SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM OF REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
CyberStar(R) Computer Corporation
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(Name of Small Business Issuer in Its Charter)
Minnesota 41-1427445
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6825 Shady Oak Road, Eden Prairie, MN 55344
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(Address of Principal Executive Offices) (Zip Code)
(612) 943-1598
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Name Of Each Exchange On Which Each
Title of Each Class To Be So Registered Class Is To Be Registered
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None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
CyberStar(R) Computer Corporation (the "Company") designs and
manufactures a wide range of computer systems and products, including desktops,
midtowers, minitowers, notebooks, workstations and file servers. The Company
markets, services and supports its products through a nationwide network of
approximately 275 authorized dealers who sell the Company's products to
end-users, which are typically businesses purchasing multi-computer office
systems. Through its VAR (value-added reseller) division, the Company resells
branded computers and various branded and non-branded peripheral products to
end-users. The Company has been in business since 1982. The Company and its
predecessors have been selling CyberStar(R) branded products since 1989.
The Company was founded in 1982 under the laws of the State of
Minnesota as Command Small Computer Learning Center, Inc., a computer training
company. Over a period of years, the Company became involved in the sale of
computer components and, eventually, became a VAR of major computer brands. In
1987, the Company changed its name to Command Electronics, Inc. In February
1995, the Company acquired CyberStar Computer Systems, a manufacturer and
marketer of microcomputers and servers, and in 1997 it changed its name to
CyberStar(R) Computer Corporation. The Company's offices are located at 6825
Shady Oak Road, Eden Prairie, Minnesota 55344, and its telephone and facsimile
numbers are (612) 943-1598 and (612) 943-1599, respectively. The Company's
Internet addresses are www.cyberstarpc.com and www.buildtoorderpc.com.
INDUSTRY OVERVIEW
The PC hardware market is generally thought to consist of three tiers
of manufacturers, based primarily upon the manufacturers' size and ability to
set industry standards. Tier one consists of four companies (IBM Corporation,
Compaq Computer Corporation, Hewlett-Packard Company and Apple Computer, Inc.),
which have the research and development capabilities and reputation to set the
standards for the PC manufacturing industry. Tier two consists of companies such
as Dell Computer Corporation, Gateway 2000, Inc., AST Research, Inc. and Packard
Bell NEC, Inc. These tier two companies create certain products of their own,
but more frequently create clones of tier one products. Tier three consists of
all other computer manufacturers. Tier three manufacturers are clone makers that
follow the technology trends set by tier one manufacturers. Manufacturers
generally have access to the same components and thus can produce identical
systems of various configurations. The ability of tier three manufacturers to
compete with tier one and tier two manufacturers and with each other depends on
the pricing of systems, the services offered in connection with a system, and
the marketing and sales capability of the tier three manufacturer or its
dealers. The Company is considered a tier three manufacturer.
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The computer industry is one of the fastest changing industries today,
subject to constant fluctuation in price, technology and products offered.
Although tier one manufacturers once dominated the market, resellers report that
non-branded, or white-box, systems are their best selling "brands"; in a poll
published in August 1999 by COMPUTER RESELLER NEWS ("CRN"), resellers reported
that sales of white-box systems exceeded the sales of the next top three branded
vendors (Compaq, Dell, and Hewlett Packard) combined, citing price, flexibility
in configuration, the ability to upgrade and the ability to provide complete
packages of products and support as the reasons for sales of non-branded
systems.
As white-box systems have become more popular with end-users, tier
three manufacturers have become able to offer their products at a variety of
price points. According to CRN (August 16, 1999), the retail prices of 60% of
white-box systems, i.e., systems without nationally-recognized brand names, were
under $1,400. Substantially all of the systems sold by the Company range in
price between $800 and $2,500.
Recently, the PC industry has undergone a fundamental shift in
distribution processes and methods. Traditionally, manufacturers of branded
products, such as IBM, manufactured computers and shipped them to distributors
and dealers who, in turn, shipped them to dealers and end-users, respectively.
End-users, under this distribution process, purchased systems from dealers in
whatever format the original manufacturer provided. Consequently, limited
opportunities existed for end-users to custom-configure their computer systems.
Further, this method required dealers to stockpile considerable inventory
levels, which often could not be sold out before an announced or expected change
in technology. Thus, dealers were forced, in many cases, to sell obsolete
systems. As a result, the traditional distribution method created inefficiencies
and additional costs, as well as consumer dissatisfaction.
While traditional distribution methods persist in certain parts of the
computer industry, in particular in the retail segment, the trend is toward
build-to-order and custom-configured computer systems. Dell and Gateway
pioneered this shift when they began offering custom-built PCs to consumers
primarily for home use. Today, many of the tier one manufacturers, such as IBM
and Compaq, also use channel assembly methods. These manufacturers ship products
that are not completely assembled to their distributors and rely on the
distributor for final assembly and shipment. This distribution method provides
only limited build-to-order benefits and does not provide the advantage of a
direct contact person to whom the end-user may direct technical and support
questions.
Generally, the number of purchasers and the amount spent for goods on
the Internet is increasing. Forrester Research, Inc. has estimated that the
total e-commerce purchases made in 1998 were $51 billion, of which $43 billion
was business-to-business and $8 billion was consumer. Forrester estimates that
the total will increase to an estimated $551 billion in the year 2001.
Increasingly businesses have been developing electronic commerce sites in
response to this trend. Computer resellers are spending substantial time on the
Internet conducting their
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business. According to CRN, as of June 1999, 54% of resellers polled reported
that they spent between 11 and 30 hours per week conducting their business on
the Internet. This same poll reported that an additional 13% of resellers spent
31 hours or more conducting their business on the Internet. The Company believes
that as resellers and end-users become more comfortable with the Internet they
will rely on it more and that this increased reliance will translate into a
desire on the part of resellers to offer their various computer systems via
electronic commerce.
CYBERSTAR DIVISION
The Company currently offers a number of products, substantially all of
which are based on Intel's microprocessors. Currently, the Company's products
target a broad range of performance and functionality for each of the high-end,
midrange and entry-level segments of the PC market. The Company's current
products include the Alliance Series of desktop computers, the FilePro SHV
Series of fileservers and the CyberBook Series of notebooks. For compatibility
with a wide range of applications software, the Company's products utilize the
major industry standard operating systems, Microsoft Windows 98, and the current
leading network protocols, Novell Netware and Microsoft NT. The Company intends
to maintain compatibility with other major standards as they evolve.
The Alliance Series, available in three models, is designed to provide
maximum performance at the lowest possible price point without sacrificing
quality. The FilePro SHV Series is designed to be a tier one file server
alternative. The Company's four servers are available in single to quad Pentium
III Xeon processor configurations and all feature Intel LanDesk server
management software. Designed for current networking platforms, the FilePro SHV
servers are certified compatible with various operating systems, including
Microsoft NT, Novell and UNIX. The CyberBook Series of notebooks is designed to
offer full functionality to mobile users, including high performance graphic
capabilities, large active matrix screens and full multimedia capabilities. The
CyberBook Series is available in Intel Celeron or Intel Pentium II mobile
processors with storage capacities up to 10.1GB. This series of three notebooks
comes standard with carrying case, AC-adapter, battery and a Windows 98
operating system.
BUILDTOORDERPC.COM
The Company is developing buildtoorderpc.com(TM), a proprietary
Internet-based development tool, to capitalize on two significant trends:
e-commerce and the desire for custom-built, custom-configured computer systems.
Through buildtoorderpc.com, the Company intends to provide end-users with the
ability to custom-configure, price and order CyberStar(R) or dealer-branded
products directly on-line through a dealer's website.
The heart of buildtoorderpc.com is the Company's innovative and
proprietary configurator. The Company is designing the configurator to link
participating dealers' websites directly to the Company. The configurator is
being designed to act as an invisible window that will route orders placed with
individual dealers to the Company for processing and fulfillment. The Company's
configurator is also being designed to test compatibility of the various
component and system choices made by end-users, thus prohibiting end-users from
making incompatible software, hardware and component choices.
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The products ordered via buildtoorderpc.com can be manufactured with
the CyberStar(R) brand name or with a dealer's brand name. The Company believes
that custom-built, custom-configured computers provide solutions that are
relevant to the needs of end-users. While the Company will maintain proprietary
rights in buildtoorderpc.com and its configurator, the Company will provide them
to its dealers for their use, free of charge. The Company believes that
buildtoorderpc.com will allow dealers to meet their needs in a flexible and
efficient manner, and in a manner that allows dealers to provide cutting-edge
technological choices without having to maintain significant inventory levels.
Development of buildtoorderpc.com has been completed for end-user
customers and is scheduled to launch in September 1999 under the Company's own
end-user site. The Company is nearing completion of the development of
buildtoorderpc.com for its dealers. Upon completion of development, the Company
plans to beta test this concept with a limited number of dealers. During beta
testing, the Company will also continue internal refinements of
buildtoorderpc.com. The Company plans to commence beta tests during the fourth
quarter of 1999, expects to complete beta testing during the first quarter of
2000 and to make buildtoorderpc.com available to its dealers during the second
quarter of 2000.
VAR DIVISION
Through its VAR division, the Company acts as a reseller of products
offered by other manufacturers, such as Compaq, IBM, Hewlett Packard and Apple,
that offer branded products to end-users. The Company also offers end-users
CyberStar(R) or other non-branded peripheral products as alternatives to those
offered by tier one manufacturers through its VAR division.
MAJOR CUSTOMERS
The Company had two customers which represented 44% of sales in 1998
and one customer which represented 31% of its sales in 1999. For the three
months ended May 31, 1998 and 1999, the Company had one customer which
represented 43% of sales and two customers which represented 33% of sales,
respectively.
SALES AND MARKETING
The Company currently distributes its products through a nationwide
network of approximately 275 authorized dealers consisting of qualified VARs,
systems integrators and office equipment dealers.
The Company is developing buildtoorderpc.com to capitalize on trends
toward increased Internet usage by dealers. The Company believes that by
enabling participating dealers to offer custom-built, custom-configured computer
systems, it will be able to retain existing dealer relationships and create new
ones.
The Company's reseller and dealer customers are not and are not
expected to be contractually committed to future purchases of the Company's
products. These parties could discontinue carrying the Company's products at any
time. The loss of any of the Company's major customers could adversely affect
the Company's results of operations until alternative distribution channels
could be established, of which there can be no assurance.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations are currently located at its
executive offices and include facilities to (i) procure, inspect and test
circuit boards and (ii) assemble, test and package finished products. All
components are tested before undergoing final assembly. Once assembled, all
systems undergo a series of diagnostic tests for up to 24 hours. The Company
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performs various levels of assembly on all of the products marketed under the
CyberStar(R) name, except for monitors, which are delivered fully assembled and
branded as CyberStar.
The Company currently procures all of its components from outside
suppliers. The Company generally utilizes standard parts and components
available from multiple vendors. However, the Company is technologically-
dependent on Microsoft to provide Microsoft NT and Windows. The Company
purchases components pursuant to purchase orders placed in the ordinary course
of business and has no guaranteed supply arrangements with single source
suppliers. Reliance on suppliers generally involves risks, including the
possibility of defective parts, shortage of components, increases in component
cost and disruptions in delivery of components. From time to time, increases in
demand for PCs have created industry-wide shortages of key components, such as
microprocessors. Pursuant to the Company's arrangement with Intel, Intel
microprocessors are available to the Company in quantities that the Company
believes will be adequate to meet its anticipated requirements. However, if the
Company is unable to obtain sufficient quantities of any components, the Company
will experience delays in product shipments that would adversely affect sales.
In addition, such supply shortages may cause price increases that could result
in lower margins and adversely affect the Company's operating results.
In addition to microprocessors, the Company purchases file server
components, network interface cards and ATX motherboards from Intel for use in
the Company's branded products. The Company is, and will continue to be, heavily
dependent on Intel, not only for microprocessors and other components, but also
for manufacturing, research and development and marketing support. The
arrangements that the Company has with Intel are not exclusive and can be
terminated at any time. There can be no assurance that Intel will continue its
relationship with the Company or that it will support the Company's operations
at the level currently anticipated. The loss of these arrangements with Intel
would have a material adverse effect on the Company's business.
The Company purchases notebook products from Taiwanese manufacturers.
The Company resells these notebooks under the CyberStar(R) name to dealers and
end-users. The Company's ability to bring its notebook products to market is
highly dependent upon these third-party vendors to effectively design, develop
and manufacture these products. Should these companies not be able to design,
develop or manufacture the Company's products in a timely manner, the Company's
sales, cash flows and profitability could be materially and adversely affected.
The Company recently improved its inventory controls and purchasing
systems by making software upgrades. The Company's business model provides it
with the ability to operate with reduced levels of component and finished goods
inventories, and the Company's limited success to date has been due in part to
its asset management practices, including its ability to achieve rapid inventory
turns. The Company's ability to aggressively manage its inventory has been
enhanced by favorable supply conditions in the computer industry. Less favorable
supply conditions, as well as other factors beyond the Company's control, may
require or result in increased inventory levels in the future, which could have
a material adverse effect on the Company's cash flows.
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COMPETITION
The microcomputer industry is intensely competitive and characterized
by dynamic customer demand patterns, frequent introduction of new products,
technological advances and product obsolescence. In addition, the pricing
environment is extremely competitive, and there are a variety of competing
distribution channels. The Company anticipates that the microcomputer industry
will continue to experience intense price competition and dramatic price
reductions, as well as intense competition among distribution channels. In
addition to pricing, the principal elements of competition among manufacturers
are product quality and usability, performance characteristics, distribution
capability, ability to customize, service and support and reputation. The
Company competes with a number of large tier one and tier two manufacturers,
including Compaq, IBM, Hewlett-Packard, Apple, Dell, Gateway, and Packard Bell
NEC. The Company competes with the larger name manufacturers mostly on the basis
of quality, price and performance. In addition, the Company competes with an
even larger number of smaller distributors, such as Supercom and Almo, which
market through a single distribution channel. The Company competes with these
smaller distributors on the basis of name recognition, quality, usability and
performance characteristics, as well as service, support and reputation.
Substantially all of the Company's competitors have significantly greater
financial, marketing and technological resources than the Company.
INTELLECTUAL PROPERTY
The Company owns no patents, nor has the Company applied for any
patents covering its products. The Company is subject to risks related to
misappropriation of the Company's proprietary technology upon which
buildtoorderpc.com is being designed. While the Company believes that it is
designing buildtoorderpc.com to be secure, computer "hackers" are becoming
increasingly sophisticated. Any misappropriation of the Company's technology
could subject the Company to increased competition and the loss of the Company's
perceived advantage over other competitors.
The Company obtained the rights to the registered trademark
"CyberStar(R)" through its acquisition of CyberStar(R) Computer Systems in
February 1995. The Company's registration of the "CyberStar(R)" mark is limited
to its use on products within the class of electronic and scientific apparatus.
Any use of the mark by others on products in other classes may cause dilution of
the mark and the goodwill the Company has created in the mark. The Company has
applied for federal trademark protection on buildtoorderpc.com(TM). The Company
claims common law trademark rights in FilePro(TM) file server and CyberBook(TM)
notebook.
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SERVICE AND PRODUCT WARRANTY
The Company provides dealers with access to its technical support line
for answers to questions that require immediate attention. The Company maintains
a data base of technical information that it can easily access in response to
customer inquiries in order to provide quick and accurate answers to its
dealers. The Company also provides file access for its dealers, featuring a
secure Bulletin Board Service and Internet site equipped to provide access to
up-to-date support and technical information. The Company also provides its
dealers with current product information, including manuals, specifications and
product change notifications.
To support its end-users, the Company contracts with Micro Warranty
Services L.L.C. ("MWS") of Irving, Texas to provide all CyberStar(R) desktops,
workstations, notebooks, and file servers with on-site warranty service.
End-users are provided with 24 hour, 7 days per week toll-free help desk support
and an on-site repair program. The help desk and parts dispatch are handled by
MWS through its toll-free service line, while parts are shipped via overnight
service by the Company. Similar to tier one manufacturers, an authorized
CyberStar(R) dealer performs the repair work and is reimbursed for its services.
The Company utilizes what it believes is an effective product tracking
system which allows it to track product failure history from initial quality
control testing to customer arrival and up to twelve months thereafter. Each
CyberStar(R) product is sold with a one-year warranty for the benefit of the
end-user. The warranty can be upgraded to either a one- or three-year on-site
warranty for a modest upgrade price.
GOVERNMENT REGULATION
In the United States, the Federal Communications Commission (the "FCC")
regulates the radio frequency emissions of computing equipment. The FCC has
established two standards for computer products, Class A and Class B. Only Class
B products may be sold for use in a residential environment. Both Class A and
Class B products may be sold for use in a commercial environment. All of the
Company's current desktop, notebook, workstation and network server systems are
sold under the more restrictive Class B certification.
The Company's business also is subject to regulation by various other
federal and state governmental agencies. Such regulation includes the antitrust
regulatory activities of the U.S. Federal Trade Commission and Department of
Justice, the import/export regulatory activities of the U.S. Department of
Commerce and the product safety regulatory activities of the U.S. Consumer
Products Safety Commission.
The Company also is required to obtain regulatory approvals in other
countries prior to the sale or shipment of products. In certain jurisdictions,
such requirements are more stringent than in the United States. Many developing
nations are just beginning to establish safety, environmental and other
regulatory requirements, which may vary greatly from U.S. requirements.
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EMPLOYEES
As of July 31, 1999, the Company had 18 employees, of which 17 were
full-time employees. None of the Company's employees is represented by a union.
The Company believes that its relations with its employees are good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
The Company has two operating divisions, the CyberStar(R) division and
the VAR division. Revenues from CyberStar(R) operations are generated through
the sale of a wide range of computer systems and products, including personal
computers, work stations and file servers, under the CyberStar(R) brand name.
The VAR division is an authorized reseller of products from Compaq, CyberStar,
IBM, Hewlett-Packard and Apple, among others, as well as selling non-branded
products.
RESULTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
Sales decreased by 10% to $4,854,299 in fiscal 1999 from $5,376,651 in
fiscal 1998. This decrease was due primarily to reduced sales to a major
customer and price decreases intended to stimulate sales volume. In fiscal 1999
and fiscal 1998, CyberStar(R) division sales accounted for 66% and 97%,
respectively, of total sales. Sales for the VAR division increased significantly
in fiscal 1999.
Gross profit decreased by 36% to $638,459 in fiscal 1999 from
$996,659 in fiscal 1998. Gross profit as a percentage of sales was 13% in
fiscal 1999 as compared to 18% in fiscal 1998. The decrease in gross profit
percentage was primarily due to the price reductions noted above.
Selling, general and administrative expenses increased by 47% to
$1,567,154 in fiscal 1999 from $1,065,011 in fiscal 1998, and operating
expenses, as a percentage of sales, were 32% in fiscal 1999 as compared to 20%
in fiscal 1998. These increases were primarily due to increases in staff in
preparation for the launch of the Company's e-commerce site.
The Company's loss from operations increased to $(928,695) in fiscal
1999 from $(68,352) in fiscal 1998, reflecting both the decrease in gross profit
and the increase in operating expenses.
Interest expense decreased by 28% to $5,759 in fiscal 1999 from
$8,033 in fiscal 1998 primarily as a result of the decrease in borrowings
throughout the year. The Company raised $876,881 through the sale of common
stock in a private offering in fiscal 1999.
As a result of the foregoing factors, net loss increased to $(920,057)
in fiscal 1999 from $(70,772) in fiscal 1998.
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THREE MONTHS ENDED MAY 31, 1999 AND 1998
For the first quarter of fiscal 2000, net sales were $1,151,470,
compared to $1,228,759 in the corresponding fiscal 1999 period. CyberStar(R)
division sales accounted for approximately 66% of net sales, compared to 97% in
the first quarter of the prior year. This decrease was due primarily to reduced
sales to a major customer.
Gross profit for the first quarter of fiscal 2000 was $195,906,
compared to $203,893 in the prior year. In both periods, gross profit was 17% of
sales. The decrease in gross profit dollars is a result of lower sales in the
first quarter of fiscal 2000 as compared to the prior year period.
Selling, general and administrative expenses were $264,846, or 23% of
sales, in the first quarter of fiscal 2000, compared to $361,448, or 29% of
sales in the corresponding 1999 period. This decrease is due primarily to
reduction in staff, resulting in lower salary and other employee-related
expenses.
The Company's loss from operations was $(68,940) for the first quarter
of fiscal 2000, compared to $(157,555) in first quarter of fiscal 1999. This
improvement primarily reflects the effects of the decrease in selling, general
and administrative expenses discussed above.
As a result of the foregoing factors, the Company recorded a net loss
of $(70,473) for the first quarter of fiscal 2000, compared to $(161,947) in the
corresponding period in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at February 28, 1999 was $73,191, a
decrease from $104,008 at February 28, 1998. During the twelve months ended
February 28, 1999, net cash used in operating activities was $694,560 primarily
due to a decrease in sales along with an increase in operating expenses.
Net cash from financing activities in the twelve months ended February
28, 1999 consisted primarily of net proceeds of $876,881 from the sale of common
stock which was offset by payments of $125,000 on outstanding borrowings under
the Company's revolving credit facility.
Net cash flows used in investing activities in the twelve months ended
February 28, 1999 was $88,138 due to the purchases of property and equipment.
The Company's cash position at May 31, 1999 was $22,715, a decrease
from $73,191 at February 28, 1999, primarily due to repayment of debt.
During the three months ended May 31, 1999, net cash provided in
operating activities was $91,096 primarily due to the reduction of operating
expenses resulting from the decrease in staff.
Net cash used for financing activities in first quarter 2000 consisted
primarily of payments of $150,000 on outstanding borrowings under the Company's
revolving credit facility.
The Company had a revolving line of credit of $150,000 with a bank.
This line of credit was secured by all of the Company's assets and the personal
guaranty of the majority shareholder. Borrowings under the line accrued interest
at a rate of 1.5% over prime rate and the balance outstanding at February 28,
1999 was $150,000. The balance outstanding was paid in full subsequent to
February 28, 1999. The line of credit expired on April 25, 1999 and was not
renewed.
In May 1999 the Company entered into an agreement whereby it can sell
receivables or borrow money up to 80% of the eligible receivable balance. The
Company pays a 1% commission on all receivables sold or is charged interest at
a rate of 8% or prime plus 1-1/2%, whichever is greater, for receivables which
are borrowed against. This agreement is for one year and automatically renews
until either party terminates the agreement. The minimum commissions payable
under this agreement are $24,000 per year.
Subsequent to May 31, 1999, the Company received payment of an
insurance receivable of $246,380. Management believes that cash on hand together
with funds available under the agreement noted above will be sufficient to
satisfy fiscal 2000 operating requirements.
YEAR 2000 READINESS
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to
accurately process certain date-based
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information at or after the year 2000. This is commonly referred to as the "Year
2000 issue." The Company has analyzed the Year 2000 readiness issues related to
its computer systems and determined that all systems critical to managing the
business are Year 2000 compliant and its customer service and billing vendor's
systems are also Year 2000 compliant.
The Company has identified its critical component and service providers
and is contacting each such vendor to assess that vendor's Year 2000 readiness
and expects to complete a review of all of its critical vendors by no later than
October 15, 1999. Because the Company is relying on information provided to it
by third parties to assess the year 2000 readiness of such vendors, the Company
cannot provide assurances that all of its critical vendors are or will be Year
2000 ready. Therefore, the Company cannot provide assurances that the Company
will not be adversely affected by the Year 2000 change.
The Company has analyzed the Year 2000 readiness status of the products
manufactured by the Company and implemented an ongoing testing and monitoring
program to help enable all current computer hardware offerings to meet the
Company's Year 2000 readiness standards. The Company's current product offerings
meet the Company's Year 2000 readiness standards. Hardware previously
manufactured by the Company can generally be updated to meet the Company's Year
2000 readiness standards through BIOS upgrades or software patches. The Company
has created a Web site, at www.cyberstarpc.com/y2000, which contains detailed
information about the Year 2000 issue, the Company's Year 2000 readiness
standards and its Year 2000 program. Through the Web site, customers can assess
the Year 2000 readiness of their hardware and can obtain software patches and
BIOS upgrades from the Company, free of charge, to help prepare the hardware for
the Year 2000 rollover. Customers without Internet access may request free
copies of the software patches and BIOS upgrades by telephone or mail. The
Company's Year 2000 readiness program applies only to CyberStar hardware
manufactured by the Company. Although the Company has attempted to ascertain the
year 2000 status of third party software and peripherals loaded on or
distributed with Company computer systems, it does not and cannot guarantee the
Year 2000 status of any software or peripherals provided by third parties.
The Company expects that the total costs of its Year 2000 readiness
program will not be material to its financial condition or results of operation.
All costs are charged to expense as incurred and do not include potential costs
related to any customers or other claims or the cost of internal software and
hardware replaced in the normal course of business.
The Company believes that the most likely worst case scenarios would
involve the interruption of crucial suppliers as a result of infrastructure
failures or third party vendor failures. As a result, the Company is developing
contingency plans that will address each of the most likely worst case
scenarios. Such contingency plans are expected to be complete no later than
December 1, 1999. The Company believes that it is taking appropriate steps to
assess and address its Year 2000 issues and currently does not expect that its
business will be adversely affected by Year 2000 issue in any material respect.
Nevertheless, achieving Year 2000 readiness is dependent on many factors, some
of which are not completely within the Company's
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control. Should either the Company's internal systems and devices or the
internal systems and devices or one or more critical vendors fail to achieve
Year 2000 readiness, the Company's business and its results of operations could
be adversely affected. There can be no assurance that the Company or its
business will not be adversely impacted by any year 2000 problems that may be
experienced by its customers, suppliers, dealers, distributors, regulators or
others.
FORWARD-LOOKING INFORMATION
Any statements contained herein related to future events are
forward-looking statements and are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. These statements are
based upon the Company's current expectations and judgments about future
developments in the Company's business and may be affected by several factors,
including, without limitation, the Company's ability to respond to customer
demands, the success of the Company's ecommerce site, the Company's ability to
sell its products at a profitable price, the Company's readiness for Year 2000
as well as the readiness of third parties with whom the Company does business,
and other factors affecting the computer industry in general. Readers are
cautioned not to place undue reliance on forward-looking statements. The Company
undertakes no obligation to update any such statements to reflect actual events.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases approximately 14,265 square feet of space used for
offices, assembly, manufacturing and packaging at 6825 Shady Oak Road, Eden
Prairie, Minnesota 55344 at a monthly rent of $10,700. This lease expires on
April 30, 2000. The Company believes that these premises will meet its
requirements for facilities for the remainder of the lease term.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of July 31, 1999
with respect to the number of shares of Common Stock beneficially owned by (i)
each person known to the Company to own beneficially 5% or more of the Common
Stock; (ii) each director of the Company; (iii) the Chief Executive Officer, and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise noted, each person listed below has sole voting and investment power
with respect to his shares. The address for each individual set forth below is
6825 Shady Oak Road, Eden Prairie, Minnesota 55344.
PERCENTAGE OF
NUMBER OF OF OUTSTANDING
NAME OF BENEFICIAL OWNER(1) SHARES SHARES
--------------------------- --------- --------------
Richard A. Pomije 3,112,386 79.1%
James T. Greenfield 100,000(2) 2.5
Ed Havlik 5,000 *
All directors and executive officers as a group
(5 persons) 3,284,054(3) 80.1
11
<PAGE>
- --------------
* Indicates an amount less than 1%
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Commission and, accordingly, may include securities
owned by or for, among others, the spouse, children or certain other
relatives of such person as well as other securities as to which the person
has or shares voting or investment power or has the right to acquire within
60 days.
(2) Includes 100,000 shares of Common Stock purchasable pursuant to the
exercise of currently exercisable options.
(3) Includes 166,668 shares of Common Stock purchasable pursuant to the
exercise of currently exercisable options.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Set forth below is certain information concerning each of the
directors, executive officers and significant employees of the Company.
NAME AGE POSITION
---- --- --------
Richard A. Pomije 44 President, Secretary, Treasurer
and Director
Brian Fredrickson 40 National Marketing Manager
Richard Palmer 40 Senior Buyer
James T. Greenfield 54 Director
Ed Havlik 43 Director
RICHARD A. POMIJE has been with the Company since 1982 and has served
as President, Secretary, Treasurer, and a director since 1996. He had previously
served in such positions from 1983 through 1992. Mr. Pomije's primary
responsibilities include overall strategic planning for the Company. Mr. Pomije
holds a degree in Communication Technology, Audio Technology and Technical
Services from Brown Institute. Mr. Pomije also received a First Class FCC
license with radar endorsement.
BRIAN FREDRICKSON has been the National Marketing Manager of the
CyberStar(R) Division since February 1995. Mr. Fredrickson is responsible for
the overall sales and marketing efforts of the CyberStar(R) Division and the
hiring, training and management of the employees directly involved with the
CyberStar(R) Division. From 1993 to 1995, Mr. Fredrickson was the Sales and
Marketing Manager of CyberStar(R) Computer Systems, Inc. From 1988 to 1993, Mr.
Fredrickson was the marketing manager at Northern Computer Systems, the company
which trademarked the CyberStar(R) brand name.
RICHARD PALMER has been the Purchasing Manager at CyberStar since July
1993. Mr. Palmer is responsible for the overall buying and procurement of
products for the Company. He also assists with inventory management and product
management. From 1990 to 1993 Mr. Palmer was a Senior Account Executive with
ComputerWare Data Products where he was responsible for procuring computer
products for the sale to end-user business accounts.
12
<PAGE>
JAMES T. GREENFIELD became a director in December 1997. Mr. Greenfield
had previously served as Secretary and Treasurer of the Company from 1992 to
1996. From 1982 through the present, Mr. Greenfield has served as the President
of Stone Fabrics, Inc., a wholesaler of fabrics. Mr. Greenfield is the
brother-in-law of Mr. Pomije.
ED HAVLIK has been a director of the Company since February 1998. Since
1990, Mr. Havlik has served as National Sales Manager for Panasonic Multimedia
Division. Until 1994, Mr. Havlik also served as Western Regional Manager for
Panasonic OAG.
The Company's directors are elected at the annual meeting of the
shareholders and serve until their successors are elected and qualified. The
officers of the Company are elected by the Board of Directors and serve at the
discretion of the Board of Directors or until their earlier resignation or
removal.
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company for
services rendered during the fiscal years ended February 28, 1999, 1998 and 1997
to the Company's Chief Executive Officer, the only officer whose cash
compensation exceeded $100,000 in fiscal 1999.
ANNUAL COMPENSATION
--------------------------------------
NAME AND OTHER
PRINCIPAL POSITION YEAR SALARY($) ANNUAL COMPENSATION(1)
- ----------------------- ------ ----------- ------------------------
Richard A. Pomije, 1999 $ 69,615 $ 15,094
Chief Executive Officer 1998 112,692 19,451
1997 55,443 16,849
(1) Amounts paid for Mr. Pomije's business use of automobiles.
No stock options have been granted to Mr. Pomije.
STOCK OPTION PLAN
In December 1996, the Board of Directors and shareholders of the
Company adopted the CyberStar(R) Computer Corporation 1996 Stock Option Plan
(the "Plan"). The Plan provides for the granting of options to purchase shares
of Common Stock to key employees, directors and consultants of the Company. The
Company has reserved 1,000,000 shares of Common Stock for issuance under the
Plan. The Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code of 1986, as amended) and
non-statutory stock options (options which do not meet the requirements of
Section 422). The exercise price of incentive options granted under the Plan may
not be less than the fair market value of the Common Stock on the date of grant.
The exercise price of non-statutory options granted under the Plan may not be
less than 85% of the fair market value of the Common Stock on the date of grant.
As of May 31, 1999, options to purchase 302,184 shares of Common Stock at an
average price of $1.85 per share were outstanding under the Plan.
13
<PAGE>
DIRECTORS' COMPENSATION
To date, the Company has not paid any cash compensation to its
directors for their services as directors. The Company may pay fees to its
outside directors when the Company becomes profitable.
In June 1998, an option to purchase 100,000 shares of Common Stock at
$3.00 per share was granted to James T. Greenfield.
In July 1999, the Company issued 5,000 shares of its Common Stock to Ed
Havlik as partial consideration for his service on the Board. Such shares were
valued at $12,500 as of the date of issuance.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
The description of the Company's capital stock contained herein is
qualified by reference to the Company's Articles of Incorporation, as amended to
date, and Bylaws. The Company's authorized capital stock consists of 20,000,000
shares, par value $0.01 per share.
COMMON STOCK
As of the date hereof, the Company has 3,933,095 shares of Common Stock
issued and outstanding and an additional 1,050,000 shares of Common Stock
reserved for issuance under the Company's stock option plans and outstanding
warrants. The Company has authorized only one class of Common Stock. The holders
of Common Stock are entitled to one vote for each share on all matters voted
upon by the Company's shareholders, including the election of directors, and
there is no cumulative voting. The holders of the Common Stock are also entitled
to such dividends as may be declared in the discretion of the Board of Directors
out of funds legally available therefor. See "Dividend Policy." Holders of
Common Stock are entitled to share ratably in the net assets of the Company upon
liquidation after payment or provision for all liabilities. The holders of
Common Stock have no preemptive rights to purchase shares of stock of the
Company. Shares of Common Stock are not subject to any redemption provisions and
are
14
<PAGE>
not convertible into any other securities of the Company. All outstanding shares
of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company, without further action by the
Company's shareholders, is authorized to issue preferred stock or other senior
equity securities in one or more class or series and to determine preferences as
to dividends and in liquidation, and conversion, redemption and other rights of
each such series. The Company's Board of Directors could issue a class or series
of preferred stock or other senior equity securities with rights more favorable
with respect to dividends, voting and liquidation than those held by the holders
of Common Stock. The issuance of preferred stock or other senior equity
securities may have the effect of delaying, deferring or preventing a change in
control of the Company. No shares of preferred stock or other senior equity
securities are outstanding and the Company has no present plans to issue such
stock or securities.
ANTITAKEOVER PROVISIONS
The existence of authorized but unissued preferred stock described
above, and certain provisions of the Company's Articles of Incorporation and
Minnesota law, described below, could have an antitakeover effect. These
provisions could have the effect of discouraging some attempts to acquire the
Company which could deprive the Company's shareholders of opportunities to sell
their shares of Common Stock at prices higher than prevailing market prices.
Section 302A.671 of Minnesota Statutes applies, with certain
exceptions, to any acquisition of voting stock of the Company (from a person
other than the Company, and other than in connection with certain mergers and
exchanges to which the Company is a party) resulting in the beneficial ownership
of 20% or more of the voting stock then outstanding. Section 302A.671 requires
approval of any such acquisitions by a majority vote of the Company's
shareholders of the Company prior to its consummation. In general, shares
acquired in the absence of such approval are denied voting rights and are
redeemable at their then fair market value by the Company within 30 days after
the acquiring person has failed to give a timely information statement to the
Company or the date the Company's shareholders have voted not to grant voting
rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any
business combination by the Company, or any subsidiary of the Company, with any
shareholder that purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.
WARRANTS
The Company has outstanding warrants exercisable for an aggregate of
50,000 shares of Common Stock at an exercise price of $2.20 per share. These
warrants, which expire April 27, 2003, were issued to the selling agent for a
private placement in 1998. The warrants provide for antidilution adjustments in
the event of certain mergers, consolidations, reorganizations, recapitalization,
stock dividends, stock splits or other changes in the corporate structure of the
15
<PAGE>
Company. Holders of the warrants are entitled to certain participatory and
demand registration rights for the shares of Common Stock issuable upon exercise
of the warrants.
DIVIDEND POLICY
To date the Company has paid no cash dividends on its Common Stock. The
Company intends to retain its future earnings, if any, to make acquisitions,
finance the expansion of its business and for general corporate purposes. The
Company does not anticipate paying any cash dividends on its Common Stock in the
future. Any payment of future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors that the Company's Board of Directors deems relevant.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Signature Stock
Transfer Inc.
16
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
The Company's Common Stock has been traded on the OTC Bulletin Board
since June 12, 1998. The high and low prices for the last three quarters in
fiscal 1999 and the first quarter of fiscal 2000 as provided to the Company by
Global Financial Group, Inc. are as follows:
QUARTER ENDED HIGH LOW
August 31, 1998 $4.00 $2.00
November 30, 1998 4.00 1.75
February 28, 1999 4.00 .88
May 31, 1999 4.00 1.63
These quotations represent interdealer prices, without retail markup,
markdown, or commission, and may not reflect actual transactions.
As of August 26, 1999, there were approximately 22 record holders of
the Company's Common Stock.
The Company has paid no cash dividends in its Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
On July 22, 1999, Martin J. McIntyre commenced an action against the
Company in the Circuit Court of Cook County, Illinois, alleging that he is
entitled to compensation for providing services to the Company in connection
with obtaining financing. The Company believes that Mr. McIntyre's claim is
without merit and intends vigorously to defend against the claim.
The Company is, from time to time, a party to litigation arising in the
normal course of its business. The Company believes that none of these actions
will have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following share amounts have been adjusted to reflect a reverse
stock split in December 1997.
In February 1997, the Company sold 244,280 shares of Common Stock to
eight private investors for aggregate consideration of $671,770. In March 1997,
the Company sold 60,000 shares of Common Stock to four private investors (one of
whom had also purchased in February 1997) for aggregate consideration of
$180,000. No selling agent was used for these sales.
In April 1998, the Company sold 500,000 shares of Common Stock to ten
investors (five of whom had invested in 1997) for aggregate consideration of
$1,000,000 (less the selling agent's commissions and expenses of $100,000). The
Company also issued warrants to purchase
17
<PAGE>
50,000 shares of Common Stock at $2.20 per share to the selling agent, Global
Financial Group, Inc. This offering was conducted in compliance with Rule 504 of
Regulation D under the Securities Act of 1933.
In September 1998, the Company issued 11,429 shares of Common Stock,
valued at $40,000, as consideration for the purchase of the assets of Vision
Business Systems.
In July 1999, the Company issued 5,000 shares of Common Stock to Ed
Havlik, a director of the Company (as partial consideration for his service on
the Board).
The Company has also granted options to purchase, in the aggregate,
438,684 shares of Common Stock, at an average exercise price of $1.95, to
employees. None of these options has been exercised, and options for 81,500
shares have been cancelled. The Company plans to rely on Rule 701 under the
Securities Act for these transaction.
Except as noted above, the Company relied upon the exemption from the
registration provided by Section 4(2) of the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Unless prohibited in a corporation's articles or bylaws, Minnesota
Statutes Section 302A.521 requires indemnification of officers, directors,
employees and agents, under certain circumstances, against judgments, penalties,
fines, settlements and reasonable expenses (including attorneys' fees and
disbursements) incurred by such persons in connection with the acts or omissions
of such persons in their official capacities. Section 302A.521 of the Minnesota
Business Corporation Act also provides that the Company shall indemnify any
director, officer, employee or agent of the Company made or threatened to be
made a party to a legal proceeding, by reason of the former or present official
capacity of the person, against judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the proceeding if
certain statutory standards are met.
The Company's Articles of Incorporation provide that a director shall
not be personally liable to the Company or its shareholders for monetary damages
for breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for dividends, stock repurchases and other distributions
made in violation of Minnesota law or for violations of federal or state
securities laws, (iv) for any transaction from which the director derived an
improper personal benefit, or (v) for any act or omission occurring prior to the
effective date of the provision in the Company's Articles of Incorporation
limiting such liability.
The Company's Bylaws provide that each director and officer of the
Company, whether or not then in office, shall be indemnified by the Company
against all costs, attorneys' fees and expenses reasonably incurred by or
imposed upon him or her in connection with or arising out of any action, suit,
or proceeding in which he or she may be involved by reason of being or having
been a director or officer of the Company or of a subsidiary of the Company;
said expenses shall include the cost of reasonable settlements made with view of
curtailment of costs of litigation. Neither the Company nor any subsidiary
shall, however, indemnify any director or officer for expenses incurred or
imposed upon him or her in any action, suit, or proceeding
18
<PAGE>
brought against him or her by the Company or any subsidiary with respect to
matters as to which he or she shall be finally adjudged in any such action,
suit, or proceeding to have been derelict in the performance of his or her duty
as officer or director, nor in respect of any matter on which any settlement or
compromise is effected, if the total expense which might reasonably be incurred
by such director or officer in conducting such litigation to a final conclusion
would be less than the settlement amount. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the Minnesota
Statutes or otherwise, the Company has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
The Company intends to maintain liability insurance for the benefit of
the Company and its directors and officers.
19
<PAGE>
CYBERSTAR COMPUTER CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1998 AND 1999
CONTENTS
Report of Independent Auditors.................................................1
Financial Statements
Balance Sheets.................................................................2
Statements of Operations.......................................................3
Statement of Stockholders' Equity..............................................4
Statements of Cash Flows.......................................................5
Notes to Financial Statements..................................................6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CyberStar Computer Corporation
We have audited the accompanying balance sheets of CyberStar Computer
Corporation as of February 28, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 that 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 financial position of CyberStar Computer Corporation
at February 28, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 9, 1999
1
<PAGE>
Cyberstar Computer Corporation
Balance Sheets
<TABLE>
<CAPTION>
FEBRUARY 28 MAY 31,
1998 1999 1999
-------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 104,008 $ 73,191 $ 22,715
Accounts receivable, less allowance for doubtful
accounts - $20,000 at February 28, 1998, and
$16,700 at February 28, 1999 and May 31, 1999 1,014,408 693,490 484,289
Inventories 437,301 463,303 367,122
Insurance receivable -- 246,380 246,380
Deferred financing costs 47,600 25,000 25,000
Prepaid expenses 1,907 15,680 15,887
-------------------------------------------
Total current assets 1,605,224 1,517,044 1,161,393
Property and equipment:
Office equipment and furniture 119,896 224,404 215,976
Leasehold improvements 33,115 37,270 37,270
Production equipment 27,382 46,857 46,857
-------------------------------------------
180,393 308,531 300,103
Accumulated depreciation (57,504) (133,988) (153,109)
-------------------------------------------
122,889 174,543 146,994
-------------------------------------------
Total assets $ 1,728,113 $ 1,691,587 $ 1,308,387
===========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 275,000 $ 150,000 $ --
Accounts payable 621,110 647,152 568,714
Accrued payroll and payroll taxes 34,590 34,273 12,505
Accrued liabilities 59,946 125,871 63,350
-------------------------------------------
Total current liabilities 990,646 957,296 644,569
Stockholders' equity:
Common stock, $.01 par value
Authorized shares - 20,000,000
Issued and outstanding shares - 3,416,666 at
February 28, 1998, and 3,928,095 at
February 28, 1999 and May 31, 1999 34,167 39,281 39,281
Additional paid-in capital 989,262 1,901,029 1,901,029
Accumulated deficit (285,962) (1,206,019) (1,276,492)
-------------------------------------------
Total stockholders' equity 737,467 734,291 663,818
-------------------------------------------
Total liabilities and stockholders' equity $ 1,728,113 $ 1,691,587 $ 1,308,387
===========================================
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Cyberstar Computer Corporation
Statements of Operations
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED FEBRUARY 28 ENDED MAY 31
1998 1999 1998 1999
-----------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales $ 5,376,651 $ 4,854,299 $ 1,228,759 $ 1,151,470
Cost of sales 4,379,992 4,215,840 1,024,866 955,564
-----------------------------------------------------------
Gross profit 996,659 638,459 203,893 195,906
Operating expenses:
General and administrative 845,580 1,412,754 332,693 245,490
Sales and marketing 219,431 154,400 28,755 19,356
-----------------------------------------------------------
1,065,011 1,567,154 361,448 264,846
-----------------------------------------------------------
Loss from operations (68,352) (928,695) (157,555) (68,940)
Other income (expense):
Interest income 4,356 17,824 811 1,285
Interest expense (8,033) (5,759) (4,294) (2,192)
Other income (expense) 1,257 (3,427) (909) (626)
-----------------------------------------------------------
(2,420) 8,638 (4,392) (1,533)
-----------------------------------------------------------
Net loss $ (70,772) $ (920,057) $ (161,947) $ (70,473)
===========================================================
Basic and dilutive net loss
per share $ (.02) $ (.24) $ (.05) $ (.02)
Weighted average shares
outstanding 3,232,199 3,880,083 3,182,893 3,928,095
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Cyberstar Computer Corporation
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1997 3,170,870 $ 31,709 $ 818,391 $ (215,190) $ 634,910
Sale of common stock, net of offering costs
of $6,671 14,365 144 173,185 -- 173,329
Stock price adjustment 231,431 2,314 (2,314) -- --
Net loss -- -- -- (70,772) (70,772)
-----------------------------------------------------------------------
Balance, February 28, 1998 3,416,666 34,167 989,262 (285,962) 737,467
Sale of common stock, net of offering costs
of $123,119 500,000 5,000 871,881 -- 876,881
Issuance of common stock for asset purchase 11,429 114 39,886 -- 40,000
Net loss -- -- -- (920,057) (920,057)
-----------------------------------------------------------------------
Balance, February 28, 1999 3,928,095 39,281 1,901,029 (1,206,019) 734,291
Net loss -- -- -- (70,473) (70,473)
-----------------------------------------------------------------------
Balance, May 31, 1999 (unaudited) 3,928,095 $ 39,281 $ 1,901,029 $(1,276,492) $ 663,818
=======================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Cyberstar Computer Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 THREE MONTHS ENDED MAY 31
1998 1999 1998 1999
---------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (70,772) $(920,057) $(161,947) $ (70,473)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation 33,453 76,484 8,000 19,121
Changes in operating assets and
liabilities:
Accounts receivable (766,607) 320,918 437,537 209,201
Inventories (236,006) (26,002) 142,236 96,181
Insurance receivable -- (246,380) -- --
Deferred financing costs (47,600) 22,600 47,600 --
Prepaid expenses (707) (13,773) 1,867 (207)
Accounts payable 465,802 26,042 (411,729) (78,438)
Accrued expenses 42,973 65,608 5,324 (84,289)
---------------------------------------------------
Net cash (used in) provided by operating
activities (579,464) (694,560) 68,888 91,096
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and
equipment -- -- -- 8,428
Purchases of property and equipment (125,876) (88,138) (39,979) --
---------------------------------------------------
Net cash (used in) provided by investing
activities (125,876) (88,138) (39,979) 8,428
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock 173,329 876,881 901,921 --
Net proceeds (payments) on line of credit 275,000 (125,000) (275,000) (150,000)
---------------------------------------------------
Net cash provided by (used in) financing
activities 448,329 751,881 626,921 (150,000)
---------------------------------------------------
(Decrease) increase in cash (257,011) (30,817) 655,830 (50,476)
Cash at beginning of period 361,019 104,008 104,008 73,191
---------------------------------------------------
Cash at end of period $ 104,008 $ 73,191 $ 759,838 $ 22,715
===================================================
Supplemental information:
Cash paid during the period for interest $ 6,736 $ 5,759 $ 4,294 $ 2,912
Property and equipment acquired with
common stock issuance -- 40,000 -- --
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Cyberstar Computer Corporation
Notes to Financial Statements
February 28, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company currently has two operating divisions, Cyberstar and VAR. The
Cyberstar Division manufactures and markets a line of microcomputers, including
personal computers, workstations and file servers under the Cyberstar brand
name. The VAR Division currently is an authorized reseller of products from
Compaq, IBM, Digital Equipment, and Hewlett-Packard, among others.
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of May 31, 1999 and for the three-month
periods ended May 31, 1999 and 1998 are unaudited. In the opinion of management
of the Company, these financial statements reflect all adjustments, consisting
only of normal and recurring adjustments necessary for a fair presentation of
the financial statements. The results of operations for the three-month period
ended May 31, 1999 are not necessarily indicative of the results that may be
expected for the full year ending February 29, 2000.
NET LOSS PER SHARE
Basic net income per share is computed based on the weighted average number of
common shares outstanding during each period. Diluted net income per share
includes the incremental shares assumed issued on the exercise of stock options.
Basic and diluted net loss per share are equal because the effect of outstanding
stock options and warrants is antidilutive.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist principally of purchased components.
6
<PAGE>
Cyberstar Computer Corporation
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the assets ranging from
three to seven years. Leasehold improvements are amortized over the shorter of
the related lease term or estimated useful lives on a straight-line basis.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between financial reporting
and the tax basis of assets and liabilities.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The Company has elected to follow the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("Statement 123"). Accordingly, the Company has made pro forma disclosures of
what net loss would have been had the provisions of Statement 123 been applied
to the Company's stock options.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7
<PAGE>
Cyberstar Computer Corporation
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
The Company expenses all advertising as incurred. Advertising costs charged to
operations were $40,885 and $53,853 for the years ended February 28, 1998 and
1999, respectively; and $4,997 and $500 for the three months ended May 31, 1998
and 1999, respectively.
2. NOTE PAYABLE TO BANK
The Company had a revolving line of credit of $150,000 with a bank. This line of
credit was secured by all of the Company's assets and the personal guaranty of
the majority stockholder. Borrowings under the line accrued interest at a rate
of 1.5% over the prime rate (9.5% at February 28, 1999) and amounted to $150,000
at February 28, 1999. On March 26, 1999, the line of credit was renewed until
April 25, 1999, at which time the line of credit was not renewed.
3. OPERATING LEASES
The Company leases vehicles and office space under operating leases that expire
at various times through 2001.
Minimum lease payments on these leases for years after 1999 are as follows:
2000 $192,443
2001 51,243
-----------------
$243,686
=================
Rent expense was $59,316 and $156,137 for the years ended February 28, 1998 and
1999, respectively. Rent expense was $37,279 and $51,564 for the three months
ended May 31, 1998 and 1999, respectively.
8
<PAGE>
Cyberstar Computer Corporation
Notes to Financial Statements (continued)
4. INCOME TAXES
At February 28, 1999, the Company had net operating loss carryforwards of
approximately $1,054,000. The net operating loss carryforwards are available to
offset future taxable income through 2019 and may be subject to the limitations
under Section 382 of the Internal Revenue Code if significant changes in the
equity ownership of the Company have occurred. Significant components of the
Company's deferred tax assets are as follows:
FEBRUARY 28
1998 1999
-----------------------
Deferred tax assets:
Net operating loss carryforwards $ 94,200 $ 426,300
Allowance for doubtful accounts 6,800 5,700
Accrued vacation 3,600 1,300
-----------------------
Deferred tax assets before valuation allowance 104,600 433,300
Valuation allowance (104,600) (433,300)
-----------------------
Net deferred tax assets $ -- $ --
=======================
5. MAJOR CUSTOMERS
The Company had two customers which represented 44% of sales in 1998 and one
customer which represented 31% of its sales in 1999. The accounts receivable
balance from these major customers as of February 28, 1998 and 1999 was $552,170
and $226,662, respectively. For the three months ended May 31, 1998 and 1999,
the Company had one customer which represented 43% of sales and two customers
which represented 33% of sales, respectively. At May 31, 1999, the accounts
receivable balance from these customers was $133,530.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In March 1997, the Company sold 14,365 shares of common stock at $12.53 per
share from which the Company received net proceeds of $173,329.
9
<PAGE>
Cyberstar Computer Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
In December 1997, the Board of Directors approved an adjustment of the purchase
price of each stockholder who purchased common stock in the private placements
in February and March 1997. The purchase price of the February 1997 private
placement was adjusted from $11.49 to $2.75 resulting in an additional 185,796
shares being issued. The purchase price of the March 1997 private placement was
adjusted from $12.53 per share to $3.00 per share resulting in an additional
45,635 shares being issued.
In April 1998, the Company sold 500,000 shares of common stock at $2.00 per
share from which the Company received proceeds of $876,881, net of direct
financing costs. In connection with the sale of the shares, the Company issued a
warrant to the selling agent exercisable for an aggregate of 50,000 shares of
Common Stock at an exercise price of $2.20 per share. The warrant expires in
April 2003.
In September 1998, the Company issued 11,429 shares of common stock at $3.50 per
share in exchange for certain assets.
STOCK OPTIONS
The Company has a stock option plan that includes both incentive and
non-statutory stock options granted to directors, officers, employees and
consultants of the Company. The maximum number of shares of Common Stock
reserved for issuance is 1,000,000 shares under the 1996 Stock Option Plan.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES OPTIONS OUTSTANDING AVERAGE EXERCISE
------------------------ PRICE
AVAILABLE TOTAL SHARES PER SHARE
FOR GRANT SHARES EXERCISABLE OUTSTANDING
----------------------------------------------------
<S> <C> <C> <C> <C>
Establishment of Stock Option Plan 478,828 -- --
----------------------------------
Balance at February 28, 1998 478,828 -- --
Additional shares reserved 521,172 -- --
Options granted (338,684) 338,684 -- $ 1.86
Options becoming exercisable -- -- 211,668 --
----------------------------------
Balance at February 28, 1999 661,316 338,684 211,668 1.86
Options canceled 36,500 (36,500) -- 1.97
----------------------------------
Balance at May 31, 1999 (unaudited) 697,816 302,184 211,668 $ 1.85
==================================
</TABLE>
10
<PAGE>
Cyberstar Computer Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
Exercise prices for options outstanding as of February 28, 1999 ranged from
$1.75 to $3.00. The weighted average exercise price of exercisable options
outstanding was $1.75 at February 28, 1999 and May 31, 1999. The weighted
average remaining contractual life is 6.5 years at February 28, 1999.
In February 1999, the exercise price for certain outstanding options was
repriced from $3.00 to $1.75. The total number of repriced options was 308,334.
The Company has 30,350 options which begin to vest on the one-year anniversary
of the date at which the Company completes an initial public offering, if ever.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net loss is required by Statement 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of Statement 123. The fair value for these options
was estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for 1999, respectively:
risk-free interest rates of 5.0% and a weighted average expected life of the
option of five years. The weighted average fair value of options granted during
1999 was $.39.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
11
<PAGE>
Cyberstar Computer Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
1999
--------------
Pro forma net loss $(1,004,336)
Basic and dilutive pro forma net loss per share $(.26)
7. SUBSEQUENT EVENTS
In May 1999, the Company entered into an agreement whereby they can sell
receivables or borrow money up to 80% of the eligible receivable balance. The
Company pays a 1% commission on all receivables sold or is charged interest at a
rate of 8% or prime plus 1 1/2%, whichever is greater, for receivables which are
borrowed against. This agreement is for one year and automatically renews until
either party terminates the agreement. The minimum commissions payable under
this agreement is $24,000 per year.
12
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
The exhibits listed in the following table have been filed as part of
this Registration Statement.
2.1 Articles of Incorporation of the Company, as amended and restated to
date
2.2 Bylaws of the Company
3.1 Specimen form of the Company's Common Stock Certificate
3.2 Form of warrant for shares of the Company's Common Stock
6.1 Lease for facility at 6825 Shady Oak Road
6.2 1996 Employee Stock Option Plan, as amended to date
10.1 Consent of Ernst & Young LLP
27 Financial Data Schedules
ITEM 2. DESCRIPTION OF EXHIBITS.
See Item 1, above.
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated:
----------------------
CYBERSTAR(R) COMPUTER CORPORATION
By
--------------------------------------
Richard A. Pomije
President and Chief Executive Officer
EXHIBIT 2.1
ARTICLES OF INCORPORATION
OF
COMMAND SMALL COMPUTER LEARNING CENTER, INC.
We, the undersigned, of full age, for the purpose of forming a
corporation under and pursuant to the provisions of Chapter 301 Minnesota
Statutes, known as the Minnesota Business Corporation Act and the laws
amendatory thereof and supplementary thereto, do hereby associate ourselves as a
body corporate and adopt the following Articles of Incorporation:
ARTICLE I
The name of this corporation is Command Small Computer Learning Center,
Inc.
ARTICLE II
The purposes are to provide training and educational services in the
data processing field, and general business purposes.
ARTICLE III
Its duration shall be perpetual.
ARTICLE IV
The location and post office address of its registered office in this
State is 6800 France Avenue South, Suite 410, Edina, Minnesota 55435.
ARTICLE V
The amount of stated capital with which this corporation will begin
business is Two Thousand Dollars ($2,000).
ARTICLE VI
The total authorized number of shares of par value is 2,500,000, and
the par value of each share is One Cent ($0.01).
ARTICLE VII
The description of the classes of shares, the number of shares in each
class, and the relative rights, voting power, preferences and restriction are as
follows:
There shall be a single class of common stock, and each holder of
common stock, and each holder of common stock shall be entitled to one vote for
each share of stock standing in his
<PAGE>
name on the books of the corporation, on all matters coming before a duly called
meeting of shareholders. There shall be no cumulative voting of shares and no
preemptive rights to subscribe to any issue of shares.
ARTICLE VIII
The name and post office address of each of the incorporators
Name Post Office Address
David A. Lund 7201 York Avenue South, Suite 1219
Edina, Minnesota 55435
ARTICLE IX
The names, post office address and term of office of the first director
is:
Name Post Office Address Term
David A. Lund 7201 York Avenue South 1 Year
Suite 1219
Edina, Minnesota 55435
ARTICLE X
Amendment of these Articles of Incorporation may be accomplished at any
duly held meeting of the shareholders at which persons owning at least
two-thirds (2/3) of the outstanding voting shares are present in person or by
proxy and vote in favor thereof.
The Board of Directors shall be vested with the power to make, alter,
amend or rescind all or any of the By-Laws of this corporation, subject to the
power of the shareholders to change or repeal such By-Laws; provided, the Board
of Directors shall not make or alter any By-Law fixing their number,
qualifications, classification, or term of office.
ARTICLE XI
The corporation shall have all of the powers granted or available under
the laws of the State of Minnesota and laws amendatory and supplementary
thereto.
2
<PAGE>
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal this 23rd
day of March, 1982.
/s/ David A. Lund
-----------------------------------------
David A. Lund
STATE OF MINNESOTA )
) SS.
County of Hennepin )
On this 23rd day of March, 1982, personally appeared before me David A.
Lund, to me known to be the person named in and who executed the foregoing
Articles of Incorporation, and who acknowledged this to be of his own free act
and deed for the uses and purposes therein expressed.
/s/ Paul L. Sjoquist
-----------------------------------------
Notary Public
[STAMP]
[SEAL] PAUL L. SJOQUIST
NOTARY PUBLIC - MINNESOTA
DAKOTA COUNTY
My commission expires Feb. 20, 1987
STATE OF MINNESOTA
DEPARTMENT OF STATE
I hereby certify that the within instrument was
filed for record in this office on the 7th day of April A.D.
1982 at [illegible] o'clock p.m., and was duly recorded in
Book Z-56 of Incorporations, on page 877.
/s/ Joan Anderson Growe
Secretary of State
3
<PAGE>
CERTIFICATE OF
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
COMMAND SMALL COMPUTER LEARNING CENTERS, INC.
We, the undersigned, do hereby certify that we are respectively the
president and secretary of COMMAND SMALL COMPUTER LEARNING CENTERS, INC., a
corporation duly organized and validly existing under the laws of the State of
Minnesota; that the following resolutions were duly adopted by all the
shareholders holding all outstanding shares of the corporation acting together
pursuant to the provisions of Minnesota Statutes Section 302A on the 2nd day of
March, 1987, and that such resolutions have not been rescinded or modified and
are in full force and effect on the date hereof.
"RESOLVED, that the name of this corporation shall be changed
to COMMAND ELECTRONICS, INC. effective the 2nd day of March,
1987, and Article I of the Articles of Incorporation is
hereby amended in its entirety to read as follows:
'The name of this corporation shall be COMMAND ELECTRONICS,
INC.'
"RESOLVED, FURTHER, that the president and secretary of this
corporation be and they hereby are authorized and directed to
make, execute, and acknowledge a certificate embracing the
foregoing resolution and to cause such certificate to be
filed for record in the manner required by law."
Dated 3-2-87
/s/ Richard A. Pomije
-----------------------------------------
Secretary
APPROVED
/s/ Richard A. Pomije
- --------------------------------------
Chairman
4
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF DAKOTA )
On the 2nd day of March, 1987, before me, a Notary Public,
personally appeared RICHARD A. POMIJE, to be known to be the person described in
and who executed the foregoing Certificate of Articles of Amendment of Articles
of Incorporation of Command Small Computer Learning Centers, Inc., who
acknowledged to and before me that he executed the same on behalf of said
corporation.
/s/ Mary A. Anderson
-----------------------------------------
NOTARY PUBLIC
[STAMP]
[SEAL] MARY A. ANDERSON
NOTARY PUBLIC - MINNESOTA
SCOTT COUNTY
My commission expires June [illegible]
[STAMP]
STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
APR 3, 1987
/s/ Joan Anderson Growe
Secretary of State
5
<PAGE>
Articles of Amendment
of Articles of Incorporation of
Command Electronics, Inc.
I Richard Pomije, the President of Command Electronics, Inc., a
Minnesota corporation, do hereby certify that by resolutions in lieu of a
special meeting of the sole shareholder and sole director of said corporation
effective as of January 28, 1997, the following resolutions were adopted in
writing by the sole shareholder and sole director, pursuant to Minnesota
Statutes, Chapter 302A:
RESOLVED, that Article VI of the Articles of Incorporation of
this corporation shall be amended to read as follows:
ARTICLE VI
The aggregate number of shares that this corporation has the
authority to issue is Twenty Million (20,000,000), with a par value of
One Cent ($0.01) per share.
RESOLVED, that Article VII of the articles of Incorporation
shall be amended as follows:
ARTICLE VII
The Board of Directors shall have the authority to establish
more than one class or series of shares of this corporation, and the
different classes and series shall have such relative rights and
preferences, with such designations, as the Board may by resolution
provide. Except as may be otherwise provided by the Board in a
resolution establishing a class or series, shareholders shall have no
preemptive rights. There shall be no cumulative voting by shareholders
for the election of directors.
RESOLVED, that Article X of the Articles of Incorporation of
this corporation shall be amended as follows:
The Board of Directors shall be vested with the power to make,
alter, amend or rescind all or any of the By-Laws of this corporation,
subject to the power of the shareholders to change or repeal such
By-Laws: provided, the Board of Directors shall not make or alter any
By-Law fixing their number, qualifications, classification, or term of
office.
6
<PAGE>
RESOLVED, that a new Article XII of the Articles of
Incorporation of this corporation shall be amended as follows:
ARTICLE XII
A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director. The foregoing shall not be deemed to
eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its shareholders,
(ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under
Section 302A.559 or 80A.23 of Minnesota Statutes, (iv) for any
transaction from which the director derived any improper personal
benefit, or (v) for any act or omission occurring prior to the
effective date of this Article XII. Any repeal or modification of this
paragraph by the shareholders of the corporation shall not adversely
affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
RESOLVED FURTHER, that the President of this corporation is authorized
and directed to make and execute Articles of Amendment embracing the
foregoing resolutions and to cause such Articles of Amendment to be
filed for record in the manner required by law.
IN WITNESS WHEREOF, I have hereto set my hand this 27th day of January,
1997.
/s/ Richard A. Pomije
-----------------------------------------
President
[STAMP]
STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
JAN 31, 1997
/s/ Joan Anderson Growe
Secretary of State
7
<PAGE>
EXHIBIT A
ARTICLES OF AMENDMENT
OF ARTICLES OF INCORPORATION OF
COMMAND ELECTRONICS, INC.
I, Richard Pomije, the President of Command Electronics, Inc., a
Minnesota corporation, do hereby certify that by resolutions in lieu of a
special meeting of the major shareholder and sole director of said corporation
effective as of April 2, 1997, the following resolution was adopted in writing
by the major shareholder and sole director, pursuant to Minnesota Statutes,
Chapter 302A:
RESOLVED, that Article I of the Articles of Incorporation of this
corporation shall be amended to read as follows:
ARTICLE I
The name of this corporation is CyberStar Computer Corporation.
RESOLVED FURTHER, that the President of this corporation is authorized
and directed to make and execute Articles of Amendment embracing the foregoing
resolutions and to cause such Articles of Amendment to be filed for record in
the manner required by law.
IN WITNESS WHEREOF, I have hereto set my hand this 2nd day of April,
1997.
/s/ Richard A. Pomije
-----------------------------------------
President
[STAMP]
STATE OF MINNESOTA
DEPARTMENT OF STATE
FILED
APR 07, 1997
/s/ Joan Anderson Growe
Secretary of State
8
<PAGE>
ARTICLES OF AMENDMENT
OF ARTICLES OF INCORPORATION OF
CYBERSTAR COMPUTER CORPORATION
I Richard Pomije, the President of CyberStar Computer Corporation, a
Minnesota corporation, do hereby certify that by resolutions of the sole
director of said corporation effective as of January 7, 1998, the following
resolutions were adopted in writing by the sole director, pursuant to Minnesota
Statutes, Chapter 302A:
RESOLVED, that Article VI of the Articles of Incorporation of
this corporation shall be amended to read as follows:
ARTICLE VI
The aggregate number of shares that this corporation has the
authority to issue is Nine Million Five Hundred Seventy-Six Thousand
Five Hundred Seventy-Two (9,576,572), with a par value of One Cent
($0.01) per share.
IN WITNESS WHEREOF, I have hereto set my hand this 7th day of
January, 1998.
/s/ Richard A. Pomije
-----------------------------------------
President
9
<PAGE>
[SEAL] STATE OF MINNESOTA
SECRETARY OF STATE
NOTICE OF CHANGE OF REGISTERED OFFICE/
REGISTERED AGENT
Please read the instructions on the back before completing this form
1. Corporate Name:
CyberStar Computer Corporation
---------------------------------------------------------------------------
2. Registered Office Address (No. & Street): List a complete street address or
rural route and rural route box number. A post office box number is not
acceptable.
6825 Shady Oak Road Eden Prairie MN 55344
---------------------------------------------------------------------------
Street City State Zip Code
3. Registered Agent (Registered agents are required for foreign corporations
but optional for Minnesota corporations):
---------------------------------------------------------------------------
If you do not wish to designate an agent, you must list "NONE" in this box.
D0 NOT LIST THE CORPORATE NAME.
In compliance with MINNESOTA STATUTES, SECTION 302A.123, 303.10, 308A.O25,
317A.123 or 322B.135, I certify that the above listed company has resolved to
change the company's registered office and/or agent as listed above.
I certify that I am authorized to execute this certificate and I further certify
that I understand that by signing this certificate I am subject to the penalties
of perjury as set forth in MINNESOTA STATUTES SECTION 609.48 as if I had signed
this certificate under oath.
/s/ John Harvatine
- -----------------------------------
Signature of Authorized Person
Name and Telephone Number of a Contact Person: John Harvatine (612) 943-1598
----------------------------------
PLEASE PRINT LEGIBLY
- ------------------------------------------------------ -----------------------
Office Use Only
Filing Fee: Minnesota Corporations, Cooperatives and
Limited Liability Companies: $35.00.
Non-Minnesota Corporations: $50.00. [STAMP]
STATE OF MINNESOTA
Make checks payable to Secretary of State DEPARTMENT OF STATE
FILED
JAN 15, 1998
Return to: Minnesota Secretary of State /s/ Joan Anderson Growe
190 State Office Bldg. Secretary of State
100 Constitution Ave.
St. Paul, MN 55155-1299
(612) 296-2803
10
<PAGE>
ARTICLES OF AMENDMENT
OF ARTICLES OF INCORPORATION OF
CYBERSTAR COMPUTER CORPORATION
I, Richard A. Pomije, the President of CyberStar Computer Corporation,
a Minnesota corporation, do hereby certify that by resolutions adopted at a
special meeting of shareholders of said corporation held on June 30, 1998, the
following resolutions were adopted by the shareholders, pursuant to Minnesota
Statutes, Chapter 302A:
RESOLVED, that Article VI of the Articles of Incorporation of
this corporation shall be amended to read as follows:
ARTICLE VI
The aggregate number of shares that this corporation has the
authority to issue is Twenty Million (20,000,000), with a par value of
One Cent ($0.01) per share.
IN WITNESS WHEREOF, I have hereto set my hand this 30th day of June,
1998.
/s/ Richard A. Pomije
-----------------------------------------
President
11
EXHIBIT 2.2
BY-LAWS
OF
COMMAND SMALL COMPUTER LEARNING CENTER, INC.
ARTICLE I
OFFICES, CORPORATE SEAL
(a) Registered Office. The required office of the corporation shall
be as provided in the Articles of Incorporation, and the corporation may have
such other offices as the Board of Directors shall from time to time determine.
(b) Corporate Seal. The corporation shall have such corporate seal or
no corporate seal as the Board of Directors shall from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
(a) Place of Meetings. Meetings of the shareholders of the
corporation shall be held at the registered office or at such other place,
within or without the State of Minnesota, as may be designated by the Board of
Directors.
(b) Annual Meetings. The annual meeting of the shareholders of the
corporation shall be held each year at 10:00 a.m. on the first Friday of the
third month following the close of the corporation's fiscal or accounting year
or if that date shall fall upon a legal holiday, then on the next succeeding
business day, at which time the shareholders, voting as prescribed in the
Articles of Incorporation, shall elect a Board of Directors, and
<PAGE>
shall transact such other business as shall properly come before them.
(c) Special Meetings. Special meetings of the shareholders of the
corporation shall be called by the Secretary at any time upon the request of the
President, any Vice President, or a majority of the members of the Board of
Directors, or upon the request of shareholders holding ten percent (10%) or more
of the shares entitled to vote.
(d) Quorum, Adjourned Meetings. The holders of a majority of the
shares outstanding and entitled to vote shall constitute a quorum for the
transaction of business at any annual or special meeting. In case a quorum shall
not be present at a meeting, those present shall adjourn to such day as they
shall by majority vote agree upon. A notice of such adjournment shall be mailed
to each shareholder entitled to vote at least five (5) days before such
adjourned meeting. If a quorum is present, they may adjourn from time to time as
they see fit and no notice need be given. At adjourned meetings at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed.
(e) Voting. At each meeting of the shareholders every shareholder
having the right to vote shall be entitled to vote thereat either in person or
by proxy, as hereinafter provided. Each shareholder shall have one vote for each
share having voting power and standing in his name on the books of the
corporation.
2
<PAGE>
Upon the demand of any shareholder, the vote for Directors, or the vote upon any
question before the meeting, shall be by ballot. All elections shall be had and
all questions decided by a majority vote of the number of shares entitled to
vote and represented at any meeting at which there is a quorum, except where
otherwise required by statute, the Articles of incorporation or the By-Laws.
(f) Closing of Books. The Board of Directors may fix a time, not
exceeding 40 days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of and to vote
at such meeting, notwithstanding any transfer of shares on the books of the
corporation after any record date so fixed. The Board of Directors may close the
books of the corporation against the transfer of shares during the whole or any
part of such period. If the Board of Directors fails to fix a record date for
determination of the shareholders entitled to notice of and to vote at any
meeting of shareholders, the record date shall be the fifteenth day preceding
the date of such meeting.
(g) Notice of Meetings. There shall be mailed to each shareholder,
shown by the books of the corporation to be a holder of record of voting shares,
at his address as shown by the books of the corporation, a notice setting out
the time and place of each annual meeting and each special meeting, which notice
shall be mailed at least five (5) days prior thereto; except that
3
<PAGE>
notice of a meeting at which an agreement of merger or consolidation is to be
considered shall be mailed to all shareholders of record, whether entitled to
vote or not, at least two (2) weeks prior thereto; and except that notice of a
meeting at which a proposal to dispose of all or substantially all of the
property and assets of the corporation is to be considered shall be mailed to
all shareholders of records, whether entitled to vote or note, at least ten (10)
days prior thereto; and except that notice of a meeting at which a proposal to
dissolve the corporation or to amend the Articles of Incorporation is to be
considered shall be mailed to all shareholders of record entitled to vote
thereon at least ten (10) days prior thereto. Every notice of any special
meeting shall state the purpose or purposes of the proposed meeting; and the
business transacted at all special meetings shall be confined to the purpose
stated in the call.
(h) Waiver of Notice. Notice of any annual or special meeting may be
waived either before, at, or after such meeting in writing, signed by each
shareholder or representative thereof entitled to vote the shares so
represented.
(i) Order of Business. The suggested order of business at the annual
meeting of shareholders, and, as far as possible, at all other meetings of the
shareholders shall be:
(1) Calling of roll.
(2) Proof of due notice of meeting or unanimous waiver.
(3) Reading and disposal of any unapproved minutes.
(4) Annual reports of officers and committees.
(5) Determination of number of Directors to be elected.
(6) Election of Directors.
4
<PAGE>
(7) Unfinished business.
(8) New Business.
(9) Adjournment.
ARTICLE III
DIRECTORS
(a) General Powers. The property, affairs and business of the
corporation shall be managed by the Board of Directors.
(b) Number, Qualifications and Term of Office. The number of
Directors shall be established by resolution of the shareholders, but shall not
be more than fifteen (15) nor less than minimum required by Minnesota law.
Directors need not be shareholders. Each of the Directors of this corporation
shall hold office until the annual meeting of the shareholders next held after
his election and until his successor shall have been elected and shall qualify,
or until he shall resign, or shall have been removed as hereinafter provided.
(c) Annual Meeting. As soon as practicable after each annual election
of Directors, the Board of Directors shall meet at the registered office of the
corporation, or at such other place within or without the State of Minnesota as
may be designated by the Board of Directors, for the purpose of electing the
officers of the corporation and for the transactions of such other business as
shall come before the meeting.
(d) Regular Meetings. Regular meetings of the Board of Directors
shall be held from time to time at such time and place within or without the
State of Minnesota as from time to time may
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be fixed by resolution adopted by a majority of the whole Board of Directors.
(e) Special Meeting. Special meetings of the Board of Directors may
be called by the President, or by any two of the Directors, and shall be held
from time to time at such time and place as may be designated in the notice of
such meeting.
(f) Notice of Meetings. No notice need be given of any annual or
regular meeting of the Board of Directors. Notice of each special meeting of the
Board of Directors shall be given to the Secretary, who shall give at least
twenty-four (24) hours notice thereof to each Director by mail, telephone,
telegraph, or in person.
(g) Waiver of Notice. Notice of any meeting of the Board of Directors
may be waived either before, at, or after such meeting in writing, signed by
each Director. Each Director, by his attendance and participation in the action
taken at any meeting of the Board of Directors, shall be deemed to have waived
notice of such meeting.
(h) Quorum. A majority of the whole Board of Directors shall
constitute a quorum for the transaction of business, except that when a vacancy
or vacancies exist, a majority of the remaining Directors (provided such
majority consists of not less than two (2) Directors) shall constitute a quorum.
(i) Vacancies. If there be a vacancy among the Directors of this
corporation by reason of death, resignation or otherwise,
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such vacancy shall be filled for the unexpired term by a majority of the
remaining Directors of the Board, and each person so elected shall be a Director
until his successor is elected by the shareholders, who may make such election
at their next annual meeting or at any meeting duly called for that purpose.
(j) Removal. The entire Board of Directors or any individual Director
may be removed from office with or without cause, by a vote of the shareholders
holding a majority of the shares entitled to vote at an election of Directors,
except as otherwise provided by law where the stockholders have the right to
cumulate their votes. In the event that the entire Board or any one or more
Directors be so removed, new Directors shall be elected at the same meeting.
(k) Written Action. Any action which might be taken at a meeting of
the Board of Directors may be taken without a meeting if done in writing and
signed by all of the Directors.
(1) Compensation. Directors who are not salaried officers of this
corporation shall receive such fixed sums per meeting attended, or such fixed
annual sum, as shall be determined from time to time by resolution of the Board
of Directors. All Directors shall receive their expenses, if any, of attendance
at meetings of the Board of Directors. Nothing herein contained shall be
construed to preclude any Director from serving this corporation in any other
capacity and receiving proper compensation therefor.
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(m) Order of Business. The suggested order of business at any meeting
of the Directors shall be:
(1) Roll call.
(2) Proof of due notice of meeting or unanimous consent, or
unanimous presence and declaration by President.
(3) Reading and disposal of any unapproved minutes.
(4) Reports of officers and committees.
(5) Election of officers.
(6) Unfinished business.
(7) New Business.
(8) Adjournment.
ARTICLE IV
OFFICERS
(a) Number. The officers of the corporation shall consist of a
President, one or more Vice Presidents, a Secretary, a Treasurer, and such other
officers and agents as may from time to time be elected by the Board of
Directors. Any two (2) offices, except those of President and Vice President,
may be held by one person.
(b) Election, Term of Office and Qualifications. At each annual
meeting of the Board of Directors the Board shall elect, from within or without
their number, a President, one or more Vice Presidents, a Secretary, a Treasurer
and such other officers as may be deemed advisable. Such officers shall hold
office until the next annual meeting of the Directors or until their successors
are elected and qualify. All officers who may be Directors shall continue to
hold office until the election and qualification of their successors,
notwithstanding an earlier termination of their directorship.
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(c) Removal and Vacancies. Any officer may be removed from his office
by a majority of the whole Board of Directors with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
(d) President. The President shall preside at all meetings of the
shareholders and Directors. He shall be the chief executive officer of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall be ex officio a member of all
standing committees. He shall execute and deliver in the name of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments
pertaining to the business of the corporation and in addition, shall have such
other duties as may from time to time be prescribed by the Board of Directors.
(e) Vice President. Each Vice President shall have such powers and
shall perform such duties as may be specified in the By-Laws or prescribed by
the Board of Directors, in the event of absence or disability of the President,
Vice Presidents shall succeed to his power and duties in the order in which they
are elected.
(f) Secretary. The Secretary shall be Secretary of and shall attend
all meetings of the shareholders and Board of
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Directors and shall act as Clerk thereof and shall record all proceedings of
such meetings in the minute book of the corporation. He shall give proper notice
of meetings of shareholders and Directors. He shall keep the seal of the
corporation and shall affix the same to any instrument requiring it and may,
when necessary, attest the seal by his signature. He shall with the President,
or any Vice President, sign all certificates for shares of the corporation and
affix the corporate seal thereto, and shall perform such other duties as may
from time to time be prescribed by the Board of Directors.
(g) Treasurer. The Treasurer shall keep accurate accounts of all
monies of the corporation received or disbursed. He shall deposit all monies,
drafts, and checks in the name of and to the credit of the corporation in such
banks and depositories as a majority of the whole Board of Directors shall from
time to time designate. He shall have power to endorse for deposit all notes,
checks and drafts received by the corporation. He shall disburse the funds of
the corporation as ordered by the Board of Directors, making proper vouchers
therefor. He shall render to the Board of Directors, whenever required, an
account of all his transactions as Treasurer and of the financial condition of
the corporation and shall perform such other duties as may from time to time be
prescribed by the Board of Directors. Further, the Treasurer shall have sole
legal control to pay wages and sole legal control to withhold therefrom any sums
pursuant to any
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obligation imposed by any federal, state, municipality, or other governmental
agency authorized by law to require a sum to be withheld from wages by the
employer of any employee.
(h) Compensation. The officers of this corporation shall receive such
compensation for their services as may be determined from time to time by
resolution of the Board of Directors.
ARTICLE V
EXECUTIVE COMMITTEE
(a) Executive Committee. The Board of Directors, by unanimous
affirmative action of the entire Board, may establish an executive committee
consisting of two (2) or more Directors. Such committee may meet at stated times
or on notice of all given by any of their own number. During the intervals
between meetings of the Board of Directors, such committee shall advise and aid
the officers of the corporation in all matters concerning the business and
affairs of the corporation, and generally perform such duties and exercise such
powers as may be directed or delegated by the Board of Directors from time to
time. The Board of Directors may, by unanimous affirmative action of the entire
Board, delegate to such committee authority to exercise all the powers of the
Board of Directors, except the power to amend the By-Laws, while the Board of
Directors is not in session. Vacancies in the membership of the committee shall
be filled by the Board of Directors at a regular meeting or at a special meeting
called for that purpose.
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ARTICLE VI
SHARES AND THEIR TRANSFER
(a) Certificates for Shares. Every owner of shares of the corporation
shall be entitled to a stock certificate, to be in such form as shall be
prescribed by the Board of Directors, certifying the number of shares of the
corporation owned by him. The certificates for such shares shall be numbered in
the order in which they shall be issued and shall be signed in the name of the
corporation by the President, or a Vice President, and by the Secretary or an
Assistant Secretary, or by such officers as the Board of Directors may
designate. Such signatures may be by facsimile if authorized by the Board of
Directors. Every certificate surrendered to the corporation for exchange or
transfer shall be cancelled and no new certificate or certificates shall be
issued in exchange for any existing certificates which have been so cancelled,
except in cases provised for in Article VI (d).
(b) Issuance of Shares. The Board of Directors is authorized to cause
to be issued shares of the corporation up to the full amount authorized by the
Articles of Incorporation, in such amounts as may be determined by the Board of
Directors and as may be permitted by law. No shares shall be allotted except in
consideration of cash, or other property, tangible or intangible, received or to
be received by the corporation, of services rendered or to be rendered to the
corporation, or of an amount
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transferred from surplus to stated capital upon a share dividend. At the time of
such allotment of shares, the Board of Directors making such allotments shall
state by resolution their determination of the fair value to the corporation in
monetary terms of any consideration other than cash for which shares are
allotted. The amount of consideration to be received in cash, or otherwise,
shall not be less than the par value of the shares so allotted.
(c) Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation the person or persons in whose name shares are registered on the
books of the corporation.
(d) Loss of Certificates. Any shareholder claiming that a certificate
for shares is lost or destroyed shall make an affidavit or affirmation of that
fact in such form as the Board of Directors shall require, and shall, if the
Board of Directors so require, give the corporation a bond of indemnity in form,
in an amount, and with one or more sureties satisfactory to the Board of
Directors to indemnify the corporation against such claim as may be made against
it on account of the alleged loss or destruction of such certificate, whereupon
a new certificate may be
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issued in the same tenor and for the same number of shares as the one alleged to
have been destroyed or lost.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
(a) Dividends. Subject to the provisions of the Articles of
Incorporation, of these By-Laws and of the law, the Board of Directors may
declare dividends from earned surplus or from net earnings for the current or
preceding fiscal year of the corporation whenever, and in such amounts as, in
its opinion, the condition of the affairs of the corporation shall render it
advisable.
(b) Use of Surplus, Reserves. Subject to the provisions of the
Articles of incorporation and of these By-Laws, the Board of Directors in its
discretion may use and apply any of the net assets or net profits of the
corporation applicable for such purpose in purchasing or acquiring any of the
shares of the capital stock of the corporation in accordance with law, or any of
its bonds, debentures, notes, script or other securities or evidences of
indebtedness, or from time to time may set aside from its net assets or net
profits such sum or sums as it, in its absolute discretion, may think proper as
a reserve fund to meet contingencies, or for the purpose of maintaining or
increasing the property of business of the corporation or for any other purpose
it may think conductive to the best interests of the corporation.
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<PAGE>
(c) Unrealized Appreciation. The Board of Directors in computing the
fair value of the assets of the corporation to determine whether the corporation
may pay a dividend or purchase its shares, shall not include unrealized
appreciation of said assets.
ARTICLE VIII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
(a) Books and Records. The Board of Directors of the corporation
shall cause to be kept:
(1) A share register, giving the names and addresses of the
shareholders, the number and classes held by each, and the
dates on which the certificates therefor were issued;
(2) Records for all proceedings of shareholders and Directors;
and,
(3) Such other records and books of account as shall be
necessary and appropriate to the conduct of the corporate
business.
(b) Documents Kept at Registered Office. The Board of Directors shall
cause to be kept at the registered office of the corporation original or copies
of:
(1) Records of all proceedings of shareholders and Directors;
(2) By-Laws of the corporation and all amendments thereto; and,
(3) Reports made to any or all of the shareholders within the
last three (3) years.
(c) Audit. The Board of Directors shall cause the records and books
of account of the corporation to be audited at least once in each fiscal year
and at such other times as it may deem necessary or appropriate.
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(d) Fiscal Year. The fiscal year of the corporation shall end each
year on February 28.
ARTICLE IX
INSPECTION OF BOOKS
(a) Examination by Shareholders. Every shareholder of the corporation
and every holder of a voting trust certificate shall have a right to examine, in
person or by agent or attorney, at any reasonable time or times, for any proper
purpose, and at the place or places where usually kept, the share register,
books of account and records of the proceedings of the shareholders and
Directors, and to make extracts therefrom.
(b) Information to Shareholders. Upon request by a shareholder of the
corporation, the Board of Directors shall furnish to him a statement of profit
and loss for the last fiscal year and a balance sheet containing a summary of
the assets and liabilities as of the close of such fiscal year.
ARTICLE X
LOANS TO OFFICERS, DIRECTORS AND SHAREHOLDERS
The corporation shall not lend any of its assets to any officer or
Director of the corporation, nor shall it lend any of its assets to the
shareholders upon the security of its shares. If any such loan be made, the
officers and Directors who make such loan, or assent thereto, shall be jointly
and severally liable for repayment or return thereof. The corporation shall not
take as security for any debt a lien upon its shares, unless such lien be taken
to secure a debt previously contracted.
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ARTICLE XI
INDEMNIFICATION OF DIRECTORS
Each Director and officer, whether or not then in office, shall be
indemnified by the corporation against all costs, attorney's fees and expenses
reasonably incurred by or imposed upon him in connection with or arising out of
any action, suit, or proceeding in which he may be involved by reason of his
being or having been a Director or officer of the corporation or of a subsidiary
of the corporation; said expenses shall include the cost of reasonable
settlements made with view of curtailment of costs of litigation. Neither the
corporation or any subsidiary shall, however, indemnify any Director or officer
for expenses incurred or imposed upon him in any action, suit, or proceeding
brought against him by the corporation or any subsidiary with respect to matters
as to which he shall be finally adjudged in any such action, suit, or proceeding
to have been derelict in the performance of his duty as officer or Director, nor
in respect of any matter on which any settlement or compromise is effected, if
the total expense which might reasonably be incurred by such Director or officer
in conducting such litigation to a final conclusion. The foregoing right of
indemnification shall not be exclusive of other rights to which any Director or
officer may be entitled as a matter of law.
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ARTICLE XII
AMENDMENTS
These By-Laws may be amended or altered by a vote of the majority of
the whole Board of Directors at any meeting, provided that notice of such
proposed amendment shall have been given in the notice given to the Directors
of such meeting. Such authority in the Board of Directors is subject to the
power of the shareholders to change or repeat such By-Laws by a majority vote of
the shareholders present or represented at any annual or special meeting of
shareholders called for such purpose and the Board of Directors shall not make
or alter any By-Laws fixing their number, qualifications, or term of office.
The undersigned, Richard A. Pomije Secretary of Command Small
Computer Learning Center, Inc. hereby certifies that the foregoing By-Laws were
duly adopted as the By-Laws of the corporation by the Board of Directors of said
corporation at or by consent of all of the Board of Directors on April 8, 1982
/s/ (illegible)
----------------------------------------
Secretary
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EXHIBIT 3.1
FORM OF STOCK CERTIFICATE
TEXT ON FACE
NUMBER SHARES
----------- --------
CYBERSTAR COMPUTER CORP.
Incorporated Under the Laws of the State of Minnesota
PAR VALUE $0.01 CUSIP NO. 23251Y 10 3
COMMON STOCK
This Certifies that ___________________________________________________
is the owner of ________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK PAR VALUE OF $0.01 EACH
OF
CYBERSTAR COMPUTER CORP.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
Countersigned and Registered:
SIGNATURE STOCK TRANSFER, INC.
- -------------- ------------- (Dallas, Texas) Transfer Agent
President/CEO/ CFO/Treasurer
Secretary By
-------------------------------------
Authorized Signature
- ----------------------------
Vice President of Operations
[Corporate Seal]
<PAGE>
TEXT ON REVERSE
The Corporation will furnish to any shareholder upon request and
without charge, a full statement of the designations, preferences, limitation,
and relative rights of the shares of each class or series authorized to be
issued, so far as they will have been determined, and the authority of the Board
of Directors to determine the relative rights and preferences of subsequent
classes or series.
For value received ________ hereby sell, assign and transfer unto _____
________________________________________________________________________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
Attorney to transfer the said shares on the Books of the within named
Corporation with full power of substitution in the premises.
Dated _________________, 19___ ____________________________
IN PRESENCE OF ________________________________________________________________
2
EXHIBIT 3.2
WARRANT CERTIFICATE NO. W1998-1
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE OFFERED FOR SALE,
SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT MADE UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION.
AGENT'S WARRANT
EXERCISABLE ON OR BEFORE, AND VOID AFTER
5:00 P.M. MINNEAPOLIS TIME, APRIL 27, 2003
CERTIFICATE FOR 50,000 WARRANTS
WARRANTS TO PURCHASE COMMON STOCK OF
CYBERSTAR COMPUTER CORPORATION UNDER
THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES that Global Financial Group, Inc. ("Holder") or
assigns, is the owner of the number of Warrants set forth above, each of which
represents the right to purchase from CyberStar Computer Corporation, a
Minnesota corporation (the "Company"), at any time on or before 5:00 p.m.
Minneapolis time, April 27, 2003, upon compliance with and subject to the
conditions set forth herein, one share for each Warrant (subject to adjustments
referred to below) of the Common Stock of the Company, par value $.01 per share
(such shares or other securities or property purchasable upon exercise of the
Warrants being herein called the "Shares").
Upon any exercise of less than all the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Holder a new Warrant
Certificate in respect of the Warrants as to which this Warrant Certificate was
not exercised.
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE; TRANSFERABILITY. The rights represented by this Warrant
may be exercised by the Holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), by written notice of exercise delivered to
the Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required)
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at the principal office of the Company and by paying in full, in cash or by
certified or official bank check payable to the order of the Company, the
purchase price of $2.20 per share (subject to adjustments as noted
subsequently).
In lieu of payment of cash or cash equivalents, the Holder may
exercise this Warrant as to a portion of the Shares issuable hereunder, by
surrender to the Company for cancellation of that portion of this Warrant which
entitles the Holder to purchase such number of Shares (the "Surrendered
Warrants") where the difference between the Quoted Price (as defined hereafter)
and the Purchase Price, when multiplied by the number of the Surrendered
Warrants, equals (rounding to the next whole number of Warrants) the aggregate
Purchase Price of the Shares being purchased pursuant to the non-surrendered
portion of this Warrant. Solely for the purpose of exercise of this Warrant, by
surrender of the Surrendered Warrants, the Quoted Price shall equal the closing
price for the Common Stock as quoted by a national securities exchange, as
defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or if quoted by more than one such exchange, the highest of such quoted prices;
or, if not quoted on any national securities exchange, the closing price for the
Common Stock as reported on the NASDAQ National Market System; or, if not quoted
on any national securities exchange or on the NASDAQ National Market System, the
highest bid price offered by any market maker (other than the Holder hereof or
an affiliate of the Holder) as reported by NASDAQ, subject to the requirement
that there are at least four market makers; in each case, as of the close of
business on the business day preceding the date that the election to exercise is
tendered or sent to the Company. If the Common Stock is not admitted to trading
on any national securities exchange, is not quoted on NASDAQ National Market
System, and there are not at least four market makers with bid quotations on
NASDAQ, exercise of the Warrants by surrender of a portion of this Warrant shall
not be available.
THIS WARRANT MAY NOT BE TRANSFERRED OR DIVIDED INTO TWO OR MORE
WARRANTS OF SMALLER DENOMINATIONS, NOR MAY ANY COMMON STOCK ISSUED PURSUANT TO
EXERCISE OF THIS WARRANT BE TRANSFERRED UNLESS THIS WARRANT OR SHARES HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT") AND
APPLICABLE STATE LAWS, OR UNLESS THE HOLDER OF THE CERTIFICATE OBTAINS AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT THE PROPOSED
TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION PURSUANT TO EXEMPTIONS UNDER THE
SECURITIES ACT AND APPLICABLE STATE LAWS.
2. ISSUANCE OF SHARES. The Company agrees that the shares purchased
hereby shall be deemed to be issued to the record Holder hereof as of the close
of business on the date on which this Warrant shall have been surrendered and
the payment made for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
shall be delivered to the Holder hereof within a reasonable time, not exceeding
ten (10) days after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to the Holder hereof within such time.
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<PAGE>
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. COVENANTS OF COMPANY. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof, and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at all
times equal to or less than the then effective purchase price per share of the
Common Stock issuable pursuant to this Warrant. The Company further covenants
and agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its Common
Stock to provide for the exercise of the rights represented by this Warrant.
4. ADJUSTMENTS. The above provisions are, however, subject to the
following provisions:
a) These Warrants are issued in connection with the
Company's issuance of Common Stock ("Shares") described in the
Company's Private Placement Memorandum dated January 7, 1998
("Memorandum").
b) In case the Company shall at anytime hereafter
subdivide or combine the outstanding shares of Common Stock or
declare a dividend payable in Common Stock, the exercise price of
this Warrant in effect immediately prior to the subdivision,
combination or record date for such dividend payable in Common Stock
shall forthwith be proportionately increased, in the case of
combination, or decreased, in the case of subdivision or dividend
payable in Common Stock, and each share of Common Stock purchasable
upon exercise of the Warrant shall be changed to the number
determined by dividing the then current exercise price by the
exercise price as adjusted after the subdivision, combination, or
dividend payable in Common Stock.
c) No fractional shares of Common Stock are to be issued
upon the exercise of the Warrant, but the Company shall pay a cash
adjustment in respect of any fraction of a share which would
otherwise be issuable in an amount equal to the same fraction of the
market price per share of Common Stock on the date of exercise as
determined in good faith by the Company.
d) If any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the
Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or
in exchange for Common Stock, then, as a condition of such
3
<PAGE>
reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provision shall be made whereby the Holder
hereof shall hereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby, such shares of stock, securities
or assets as may be issued and payable with respect to or in
exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the
provisions hereof (including without limitation provisions for
adjustments of the Warrant purchase price and of the number of share
purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation, merger, or the corporation purchasing such assets
shall assume by written instrument executed and mailed to the
registered Holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to
such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be
entitled to purchase.
e) If the Company shall at any time or from time to time
(i) distribute (otherwise than as a dividend in cash or in Common
Stock or securities convertible into or exchangeable for Common
Stock) to the holders of Common Stock any property or other
securities, or (ii) declare a dividend upon the Common Stock (to the
extent payable otherwise than out of earnings or earned surplus, as
indicated by the accounting treatment of such dividend in the books
of the Company, and otherwise than in Common Stock or securities
convertible into or exchangeable for Common Stock), the Company
shall reserve and the Holder of this Warrant shall thereafter upon
exercise hereof be entitled to receive, with respect to each share
of Common Stock purchased hereunder, without any change in, or
payment in addition to, the exercise price, the amount of any
property or other securities which would have been distributable to
such holder had such holder been a holder of one share of Common
Stock on the record date of such distribution or dividend (or if no
record date was established by the Company, the date such
distribution or dividend was paid).
f) In the event the Company spins off a subsidiary by
distributing to the shareholders of the Company as a dividend or
otherwise, the stock of a subsidiary, the Company shall reserve for
the life of this Warrant shares of the subsidiary to be delivered to
the holder of the warrants upon exercise to the same extent as if
they were owners of record of the Warrant Stock on the record date
for payment of the shares of the subsidiary.
4
<PAGE>
g) Upon any adjustment of the Warrant purchase price,
then and in each such case, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the
registered hold of this Warrant at the address of such holder as
shown on the books of the Company, which notice shall state the
Warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at
such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
5. COMMON STOCK. As used herein, the term "Common Stock" means the
Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder
hereof to any voting rights or other rights as a stockholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF SHARES. The Holder of
this Warrant, by acceptance hereof, agrees to give written notice to the Company
before transferring this Warrant, or transferring any Common Stock issued upon
the exercise hereof, of such holder's intention to do so, describing briefly the
manner of any proposed transfer. Promptly upon receiving such written notice,
the Company shall present copies thereof to the Company counsel, and if in the
opinion of such counsel, the proposed transfer complies with federal and state
securities laws and may be effected without registration or qualification (under
any federal or state law), the Company, as promptly as practicable, shall notify
such holder of such opinion, whereupon such holder shall be entitled to transfer
this Warrant or to dispose of shares of Common Stock received upon the previous
exercise of this Warrant, provided that an appropriate legend may be endorsed on
this Warrant or the certificates for such shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel to the Company
to prevent further transfers which would be in violation of Section 5 of the
Securities Act of 1933.
If, in the opinion of Company's counsel referred to in this
paragraph 7, the proposed transfer or disposition of shares described in the
written notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of Common Stock
issued on the exercise hereof, the Company shall promptly give written notice
thereof to the Holder hereof, and the Holder will limit its activities in
respect to such as, in the opinion of such counsel, are permitted by law.
8. REGISTRATION RIGHTS.
a) Piggyback Rights. Except with respect to the
Company's initial public offering of Common Stock, if the Company at
any time after the date hereof proposes to claim an exemption under
Section 3(b) for a public offering of any of its securities or to
5
<PAGE>
register under the Securities Act of 1933 (except by a Form S-8, S-4
or other inappropriate form for registration) or pursuant to the
exemption from such registration provided by Regulation A any of its
securities, or pursuant to a registration of its shares, it shall,
each time the Company determines to proceed with the actual
preparation and filing of a registration statement, give written
notice to all registered holders of Warrants, and all registered
holders of shares of Common Stock acquired upon the exercise of
Warrants, of its intention to do so and, on the written request of
any registered holders given within twenty (20) days after receipt
of any such notice (which request shall specify the Warrants or
shares of Common Stock intended to be sold or disposed of by such
registered holder and describe the nature of any proposed sale or
other disposition thereof), the Company will use its best efforts to
cause all such Warrants and/or shares, the registered holders of
which shall have requested the registration or qualification
thereof, to be included in such notification or registration
statement proposed to be filed by the Company; provided, however,
that no such inclusion shall be required (i) if the Shares may then
be sold by the holder thereof without limitation under Rule 144(k),
or comparable successor rule of the Securities and Exchange
Commission, or (ii) if the managing underwriter of such offering
reasonably determines that including such Shares would unreasonably
interfere with such offering. The Company will pay all expenses of
registration. The Warrant holders shall pay all commissions or
discounts applicable to the sale of the included Shares, together
with any expenses of counsel retained by them in connection with
their sale of the Shares. If any such registration shall be
underwritten in whole or in part, the Company may require that the
shares requested for inclusion pursuant to this section be included
in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters.
b) Registration Rights. At any time beginning one year
after the completion of the Company's initial public offering of the
Common Stock, if Company receives a written request from the record
holder or holders of this Warrant Certificate or any other warrant
issued concurrently with this Warrant (designated with the prefix
W1998-) (or Warrant Certificates issued upon transfer or assignment
of any such warrant certificate) of an aggregate of at least
twenty-five (25%) percent of the aggregate number of Shares of
Company common stock that have been or may be acquired upon the
exercise of this Warrant and all other warrants designated with the
prefix W1998- (such shares being hereafter referred to as the
"Purchased Shares") not theretofore registered under the Securities
Act and sold, the Company shall prepare and file a registration
statement under the Securities Act covering the Purchased Shares
which are the subject of such request and shall use its best efforts
to cause such registration statement to become effective. In
addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of
Purchased Shares that such registration is to be effected. The
Company shall include in such registration statement such Purchased
Shares for which it has received written requests to register by
such other record holders within 30 days after the Company's written
notice to such other record holders. The Company shall be obligated
to prepare, file and cause to become effective only one (1)
registration statement relating to the Shares of Company Common
Stock underlying this Warrant and all other warrants designated with
the prefix W1998-. In the event that (i)
6
<PAGE>
the holders of a majority of the Purchased Shares for which
registration has been requested pursuant to this section determine
for any reason not to proceed with a registration at any time before
the registration statement has been declared effective by the
Securities and Exchange Commission (the "Commission"), and such
holders request the Company to withdraw such registration statement,
if theretofore filed with the Commission, with respect to the
Purchased Shares covered thereby, and (ii) the holders of such
Purchased Shares agree to bear their own expenses incurred in
connection therewith and to reimburse the Company for the expenses
incurred by it attributable to the registration of such Purchased
Shares, then the holders of such Purchased Shares shall not be
deemed to have exercised their right to require the Company to
register Purchased Shares pursuant to this section 8(b).
Notwithstanding the foregoing, the holders of this Warrant
Certificate shall not have the rights provided by this Section 8(b)
if the shares may be sold by the holder thereof without limitation
under Rule 144(k), or comparable successor rule of the Securities
and Exchange Commission. The Company may delay the filing of any
registration statement requested pursuant to this section to a date
not more than ninety (90) days following the date of such request
if, in the opinion of the Company's principal investment banker at
the time of such request, such a delay is necessary in order not to
adversely affect financing efforts then underway at the Company or,
if in the opinion of the Company, such a delay is necessary or
advisable to avoid disclosure of material nonpublic information.
c) Registration Procedures. If and whenever the Company
is required by the provisions of paragraph 8 to effect the
registration of any shares under the Securities Act, the Company
shall:
(i) prepare and file with the Commission a
registration statement with respect to such securities,
and use its best efforts to cause such registration
statement to become and remain effective for such period
as may be reasonably necessary to effect the sale of
such securities, not to exceed nine (9) months;
(ii) prepare and file with the Commission
such amendments to such registration statement and
supplements to the prospectus contained therein as may
be necessary to keep such registration statement
effective for such period as may be reasonably necessary
to effect the sale of such securities, not to exceed
nine (9) months;
(iii) furnish to the Holder and to the
underwriters of the securities being registered such
reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and
such other documents as the Holder and underwriters may
reasonably request in order to facilitate the public
offering of such securities;
(iv) use its best efforts to register or
qualify the securities covered by such registration
statement under the state securities or blue sky laws of
Minnesota and such additional jurisdictions, not to
exceed five in number, as the
7
<PAGE>
underwriters or the holders of a majority of the
Purchased Shares for which registration has been
requested may reasonably request within twenty (20) days
following the original filing of such registration
statement, except that the Company shall not for any
purpose be required to execute a general consent to
service of process or to qualify to do business as a
foreign corporation in any jurisdiction wherein it is
not so qualified; and
(v) prepare and promptly file with the
Commission and promptly notify the Holder of the filing
of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct
any statements or omissions if, at the time when a
prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein,
in the light of the circumstances in which they were
made, not misleading.
9. MISCELLANEOUS. This Agreement shall inure to the benefit of, and
be binding upon, the successors of the Agent and of the Company. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, company or corporation, other than the parties hereto and their
successors and the controlling persons in paragraph 7 hereof, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision hereof. The term "successors" shall not include any purchaser of the
Securities merely by reason of such purchase. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, CyberStar Computer Corporation has caused this
Warrant to be signed by its duly authorized officer and this Warrant to be dated
April 27, 1998.
CYBERSTAR COMPUTER CORPORATION
By /s/ Richard A. Pomije
---------------------------------------
Richard A. Pomije
Its Chief Executive Officer
8
EXHIBIT 6.1
SUBLEASE
Sublandlord: Banta Information Services Group, a division of Banta
Corporation
Subtenant: Cyberstar Computer Corporation
Subject Property: 6815 - 6835 Shady Oak Rd, Eden Prairie, MN 55344
Date: October 23, 1998
Lease: Lease Agreement between The Prudential Company of America
and Banta Information Services Group dated September 30, 1998
1. PARTIES:
This Sublease is made and entered into as of October 23, 1998, by and between
Sublandlord and Subtenant, under the Lease dated September 30, 1998 (the "Master
Lease"), between The Prudential Company of America, as landlord (the "Master
Landlord") and Sublandlord under this Sublease, as tenant. A copy of the Master
Lease is attached hereto as Attachment I and incorporated herein by this
reference.
2. SUBLEASED PREMISES AND RENT:
2.1 Subleased Premises:
Sublandlord leases to Subtenant and Subtenant leases from Sublandlord the
premises outlined on Attachment II attached hereto and incorporated herein
by this reference (the "Subleased Premises") upon all of the terms,
covenants and conditions contained in this Sublease. The Subleased
Premises consist of approximately 14,265 square feet, which is a portion
of the building located at the Subject Property identified above, and
commonly referred to as "6825 Shady Oak."
2.2 Rent:
(a) Subtenant shall pay to Sublandlord as rent ("Rent") for the
Subleased Premises according to the following schedule:
$9.00 per rentable square foot throughout the initial term of
this Sublease.
(b) The parties hereto agree that the above-referenced Rent paid by
Subtenant includes Subtenant's share of all operating expenses, including
but not limited to the following: real property taxes and assessments,
building insurance, trash removal, all interior and exterior repair and
maintenance costs (including janitorial), all
1
<PAGE>
utility costs, and any other reasonable costs necessary for the operation
and/or maintenance of the Subleased Premises and the common areas of the
building.
(c) Rent shall be payable by Subtenant to Sublandlord in consecutive
monthly installments on or before the first day of each calendar month
during the Sublease Term (as hereinafter defined) at the address provided
below for Sublandlord. If the Sublease commencement date or the
termination date of the Sublease occurs on a date other than the first day
or the last day, respectively, of a calendar month, then the Rent for such
partial month shall be prorated and the prorated Rent shall be payable on
the Sublease commencement date or on the first day of the calendar month
in which the Sublease termination date occurs, respectively.
2.3 Security Deposit:
In addition to the Rent specified above. Subtenant shall pay to
Sublandlord the amount of $10,700, as a non-interest bearing Security
Deposit. In the event Subtenant has performed all of the terms and
conditions of this Sublease during the term hereof, Sublandlord shall
return to Subtenant, within ten days after Subtenant has vacated the
Subleased Premises, the Security Deposit, less any sums due and owing to
Sublandlord.
3. SUBLEASE TERM:
The Sublease Term shall be for the period commencing on November 1, 1998, and
continuing through April 30, 2000. In no event shall the Sublease Term
extend beyond the term of the Master Lease.
4. USE:
Subtenant shall use the Subleased Premises only for those purposes permitted in
the Master Lease, unless Sublandlord and Master Landlord consent in writing to
other uses prior to the commencement thereof.
5. PROVISIONS CONSTITUTING SUBLEASE:
In addition to all of the terms stated herein, this Sublease is subject to all
of the terms and conditions of the Master Lease. Subtenant hereby assumes and
agrees to perform all of the obligations of "Tenant" under the Master Lease to
the extent such obligations apply to the Subleased Premises and Subtenant's use
of the common areas, except as specifically set forth herein. Sublandlord hereby
agrees to use its reasonable best efforts to cause Master Landlord under the
Master Lease to perform all of the obligations of Master Landlord thereunder to
the extent said obligations apply to the Subleased Premises and Subtenant's use
of the common areas. Subtenant shall not commit or permit to be committed on the
Subleased Premises, the common areas, or on any other portion of the property
any act or omission which violates any term or condition of the Master Lease.
Except to the extent waived or consented to in writing
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<PAGE>
by the other party who is affected thereby, neither of the parties hereto will,
by renegotiation of the Master Lease, assignment, subletting, default or any
other voluntary action, avoid or seek to avoid the observance or performance of
the terms to be observed or performed hereunder by such party, but will at all
times in good faith assist in carrying out all the terms of this Sublease and in
taking all such action as may be necessary or appropriate to protect the rights
of the other party or parties hereto who are affected thereby against
impairment. Subject to the foregoing and except as otherwise provided herein,
nothing in this Sublease shall prevent or prohibit Sublandlord (a) from
exercising its right to terminate the Master Lease pursuant to the terms thereof
or (b) from assigning its interests in this Sublease to any affiliate of
Sublandlord, or from subletting any other portion of the Premises to any other
third party.
6. NOTICES:
All notices, demands, consents and approval which may or are required to be
given by either party to the other hereunder shall be given in the manner
provided herein, at the addresses shown on the signature page hereof.
Sublandlord shall notify Subtenant of any event of default under the Master
Lease, or of any other event of which Sublandlord has actual knowledge which
will impair Subtenant's ability to conduct its normal business at the Subleased
Premises promptly following Sublandlord's receipt of notice from the Master
Landlord of an event of default or actual knowledge of such impairment.
7. INCORPORATION OF MASTER LEASE:
7.1 Assumption of Obligations by Subtenant:
Except as otherwise provided in this Sublease, all of the terms and
provisions of the Master Lease are incorporated into and made a part of
this Sublease, and the rights and obligations of the parties under the
Master Lease are hereby imposed upon the parties hereto with respect to
the Subleased Premises. For purposes of this Sublease, with respect to
those paragraphs incorporated from the Master Lease, all references to
"Landlord" or "Tenant" shall be deemed to be references to "Sublandlord"
and "Subtenant", respectively, and all references to the "Lease" shall be
deemed to be references to this "Sublease". Subtenant hereby assumes and
agrees to perform for Sublandlord's benefit, during the term of this
Sublease, all of Sublandlord's obligations under the Master Lease insofar
as they relate to the Subleased, which accrue during the Sublease Term.
7.2 Indemnification by Subtenant:
Subtenant shall indemnify, defend, protect, and hold Sublandlord harmless
from and against all actions, claims, demands, costs, liabilities, losses,
reasonable attorneys' fees, damages, penalties, and expenses (collectively
"Claims") which may be brought or made against Sublandlord or which
Sublandlord may pay or incur to the extent caused by a breach of this
Sublease or the Master Lease by Subtenant.
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<PAGE>
7.3 Indemnification by Sublandlord:
Sublandlord shall indemnify, defend, protect, and hold Subtenant harmless
from and against all actions, claims which may be brought or made against
Subtenant or which Subtenant may pay or incur to the extent caused by (i)
a breach of this Sublease or the Master Lease by Sublandlord, (ii) the
negligence or willful misconduct of Sublandlord or its agents, officers,
directors, invitees or guests or (iii) obligations of Sublandlord which
arise prior to the commencement date of this Sublease.
8. EARLY TERMINATION OF MASTER LEASE:
If, without the fault of Sublandlord hereunder the Master Lease should terminate
prior to the expiration of this Sublease, Sublandlord shall have no liability to
Subtenant. To the extent that the Master Lease grants Sublandlord any
discretionary right to terminate the Master Lease, whether due to casualty,
condemnation, or otherwise, Sublandlord may exercise such right without
Subtenant's prior written consent; PROVIDED, HOWEVER, that Sublandlord shall
first offer to assign the Master Lease (and all of Sublandlord's rights,
obligations and interests therein) to Subtenant, together with Sublandlord's
pledge to use all commercially reasonable efforts to obtain the consent of
Master Landlord to such assignment. Subtenant shall have ten (10) days after
said offer to agree to accept assignment of the Master Lease (which, upon the
consent of Master Landlord, shall terminate this Sublease). Furthermore,
Sublessor shall not enter into any amendment or modification of the Master Lease
which (a) affects the Subleased Premises or (b) adversely impacts Subtenant's
rights under the Sublease, without the prior written consent of Subtenant.
9. SUBTENANT'S RIGHT TO CURE:
In the event that Sublandlord is in default of the Master Lease, Sublessee shall
have the right, but not the obligation, to cure the default so long as Master
Landlord agrees to accept such performance. Sublandlord agrees to reimburse
Subtenant for all costs and expenses reasonably incurred therefore within ten
(10) days following Subtenant's request for reimbursement.
10. MASTER LANDLORD CONSENT:
This Sublease is subject to the consent of the Master Landlord. Sublandlord
agrees to use commercially reasonable efforts to obtain the consent of Master
Landlord to this Sublease as soon as reasonably possible following execution of
this Sublease by Subtenant and Sublandlord, and shall provide Subtenant with
notice of Sublandlord's submittal of this Sublease to Master Landlord for
approval. In the event that Master Landlord's consent is not obtained within ten
(10) days following the submittal of this Sublease by Sublandlord to Master
Landlord for consent, either party shall have the right to terminate this
Sublease by providing written notice thereof to the other within three (3) days
after the expiration of such ten (10) day period. For purposes of this
paragraph. Master Landlord's consent shall be deemed to have
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<PAGE>
been given as of the date when Master Landlord's unconditional consent to this
Sublease has been obtained, or, in the event such consent is conditional, the
date upon which such conditions have been fully satisfied or waived by Master
Landlord.
11. STATUS OF LEASE:
Sublandlord hereby represents and warrants to Subtenant that (i) the Master
Lease attached hereto as Attachment I has been executed and delivered by Master
Landlord and Sublandlord and constitutes the entire agreement of the parties
thereto relating to the lease of the Subleased Premises, (ii) no default or
breach by Sublandlord or, to the best of Sublandlord's knowledge, by Master
Landlord, exists under the Master Lease, (iii) no event has occurred that, with
the passage of time, the giving of notice, or both, would constitute a default
or breach by Sublandlord or, to the best of Sublandlord's knowledge, by Master
Landlord under the Master Lease, and (iv) subject to receipt of Master
Landlord's written consent hereto. Sublandlord has the right and power to
execute and deliver this Sublease and to perform its obligations hereunder.
Sublandlord shall not modify the Master Lease in such a manner as to materially
increase the obligations of Subtenant hereunder or under the Master Lease,
without the prior written consent of Subtenant.
12. BROKER FEE:
Each party warrants and represents to the other that such party has not retained
the services of any real estate broker, finder or any other person whose
services would form the basis for any claim for any commission or fee in
connection with this Sublease or the transactions contemplated hereby. Each
party agrees to save, defend, indemnify and hold the other party free and
harmless from any breach of its warranty and representation as set forth in the
preceding sentence, including the other party's attorneys' fees.
13. TENANT IMPROVEMENTS:
Subtenant shall be responsible for all costs associated with Subtenant
improvements to the Subleased Premises, if any. If any of said improvements made
by or on behalf of Subtenant require additional construction (i) necessary for
compliance with the Americans with Disabilities Act of 1990, or (ii) compliance
with any other federal, state or local law or ordinance. Subtenant shall be
responsible for and shall perform such construction. If required by Master
Landlord or Sublandlord, Subtenant shall return the Subleassed Premises to the
original configuration at the expiration of the Sublease term; provided however,
nothing herein shall be deemed to impose liabilities on Subtenant for any
alterations or improvements not associated with this Sublease.
14. REASONABLE CONSENT OR APPROVAL:
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<PAGE>
When any provision of this Sublease, the Master Lease or the accompanying Rules
and Regulations, calls for a party's consent or approval. Sublandlord and
Subtenant each agree that such consent or approval shall not be unreasonably
withheld or delayed.
15. COUNTERPARTS:
This Sublease may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which together shall
constitute one and the same instrument.
Sublandlord: Address:
BY: /s/ James R. Graif DATE: 10/23/98
------------------------------------ ---------------------------------
James R. Graif
V.P. of Operations ISB/GT
Subtenant: Address:
BY: /s/ [illegible] DATE: 10/23/98
------------------------------------ ---------------------------------
[illegible]
V.P. Operations
6
EXHIBIT 6.2
COMMAND ELECTRONICS, INC.
1996 STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE.
A. ESTABLISHMENT. Command Electronics, Inc. (the "Company") hereby
establishes a plan providing for the grant of stock options to certain eligible
individuals who have or will render services to the Company. This plan shall be
known as the Command Electronics, Inc. 1996 Stock Option Plan (the "Plan").
B. PURPOSE. The purpose of the Plan is to advance the interests of
the Company and its shareholders by enhancing the Company's ability to attract
and retain qualified persons to perform services for the Company, by providing
incentives to, and rewards for, maximum effort on behalf of the Company.
ARTICLE 2. DEFINITIONS.
The following terms have the meanings set forth below, unless the
context otherwise requires:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "CODE" means the Internal Revenue Code of 1986, as amended.
2.3 "COMMITTEE" means the group of individuals administering the
Plan, as provided in Article 4 of the Plan.
2.4 "COMMON STOCK" means the common stock of the Company, par value
$.01 per share, or the number and kind of shares of stock or other securities
into which such Common Stock may be changed in accordance with Section 3.3 of
the Plan.
2.5 "DISABILITY" means the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.
2.6 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2.7 "FAIR MARKET VALUE" means, with respect to the Common Stock, the
following:
(a) If the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported
on the Nasdaq National Market System, the last sale price of the
Common Stock on such exchange or reported by the Nasdaq National
Market System as
<PAGE>
of such date (or, if no shares were traded on such day, as of the
next preceding day on which there was such a trade).
(b) If the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the Nasdaq National Market
System, and bid and asked prices therefor in the over-the-counter
market are reported by the Nasdaq System or the National Quotation
Bureau, Inc. (or any comparable reporting service), the mean of the
closing bid and asked prices as of such date, as so reported by the
Nasdaq System, or, if not so reported thereon, as reported by the
National Quotation Bureau, Inc. (or such comparable reporting
service).
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the Nasdaq National
Market System, and such bid and asked prices are not so reported,
such price as the Committee determines in good faith in the exercise
of its reasonable discretion.
2.8 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted pursuant to Articles 5 and 6 of the Plan that qualifies as an "incentive
stock option" within the meaning of Section 422 of the Code.
2.9 "NON-STATUTORY STOCK OPTION" means a right to purchase Common
Stock granted pursuant to Articles 5 and 6 of the Plan that does not qualify as
an Incentive Stock Option.
2.10 "OPTION" means an Incentive Stock Option or a Non-Statutory
Stock Option.
2.11 "PARENT CORPORATION" means any parent corporation of the Company
within the meaning of Section 424(e) and (g) of the Code.
2.12 "PARTICIPANT" means an individual who receives one or more
Options pursuant to Article 5 of the Plan.
2.13 "PERSON" means any individual, corporation, partnership, group,
association or other "person" (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan sponsored by the Company or a wholly owned
subsidiary of the Company.
2.14 "PREVIOUSLY ACQUIRED SHARES" mean shares of Common Stock that
are already owned by the Participant and shares of Common Stock that are to be
acquired by the Participant pursuant to the exercise of an Option.
2.15 "RETIREMENT" means the retirement of a Participant pursuant to
and in accordance with the regular or, if approved by the Board for purposes of
the Plan, any early retirement plan or practice of the Company or Subsidiary
then covering the Participant.
2
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2.16 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.17 "SUBSIDIARY" means any subsidiary corporation of the Company
within the meaning of Section 424(f) and (g) of the Code.
ARTICLE 3. STOCK SUBJECT TO THE PLAN.
3.1 NUMBER OF SHARES. Subject to adjustment as provided in Section
3.3 below, the maximum number of shares of Common Stock that shall be authorized
and reserved for issuance under the Plan shall be 500,000 shares of Common
Stock. The maximum number of shares authorized may also be increased from time
to time by approval of the Board and, if required pursuant to Rule 16b-3 under
the Exchange Act, Section 422 of the Code, or the applicable rules of any
securities exchange or Nasdaq, the shareholders of the Company.
3.2 SHARES AVAILABLE FOR USE. Shares of Common Stock that may be
issued upon exercise of Options shall be applied to reduce the maximum number of
shares of Common Stock remaining available for use under the Plan. Any shares of
Common Stock that are subject to an Option (or any portion thereof) that lapses,
expires or for any reason is terminated unexercised shall automatically again
become available for use under the Plan.
3.3 ADJUSTMENTS TO SHARES. In the event of any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares, rights offering, extraordinary
dividend or divestiture (including a spin-off) or any other change in the
corporate structure or shares of the Company, the Committee (or, if the Company
is not the surviving corporation in any such transaction, the board of directors
of the surviving corporation) shall make appropriate adjustment (which
determination shall be conclusive) as to the number and kind of securities
subject to and reserved under the Plan and, in order to prevent dilution or
enlargement of the rights of Participants, the number, kind and exercise price
of securities subject to outstanding Options. Without limiting the generality of
the foregoing, in the event that any of such transactions are effected in such a
way that holders of Common Stock shall be entitled to receive stock, securities
or assets, including cash, with respect lo or in exchange for such Common Stock,
all Participants holding outstanding Options shall upon the exercise of such
Options receive, in lieu of any shares of Common Stock they may be entitled to
receive, such stock, securities or assets, including cash, as would have been
issued to such Participants if their Options had been exercised and such
Participants had received Common Stock prior to such transaction.
ARTICLE 4. PLAN ADMINISTRATION.
4.1 THE COMMITTEE. The Plan shall be administered by the Board or by
a committee of the Board consisting of not less than two persons; provided,
however, that from and after the date on which the Company first registers a
class of its equity securities under Section 12 of the Exchange Act, the Plan
shall be administered by the Board, all of whom shall be "disinterested persons"
within the meaning of Rule 16b-3 under the Exchange Act, or by a committee
consisting solely of not fewer than two members of the Board who are such
"disinterested persons." Members
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of such a committee, if established, shall be appointed from time to time by the
Board, shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board. A majority of the members of such a committee shall
constitute a quorum. Such a committee shall act by majority approval of the
members, shall keep minutes of its meetings and shall provide copies of such
minutes to the Board. Action of such a committee may be taken without a meeting
if unanimous written consent is given. Copies of minutes of such a committee's
meetings and of its actions by written consent shall be provided to the Board
and kept with the corporate records of the Company. As used in this Plan, the
term "Committee" will refer to the Board or to such a committee, if established.
4.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of
the Plan, the Committee shall have the authority lo determine (i) who
shall be selected as Participants, (ii) the nature and extent of the
Options to be granted to each Participant (including the number of
shares of Common Stock to be subject to each Option, the exercise
price and the manner in which Options will vest or become
exercisable), (iii) the time or times when Options will be granted,
(iv) the duration of each Option, (v) the restrictions and other
conditions to which the exercisability or vesting of Options may be
subject, and (vi) such other provisions of the Options as the
Committee may deem necessary or desirable and as consistent with the
terms of the Plan. The Committee shall determine the form or forms of
the option agreements with Participants which shall evidence the
particular terms, conditions, rights and duties of the Company and
the Participants with respect to Options granted pursuant to the
Plan, which agreements shall be consistent with the provisions of the
Plan.
(b) With the consent of the Participant affected thereby,
the Committee may amend or modify the terms of any outstanding Option
in any manner, provided that the amended or modified terms are
permitted by the Plan as then in effect. Without limiting the
generality of the foregoing sentence, the Committee may, with the
consent of the Participant affected thereby, modify the exercise
price, number of shares or other terms and conditions of an Option,
extend the term of an Option, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an
Option, accept the surrender of any outstanding Option, or, to the
extent not previously exercised or vested, authorize the grant of new
Options in substitution for surrendered Options.
(c) The Committee shall have the authority to interpret
the Plan and, subject to the provisions of the Plan, to establish,
adopt and revise such rules and regulations relating to the Plan as
it may deem necessary or advisable for the administration of the
Plan. The Committee's decisions and determinations under the Plan
need not be uniform and may be made selectively among Participants,
whether or not such Participants are similarly situated. Each
determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive
and binding for all purposes and on all persons, including, without
limitation, the Company and its Subsidiaries, the shareholders of the
Company, the Committee and each of its members, the directors,
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officers and employees of the Company and its Subsidiaries, and the
Participants and their respective successors in interest. No member
of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted
under the Plan.
ARTICLE 5. PARTICIPATION.
All employees (including, without limitation, directors who are also
employees), consultants and independent contractors of the Company or any
Subsidiary shall be eligible to be Participants under the Plan. The Committee
shall select Participants who, in its sole discretion and judgment, have
performed, are performing, or during the term of an Option will perform,
services in the management, operation and development of the Company or any
Subsidiary, and significantly contributed, are significantly contributing or are
expected to significantly contribute to the achievement of corporate economic
objectives. Eligible individuals may be granted from time to time one or more
Options, as may be determined by the Committee in its sole discretion. The
number, type, terms and conditions of Options granted to various individuals
need not be uniform, consistent or in accordance with any plan, regardless of
whether such individuals are similarly situated. Each individual to whom an
Option is to be granted shall enter into an agreement with the Company, in such
form as the Committee shall determine and which is consistent with the
provisions of the Plan, specifying the terms, conditions, rights and duties
related to such Option. Options shall be deemed to be granted as of the date
specified in the grant resolution of the Committee and the related option
agreements shall be dated as of such date.
ARTICLE 6. STOCK OPTIONS.
6.1 GRANT. An individual may be granted from time to lime one or more
Options under the Plan and such Options shall be subject to such terms and
conditions, consistent with the other provisions of the Plan, as shall be
determined by the Committee in its sole discretion. The Committee may designate
whether an Option is to be considered an Incentive Stock Option or a
Non-Statutory Stock Option, provided, however, that an Incentive Stock Option
shall be granted only to an employee of the Company or a Subsidiary. The terms
of the agreement relating to a Non-Statutory Stock Option shall expressly
provide that such Option shall not be treated as an Incentive Stock Option.
6.2 EXERCISE. An Option shall become exercisable at such times and in
such installments (which may be cumulative) as shall be determined by the
Committee in its sole discretion at the time the Option is granted.
6.3 EXERCISE PRICE.
(a) INCENTIVE STOCK OPTIONS. The per share price to be
paid by the Participant at the time an Incentive Stock Option is
exercised shall be determined by the Committee, in its discretion, at
the date of its grant; provided, however, that such price shall not
be less than (i) 100% of the Fair Market Value of one share of Common
Stock on the date the Option is
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granted, or (ii) 110% of the Fair Market Value of one share of Common
Stock on the date the Option is granted if, at that time the Option
is granted, the Participant owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code), more than 10% of
the total combined voting power of all classes of stock of the
Company or any Subsidiary or Parent Corporation of the Company.
(b) NON-STATUTORY STOCK OPTIONS. The per share price to be
paid by the Participant at the time a Non-Statutory Stock Option is
exercised shall be determined by the Committee in its sole discretion
at the time the Option is granted; provided, however, that such price
shall not be less than 85% of the Fair Market Value of one share of
Common Stock on the date the Option is granted.
6.4 DURATION.
Subject to the Provisions of Articles 7 and 8 of the Plan, the
duration of Options shall be as follows:
(a) INCENTIVE STOCK OPTIONS. The period during which an
Incentive Stock Option may be exercised shall be fixed by the
Committee in its sole discretion at the time such Option is granted;
provided, however, that in no event shall such period exceed 10 years
from its date of grant or, in the case of a Participant who owns,
directly or indirectly (as determined pursuant to Section 424(d) of
the Code), more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent
Corporation of the Company, five years from its date of grant.
(b) NON-STATUTORY STOCK OPTIONS. The period during which a
Non-Statutory Stock Option may be exercised shall be fixed by the
Committee in its sole discretion at its date of grant.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant
in whole or in part from time to time, subject to the conditions contained
herein and in the agreement evidencing such Option, by delivery, in person or
through certified or registered mail, of written notice of exercise in the form
of Exhibit A hereto to the Company at its principal executive office (Attention:
Chief Financial Officer), and by paying in full the total Option exercise price
for the shares of Common Stock purchased. Subject to compliance with Section
11.1 of the Plan, the exercise of the Option shall be deemed effective upon
receipt of such notice and payment complying with the terms of the Plan and the
execution of the agreement evidencing such Option. As soon as practicable after
the effective exercise of the Option, the Participant shall be recorded on the
stock transfer books of the Company as the owner of the shares purchased, and
the Company shall deliver to the Participant one or more duly issued stock
certificates evidencing such ownership. If a Participant exercises any Option
with respect to some, but not all, of the shares of Common Stock subject to such
Option, the right to exercise such Option with respect to the remaining shares
shall continue until it expires or terminates in accordance with its terms. An
Option shall only be exercisable with respect to whole shares.
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6.6 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares
to be purchased upon exercise of an Option shall be paid entirely in cash (by
certified check or money order) provided, however, that the Committee, in its
sole discretion, may allow such payments to be made, in whole or in pan, by
transfer from the Participant to the Company of Previously Acquired Shares. In
determining whether or upon what terms and conditions a Participant will be
permitted to pay the purchase price of an Option in a form other than cash, the
Committee may consider all relevant facts and circumstances including, without
limitation, the tax and securities law consequences to the Participant and the
Company and the financial accounting consequences to the Company. In the event
the Participant is permitted to pay the purchase price of an Option in whole or
in part with Previously Acquired Shares, the value of such shares shall be equal
to their Fair Market Value on the date of exercise of the Option.
6.7 RIGHTS AS A SHAREHOLDER. The Participant shall have no rights as
a shareholder with respect to any shares of Common Stock covered by an Option
until the Participant shall have become the holder of record of such shares, and
no adjustments shall be made for dividends or other distributions or other
rights as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine pursuant to Section 3.3 of the Plan.
6.8 DISPOSITION OF COMMON STOCK ACQUIRED PURSUANT TO THE EXERCISE OF
INCENTIVE STOCK OPTIONS. Prior to making a disposition (as defined in Section
424(c) of the Code) of any shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option granted under the Plan before the
expiration of two years after its date of grant or before the expiration of one
year after its date of exercise and the date on which such shares of Common
Stock were transferred to the Participant pursuant to exercise of the Option,
the Participant shall send written notice to the Company of the proposed date of
such disposition, the number of shares to be disposed of, the amount of proceeds
to be received from such disposition and any other information relating to such
disposition that the Company may reasonably request The right of a Participant
to make any such disposition shall be conditioned on the receipt by the Company
of all amounts necessary to satisfy any federal, state or local withholding and
employment-related tax requirements attributable to such disposition. The
Committee shall have the right, in its sole discretion, to endorse the
certificates representing such shares with a legend restricting transfer and to
cause a stop transfer order to be entered with the Company's transfer agent
until such time as the Company receives the amounts necessary to satisfy such
withholding and employment-related tax requirements or until the later of the
expiration of two years from its date of grant or one year from its date of
exercise and the date on which such shares were transferred to the Participant
pursuant to the exercise of the Option.
6.9 AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which incentive stock options (within the meaning of Section 422 of the Code)
are exercisable for the first time by a Participant during any calendar year
(under the Plan and any other incentive stock option plans of the Company or any
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Subsidiary or any Parent Corporation of the Company) exceeds $100,000 (or such
other amount as may be prescribed by the Code from time to time), such excess
Options shall be treated as Non-Statutory Stock Options. The determination shall
be made by taking incentive stock options into account in the order in which
they were granted. If such excess only applies to a portion of an incentive
stock option, the Committee, in its discretion, shall designate which shares
shall be treated as shares to be acquired upon exercise of an incentive stock
option.
ARTICLE 7. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
7.1 GENERAL. Except as otherwise provided in this Article 7 or in
Article 8, all Options granted to a Participant shall immediately terminate
without notice of any kind and may no longer be exercised upon the termination
of the Participants' employment or other status with the Company or its
Subsidiaries.
7.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE DUE TO DEATH,
DISABILITY OR RETIREMENT. Except as otherwise provided in Article 8 of the Plan,
in the event a Participant's employment or other service with the Company and
all Subsidiaries is terminated by reason of such Participant's death. Disability
or Retirement, all outstanding Options then held by the Participant shall become
immediately exercisable in full and remain exercisable after such termination
for a period of three months in the case of Retirement and one year in the case
of death or Disability (but in no event after the expiration date of any such
Option).
7.3 TERMINATION OF EMPLOYMENT OR OTHER SERVICE FOR REASONS OTHER THAN
DEATH, DISABILITY OR RETIREMENT. Except as otherwise provided in Article 8 of
the Plan, if a Participant's employment or other status with the Company is
terminated due to any reason other than the Participant's death. Disability,
Retirement (other than termination by the Company or any Subsidiary for
"cause"), all outstanding Options then held by such Participant shall remain
exercisable to the extent exercisable as of such termination for a period of
three months after such termination (but in no event after the expiration date
of any such Option). If a Participant's employment or other status with the
Company is terminated for "cause," all outstanding Options then held by such
Participant shall immediately terminate. For purposes of this Section 7.3,
"cause" shall be as defined in any employment or other agreement or policy
applicable to the Participant or, if no such agreement or policy exists, shall
mean (a) dishonesty, fraud, misrepresentation, embezzlement or material or
deliberate injury or attempted injury, in each case related to the Company or
any Subsidiary, (b) any unlawful or criminal activity of a serious nature, (c)
any willful breach of duly, habitual neglect of duty or unreasonable job
performance, or (d) any material breach of a confidentiality or noncompetition
agreement entered into with the Company or any Subsidiary.
7.4 MODIFICATION OF EFFECT OF TERMINATION. Notwithstanding the
provisions of this Article 7, upon a Participant's termination of employment or
other status with the Company and all Subsidiaries with respect to which Options
were granted, the Committee may, in its sole discretion (which may be exercised
before or following such termination) cause Options, or any portions thereof,
then held by such Participant to become exercisable and remain exercisable
following such
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termination in the manner determined by the Committee; provided, however, that
no Option shall be exercisable after the expiration date thereof and any
Incentive Stock Option that remains unexercised more than three months following
employment termination by reason of Retirement or more than one year following
employment termination by reason of death or Disability shall thereafter be
deemed to be a Non-Statutory Stock Option.
7.5 DATE OF TERMINATION. Unless the Committee shall otherwise
determine in its sole discretion, a Participant's employment or other service
shall, for purposes of the Plan, be deemed to have terminated on the date such
Participant ceases to perform services for the Company and all Subsidiaries, as
determined in good faith by the Committee.
7.6 REPURCHASE OPTION. If a Participant's employment or other status
with the Company is terminated for "cause," the Company shall have the right,
upon written notice to the Participant, to repurchase all Previously Acquired
Shares from the Participant, and the Participant shall be obligated to sell such
Previously Acquired Shares to the Company, for a price equal to the aggregate
exercise price paid by such Participant for such Previously Acquired Shares.
ARTICLE 8. CHANGE OF CONTROL.
8.1 CHANGE IN CONTROL. For purposes of this Article 8, a "Change in
Control" of the Company shall mean (a) the sale, lease, exchange or other
transfer of all or substantially all of the assets of the Company (in one
transaction or in a series of related transactions) except where such sale,
lease, exchange or other transfer is to an entity controlled by the Company, (b)
the approval by the shareholders of the Company of any plan or proposal for the
liquidation or dissolution of the Company, or (c) a change in control of the
Company of a nature that would be required to be reported (assuming such event
has not been "previously reported") in response to Item 1(a) of the Current
Report on Form 8-K, as in effect on the effective date of the Plan, pursuant to
Section 13 or 15(d) of the Exchange Act, whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred at such
time as (x) any Person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 40% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors, or (y) individuals who constitute the board of directors of the
Company on the effective date of the Plan cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the effective date of the Plan whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors comprising or deemed pursuant hereto to comprise the
board of directors of the Company on the effective date of the Plan (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) shall be, for purposes of this clause
(y) and the following sentence, considered as though such person were a member
of the board of directors of the Company on the effective date of the Plan.
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8.2 ACCELERATION OF VESTING. If a Change of Control of the Company
shall be about to occur or shall occur, the Committee, in its sole discretion,
may determine that all outstanding Options shall, upon such change of control,
become immediately exercisable in full and shall remain exercisable during the
remaining term thereof, regardless of whether the employment or other status of
the Participants with respect to which Options have been granted shall continue
with the Company or any Subsidiary.
8.3 CASH PAYMENT. If a Change in Control of the Company shall be
about to occur or shall occur, then the Committee, in its sole discretion and
without the consent of any Participant effected thereby, may determine that some
or all Participants holding outstanding Options shall receive, with respect to
some or all of the shares of Common Stock subject to such Options, as of the
effective date of any such Change in Control of the Company, cash in an amount
equal to the excess of the per share price paid in connection with the Change in
Control of the Company over the exercise price per share of such Options,
multiplied by the number of shares subject to such options.
8.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding
anything in Section 8.2 or 8.3 above to the contrary, if, with respect to a
Participant, the acceleration of the exercisability of an Option as provided in
Section 8.2 or the payment of cash in exchange for all or part of an Option as
provided in Section 8.3 above (which acceleration or payment could be deemed a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code),
together with any other payments which such Participant has the right to receive
from the Company or any corporation which is a member of an "affiliated group"
(as defined in Section 1504(a) of the Code without regard to Section 1504(b) of
the Code) of which the Company is a member, would constitute an "excess
parachute payment" (as defined in Section 280G(b)(2) of the Code), then the
acceleration of exercisability and the payments to such Participant pursuant to
Sections 8.2 and 8.3 above shall, with the consent of the Participant, be
reduced to the largest amount as will result in no portion of such payments
being subject to the excise tax imposed by Section 4999 of the Code.
ARTICLE 9. RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future wages
of the Participant (or from other amounts which may be due and owing to the
Participant from the Company) or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any and all federal, state and
local withholding and employment-related tax requirements (i) attributable to
the grant or exercise of an Option or to a disqualifying disposition of stock
received upon exercise of an Incentive Stock Option, or (ii) otherwise incurred
with respect to an Option, or (b) require the Participant promptly to remit the
amount of such withholding to the Company before taking any action with respect
to the exercise of an Option or the issuance of any stock certificate either io
the Participant or any transferee.
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ARTICLE 10. RIGHTS OF PARTICIPANTS; TRANSFERABILITY.
10.1 EMPLOYMENT OR SERVICE. Nothing in the Plan shall interfere with
or limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any director, employee, contractor or Participant at
any time, nor confer upon any person or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
10.2 RESTRICTIONS ON TRANSFER, Other than pursuant to a qualified
domestic relations order (as defined by the Code), no right or interest of any
Participant in an Incentive Stock Option prior to the exercise of such Options
shall be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise, including execution, levy,
garnishment, attachment, pledge, divorce or bankruptcy. In the event of a
Participant's death, such Participant's rights and interest in Incentive Stock
Options shall be transferable by testamentary will or the laws of descent and
distribution, and payment of any amounts due under the Plan shall be made to,
and exercise of any Options (to the extent permitted pursuant to Article 7 of
the Plan) may be made by, the Participant's legal representatives, heirs or
legatees. If, in the opinion of the Committee, a participant holding an Option
is disabled from caring for his or her affairs because of mental condition,
physical condition or age, any payments due the Participant may be made to, and
any rights of the Participant under the Plan shall be exercised by, such
Participant's guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of such
status.
10.3 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to amend, modify or rescind any previously approved compensation plans
or programs entered into by the Company. The Plan will be construed to be in
addition to any and all such other plans or programs. Neither the adoption of
the Plan nor the submission of the Plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
ARTICLE 10. SECURITIES LAW RESTRICTIONS.
11.1 SHARE ISSUANCES. Notwithstanding any other provision of the Plan
or any agreements entered into pursuant hereto, the Company shall not be
required to issue or deliver any certificate for shares of Common Stock under
this Plan, and an Option shall not be considered to be exercised notwithstanding
the tender by the Participant of any consideration therefor, unless and until
each of the following conditions has been fulfilled:
(a) (i) There shall be in effect with respect to such
shares a registration statement under the Securities Act and any
applicable state securities laws if the Committee, in its sole
discretion, shall have determined to file, cause to become effective
and maintain
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the effectiveness of such registration statement; or (ii) if the
Committee has determined not to so register the shares of Common
Stock to be issued under the Plan, (A) exemptions from registration
under the Securities Act and applicable state securities laws shall
be available for such issuance (as determined by counsel to the
Company) and (B) there shall have been received from the Participant
(or, in the event of death or disability, the Participants heir(s) or
legal representative(s)) any representations or agreements requested
by the Company in order to permit such issuance to be made pursuant
to such exemptions; and
(b) There shall have been obtained any other consent,
approval or permit from any state or federal governmental agency
which the Committee shall, in its sole discretion upon the advice of
counsel, deem necessary or advisable.
11.2 SHARE TRANSFERS. Shares of Common Stock issued pursuant to
Options granted under the Plan may not be sold, assigned, transferred, pledged,
encumbered or otherwise disposed of, whether voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise, except pursuant to
registration under the Securities Act and applicable state securities laws or
pursuant to exemptions from such registrations. The Company may condition the
sale, assignment, transfer, pledge, encumbrance or other disposition of such
shares not issued pursuant to an effective and current registration statement
under the Securities Act and all applicable state securities laws on the receipt
from the party to whom the shares of Common Stock are to be so transferred of
any representations or agreements requested by the Company in order to permit
such transfer to be made pursuant to exemptions from registration under the
Securities Act and applicable state securities laws and an opinion of counsel,
reasonably acceptable to the Company, that such transfer may be made pursuant to
such exemptions. The holder of such shares shall bear the cost of any such
opinion of counsel.
11.3 LEGENDS.
(a) Unless a registration statement under the Securities
Act and applicable state securities laws is in effect with respect to
the issuance or transfer of shares of Common Stock under the Plan,
each certificate representing any such shares shall be endorsed with
a legend in substantially the following form, unless counsel for the
Company is of the opinion as to any such certificate that such legend
is unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR UNDER APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION
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STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT AND SUCH STATE LAWS, THE AVAILABILITY OF
WHICH IS TO BE ESTABLISHED TO THE SATISFACTION
OF THE COMPANY.
(b) The Committee, in its sole discretion, may endorse
certificates representing shares issued pursuant to the exercise of
Incentive Stock Options with a legend in substantially the following
form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, TRANSFERRED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF ON OR
BEFORE [THE LATER OF THE ONE-YEAR OR TWO-YEAR
INCENTIVE STOCK OPTION HOLDING PERIODS], WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMPANY.
(c) Each certificate representing shares issued pursuant
to the exercise of Options shall bear a legend in substantially the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A REPURCHASE OPTION WHICH MAY BE
EXERCISED BY THE COMPANY UNDER THE CIRCUMSTANCES
SET FORTH IN THE COMPANY'S 1996 STOCK OPTION
PLAN. A COPY OF SUCH PLAN IS ON FILE AT THE
EXECUTIVE OFFICES OF THE COMPANY AND IS
AVAILABLE UPON REQUEST.
ARTICLE 12. PLAN AMENDMENT; MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Options under the Plan shall conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no such
amendment shall be effective, without approval of the shareholders of the
Company, if shareholder approval of the amendment is then required pursuant to
Rule 16b-3 under the Exchange Act or any successor rule or Section 422 of the
Code or under the applicable rules or regulations of any securities exchange or
the NASD. No termination, suspension or amendment of the Plan shall alter or
impair any outstanding Option without the consent of the Participant affected
thereby; provided, however, that this sentence shall not impair the right of the
Committee to take whatever action it deems appropriate under Section 3.3 or
Article 8 of the Plan.
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ARTICLE 13. EFFECTIVE DATE OF THE PLAN.
13.1 EFFECTIVE DATE. The Plan is effective as of ___________, 1996,
the effective date of its adoption by the Board, subject to the approval of the
Plan, prior to ___________, 1997, by shareholders holding a majority of shares
entitled to vote.
13.2 DURATION OF THE PLAN. The Plan shall terminate at midnight on
____________, 2006, and may be terminated prior thereto by Board action, and no
Option shall be granted after such termination. Options outstanding upon
termination of the Plan may continue to be exercised in accordance with their
terms.
ARTICLE 14. MISCELLANEOUS.
14.1 CONSTRUCTION AND HEADINGS. The use of the masculine gender shall
also include within its meaning the feminine, and the singular may include the
plural and the plural may include the singular, unless the context clearly
indicates to the contrary. The headings of the Articles, Sections and subparts
of the Plan are for convenience of reading only and are not meant to be of
substantive significance and shall not add or detract from the meaning of such
Article, Section or subpart.
14.2 GOVERNING LAW. The place of administration of the Plan shall be
conclusively deemed to be within the State of Minnesota, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Options shall be governed by
and construed exclusively and solely in accordance with the laws of the State of
Minnesota without regard to the conflict of laws provisions of any
jurisdictions. All parties agree to submit to the jurisdiction of the state and
federal courts of Minnesota with respect to matters relating to the Plan and
agree not to raise or assert the defense that such forum is not convenient for
such party.
14.3 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Company,
including, without limitation, whether by way of merger, consolidation,
operation of law, assignment, purchase or other acquisition of substantially all
of the assets or business of the Company, and any and all such successors and
assigns shall absolutely and unconditionally assume all of the Company's
obligations under the Plan.
14.4 SURVIVAL OF PROVISIONS. The rights, remedies, agreements,
obligations and covenants contained in or made pursuant to the Plan, any
agreement evidencing an Option and any other notices or agreements in connection
therewith, including, without limitation, any notice of exercise of an Option,
shall survive the execution and delivery of such notices and agreements and the
delivery and receipt of shares of Common Stock and shall remain in full force
and effect.
14
<PAGE>
Exhibit A
FORM FOR EXERCISE OF OPTION
The undersigned, the recipient of a giant of a stock option to
purchase _____ Common Shares, par value $.01 per share (the "Shares"), of
Command Electronics, Inc. (the "Company"), subject to adjustment, dated
___________, hereby exercises his or her right to acquire ______ Shares.
CHECK APPROPRIATE BOX AND COMPLETE PARAGRAPH:
[ ] The undersigned herewith tenders and delivers a certified check for
$_________ in payment of the aggregate option price of the Shares being acquired
hereby.
[ ] If consented to by the Company's Compensation Committee, the undersigned
herewith tenders _____ Previously Acquired Shares (as defined in the Company's
1996 Stock Option Plan) which, as of the date hereof, have a Fair Market Value
(as defined therein) of $_________.
The undersigned agrees that, until such time as a registration
statement under the Securities Act of 1933 becomes effective with respect to the
Shares, it is taking the Shares underlying this option for investment and not
for resale or distribution.
The undersigned consents to the placing of an appropriate legend on
the certificate or certificates representing the Shares.
Dated
----------------------- ---------------------------------
15
<PAGE>
APPENDIX B
RESOLVED, that Section 3.1 of the Company's 1996 Stock Option Plan
shall be amended to read as follows:
3.1 NUMBER OF SHARES. Subject to adjustment as provided in Section
3.3 below, the maximum number of shares of Common Stock that shall be authorized
and reserved for issuance under the Plan shall be 1,000,000 shares of Common
Stock. The maximum number of shares authorized may also be increased from time
to time by approval of the Board and, if required pursuant to Rule 16b-3 under
the Exchange Act, Section 422 of the Code, or the applicable rules of any
securities exchange or NASDAQ, the shareholders of the Company.
16
EXHIBIT 10.1
Consent of Ernst & Young LLP
We consent to the use of our report dated April 9, 1999 in the Registration
Statement (Form 10-SB) of CyberStar Computer Corporation for the registration of
its Common Stock.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
September 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE 3 MONTHS ENDED MAY 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 22,715
<SECURITIES> 0
<RECEIVABLES> 500,989
<ALLOWANCES> 16,700
<INVENTORY> 367,122
<CURRENT-ASSETS> 1,161,393
<PP&E> 300,103
<DEPRECIATION> 153,109
<TOTAL-ASSETS> 1,308,387
<CURRENT-LIABILITIES> 644,569
<BONDS> 0
0
0
<COMMON> 39,281
<OTHER-SE> 1,901,029
<TOTAL-LIABILITY-AND-EQUITY> 1,308,387
<SALES> 1,151,470
<TOTAL-REVENUES> 1,151,470
<CGS> 955,564
<TOTAL-COSTS> 955,564
<OTHER-EXPENSES> 264,846
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,192
<INCOME-PRETAX> (70,473)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70,473)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,473)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 73,191
<SECURITIES> 0
<RECEIVABLES> 710,190
<ALLOWANCES> 16,700
<INVENTORY> 463,303
<CURRENT-ASSETS> 1,517,044
<PP&E> 308,531
<DEPRECIATION> 133,988
<TOTAL-ASSETS> 1,691,587
<CURRENT-LIABILITIES> 957,296
<BONDS> 0
0
0
<COMMON> 39,281
<OTHER-SE> 1,901,029
<TOTAL-LIABILITY-AND-EQUITY> 1,691,587
<SALES> 4,854,299
<TOTAL-REVENUES> 4,854,299
<CGS> 4,215,840
<TOTAL-COSTS> 4,215,840
<OTHER-EXPENSES> 1,567,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,759
<INCOME-PRETAX> (920,057)
<INCOME-TAX> 0
<INCOME-CONTINUING> (920,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (920,057)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
