will occur upon exercise of outstanding options
granted by the Company. See "Dilution".
ARBITRARY DETERMINATION OF OFFERING PRICE The offering price
of the Common Shares was arbitrarily determined by the
Company, and may not be indicative of the market price of the
Common Shares after
this offering. Among the factors considered in
establishing the offering price were the proceeds to be raised
by the Company, the percentage of ownership to be held by
investors in this offering, the experience of Company
management and the current market conditions in the over-
the counter securities market. Accordingly, there is no
relationship whatsoever between the offering price and the
assets, earnings or book value of the Company, or any other
recognized criteria of value. See "Plan of Distribution".
ESCROW OF INVESTORS' FUNDS PENDING SALE OF MINIMUM NUMBER
OF SHARES OFFERED Under the terms of this offering, the
Company is offering the Shares on a "maximum/minimum, best
efforts" basis. If the minimum number of Shares is sold, the
remaining 2,937,500 Shares will be offered on a "best efforts"
basis until all the shares are sold or the offering period
ends, whichever occurs first, unless the offering is
terminated earlier by the Company. Therefore, no commitment
exists by anyone to purchase all or any part of the Shares
offered hereby. Consequently, as there is no assurance that
the minimum number of Shares being offered will be sold,
subscribers' funds may be escrowed for as long as 90 days (or
a period of 180 days if the offering period is extended by
the Company). Investors, therefore will not have the use of
any funds paid for the purchase of Shares during the offering
period. In the event that the minimum number of Shares offered
hereby are
not sold within the offering period, subscribers' funds will
then be promptly returned without interest, and the offering
will be withdrawn. See "Plan of Distribution".
RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK"
RULES OF LIQUIDITY OF THE COMPANY'S SECURITIES There can
be no assurance that the Company's Common Stock will not
become subject to certain rules and regulations promulgated
by the Commission pursuant to the Securities Enforcement
Remedies and Penny Stock Reform Act of 1990 (the "Penny
Stock Rules"). Such rules and regulations impose strict
sales practice requirements on brokerdealers who sell such
securities to persons other than established customers
and certain "accredited investors."
For
transactions covered by Penny Stock Rules, a broker-dealer
must make a special suitability determination for the
purchaser and must have received the purchase's written
consent for the transaction prior to sale. Consequently,
such rule may affect the ability of broker-dealers to sell
the Company's securities and may affect the ability of
purchasers in this offering to sell any of the Shares acquired
hereby in the Secondary market.
The Penny Stock Rules generally define a "penny stock" to be
any security not listed on an exchange or not
authorized for quotation on the NASDAQ Stock Market and has a
market price (as therein defined) less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transactions by broker-dealers
involving a penny stock (unless exempt), the rules
require delivery, prior to a transaction in a penny
stock, of a risk disclosure document relating to the
market for penny stocks. Disclosure is also required to be
made about compensation payable to both the brokerdealer and
the registered representative and current quotations for the
securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stocks.
The foregoing penny stock restrictions will not apply to
the Company's securities if such securities are listed on an
exchange or quoted on the Nasdaq Stock Market and have certain
price and volume information provided on a current and
continuing basis or if the Company meets certain minimum
net tangible asset or average revenue criteria. The Company
will trade on the Nasdaq OTC Bulletin Board and there can
be no assurance that the Company's securities will qualify
for exemption from the Penny Stock Rules. In any event, even
if the Company's securities were exempt from the Penny Stock
Rules, they would remain subject to Section 15(h)(6) of the
Exchange Act, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while
participating in a distribution of a penny stock from
associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the
Company's Shares were subject to the rules on penny stocks,
the market liquidity for the Company's Shares could be
severely adversely affected.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
minimum number of shares offered (62,500) will be $200,000 and
from the sale of the maximum number of shares offered
(3,000,000) will be $11,900,000 at an initial public
offering price of $4.00 per share and after deducting the
estimated offering expenses of approximately $50,000 if the
minimum shares offered are sold or $100,000 if the maximum
shares offered are sold.
The principal purposes of this offering are to obtain
additional
capital, to create a public market for the Common Stock,
to facilitate future access by the Company to public equity
markets, and to provide increased visibility and
credibility in a marketplace where many of the Company's
current and potential competitors are or will be publicly
held companies. The Company intends to use the proceeds
of this offering for general corporate purposes. The
Company has no specific plan for the net proceeds of the
offering. The Company expects to use the net proceeds for
general corporate purposes, including
working
capital to fund anticipated operating losses, marketing
expenses and capital expenditures. If there are funds left, a
portion of net proceeds may also be used to acquire
or invest in
complementary businesses, products and technologies. From
time to time, in the ordinary course of business, the Company
expects to evaluate potential acquisitions of such business,
products or technologies. However, the Company has no present
understanding, commitments or agreements with respect to
any material
acquisitions or investments. Pending use of the net proceeds
for the above purposes, the Company intends to invest such
funds in short-term, interest-bearing, investment-grade
securities. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on
its capital stock. The Company currently intends to
retain any future earnings of its business, and
therefore does not
anticipate paying any cash dividends in the foreseeable future.
DILUTION
As of April 30, 1997, there were 6,000,000 Shares of
the Company's Common Stock outstanding having a net tangible
book value of $ 516,249 or approximately $ 0.086 per
share. Net
tangible book value per share is the net tangible assets of
the Company (total assets less total liabilities and
intangible assets) divided by the number of shares of
Common Stock outstanding. Upon completion of this offering,
there will be 6,062,500 shares of the Company's Common Stock
outstanding having a net tangible book value of
approximately $ 716,249 or approximately $0.118 per share if
the minimum number of Shares is sold; and 9,000,000 shares
of the Company's Common Stock outstanding having a net
tangible book value of approximately $12,416,249 or
approximately $ 1.38 per share if the maximum number of
Shares is sold. The net tangible book value of each share
will have increased by approximately $ 0.032 per share to
present stockholders, and decreased by approximately $ 3.882
per share (a dilution of 97%) to public investors if the
minimum number of Shares is sold, and the net tangible book
value of each share will have increased by approximately $1.29
per share to the present stockholders and decreased by
approximately $2.62 per share (a dilution of 66%) to public
investors if the maximum number of Shares is sold.
Dilution represents the difference between the public
offering price and the net tangible book value per share
immediately after the completion of the public offering.
Dilution arises mainly from the arbitrary decision by the
Company as to the offering price per share. Dilution of
the value of the Shares purchased by the public in this
offering will also be due, in part, to the lower book value of
the shares presently outstanding and in part to expenses which
are, or may be, incurred in connection with the offering of
the Shares. The following table illustrates this
dilution:
ASSUMING MINIMUM NUMBER OF SHARES SOLD
Price Paid Per Share by Present Shareholders $0.11
Public Offering Price Per Share $4.00
Net Tangible Book Value Per Share,
Before Offering $0.086
Increase Per Share Attributable to Payment
by Public Investors $0.032
Net Tangible Book Value Per Share,
After Offering $0.118
Dilution to Public Investors Per Share $3.882
ASSUMING MAXIMUM NUMBER OF SHARES SOLD
Price Paid Per Share by Present Shareholders $0.11
Public Offering Price Per Share $4.00
Net Tangible Book Value Per Share,
Before Offering $0.086
Increase Per Share Attributable to Payment
by Public Investors $1.29
Net Tangible Book Value Per Share,
After Offering $1.38
Dilution to Public Investors Per Share $2.62
BUSINESS
All statements, trend analysis and other information contained
in this Prospectus relative to markets for the Company's
products and trends in net sales, gross margin and
anticipated expense levels, as well as other statements
including words such as "anticipate", "believe", "plan",
"estimate", "expect", and "intend" and other similar
expressions, constitute forwardlooking statements. These
forward-looking statements are subject to business and
economic risks, and the Company's actual results of operations
may differ materially from those contained in the forward-
looking statements. No investor should participate in this
offering unless such investor can afford a complete loss of
their entire investment.
mrcdrom.com, inc. was established by Camelot to offer an
Internet software catalogue. Camelot presently owns all the
outstanding shares of the Company. Camelot has
restructured its former
retail operations and mrcdrom.com, inc. is the owner of all
the outstanding shares of Mr. CD-ROM Stores, Inc. which
previously operated retail stores selling primarily CD-ROM
Software in Dallas, Texas. These stores were closed as
management felt the market could not support an upscale
software retailer. The
Company will offer its customers value through innovative use
of technology, broad selection, high-quality content, a high
level of customer service, and competitive pricing. As an
online software catalogue, mrcdrom.com, has virtually
unlimited online shelf space and can offer a large selection
through an efficient search and retrieval interface. The
current catalogue offers approximately 2,000 titles and the
Company is developing a new catalogue which will offer more
than 10,000 titles. Beyond the benefits of selection,
purchasing software from mrcdrom.com is more convenient than
shopping in a physical store because online shopping can be
done 24 hours a day and does not require a trip to a store.
Furthermore, mrcdrom.com's limited investment in
inventory, lack of investment in expensive retail real estate
and reduced personnel requirements give it meaningful
structural economic advantages relative to traditional
retailers. See "Risk Factors - Limited Operating History".
Inventory owned as a result of the closing of the retail
stores was transferred to mrcdrom.com, inc. Publisher
relationships developed for the Mr. CD-ROM Stores will be
continued for mrcdrom.com, inc. through Camelot Distributing,
Inc.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet is an increasingly significant global medium
of communications, content and online commerce. International
Data Corporation ("IDC") estimates that the number of Web
users grew to approximately 35 million by the end of 1996 and
will grow to approximately 163 million by 2000. Growth in
Internet usage has been fueled by a number of factors,
including the large and growing installed base of personal
computers in the workplace and home, advances in the
performance and speed of personal computers and modems,
improvements in network infrastructure, easier and cheaper
access to the Internet and increased awareness of the
Internet among businesses and consumers.
The increasing functionality, accessibility and overall usage
of the Internet and online services have made them an
attractive commercial medium. The Internet and other online
services are evolving into a unique sales and marketing
channel, just as retail stores, mail-order catalogs and
television shopping have done. Online retailers can interact
directly with customers by frequently adjusting their
featured selections, editorial insights, shopping
interfaces, pricing and visual presentations. The minimal cost
to publish on the web, the ability to reach and serve a large
and global group of customers electronically from a central
location, and the potential for personalized low-cost
customer interaction provide additional economic benefits
for online retailers. Unlike traditional retail channels,
online retailers do not have the burdensome costs of
managing and maintaining a significant retail store
infrastructure or the continuous printing and mailing costs
of catalogue marketing. Because of these advantages over
traditional retailers, online retailers have the potential
to build a large, global customer base quickly and to achieve
superior economic returns over the long term. An
increasingly broad base of products is being sold successfully
online, including computers, travel services, brokerage
services, automobiles and music, and books. IDC
estimates that the total value of goods and services
purchased over the Web grew from $318 million in 1995, to an
annualized run rate of $5.4 billion in December 1996, and will
increase to $95 billion in 2000.
Traditional Software Retailing
Several characteristics of traditional software retailing
have created inefficiencies for all participants. Physical
storebased retailers must make significant investments in
inventory, real estate and personnel for each retail location.
This capital and real estate intensive business model, among
other things, limits the amount of inventory that can be
economically carried in any location. The average store
limits customer selection and available retail shelf space
for the majority of published titles. In
addition, software publishers typically offer
generous rights of return to their customers and, as a
result, effectively bear the risk of their customers' demand
forecasting
which encourages overordering. As a result, returns are
high, creating substantial additional costs. Finally,
traditional retailers cannot easily obtain demographic
and behavioral personalized services.
THE MRCDROM.COM, INC. SOLUTION
mrcdrom.com, inc. was founded to capitalize on the
opportunity for online retailing. The Company believes that
the software industry is particularly suited to online
retailing for many compelling reasons. An online retailer
has virtually unlimited online shelf space limited only
by its connections with suppliers, and can offer customers
a large selection through an efficient search and retrieval
interface. This is particularly valuable in the software
market because the extraordinary number of different items
precludes even the largest physical store from economically
stocking more than a small minority of available titles. In
addition, by serving a large and global market
through centralized distribution and operations, online
retailers can realize significant structural cost advantages
relative to traditional retailers. Furthermore, unlike
with clothing or other personal products, consumers can
make educated purchase decisions using online information.
In addition, the demographic overlap between frequent buyers
and Internet users is high. Further, online selling
promises significant benefits for publishers because
centralized distribution is believed to greatly reduce
product returns and because consumers preference information
can be efficiently captured and utilized. By offering
customers an authoritative selection of titles, as well as
competitive pricing and outstanding customer service,
mrcdrom.com, inc. believes it can achieve a preeminent
position among online retailers. Key components of the
mrcdrom.com solution include:
Selection. mrcdrom.com will offer a breadth of
selection that would be economically impractical to stock in
a physical store or to include in a mail-order catalogue.
mrcdrom.com
currently offers more than 2,000 titles through a
consistent search and retrieval interface and is designing a
catalogue which will offer over 10,000 items.
Online Economics. As an online seller, mrcdrom.com
will enjoy economic advantages relative to traditional
retailers. As a result of its online business model
and centralized
distribution, mrcdrom.com can offer significantly
improved
inventory turnover, and eliminates investment in expensive
retail real estate and dramatically reduced personnel
requirements. Further, mrcdrom.com intends to serve a global
market through centralized operations.
Customer Convenience. Beyond the benefits of
selection, purchasing from mrcdrom.com is more convenient than
shopping in a physical store because the mrcdrom.com catalogue
is open 24 hours per day and shopping does not require a
trip to a store. Software can be shipped directly to the
customers home or office. The Company believes that customers
may buy more software because they have more hours to shop,
can act immediately on a purchase impulse and can locate
software that is hard to find. Because the mrcdrom.com
online catalogue has a global reach, it can deliver an
extremely broad selection to customers in rural,
international or other locations that cannot support large-
scale physical stores. At the present time it is limited
to only English. International sales may be limited by
U.S. Export restrictions, publisher limitations and
compatibility problems between the software and computer
systems. Payment is required in U.S. funds. Any disputes
cannot be readily settled in the
courts and thus these sales have an element of risk. However,
as the Company requires payment prior to shipping there is less
risk to the Company
Compelling Content. mrcdrom.com will deliver
relevant, informative and other content, including reviews.
In addition, it will offer reviews by other users, and third-
party reviewers who can provide diverse and often stimulative
points of view to inform and entertain customers while
shopping.
Personalized Service. Over time, the Company can
accumulate substantial behavior and preference information that
will allow it to provide increasingly rich value-added
services to its customers and suppliers.
Benefits to Vendors. mrcdrom.com methods of
online retailing offer substantial benefits to publishers.
Because mrcdrom.com incorporates centralized distribution and
orders most products based on actual customer demand, it
believes that its returns to publishers and wholesalers will
be significantly below industry norms. The Company believes
its market approach may increase sales of many second- and
third-tier titles that are not typically stocked in physical
stores. In addition, the Company believes it will be able to
help publishers target customers for particular product
offerings.
STRATEGY
mrcdrom.com's objective is to be the leading online retailer
of computer software. The Company plans to attain this goal
through the following key strategies:
Create Customer Loyalty. The Company's goal is to be
a leading source for software by delivering to its customers
the benefits of online commerce. mrcdrom.com offers its
customers value through innovative use of technology, broad
selection, highquality shopping experience through
informative and editorial content, as well as simple and
efficient navigation and search capabilities.
Build Brand Recognition. The Company's strategy is
to promote, advertise and increase its brand equity and
visibility through excellent service and a variety of
marketing and
promotional techniques, including advertising on leading
Web sites and
other media, conducting an ongoing public relations
campaign and developing business alliances and
partnerships. This will require a large expenditure of
funds that will initially come from this offering and the
amount of funds raised here will be a large factor in
determining the amount of advertising conducted.
Create a Superior Economic Model. Because it is
not burdened by the costs or legacy of physical store
network and related personnel, the Company believes it
has an inherent economic advantage relative to
traditional retailers. The
Company's goal is to capitalize on this advantage by
aggressively driving revenue growth to achieve economies of
scale and by incorporating technological advances throughout
its business.
Maintain Technology. A state-of-the-art
interactive
commerce platform is necessary to enhance the
mrcdrom.com service, and leverage the unique
characteristics of online retailing. mrcdrom.com will
continue to expend efforts developing, acquiring and
implementing technology-driven enhancements to its Web site
and transaction-processing systems. Among other
technology objectives, the Company intends to make
the user interface as intuitive, engaging and fast as
possible and continuously improve the efficiency of its
fulfillment activities.
Build Vendor Relationships. The Company will seek
to utilize the structural advantages inherent in its business
model to build strong relationships with its vendors. The
demographic and purchasing data that will be accumulated by
the Company will enable it to help publishers target
customers for particular product offering. Through
targeted marketing and virtually unlimited online shelf
space, the Company can offer publishers enhanced promotional
opportunities for new titles and second- and third-tier titles.
Pursue Incremental Revenue. The Company intends to
leverage its brand, online commerce experience, operating
infrastructure and customer base to broaden its presence and
develop additional revenue opportunities. The Company will
consider developing incremental revenue through affiliated or
related sites, related product areas, geographic
expansion or acquisition of complementary businesses,
products or technologies. Finally, the Company's customer
demographic and substantial site traffic create a
meaningful opportunity for advertising sales.
THE MRCDROM.COM ONLINE CATALOGUE
Customers open the mrcdrom.com catalogue through the
Company's Web site and, in addition to ordering software,
can conduct targeted searches, browse from among highlighted
selections and participate in promotions and check order
status.
Browsing. The mrcdrom.com site offers visitors a variety
of highlighted subject areas and special features. As a
customer proceeds through the catalogue, he or she
encounters featured software. Clicking with the mouse on any
of these images pulls up more information about the
featured software, as well as button which, if clicked on,
adds the software to the customer's order.
Searching. A primary feature of mrcdrom.com is
its interactive, searchable catalogue. The Company
provides a selection of search tools to find software
based on title, subject, keyword, or publishers. The
Company licenses some of its catalogue and other information
from third parties.
Online Community. By creating an online community,
the Company hopes to provide customers with an inviting and
familiar experience that will encourage them to return
frequently to the site and to interact with other users,
and that will promote loyalty and repeat purchase.
Ordering. To purchase customers simply click on a button
to add items to their virtual shopping baskets. Customers can
add and subtract from their shopping baskets as they browse,
prior to making a final purchase decision, just as in a
physical store. To execute orders, customers click on the
buy button and are prompted to
supply shipping and payment details. This
information is stored on the Company's secure server and need
not be provided again by repeat registered customers. The
personal password allows repeat customers to automatically
access their previously provided shipping and payment
information. The
payment is electronically submitted using a customers
checking account or charge cards. There is a small fee
paid by the Company per transaction. The availability of
funds or ability to charge is confirmed prior to shipment.
The Company's system automatically confirms each order by
e-mail to the customer
within minutes after the order is placed and advises customers
by e-mail shortly after orders are shipped.
Availability and Fulfillment. Some of the Company's
titles are available for immediate shipment, others are
available for shipment within 48 to 72 hours and the
remainder of titles are generally available within four to
six weeks. Customers select from a variety of delivery
options, including overnight and various international
shipping options. The Company uses e-mail to notify
customers of order status under various conditions. The
Company seeks to provide rapid and reliable fulfillment of
customer orders, and intends to continue to improve
its
availability and fulfillment in the future. The Company
offers shipment via UPS, U.S. Mail or Federal Express at the
customer option with a charge paid by the customer separate and
apart from the product charges.
MARKETING AND PROMOTION
mrcdrom.com's marketing strategy is designed to strengthen
the mrcdrom.com brand name, increase customer traffic
to the
mrcdrom.com catalogue, build strong customer loyalty,
maximize repeat purchases and develop incremental revenue
opportunities.
mrcdrom.com intends to build customer loyalty by creative
and flexible merchandising. The Internet allows rapid and
effective experimentation and analysis, and instant user
feedback which the Company intends to incorporate in its
merchandising. The Company seeks to increase the number of
visitors that make a purchase, to encourage repeat visits and
purchases and to extend customer retention. Loyal,
satisfied customers also generate word-ofmouth advertising
and awareness, and are able to reach thousands of other
customers and potential customers because of the reach of
online communications.
The Company intends to place advertisements on various
highprofile and high-traffic Web sites. These advertisements
usually will take the form of banners that encourage readers
to click through directly to the mrcdrom.com web site.
CUSTOMER SERVICE
The Company believes that its ability to establish and
maintain long-term relationships with its customers and
encourage repeat visits and purchases depends, in part, on
the strength of its customer support and service operations
and staff. The Company has sought support personnel who have
experience in this field. Though the Company has presently
limited the size of this department, if the revenues of
the Company increase and the customers service demands
increase the Company will expand the customer service
department with experienced customer service representatives.
mrcdrom.com offers e-mail addresses to enable customers to
request information and to encourage feedback and suggestions.
The Company's customer support and service personnel
are responsible for handling general
customer
inquiries, answering customer questions about the
ordering
process, and investigating the status of orders, shipments
and payments. Customers who are reluctant to enter their
credit card or checking account numbers through the Web site
may call or email in their orders.
WAREHOUSING AND FULFILLMENT
The Company sources product from a network of distributors
and publishers, however its primary source is one major
distributor. The Company carries minimal inventory and
relies to a large
extent on rapid fulfillment from major distributors
and
wholesalers which carry a broad selection of titles. As
the Company relies on outside vendors there is the risk the
Company cannot fill an order(s) thereby losing customers
resulting in word of mouth which can be very damaging on the
Internet.
TECHNOLOGY
The Company uses a set of applications for accepting
and validating customer orders, organizing, placing and
managing orders with the Company's warehouse or suppliers as
appropriate, receiving product and assigning it to
customer orders, and managing shipment
to customers based on various ordering
criteria. The Company's transaction-processing systems
manage the process of accepting, authorizing and charging
customer credit cards or checking accounts. In addition, the
Company's systems allow it to maintain ongoing
automated e-mail communications with customers at a
negligible incremental cost. These systems automate many
routine communications entirely, facilitate management or
customer e-mail inquiries and allow customers to check
order status, change their e-mail address or password. As the
Company has only been operating for less that six (6)
months its systems have not been heavily tested "in
action". As such there is the risk that increased volume
may
uncover problems in the system.
Systems administrators and managers monitor and operate
the Company's Web site, network operations and transaction-
processing systems. The
continued uninterrupted operation of the Company's
Web site and transaction-processing systems is essential to
its business, and it is the job of the operations staff to
ensure, to the greatest extent possible, the reliability of
the Company's Web site and transaction-processing systems.
The Company uses the services of Camelot Internet Access
Services, Inc. an affiliated company to obtain connectivity
to the Internet over dedicated T1 lines.
The Company's transaction-processing system is not
integrated with the remainder of the Company's accounting
and financial systems. As a
result, the Company's current management
information system, which produces requested operational
reports, is inefficient with respect to traditional
accounting-oriented reporting and requires a significant
amount of manual effort to prepare information for financial
and accounting reporting. See
"Risk Factors - Risk Capacity Constraints; System
Development Risks," "-Risk of System Failure; Single
Site and Order Interface" and "- Online Commerce Security
Risks".
INTELLECTUAL PROPERTY
The Company regards its copyrights, service marks,
trademarks, trade dress, trade secrets and similar
intellectual property as critical to its success, and
customers, partners and others to protect its proprietary
rights. The Company pursues the
registration of its trademarks and service marks in the U.S.
and internationally, and has obtained registered
trademarks.
Effective trademark, service mark, copyright and trade
secret protection may not be available in every county in
which the Company's products and services are made available
online. The
Company expects that it may license in the future, certain of
its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to
ensure that the quality of its brand is maintained by such
licensees, there can be no assurance that such licensees
will not take actions that might materially adversely affect
the value of the Company's proprietary rights or
reputation, which could have a material
adverse affect on the Company's business, prospects,
financial condition and results of operations. There can be
no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's
copyrights, trademarks, trade dress and similar proprietary
rights. In addition, there can be no assurance that other
parties will not assert infringement claims against the
Company. The Company expects to be subject to legal
proceedings and claims from time to time in the ordinary
course of its business, including claims of alleged
infringement of the trademarks and other intellectual property
rights of third parties by the Company and its licensees.
Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
COMPETITION
The online commerce market, particularly over the Internet,
is new, rapidly evolving and intensely competitive,
which competition the Company expects to intensify in the
future. Barriers to entry are minimal, and current and new
competitors can launch new sites at a relatively low cost. In
addition, the retail software industry is intensely
competitive. The Company currently or potentially competes
with a variety of other companies. These competitors
include (i) various online sellers and vendors of other
information-based products, (ii) a number of indirect
competitors that specialize in online commerce or derive a
substantial portion of their revenues from online commerce,
including AOL and Microsoft Corporation, through which
other stores may offer products, and (iii) retail
vendors with significant brand awareness, sales volume and
customer.
The Company believes that the principal competitive factors
in its market are brand recognition, selection,
personalized services, convenience, price, accessibility,
customer service, quality of search tools, quality of
editorial and other site content and reliability and speed
of fulfillment. Many of the Company's current and potential
competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater
financial, marketing and other resources than the Company.
In addition, online retailers may be acquired by, receive
investments from or enter into other commercial
relationships with large, well-established and well-
financed companies as use of the Internet and other
online services increases. Certain of the Company's
competitors may be able to secure merchandise from vendors
on more favorable terms, devote greater resources to
marketing and promotional campaigns, adopt more aggressive
pricing or inventory availability policies and devote
substantially more resources to Web site and systems
development than the Company. Increased competition may
result in reduced operating margins, loss of market
share and a diminished brand franchise. There can be no
assurance that the Company will be able to compete
successfully against current and future competitors, and
competitive pressures faced by the Company may have a
material adverse effect on the Company's business,
prospects, financial condition and results
of
operations. Further, as a strategic response to changes in
the competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on
its business, prospects, financial condition and results of
operations. New
technologies and the expansion of existing technologies
may increase the competitive pressures on the Company. In
addition, companies that control access to transactions
through network access or Web browsers could promote the
Company's competitors or charge the Company a substantial fee
for inclusion. See "Risk
Factors - Competition".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
mrcdrom.com was formed on March 27, 1997 to offer
computer software to the public by means of a site on the
World Wide Web ("Web").
The Company was created by Camelot to capitalize on the
emerging Internet commercial market. Camelot had offered CD-
ROM software to the public through six retail stores, which
are now closed. As the historical financial statements
reflect entirely the previous retail and wholesale
operations, management believes they are not indicative of
future operations of the Company.
The Company's Prospectus must be considered in light of
the risks, expenses and difficulties frequently
encountered by
companies moving into new markets, particularly companies in
new and rapidly evolving markets such as online commerce. Such
risks for the Company include, but are not limited to, an
evolving and unpredictable business model and management
of growth. To
address these risks, the Company must, among other
things, maintain and increase its customer base,
implement and
successfully execute its business and marketing
strategy, continue to develop and upgrade its technology and
transactionprocessing systems, improve its Web site,
provide superior customer service and order fulfillment,
respond to competitive developments, and attract, retain
and motivate qualified personnel.
There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do
so could have a material adverse effect on the Company's
business, prospects, financial condition and results of
operations.
RESULTS OF OPERATIONS
The historical financial statements reflect primarily
the
activities of the previous retail and wholesale operations in
a limited, highly competitive and saturated market. The
financial statements also reflect the overhead costs of six,
now closed , storefronts which are not required with the
Internet based method by which the Company intends to
offer its products.
The
overhead costs are reflected in the prepaid expenses,
office equipment, leasehold improvements, accounts payable and
general and administration (store and support personnel).
The increase in accounts payable is due to a distributing
subsidiary's nonrecurring sales to non-related entities, no
longer a material portion of its business. The Statement of
Operations reflect a one time expense due to the closing of
the stores described as loss on disposition of assets.
The Company did not have mailing or delivery costs in
the previous operations but will have them as the catalogue
sells goods. It intends to capitalize on the relationships
developed
with publishers, where possible, and third party distributors
to supply product for the Internet catalogue thereby reducing
any delivery costs. There can be no assurances that the
Company's suppliers will deliver the products to the
customers. The
Company intends to use United Parcel Service, the U.S.
Postal Service, and Federal Express as requested by the
customers. The
Company's customers are charged an amount to cover the costs
of shipping and handling charges. If the Company's
suppliers directly ship the products as the Company intends,
the Company
may not be required to purchase the inventory ahead of
time thereby eliminating the possibility of inventory
obsolescence which is reflected in the financial statements.
The Company is also working to establish agreements which
permit it to return items which become outdated.
As a result of the Company's limited operating history and
the emerging nature of the markets in which it competes, the
Company is unable to accurately forecast its revenues. The
Company's current and future expense levels are based
largely on its investment plans and estimates of future
revenues and are to a large extent fixed. The Company
will have fees related to personnel, rent, fixtures,
technology, maintenance, advertising and marketing. Sales
and operating results generally depend on the volume of,
timing of and ability to fulfill orders received, which are
difficult to forecast. The Company may be unable to adjust
spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any
significant
shortfall in revenues in relation to the Company's
planned expenditures would have an immediate adverse
effect on the Company's business, prospects, financial
condition and results of operations. The
Company expects to experience significant
fluctuations in its future quarterly operating results due to
a variety of factors, many of which are outside the
Company's control. Factors that may adversely affect
the Company's quarterly operating results include (i) the
Company's ability to obtain and retain existing customers,
attract new customers at a steady rate and maintain
customer satisfaction, (ii) the
Company's ability to manage inventory and fulfillment
operations and maintain gross margins, (iii) the
announcement or
introduction of new sites, services and products by the
Company and its competitors, (iv) price competition or higher
wholesale prices in the industry (v) the level of use of the
Internet and online services and increasing consumer
acceptance of the
Internet and other online services for the purchase of
consumer products such as offered by the Company, (vi) the
Company's ability to upgrade and develop systems and
infrastructure and attract new personnel in a timely and
effective manner, (vii) the level of traffic on the
Company's Web site, (viii) technical difficulties, system
downtime or Internet brownouts, (ix) the amount and timing
of operating costs and capital expenditures relating to
expansion of the Company's business, operations and
infrastructure, (x) the number of software titles
introduced during the period, (xi)
the level of merchandise returns
experienced by the Company, (xii) governmental regulation,
and (xiii) general economic conditions and economic
conditions
specific to the Internet, online commerce and the
software industry. The
Company expects that it will experience
seasonality in its business, reflecting a combination of
seasonal fluctuations in Internet usage and traditional retail
seasonality patterns. Internet usage and the rate of Internet
growth may be expected to decline during the summer.
Further, sales in the traditional retail industry are
significantly higher in the fourth calendar quarter of each
year than in the preceding three quarters. Due to the
foregoing factors, in one or more future quarters the
Company's operating results may fall below the expectations
of securities analysts and investors. In such event, the
trading price of the Common Stock would likely be materially
adversely affected. See "Risk Factors - Potential
Fluctuations in Quarterly Results; Seasonality".
LIQUIDITY AND CAPITAL RESOURCES
The Company's subsidiaries previous operations comprising
retail stores and software wholesaling have not resulted in
profits to date. The fiscal year ended April 30, 1997 reflect
almost a full
years operations for the six stores all of which are now
closed, resulting in losses. The
Company's subsidiaries have been able
to raise the funds necessary to continue to operate
through advances from affiliates and the issuance of common
stock. The costs incurred by the Company to establish a new
business of Internet software marketing were financed through
private sales of Common Stock which, through March 31, 1997,
totaled $667,892. The Company believes with the funds raised
from this offering it will have enough funds for the next
twelve months. If only the minimum shares offered are sold
the Company may have to limit its spending on marketing and
advertising efforts. Management believes some of its
advertising can be accomplished by bartering space with other
commercial entities on the World Wide Web but expects that
it will also have to use funds raised in this offering to
advertise the catalogue in consumer and trade journals
which will increase its brand awareness. Management also
intends to sell space to publishers thereby obtaining
another source of revenue.
Management recognizes that as the level of business increases
the number of employees will need to be increased to
assist in shipping and customer service. There can be no
assurances that the Company can hire properly experienced
staff to fill these shortages and it may have to compensate
any new employees at a higher rate. If only the minimum
amount of shares offered are sold the ability of the
Company to hire experienced employees could be affected.
The Company will continuously review its technology and
systems to keep them operating in a competitive manner. This
may require capital expenditures which without funds raised
from the offering the Company may be unable to accomplish.
Management believes that without the funds to be raised in
this offering the Company will not have sufficient funds to
operate for the next twelve months. It does have the ability
to borrow using its inventory as collateral but any
borrowings would probably be at a substantial discount from
their book value. The Company believes the net proceeds from
this offering, together with its current cash and cash
equivalents, will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for the
next 12 months. If cash generated from operations is
insufficient to satisfy the Company's liquidity requirements,
the Company may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of
additional equity or convertible debt securities could result
in additional dilution to the Company's stockholders. There
can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at
all. See "Use of Proceeds".
LEGAL PROCEEDINGS
The Company is not currently aware of any material
legal proceeding pending against it. There are lawsuits
against one of the Company's subsidiaries for rent on some
stores where the subsidiary believes the landlord has made
no or minimal efforts to relet the premises.
EMPLOYEES
As of August 1, 1997, the Company employed 6 full-time
employees. None of the Company's employees is represented by a
labor union, and the Company considers its employee relations
to be good. Competition for qualified personnel in the
Company's industry is intense, particularly among software
development and other
technical staff. The Company believes that its future
success will depend in part on its continued ability to
attract, hire and retain qualified personnel. See "Risk
Factors - Management of Potential Growth; New Management
Team; Limited Senior Management Resources" and "Dependence on
Key Personnel; Need for Additional Personnel".
FACILITIES
The leased facilities total approximately 3,000 square feet
and are located in Carrollton, Texas pursuant to a month to
month lease. The Company leases the premises from Camelot
Corporation the majority shareholder of the Company as part of
a management agreement entered into between the Company and
Camelot for $ 4,000 per month. The Company believes that the
lease was made on terms no less favorable to the Company
than could have been obtained from unaffiliated third
parties. The Company anticipates that it will require
additional administrative, customer service, warehouse and
fulfillment space within the next three (3) years, but that
suitable additional space will be available on commercially
reasonable terms, although there can be no assurance in this
regard. The Company does not own any real estate.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information
regarding the executive officers and directors of the Company
as of August 1, 1997:
<TABLE>
<S> <C> <C>
Name Age Position
Daniel Wettreich (1) 46 Chairman, Director and CEO
Robert Gregory 45 President and Director
Jason Conway (2) 28 Director
Colin Grant (1)(2) 35 Director
Jeanette Fitzgerald 36 Director
(2)
Margaret Cooper 49 VicePresident of Oerations
Scott Stoddard 34 Vice President of Product
Development
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Daniel Wettreich
Daniel Wettreich is Chairman, Chief Executive Officer
and Director of the Company since March 28, 1997 and spends
such time as required on Company matters. He is also a
Director and Chief Executive Officer of Camelot Corporation
since September 1988. A subsidiary of Camelot, Camelot
Entertainment, Inc. filed for bankruptcy protection in
January 1995. Since August 1996, he has
been Director and Chief Executive of Meteor Technology plc, a
United Kingdom public company. Additionally, he currently
hold directors positions in the following public companies: Forme
Capital, Inc., a real estate company, Alexander Mark
Investments (USA), Inc., and Adina, Inc. holding companies, and
Malex, Inc., and Tussik, Inc. which are inactive companies
seeking merger opportunities. In July 1993, following an
investment by Camelot he was appointed a Director of Goldstar
Video Corporation which has since had a Chapter 7 bankruptcy
petition filed and closed. Mr. Wettreich has a Bachelor of
Arts in Business Administration from the University of
Westminister, London, England.
Robert B. Gregory
Robert Gregory is President of the Company since April 15,
1997 and spends such time as required on Company matters. He
is also the Vice President of Finance for Camelot Corporation
since July 1996. He was previously Director of Finance
of Jenkens &
Gilchrist, one of Texas's largest law firms, prior to which
he was controller of Memorex Telex Corporation, a
manufacturer of computer equipment. Previously, from 1985 he
was Controller of the communications division of
Electronic Data Systems, an international provider of
information technology. He is a
Director of Adina, Inc. In addition to being a Certified
Public Accountant, he has an MBA from Creighton University and
a BS in Accounting from the University of Nebraska.
Jeanette P. Fitzgerald
Jeanette Fitzgerald is a Director of the Company since March
28, 1997. Since September 1988, she has been a Director,
Vice President and
General Counsel of Camelot Corporation. A
subsidiary of Camelot, Camelot Entertainment, Inc. filed
for bankruptcy protection in January 1995. She is a member
of the State Bar of Texas and the Business Law Section.
Since August 1996, she has been a Director of Meteor
Technology, plc, a United Kingdom public company. She is also
the Corporate Secretary and Director of Malex, Inc., and
Tussik, Inc., which are public companies. In July 1993,
following an investment by Camelot she was appointed a
Director of Goldstar Video Corporation which has since had a
Chapter 7 bankruptcy petition filed and closed. Previous to
these positions, from 1987 to 1988 she worked as a
staff attorney and in the compliance department at H.D.
Vest, Inc., a holding company with subsidiaries including a
securities brokerage firm. She graduated from Texas Tech
University School of Law receiving both a Doctorate of
Jurisprudence and a Masters of Business Administration in May
1986, and from the University of Michigan with a Bachelors
of Business Administration in December 1982.
Jason Conway
Jason Conway is a Director of the Company since March 28,
1997. Since 1996, he has been Executive Director of Meteor
Technology plc, a UK public company. Previously, he was
employed by National Car Parks for seven years culminating in
his appointment as Director for the Southeast Region. Mr.
Conway was the youngest Regional Director in the history of
National Car Parks. He has a B.Sc. in Estate Management from
South Bank University.
Colin Grant
Colin Grant is a Director of the Company since March 28,
1997. Since 1996, he has been Managing Director of
Alexander Mark Capital Ltd., a U.K. financial services
company. He was previously Finance Director of Meteor
Technology plc and is a
Director of that company. From 1983 - 1995 he was
Managing Director and previously Finance Director of Network
Designers Limited, a company involved in developing
and marketing
communications software and hardware products.
Previously, between 1989 and 1993 he was Financial Controller
of Softwright Systems Ltd. He graduated with a B.Sc. from
the University of St. Andrews in 1984.
Margaret Cooper
Margaret Cooper is Vice President of Operations of the
Company since March 28, 1997 and spends all her time on
Company matters. Previously she was President of Software @
Cost + 10%, Inc., a retailer of computer software and prior
to that she was President of Camelot Distributing, Inc., a
distributor of computer
software; both subsidiaries of Camelot Corporation. From 1991
to 1992 she was a Marketing Executive with Quest
Entertainment, a video distributor.
Scott Stoddard
Scott Stoddard is Vice President of Product Development for
the Company since March 28, 1997 and spends all his time on
Company matters. Previously he was General Manager of
Camelot Creative
Designs, Inc., a web page design company and a subsidiary
of Camelot Corporation. He was a production manager or a
computer artist/editor for a series of magazines,
catalogues and newsletters from 1989 to 1994, prior to which
he was Production Director of Movieline Magazine.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of Daniel Wettreich and Colin
Grant. Among other functions, the Audit Committee makes
recommendation to the Board of Directors regarding the
selection of independent auditors, reviews the results and
scope of the audit and other services provided by the
Company's independent auditors, reviews the Company's
balance sheet, statement of operations and cash flows and
reviews and evaluates the Company's internal control
functions.
The Compensation Committee consists of Jason Conway, Colin
Grant, and Jeanette Fitzgerald. The Compensation Committee
reviews and approves the compensation and benefits for
the Company's
executive officers, administer the Company's stock option
plans and make representation to the Board of Directors
regarding such matters.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation
for their services as directors or member of committees of the
Board of Directors, but are reimbursed for their reasonable
expenses incurred in attending meeting of the Board of
Directors.
Directors, who are not otherwise employees of the Company,
are eligible to receive Stock Options pursuant to the 1997
Director Stock Option Plan.
1997 Directors' Stock Option Plan. The 1997 Directors'
Stock Option Plan (the "Directors' Plan") was adopted by the
Board of Directors in March, 1997. The Directors' Plan was
approved by shareholders of the Company on March 28, 1997.
A total of 250,000 shares of Common Stock has been reserved
for issuance under the Directors' Plan. As of August 1,
1997, 15,000 options have been granted all with an exercise
price of $4.00 per share.
The Directors' Plan provides for the grant of stock options to
nonemployee directors of the Company. The Directors' Plan is
designed to work automatically without administration;
however, to the extent administration is necessary, it will
be performed by the Board of Directors. The Directors' Plan
provides that each person who is a nonemployee director of
the Company upon joining the Board of Directors, shall be
granted a stock option to purchase 5,000 shares of Common
Stock (the "First Option"). Thereafter, on January 1, of
each year, commencing January 1,
1998 each nonemployee director shall be automatically granted an
additional option to purchase 1,000 shares of Common Stock (a
"Subsequent Option") if, on such date, he or she shall
have served on the Company's Board of Directors for at
least six months. The
Options are immediately exercisable. The exercise
price of all stock options granted under the Directors'
Plan shall be equal to the fair market value of a share
of the Company's Common Stock on the date of grant of
the option. Options granted under the Directors' Plan have a
term of ten years. In the event
of the dissolution or liquidation of the
Company, a sale of all or substantially all of the assets of
the Company, the merger of the Company with or into
another
corporation in which the Company is not the surviving
corporation or any other capital reorganization in which more
than 50% of the shares of the Company entitled to vote are
exchanged, each nonemployee director shall have either (i)
a reasonable time within which to exercise the option,
including any part of the option that would not otherwise
be exerciseable, prior to the effectiveness of such
dissolution, liquidation, sale, merger or
reorganization, at the end of which time the option
shall terminate or (ii) the right to exercise the option,
including any part of the option that would not otherwise be
exercisable, or
receive a substitute option with comparable terms, as to an
equivalent number of shares of stock of the
corporation succeeding the Company or acquiring its business
by reason of
such dissolution, liquidation, sale, merger or
reorganization. The Board of Directors may amend or
terminate the Directors' Plan; provided, however, that no
such action may adversely affect any outstanding option, and
the provisions regarding the grant of options under the plan
may be amended only once in any six-month period, other than
to comport with changes in the Employee Retirement Income
Security Act of 1974, as amended or the Code. If not
terminated earlier, the Directors' Plan will have a term of
ten years.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the
liability of directors to the full extent permitted by
Delaware law. Delaware law provides that a corporation's
certificate of
incorporation may contain a provision eliminating or limiting
the personal liability of directors for monetary damages for
breach of their fiduciary duties as directors, except for
liability (i) for any breach of their duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions
not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174
of the Delaware General Corporation Law (the "DGCL"), or (iv)
for any transaction from which the director derived an
improper personal benefit. The Company's Bylaws provide
that the Company shall indemnify its directors and officers
may indemnify its employees and agents to the fullest extent
permitted by law. The Company believes that indemnification
under its Bylaws covers at least negligence and gross
negligence on the part of the indemnified parties.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers or persons controlling the registrant pursuant to
the foregoing provisions, the registrant has been informed
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent
of the Company where indemnification will be required or
permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
No executive officer of the Company who held office at August
1, 1997 met the definition of "highly compensated" within
the meaning of the Commission's executive compensation
disclosure rules. As of
April 1, 1997 no compensation was paid to any
officers or directors of the Company. For the period April
1, 1997 to August 1, 1997 a total $60,476 has been paid to
officers of the Company. Officers have been granted options
pursuant to the 1997 Stock
Option Plan as set out in "Principal
Stockholders".
On March 28, 1997, the Company entered into an
employment contract with Mr. Wettreich whereby he was employed
as Chairman and Chief Executive Officer of the Company for a
period of ten years at an annual salary of $50,000 and a cash
bonus equal to 5% of the Company's annual profits before
taxation. In the event of Mr. Wettreich's death during the
term of the agreement, the Company will pay annual death
benefits of $50,000 for a period of four years. Mr. Wettreich
may terminate his employment after the date of a change in
control of the Company. A change in control is defined as any
person other than Mr. Wettreich or his family interests
becomes beneficial owner, directly or indirectly of common
stock of the Company representing 30% or more of the
Company's issued and outstanding common stock or if the
Incumbent Board as defined, ceases to constitute a majority of
the board of directors. If Mr.
Wettreich terminates his employment after a
change of control in the Company, he shall be paid (i) the
base salary and any bonuses payable to him under the agreement
or (ii) an amount equal to the product of the annual base
salary and bonus paid to Mr. Wettreich during the year
preceding the termination date multiplied by five whichever of
(i) or (ii) is more. In the circumstances whereby Mr.
Wettreich terminates his employment for good reason, as
defined, he will receive payments in accordance with the
payments received if termination occurs after a change of
control of the Company.
1997 Stock Option Plan. The purpose of the 1997
Stock Option Plan is to enhance the long-term stockholder value
of the Company be offering opportunities to employees,
directors, officers, consultants, agents, advisors and
independent
contractors of the Company to participate in the Company's
growth and success, and to encourage them to remain in the
service of the Company and acquire and maintain stock
ownership in the Company. The Company has granted 393,860
stock options each with an exercise price of $4.00 per share.
The 1997 Stock Option Plan is administered by the
Compensation Committee, which has the authority to select
individuals who are to receive options under the 1997 Stock
Option Plan and to specify the terms and conditions of
each option so granted (incentive or nonqualified), the
vesting provisions, the option
term and the exercise price. Unless otherwise provided by
the Plan Administrator, an option granted under the 1997 Stock
Option Plan expires 10 years from the date of grant (five
years in the case of an incentive stock option granted to the
holder of 10% or more of the Company's outstanding capital
stock) or, if earlier, three months after the optionee's
termination of employment or service other than termination
for cause, one year after the optionee's retirement at
the Company's request, death or disability, or
immediately upon notification to an optionee of termination
for cause. Options granted under the 1997 Stock Option
Plan are not generally transferable by the optionee except by
will or the laws of descent and distribution and generally are
exercisable during the lifetime of the optionee only by
such optionee.
Repurchase Right Under Option Plan. With respect to the
1997 Stock Option Plan and the 1997 Directors Stock
Option Plan (collectively, the "Plans"), the Compensation
Committee has the discretion to authorize the issuance of
unvested shares of Common Stock pursuant to the exercise of
a stock option under the applicable Plan. If the optionee
ceases to be employed by or provide services to the
Company, all shares of Common Stock issued on exercise of
stock option which are unvested at the time of cessation shall
be subject to repurchase by the Company at the exercise price
paid for such shares. The terms and conditions upon which
the repurchase rights are exercisable by the Company are
determined by the Compensation Committee and set forth in the
agreement evidencing such right. The Compensation Committee
has discretionary authority to cancel the Company's
outstanding repurchase rights with respect to one or more
shares purchased or purchasable under an option granted
pursuant to that Plan. In the event of a Terminating Event
or a Corporate Transaction under the 1997 Stock Option Plan,
respectively, if vesting of the options accelerates, the
repurchase rights of the Company with respect to shares
previously acquired on exercise of options granted under
the 1997 Stock Option Plan, respectively, shall terminate.
CERTAIN TRANSACTIONS
Since the inception of the Company in March 27, 1997,
the Company has issued 6,000,000 Shares of Common Stock to
Camelot Corporation in exchange for $511,428 of inventory,
proprietary software, the trademark "mrcdrom", cash and other
assets. The inventory software, trademarks and other was
valued at Camelot's carrying cost. The shares were issued at
$.11 per share after accounting for the write down of the
value of the inventory.
On April 1, 1997, the Company entered into a month to
month lease agreement with Camelot Corporation, the
majority shareholder of the Company, for the office and
warehouse premises and for bookkeeping services at a total rate
of $4,000 per month. The lease covers 3,000 square feet and
it is anticipated that this space will be sufficient for the
next twelve (12) months.
The Company believes that all the transactions set
forth above were made on terms no less favorable to the
Company than could have been obtained from unaffiliated
third parties. Any future transactions, including loans,
between the Company and its officers,
directors and principal stockholders and
their
affiliates will be approved by a majority of the Board
of Directors,
including a majority of the independent and
disinterested directors, and will be on terms no less
favorable to the Company than could be obtained from
unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information
regarding the beneficial ownership of the company's
outstanding Common Stock as of August 1, 1997 and as adjusted
to reflect the sale of the Common Stock offered hereby for
(i) each person or entity know by the company to
beneficially own more than 5% of the Common Stock, (ii) each
director of the Company, and (iv) all of the Company's
directors and executive officers as a group. Except as
otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based
on information furnished by such owners, have sole voting
and investments power with respect to such shares.
<TABLE>
<S> <C> <C> <C>
Percentage of
Shares
Outstanding
Name and Address Number of Shares Prior to After
Beneficially Owned Offering Offering
(1)
Camelot Corporation 6,000,000 100 67
17770 Preston Road
Dallas, Texas 75252
Daniel Wettreich 6,375,000 (2)(3) 100 68
17770 Preston Road
Dallas, Texas 75252
Robert Gregory 10,660 (2)(4) 100 *
17770 Preston Road
Dallas, Texas 75252
Jason Conway 5,000 (5) * *
54 Baker Street
London, England
Colin Grant 5,000 (6) * *
54 Baker Street
London, England
Jeanette Fitzgerald 6,005,000 (2)(7) 100 67
17770 Preston Road
Dallas, Texas 75252
All officers and 6,408,860 100 68
directors as a (2)(3)(4)(5)(6)
group (8 person) (7)(8)
</TABLE>
*less than 1%
(1) Assumes all shares offered are sold.
(2) Includes 6,000,000 Common Shares owned Camelot Corporation
of which Mr. Wettreich and Ms. Fitzgerald are directors and of
which Mr. Gregory is an officer. All have disclaimed any
ownership interest in these shares.
(3) Includes 375,000 options granted to Mr. Wettreich pursuant
to the 1997 Stock Option Plan.
(4) Includes 10,660 options granted to Mr. Gregory pursuant to
the 1997 Stock Option Plan.
(5) Includes 5,000 options granted to Mr. Conway pursuant to
the 1997 Directors Stock Option Plan.
(6) Includes 5,000 options granted to Mr. Grant pursuant to
the 1997 Directors Stock Option Plan.
(7) Includes 5,000 options granted to Ms. Fitzgerald pursuant
to the 1997 Directors Stock Option Plan.
(8) Includes 8,200 options granted to additional officers of
the Company pursuant to the 1997 Stock Option Plan.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists
of 25,000,000 shares of Common Stock, $0.001 par value per
share, and 5,000,000 shares of Preferred Stock, $0.01 par
value per share. The following summary of certain provisions
of the Common Stock and Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by,
the provisions of the Company's Certificate of Incorporation,
which is included as an exhibit to the Registration Statement
of which this Prospectus is a part, and by the provisions of
applicable law.
COMMON STOCK
As of April 1, 1997, there was 6,000,000 shares of
Common Stock outstanding held of record by one (1)
stockholder. There will be 9,000,000 shares of Common Stock
outstanding after giving effect to the sale of all the Common
Stock offered to the public hereby. The holders of Common
Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. See
"Risk Factors - Control of the Company." Subject to
preferences that may be applicable to any outstanding shares
of Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally
available for the payment of dividends. See "Dividend
Policy." In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any
outstanding shares of Preferred Stock. Holders of Common
Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. There are no
redemption or sinking fund to convert their Common Stock into
any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued
upon completion of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation,
the Board of Directors will have the authority, without
further action by the stockholder, to issue up to 5,000,000
shares of Preferred
Stock in one or more series and to fix
the
designations, powers preferences, privileges and
relative participating, option or special rights and the
qualifications, limitation or restrictions thereof, including
dividend rights, conversion rights, voting rights, terms
of redemption and
liquidation preferences, any or all of which may be greater
than the rights of the Common Stock. The Board of Directors,
without stockholder approval, can issue Preferred Stock
with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of
Common Stock. Preferred
Stock could thus be issued quickly with terms calculated to
delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the
issuance of
Preferred Stock may have the effect of decreasing the
market price of Common stock, and may adversely affect the
voting and other rights of the holders of Common Stock.
The Company currently has 3,992,752 shares of Preferred
Stock, Series A outstanding and owned by Camelot. The
shares were issued in exchange for the outstanding shares
owned by Camelot of the Company's subsidiaries. The
Preferred Shares, Series A are nonvoting, non-yielding and
non-convertible but have a preference over the common shares
in the event of a liquidation or similar event of the Company.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE
OF INCORPORATION AND DELAWARE LAW
As noted above, the Company's Board of Directors,
without stockholder approval, have the authority under the
Company's Certificate of Incorporation to issue Preferred Stock
with rights superior to the rights of the holders of Common
Stock. As a result, Preferred Stock could be issued quickly
and easily, could adversely affect the rights of holder of
Common Stock and could be issued with terms calculated to
delay or prevent a change in control of the Company or
make removal of management more difficult.
The Company has opted out of Section 203 of the
Delaware Code permitting transactions between interested
stockholders and the Company in certain instances.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock
is Stock Transfer Company of America, Inc., P.O. Box 896277,
Dallas, Texas 75379-6277.
ESCROW AGENT
The escrow agent for the Common Stock offered pursuant
to this prospectus is The Oaks Bank and Trust Company,
4849 Greenville Avenue, Dallas, Texas 75206.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market
for the Common Stock and there can be no assurance that a
significant public market for the Common Stock will be
developed or be sustained after this offering. Sales of
substantial amounts of Common Stock in the public market
after this offering, or the possibility of such sales
occurring, could adversely affect prevailing market prices
for the Common Stock or the future ability of the Company
to raise capital through an offering of equity securities.
After this offering, the Company will have
outstanding 9,000,000 shares of Common Stock. Of these shares,
the 3,000,000 shares offered hereby will be freely tradable
in the public market without restriction under the Securities
Act, unless such shares are held by "affiliates" of the
Company, as that term is defined in Rule 144 under the
Securities Act.
The remaining 6,000,000 shares of Common Stock
outstanding upon completion of this offering will be
"restricted securities," as that term is defined in Rule 144
("Restricted Shares"). The
Restricted Shares were issued and sold by the Company in
private transactions in reliance upon exemptions from
registration under the Securities Act. Restricted Shares may
be sold in the public market only if they are registered or
if they qualify for an exemption from registration under
Rules 144 or 701 under the Securities Act, which are
summarized below.
Rule 701 permits resales of such shares in reliance
upon Rule 144 but without compliance with certain
restrictions, including the holding period requirement, imposed
under Rule 144. In general, under Rule 144 as in effect at the
closing of this offering, beginning 90 days after the date of
this Prospectus, a person (or persons whose shares of the
Company are aggregated) who has beneficially owned
Restricted Shares for as least one year (including the
holding period of any prior owner who is not an affiliate of
the Company) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater
of (i) one percent of the then outstanding shares of Common
Stock (approximately 90,000 shares immediately after this
offering) or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect such sale. Sales under
Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public
information about the Company. Under Rule 144 (k), a person
who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner
who is not an affiliate of the Company) is entitled to sell
such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule
144.
The Company intends to file after the effective date of
this offering a Registration Statement on Form S-8 to
register an aggregate of approximately 500,000 shares of
Common stock
reserved for issuance under the 1997 Stock Option Plan and
the 1997 Directors Stock Option Plan. Such Registration
Statement will become effective automatically upon filing.
Shares issued under the foregoing plans, after the filing of
a Registration Statement on Form S-8, may be sold in the open
market, subject, in the case of certain holders, to the
Rule 144 limitations applicable to affiliates, and vesting
restrictions imposed, if any, by the Company.
PLAN OF DISTRIBUTION
The Company is offering up to 3,000,000 shares in the
Company, all at $4.00 per share. The shares will be
offered on a maximum/minimum "best efforts" basis. The
minimum number of Shares offered hereby must be sold, if any
are to be sold, within a period of 90 days (or a period of 180
days if extended by the Company from the date of this
Prospectus. The Company may allocate among or reject any
subscriptions, in whole or in part. These subscriptions may be
rejected if the Company receives more subscriptions than it
offers, the payments are not made with the subscription, the
subscriptions are otherwise incomplete or other reason deemed
appropriate by the Company.
The Shares will be offered and sold by the Company's officers
and directors, without compensation. Neither the Company nor
any of its officers or directors is registered as a broker
or dealer under Section 15 of the Exchange Act. If
required by a particular state the Company or an officer will
become registered to offer and sell the securities offered as
that particular state requires.
The Company has not retained an underwriter or any
Independent broker-dealer to assist in offering the Shares.
It is the intention of the Company to offer and sell
the Shares by contacting prospective investors through
appropriate newspaper and magazine advertisements as well as
through the use of the Internet to electronically deliver
copies of this Prospectus to prospective investors. The
prospective investor will have an option to have a paper
copy of the prospectus sent to them or if they execute a
consent form to have it sent electronically. If a consent
form is executed all further information will be sent
electronically until such time as the Company is notified
that the investor no longer wants electronic delivery.
Those subscribing to purchase Shares must complete a
Stock Purchase Agreement, a form of which is included as an
appendix to this Prospectus. All funds received by the Company
with respect to the minimum number of Shares that may be
sold will, promptly following receipt by the Company, be
deposited in an escrow account with the Escrow Agent
pursuant to the terms of an escrow agreement entered into
between the Company and the Escrow Agent ( the "Escrow
Agreement"). In the event that the minimum number of Shares
offered hereby is not sold within the permitted time
period, then all funds received by the Company will be
promptly refunded to the subscribers, in full, without
interest or deduction therefrom.
The Company reserves the right to reject any subscription
for Shares in its entirety or to allocate Shares among
prospective purchasers. The Company may be required to reject
a subscription if the offering is not registered in the state
which the proposed subscriber resides or the subscriber does
not otherwise meet a state imposed requirement. Further, if
there are more shares subscribed than offered the Company
may be required to allocate the shares offered among
subscribers. If a subscription is rejected, funds
received by the Company for each subscription will be
returned to the applicable prospective purchaser without
interest or deduction.
Certificates representing Shares purchased will be issued
to purchasers only if the proceeds from the sale of at least
62,500 shares are released from escrow. Until the
certificates are delivered to the purchasers thereof, such
purchasers, if any, will be deemed subscribers only, and not
shareholders. The funds in escrow will be held for the benefit
of those subscribers until released to the Company. All funds
received by the Company after the minimum number of Shares
offered hereby is sold will not be placed in escrow, but
placed directly into the Company's operating account for
immediate use by the Company.
Subscribers may subscribe by one of two methods. Firstly,
the subscriber may complete the Stock Purchase Agreement
attached and send that along with their completed check to
the Company who will forward the payment to the Escrow Agent
if the minimum has not been reached yet or deposit said
payment into the accounts of the Company if the minimum has
been reached. Secondly,
the
subscriber may go on-line to the mrcdrom.com web page
and complete the Stock Purchase Agreement and then pay for the
shares via electronic transfer where the money is directly
withdrawn from their checking account or credit card.
Although it is the Company's intention to develop a public
market for its Common Stock by soliciting broker-dealers who
are members of the NASD to make a market in the Company's
Common Stock, to date the Company has
not entered into any arrangements,
commitments or understandings with any persons with respect
to
the creation of a public market for its Common Stock.
The Company intends to apply for NASDAQ SmallCap Market
listing for the Common shares when it appears to qualify
for NASDAQ listing under the new guidelines. Besides
certain governance guidelines, the newly approved initial
listing SmallCap Market requirements are as follows:
Initial Listing
Net Tangible Assets1 $4 million
or
Market Capitalization $50 million
or
Net Income (in latest fiscal $750,000
year or 2 of last 3 fiscal years)
Public Float (shares)2 1 million
Market Value of Public Float $5 million
Minimum Bid Price $4
Market Makers 3
Shareholders 300
(round lot holders)3
Operating History4 1 year
or
Market Capitalization $50 million
Corporate Governance Yes
______________
FN 1. For initial or continued listing, a company must
satisfy
one of the following to be in compliance: the net
tangible assets requirement, (net tangible assets means
total assets, excluding goodwill, minus total
liabilities) the market capitalization requirement or the
net income requirement.
2. Public float is defined as shares that are not held
directly or indirectly by any officer or director of the
issuer and any other person who is the beneficial owner of more
than 10 percent of the total shares outstanding.
3. Round lot holders are considered holders of 100 shares
or more.
4. If operating history is less than 1 year, initial listing
requires market capitalization of at least $50million.
Excerpted from The NASDAQ Stock Market, Inc.-from their
Bulletin dated August 25, 1997 entitled "NASDAQ Announces
New Listing Requirements".
LEGAL MATTERS
Certain legal matters will be passed on for the Company
by Jeanette Fitzgerald, Esq. Ms. Fitzgerald has been
granted options to purchase 5,000 Shares of the Company
pursuant to the 1997 Director Stock Option Plan. Ms.
Fitzgerald is also a Director of the Company and of Camelot
Corporation. She is the Vice President and General Counsel
of Camelot. See "Directors Compensation" and "Principal
Stockholders".
EXPERTS
The financial statements of mrcdrom.com, inc. and subsidiaries
at April 30, 1997 appearing in this Prospectus and the
Registration Statement have been audited by Lane Gorman
Trubitt, L.L.P., independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are
included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a
Registration Statement, of which this Prospectus constitutes a
part, under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus omits certain
information contained in the
Registration Statement, and reference is made to the
Registration Statement and the exhibits thereto for
further information with respect to the Company and the
Common Stock offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily
complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement,
including exhibits filed therewith, may be inspected without
charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional officer of
the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of
such materials may be obtained from the Public Reference
Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The
Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding registrants, that file
electronically with the Commission.
<PAGE>
STOCK PURCHASE AGREEMENT
(All Investors must sign this Stock Purchase Agreement)
No. of Shares Being Purchased: ____________ x $4.00
per Share = Total
Purchase Price for Shares: $___________
PURCHASER DATA: (Must be completed in full)
_____________________________________________________________
First Full Name (Do not use initials) M.I. Last Name
Residence Address, including Zip Code: (Do not use P.O. Box)
_________________________________
Resident Telephone Number: -or- Business Telephone Number:
______________________________ __________________________
Social Security Number (Individual):-or- Tax I.D. Number:
______________________________ ____________________________
SIGNIFICANT DISCLOSURE
THIS STOCK PURCHASE IS MADE PURSUANT TO, AND IS SUBJECT TO, THE
TERMS AND CONDITIONS OF THE QUALIFICATION APPROVED BY THE
SECURITIES COMMISSIONS OF THE STATES IN WHICH THE SHARES ARE
BEING OFFERED. SIGNATURE MUST BE IDENTICAL TO NAME OF
REGISTERED OWNER.
____________________________________
Printed Name of Purchaser
____________________________________ __________________
Signature of Purchaser Date
____________________________________
Printed Name of Purchaser (if more than one)
____________________________________ __________________
Signature of Purchaser (if more than one) Date
ADDITIONAL INFORMATION
In order to facilitate processing of your purchase, please be
sure you have completed each of the following:
- - A check made out to mrcdrom.com
- - Enter the number of Shares being purchased and total cash
price of the Stock Purchase Agreement
- - Enter the State in which you are a legal resident in the
"Residence Address" line above.
Please mail check and this Stock Purchase Agreement to:
mrcdrom.com, inc. Escrow Account
The Oaks Bank and Trust Company
4849 Greenville Ave.
Dallas, Texas 75206
4. Escrow Agent is not a party to, nor is it bound by nor
need it give consideration to the terms or provisions of any
other agreement or undertaking between the undersigned or
between any of the undersigned and other persons, or any
agreement or undertaking which may be evidenced by or disclosed
by any items included among the deposited funds, and Escrow
Agent assents to and is to give consideration only to the terms
and provisions of this Escrow Agreement. Unless it is
specifically provided otherwise herein, Escrow Agent has no
duty to determine or inquire into the happening or occurrence
of any event or contingency or the performance or failure of
performance of any of the undersigned with respect to
arrangements or contracts with each other or with others, and
the Escrow Agent's sole duty hereunder is to hold the deposited
funds and to dispose of and deliver the same in accordance with
instructions given to it in the form and tenor provided in this
Escrow Agreement. mrcdrom.com represents and warrants that
each Investor has been apprised of this Escrow Agreement and
had an opportunity to receive a copy of the Escrow Agreement.
5. Escrow Agent shall not be responsible or liable to any
person in any manner whatever for the sufficiency, correctness,
genuiness, effectiveness or validity of any of the deposited
funds or for the form or execution thereof, or for the identity
or authority of any person executing or depositing it. If any
of the undersigned are acting as agent for others, all of the
undersigned represent and warrant that such agent is authorized
to make and enter into this Escrow Agreement. This Escrow
Agreement is a personal one between the undersigned and the
Escrow Agent only, and in connection therewith Escrow Agent is
authorized by each of the undersigned to rely upon the
representations, both actual and implied, of the undersigned
and all other persons connected with this Escrow Agreement and
the deposited funds, as to marital status, authority to execute
and deliver this Escrow Agreement, notifications, receipts, or
instructions hereunder, and relationships among persons,
including persons authorized to receive delivery hereunder, and
Escrow Agent shall not be liable to any person in any manner
for such reliance. The duty of Escrow Agent hereunder shall
only be to the undersigned, their successors, and assigns and
to no other person or persons whomsoever.
6. Escrow Agent may act upon any written notice, request,
waiver, consent, certificate, receipt, authorization, power of
attorney or other instrument or document, from mrcdrom.com and
Escrow Agent may consider such to be genuine and to be what it
purports to be. Escrow Agent shall be liable as a depository
only and shall not be responsible for the sufficiency or
accuracy of the form, execution or validity of documents
deposited hereunder, or any description of funds or other thing
therein, nor shall it be liable in any respect on account of
the identity, authority, or rights of the persons executing or
delivering or purporting to execute or deliver any such
document or paper. The undersigned parties, jointly and
severally, agree to indemnify and hold harmless Escrow Agent
from and against any and all liabilities, including attorney's
fee, incurred in connection with this Escrow Agreement."
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
Board of Directors and Stockholder
mrcdrom.com, inc. and subsidiaries
We have audited the accompanying consolidated balance
sheets of mrcdrom.com, inc. and subsidiaries as of April 30,
1997 and 1996 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of
the three years in the period ended April 30, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of mrcdrom.com, inc. and
subsidiaries as of April 30, 1997 and 1996, and the
consolidated results of their operations and their
consolidated cash flows for each of the three years in the
period ended April 30, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 11 to the financial statements, the
Company has suffered recurring losses from operations and is
dependent on its ability to raise additional funds. This
raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to
these matters are also described in Note 11. The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
We have also audited Schedule II of mrcdrom.com, inc.
and subsidiaries for each of the three years in the period
ended April 30, 1997. In our opinion, this schedule presents
fairly, in all material respects, the information required to
be set forth therein.
Lane Gorman Trubitt, L.L.P.
Dallas, Texas
July 7, 1997
<PAGE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
April 30,
ASSETS
<TABLE>
<S> <C> <C>
1997 1996
CURRENT ASSETS
Cash $ 76,538 $ 26,207
Accounts receivable 62,573 1,595
Prepaid expenses 17,856 100,599
Inventories, net of
allowance for obsol-
escence of $469,744
and $198,000 at April
30, 1997 and 1996 511,293 1,213,005
respectively
Total current assets 668,260 1,341,406
PROPERTY AND EQUIPMENT
- AT COST
Office equipment and
fixtures 82,866 188,706
Leasehold improvements - 153,595
Less accumulated
depreciation and (20,940) (11,958)
amortization
61,926 330,343
OTHER ASSETS
Trademark, net of
accumulated amortiza-
tion of $16,000 and
$8,000, at April 30,
1997 and 1996 respectively 24,000 32,000
Deferred offering costs 13,114 -
Total other assets 37,114 32,000
$ $1,703,749 767,300
</TABLE>
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
April 30,
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
1997 1996
CURRENT LIABILITIES
Accounts payable $ 72,292 $241,996
72,292 241,996
Accrued expenses 141,645 73,831
Due to affiliate -
3,025,911
Total current liabilities 213,937
3,341,738
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, $.001 par value,
25,000,000
shares authorized, 6,000,000 6,000
- -
shares issued and outstanding
Common stock, of subsidiaries -
5,000
Preferred stock, $.01 par value,
5,000,000
shares authorized, 3,992,752 39,928
- -
shares
issued and outstanding
Additional paid-in capital 4,614,716
Accumulated deficit (4,107,281)
(1,642,989
)
Total stockholder's 553,363
(1,637,989
equity (deficit) )
$
$
767,300
1,703,749
</TABLE>
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30,
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
REVENUES $ 1,158,408 $ 483,842 $94,070
COSTS AND EXPENSES
Cost of sales 964,015 349,220 45,508
General and 1,686,967 1,272,213 214,831
administration
Provision for inventory 470,942 198,000 -
obsolescence
Depreciation and 57,721 39,917 1,115
amortization
Total costs and 3,179,645 1,859,350 261,454
expenses
LOSS FROM OPERATIONS (2,021,237) (1,375,508) (167,384)
OTHER INCOME (EXPENSE)
Interest and - - 151
miscellaneous
Loss on disposition of (443,055) (18,280) -
assets
Total other (443,055) (18,280) 151
income (expense)
NET LOSS (2,464,292) (1,393,788) (167,233)
DIVIDENDS ON PREFERRED STOCK
(of Subsidiary) - - (121,968)
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(2,464,292 $(1,515,756) $(167,233)
LOSS PER SHARE
Loss from continuing $ (.41) $ (.23) $ (.03)
operations
Dividends on preferred - (.02) -
stock
NET LOSS PER COMMON SHARE
$ (.41) $ (.25) $ (.03)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES
OUTSTANDING 6,000,000 6,000,000 6,000,000
</TABLE>
See accompanying notes to financial statements.
<TABLE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY(DEFICIT)
Years ended April 30, 1997, 1996 and 1995
<S> <C> <C> <C> <C>
Common Common Common Common Preferred
Stock Stock Stock Stock Stock
Shares Amount Shares Amount Shares
Beginning balance - $ - 3,000 $ 3,000 -
Common stock issued
to affiliate for cash - - 200,000 2,000 -
and certain assets
Sale of preferred - - - - -
stock
Net loss - - - - -
Balance at - - 203,000 5,000 -
April 30, 1995
Redemption of - - - - -
subsidiary preferred
stock
Preferred stock - - - - -
dividends
Net loss - - - - -
Balance at - - 203,000 5,000 -
April 30, 1996
Common stock issued
to affiliate for 6,000,000 6,000 - - -
certain assets
Preferred stock
issued to affiliate
in exchange for - - (203,000) (5,000) 5,000
common stock of
subsidiaries
Preferred stock
issued to pay - - - - 3,987,752
amounts due to
affiliate
Net loss - - - - -
Balance at 6,000,000 $6,000 - - $3,992,752
April 30, 1997
</TABLE>
See accompanying notes to financial statements.
<TABLE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Years ended April 30, 1997, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C>
Preferred Preferred Preferred Additional Total
Paid- Accumulated Stockholder's
Stock Stock Stock in
Amount Shares Amount Capital Deficit Equity
(Deficit)
Beginning balance $ - - $ - $ - $ - $3,000
Common stock
issued to - - - 40,000 - 42,000
affiliate for cash
and certain assets
Sale of preferred - 60,700 607 263,437 - 264,044
stock
Net loss - - - - (167,233) (167,233)
Balance at - 60,700 607 303,437 (167,233) 141,811
April 30, 1995
Redemption of - (60,700) (607) (263,437) - (264,044)
preferred stock
Preferred stock - - - (40,000) (81,968) (121,968)
dividends
Net loss - - - - (1,393,788) (1,393,788)
Balance at - - - - (1,642,989) (1,637,989)
April 30, 1996
Common stock
issued to - - - 661,892 - 667,892
affiliate for
certain assets
Preferred stock
issued to
affiliate in 50 - - 4,950 - -
exchange for
common stock of
subsidiaries
Preferred stock
issued to pay 39,878 - - 3,947,874 - 3,987,752
amounts due to
affiliate
Net loss - - - - (2,464,292) (2,464,292)
Balance at $ 39,928 - $ - $4,614,716 $(4,107,281) $553,363
April 30, 1997
</TABLE>
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,464,292) $(1,393,788) $(167,233)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 57,721 39,917 1,115
Loss on disposal of assets 443,055 18,280 -
Provision for inventory 470,942 198,000 -
obsolescence
Change in assets and liabilities
Accounts receivable (60,978) (1,595) -
Prepaid expenses 82,743 (90,183) (10,416)
Inventories 230,770 (1,351,182) (59,823)
Accounts payable and (101,890) 272,667 43,160
accrued expenses
Net cash used in (1,341,929) (2,307,884) (193,197)
operating activities
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and (205,350) (360,274) (21,381)
equipment
Net cash used in (205,350) (360,274) (21,381)
investing activities
CASH FLOW FROM FINANCING ACTIVITIES:
Deferred offering costs (13,114) - -
Redemption of preferred stock - (264,044) -
Sale of common stock 100,000 - 2,000
Sale of preferred stock - - 264,044
Dividends on preferred stock - (121,968) -
Advances from affiliate 1,510,724 3,012,513 16,398
Net cash provided 1,597,610 2,626,501 282,442
by financing activities
NET INCREASE (DECREASE) IN CASH 50,331 (41,657) 67,864
CASH AT BEGINNING OF PERIOD 26,207 67,864 -
CASH AT END OF PERIOD $76,538 $ 26,207 $ 67,864
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ - $ - $ -
Cash paid for taxes $ - $ - $ -
</TABLE>
In fiscal 1997, the Company acquired certain assets in exchange
for
shares of the Company's stock valued at $1,624,593. In
fiscal 1995, the Company acquired an intangible asset in
exchange for shares of the Company's common stock valued
at $40,000. In fiscal 1997, the Company issued preferred
stock to pay amounts to affiliate in the amount of
$3,987,752. In fiscal 1997, the Company issued 5,000
shares of preferred stock in exchange for the outstanding
common shares owned by Camelot of the Company's subsidiaries.
See accompanying notes to financial statements.
<PAGE>
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity and Principles of Consolidated
The consolidated financial statements include mrcdrom.com,
inc. and four subsidiaries; Mr. CD-ROM Stores, Inc.,
Camelot Distributing, Inc., SAC Distributing, Inc. and Software
@ Cost + 10%, Inc. (collectively the "Company"). The Company
is a wholly owned subsidiary of Camelot Corporation
("Camelot").
The Company is engaged in the retailing and distribution
of computer software products. The Company sells software
products through an Internet web page catalog. During 1997,
the Company ceased selling its software products through
Mr. CD ROM and Software @ Cost + 10% retail stores which
were located in the Dallas Metroplex. A loss on disposal of
assets of $443,055 was recognized in 1997. Significant
intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. The
Company maintains cash balances at a local financial
institution in Dallas, Texas. The Company believes it is not
exposed to any significant credit risk on cash and cash
equivalents.
Accounts Receivable
The Company considers accounts receivable to be
fully collectible; accordingly, no allowance for doubtful
accounts is required. If accounts become uncollectible, they
will be charged to operations when that determination is made.
Inventories
Inventories of computer software (CD-ROM) held for resale,
are stated at the lower of cost or market using the weighted
average cost method. An allowance for inventory
obsolescence is maintained to provide for an estimate of
inventory items that have declined in value.
Trademark
Trademarks are stated at cost, net of accumulated
amortization, which is provided using the straight-line method
over 5 years.
Fair Value of Financial Instruments
Fair value of financial instruments are estimated to
approximate the related book value, unless otherwise
indicated, based on market information available to the
Company.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property and Equipment
Property and equipment are carried at cost, less
accumulated depreciation. Major additions and betterments
are capitalized while replacements and maintenance and
repairs that do not improve or extend the life of the
respective assets are expensed. Leasehold improvements are
amortized over the lesser of the term of the related lease or
the estimated useful lives of the assets. When property is
retired or otherwise disposed of, the related costs and
accumulated depreciation are removed from the accounts and any
gain or loss is reflected in operations.
Depreciation and amortization of property and equipment
is provided on the straight-line method over the following
estimated useful lives:
Office furniture and fixtures 7 years
Computer and office equipment 5 years Computer software
5 years
Leasehold improvements Length of lease ranging to
5 years
Software Development
Certain software development costs are capitalized upon
the establishment of technological feasibility for each
product or process and capitalization ceases when the product
is available for general release to customers or is put into
service. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by
management with respect to certain external factors,
including, but not limited to, anticipated future
revenues, estimated economic life and changes in software
and hardware technology. Research and development costs
related to software development that has not reached
technological feasibility are expensed as incurred. There
were no capitalized software development costs.
Loss Per Share
Loss per common share is computed on the basis of the
weighted average number of common shares outstanding.
Outstanding stock options are excluded from the computation
as their effect would be anti-dilutive.
Revenue Recognition
Revenue from sales of software is generally recognized
upon delivery of the software provided that no significant
obligations remain and collection of the resulting
receivable is deemed probable.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Stores Preopening Costs
Store preopening costs are capitalized and amortized over
twelve months.
Advertising Costs
Advertising costs are charged to operations when the
advertising first takes place and were $252,447, $392,801 and
$23,885 for 1997, 1996 and 1995, respectively.
Income Taxes
Deferred income taxes are determined using the liability
method under which deferred tax assets and liabilities are
determined based upon differences between financial accounting
and tax basis of assets and liabilities.
Deferred Offering Costs
Deferred offering costs include the costs associated with
a proposed initial public offering. The costs related to
the initial public offering will be capitalized and netted
against the amount received from the public offering. All
deferred offering costs will be expensed in the event the
offering is not consummated.
Impairment of Long-Lived Assets
Impairment losses are recognized on long-lived assets and
certain identifiable intangible assets held and used in
operations whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable.
Use of Estimates
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that effect the
reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the
financial statements, and the reported amount of revenues
and expenses during the period. Actual results could differ
from those estimates.
2. ACCOUNTS RECEIVABLE AND CREDIT RISK
The Company's trade receivables include amounts due from
credit card vendors, customers and suppliers for returned
product. The
Company believes it is not exposed to significant credit risk.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
3. INVENTORIES
Included in the accompanying balance sheet is inventory
of computer software at a carrying value of $511,293,
which represents management's estimate of its net realizable
value. The computer software industry is characterized
by rapid
technological advancements and change. Should demand prove
less than anticipated, the ultimate realizable value of such
products will probably be less than the amount shown in the
balance sheet.
4. ACCRUED EXPENSES
The following is a summary of accrued expenses at April 30,:
<TABLE>
<S> <C> <C>
1997 1996
Management fee to related $ $
party 4,000 -
Compensation 11,945 -
Taxes 5,025 32,618
General and administrative 2,451 7,550
Other 3,125 33,663
Lease obligations 115,099 -
$ $
141,645 73,831
</TABLE>
5. INCOME TAXES
The Company joins with its parent, Camelot, in filing
a
consolidated federal income tax return. Each company in
the consolidated group determines its taxable income or loss,
on a separate company basis, and the consolidated tax
liability is allocated to each company with taxable income
in proportion to the total of the taxable income amounts.
The Company had no current State or Federal income tax
expense for each of the years ended April 30, 1997, 1996 and
1995.
Deferred tax assets and liabilities are determined based on
the difference between financial statement and tax bases of
assets and liabilities as measured by the currently enacted
tax rates. Deferred tax expense or benefit is the result of
the changes in deferred tax assets and liabilities.
Deferred income taxes arise principally from the
temporary
differences between financial statement and income
tax
recognition of inventory reserves and net operating losses.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES - Continued
The components of deferred taxes in the accompanying
balance sheets are summarized below:
<TABLE>
<S> <C> <C>
1997 1996
Allowance for doubtful $ $
accounts - 782
Inventories 159,713 66,795
Net operating loss
carryforward 1,208,749 463,170
1,368,462 530,747
Less valuation allowance
(1,368,462) (530,747)
Deferred tax asset-net $ $
- -
</TABLE>
At April 30, 1997, the Company has approximately $3,555,000
of unused Federal net operating loss carryforwards, which
expire in the years 2010 through 2012.
6. STOCKHOLDER'S EQUITY
On March 31, 1997, mrcdrom.com, inc. accepted the
stock subscription by Camelot for 6,000,000 shares of
mrcdrom.com, inc. for a total subscription payment of
$667,892, in exchange for $100,000 in cash, $511,428 of
inventory, $30,464 of equipment and $26,000 of other assets.
Valuation of assets contributed was based on Camelot's book
value at time of transfer. An additional inventory reserve
was recorded on Camelot's books to reflect current market
value prior to the transfer to mrcdrom.com.
In March 1997, the Company's Board of Directors approved
the filing of a registration statement under the Securities
Act of 1933, for a public offering of 3,000,000 shares of
mrcdrom.com, inc. common stock.
Pursuant to the planned offering, the Company
extinguished $3,987,752 of amounts payable to Camelot,
into shares of
preferred stock at the price of $1.00 per share. The
Company
also issued 5,000 shares of preferred stock in exchange for
the outstanding common shares owned by Camelot of the
Company's subsidiaries. The per share information has been
adjusted to reflect the common stock exchange on a retroactive
basis.
The Company currently has 3,992,752 shares of preferred
stock, Series A. The preferred Series A are non-voting, non-
yielding and non-convertible but have a preference over the
common shares in the event of a liquidation or similar event of
the Company.
During the year ended April 30, 1995, a subsidiary of the
Company authorized 15,000,000 shares of $.01 par value
preferred stock. Proceeds from the sale of the 60,700
issued shares, net of expenses of $39,456, were $264,044.
During fiscal 1996, the Company purchased 60,700 shares of
the 10% Convertible Preferred Shares, Series A. The 10%
Convertible Preferred Shares, Series A, have one vote per
share, and no preemptive rights. The
dividend is cumulative and must be paid before any dividends
can be paid to the common shareholders. The Preferred shares
have a preference upon liquidation over the common shares.
The Company has the right to redeem the Preferred shares
within twelve months of issuance at $6.00 per share and the
second twelve months for $6.60 per share. Dividends in the
amount of $121,968 were paid in 1996. All shares were
redeemed in fiscal year 1996.
7. RELATED PARTY TRANSACTIONS
The Company receives administrative, legal and
accounting services along with office and warehouse space
from Camelot Corporation. Beginning in April 1997, the
Company pays a monthly management fee of $4,000 that
compensates Camelot Corporation for these expenses. Total
management fee expense charged to
operations in 1997 was $4,000. A subsidiary of
mrcdrom.com, Camelot Distributing, Inc., will be the
exclusive supplier of products to mrcdrom.com. If
relationships between Camelot
Distributing and its suppliers were terminated, then
mrcdrom.com would be severely impacted in its ability to
fulfill orders.
Some of the officers and directors of the Company are
also officers and directors of Camelot. These officers and
directors are in the position to, and in the future may,
influence the operations of the Company.
Amounts due to affiliates are non interest bearing and are
due upon demand.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company conducts operations from leased premises in
the Dallas, Texas area. Total rent expense, all of which
were minimum rentals, for fiscal 1997, 1996 and 1995 was
$495,507, $164,301 and $13,500, respectively. The Company has
negotiated or is in the process of negotiating early
termination of its retail lease obligations. An accrual
of $115,099, for the settlement of the leases, is
included in accrued expenses at April 30, 1997. If the
negotiations are not successful, the ultimate loss will
probably be greater than the accrued amount.
Litigation
During the ordinary course of business, the Company is
involved in legal proceedings which management does not expect
to have a material effect on the financial position of the
Company.
9. STOCK OPTIONS
mrcdrom.com, inc. has approved two stock option plans, a
1997 Incentive Stock Option Plan (the "Incentive Stock Option
Plan") and the 1997 Directors' Stock Option Plan (the
"Director's Stock Option Plan") in March 1997, reserving
500,000 shares of common stock for issuance upon the exercise
of options granted under the Plans. The Incentive Stock
Option Plan is available to all employees of mrcdrom.com,
inc. (including officers and employee directors). The
Director's Stock Option Plan is available for all
nonemployee directors of mrcdrom.com, inc. The option
exercise price is equal to the fair market value of a share
of common stock on the grant date unless the optionee is
granted more than 10% of the maximum number of shares
available for issuance under the Plans in which case the
exercise price is equal to 110% of the fair market value of a
share of common stock on the date of grant. The term of the
options under the Plans may not exceed 10 years.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
The following schedule summarized the changes in the Plans:
Incentive Stock Option Plan
<TABLE>
<S> <C> <C> <C>
1997 1996
1995
Options outstanding at
beginning of year
Granted 393,860 - -
Exercised - - -
Canceled
- - -
Options outstanding at end 393,860
of year - -
Options exercisable at 408,800
end of year - -
Average price of options
Granted during year $ 4.00 $ $
- -
Exercised during year - - -
Canceled during year - - -
Outstanding at end of 4.00 - -
year
</TABLE>
Director's Stock Option Plan
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Options outstanding at
beginning of year
Granted 15,000 - -
Exercised - - -
Canceled - - -
Options outstanding at end 15,000
of year - -
Options exercisable at 15,000
end of year - -
Average price of options
Granted during year $ 4.00 $ $
- -
Exercised during year - - -
Canceled during year - - -
Outstanding at end of 4.00 - -
year
</TABLE>
The Company recognizes and measures compensation costs related
to stock option plans utilizing the intrinsic value based
method. Accordingly, no compensation cost has been
recorded. Had compensation expense been determined on the
fair value of awards granted, the effect on the Company's
earnings would not have been material.
The Company granted stock options to purchase 408,860 shares
of common stock to officers and directors of the Company.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
10. INDUSTRY SEGMENT
The Company is operating in one industry segment, engaged in
the retailing and distribution of software and computer
accessories, primarily CD-ROM software.
11. UNCERTAINTY
The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles,
which contemplates continuation of the Company as a going
concern. The Company requires capital to maintain and
increase its customer base, implement and successfully
execute its business and marketing strategy, continue
to develop and upgrade its
technology and transaction processing system, improve its
web site, provide customer service and order fulfillment,
respond to competitive developments, and attract, retain
and motivate qualified personnel. The Company believes that
its success will depend on its ability to extend its brand
position, provide its customers
with outstanding value and a superior shopping
experience, and achieve sufficient sales volume to
realize economies of scale. Accordingly, the Company intends
to invest in site development, technology and operating
infrastructure
development. The future success of the Company is dependent
on
its ability to obtain additional working capital to market
its
products and ultimately, upon its ability to attain
future profitable operations. If the net proceeds of
the public offering, together with cash generated by
operations, are
insufficient to fund operations, the Company may be required
to raise additional funds. There can be no assurance that
the Company will be able to obtain necessary financing in
amounts or on terms acceptable to the Company to be able
to successfully
market its products, or attain successful future operations. In
view of these matters, realization of a major portion of
the assets in the accompanying balance sheets is dependent
upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing
requirements, and the success of its future
operations. Management believes
that actions presently being taken to meet the
Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern.
mrcdrom.com, inc. and subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended April 30, 1997, 1996 and 1995
Allowance deducted
from assets to which
it applies:
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance at
Beginning Charged to Charged to Balance
Description of Period Costs Other Deductio at
and Accounts ns End of
Expenses Period
Inventories
Year Ended
April 30, $ 198,000 $ 470,942 $ $ $
469,744
1997 - 199,198
April 198,000 - - 198,000
30,1996 -
April - - - - -
30,1995
</TABLE>
STOCK PURCHASE AGREEMENT
(All Investors must sign this Stock Purchase Agreement)
No. of Shares Being Purchased: ____________ x $4.00
per Share = Total
Purchase Price for Shares: $___________
PURCHASER DATA: (Must be completed in full)
_____________________________
_________ ____________________________________
First Full Name (Do not use initials) M.I. Last
Name
Residence Address, including Zip Code: (Do not use P.O. Box)
_______________________________________________________________
__ _____________
Resident Telephone Number: -or-
Business Telephone Number:
______________________________
______________________________
Social Security Number (Individual): -or- Tax
I.D. Number:
______________________________
______________________________
SIGNIFICANT DISCLOSURE
THIS STOCK PURCHASE IS MADE PURSUANT TO, AND IS SUBJECT TO,
THE TERMS AND CONDITIONS OF THE QUALIFICATION APPROVED
BY THE SECURITIES COMMISSIONS OF THE STATES IN WHICH THE
SHARES ARE BEING OFFERED. SIGNATURE MUST BE IDENTICAL TO NAME
OF REGISTERED OWNER.
____________________________________
Printed Name of Purchaser
____________________________________
__________________
Signature of Purchaser Date
____________________________________
Printed Name of Purchaser (if more than one)
____________________________________
__________________
Signature of Purchaser (if more than
one) Date
ADDITIONAL INFORMATION
In order to facilitate processing of your purchase, please
be sure you have completed each of the following:
- - A check made out to mrcdrom.com
- - Enter the number of Shares being purchased and total cash
price of the Stock Purchase Agreement
- - Enter the State in which you are a legal resident in
the "Residence Address" line above.
Please mail check and this Stock Purchase Agreement to:
mrcdrom.com, inc. Escrow Account
The Oaks Bank and Trust Company
4849 Greenville Ave. Dallas, Texas 75206
4. Escrow Agent is not a party to, nor is it bound by nor
need
it give consideration to the terms or provisions of any
other agreement or undertaking between the undersigned or
between any of the undersigned and other persons, or any
agreement or undertaking which may be evidenced by or
disclosed by any items included among the deposited funds,
and Escrow Agent assents to and is to give consideration only
to the terms and provisions of this Escrow Agreement.
Unless it is specifically
provided
otherwise herein, Escrow Agent has no duty to determine
or inquire into the happening or occurrence of any
event or contingency or the performance or failure of
performance of any of the undersigned with respect to
arrangements or contracts with each other or with others,
and the Escrow Agent's sole duty hereunder is to hold the
deposited funds and to dispose of and deliver the same in
accordance with instructions given to it in the form
and tenor provided in this Escrow
Agreement.
mrcdrom.com represents and warrants that each Investor has
been apprised of this Escrow Agreement.
5. Escrow Agent shall not be responsible or liable to
any
person in any manner whatever for the sufficiency,
correctness, genuiness, effectiveness or validity of any of
the deposited funds or for the form or execution thereof, or
for the identity or authority of any person executing or
depositing it. If any of the undersigned are acting as
agent for others, all of the undersigned represent and
warrant that such agent is authorized to make and enter
into this Escrow Agreement. This Escrow Agreement is a
personal one between the undersigned and
the
Escrow Agent only, and in connection therewith Escrow Agent
is authorized by each of the undersigned to rely upon
the
representations, both actual and implied, of the undersigned
and all other persons connected with this Escrow Agreement and the
deposited funds, as to marital status, authority to execute
and deliver this Escrow Agreement, notifications,
receipts, or
instructions hereunder, and relationships among
persons,
including persons authorized to receive delivery hereunder,
and Escrow Agent shall not be liable to any person in any
manner for such reliance. The duty of Escrow Agent hereunder
shall only be to the undersigned, their successors, and
assigns and to no other person or persons whomsoever.
6. Escrow Agent may act upon any written notice,
request,
waiver, consent, certificate, receipt, authorization, power
of attorney or other instrument or document, from mrcdrom.com
and Escrow Agent may consider such to be genuine and to be what it
purports to be. Escrow Agent shall be liable as a
depository only and shall not be responsible for the
sufficiency or accuracy of the form, execution or validity
of documents deposited hereunder, or any description of
funds or other thing
therein,
nor shall it be liable in any respect on account of the
identity, authority, or rights of the persons executing or
delivering or purporting to execute or deliver any such
document or paper. The undersigned parties, jointly and
severally, agree to indemnify and hold harmless Escrow
Agent from and against any and
all
liabilities, including attorney's fee, incurred in
connection with this Escrow Agreement."
No dealer, salesman or other person has
been
mrcdrom.com, inc.
authorized to give any information or to make
any representations other than those contained in this
Prospectus, and if given or made, such
information or representations must not be
3,000,000 Shares
relied upon as having been authorized by the Company. This
Prospectus does not constitute
an offer to sell or a solicitation of an offer to
buy Common Stock
any security other than the shares of Common
Stock offered by this Prospectus, or an offer to
sell or a solicitation of any offer to buy any security to any
person in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information in the Prospectus is
correct as of any time subsequent to the date of this
Prospectus.
TABLE OF CONTENTS
Page
Stock Purchase Information
Electronic Format of Prospectus
Prospectus Summary
Risk Factors
The Company
Use of Proceeds
Prospectus
Dividend Policy
Dilution
Capitalization
Selected Financial Data
Plan of Operation
Business
Management
Certain Relationships and Related Transactions
Principal Stockholders Description of Capital Stock Shares
Eligible for Future Sale Plan of Distribution
Legal Matters
Experts
Available Information
Index to Financial Statements Stock Purchase Agreement and
Signature Page (Appendix A)
Until ________________, 1997 (90 days after the date of this
Prospectus), all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be
required to deliver a Prospectus. This is in addition to the
obligation of dealer to deliver a Prospectus when acting as
underwriters.
Part II
Information Not Required in Prospectus
Item 24. The Certificate of Incorporation and the Bylaws of
the Company contain provisions providing for the
indemnification by the Company of all directors, officers
employees or agents of the Company. Such indemnification
applies only to the extent that any such person by reason of
acting in such capacity is, or is threatened to be made, a
witness in, or party to, any action, suit, arbitration,
alternative dispute resolution mechanism, investigation,
administrative hearing or other proceeding brought
by or in the right of the Company, against all
judgments, penalties, fines and amounts paid in
settlement, and all reasonable expenses incurred, in
connection therewith, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to
the best interests of the Company. The provisions provide
for indemnification to the fullest extent permitted by
applicable law.
Specifically the provisions in the Certificate of
Incorporation are as follows:
NINTH: The personal liability of the directors of
the corporation is hereby eliminated to the fullest extent
permit by the General Corporation Law of Delaware.
TENTH: The corporation shall, to the fullest extent permitted
by the General corporation Law of the State of Delaware
may indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any
other rights to which those indemnified provided for herein
shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of
such a person.
In addition, to the indemnification provided by the
Certificate of Incorporation, the Bylaws provide for
indemnification and have the ability to be amended by the
directors at any time to provide for indemnification to the
fullest extent permitted by Delaware laws. Further the
directors may cause the Company to purchase and maintain
insurance on behalf of any person who is or was a director
of officer of the corporation, or is or was serving at the
request of the Company as director or officer of another
corporation, or as its representative in a partnership,
joint venture, trust or other enterprises against any
liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the
Company would have the power to indemnify such person.
The indemnification provided in this Certificate shall
continue as to a person who has ceased to be director,
officer, employee or agent, and shall inure to the benefit of
the heirs, executors, and administrators of such person.
Item 25. Other Expenses of Issuance and Distribution
The expenses of this offering are estimated as if all
shares offered are sold as follows:
SEC Registration Fee................$ 3,636
Blue Sky fees and expenses...............$ 10,000
Transfer Agent and Registrar fees...........$ 4,000 Printing
and engraving expenses.............$ 15,000 Legal fees and
expenses.................$ 5,000 Accounting fees and
expenses..............$ 22,000 Escrow Agent
fees.................$ 1,250 Miscellaneous
....................$ 39,114
Total.................$100,000
(1) All amounts other than the SEC Registration Fee
are estimated and the total fees are not expected to exceed
$50,000 if only the minimum is raised or $100,000 if the
entire offering is raised.
Item 26. Recent Sales of Unregistered Securities
Within the past three years, the Company sold securities
without registration under the Securities Act of 1933, as
amended (the "Act") as follows:
Consideration
Exemption from
Securities Sold Name of Investor
Received Registration
6,000,000 Camelot Corporation $667,892
Section 4(2) of the Act
Camelot Corporation subscribed for 6,000,000 common shares of
the Company in exchange for $667,892 in inventory,
proprietary software, cash and other assets.
Item 27. Exhibits
1.2 Escrow Agreement by and between mrcdrom.com, inc. and
The Oaks Bank and Trust Company
3.0 Certificate of Incorporation of mrcdrom.com, inc.
3.1 Bylaws of mrcdrom.com, inc.
4.0 Specimen Stock Certificate*
5.0 Opinion of Jeanette Fitzgerald, Esq.
10.0 mrcdrom.com, inc. 1997 Stock Option Plan
10.1 mrcdrom.com, inc. 1997 Directors Stock Option Plan
10.2 Employment Agreement between mrcdrom.com, inc. and
Daniel Wettreich
10.3 Assignment of trademark mrcdrom
10.4 Lease and Bookkeeping Agreement by and between
mrcdrom.com, inc. and Camelot Corporation
24.0 Consent of Lane Gorman, Trubitt, L.L.P.,
independent
certified public accountants
24.1 Consent of Jeanette Fitzgerald, Esq. (included
in
Exhibit 5.0)
*To be filed by amendment.
Item 28. Undertakings
a. Undertaking pursuant to Rule 415.
The undersigned the Company hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement to:
(a) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(b) Reflect in the prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent post-
effective amendment thereof), which, individually
or in the aggregate, represent a fundamental change
in the information set forth in the Registration
Statement; and
(c) Include any material information with respect to
the plan of
distribution not previously disclosed in the
Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment will
be deemed
to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that
time will be deemed to be the initial bona fide offering
thereto.
(3) To remove from registration, by means of a post-
effective
amendment, any of the securities being registered that
remain unsold at the termination of the offering.
B. Undertaking in respect to indemnification.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
other agents of the Company, the Company has been informed that
in the opinion of the Securities and Exchange
Commission, such indemnification is against 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, 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, the registrant has duly caused this
Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on the ____ day of September, 1997.
mrcdrom.com, inc.
By:/s/ Daniel Wettreich
Daniel
Wettreich,
Chairman
and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of
1933, as amended this Registration Statement has been signed
by the following persons in the capacities indicated below on
the ____ day of September, 1997.
___/s/ Daniel Wettreich____________ Chairman of the
Board,
Chief Executive
Daniel Wettreich Officer
(Principal
Executive Officer)
___/s/ Robert Gregory_____________ President, Chief
Financial Officer, (Principal
Robert Gregory Financial and Accounting Officer)
__/s/ Jason Conway_______________ Director
Jason Conway
__/s/ Colin Grant_________________ Director
Colin Grant
__/s/ Jeanette Fitzgerald____________ Director
Jeanette Fitzgerald
EXHIBITS
1.2 Escrow Agreement by and between mrcdrom.com, inc. and
The Oaks Bank and Trust Company.
3.0 Certificate of Incorporation of mrcdrom.com, inc.
3.1 Bylaws of mrcdrom.com, inc.
5.0 Opinion of Jeanette Fitzgerald, Esq.
10.0 mrcdrom.com, inc. 1997 Stock Option Plan
10.1 mrcdrom.com, inc. 1997 Directors Stock Option Plan
10.2 Employment Agreement between mrcdrom.com, inc. and
Daniel Wettreich
10.3 Assignment of trademark mrcdrom
10.4 Lease and Bookkeeping Agreement by and between
mrcdrom.com, inc. and Camelot Corporation
24.0 Consent of Lane Gorman and Trubitt, L.L.P.,
independent
certified public accountants
24.1 Consent of Jeanette Fitzgerald, Esq. (included
in
Exhibit 5.0)
EXHIBIT 1.2
<PAGE>
ESCROW AGREEMENT
with
mrcdrom.com, inc.
THE UNDERSIGNED, in order to designate THE OAKS BANK & TRUST COMPANY of
4849 Greenville Ave., Dallas, Texas 75206, ("Escrow Agent"), as the Escrow
Agent of the undersigned for the purposes and upon the terms and conditions
herein set forth ("Escrow Agreement"), does hereby enter into this Escrow
Agreement with THE OAKS BANK & TRUST COMPANY on the __ day of _____, 1997.
1. THE OAKS BANK & TRUST COMPANY hereby is appointed depository for
the undersigned with respect to the subject matter of this agreement. Escrow
Agent is not required to post bond for any activity of Escrow Agent described
in this Escrow Agreement.
2. This Escrow Agreement is being executed in connection with that certain
offer for sale to subscribers ("Subscribers") of mrcdrom.com, inc. common
stock pursuant to a prospectus dated _______. Pursuant to the offer, and
concurrently with the execution and delivery hereof, undersigned have agreed
to deposit with Escrow Agent, as custodian and depository all moneys until
the minimum offering amount is satisfied collected pursuant to this offer from
Investors, and direct that same be held and disposed of by Escrow Agent as
herein provided.
3. Escrow Agent is directed and authorized to hold the deposited funds in
its safekeeping and as a permanent investment pursuant to Texas Property Code,
Sec.113.057 (a) without security therefore, in a special checking account in
The Oaks Bank & Trust Company, designated mrcdrom.com, inc. Escrow Account.
The undersigned hereby directs the Escrow Agent to immediately distribute
the deposited funds thereon to mrcdrom.com pursuant to the following escrow
requirements:
a) All funds received from Investors will be deposited into
Escrow Account at The Oaks Bank & Trust Company.
b) Escrow Agent will promptly return to each investor their
portion of the escrowed funds, without interest, if:
A) The Investor is subsequently rejected by mrcdrom.com, in
whole or in part, as set forth in the mrcdrom.com Prospectus,
mrcdrom.com will immediately notify Escrow Agent in writing of
any rejected Investor. Escrow Agent will then, upon collection
of Investor's moneys, refund the rejected amount to Investor.
B) In the event the Escrow Agent fails to receive aggregate
escrowed funds in the amount of Two-Hundred Fifty Thousand
Dollars ($250,000) on or before _______________ ("Termination
Date"), unless the offering is extended by mrcdrom.com, inc. at
its sole option, until ________________, and mrcdrom.com, inc.
will promptly notify Escrow Agent in writing of any extension of
the offering.
c) Escrow Agent will promptly deliver the escrowed funds to
mrcdrom.com without interest if:
A) The escrowed funds are in the aggregate amount of not less
than Two-Hundred Fifty Thousand Dollars ($250,000) ("Minimum
Subscription") on or before Termination Date or any extension
thereof.
B) In the case of a distribution under the proceeding
subparagraph c)A) above, mrcdrom.com may continue to deposit
checks made payable to mrcdrom.com Escrow Account into Escrow
Account and Escrow Agent will cause the Escrow Account to remain
open for a period not to exceed twenty-one days after escrow is
broken, for such purpose. During said twenty-one day period all
such deposits shall be considered funds of mrcdrom.com received
by Escrow Agent for collection and upon receipt of collected
funds on each such deposit mrcdrom.com may withdraw such
collected funds at will.
ESCROW AGENT SHALL BE PROTECTED IN RELYING ON THE SOLE WRITTEN ASSERTIONS OF
mrcdrom.com, inc. FOR EACH OF THE ITEMS IN THIS PARAGRAPH 3.
4. Escrow Agent is not a party to, nor is it bound by nor need it give
consideration to the terms or provisions of any other agreement or undertaking
between the undersigned or between any of the undersigned and other persons,
or any agreement or undertaking which may be evidenced by or disclosed by any
items included among the deposited funds, and Escrow Agent assents to and is
to give consideration only to the terms and provisions of this Escrow Agreement.
Unless it is specifically provided otherwise herein, Escrow Agent has no duty
to determine or inquire into the happening or occurrence of any event or
contingency or the performance or failure of performance of any of the
undersigned with respect to arrangements or contracts with each other or with
others, and the Escrow Agent's sole duty hereunder is to hold the deposited
funds and to dispose of and deliver the same in accordance with instructions
given to it in the form and tenor provided in this Escrow Agreement.
mrcdrom.com represents and warrants that each Investor has been advised of
this Escrow Agreement and its availability.
5. Escrow Agent shall not be responsible or liable to any person in any
manner whatever for the sufficiency, correctness, genuiness, effectiveness or
validity of any of the deposited funds or for the form or execution thereof, or
for the identity or authority of any person executing or depositing it. If any
of the undersigned are acting as agent for others, all of the undersigned
represent and warrant that such agent is authorized to make and enter into
this Escrow Agreement. This Escrow Agreement is a personal one between the
undersigned and the Escrow Agent only, and in connection therewith Escrow
Agent is authorized by each of the undersigned to rely upon the representa
tions, both actual and implied, of the undersigned and all other persons
connected with this Escrow Agreement and the deposited funds, as to marital
status, authority to execute and deliver this Escrow Agreement,
notifications, receipts, or instructions hereunder, and relationships among
persons,including persons authorized to receive delivery hereunder, and Escrow
Agent shall not be liable to any person in any manner for such reliance. The
duty of Escrow Agent hereunder shall only be to the undersigned, their
successors, and assigns and to no other person or persons whomsoever.
6. Escrow Agent may act upon any written notice, request, waiver,
consent, certificate, receipt, authorization, power of attorney or other
instrument or document, from mrcdrom.com and Escrow Agent may consider such to
be genuine and to be what it purports to be. Escrow Agent shall be liable
as a depository only and shall not be responsible for the sufficiency or
accuracy of the form, execution or validity of documents deposited hereunder, or
any description of funds or other thing therein, nor shall it be liable
in any respect on account of the identity, authority, or rights of the persons
executing or delivering or purporting to execute or deliver any such document
or paper. The undersigned parties, jointly and severally, agree to indemnify
and hold harmless Escrow Agent from and against any and all liabilities,
including attorney's fees, incurred in connection with this Escrow Agreement.
7. Whenever under the terms of this Escrow Agreement the performance date of
any provision hereof shall fall on a holiday of the Escrow Agent, the
performance thereof on the next succeeding business day of Escrow Agent shall be
deemed to be in full compliance. Whenever Escrow Agent is required by the terms
hereof to take action upon the occurrence of any event or contingency, the time
prescribed for such actions shall in all cases be a reasonable time after
ritten notice to the Escrow Agent of the happenings of such event or contingency
provided, however, that this provision shall not be deemed to limit or reduce
the time allowed Escrow Agent for action as provided in Paragraph 12 of this
Agreement.
8. Anything in this Escrow Agreement to the contrary notwithstanding, Escrow
Agent shall not be liable to any person for anything which it may do or refrain
from doing in connection with this Escrow Agreement, unless Escrow Agent is
guilty of gross negligence or willful misconduct.
9. In case of any notice of dispute or disagreement between the parties, or
among them or any other person resulting in adverse claims and demands being
made in connection with, or for, any Escrow Account funds or other funds held
pursuant to the terms of this Escrow Agreement:
a) The Escrow Agent may refuse to comply with the claims or
demands as long as such disagreement continues and in so refusing
the Escrow Agent will make no delivery or disposition of the
Escrow Account funds and the Escrow Agent shall not be liable or
become liable in any way to any person for its failure or refusal
to comply with such conflicting or adverse demands; and it shall
be entitled to continue to refrain from acting and refuse to act
until it receives authorization executed by all parties to the
disagreement; or a certified or file-stamped copy of a court
order resolving the disagreement; or a certified or file-stamped
copy of a court order resolving the disagreement or directing a
distribution of all or any portion of the Escrow Account funds.
Upon receipt of any such document the Escrow Agent shall promptly
act according to the terms thereby being relieved of any duty,
responsibility or liability arising from the adverse claims and
demands or from the terms of this Escrow Agreement.
b) The Escrow Agent shall have at its option, at any time, the
rights to file an action or bill in interpleader, or similar
action for such purpose, in a court of competent jurisdiction and
pay the Escrow Account funds and any income earned or accrued
thereon into said court. In such event, the Escrow Agent's
duties, responsibilities and liabilities with respect to the
Escrow Account fund, proceeds therefrom and this Escrow Agreement
shall terminate, provided however, that all costs and expenses,
including attorney's fees, which the Escrow Agent incurs in any
such action shall be the responsibility of and paid by
mrcdrom.com.
10. The death, disability, bankruptcy, insolvency or absence of any of the
undersigned shall not affect or prevent performance or exercise by Escrow Agent
of its obligations and rights hereunder.
11. Escrow Agent may from time to time advise with legal counsel of its own
choosing in the event of any disagreement, controversy, question or doubt as to
the construction of any of the provisions hereof or its duties and Escrow Agent
will be protected in acting in good faith in accordance with the opinion of such
counsel.
12.Escrow Agent will receive from mrcdrom.com prior to distribution of the
deposited funds and prior to termination of this Escrow Agreement, fees and
charges for services of Escrow Agent hereunder which are agreed to be $1,250
and additional amounts sufficient to reasonably compensate Escrow Agent
for any additional services, fees or charges imposed upon Escrow Agent as
a result of additional responsibilities in connection with or arising on
account of the deposits into the Escrow Account, the holding and
disposition thereof pursuant to this Escrow Agreement, or as a result of
litigation or threat of litigation. mrcdrom.com agrees to reimburse Escrow
Agent for reasonable attorney's fees, disbursement expenses,costs, charges and
damages, if any, suffered or incurred by Escrow Agent in the performance
of the duties and responsibilities of Escrow Agent pursuant to this
Escrow Agreement.
13.The full amount of the deposited funds, less any fees and costs as herein
described, shall be paid to mrcdrom.com by the Escrow Agent pursuant to this
Escrow Agreement. If additional moneys are added to the Escrow Account after
the escrow is broken, Escrow Agent shall not be required to disburse such funds
except pursuant to the provisions of this Escrow Agreement. Notwithstanding
anything to the contrary contained herein, Escrow Agent is under no duty
or responsibility to enforce collection of any checks delivered to Escrow Agent
hereunder.
14. During the term of the escrow, the deposited Escrow Account funds hereunder
shall, by order of mrcdrom.com, be deposited in a non-interest bearing account
with the Oaks Bank and Trust Company pursuant to paragraph 3 above.
15. Escrow Agent reserves the right to resign hereunder, upon ten (10) days
prior written notice to mrcdrom.com. On and after the date of the written
notice of resignation, Escrow Agent is not required to accept any additional
deposits from Investors or anyone else for the Escrow Account. In the event
of said resignation, and prior to the effective date thereof, mrcdrom.com, by
written notice to Escrow Agent, shall designate a successor escrow agent. If
mrcdrom.com fails to designate such a successor escrow agent within such time
period, the Escrow Agent may deliver any undisbursed funds into the registry
of any court having jurisdiction at the expense of mrcdrom.com.
16. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Texas and the laws of the United States applicable to
transactions in Texas.
17. THE OAKS BANK & TRUST COMPANY HAS NOT PARTICIPATED IN THE PLANNING
OR STRUCTURING OF THIS TRANSACTION AND ASSUMES NO RESPONSBILITY FOR ADVERSE
TAX OR OTHER LEGAL CONSEQUENCES AFFECTING THE UNDERSIGNED, AN INVESTOR OR ANY
OTHER PERSON WHATSOEVER, EACH OR WHOM IS URGED TO DIRECT ALL SUCH QUESTIONS TO
COMPETENT LEGAL COUNSEL OF ANY SUCH PERSON'S CHOICE.
18. This Agreement may be executed in several counterparts, each of which shall
be deemed an original, and such counterparts shall constitute and be one and the
same instrument.
mrcdrom.com, inc.
By:_________________________________
Its:_________________________________
THE OAKS BANK & TRUST COMPANY of Dallas, Texas agrees to accept funds as
Escrow Agent subject to the terms and conditions of this Escrow Agreement, this
_____ day of ____________________, 1997.
THE OAKS BANK & TRUST COMPANY
By:_________________________________
Its:_________________________________
<PAGE>
EXHIBIT 3.0<PAGE>
ARTICLES OF AMENDMENT for mrcdrom.com, inc.
The Undersigned, a duly elected officer of mrcdrom.com, inc.
(the "Company") hereby affirms the following are true and the
requirements of the laws of the State of Delaware have been
satisfied as follows:
1. The sole shareholder, owning 100% of the outstanding
shares
has approved the below listed amendment as of April 15,
1997.
2. The board of directors of the Company has approved the
below
listed amendment as of April 5, 1997.
3. An Article Twelfth shall be added as follows:
TWELFTH: The Corporation specifically opts
out of
Section 203
of the Delaware Corporations Code.
This amendment shall be immediately effective upon
the filing with the Delaware Secretary of State.
Signed August 14, 1997
________________________
Robert Gregory,
President
BYLAWS
OF
MRCDROM.COM, INC..
(a Delaware corporation) ____________________
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK.
Certificates
representing stock in the corporation shall be signed by, or
in the name of, the corporation by the Chairman or ViceChairman
of the Board of Directors, if any, or by the
President or a VicePresident and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant
Secretary of the corporation. Any or all the signatures on
any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate
shall have ceased to be such officer,
transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class
of stock, and whenever the corporation shall issue
any shares of its stock as partly paid stock, the
certificates representing shares of any such class or
series or of any such partly paid stock shall set forth
thereon the statements prescribed by the General Corporation Law.
Any restrictions on the transfer or
registration or transfer of any shares of stock of any
class or series shall be noted conspicuously on
the certificate representing such shares.
The corporation may issue a new certificate of
stock uncertificated shares in place of any certificate
theretofore issued by it, alleged to have been lost,
stolen, or destroyed, and the Board of Directors may
require the owner of the lost, stolen, or destroyed
certificate, or his legal representative, to give
the corporation a
bond sufficient to indemnify the
corporation against any claim that may be made against
it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of any such new
certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any
conditions imposed by the General Corporation Law, the Board of
Directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series
of the stock of the corporation shall be
uncertificated shares. Within a reasonable time after the
issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any
written notice prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation
may, but shall not be required to, issue fractions of a
share. If the corporation does not issue fractions of a
share, it shall (1)
arrange for the disposition of fractional interests by
those entitled thereto, (2) pay in cash the fair value of
fractions of a share as of the time when those entitled to
receive such fractions are determined, or (3) issue
scrip or warrants in registered form (either
represented by a certificate or
uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a
full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a
fractional share or an uncertificated
fractional share shall, but scrip or warrants shall not
unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the
event of liquidation. The Board of Directors may cause
scrip or warrants to be issued subject to the conditions that
they shall become void if not exchanged for
certificates representing the full shares or
uncertificated full shares before a specified date, or
subject to the conditions that the shares for which scrip
or warrants are exchangeable may be sold by the
corporation and the proceeds thereof distributed to the
holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with
provisions restricting the transfer or registration of
transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the
corporation shall be made only on the stock ledger of the
corporation by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with
a transfer agent or a registrar, if any, and, in the case of
shares represented
by certificates, on surrender of the
certificate or certificates for such shares of stock
properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the
corporation may determine the stockholders entitled to notice
of or vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be
more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of
Directors, the record date for determining
a stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business
on the day next preceding then which notice is given, or, if
notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A
determination of record entitled to notice of or to vote at a
meeting stockholders shall apply to any adjournment of the
meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting. In order
that the corporation may determine the
stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may
fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more
than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of
Directors.
If no record date has been fixed by the Board of Directors, the
record date for determining the stockholders entitled to
consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is
required by the General Corporation Law, shall be
the first date on which a signed written consent setting
forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its
principal place of business, or an officer or agent of the
corporation having custody of the book in which
proceedings of meetings of
stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If
no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by
the General Corporation Law, the record date
for determining
stockholders entitled to consent to
corporate action in writing without a meeting shall be at the
close of business on the day on which the Board of
Directors adopts the resolution taking such prior action. In
order that the corporation may determine the
stockholders entitled to receive payment of any
dividend or other distribution or
allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion,
or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted, and
which record date shall be not more than sixty days prior
to such action. If no record date is fixed, the record date
for determining stockholders for any such purpose shall be
at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. 6.
MEANING OF CERTAIN TERMS. As used herein in
respect of the right to notice of a meeting of
stockholders or a waiver thereof or to participate or vote
there at or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares"
or "share of stock" or "shares of stock" or "stockholder"
or "stockholders" refers to an outstanding share or shares
of stock and to a holder or holders of
record of outstanding shares of stock when the corporation is
authorized to issue only one class of shares of stock, and
said reference is also intended to include any
outstanding share or shares of stock and any holder or
holders of record of outstanding shares of stock of any
class upon which or upon whom the certificate of
incorporation confers such rights where there are two or
more classes or series of shares of stock or upon which or upon
whom the General Corporation Law confers such rights
notwithstanding that the
certificate of
incorporation may provide for more than
one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder;
provided, however, that no such right shall vest in the event
of an increase or a decrease in the authorized number of
shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate
of incorporation, except as any provision of law may otherwise
require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date
and at the time fixed, from time to time, by the
directors, provided, that the
first annual
meeting shall be held on a date within
thirteen months after the organization of the corporation,
and each successive annual meeting shall be held on a date
within
thirteen months after the date of the preceding annual meeting.
A special meeting shall be held on the date and at the time fixed
by the directors.
- PLACE. Annual meetings and special meetings
shall be held at
such place,
within or without the State of Delaware, as
the directors may, from time to time, fix. Whenever
the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in
the State of Delaware.
- CALL. Annual meetings and special meetings may be called
by the directors or by any officer instructed by the directors to
call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all
meetings shall be given, stating the place, date, and hour of the
meeting and stating the place within the city or other
municipality or community at which the list of stockholders of
the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of
directors and
for the transaction of other business which may properly come
before the meeting, and shall (if any other action could be
taken at a special meeting is to be taken at such annual
meeting) state the purposes or purposes. The notice of a
special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any
meeting shall also include, or be accompanied by, any additional
statements, information, or documents prescribed by the General
Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be
given, personally or by mail, not less than ten days nor more
than sixty days before the date of the meeting, unless the lapse
of the prescribed period of time shall have been waived, and
directed to each stockholder at his record address or at such
other address which he may have furnished by request in writing
to the Secretary of the corporation. Notice by mail shall be
deemed to be given when deposited, with postage thereon prepaid,
in the United States Mail. If a meeting is adjourned to another
time,
not more than thirty days hence, and/or place is made at the
meeting, it shall not be necessary to give notice of the
adjourned meeting unless the directors, after adjournment, fix a
new record date of the adjourned meeting. Notice need not be
given to any stockholder who submits a written waiver of notice
signed by
him before or after the time stated therein. Attendance
of a stockholder at a meeting of stockholders shall constitute
a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Neither
the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified
in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten
days before every meeting of stockholders, a complete list of the
stockholders, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting either at a place within the city
or other municipality or community where the meeting is
to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall be produced and kept at
the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is
present. The stock ledger shall
be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or
the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meeting of the stockholders
shall be
presided over by one of the following officers in the
order of seniority and if present and acting - the Chairman of
the Board, if any, the Vice-Chairman of the Board, if any, the
President, a Vice President, or, if none of the
foregoing is in office and present and acting, by a
chairman to be chosen by the stockholders. The Secretary
of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present the
Chairman of the meeting shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize
another person or persons to act for him by proxy in all matters
in which a stockholder is entitle to participate, whether by
waiving notice of any meeting, voting or participating at a
meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his
attorneyin-fact. No proxy shall be voted or acted upon after
three years from its date unless such proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and, if, and only as long as, it is
coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable power.
A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock
itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of
election to act at the meeting or any adjournment thereof. If
an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not,
appoint one or more inspectors. In
case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or
at the meeting by the person plurality of the votes of the shares
present in person or represented by proxy at the meeting and
entitled to vote
on the election of directors. Any other action shall be
authorized by a majority of the votes cast except where the
General Corporation Law prescribes a different percentage of
votes and/or a different exercise
of voting power, and except as may be otherwise prescribed by
the provisions of the certificate of incorporation and these
Bylaws. In the election of directors, and for any other action,
voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any
action required by the General Corporation Law to be taken at any
annual or special meeting of stockholders, or any action which
may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action
without a meeting by
less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the
provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of
the corporation shall be managed by or under the directions of
the Board of Directors of the corporation. The
Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase
"whole board" herein refers to the total number of directors
which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the
State of Delaware. The initial Board of Directors shall consists
of one person. Thereafter, the number of directors constituting
the whole board shall be at least one. Subject to the foregoing
limitation and except for the first Board of Directors, such
number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed,
the number shall be one. The number of directors may be
increased or decreased by action of the stockholders or of the
directors.
3. ELECTION AND TERM. The first Board of Directors,
unless the members thereof shall have been named in
the
certificate of incorporation, shall be elected by the
incorporator or incorporators and shall hold office until
the first annual meeting of stockholders and until their
successors are elected and qualified or until their earlier
resignation or removal. Any director may resign at any time
upon written notice to the corporation. Thereafter, directors
who are elected at an annual meeting of stockholders, and
directors who are elected. Except as
the General Corporation Law may otherwise require, in the
interim to fill vacancies and newly
created
directorships,shall hold office until the next annual
meeting of stockholders and until their successors are elected
and qualified or until their earlier resignation or removal.
In the interim between annual meetings of stockholders or of
special meetings of stockholders called for the election of
directors and/or for the removal of one or more directors and
for the filling of any vacancy in that connection, newly
created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the
removal of directors for cause or without cause, may
be filled by the vote of a
majority of the remaining directors then in office, although
less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board
shall fix, except that the first meeting of a newly elected Board
shall be held as soon after its election as the directors may
conveniently assemble.
- PLACE. Meetings shall be held at such place
within or without the State of Delaware as shall be fixed by the
Board.
- CALL. No call shall be required for regular
meetings for which the time and place have been fixed. Special
meetings may be called by or at the direction of the Chairman of
the Board, if any, the Vice-Chairman of the Board, if any, of the
President, or of a majority of the
directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall
be required for regular meetings for which the time and place
have been fixed. Written, oral, or any other mode of notice of
the time and place shall be given for special meetings in
sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any
member of a committee of directors who submits a written waiver
of notice signed by him before or after the time stated therein.
Attendance of any such person at a meeting shall constitute a
waiver of notice of such meeting, except when he attends a
meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special
meeting of the directors need be specified in any written waiver
of notice.
- QUORUM AND ACTION. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents
such majority, whereupon a majority of the directors in office
shall constitute a quorum,
provided, that such majority shall constitute at least onethird
of the whole Board. A majority of the directors present,
whether or not a quorum is present, may adjourn
a meeting to another time and place. Except as herein
otherwise provided, and except as otherwise provided by the
General Corporation Law, the vote of the majority of the
directors present at a meeting at which a quorum is present shall
be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions
of the General Corporation Law and these Bylaws which govern a
meeting of directors held to fill vacancies and newly created
directorships in the Board or action of disinterested directors.
Any member or members of the Board of Director or of any
committee designated by the Board, may participate in a meeting
of the Board, or any such committee, as the case may be, by means
of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear
each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board,
if any and if present and acting, shall preside at all meetings.
Otherwise, the Vice-Chairman of the Board, if any and if present
and acting, or the President, if present and acting, or any other
director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may
otherwise be
provided by the General Corporation Law, any director or the
entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote
at an election of directors.
6. COMMITTEES. The Board of Directors may, by
resolution
passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or
more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or
disqualification of any member of any such committee or
committees, the member of members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any
such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board shall have and
may exercise the powers and authority of the Board of Directors
in the management of the business and affairs of the corporation
with the exception of any authority the delegation of which is
prohibited by Section 141 of the General Corporation Law, and
may authorize the seal of the corporation to be affixed to all
papers which may require it.
7. WRITTEN ACTION. Any action required or permitted
to be
taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting if all members of
the Board or committee, as
the case may be, consent thereto in
writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a
President, a Secretary, a Treasurer, and, if deemed necessary,
expedient, or desirable by the Board of Directors, a Chairman of
the Board, a Vice-Chairman of
the Board, an Executive VicePresident, one or more
other VicePresidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and
such other officers with such titles as the resolution of
the Board of Directors choosing them
shall designate. Except as may
otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or
Vice-Chairman of the Board, if any, need be a director. Any
number of offices may be held by the same person, as the
directors may determine.
Unless otherwise provided in the resolution choosing him,
each officer shall be chosen for a term which shall continue
until the meeting of the Board of
Directors following the next
annual meeting of stockholders and until his successor shall have
been chosen and qualified.
All officers of the corporation shall have such
authority and perform such duties in the management and
operation of the corporation as shall be prescribed in
the resolutions of the Board
of Directors designating and choosing such officers and
prescribing their authority and duties, and shall have
such additional authority and duties as are incident to their
office except to the extent that such resolutions may be
inconsistent therewith. The Secretary of an Assistant
Secretary of the corporation shall record all of the
proceedings of all meetings and actions in writing of
stockholders, directors, and committees of directors, and shall
exercise such additional authority and perform such additional
duties as the Board shall assign to him. Any officer may be
removed, with or without cause, by the
Board of Directors. Any vacancy in any office may be filled
by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the
Board of Directors shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall
be subject to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of
incorporation and the provisions of the General Corporation Law,
the power to amend, alter, or repeal these Bylaws and to adopt
new Bylaws may be exercised by the Board of Directors or by
the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true and
correct copy of the Bylaws of MRCDROM.COM, INC.., a Delaware
corporation, as in effect on the date hereof.
WITNESS my hand and the seal of the corporation.
Dated:
_____________________________________ Secretary of
mrcdrom.com,inc.
(SEAL)
City of Dover, County of Kent March ___, 1997<PAGE>
EXHIBIT 5.0<PAGE>
August 25, 1997
mrcdrom.com, inc.
2415 Midway, Suite 115
Carrollton, Texas 75006
Dear Sir/Madam:
At your request, I have examined the Registration Statement S-1
that you have filed with the Securities and Exchange Commission
in connection with the registration under the Securities Act of
1933, as amended, of up to 3,000,000 shares of the Common Stock,
$0.01 par value, of mrcdrom.com, inc. (the "Shares"). I am
familiar with the proceedings taken and to be taken by you in
connection with the authorization, issuance and sale of the
Shares.
Based upon the foregoing, it is my opinion that the Shares, upon
the issuance or transfer and sale thereof in the manner referred
to in said Registration Statement, will constitute legally and
validly issued and outstanding shares of Common Stock of
mrcdrom.com, inc., fully paid and nonassessable.
I consent to the use of this opinion as an exhibit to said
Registration Statement and to the use of my name in said
Registration Statement and to references to my name in the
prospectus incorporated therein.
Sincerely,
Jeanette P. Fitzgerald, Esq.
Attorney-At-Law<PAGE>
EXHIBIT 10.0<PAGE>
MRCDROM.COM, inc.
1997 Stock Option Incentive Plan
1. PURPOSES. The principal purposes of
the 1997 Stock Option
Incentive Plan (the "Plan") are to provide long-term incentives
in the form of stock options to those persons with significant
responsibility for the success and growth of mrcdrom.com, inc.
and its subsidiaries, affiliates, divisions and other
businesses in which it has a substantial financial interest,
to assist the Company in attracting and retaining key employees
on a competitive basis, and to associate the interests of such
employees with those of mrcdrom.com, inc. `s shareholders.
2. DEFINITIONS. Unless the context clearly
indicates otherwise, the
following terms, when used in this Plan, shall have the meanings
set forth below:
(a) "Common Stock" or "Stock" means mrcdrom.com
Common Stock, par value $.001 per share.
(b) "Committee" means the Compensation Committee of
the Board of Directors of mrcdrom.com, as appointed from
time to time by the Board, consisting of two or more
outside, disinterested members of the Board.
(c) "Company" means mrcdrom.com, its
divisions, direct and
indirect subsidiaries, affiliates and other businesses with
which it has a substantial financial interest.
(d) "Fair Market Value" means an amount equal to the
mean of the high and low sales prices for Common Stock
as reported on the composite tape for securities listed
on the NASDAQ Exchange, on the date in question
or if not quoted on NASDAQ or other exchange
as determined by the Committee(or, if no sales of Stock were
made on said Exchange on such date, on the next preceding
day on which sales were made on such Exchange), carried out
to four decimal places.
(e) "Grant Date" means the date an Option
is granted under the Plan.
The date of grant of an Option shall be the date as of which
the Committee determines that such Option shall become
effective.
(f) "Option" or "Stock Option" means a right granted
under the Plan to purchase a share of mrcdrom.com Common
Stock at a fixed price for a specified period of time.
(g) "Option Exercise Price" means the price at which
a share of Common Stock covered by an Option granted
hereunder may be purchased.
(h) "Optionee" means an eligible employee of the
Company who has
received a Stock Option granted under the Plan. (i)
"mrcdrom.com" means mrcdrom.com,
inc., a Delaware corporation.
(j) "Retirement" means termination
from employment by the Company for reasons other than
death after the employee has fulfilled the requirements for
either a normal, early or disability retirement pension, as
defined under the Company's retirement program applicable to
such employee at the date of termination of employment.
(k) "Totally Disabled" shall have the meaning set
forth in the Company's long-term disability program
applicable to U.S.
salaried employees.
3. ADMINISTRATION OF THE PLAN. The Plan
shall be administered by
the Committee, which shall have all the powers vested in it by
the terms of the Plan, including, but not limited to, authority
to determine the persons to be granted Options under the Plan,
to determine the size and applicable terms and conditions of
grants to be
made to such persons, to determine the time when
Options will be granted and any conditions which must be
satisfied by employees before an award is made, to amend the
exercise price of previously granted options under the plan, to
determine when Options may be exercised and whether they may
be deferred, to determine whether an award should be reduced
or eliminated, and to authorize grants to eligible persons.
The Committee shall have full power and
authority to administer and
interpret the Plan and to adopt such rules, regulations,
agreements, guidelines and
instruments for the administration of the Plan as the
Committee deems necessary or advisable. The Committee's
interpretations of the Plan, and all actions taken and
determinations made by the Committee concerning any matter
arising under or with respect to the Plan or any Options
granted hereunder shall be final, binding and conclusive on all
parties concerned, including, without limitation, Optionees, the
Company, its employees, mrcdrom.com and its shareholders.
4. ELIGIBILITY. All Company employees on a
Grant Date are eligible
to be granted Options under the Plan. Notwithstanding the
foregoing, no employee may be granted Options which, if
exercised in the aggregate, would result in that employee
receiving more than 10% of the maximum number of shares
available for issuance under the Plan unless their exercise price
is equivalent to 110% of the Fair Market Value of the Common
Stock on the date of Grant or as later amended by the Committee.
5. AWARDS. Stock Options will be granted in amounts
determined from time to time by the Committee. All Options
granted under the Plan shall be evidenced by agreements
containing such
terms and conditions (not inconsistent with the
Plan) as the Committee may determine, subject to the following:
(a) Option Exercise Price. The Option Exercise Price
shall be equal to the Fair Market Value of a share of
Common Stock on the Grant Date unless the Optionee shall be
granted more than 10% of the maximum number of shares
available for issuance under the Plan in which case the
exercise price shall be equivalent to 110% of the Fair
Market Value of the Common Stock on the date of Grant or as
later amended by the Committee..
(b) Term. Unless terminated earlier in accordance
with their
terms, Options will expire on the 10th year
after the date of their grant.
(c) Exercisability. Options shall vest and become
exercisable
on terms as set out in the option grant. Once
exercisable, Options may be exercised until the
expiration of their term. Fractional Options may not
be exercised and no fractional shares shall be
purchasable or deliverable under the Plan.
(d) Termination of Employment, Death, Total
Disability or
Retirement. All options shall automatically
expire upon, and no Option may be
exercised after, the termination of the Optionee's
employment with the Company,
provided, however, that if
such termination occurs by reason of the Optionee's
death, Total Disability or Retirement, then
the Optionee's designated beneficiary (or, if none, his or
her legal representative), in the event of death, or the
Optionee, in the event of Retirement or Total Disability,
shall be vested with and have the right to exercise that
portion of the Options which is in proportion
to the Optionee's active service during the vesting
period. Such Options may be exercised during the
remaining term of the Options.
(e) Buy-out of Option Gains. The
Committee shall have the
right, at any time, in its sole discretion and without the
consent of the holder thereof, to cancel a Stock Option and
pay to the holder the excess of the Fair Market Valued
of the shares
covered by such Option over the Option Exercise Price for
such Option as of the date the Committee provides written
notice of its intention to exercise this right. Payments
of buy-out amounts may be made in cash, in shares of Common
Stock, or partly in cash and partly in Common Stock, as
the Committee deems advisable. Payments of any such buy-out
amounts shall be made net of any applicable foreign, federal
(including FICA), state and local withholding taxes.
(f) Misconduct. In the event that an Optionee has
(i) used for profit or disclosed to unauthorized persons,
confidential information or trade secrets of the Company,
(ii) breached any contract with or violated any fiduciary
obligation to the Company, (iii) engaged in unlawful
trading in the securities of mrcdrom.com or of another
company based on information gained as a result of that
Optionee's
employment with the Company, or (iv) committed a felony
or other serious crime, then that Optionee may, at the
option of the Company, forfeit all rights to any
unexercised Options granted under the Plan and in such
event all of that Optionee's outstanding Options shall
automatically terminate and lapse.
(g) Assignment or Transfer. Unless the
Committee shall specifically determine otherwise, during
an Optionee's lifetime, his or her Options shall not be
transferable and shall only be exercisable by the Optionee
and any purported transfer shall be null and void. No
Option, nor any rights or interests therein, shall be
assignable or transferable except by will or the laws of
descent and distribution.
6. FOREIGN EMPLOYEES. Without amending the
Plan, the Committee may grant Options to eligible employees who
are foreign nationals on such terms and conditions different from
those specified in this Plan as may in the judgment of
the Committee be
necessary or desirable to foster and promote achievement
of the purposes of the Plan, and, in
furtherance, of such purposes the Committee may make such
modifications, amendments, procedures, subplans and the like
as may be necessary or advisable to comply with provisions of
laws in other countries in which the Company operates or has
employees.
7. EXERCISING OPTIONS. To exercise an
Option, the holder thereof
shall give notice of his or her exercise to
mrcdrom.com or its agent, specifying the number
of shares of Common Stock to be purchased and identifying
the specific Options that are being
exercised. From time to time the Committee may establish
procedures relating to effecting such exercises. An Option is
exercisable during an Optionee's lifetime only by the Optionee,
provided, however, that in the event the Optionee is
incapacitated and unable to exercise Options, such Options may be
exercised by such Optionee's legal guardian, legal
representative, fiduciary or other representative whom the
Committee deems appropriate based on applicable facts and
circumstances.
8. PAYMENT OF OPTION EXERCISE PRICE. The
Option Exercise Price for the Options being exercised must be
paid in full at time of issuance of the Common Stock. Payment may
be by means of cash, or at the sole discretion of the Company,
marketable securities or a note. In addition, in order to
enable the Company to meet any applicable foreign, federal
(including FICA), state and local withholding tax requirements,
an Optionee shall also be required to pay the amount of tax
to be
withheld at the time of exercise.
No share of Stock will be delivered to any Optionee until all
such amounts have been paid. The obligation of mrcdrom.com to
deliver cash or Common Stock shall be subject to currency or
other restrictions imposed by any government.
9. SHARES OF STOCK SUBJECT TO THE PLAN.
The shares that may be
delivered or purchased under the Plan shall not exceed an
aggregate of 500,000 shares of Common Stock, subject to any
adjustments which may be made pursuant to Section 10 hereof.
Shares of Stock used for purposes of the Plan may be either
shares of authorized but unissued Common Stock or treasury
shares or both. Stock covered by Options which have terminated
or expired prior to exercise or have been surrendered or
canceled shall be available for further option hereunder.
10. DILUTION AND OTHER ADJUSTMENTS. In the event of any
change in the outstanding shares of Common Stock by reason of
any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other
similar corporate change, such equitable adjustments may be made
in the Plan and the Options granted hereunder as the Committee
determines are necessary or appropriate, including, if
necessary, an adjustment in the number of shares and Option
Exercise Prices per share applicable to Options then
outstanding and in the number of shares which are reserved
for issuance under the Plan. Any such adjustment shall be
conclusive and binding for all purposes of the Plan.
11. REGISTRATION, LISTING AND QUALIFICATION
OF SHARES. Each Option
shall be subject to the requirement that if at any time the
registration, listing or qualification of the shares covered
thereby upon any securities exchange or under any foreign,
federal, state or local law, or the consent or approval of
any governmental regulatory body, is determined to be
necessary or desirable as a condition of, or in connection
with, the granting of such Option or the purchase of shares
thereunder, no such Option may be delivered or exercised, as
the case may be, unless and until such registration, listing,
qualification, consent or approval shall have been effected or
obtained free of any condition not acceptable to the Committee.
Any person exercising an Option shall make such representations
and agreements and furnish such information as the Committee may
request to assure compliance with
the foregoing or any other applicable legal requirements.
12. NO RIGHTS TO OPTIONS OR EMPLOYMENT. No employee or
other person
shall have any claim or right to be granted an Option under
the Plan. Having received an Option under the Plan shall not
give an employee any right to receive any other grant under the
Plan. An Optionee shall have no rights to or interest in any
Option except as set forth herein or in the terms and
conditions of the Options. Neither the Plan nor any action take
hereunder shall be construed as giving any employee any
right to be retained in the employ of the Company.
13. RIGHTS AS SHAREHOLDER. An Optionee under the Plan
shall have no
rights as a holder of Common Stock with respect to Options
granted hereunder, unless and until certificates for shares of
Common Stock are issued to such Optionee.
14. COSTS AND EXPENSES. Except as provided
in Sections 5 and 8
hereof with respect to taxes, the costs and expenses of
administering the Plan shall be borne by mrcdrom.com and shall
not be charged to any grant nor to any employee receiving a
grant.
15. PLAN UNFUNDED. The Plan shall be unfunded. Except for
reserving a sufficient number of authorized shares to the extent
required by law to meet the requirements of the Plan,
mrcdrom.com shall not be required to establish any special or
separate fund or to make any other segregation of assets to
assure the delivery of mrcdrom.com Common Stock upon exercise of
any Option granted under the Plan.
16. AMENDMENTS. The Committee may at any time terminate or
from time to time amend the Plan in whole or in part, but no
such action shall adversely affect any rights or obligations
with respect to any awards theretofore made under the Plan.
With the consent of affected Optionees, the Committee may amend
outstanding agreements evidencing awards under the Plan in a
manner not inconsistent with the terms of the Plan.
17. OTHER ACTIONS. This Plan shall not
restrict the authority of the Committee or of mrcdrom.com, for
proper corporate purposes, to
grant or assume stock options, other than under the Plan, to or
with respect to any employee or other
person.
18. GOVERNING LAW. This Plan shall be
governed by and construed in
accordance with the laws of the State of Texas.
19. EFFECTIVENESS OF THE PLAN. This Plan
shall become effective on
March 28, 1997 subject to approval by shareholders at the
next annual meeting.<PAGE>
EXHIBIT 10.1<PAGE>
MRCDROM.COM, inc.
1997 Directors' Stock Option Plan
1. PURPOSES. The principal purposes of
the 1997 Stock Option
Incentive Plan (the "Plan") are to provide long-term incentives
in the form of stock options to those persons with significant
responsibility for the success and growth of mrcdrom.com, inc.
and its subsidiaries, affiliates, divisions and other
businesses in which it has a substantial financial interest,
to assist the Company in attracting and retaining key employees
on a competitive basis, and to associate the interests of such
employees with those of mrcdrom.com, inc. `s shareholders.
2. DEFINITIONS. Unless the context clearly
indicates otherwise, the
following terms, when used in this Plan, shall have the meanings
set forth below:
(a) "Common Stock" or "Stock" means mrcdrom.com
Common Stock, par value $.001 per share.
(b) "Committee" means the Compensation Committee of
the Board of Directors of mrcdrom.com, as appointed from
time to time by the Board, consisting of two or more members
of the Board who are also employees of the Company.
(c) "Company" means mrcdrom.com, its divisions,
direct and indirect subsidiaries, affiliates and other
businesses with which it has a substantial financial
interest.
(d) "Fair Market Value" means an amount equal to the
mean of the high and low sales prices for Common Stock
as reported on the composite tape for securities listed
on the NASDAQ Exchange, on the date in question
or if not quoted on NASDAQ or other exchange
as determined by the Committee(or, if no sales of Stock were
made on said Exchange on such date, on the next preceding
day on which sales were made on such Exchange), carried out
to four decimal places.
(e) "Grant Date" means the date an Option
is granted under the Plan.
The date of grant of an Option shall be the date as of which
the Committee determines that such Option shall become
effective.
(f) "Option" or "Stock Option" means a right granted
under the Plan to purchase a share of mrcdrom.com Common
Stock at a fixed
price for a specified period of time.
(g) "Option Exercise Price" means the price at which
a share of Common Stock covered by an Option granted
hereunder may be purchased.
(h) "Optionee" means an eligible employee of the
Company who has
received a Stock Option granted under the Plan. (i)
"mrcdrom.com" means mrcdrom.com,
inc., a Delaware corporation.
(j) "Retirement" means termination
from employment by the Company for reasons other than
death after the employee has fulfilled the requirements for
either a normal, early or disability retirement pension, as
defined under the Company's retirement program applicable to
such employee at the date of termination of employment.
(k) "Totally Disabled" shall have the meaning set
forth in the Company's long-term disability program
applicable to U.S.
salaried employees.
3. ADMINISTRATION OF THE PLAN. The Plan
shall be administered by
the Committee, which shall have all the powers vested in it by
the terms of the Plan, including, but not limited to, authority
to determine the persons to be granted Options under the Plan,
to determine the size and applicable terms and conditions of
grants to be
made to such persons, to determine the time when
Options will be granted and any conditions which must be
satisfied by employees before an award is made, to amend the
exercise price of previously granted options under the plan, to
determine when Options may be exercised and whether they may
be deferred, to determine whether an award should be reduced
or eliminated, and to authorize grants to eligible persons.
The Committee shall have full power and authority to
administer and interpret the Plan
and to adopt such rules, regulations, agreements, guidelines
and instruments for the administration
of the Plan as the Committee deems necessary or advisable.
The Committee's interpretations of the
Plan, and all actions taken and determinations made by the
Committee concerning any matter arising under or with respect
to the Plan or any Options granted hereunder shall be final,
binding and conclusive on all parties concerned,
including,
without limitation, Optionees, the Company, its employees,
mrcdrom.com and its shareholders.
4. ELIGIBILITY. All Company non-employee
directors for the initial
grant and who have served at least six-months for anny additional
grants on a Grant Date are eligible to be granted Options
under the Plan. Notwithstanding the foregoing, no employee may
be granted Options which, if exercised in the aggregate, would
result in that employee receiving more than 10% of the maximum
number of shares available for issuance under the Plan unless
their exercise price is equivalent to 110% of the Fair Market
Value of the Common Stock on the date of Grant or as later
amended by the Committee.
5. AWARDS. Stock Options will be granted
annually in March of each
year in amounts of 1,000 after the initial 5,000 grant or as
determined from time to time by the Committee. All Options
granted under the Plan shall be evidenced by agreements
containing such terms and conditions (not inconsistent with the
Plan) as the Committee may determine, subject to the following:
(a) Option Exercise Price. The Option Exercise Price
shall be equal to the Fair Market Value of a share of
Common Stock on the Grant Date unless the Optionee shall be
granted more than 10% of the maximum number of shares
available for issuance under the Plan in which case the
exercise price shall be equivalent to 110% of the Fair
Market Value of the Common Stock on the date of Grant or as
later amended by the Committee..
(b) Term. Unless terminated earlier in
accordance with their
terms, Options will expire on the 10th year
after the date of their grant.
(c) Exercisability. Options shall vest
and become exercisable
on terms as set out in the option grant. Once
exercisable, Options may be exercised until the
expiration of their term. Fractional Options may not
be exercised and no fractional shares shall be
purchasable or deliverable under the Plan.
(d) Termination of Employment, Death,
Total Disability or
Retirement. All options shall automatically expire upon,
and no Option may be
exercised after, the termination of the Optionee's
employment with the Company,
provided, however, that if
such termination occurs by reason of the Optionee's
death, Total Disability or Retirement, then
the Optionee's designated beneficiary (or, if none, his or
her legal representative), in the event of death, or the
Optionee, in the event of Retirement or Total Disability,
shall be vested with and have the right to exercise that
portion of the Options which is in proportion to the
Optionee's active service during the vesting period.
Such Options may be exercised during the remaining term of
the Options.
(e) Buy-out of Option Gains. The
Committee shall have the
right, at any time, in its sole discretion and without the
consent of the holder thereof, to cancel a Stock Option and
pay to the holder the excess of the Fair Market Valued of
the shares covered by such Option over the Option Exercise
Price for such Option as of the date the Committee
provides written notice of its intention to exercise this
right. Payments of buy-out amounts may be made in cash, in
shares of Common Stock, or partly in cash and partly in
Common Stock, as the Committee deems advisable. Payments
of any such buy-out amounts shall be made net of any
applicable foreign, federal (including FICA), state and
local withholding taxes.
(f) Misconduct. In the event that an Optionee has
(i) used for profit or disclosed to unauthorized persons,
confidential information
or trade secrets of the Company, (ii) breached any contract
with or violated any fiduciary obligation to the Company,
(iii) engaged in unlawful trading in the securities of
mrcdrom.com or of another company based on information
gained as a result of that Optionee's employment with the
Company, or (iv) committed a felony or other serious
crime, then that Optionee may, at the option of the
Company, forfeit all rights to any unexercised Options
granted under the Plan and in such event all of that
Optionee's outstanding Options shall automatically
terminate and lapse.
(g) Assignment or Transfer. Unless the
Committee shall specifically determine otherwise, during
an Optionee's lifetime, his or her Options shall not be
transferable and shall only be exercisable by the Optionee
and any purported transfer shall be null and void. No
Option, nor any rights or interests therein, shall be
assignable or transferable except by will or the laws of
descent and distribution.
6. FOREIGN EMPLOYEES. Without amending the
Plan, the Committee may grant Options to eligible employees who
are foreign nationals on such terms and conditions different from
those specified in this Plan as may in the judgment of the
Committee be necessary or desirable to foster and promote
achievement of the purposes of the Plan, and, in furtherance,
of such purposes the Committee may make such modifications,
amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in
other countries in which the Company operates or has employees.
7. EXERCISING OPTIONS. To exercise an
Option, the holder thereof
shall give notice of his or her exercise to mrcdrom.com or
its agent, specifying the number of shares of Common Stock
to be purchased and identifying the specific Options that are
being exercised. From time to time the Committee may
establish procedures relating to effecting such exercises. An
Option is exercisable during an Optionee's lifetime only by the
Optionee,
provided, however, that in the event the Optionee is
incapacitated and unable to exercise Options, such Options may be
exercised by such Optionee's legal guardian, legal
representative, fiduciary or other representative whom the
Committee deems appropriate based on applicable facts and
circumstances.
8. PAYMENT OF OPTION EXERCISE PRICE. The
Option Exercise Price for the Options being exercised must be
paid in full at time of issuance of the Common Stock. Payment may
be by means of cash, or at the sole discretion of the Company,
marketable securities or a note. In addition, in order to
enable the Company to meet any applicable
foreign, federal (including FICA), state and local withholding
tax requirements, an Optionee shall also be required to pay
the amount of tax to be
withheld at the time of exercise.
No share of Stock will be delivered to any Optionee until all
such amounts have been paid. The obligation of mrcdrom.com to
deliver cash or Common Stock shall be subject to currency or
other restrictions imposed by any government.
9. SHARES OF STOCK SUBJECT TO THE PLAN.
The shares that may be
delivered or purchased under the Plan shall not exceed an
aggregate of 500,000 shares of Common Stock, subject to any
adjustments which may be made pursuant to Section 10 hereof.
Shares of Stock used for purposes of the Plan may be either
shares of authorized but unissued Common Stock or treasury
shares or both. Stock covered by Options which have terminated
or expired prior to exercise or have been surrendered or
canceled shall be available for further option hereunder.
10. DILUTION AND OTHER ADJUSTMENTS. In the event of any
change in the outstanding shares of Common Stock by reason of
any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other
similar corporate change, such equitable adjustments may be made
in the Plan and the Options granted hereunder as the Committee
determines are necessary or appropriate, including, if
necessary, an adjustment in the number of shares and Option
Exercise Prices per share
applicable to Options then outstanding and in the number of
shares which are reserved for issuance under the Plan. Any
such adjustment shall be conclusive and binding for all
purposes of the Plan.
11. REGISTRATION, LISTING AND QUALIFICATION
OF SHARES. Each Option
shall be subject to the requirement that if at any time the
registration, listing or qualification of the shares covered
thereby upon any securities exchange or under any foreign,
federal, state or local law, or the consent or approval of
any governmental regulatory body, is determined to be
necessary or desirable as a condition of, or in connection
with, the granting of such Option or the purchase of shares
thereunder, no such Option may be delivered or exercised, as
the case may be, unless and until such registration, listing,
qualification, consent or approval shall have been effected or
obtained free of any condition not acceptable to the Committee.
Any person exercising an Option shall make such representations
and agreements and furnish such information as the Committee may
request to assure compliance with
the foregoing or any other applicable legal requirements.
12. NO RIGHTS TO OPTIONS OR EMPLOYMENT. No employee or
other person
shall have any claim or right to be granted an Option under
the Plan. Having received an Option under the Plan shall not
give an employee any right to receive any other grant under the
Plan. An
Optionee shall have no rights to or interest in any Option
except as set forth herein or in the terms and conditions of
the Options. Neither the Plan nor any action take hereunder
shall be construed as giving any employee any right to be
retained in the employ of the Company.
13. RIGHTS AS SHAREHOLDER. An Optionee under the Plan
shall have no
rights as a holder of Common Stock with respect to Options
granted hereunder, unless and until certificates for shares of
Common Stock are issued to such Optionee.
14. COSTS AND EXPENSES. Except as provided in Sections
5 and 8
hereof with respect to taxes, the costs and expenses of
administering the Plan shall be borne by mrcdrom.com and shall
not be charged to any grant nor to any employee receiving a
grant.
15. PLAN UNFUNDED. The Plan shall be unfunded.
Except for reserving a sufficient number of authorized shares to
the extent required by law to meet the requirements of the
Plan, mrcdrom.com shall not be required to establish any
special or separate fund or to make any other segregation of
assets to assure the delivery of mrcdrom.com Common Stock upon
exercise of any Option granted under the Plan.
16. AMENDMENTS. The Committee may at any time
terminate or from time to time amend the Plan in whole or in
part, but no such action shall adversely affect any rights
or obligations with respect to any awards theretofore made
under the Plan. With the consent of affected Optionees, the
Committee may amend outstanding agreements evidencing awards
under the Plan in a manner not inconsistent with the terms of the
Plan.
17. OTHER ACTIONS. This Plan shall not
restrict the authority of the Committee or of mrcdrom.com, for
proper corporate purposes, to
grant or assume stock options, other than under the Plan, to or
with respect to any employee or other person.
18. GOVERNING LAW. This Plan shall be
governed by and construed in
accordance with the laws of the State of Texas.
19. EFFECTIVENESS OF THE PLAN. This Plan
shall become effective on
March 28, 1997 subject to approval by shareholders at the
next annual meeting.<PAGE>
EXHIBIT 10.2<PAGE>
EMPLOYMENT AGREEMENT
This is an EMPLOYMENT AGREEMENT (the "Agreement") dated as of
June 1, 1997 but effective as of April 1, 1997 by and between
mrcdrom.com, inc., a
Delaware corporation (the "Corporation"), and Daniel Wettreich
(the "Executive").
Recitals
The Executive currently serves as Chairman and CEO of the
company. The Company desires the Executive to continue to serve
as the Company's Chairman and CEO, and the executive desires to
continue to serve the Company as its Chairman and CEO, on the
terms and conditions set forth in this Agreement.
NOW THEREFORE, the parties agree as follows:
1. Employment
The Company hereby employs the Executive as Chairman
and CEO of the Company, and the Executive hereby
accepts
such employment, upon the terms and
conditions set forth herein.
2. Duties and Powers
2.1 Duties The Executive shall serve as Chairman and CEO
of the
Company and perform the duties of Chairman as defined
in the Bylaws of the Company in effect on the date of
this Agreement. The Chairman shall receive the
compensation provided herein notwithstanding any
future amendment to the Bylaws of the Company which
diminishes or alters the duties of the Chairman of
the Company. The Executive shall not be required to
devote his entire working time to the business of the
Company, and may devote time to other business
interests.
2.2 Chief Officer The Executive shall report only to
the
Board of Directors of the Company (or, in the event
the Company becomes a direct or indirect subsidiary
of any other corporation, to the Board of Directors
of the ultimate parent of the Company), and his
powers and authority shall be superior to those of
any other officer or employee of the Company or of
any subsidiary of the company. Subject to the
authority of the Board of Directors of the Company,
the Executive shall have final responsibility for the
conduct of the business and affairs of the Company by
and of its subsidiaries, and the presidents and chief
executive officers of all subsidiaries of the company
shall report to the Executive.
2.3 Service as Director If elected, the Executive shall
serve
as a director of the Company without additional
compensation, and shall have the right at any time to
serve as a director of any subsidiary of the Company.
3. Term of AgreementThe initial term of employment under
this
Agreement shall be 5 years commencing effective as of
April 1,
1997 (the "Effective Date") unless sooner terminated
pursuant to Section 6 below.
4. CompensationFor all services rendered by the Executive
under this Agreement, the Company shall pay the Executive
an annual salary of $50,000 (the "Base Salary") payable in
equal monthly installments. Executive shall also receive a
cash bonus equal to 5% of the Company's Annual Profits
before Taxation
payable within 30 days after the Company's financial year
end. The Board of Directors of the Company shall from time to
time review the compensation to be paid to the executive under
this Agreement and shall increase (but not decrease) the
compensation in such amounts, if any, as the Board of Directors
determines.
5. Benefits, Expenses, Reimbursement: etc.
5.1 Benefit Plans The Company shall provide the Executive
with such medical and disability insurance, hospital
insurance and group life insurance and other benefits made
available to executive level employees of the Company,
subject to the terms and conditions of such benefit plans
and arrangements. The Company shall pay for the existing
Prudential Health Policy covering the Executive.
5.2 Expenses The Company shall pay all expenses incurred by
the Executive in furtherance or in connection with the
business of the Company and its subsidiaries and
affiliates including, without limitation, all (i) travel
and living expenses while away from home on business or at
the request and in the service of the Company or its
subsidiary or affiliate, and (ii) entertainment expenses,
upon submission of appropriate receipts or vouchers and in
accordance with the standard expense reimbursement
policies of the Company as in effect from time to time.
If any such expenses are paid by the Executive, the
Company shall reimburse him promptly for those expenses.
5.3 Vacation The Executive shall be entitled each year to a
vacation of four weeks (twenty working days), during which
time his compensation shall be paid in full and such
holidays and other non-working days as are consistent with
the policies of the Company for executive generally. All
vacations shall be scheduled so as to cause minimal
interference with the operation of the Company. If any
untaken vacation days are outstanding at the end of a
calendar year, then the Company will pay Executive for
such days. If the Executive's employment under this
Agreement is terminated pursuant to Section 6, the
Executive shall be entitled to payment for all untaken
vacation days.
5.4 Death Benefits Subject to the provisions of Section
5.5(B) of this Agreement, in the event of the Executive
death during the term of this Agreement, the Company shall
pay to such beneficiaries as the Executive shall designate
in writing prior to the Executive's death, or if he fails
to designate a beneficiary, to the executive's spouse or,
if none, to the Executive's estate, and annual benefit
equal to $50,000 (the "Death Benefit"). The Death Benefit
shall be payable in equal monthly installments for a
period of 4 years, commencing on the first day of the next
month following the month in which the Executive's death
occurs. Payments made pursuant to this Section 4 of this
Agreement.
5.5 Disability
A. The Executive shall be paid such benefits to which he
is
entitled under the terms of such long-term disability
insurance as the Company has provided under Section
5.1 of this Agreement. If at any time during the term
of this Agreement (i) the Company is not providing
the Executive with long-term disability insurance
coverage, or (ii) the amount of coverage provided
pays benefits less than an annual benefit to age 70
or 80% or more of the
Executive's Base Salary plus cash bonuses which the
Executive is being paid prior to the commencement of
disability benefits, then the Executive Shall be paid
the amount specified in Section 5.5(B) of this
Agreement.
B. Subject to the provisions of Section 5.5(A) of this
Agreement, if during the term of this Agreement (i)
the Executive suffers any illness, disability or
incapacity which renders him unable to perform his
duties hereunder and such illness, disability or
incapacity is deemed by a duly licensed physician
(who may be the Executive's person physician) to be
permanent, or (ii) the Executive is unable to render
services to the Company of the nature required by
this Agreement because of illness, disability or
incapacity for a period of 90 days, whether or not
such days are consecutive, during any year of the
term hereof, then the Executive shall continue to
render advisory and consulting services as he is able
and as may be reasonable required y the Company. The
Company shall pay to the Executive compensation (Base
Salary plus cash bonuses( in effect at the time the
event or condition desired in Section 5.5(B) (i) or
(ii) (the "Condition") above occur. The Disability
Payment shall be paid to the Executive in equal
monthly installments until the Executive attains age
70. Disability Payments shall commence on the first
day of the month following the month in which the
Condition occurs and shall be made even if the
Executive is unable to render any services to the
Company.
C. In the event the Executive's death during the period
in
which Disability Payments are to be paid, the Company
shall pay any remaining Disability Payments due
pursuant to Section 5.5(B) to such beneficiaries as
the Executive designates in writing before his death,
or upon his failure to designate a beneficiary, to
his surviving spouse or, if none, then to the
Executive's estate. Such payment shall be paid in
lieu of any and all payments provided for in Section
4 and 5.4 of this Agreement.
6. Termination The Executive's employment hereunder may be
terminated only under the following circumstances:
6.1 Cause The Company may terminate the Executive's
employment
hereunder for cause upon not less than five days' prior
written notice of such termination. For purposes of this
Agreement, the Company shall have "cause": to terminate
the Executive's employment hereunder upon (A) the
continued failure by the executive to substantially
perform his duties hereunder (other than any such failure
resulting from the Executive's incapacity due to physical
or mental illness or the removal of Executive's office to
a location more than 5 miles from its current location),
which failure has not been cured (i) within three days
after a written demand for substantial performance is
delivered to the Executive by the Company that
specifically identities the manner in which the Company
believes the Executive has not substantially performed his
duties (the "Three Day Period"), or (ii) in the event such
failure cannot be reasonably cured within the Three Day
Period, within 20 days thereafter, provided that the
Executive promptly commences and thereafter diligently
prosecutes the cure thereof, or (B) the Executive's
conviction of any criminal act or fraud with respect to
the Company. Notwithstanding the foregoing, the
Executives employment may not be terminated for cause
unless and until the Company has delivered to the
Executive a copy of a resolution duly adopted by the
affirmative vote or not less than 80 percent of the entire
Board of Directors at a meeting of the Board (of which
the Executive was given at least 20 days prior written
notice and an opportunity, together with his counsel, to
be heard before the Board), finding that in the good faith
opinion
of the Board, the Executive has not substantially
performed his duties (which failure shall be described in
detail) and such failure has not been cured within the
period described in (ii) above. In addition, the Company
shall not have cause to terminate the
Executive's employment hereunder as a result of any event
occurring prior to the date hereof and previously disclosed
to the Company. The burden of establishing cause shall be
upon the Company.
6.2 Termination by the Executive The Executive may terminate
his employment hereunder for "good reason" upon not less
than five days' prior written notice to the Company. For
purposes of this Agreement, "good reason" shall mean the
continued failure by the Company to perform its obligations
under this Agreement (including any material change by the
Company in the duties, responsibilities and powers of the
Executive as set forth herein or the removal of the
Executive's office to a location more than 5 miles from its
current location) which failure has not been cured (i)
within three days after a written demand for performance is
delivered to the Company by the Executive that specifically
identifies the manner in which the Executive believes the
Company has not performed its obligation (the "Three Day
Period"), or (ii) in the event such failure cannot be
reasonable cured within the Three Day Period, within twenty
(20) days thereafter provided that the Company promptly
commences and thereafter diligently prosecutes the cure
thereof. If the Executive terminates his employment under
Clause 6.2 then he shall be paid a cash sum in accordance
with Clause 6.3.C.
6.3 Change in Control
A. The Executive may terminate his employment under
this
Agreement at any time for "good reason" (as defined
below) after the date of a Change in Control (as
defined below) of the Company, Company to include
Change of Control of the parent of the Company.
B. A "Change in Control" of the Company shall be deemed
to have
occurred if:
(1) any "person" (as such term is used in Sections
13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
as in effect on the date hereof) other than the Executive or his
family interests becomes the beneficial owner, directly or
indirectly, of common stock of the Company representing 30% or
more of the Company's then issued and outstanding common stock;
or
(2) individuals who constitute the Company's Board
of Directors
on the Date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority
thereof, provided that any person becoming a
Director subsequent to the date hereof whose
election, or nomination for election by the
Company's stockholders, was approved by a vote of
at least a majority of the Directors comprising
the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company
in which such person is named as a nominee for
Director, without objecting to such nomination)
shall be, for purposes of this clause, considered
as though such person were a member of the
Incumbent Board. For purposes of this Section
6.2(a), "good reason" shall mean a determination
solely be the Employee, in good faith, that as a
result of the change of control of the company he
may be adversely affected (i) in carrying out his
duties and powers in the fashion he previously
enjoyed or (ii) in his future prospects with the
Company.
C. If the Executive terminates his employment after a
Change of
Control of the Company, he shall notify the Company in
writing of
the effective date of the termination (the "Termination
Date") and
he shall be paid (i) the Base salary and any bonuses
payable
to the Executive under this Agreement through the
termination Date, or (ii) an amount equal to the
product of (a) the annual Base Salary and bonus paid
to the Executive during the year preceding the
Termination Date, multiplied by (b) five whichever of
(i) or (ii) is more. The amount payable under this
Section 6.3(C) shall be paid in a lump sum on or
before the fifth day following the Termination Date.
7. Interest and Counsel Fees
7.1 Interest All amounts payable to the Executive under
this
Agreement shall be due and payable at the time specified
herein and any payment which is not made within five days
of the date of written demand shall be made with interest
on the amount due from the due date until paid in full at
an annual rate equal to 2% over the prime or base rate of
interest generally offered or charged by Citibank, N.A. to
its commercial customers for shortterm unsecured loans, as
in effect from time to time during the period from such
due date until the date such payment is made.
7.2 Counsel Fees The Company irrevocably authorizes the
Executive from time to time to retain counsel of his
choice at the expense of the Company to represent the
Executive in connection with the Executive's initiation or
defense of any litigation, arbitration or other legal
action relating to this Agreement or any provision hereof
(whether such action is by or against the Company or any
director, officer, stockholder or other person affiliated
with the Company, or in any jurisdiction).
Notwithstanding any existing or prior attorneyclient
relationship between the Company and such counsel, the
Company irrevocably consents to the executive entering
into any attorney-client relationship with such counsel,
and in that connection the Company and the Executive agree
that a confidential relationship shall exist between the
Executive and such counsel. The reasonable fees and
expenses of counsel selected by the Executive shall be
paid or reimbursed to the Executive by the Company on a
regular, periodic basis upon presentation by the Executive
of a statement or statements prepared by such counsel in
accordance with its customary practices. Notwithstanding
the preceding, if it should be finally determined by
judgment or order of a court of competent jurisdiction
(the time for the appeal of which judgment or order shall
have expired), that the Executive has not prevailed in any
such litigation, arbitration or other legal action, the
Executive shall promptly return to the Company, upon its
demand, any amounts so advanced in connection with such
action together with interest thereof at the rate provided
in Section 7.1 above.
8. No Conflicting Commitments
8.1 Representation and WarrantyThe Executive represents and
warrants that he has no commitments or obligations of any
kind whatsoever inconsistent with this Agreement and is
under no disability of any kind whatsoever which would
impair, infringe upon or limit Executive's ability to
enter this Agreement or to perform the services required
hereunder.
8.2 Indemnification The Executive agrees to indemnify and hold
the Company harmless against any claim or other actions
asserted against the Company based upon circumstances in
which it is alluded that the Executive has breached the
warranty set forth in Section 8.1.
9. Governing Law This Agreement has been executed and
delivered in the State of Texas, and shall in all respects be
interpreted, construed, and governed by and in accordance with
the law of the State of Texas. Except as otherwise herein
provided, all actions or proceedings arising directly,
indirectly or otherwise in connection with, out of,
related to, or from this Agreement shall be litigated
exclusively and only in courts having situs within the
State of Texas, and the parties hereby consent and submit
to the jurisdiction of any state or federal court located
in the State of Texas. Notwithstanding the preceding,
the Executive, at his sole and exclusive option,
exercisable by written notice given to the company at any
time, may elect to submit any dispute arising under this
Agreement to resolution by arbitration held in Dallas
County, Texas in accordance with the rules of the
American Arbitration Association.
10. NoticesAll notices hereunder shall be in writing and
personally delivered or mailed by registered or certified
mail, return receipt requested, to the following address:
If to the Company:
2415 Midway Rd.
Suite 121
Carrollton, Texas 75006
If to the Executive:
Danny Wettreich
17770 Preston Road
Dallas, Texas 75252
The Company or the Executive may hereafter designate another
address to the other in writing for purposes or notices under
this Agreement.
11. WaiversAny waiver by any party of any violation of,
breach
of or default under any provision of this Agreement
by the other party shall not be construed as, or
constitute a continuing waiver of such provision, or
waiver of any other violation of , breach of or default
under any other provision of this Agreement.
12. Assignability This Agreement shall not be
assignable by
the Company without the written consent of Executive,
except that if the Company shall merge or consolidate with
or into, transfer substantially all of its assets to,
another corporation or other form of business
organization, this Agreement shall be binding on the
Executive and be for the benefit of and binding upon the
successor of the Company resulting from such merger
consolidation or transfer without Executive's consent,
unless this Agreement is terminated pursuant to Section
6.3(C). Executive may not assign, pledge, or encumber any
interest in this Agreement or any part thereof without the
express written consent of the Company, this Agreement
being personel to Executive.
13. Severabilty Each provision of this
Agreement
constitutes a separate and distinct undertaking convenant
and/or provision hereof. In the event that any provision
of this Agreement shall finally be determined to be
unlawful, such provision shall be deemed severed from this
Agreement, but every other provision of this Agreement
shall remain in full force and effect, and in substitution
for any such provision held unlawful, there shall be
substituted
a provision of similar import reflecting the original
intent of the parties hereto to the extent permissible
under the law.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first set forth above
written mrcdrom.com, inc.
By:
______________________________
Jeanette Fitzgerald Director
______________________________
Danny Wettreich
<PAGE>
EXHIBIT 10.3
<PAGE>
ASSIGNMENT
THIS ASSIGNMENT is made and delivered by MAXMEDIA
DISTRIBUTING, INC., a Florida corporation, CAMELOT CORPORATION,
a Colorado corporation, Mr. CD-ROM Stores, Inc., a Delaware
corporation(collectively the "Seller") to mrcdrom.com, inc., a
Delaware corporation located at 2415 Midway, Suite 115,
Carrollton, Texas 75006 (the "Buyer").
For good and valuable consideration, the receipt of which is
hereby acknowledged, Seller does hereby grant, sell, transfer,
assign, and deliver to Buyer its successors and assigns, all
right, title, and interest of every kind and character throughout
the world (including but not limited to all goodwill, copyrights,
moral rights, trade secret rights, patent rights, and
other
proprietary rights) in the following work "Mr CD ROM" (the
"Work") with a U.S. Trademark and Patent Office registration
number of 1870154 registered on December 27, 1994 .
Seller represents and warrants to Buyer that Seller has full
right, power and authority to make this Assignment of the Work to
Buyer in the manner set forth above, and that Seller
is
transferring to Buyer good and marketable title to the Work, free
and clear of all liens, security interests,
claims, interests, options,
encumbrances, or indebtedness of any kind.
Seller agrees to indemnify, defend and hold Buyer harmless
against any and all actions, suits, losses, liabilities, damages,
deficiencies, claims, demands, costs and expenses (including
attorney's fees and costs of investigation) that may arise out of
any breach of the foregoing warranty or any nonfulfillment of
this Assignment by Seller.
IN WITNESS WHEREOF, Seller has executed this Assignment as
of the 1st day of April, 1997.
Maxmedia Distributing, Inc.
By:_____________________________________
Its: CEO
Camelot Corporation
By:_____________________________________
Its: CEO
Mr. CD-ROM Stores, Inc.
By:_____________________________________
Its: CEO
mrcdrom.com, inc.
By:_____________________________________
Its: President
<PAGE>
EXHIBIT 10.4<PAGE>
MRCDROM.COM, INC. MANAGEMENT AGREEMENT
Agreement made this 1st day of April, 1997, by and between
MRCDROM.COM, INC., a Delaware corporation, (hereinafter referred
to
as "mrcdrom.com"), and CAMELOT CORPORATION, a Colorado
corporation (hereinafter referred to as "Camelot").
In consideration of the mutual premises herein contained,
the parties hereto agree as follows:
RECITALS
It is the desire of mrcdrom.com to engage the services of
Camelot to act as Agent for and perform management services for
mrcdrom.com in the areas of accounting, overall corporate
planning and strategy as an independent contractor;
It is the desire of mrcdrom.com to rent office warehouse and
office space from Camelot;
It is the desire of Camelot to provide such services and to
consult with the Board of Directors, the officers of mrcdrom.com,
and the administrative staff of mrcdrom.com and provide warehouse
and office space on the terms set out below.
AGREEMENT
Services
Camelot shall act as Agent and shall make itself available to
consult with the Board of Directors, the officers of
mrcdrom.com, and the department heads of the administrative
staff, at reasonable times, concerning all matters pertaining to
accounting and overall corporate planning and strategy
of mrcdrom.com.
Rent
Camelot shall lease to mrcdrom.com the space known as 2415
Midway, Suite 115 constituting approximately 5,000 square feet
for use by mrcdrom.com.
Confidentiality
Camelot acknowledges that it may be made aware of
confidential information regarding mrcdrom.com, and warrants not
to disclose such information to any third parties.
Compensation
Camelot shall receive monthly in arrears from mrcdrom.com a
sum for the performance of the services to be rendered to
mrcdrom.com pursuant to the terms of this agreement which shall
be Five Thousand ($5,000) dollars per month. Camelot shall also
receive reasonable itemized out-of-pocket expenses relating to
the provision of services. Camelot shall also receive the
proportion of taxes, maintenance fee and common area fees as
deemed appropriate. Further the fees related to the rental of
warehouse and office space are subject to annual adjustment as
appropriate.
Non-exclusivity
Camelot may represent, perform services for, and be employed
by such additional clients, persons, or companies as Camelot, in
its sole discretion, sees fit.
Renewal
This Agreement shall be automatically renewed each month.
Either party may terminate the agreement by giving thirty days
prior written notice.
MISCELLANEOUS
Remedies
If any action at law or equity is necessary to enforce or
interpret the terms of this agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which he may be
entitled.
Parties Bound
This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and
assigns where permitted by this agreement.
Legal Construction
In case any one or more of the provisions contained in this
agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision thereof,
and this agreement shall be construed as if such invalid,
illegal,
or unenforceable provision had never been contained herein.
Prior Agreements Superseded
This Agreement constitutes the sole and only agreement of
the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the
within subject matter.
Governing Law
It is hereby agreed that this Agreement shall be governed and
construed according to the laws of the State of Texas and
venue shall be in Collin County, Texas.
Notice
Any notices shall be by facsimile followed by written
confirmation, U.S. Mail sent certified return receipt requested,
or
federal express or comparable next day delivery service to the
addresses of the parties as listed below their names or as
provided pursuant to this notice provision.
Executed on the day and year first above mentioned.
MRCDROM.COM, INC.
By:__________________________________
Thomas Watts,
President
2415 Midway, Suite 115
Carrollton, TX 75006
CAMELOT CORPORATION
By:__________________________________
Daniel Wettreich,Chairman and CEO
17770 Preston Road Dallas, TX 75252<PAGE>
EXHIBIT 24.0<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this
Registration Statement of our report, dated July 7, 1997,
relating to the consolidated financial statements of mrcdrom.com,
inc. and subsidiaries, and to the reference to our Firm under
the caption "Experts" in the Prospectus.
Lane Gorman Trubitt, L.L.P.
Dallas, Texas
September 8, 1997
<PAGE>
EXHIBIT 24.1
(INCLUDED IN EXHIBIT 5.0)
